Skip to comments.YouTube - Flat Tax vs National Sales Tax
Posted on 04/17/2008 2:51:51 PM PDT by phil_will1
Dan Mitchell requests that interested parties send in e-mail responses to his proposal to 1. pass the flat tax 2. repeal the 16th 3. pass the FairTax
Here is my e-mail response.
I have several comments about Mr. Mitchell’s YouTube segment.
1. His opening comment that “the flat tax” is economically identical to the FairTax is incorrect. There are a number of economic challenges which the FairTax addresses that “the flat tax” does not. Off the top of my head, that list would include the looming insolvency of Social Security and Medicare, as well as the massive trade deficit, since no income tax (flat or otherwise) can be border adjusted.
2. I am very uncertain what “the flat tax” is. A flat tax is a form of taxation, just as a sales tax is. The only flat tax proposal in the house now (unless this has recently changed) is a flat tax option. It isn’t revenue neutral, so it would be almost impossible to get congress to move on it. There are other problems with that proposal, but I won’t go into them, since it isn’t clear that that is the version of a flat tax that you are advocating.
3. Adopting a policy of not moving on the FairTax until the 16th is repealed would be the death knell for the FairTax. No responsible legislator would vote to repeal the 16th until a consensus is reached on what would replace it. We could never get a simple majority in congress to go along with that approach, much less the 2/3 that is required to repeal. A much better approach is one advocated by Congressman Linder, which is to put sunset language into the FairTax bill. This would put enormous political pressure on congress to repeal the 16th because few Americans would want to go back to the old system once the FairTax was in place.
Sorry, I thought the link would show up.
Tax Reform ping
Fair Tax ping!
One other point is The Fair Tax is a flat tax but on consumption instead of income.
Great video. If there’s a chance to get either one passed let’s move forward, preferrably with a consumption tax.
You raise another point of departure that I have with the flat taxers. They claim that that the flat tax is more politically viable, since it is closer to what we already have. If that is the case, why do they not have a single bill with even 10 co-sponsors? And if that is the case, why is their only bill in the house a flat tax option? Also, how in the world do they expect the rest of the country to fall in behind them when the flat taxers themselves cannot even decide which proposal they support?
As Dick Armey said, the climb to get fundamental tax reform enacted is too steep and arduous that it does not make sense to go to that effort and get “the wrong answer”. I agree 100% with that sentiment; I just don’t agree with what would constitute “the right answer”.
The “inside the beltway” types don’t realize it yet, but the flat tax is dead as dead can be. That is the case whether the FairTax continues to grow or not.
You’re right. The Fair Tax has legs, the flat tax doesn’t.
I favor a Sales Tax. A flat tax solves some problems, but it doesnt solve all the problems associated with the tax including the huge compliance costs. (Although, the lack of deductions may save a little money.) As an Independent Contractor who freelances for various companies. This past tax year I have a W2 from my main job, and 8 different 1099s. Of these, the Flat Tax would get rid of 2 of these (one for a savings account that earned more than $10 in interest and another for some stock dividends.) My biggest challenge is calculating my income, not futzing with deductions or figuring out tax rates. In addition, the Fair Tax has several added benefits over a Flat Income Tax:
Taxing the underground economy.
Increased personal privacy and less reporting requirements for individuals.
Control over the incidents of taxation.
I could write many more arguments for the sales tax, but Ill keep it pithy. As to your proposal of enacting a Flat Tax and refusing to enact a Fair Tax until a Constitutional Amendment passed 2/3 of Congress and is ratified by 38 states. While I think the flat tax would be an improvement on the current tax code, I believe the premise of the proposal you present is founded on a faulty premise.
The big fear you cite with the implementation of a Sales Tax without the repeal of the 16th Amendment is that politicians could doublecross us and we could end up with both an income tax and a sales tax and so therefore implementing the Flat Tax is a safeguard against a doublecross from shifty politicians who would implement both taxes. This to me raises a series of questions:
The first is, What stops politicians from implementing both taxes right now? There is no constitutional prohibition against a sales tax. The fact that we continue to have an income tax in no way stops Congress from imposing both taxes.
Secondly, if we cannot trust politicians not to try and bring upon us a twin curse of both an income and sales tax, how can we trust them to keep a Flat Tax flat? As the top income tax bracket did not begin at 91% (the point it reached prior to JFKs tax cuts) and become a minefield of special interests loopholes overnight, its easy to see how the Flat Tax could be unflattened. Somebody says, We really need a deduction for this or that very important thing (be it college tuition, health insurance, etc.) and we ought to make it so the middle class doesnt pay so much and the wealthy pays a little more. Within short order, you can unflatten the tax code gradually and you end up back where we are now. How can we keep the Flat Tax flat? Will special interests just give up as long as theres money to be had, and favor to be curried. I think not. If were looking for a tax code that allows us to avert our gaze and trust our politicians, no such system exists. Without citizen involvement, either the Fair Tax or the Flat Tax will be corrupted.
Under a National Retail Sales Tax, it really becomes hard for Congress to bring back the Income Tax. H.R. 25, the Fair Tax Bill, repeals the old Internal Revenue Code and its onerous series of taxes and withholding. The most likely attempt to revive the income tax will come, not from the Congress that would enact the Fair Tax but a subsequent one, 2-4 years down the line. Unlike with the Flat Tax, with the Fair Tax, weve taken the system of income and payroll taxes and taken a sledgehammer to it. Unlike, gradually adding in loopholes and making the Flat Tax more progressive, those whod like to bring the income tax would have to reconstitute the whole system, re-recruit tax collectors whod moved to other jobs. Imagine being that hearty politician who steps to the floor of the House and proposes reconstituting the IRS and all that went with it. It would be political suicide, and no one in their right political mind would even go there.
If were not vigilant, however, no tax system will protect us: Fair Tax or Flat Tax.
Do you have an email address? I went to the Cato Inst. website and couldn't find it.
We have no national sales tax now because it would apply to everyone and the uproar would be loud if they tried it.
My concern about getting the income tax back is that it would likely come back in small steps. For example, the first step might be a small tax that applied to only the 1% with income above $350,000. There would be some complaints, but since it doesn't involve many people, there would be little uproar. Most people wouldn't care and others would be happy to punish those evil rich leaches. Congress would pick up some easy revenue and get reelected anyway, the rich would be punished, and it would grow from there. If we look at the income tax history since 1913, we can see one scenario.
I agree with those that say we can't abolish the return of an income tax in the FairTax bill because a law can't change the Constitution. However, I believe that the FairTax should be somehow coupled with repeal of the income tax amendment.
“Do you have an email address? I went to the Cato Inst. website and couldn’t find it.”
It’s on the video linked above.
Thanks. I didn’t see it.
Everyone pays 10-20 bucks a year. The government is forced to make due with that.
Sweet. You are very wise.