Yesterdays SF Examiner had a column by Walter E.Williams which supported the Fair Tax - the proposed one tax pays all federal expenses - eliminating federal income and payroll taxes with a flat 23% tax on all goods and services sold. I pointed out a few problems with this and the SF Examiner agreed and published. My last sentence on the LTE says it all.
Letters: December 14, 2006
Repeal all taxes
Walter Williams’ erroneous support for the Fair Tax [“Is fair taxation possible?” Dec. 13] is sad. The proposed 23 percent sales tax on the cost of goods and services sold to replace all other national taxes is a pipe dream.
A 23 percent sales tax is regressive, hurting the lowest paid the most. The Fair Tax, if it was designed to not hurt the poor, would have a $250 floor on it. Further, there’s no doubt a thriving underground black market would evolve in a flash.
A major problem complicating a Fair Tax is that states and cities have sales taxes and those will not be repealed — those taxes are on top of the federal sales tax. Hotel and gas taxes will continue — put those on top of all the other sales taxes.
Taxes in any form are thievery of income earned by workers. Just repeal all taxes.
Is fair taxation possible?
Last year, talk-show host Neal Boortz and Congressman John Linder co-authored “The FairTax Book: Saying Goodbye to the Income Tax and the IRS.” It turned out to be a No. 1 New York Times Best Seller. In 2005, the Fair Tax bill was introduced in both the U.S. House of Representatives as H.R. 25 and the U.S. Senate as S.25. Rep. Linder plans to re-introduce the bill next year.
If enacted, the Fair Tax would eliminate: the federal individual income tax, alternative minimum tax, corporate and business taxes, capital gains tax, Social Security and Medicare taxes and estate and gift taxes. These taxes would be replaced by a 23 percent sales tax on all goods and services sold at the retail level. The Fair Tax would be revenue-neutral in the sense that it would replace the revenue from current federal taxes; thus, it would change the way government is funded.
Our current tax code is an abomination, and we desperately need that change. The time Americans spend simply complying with our tax code comes to 5.8 billion hours of record-keeping, filing taxes, consulting, legal and accounting services. Breaking those hours down to a 40-hour work week, it translates into a workforce of 2.77 million people. That’s more than the workforce of our auto, aircraft, computer and steel manufacturing industries combined.
The Fair Tax has much to recommend in its favor, such as being a more efficient form of taxation. It would go a long way toward protecting our privacy and preventing Congress from using the tax code to micromanage our lives. The Fair Tax is an excellent idea, but only under three conditions: first, the repeal of the Sixteenth Amendment that created the income tax; second, a provision fixing the tax at, say, 23 percent; and third, a constitutional amendment mandating that a tax increase requires a three-fourths vote of Congress. Notwithstanding any provisions within the Fair Tax, if the Sixteenth Amendment
weren’t repealed, down the road we’d find ourselves with a national sales tax and an income tax.
You say, “Williams, it sounds as if you don’t trust Congress.” I don’t trust Congress any further than I can toss an elephant. During the debate prior to ratification of the Sixteenth Amendment, congressmen said that only the rich would ever pay income taxes. In 1917, only one-half of one percent of income earners paid income taxes. Those earning $250,000 a year in today’s dollars paid one percent, and those earning $6 million in today’s dollars paid 7 percent. The lie that only the rich would ever pay income taxes was simply propaganda to dupe Americans into ratifying the Sixteenth Amendment.
Here’s my prediction: The Fair Tax will never become law. The two most powerful congressional committees are the House Ways and Means and the Senate Finance committees. These committees write tax law, and as such they are able to confer tax privileges on some Americans at the expense of other Americans. The Fair Tax would reduce or eliminate this form of congressional privilege-granting power and, subsequently, campaign contributions from the beneficiaries would dwindle.
The method used to finance the federal government is very important, but I’ve always argued that government spending is the true measure of its impact on our lives. If there were a Fair Tax, what’s to stop Congress from deficit spending or inflating the currency? Deficit spending and inflation are simply alternative forms, albeit less obvious, of taxation.
You say, “What’s Williams’ solution?” My solution is an amendment limiting federal spending to a fixed percentage, say, 10 percent of the gross domestic product. You say, “Why 10 percent?” If 10 percent is good enough for the Baptist Church, it certainly ought to be good enough for Congress.
Walter E. Williams is a professor of economics at George Mason University.