I have heard a lot of arguments against the FairTax plan. Some of the most common arguments are so nonsensical they can make you come across as being either uninformed or unintelligent. Below are some arguments you want to avoid when criticizing the FairTax.
Don't criticize the FairTax for being tax revenue neutral. The FairTax system doesn't necessarily have to be tax revenue neutral. Criticizing the FairTax for being revenue neutral is as nonsensical as criticizing a new thermostat because it can be set to the current room temperature.
Don't complain that the FairTax is not progressive. The prebate makes it so the FairTax plan is highly progressive. The prebate makes it so people spending less than the poverty level will pay zero federal taxes. It is also interesting to point out that one of the taxes the FairTax is designed to replace is the highly regressive payroll tax.
Think before you complain about how the FairTax hurts certain groups. Keep in mind that the FairTax would be introduced as revenue neutral so for every hurt you complain about there is an equal benefit given somewhere else. Also, groups that currently get special treatment in the current tax code are most likely to be among those who make out slightly worse. Do you really want to defend the special interest groups politicians have catered to in the current 60,000 page tax code?
Don't complain about how people will cheat the FairTax system. There will be people who cheat the FairTax system just as there are people who cheat the current system. The real question is which system will result in less overall cheating and easier monitoring. Strong arguments can be made that the FairTax system will be superior in this regard because the number of tax collection points to guard against cheating would be reduced from all people and all businesses down to just businesses selling retail.
Don't debate whether the consumption tax rate is 23% or 30% unless you side with the FairTax position. The FairTax logic is correct on this issue. Find the smartest and most honest mathematical mind you know and give them the task of fairly comparing a federal tax on income to a federal tax on consumption and they will confirm this for you.
Example: With income tax, if someone has $100 of their income taxed at 23% they give $23 to the government and have $77 remaining to buy something. Similarly, with the FairTax, if someone has none of their income taxed and then pays $100 for the same $77 something mentioned above and the government gets $23 then these two scenarios amount to the exact same amount of taxation. If income tax in this example can be referred to as 23% then so should the FairTax.
Don't criticize the FairTax by saying it will never pass. The merits of the FairTax do not depend on whether or not politicians pass it. Instead of thinking about whether or not it will pass, I believe it is better to think about why some politicians might not want to pass it. Why might politicians cling to all 60,000 pages of our current tax code? It probably has a lot to do getting votes, contributions, and appeasing lobbyists.
Logical Reasons Against The FairTax
OK, so what then is a logical and intelligent argument against the FairTax?
I do have one pretty major problem with the FairTax proposal. I believe people who currently have a lot of money will be hurt by the implementation of the FairTax plan. These people paid income taxes when they earned all that money and then under the FairTax plan they would also have to pay consumption taxes when they spend that same money. I have read arguments by FairTax proponents as they try to tap dance around this issue, but I would prefer if they would just admit that existing wealth will take a slight hit with the FairTax plan. It will probably help their cause to admit this especially since nobody seems to care if the rich are financially hurt. I don't feel sorry for rich people, but it is worth acknowledging that what rich people can consume with their wealth will be taxed more heavily with the FairTax plan.
I also have another problem with the FairTax plan and it has to do with exports. One key component in the FairTax plan is to make businesses pay no federal taxes so that exports are free from embedded taxes that otherwise would hinder the competitiveness of American exports. The FairTax cheerleading theory is that the FairTax plan will make American exports competitive which would create jobs and encourage both foreign and domestic investments in America production. I don't mind jobs and increased investment in productivity, but I have a problem with how zero taxation on exports isn't representative of the costs that went into producing the products being exported. For example, the products being exported benefit from various federal expenditures such as roads, electric grids, education, security, regulation, etc. Selling these exports to foreign countries without factoring in any of our nation's federal expenses seems to me like America taxpayers giving to the world through exports. However, since America has had a massive trade deficit for decades, my concerns about zero federal export taxation is a mute point because it looks like will benefit more from collecting taxes on imports.
Conclusion
This blog entry is motivated out of a genuine belief that I don't want people to cling to nonsensical arguments especially with regard to a proposed system with the potential of the FairTax plan. This blog entry does not specifically focus on the positives of the FairTax plan, but you can read many positives about the plan at FairTax.org. In my opinion, that site does cheerlead a bit much, but it is forgivable because many of cheers in favor the FairTax plan are justifiable.
