Recently we felt it necessary (Trump Is Out of Line) to slap down President Trump for his attacks on Ron DeSantis in relation to Medicare and Social Security. We contended that no serious effort at controlling the deficit can be undertaken with the reform of “entitlement” programs. The reason: that is where the overwhelming bulk of the money is spent and these systems are demographically flawed. If you truly want to deal with deficit spending, entitlement reform must be discussed.
Now we must slap him once again over his attack ads about DeSantis voting for the “Fair Tax”, while a member of Congress. The Fair Tax is a plan to replace the income tax and the IRS with a fairly simple national sales tax.
For some reason, Trump has decided to run to the Left of Governor DeSantis on key issues. We see this with entitlement reform, Covid lockdown and vaccinations, Disney and corporate “wokism”, abortion, and now tax reform.
The TV ad that you can view below is misleading to the point of lying, which is beneath the former President. It mentions the expected 23% sales tax and fails to mention it replaces the income tax. No Conservative is going to vote for a national consumption tax without eliminating the income tax. Trump makes it sound as if DeSantis wants both at the same time, a flat-out lie.
The Fair Tax idea has been floating in Conservative political circles since at least the mid-1980s. It was advocated by Bill Archer, a Congressman from Texas who became head of the House Ways and Means Committee in the mid-1990s. Archer was an advocate of what at the time was called “starve the beast”, a theory that we could only stop the rise of the leviathan government by eliminating the income tax and thus restricting the flow of money.
Even moderate Republicans such as Senator Richard Lugar, supported the idea. This is not a wild and crazy idea hatched by Governor DeSantis.
It reportedly even came up recently during the fight amongst Republicans for House Speaker. Apparently, some would not support Speaker McCarthy unless he pledged to let the Fair Tax out of committee and allowed an up or down floor vote.
So, Trump’s attack on DeSantis not only is unfair to his chief rival (why do you think he singles DeSantis out for abuse and not others) but he does a grave injustice to the idea of the Fair Tax.
There are several iterations of the Fair Tax but rather than get into the technical weeds, let’s look at the broad outlines of its appeal.
First of all, the income tax has always been a product of the Left. Plank two of the 1848 Communist Manifesto calls for “a heavy progressive or graduated income tax”, and that idea has been a mainstay of socialist thought since. The idea was to use the mechanism of the state police power to redistribute income to create income equality. Morally, the Maxists said the more a man rises above the level of subsistence, the less claim he has on his output. Why is that? Because Marx said so.
Forcible redistribution of wealth is not something Conservatives or Libertarians should accept. Why does Trump support a plank out of the Communist Manifesto?
The purpose of the tax system should be to raise revenue for the government efficiently and grow the economy while protecting the individual rights of its citizens. The tax system should not be used as a tool to impose one particular view of mankind by force and compulsion.
If you don’t think the government is force, just try not paying your income taxes. Try running a business without withholding taxes on employees.
The US largely ran for many years on excise and consumption taxes, revenues from land sales, and tariffs. In those years, we had a smaller government and it was not in the business of income redistribution.
It is doubtful the Administrative State could have arisen without the compulsory aspects of the progressive income tax and that is why it came as part of the Progressive package under Woodrow Wilson, which also included the Federal Reserve and the direct election of Senators.
The Fair Tax repeals the 16th Amendment and eliminates the IRS as we know it.
Some Conservatives have supported a Flat Tax, basically a flat income tax. There is much good in that idea too but since it leaves the IRS and the Income Tax both in the statutes and as an Amendment to the Constitution, there is nothing to say a progressive tax won’t simply grow back. We have seen a version of that over the years with 5 tax brackets, then 3 brackets, taxes as high as 90%, the Alternative Minimum tax, and so forth. The income tax is always morphing and is always a tool for politicians and the special interests that fund them. The same can be said for the corporate income tax.
The only way to kill the Income Tax is to totally replace it, which the national consumption tax would do. That also eliminates the estate tax and capital gains taxes, the alternative minimum tax, the corporate income tax, taxes on dividends, and interest. The government would instead be funded by a simple tax collected at the final point of consumption by a consumer.
An important feature of consumption taxes is that they are self-regulating while income taxes are not. Right now, the level we all pay in taxes is in the hands of politicians, special interests, and government administrators.
Writing in the Federalist Papers, Alexander Hamilton noted: “It is the signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed, that is an extension of the revenue…this forms a complete barrier against any material oppression of the citizens by taxes of this call, and is itself a natural limitation of the power of imposing them.”
So, Mr. Trump, are you for the tax system of Karl Marx or Alexander Hamilton? Are you for self-limited taxation (limited by the consumer or citizen) or limited by politicians and bureaucrats?
Look at how abusive politically speaking the IRS has become. Whether it be trying to ruin Conservative organizations under Lois Lerner or recently invading the privacy of journalist Matt Taibbi, the IRS has been used from its inception to attack political enemies. Lyndon Johnson used the IRS against enemies and so did Richard Nixon. It is not a matter of partisan abuse alone, it is a violation of the rule of law.
And why, as Open the Books has found, does the IRS need millions of rounds of ammunition and over 2,000 agents trained in the use of deadly force?
Would not it be a net plus for liberty to eliminate the system that gave rise to this abusive organization?
And then there is the cost. Estimates vary, but the burden on the economy to comply with income taxes goes well beyond the bloated budget of the IRS. Think of what you have paid over the years for accountants and CPAs. How much time do you spend keeping records and shuffling paper? That is the real cost of the current system.
And how about simplicity and the time spent to understand the code? Really, should we have to consult a priesthood of lawyers and accountants just to pay our taxes?
The IRS code runs more than 70,000 pages, and the most recent Fair Tax legislation, about 130 pages. Not only must we deal with the IRS code, but there are many more pages of court cases and administrative rulings.
And then there is the cost on business to comply, which is simply passed on to the consumer in the end. Complying is simply a cost of doing business and will be embedded in all costs and those costs cascade or get added to each other much like railroad cars in a train wreck. Commodity producer A pays taxes and regulatory costs, to provide a product to processor B who pays taxes and regulatory costs, who move the product to manufacturer C who pays taxes, who then delivers to transport company D which pays taxes, then delivers to retailer E, who pays taxes, to sell to you, who pay for sales taxes on the end product, and income taxes on the money you use for the purchase. Perhaps worse it is hidden and you are not even aware of it.
Everywhere along the chain, there are compliance costs and taxes paid that get surreptitiously added to the cost of products we all buy. In fact, estimates are it costs about $1 in compliance costs for about every $4 collected in revenue.
But even that does not come close to the actual cost, which is hard to know because much of the cost is never recorded. It is the cost of actions NOT taken or actions taken that are not productive. For example, if you decide not to sell an investment because you will pay capital gains tax, you may be making a decision that has nothing to do with the best and highest use of your capital, but simply to avoid taxes. Contrarily, if you purchase municipal bonds to avoid taxation on income, that may not be the highest and best use of the capital either for your family or the economy. How much do such decisions cost productivity because the tax tail is wagging the entire dog of the economy?
Productivity is what drives our standard of living. You reduce productivity and you reduce our standard of living and nobody knows by how much or why. What a system!
The only people who benefit from such economic and capital distortions are politicians and tax lawyers. The rest of us don’t.
And finally, there is the politics of the thing and civic education. Do you think for a moment the voters would buy into “the rich are not paying their fair share” if they really had any idea of who pays taxes in this country and what their true level and administrative costs really are?
One really nice feature of the Fair Tax is it eliminates all the web of hidden taxes, withholding taxes, excise taxes, and other gimmicks used to obscure the true cost of government and makes it simple and upfront. When all these taxes and compliance costs are cascading through the cycle of production and consumption, how could you possibly know what you really are paying in taxes?
With the fair tax, it is on the receipt for the purchase of final consumption.
If citizens really knew how much they were paying to the government, would they feel the same way about the government? Would they be so casual about the immense waste?
And we would further submit, no one getting benefits from the government should not know the cost and be free from some of the cost. If people don’t feel the sting of the cost of some of the things they want from the government, they will make endless demands. Why not if you can get benefits that are paid for by someone else? No, everyone needs to pay something and every citizen needs to know the true cost of government. That is indeed the true meaning of “fair share.”
In short, our current tax system needs to be fundamentally reformed. We need a tax system that removes Marxist philosophy from the process, is efficient and simple, and allows the ultimate level of taxation to be determined by consumers. Getting rid of an abusive agency and a tax code that is longer than the Bible is an added benefit.
There is much to like about the Fair Tax. If you want to learn more, here is a website to get started.
Imagine a world without the IRS, where there are no taxes on investments and savings. April 15th would be just another day. No year-long effort to keep records. Imagine the capital accumulation and increase in productivity. Imagine a smaller, less intrusive government. Imagine a higher standard of living.
The ultimate point of our criticism of Mr. Trump and his PAC is that they have reduced quite a serious problem for the economy and liberty, to a tacky song and misleading attack ad on a political opponent.
The Fair Tax has its problems and its critics. But, like its sister the Flat Tax, at least it is a serious attempt to mend a broken, expensive, uneconomic, and abusive system. It is exactly the type of thing that should be debated among candidates.
In this argument, we think those that wish to reform the progressive income tax and the IRS, have the upper hand.
As we move through 2023 and into the next election cycle, The Prickly Pear will resume Take Action recommendations and information.