Mises Wire

The Fair Tax Is the Tax That Will Not Die

Rep. John Linder (R-GA) has retired from Congress and radio talk show host Neal Boortz has been silent for years, but their tax plan just will not die.

Writing in the New York Sun, billionaire businessman and Republican Party donor John W. Childs makes the case for replacing the current income tax system with a national sales tax. He writes:

There is a better way—replace the entire income tax monstrosity with a national consumption tax, i.e. a national sales tax. Let Walmart and Amazon be the tax collectors. Odds are they will be vastly more efficient than the IRS, which at this point can’t even return the phone calls of bewildered taxpayers. All retailers already perform sales tax collection services for state governments. So it is hardly a leap of faith to ask them to do it for the Feds.

For years Representative Linder introduced FairTax legislation in Congress to institute a national sales tax on the final sale of all goods and services that would replace the personal and corporate income tax, estate tax, gift tax, unemployment tax, Social Security tax, and Medicare tax.

On his radio program and in a series of books (which I have reviewed here, here, and here), Boortz touted the benefits of the FairTax. Although it would tax home sales and heart surgeries at a rate of about 30 percent, and institute a new welfare program to reimburse each household for the national sales tax paid on basic necessities, the FairTax would, supposedly, be better than the current system, cause the prices of goods and services to fall, and allow Americans to keep 100 percent of their paychecks.

There are two major problems with a national sales tax; that is, a consumption tax.

The first is that a consumption tax is not necessarily better than an income tax. After describing the income tax as resting on the “ability to pay” principle that is the creed of the highwayman, Murray Rothbard stated about a consumption tax:

The consumption tax, on the other hand, can only be regarded as a payment for permission-to-live. It implies that a man will not be allowed to advance or even sustain his own life unless he pays, off the top, a fee to the State for permission to do so. The consumption tax does not strike me, in its philosophical implications, as one whit more noble, or less presumptuous, than the income tax.

And even if the total revenue extracted from the taxpayer were the same under the two different taxes, the taxpayer “may have very different subjective evaluations of the two taxing processes.” I suspect that many advocates of a national sales tax would start lobbying for specific exemptions when faced with paying an additional 30 percent federal tax on a new car purchase. Declaring that a consumption tax is “better” or “fairer” than the current system is a highly subjective assertion.

The second problem is that all consumption tax plans, just like all tax reform plans, are revenue neutral; that is, any revenue loss from tax cuts is offset by gains from tax increases, broadening the tax base, closing loopholes, eliminating deductions, reducing credits, or from projections of additional revenue that will flow into the federal treasury from economic growth as a result of the tax cuts. The fatal flaw of all revenue-neutral tax plans is that they give to the federal government the same obscene amount of money to spend. They are all based on the notion that the government is entitled to a certain amount or percentage of one’s earnings to spend on immoral wealth-redistribution schemes and income-transfer programs, overseas military adventures, unconstitutional government agencies, and assorted boondoggles. Indeed, as explained by Future of Freedom Foundation president Jacob Hornberger: “The left-right debate in America over income-tax policy assumes the continued existence of the welfare-warfare state way of life, along with the continued existence of the income tax that funds this way of life.”

The nature of taxation shows that there cannot be a just tax or a fair tax. As Frank Chodorov and Murray Rothbard have well said:

There cannot be a good tax nor a just one; every tax rests its case on compulsion.

There can be no such thing as “fairness in taxation.” Taxation is nothing but organized theft, and the concept of a “fair tax” is therefore every bit as absurd as that of “fair theft.”

Americans don’t need a consumption tax to supplement or replace the income tax. They don’t need Walmart and Amazon to collect a federal sales tax on top of the state sales taxes that they already collect. Taxation is still theft, no matter how it is collected.

Since the federal government is unlikely to ever eliminate the income tax, proponents of a free society should work toward not only lowering tax rates, but expanding tax deductions, tax credits, tax breaks, tax exemptions, tax exclusions, tax incentives, tax loopholes, tax preferences, tax avoidance schemes, and tax shelters and making as many Americans as possible eligible for them. Letting Americans keep more of their money is not giving them subsidies that have to be “paid for.”

The question of which is the “better” or “fairer” tax—an income or a consumption tax—is irrelevant. As “the taxpayers’ best friend,” former congressman Ron Paul, reminds us regarding the mirage of tax reform: “The real issue is total spending by government, not tax reform.”

Image Source: Getty
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
What is the Mises Institute?

The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. 

Non-political, non-partisan, and non-PC, we advocate a radical shift in the intellectual climate, away from statism and toward a private property order. We believe that our foundational ideas are of permanent value, and oppose all efforts at compromise, sellout, and amalgamation of these ideas with fashionable political, cultural, and social doctrines inimical to their spirit.

Become a Member
Mises Institute