WHY THE FAIR TAX IS FOUL

There’s a hard-core Republican group that’s crazy AF.

They propose and pursue policies that are straight up kooky and dangerous. Policies that, if they were implemented, would not only undermine some of the broader goals that they purport to cherish (think: getting rid of the federal deficit) but, equally important, would pummel millions of people with unncessary economic pain (Something they don’t seem to worry so much about as long as it’s the poor—not the rich— that’s getting punched).

The Fair Tax Act, sponsored by Representative Buddy Carter, a Freedom Caucus member and Georgia Republican, is a recent example of the type of perilous policies being pushed that hard right wing of the Republican party. That Act, among other things, proposes to completely wipe out virtually all federal taxes, replace them with a 30% national sales tax, and abolish the Internal Revenue Service.

Here’s how the Act’s architects describe its purpose:

"To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the states.”

Taxes on business profits, estate taxes, gift taxes, payroll taxes that fund such things as Social Security,

Medicare, and unemployment insurance, and personal income taxes— all of this would be kaput.

All of that plus the death of the Internal Revenue Service?

All of that plus a system where everybody pays the exact same percentage in a national sales tax?

That’s some sweet shit, huh?

Well, actually it’s as rancid of a brew you can get.

It has about a snowball’s chance in hell of passing, and that’s because even if it passed in the House, it would die in the Senate—and President Biden, in addition, is already on record as saying that he’d veto it if it ever made it to his desk.

Still, it’s worth spending some time reviewing, if only because it allows one to further peek into the abyss and catch a glimpse of the absolute horror that awaits poor, working, and middle class folk should folk like Carter—and the forces that he represents— should ever triumph in the body politic.

It’s worth spending some time reviewing because, upon close inspection, it reveals that what these folk are calling fair is actually foul AF.

THE NATIONAL SALES TAX REPLACEMENT

All those banished federal taxes would be replaced by a national sales tax that’d be administered by the 50 states and the District of Columbia.

Everybody—and this is big part of the claim of “fairness”— would pay a 30% sales tax on any goods or services that bought. So, if something cost you $100, then you’d pay a national sales tax of $30.

But here’s something that’s a bit strange and even misleading: The Act’s proponents often incessantly bump their gums about how, in reality, you’d “only” end up paying a tax of 23%, not 30%. They get that 23% by using what they call a tax inclusive price. That’s the price that incorporates the tax: If the tax is 30% and the amount of money you coughed up is $100, the tax inclusive price is the $100 the stuff cost you plus the tax you had to pay or, what amounts to the same thing, $130. They then—wait for it—take the $30 tax and divide it by the tax inclusive price (30/130), which yields a tax rate or percentage of 23%, not the 30% that ordinary people like you and me would get ($30/$100).

For most folks, the Act’s proponents engage in a kind of math that don’t be mathing in the real world. And while I can’t prove it, I suspect that they keep jacking their jaws about 23% because it makes the whole thing seem less painful and more palatable than it actually is.

But let’s keep it a buck and call it exactly what it looks like—30%, not 20%. Besides, it’s typical to calculate sales tax on a tax-exclusive, not a tax-inclusive, basis.

You know that old saw: If it walks like a duck…

But what’s really important here is that the claim of fairness is rooted in the fact that everybody pays the exact same tax of 30%. When you roll up to that cash register, when you jump on the internet and whip out your credit card to buy something, it makes no difference who you are or what you do.

You’ve got to run the seller $30 for every C-note in goods and services. That seems like the quintessential act of fairness.

The problem, though, is that sale taxes are regressive as all get out. In other words, that 30% sales tax gobbles up a larger percentage of income from low-income earners than from high-income earners. Like all regressive taxes, the burden of the sales tax decreases as you move up the income scale.

In a video analysis of the Fair Tax Act, political economist Matt Breunig divides the population into quintiles or fifths and demonstrates that if the Act were implemented, the poorest fifth of American households would could end up paying as much as 70% of their income in sales tax, the second poorest 20% would could end up paying 38%—and the richest 20% of households would only pay 17% of their income in sales taxes.

This is the kind of crazy stuff that’s being proposed in the Fair Tax Act proposal and, as a couple of researchers at the Center for American Progress (CAP) make abundantly clear, the Act itself may be a lot of things but fair ain’t one of them:

“By shifting the foundation of the federal tax system from income to consumption, the Fair Tax Act would cut taxes for the wealthy while increasing taxes paid by low-and-middle income retirees who live off of Social Security and savings, as well as families who would be forced to pay more taxes on everyday goods and services. Meanwhile, high-income families who spend less of their income on consumption and who have sufficient earnings to save a substantial fraction of their income would pay a smaller share of their income in tax.”

THE FAIR TAX WILL RESULT IN LOST REVENUE AND A FURTHER WITHERING OF PUBLIC SERVICES

Proposals to jettison federal taxes and replace them with a national sales or retail tax have been floated around since at least the 1990s: A version was first introduced , for instance, into the Congress in 1999 by then Georgia Congress person John Linder. And, as a recent report by Brookings point out, a national retail tax bill has been re-introduced into every subsequent Congress.

There’re well documented studies that illustrate that replacing federal taxation with a national sales tax of, say 30%, would result in a large loss of revenue. Gale and Pomerleau, for instance, estimate that this rate—the rate proposed in the current version of the Fair Tax— would add a whopping $10 trillion in federal deficits over the next decade. According to these researchers, you’d need to hit folk with a 39% sales tax in order for the Fair Tax Act to be just replace the lost revenue resulting from the elimination of payroll, income, estate, gift, and capital taxes. And this, by the way, assumes zero levels of tax avoidance (which is legal) and tax evasion (which is not).

Nobody, of course, believes that they’ll be zero levels of avoidance and evasion. So, when Gale and Pomerleau relaxed that assumption, there’s a leap in the size of the tax rate that’d be needed to replace the revenue lost as a result of abolishing federal taxation. They estimate—to cite one example— that if the rate of evasion and avoidance was 17%, then you’d need a national sales tax of 52%—not 30%— just to replace the amount of revenue lost as a result of the tossing out all federal taxes. At an evasion rate of 17%, a national sales tax of 30% would now add an astoundingly high $18 trillion in federal deficits over the next decade.

The depths of lost revenue predicted by researchers like Gale and Pomerleau drives home the point that Fair Tax Act would lubricate the wheels for massive cuts in the very public services that the economically squeezed rely upon to get by.

More generally, what you’d end up with is an increased concentration of wealth in the hands of the rich, a strengthening of an economic aristocracy, a crumbling of vital public services, a subsidization of tax breaks for wealthy by the people least able to afford it, and a slashing of Social Security benefits and Medicare.

All these so-called Fair Tax proposals, all these efforts to shift the tax base from income to consumption—all of it is more foul than fair.

Catch you on the flip side,

Doc Greene