Thursday, February 25, 2010

Is the Name of the Michigan "FairTax" a Sham?

In response to Facebook postings:

  1. David A. Dudenhoefer February 23 at 11:33pm Reply This is timely as some hacks in our state are pushing this "fair-thief" tax” and

  2. Tony DeMott’s Facebook posting: “The Fair Tax simply changes who is the tax collector. It turns small businesses into tax collectors. The Consumer will still end up paying all the taxes. The tax burden will not be lowered at all. Michigan citizens care about lowering the tax burden, not who the tax collector is. The Fair Tax is a sham and if you believe our government is too big, too intrusive, and too oppressive, you should oppose this sham”

I respectfully disagree. But first, let me make clear that I totally agree that there are a lot of costs that can and should be cut out of government spending, both at the state and federal levels. Any serious look at my Facebook and blog postings would confirm that. Second, I am opposed to many of the government interventions into our economy and personal lives which go well beyond the limited government our Founding Fathers envisioned. So, I am onboard with the concept endorsed in Michigan by the Business Coalition that we must get the spending reforms first, then we can tackle the tax structure.

I also agree that the name “FairTax” is a misnomer, as any tax system is a transfer of wealth from somebody to government for transfer to someone else, and so will never be “fair”, whatever that means. But, it is a piece of the marketing of the FairTax idea, and I can understand that. A proposal needs to be evaluated on its content, and not by its name.

Having said that, now it is important to realize that taxation in one form or another is a reality, and one that is not likely to change. So, if we are to be taxed, the questions are, “What taxing mechanism is best? On what criteria should we judge a tax system?” In other words, one can distinguish between (1) the tax level, i.e., the total amount of taxes collected and (2) the taxing mechanism or structure.

It does matter what tax system is in effect, as different tax systems have different secondary or indirect effects. For example, economists will tell you that a business is a tax collector, and not a “taxpayer”, as the indirect impacts are: higher prices, lower wages to its workers, lower dividends to its owners, or fewer jobs, or some combination of these impacts. The consumer ultimately pays. Different tax schemes have different impacts, some which distort the free market economy more than others. An income tax, for example, discourages earning, savings and investing. With different direct and indirect impacts, it therefore does matter what tax system we use – given that we will have some tax system.

A consumption tax is one that distorts the free market the least, although even a consumption tax discourages consumption, and therefore lowers prices, and therefore less is produced in a free market society, in effect, lowering the standard of living in the society. Is it perfect? No. No tax system is. I just see it as better than the current tax system, whether it be called a “consumption tax”, “FairTax”, or whatever.

It also matters how easily a tax can be increased, as the easier it is to raise a tax, the more likely the politicians will raise it. The visibility of a tax is one deterrent to a tax being raised. Contrary to the claim that the FairTax would be hidden, it would be incredibly visible, paid on each purchase, and far more visible than an alternative I fear will be proposed to raise more revenue at the federal level – the Value Added Tax, which is collected at each level of production and hidden in the final price of a product.

I further disagree with the use of David’s term of calling those who support the FairTax as “hacks”. I understand the tactics espoused by Saul Alinsky in his book “Rules for Radicals” that calling people names is a good tactic for radicals. I believe it is offensive, however, when used against friends who happen to disagree with you on some point. Fact is, none of us will ever agree 100% with anyone else. Maybe I am too willing to leave the name calling to the radicals who we jointly oppose, but us freedom lovers should look to find common ground amongst us, rather than look to tear us apart. No one group in the “liberty” movement has a monopoly on patriotism.

Respectfully, your friend,


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