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FairTax Quandry

A Discussion about the FairTax

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I've received thousands of terrific e-mails from readers in response to my series of articles on the FairTax, such as FairTax - Income Taxes vs. Sales Taxes and Five Questions for FairTax Supporters.

I really enjoy reading the arguments for the FairTax, but I must admit, I generally find them highly contradictory. Here's an example of what I mean.

Typically in these e-mails I'm given the following two arguments (among others):

1. Prices Won't Increase With the FairTax Due to Imbedded Taxes

Here's an example: "The idea that the Fair Tax would raise the price of goods is not completely true. Is it not correct that on comumption items that the Fair Tax will cover, there is already an esitmated 22% embedded tax (some more and some less)? This embedded tax goes away on account that the only time the tax is used is at the retail level. The cost of goods and services essentially goes up one percent."

I don't buy this line of reasoning, but let's suppose it's true - that because of the removal of all these taxes, pre-tax prices of goods will fall to such a level that applying the FairTax to them will cause the post-tax price to remain at the same level as before the FairTax was introduced.

2. Tax Revenue Will Go Up Because Illegals Now Will Have to Pay Tax

Here's an example of the kind of argument I recieve: "But a rebuttle to that loss of tax income for the government can be made up with incoming tourists, illegal aliens, and others not currently paying taxes in the United States."

But if we believe the previous argument then incoming tourists, illegal aliens, et. al. do already pay taxes in the United States. They pay the 22% embedded taxes that everyone else pays. Because of that, the FairTax cannot generate any more income from these people, since by argument 1, the government is collecting at most an additional 1% per sale.

The arguments supporting the FairTax do not hold water. FairTax supporters would like you to believe that you will not pay any more for your goods and services, yet you will also gain a great deal of money, since you will no longer be paying income tax. If that weren't enough, low income earners also get cheques from the government AND it won't cost the government a cent of tax revenue. If something is too good to be true, then it probably is.

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