The FairTax Act Redux

You’ve all read my previous article on this topic so you already know the facts.  Therefore, without further ado, let’s jump right into my personal feelings on the matter.

There are four things you can deduce without too much difficulty:

1) The poor will pay little or no tax, pretty much as it is today 

2) The rich will pay far less tax than they do today
3) Corporations will pay virtually no tax, pretty much as it is today
4) The middle class will pay higher taxes than they do today

The Poor:

With the prebate in place the poor will pay virtually no income tax to the Federal Government.  The only wrinkle here is that the prebate is based on income, meaning: A) The poor will have to prove their income to someone each year to qualify.  B) Since all services will be taxed, even the kid that mows your lawn will have to collect the tax, keep records, and send the tax to the state, perhaps qualifying him or her for the prebate.  So, you can already see that the simple, one book thick, tax code will have to be modified to deal with a lot of such problems.

The Rich:

The rich, those making more than $200,00 per annum will see a significant drop in their tax rate for the simple reason that they don’t spend all their income, opting to save or invest some of it.  That means they will only pay tax on what they spend, not what they earn.  That’s fine and dandy you say, but since the plan must be revenue-neutral it may be good for them but it won’t be good for the middle class.  Revenue-neutral simply means that the plan, any plan, must collect as many tax dollars as today’s plan.  Full stop.  So, if the rich pay less someone else has to pay more.

Corporations:

Since corporations pay virtually no income tax due to all the loopholes in our current tax code plus off-shore finagling, the only real good that will from the FairTax Act is that Republicans will have to stop harping about too-high corporate taxes.  But what will they do to entertain themselves next?

The Middle Class:

Ah, the poor middle class.  Republicans have wanted to eliminate this class of folk for a long time and the FairTax Act may actually do the trick.  Since government always expands (you have to remember that even Civil Servants and the military like a pay raise every year, and the cost of paper clips and such always goes up) the amount of revenue the Feds need always increases no matter what.  Even eliminating the IRS won’t really result in any real savings: In 2008 the IRS asked for a budget of 11 Billion dollars to do their job.  That amount is peanuts compared to the Fed’s overall budget and besides, it won’t just go away: Your state and mine will now have to collect the new sales tax and enforce the new tax code.  That won’t be cheap because instead of one HR department, at the Federal level, you will now have 50 HR departments to fund.  You see where this is going don’t you?  Each state will have to increase their sales and/or income tax rates to collect enough money to fund all the IRS employees that transition to state payrolls.  So, not only will the middle class pay more in FairTax Act taxes, they will pay more to in local and state taxes as well.  A lose-lose situation for the middle class.
 
In Conclusion:

It is my humble opinion that the FairTax Act will only serve to outsource the IRS to the states so Republicans can claim they have decreased the size of our Federal government.  The rich will love it, corporations won’t be unhappy, the poor won’t really care as long as the prebate check arrives on time, the Federal Government will still collect as much as before, and the middle class will get screwed as usual.  And they will, for some strange reason, vote Republican anyway.  Go figure.