05 Sep 07 Is the Fair Tax Fair?

My initial response to reading about (HR 25, S 1025) labeled the “Fair Tax Act” was one of excitement.  The Fair Tax key points include:

• Abolishes the IRS
• Closes all loopholes and brings fairness to taxation
• Ensures Social Security and Medicare funding
• Brings transparency and accountability to tax policy
• Allows American products to compete fairly
• Reimburses the tax on purchases of basic necessities
• Enables retirees to keep their entire pension
• Enables workers to keep their entire paycheck

Many of these things seem very appealing, especially the elimination of the huge overgrown bureaucracy, the IRS.  But there are still some inherent flaws in the Fair Tax Act.  First I will say that these flaws are found in our current tax system, but Conservative Ed’s policy is to address every issue from a conservative perspective, and give unbiased opinions about the issues.

Key Problems with the Fair Tax:

• Reimburses the tax on purchases of basic necessities, This is not a true reimbursement because it is based on income level rather than actual spending.  It would be possible for someone with a large family to live on the rebate with a part time job.  Also it discourages hard work and effort for those that are on the edge of loosing the rebate.
• May cause inflation.  Some economist believe that the tax would lead to inflation.  This is not proven, but I have heard this argument many times.
• It discourages spending. Companies spend millions of dollars trying to determine the maximum price consumers willing to spend on their products,  tacking an extra 23% will likely reduce sales and could have an economic impact.

Despite the challenges and problems in this program it is much better than our current system.  and the key concepts of this bill are still very sound.  Our current tax system is a mess and major reform is needed.  Of the options that are being put on the table this bill is the most aggressive and is the best option.  Through the legislative process we can address some of the issues that effect the bill.