I like every single thing about a National Sales tax especially ridding the US of the 16th amendment and The Fair Tax Act would do away with the income, payroll, estate and gift taxes and the IRS. I also like The proposed Fair Tax does include a “prebate” — money sent to every household that effectively negates federal sales tax for spending up to the poverty level. For people used to state and local taxes of say, 4 to 8%, that’s a jarring figure — and that sticker shock is one of the best aspects of a national sales tax: forcing people to directly confront the cost of our enormous federal government and The Federal Government can help states with an already high tax rate cut those rates down by 3-4 points by using some form of states tax rebates. National Tax Salary of $145,000 a year would bring home:.$12,088 vs $8,543 on the old tax system. On Flat tax sys you would keep this extra: $42,485 a year and an extra $3445 each month again new monthly bring home would be $12,088…
The FAIRtax is the only existing or proposed tax that is transparent, efficient, conducive to economic growth, unintrusive, non-discriminatory, and FAIR. Demand that your Senator or House Member cosponsor HR25, the Fair Tax Act of 2023.
I fume every year as I slog through tax-filing and think about how much easier it could and should be on all of us. I hesitate to confess it, but I may even be fine with the possibility of paying a little more in total federal tax if it meant we'd all benefit from the two descriptors you listed that most attract me to the Fair Tax: efficient and unintrusive.
Speaking of the possibility of paying more, my article regrettably lacked a discussion of the fact that current prices we pay at the register include an embedded passing-on of manufacturers' tax compliance costs, which would be enormously reduced under the Fair Tax.
Income tax came about via the Tea Totalers in the early 20th century.. Most Federal revenue came from liquor (one way or another.. tariffs, levies, fees, taxes). The only way the politicians of Ye Olden Swamp could actually achieve a ban on liquor was to first to obtain the power to levy *any* taxes they desired, including taxes upon Individual income (16th Amendment). This stirred up anti-Federal sentiment which was effectively bypassed by the 17th Amendment (Popular vote for Senators). With these two power 'chokepoints' being resolved, they were able to push through the 18th Amendment; banning liquor.
Given the liquor ban was repealed, we should really push to repeal both the 16th and 17th Amendments. While we're at it, we should also keep only a Navy and Air Force while the Army should be disbanded and distributed to the State Guard.
And if we say, abolish the FBI, the CIA, Homeland Security, the Dept of Ed, and other such boondoggles, it might not cost so much to run the Federal Gov in the first place, incentivizing everyone to pay fewer and fewer % as they are dismantled.
I'm concerned, and a bit despondent, that no one has mentioned the distinction between Direct taxes and Indirect taxes; that is capitations and excise taxes. This distinction admits the only two classes of legal taxes, under the US Constitution. The USSC, in 1916, affirmed this distinction and precluded the possibility of any 'third form' of taxation: no flat tax, no 'direct, unapportioned tax' (as the IRS claims the 16thA created). The case was Brushaber v. Union Pacific R.R. Co. (https://supreme.justia.com/cases/federal/us/240/1/ ), and it occurred because of the passage of the 16thA.
All this discussion is 'moving deck chairs' without the fundamental understanding of the limits of excise taxes, and the 'regime' we operate under: namely the mistaken belief that 'income' is 'all that comes in'. It is not. Income is a specific species of 'gain' which only occurs when particular, specific conditions have occurred. All other forms of 'gain' are not 'income' and are therefore not subject to any excise (tax).
Since the USSC took up the Brushaber case (1916) there has been no reason to revisit the issue. Perhaps we should educate ourselves about that decision, as it holds much value for us today. Since it is the highest law (and highest interpretation of the law), surely we must understand the Court's Opinion, if we are to claim competence and legal standing in any discussions of this issue.
How about no federal taxes on individual or corporations, instead a tax on revenue collected by the states, based on percentage with a hard cap on the dollar amount with a pre pay budget rule in place.
11. The IRS won’t go away because it will need to administer the new consumption tax.
The Tax Swap proposal sells itself as a way to get rid of the dreaded IRS. But does it?
A replacement consumption tax still needs to be administered. The exemptions it proposes - both those in the initial proposal and the many that would inevitably be added - would still need to be administered. They may call it a different name, but like today’s IRS, it will collect taxes, impose red tape, conduct audits, and impose severe penalties.
If you don’t think collecting a sales tax is intrusive, try asking a few retailers who now collect a sales tax for their state whether they find it intrusive. They despise filling out forms, charging customers and paying sales tax collections as much as you hate filing taxes and sending a check to the IRS.
And then ask a few retailers who live in one of the states, like New Hampshire, with no sales tax how excited they are about this proposed intrusion into their businesses and having to report their every transaction to the IRS. (Make sure you’re ready to run in case they decide to start throwing large objects at you.)
These small retailers are another key constituency for advocates of fiscal responsibility. If you propose an across-the-board consumption tax, you will alienate this important constituency that would otherwise be strong supporters of your campaign.
…And then ask them if a national sales tax might open the door to their state politicians collecting a new state sales tax – since retailers would have to collect it for the feds anyway.
The IRS, or its equivalent tax collection agency, will also demand money to “crack down” on the black market to stop those who avoid the consumption tax. More Big Government policing, similar to today’s IRS.
The best way to get rid of the IRS is to simply end the income tax and cut spending. Replace it with nothing -- except you and every American keeping the money you earn.
12. Simply ending the income tax and replacing it with nothing has already proven to be a winning campaign platform.
In 2002, voters in Massachusetts almost passed a ballot measure to end the state income tax.
In one of the most Big Government states in the country, 45% of voters said “Yes” to ending the state income tax and taking $9 billion out of a $23 billion state budget, despite the fact that the media overwhelmingly opposed the measure. Every newspaper in the state, with the exception of one small newspaper in western Massachusetts, editorialized against it. The Boston Globe published three editorials and numerous columns urging “vote No on 1.”
Yet 885,683 voters in the small state of Massachusetts said Yes to ending the income tax. Good luck getting a percentage like that running on a Tax Swap.
When the initiative ran again in 2008, 914,420 voters said Yes to ending the income tax. Despite $7 million in “Vote NO” ads by the Teachers Union and virtually no ads for “Vote YES.”
What these initiatives showed is that bold tax revenue reductions that put money back in the pockets of taxpayers (which the Tax Swap does not) – without hitting them with another tax (which the Tax Swap does) - have high potential to attract votes.
If these twelve reasons are not enough for you to reconsider any inclination you might have to support a Tax Swap, rest assured that they are all reasons many voters will reject the idea and why your opponents and the media will attack you for it.
“But,” you say, “a Tax Swap bill already has sponsors in congress. It could get passed!”
Why would you want it to? It would not shrink government. It would divide and conquer taxpayers. It would keep Big Government big. And it runs a serious risk of saddling Americans and retailers with both an income tax and a federal consumption tax.
The fact that the “Fair” Tax has a high number of in today’s congress is likely an indicator that it’s a bad idea. At least 99% of the bills that get traction in congress do so because they keep Big Government big. Bills that seriously challenge the Big Government status quo die a quick death.
“But,” you say, “it’s better to tax spending than earnings because it encourages people to save.”
This assumes politicians are competent to be the arbiters of what the proper ratio between savings and spending should be. But politicians are distinctly unqualified to make such decisions. Remember, these are the people who have run up deficit spending in recent years to astronomical levels – and have demonstrated no intention of balancing the federal budget - ever.
People don’t need the government to tell them to save. They just need lower overall taxes and fewer government intrusions so they can save.
Say No to the Tax Swap (“Fair” Tax).
Say Yes to simply ending the income tax and cutting spending!
State revenue tax systems (sales, etc.) can easily handle the collection of consumption/sales tax for the Feds... no IRS needed; not in it's current form anyways.. and the few States without sales tax can be compelled to implement one.. Just like the Fed courts compelled states to implement property taxes to pay for public "education". Easy peasy
8. The Biggest Danger of the Tax Swap: Bait and Switch
The Tax Swap threatens to become a bait-and-switch proposal. We could easily end up with both a national consumption, or VAT, tax -- and still be stuck with the income tax.
This happened with a tax swap proposal in Nevada in 1981. Gov. Robert List proposed the “tax shift” to reduce the property tax in exchange for a new sales tax. Within four years, the property tax was back to where it was in 1981 while Nevadans were saddled with a new sales tax. The governor's tax shift became known as the tax shaft.
The Tax Swap proposal assumes that today’s lawmakers will keep their word and will implement a bill as originally proposed. But that almost never happens. As a bill winds its way through committees and budget negotiations, it rarely ends up how it started – and it almost always gets worse, not better.
We’ve already seeing evidence of how the Tax Swap proposal will play out. In 2011, it wasn’t getting much air play and remained unknown to most voters. But pundits were talking about the prospect of a new national sales tax – with no mention of getting rid of the income tax – on national TV.
Circa 2011, Bill O’Reilly and Glenn Beck debated on the O’Reilly Show whether a new consumption tax was a good way to reduce the deficit. On this “conservative” talk show, there wasn’t even a mention of getting rid of the income tax! Talk of the Tax Swap aids and abets this dangerous trend.
As reported in The Hill newspaper, “According to several sources, talks are under way on Capitol Hill to create a consumption tax, perhaps a VAT, that would be added to the current tax system to help the country get out of debt. There has been no serious discussion on implementing the FairTax, these sources said.”
It should be clear to anyone who understands how things work on Capital Hill that, if the Tax Swap has any influence at all on policymakers, it will be to help saddle the nation with a VAT or sales tax – while the income tax remains.
9. Selling a consumption tax as “optional” is misleading.
Requiring people to pay a sales tax takes the fruits of their labor, as do all taxes. It is absurd to suggest that buying products and services is optional. It is a necessity to stay alive and to do many of the things worth living for.
10. The proposed consumption tax rate starts obscenely high -- and will continue to rise.
Tax rates almost always rise – a lot.
If the Tax Swap creates a new consumption tax at the frighteningly-high rate of 30%, we should expect it to rise after people move their purchases to the black market or barter to avoid it. Politicians will react by raising the rate to get the revenue they desire. They will insist that revenue can’t go down (a point of view aided and abetted by advocates of the Tax Swap!)
You don’t need to look hard to see that today’s politicians constantly raise taxes. Just look at the 2015 budget deal (negotiated end-of-year 2014). Or the 2014 deal. Or the 2013 deal. Or the year before that. Or the year before that. Or just about ANY YEAR IN THE LAST 100 YEARS.
Today’s income tax started at graduated rates in the range of 1-7% in 1913 and is now 10-35%.
If a federal consumption tax starts at 30%, how high will it rise?
5. Your opponents will use the Tax Swap to bury your campaign.
The media and your opponents will present a Tax Swap proposal as a tax increase.
That makes you look like a tax hiker. And as one who advocates freedom and reducing government, it makes you look hypocritical to boot.
Even if you have a well-funded campaign and can buy enough ads to get your explanation heard, you won’t be able to overcome the fact that your Democratic and Republican opponents will be much better funded.
Plus, they will have the media on their side.
Your opponents have no interest in helping to promote your explanations of how the Tax Swap ends the income tax or any other positive point you could make in its favor. They will crush and discredit you as being one more politician who raises taxes. This has already been done against proponents of the “Fair Tax”. Examples: here and here.
6. The Tax Swap proposal is harder to sell than simply ending the income tax.
Past attempts to cut taxes suggest that bold tax cut proposals do as well or better than moderate ones.
The reasons for this are twofold. First, opponents of a bold tax cut will fight a modest tax cut with equal force. In fact, they’ll fight just as hard against anyone who opposes a tax increase. They always advocate for more Big Government and fight against anyone who stands in their way. So you have nothing to lose by trying to avoid their opposition. You’re going to get it anyway, no matter how bold or how weak your stance.
Second, the revenue neutral Tax Swap misses out on the biggest benefit for voters of simply ending the income tax: More money in their pockets.
Ending the federal personal income tax allows us to give back (as of 2014) an average of $11,525 to every household in the U.S. – every year – that they now pay in the federal income tax – a huge selling point. The Tax Swap offers no such benefit because most voters will pay for it in the new sales tax. It is, after all, a revenue-neutral proposal not designed to give taxpayers relief.
In short, the appeal of the Tax Swap is relatively narrow, while the opposition to it will be very broad.
7. Revenue-neutral proposals miss out on another critically important benefit of bold tax cuts: Jobs.
Any measure that reduces government revenue, i.e., it shifts substantial resources out of government coffers and into the private sector, creates jobs. This is another huge selling point for simply ending the income tax that the Tax Swap cannot claim.
This job creation benefit of reducing total revenue has been substantiated by a study by the Beacon Hill Institute in 2010 which showed that for every government job lost due to spending cuts, two jobs are created in the private sector.
More jobs means more job opportunities – giving workers more choices for satisfying jobs and higher pay.
4. Tax Swap proposals squander the opportunity to go on the offensive and make government small
Freedom is the absence of Big Government. To advance freedom, advocates for small government must proactively advocate for shrinking it dramatically.
Campaigns of advocates for small government should go on the offensive, constantly selling the virtues of boldly reducing the size, scope, authority, taxation, spending, assets and/or liabilities of Big Government.
Take past Libertarian candidates as an example. In 2014, over thirty Libertarian candidates running for federal office pledged that, if elected, they would work to end the personal income tax, balance the budget, and roll back spending to the year 1998 – a plausible and attractive proposal with no new tax. In 2016, 42 Libertarian federal candidates made the same pledge.
In 1996 and 2000, Libertarian Harry Browne ran for president on an even bolder platform. Ending the personal income tax, the corporate income tax and the FICA tax – while completely privatizing Social Security. He proposed cutting federal spending from $1.9 trillion to a mere $100 billion in total spending.
Volunteers, donors, and voters who heard Browne’s bold proposals were wild about them. LP membership grew threefold during his campaigns – by far the greatest growth rate the party has ever achieved.
Despite Browne’s effectiveness, you may still feel uncomfortable proposing to completely and immediately end the federal income tax. That’s OK, because there are alternatives.
As a federal candidate, one option is to propose to simply balance the budget. Today this requires a sizable cut. That alone would make a huge difference, and would stop the devaluation of the dollar – which is, in effect, a hidden tax. You’re saving taxpayers thousands of dollars every year by balancing the budget and stabilizing prices that they now lose to nonstop inflation. Plus, it’s an easy proposal to defend. You can paint your opponents who refuse to balance the budget as reckless and irresponsible – which they are.
Another alternative is to propose first balancing the budget, then phasing out the income tax and cutting spending accordingly. Pick a time frame you’re comfortable with, for example, a 3-year plan. But don’t go as far out as a 10-year plan – that’s too far off. History has shown that Congress has repeatedly violated its long-term plans, and they're not credible. Ten-year plans are used by today’s Big Government politicians as a way to avoid cutting government spending. We need to break this precedent and show that we can cut spending now.
Note that the LP platform calls for ending the income tax, but does not call for any replacement tax:
All persons are entitled to keep the fruits of their labor. We call for the repeal of the income tax, the abolishment of the Internal Revenue Service and all federal programs and services not required under the U.S. Constitution. We oppose any legal requirements forcing employers to serve as tax collectors. Government should not incur debt, which burdens future generations without their consent. We support the passage of a "Balanced Budget Amendment" to the U.S. Constitution, provided that the budget is balanced exclusively by cutting expenditures, and not by raising taxes.
3. The Tax Swap aids and abets Big Government tax hikers
Many advocates of fiscal responsibility agree: 90% of what the federal government spends is either pure waste or does more harm than good. If they were to carefully scrutinize most state budgets, they would likely arrive at a similar conclusion: Most state budgets can and should be cut by a very large percentage. Most services that are viewed by voters as proper functions of government – roads, police, firefighting, and schools - are, and should be, funded locally. (Local governments are also over-funded and in need of downsizing.)
Therefore the fact that the Tax Swap aims to be “revenue neutral” is not a virtue, but a drawback. It leaves money on the table for Big Government politicians to spend on regulations, prohibitions, war, spying on its citizens, and meddling in personal freedoms.
Proponents of the Tax Swap have already gone on record selling “revenue neutral” as a good thing – when it should be sold as a bad thing. Advocates for fiscal responsibility should eschew, if not outright denounce, any policy like the Tax Swap that advocates keeping Big Government big.
What’s worse, introducing and promoting a consumption tax feeds directly into the agenda of Big Government advocates who would love advocates for fiscal responsibility to help them sell a massive new tax.
Advocates for fiscal responsibility should NEVER help to sell a new or increased tax. Our opponents may raise taxes anyway, but they should have to scratch and claw for every tax hike they pass. We should force them to cash in whatever goodwill they have with voters to raise a tax, and especially to introduce a new tax. Don’t take them off the hook by promoting the alleged “virtues” of a consumption tax.
2. Who do you want to divide and conquer? Taxpayers? Or advocates of Big Government?
By promoting one tax over another, you’re helping proponents of Big Government because it divides, rather than unifies, taxpayers. Taxpayers are the last group any fiscal conservative should want to divide.
Swapping the income tax for the sales tax will cause taxes to go down for people in middle- and high-income brackets and will cause taxes to go up for those who do not currently pay, or who pay very little, income tax.
A tax swap could be viewed as a direct attack on the latter group, which includes many poor seniors on Social Security and the working poor, both important constituencies.
Working poor already lean strongly against new taxes.
Senior citizens already paid tax on their income. Why should they pay it again on a consumption tax?
Both are large constituencies important to any candidate running for office.
To threaten these groups with a tax hike, especially one that will be viewed as favoring those who are better off, is more marketing suicide.
Consider that low-income voters are already severely overtaxed, even if they pay no income tax today. They pay property tax – either directly as homeowners or indirectly as renters. They pay sales tax in most states. Most pay state income tax and FICA tax. And they pay many of the hundreds of direct and indirect taxes that everyone pays.
Plus they have much less discretionary income to pay those taxes. Any tax increase on this group is a heavy burden.
Plus, this is probably the group that is disproportionately harmed by Big Government (e.g. small business regulations) and which sees very few benefits to themselves. They’re on our side. It would be disastrous to be seen as harming this group even more with a tax increase.
Running on a new tax shifts the overall tax burden to these groups - no matter how many complicated exclusions for the tax you want to list. Your opponents will nail you on it and alienate these core constituencies. You will be pegged as another rich guy or woman who doesn't like paying the income tax or paying accountants - and who doesn't care a whit about everyday taxpayers who need and want to buy goods for their families.
And of course those exclusions, aimed at mitigating this point, add complexity to taxes, which is exactly how the IRS became the beast that it is today, loaded with provisions to appease one group or another and opening the door for special interest lobbying.
It’s best to avoid the whole debate about whether one tax is better/worse, more/less fair than another. They’re all bad and they’re all unfair. This is the wrong debate to be having and gets big-spending politicians off the hook. We need to turn the heat on Big Government spenders – not taxpayers!
The goal should be to get our opponents fighting over where to cut spending – not advocates of liberty fighting over whom to tax.
Instead, it’s far better to propose broad tax and spending cuts that cut taxes for most if not all taxpayers – and that never raise anyone’s tax.
The more broad-based the tax cut, the more it benefits everyone -- so there’s nothing for tax-cutters to fight about.
Twelve Reasons the Tax Swap Proposal (a.k.a. “Fair” Tax) Is a Really Bad Idea
First let’s call the “Fair” Tax what it is: a proposal to swap the federal personal income tax for a 30% federal sales / consumption tax. And while some taxes may be worse than others, there is no tax that is inherently “fair.” Therefore, a more accurate descriptor of this proposal is the Tax Swap. Or a National Sales Tax (which is what Brian McClinchey seems to prefer).
1. Raising the sales tax is marketing suicide
Have you ever actually tried to sell a price increase? A thirty percent price increase?
That’s what a new 30% sales tax amounts to: a dramatic price increase on most of the things that everyone buys. Ouch!!!
Take note of ads in newspapers, on the Internet, on radio, or TV. Notice how many of them were bragging about a price increase? Have you heard any of them say, “Call today, and you’ll pay an additional 30% more for your (fill in the blank)!”
Consumers – and voters – are extremely sensitive to prices they pay out of pocket.
A candidate who runs on raising the price of everything that everyone buys is committing marketing suicide.
A new five percent sales tax would be a marketing nightmare. Running on a new 30% sales tax is marketing suicide. It severely discredits any candidate who runs on it claiming to be fiscally conservative.
It doesn’t matter that it’s a replacement tax. Voters will see it as a price increase, no matter how you try to justify it. You can bet your opponents will.
It doesn’t matter if you say their prices will go down and that they’ll pay the same in the end for goods.
First, they are not likely to believe they’ll ever see prices drop because they are not economists – and you’re not going to turn a voter into one. Arguments presented in a campaign must be very simple, or you just won’t have time to sell it to most audiences.
Second, they won’t believe you any more than they believe any politician trying to sell them a tax increase. Proposing a new tax is an extremely high negative that even Democrats avoid. When they do push a tax, it’s always on “the rich” or “corporations” --smaller groups that are easy for them to demonize without losing a lot of votes.
The Land Value Tax (aka Single Tax) has all of the advantages you list for the national sales tax with none of its drawbacks. With sales taxes you disincentivize sales, which is to say you depress economic activity. Land, however, is perfectly inelastic in its supply, thus taxing it cannot reduce its availability. All it does is increase its efficiency of use. You should educate yourself on the Land Value Tax (sometimes called the Single Tax) and the efforts of Henry George in his magnum opus "Progress and Poverty." Maybe start by going to YouTube and searching "for the land is mine DVD restored" and watch that. I can't imagine anyone proposing an overhaul as sweeping as this and not having it be the Single Tax, but instead a national sales tax. No sane and informed person would, so I have to assume you're simply uninformed. That's fine. Do the research. If you do you'll soon "see the cat" as they say.
I like every single thing about a National Sales tax especially ridding the US of the 16th amendment and The Fair Tax Act would do away with the income, payroll, estate and gift taxes and the IRS. I also like The proposed Fair Tax does include a “prebate” — money sent to every household that effectively negates federal sales tax for spending up to the poverty level. For people used to state and local taxes of say, 4 to 8%, that’s a jarring figure — and that sticker shock is one of the best aspects of a national sales tax: forcing people to directly confront the cost of our enormous federal government and The Federal Government can help states with an already high tax rate cut those rates down by 3-4 points by using some form of states tax rebates. National Tax Salary of $145,000 a year would bring home:.$12,088 vs $8,543 on the old tax system. On Flat tax sys you would keep this extra: $42,485 a year and an extra $3445 each month again new monthly bring home would be $12,088…
I generally take the libertarian position that all tax is theft, but realize at the end of the day, we shall have taxes.
That said, we already have a sales tax, that is the corporate income tax that the consumer actually pays.
Still, it would be better to have a national sales tax than the current system. Those who need HR Block, or some service, actually pay a tax on a tax.
The FAIRtax is the only existing or proposed tax that is transparent, efficient, conducive to economic growth, unintrusive, non-discriminatory, and FAIR. Demand that your Senator or House Member cosponsor HR25, the Fair Tax Act of 2023.
I fume every year as I slog through tax-filing and think about how much easier it could and should be on all of us. I hesitate to confess it, but I may even be fine with the possibility of paying a little more in total federal tax if it meant we'd all benefit from the two descriptors you listed that most attract me to the Fair Tax: efficient and unintrusive.
Speaking of the possibility of paying more, my article regrettably lacked a discussion of the fact that current prices we pay at the register include an embedded passing-on of manufacturers' tax compliance costs, which would be enormously reduced under the Fair Tax.
Income tax came about via the Tea Totalers in the early 20th century.. Most Federal revenue came from liquor (one way or another.. tariffs, levies, fees, taxes). The only way the politicians of Ye Olden Swamp could actually achieve a ban on liquor was to first to obtain the power to levy *any* taxes they desired, including taxes upon Individual income (16th Amendment). This stirred up anti-Federal sentiment which was effectively bypassed by the 17th Amendment (Popular vote for Senators). With these two power 'chokepoints' being resolved, they were able to push through the 18th Amendment; banning liquor.
Given the liquor ban was repealed, we should really push to repeal both the 16th and 17th Amendments. While we're at it, we should also keep only a Navy and Air Force while the Army should be disbanded and distributed to the State Guard.
And if we say, abolish the FBI, the CIA, Homeland Security, the Dept of Ed, and other such boondoggles, it might not cost so much to run the Federal Gov in the first place, incentivizing everyone to pay fewer and fewer % as they are dismantled.
Taxation is social engineering; to wit:
https://www.2ndsmartestguyintheworld.com/p/original-social-engineering-sin
I'm concerned, and a bit despondent, that no one has mentioned the distinction between Direct taxes and Indirect taxes; that is capitations and excise taxes. This distinction admits the only two classes of legal taxes, under the US Constitution. The USSC, in 1916, affirmed this distinction and precluded the possibility of any 'third form' of taxation: no flat tax, no 'direct, unapportioned tax' (as the IRS claims the 16thA created). The case was Brushaber v. Union Pacific R.R. Co. (https://supreme.justia.com/cases/federal/us/240/1/ ), and it occurred because of the passage of the 16thA.
All this discussion is 'moving deck chairs' without the fundamental understanding of the limits of excise taxes, and the 'regime' we operate under: namely the mistaken belief that 'income' is 'all that comes in'. It is not. Income is a specific species of 'gain' which only occurs when particular, specific conditions have occurred. All other forms of 'gain' are not 'income' and are therefore not subject to any excise (tax).
Since the USSC took up the Brushaber case (1916) there has been no reason to revisit the issue. Perhaps we should educate ourselves about that decision, as it holds much value for us today. Since it is the highest law (and highest interpretation of the law), surely we must understand the Court's Opinion, if we are to claim competence and legal standing in any discussions of this issue.
How about no federal taxes on individual or corporations, instead a tax on revenue collected by the states, based on percentage with a hard cap on the dollar amount with a pre pay budget rule in place.
(cont - last)
11. The IRS won’t go away because it will need to administer the new consumption tax.
The Tax Swap proposal sells itself as a way to get rid of the dreaded IRS. But does it?
A replacement consumption tax still needs to be administered. The exemptions it proposes - both those in the initial proposal and the many that would inevitably be added - would still need to be administered. They may call it a different name, but like today’s IRS, it will collect taxes, impose red tape, conduct audits, and impose severe penalties.
If you don’t think collecting a sales tax is intrusive, try asking a few retailers who now collect a sales tax for their state whether they find it intrusive. They despise filling out forms, charging customers and paying sales tax collections as much as you hate filing taxes and sending a check to the IRS.
And then ask a few retailers who live in one of the states, like New Hampshire, with no sales tax how excited they are about this proposed intrusion into their businesses and having to report their every transaction to the IRS. (Make sure you’re ready to run in case they decide to start throwing large objects at you.)
These small retailers are another key constituency for advocates of fiscal responsibility. If you propose an across-the-board consumption tax, you will alienate this important constituency that would otherwise be strong supporters of your campaign.
…And then ask them if a national sales tax might open the door to their state politicians collecting a new state sales tax – since retailers would have to collect it for the feds anyway.
The IRS, or its equivalent tax collection agency, will also demand money to “crack down” on the black market to stop those who avoid the consumption tax. More Big Government policing, similar to today’s IRS.
The best way to get rid of the IRS is to simply end the income tax and cut spending. Replace it with nothing -- except you and every American keeping the money you earn.
12. Simply ending the income tax and replacing it with nothing has already proven to be a winning campaign platform.
In 2002, voters in Massachusetts almost passed a ballot measure to end the state income tax.
In one of the most Big Government states in the country, 45% of voters said “Yes” to ending the state income tax and taking $9 billion out of a $23 billion state budget, despite the fact that the media overwhelmingly opposed the measure. Every newspaper in the state, with the exception of one small newspaper in western Massachusetts, editorialized against it. The Boston Globe published three editorials and numerous columns urging “vote No on 1.”
Yet 885,683 voters in the small state of Massachusetts said Yes to ending the income tax. Good luck getting a percentage like that running on a Tax Swap.
When the initiative ran again in 2008, 914,420 voters said Yes to ending the income tax. Despite $7 million in “Vote NO” ads by the Teachers Union and virtually no ads for “Vote YES.”
What these initiatives showed is that bold tax revenue reductions that put money back in the pockets of taxpayers (which the Tax Swap does not) – without hitting them with another tax (which the Tax Swap does) - have high potential to attract votes.
If these twelve reasons are not enough for you to reconsider any inclination you might have to support a Tax Swap, rest assured that they are all reasons many voters will reject the idea and why your opponents and the media will attack you for it.
“But,” you say, “a Tax Swap bill already has sponsors in congress. It could get passed!”
Why would you want it to? It would not shrink government. It would divide and conquer taxpayers. It would keep Big Government big. And it runs a serious risk of saddling Americans and retailers with both an income tax and a federal consumption tax.
The fact that the “Fair” Tax has a high number of in today’s congress is likely an indicator that it’s a bad idea. At least 99% of the bills that get traction in congress do so because they keep Big Government big. Bills that seriously challenge the Big Government status quo die a quick death.
“But,” you say, “it’s better to tax spending than earnings because it encourages people to save.”
This assumes politicians are competent to be the arbiters of what the proper ratio between savings and spending should be. But politicians are distinctly unqualified to make such decisions. Remember, these are the people who have run up deficit spending in recent years to astronomical levels – and have demonstrated no intention of balancing the federal budget - ever.
People don’t need the government to tell them to save. They just need lower overall taxes and fewer government intrusions so they can save.
Say No to the Tax Swap (“Fair” Tax).
Say Yes to simply ending the income tax and cutting spending!
State revenue tax systems (sales, etc.) can easily handle the collection of consumption/sales tax for the Feds... no IRS needed; not in it's current form anyways.. and the few States without sales tax can be compelled to implement one.. Just like the Fed courts compelled states to implement property taxes to pay for public "education". Easy peasy
These days, I doubt they could order the states to collect sales tax. They could bribe them to do so - which is their more likely approach.
But even if doable, why in the world would you want them to?
Functionally identical.
The Federal pursestrings are the primary method of compliance compulsion.
(cont)
8. The Biggest Danger of the Tax Swap: Bait and Switch
The Tax Swap threatens to become a bait-and-switch proposal. We could easily end up with both a national consumption, or VAT, tax -- and still be stuck with the income tax.
This happened with a tax swap proposal in Nevada in 1981. Gov. Robert List proposed the “tax shift” to reduce the property tax in exchange for a new sales tax. Within four years, the property tax was back to where it was in 1981 while Nevadans were saddled with a new sales tax. The governor's tax shift became known as the tax shaft.
The Tax Swap proposal assumes that today’s lawmakers will keep their word and will implement a bill as originally proposed. But that almost never happens. As a bill winds its way through committees and budget negotiations, it rarely ends up how it started – and it almost always gets worse, not better.
We’ve already seeing evidence of how the Tax Swap proposal will play out. In 2011, it wasn’t getting much air play and remained unknown to most voters. But pundits were talking about the prospect of a new national sales tax – with no mention of getting rid of the income tax – on national TV.
Circa 2011, Bill O’Reilly and Glenn Beck debated on the O’Reilly Show whether a new consumption tax was a good way to reduce the deficit. On this “conservative” talk show, there wasn’t even a mention of getting rid of the income tax! Talk of the Tax Swap aids and abets this dangerous trend.
As reported in The Hill newspaper, “According to several sources, talks are under way on Capitol Hill to create a consumption tax, perhaps a VAT, that would be added to the current tax system to help the country get out of debt. There has been no serious discussion on implementing the FairTax, these sources said.”
It should be clear to anyone who understands how things work on Capital Hill that, if the Tax Swap has any influence at all on policymakers, it will be to help saddle the nation with a VAT or sales tax – while the income tax remains.
9. Selling a consumption tax as “optional” is misleading.
Requiring people to pay a sales tax takes the fruits of their labor, as do all taxes. It is absurd to suggest that buying products and services is optional. It is a necessity to stay alive and to do many of the things worth living for.
10. The proposed consumption tax rate starts obscenely high -- and will continue to rise.
Tax rates almost always rise – a lot.
If the Tax Swap creates a new consumption tax at the frighteningly-high rate of 30%, we should expect it to rise after people move their purchases to the black market or barter to avoid it. Politicians will react by raising the rate to get the revenue they desire. They will insist that revenue can’t go down (a point of view aided and abetted by advocates of the Tax Swap!)
You don’t need to look hard to see that today’s politicians constantly raise taxes. Just look at the 2015 budget deal (negotiated end-of-year 2014). Or the 2014 deal. Or the 2013 deal. Or the year before that. Or the year before that. Or just about ANY YEAR IN THE LAST 100 YEARS.
Today’s income tax started at graduated rates in the range of 1-7% in 1913 and is now 10-35%.
If a federal consumption tax starts at 30%, how high will it rise?
(cont)
5. Your opponents will use the Tax Swap to bury your campaign.
The media and your opponents will present a Tax Swap proposal as a tax increase.
That makes you look like a tax hiker. And as one who advocates freedom and reducing government, it makes you look hypocritical to boot.
Even if you have a well-funded campaign and can buy enough ads to get your explanation heard, you won’t be able to overcome the fact that your Democratic and Republican opponents will be much better funded.
Plus, they will have the media on their side.
Your opponents have no interest in helping to promote your explanations of how the Tax Swap ends the income tax or any other positive point you could make in its favor. They will crush and discredit you as being one more politician who raises taxes. This has already been done against proponents of the “Fair Tax”. Examples: here and here.
6. The Tax Swap proposal is harder to sell than simply ending the income tax.
Past attempts to cut taxes suggest that bold tax cut proposals do as well or better than moderate ones.
The reasons for this are twofold. First, opponents of a bold tax cut will fight a modest tax cut with equal force. In fact, they’ll fight just as hard against anyone who opposes a tax increase. They always advocate for more Big Government and fight against anyone who stands in their way. So you have nothing to lose by trying to avoid their opposition. You’re going to get it anyway, no matter how bold or how weak your stance.
Second, the revenue neutral Tax Swap misses out on the biggest benefit for voters of simply ending the income tax: More money in their pockets.
Ending the federal personal income tax allows us to give back (as of 2014) an average of $11,525 to every household in the U.S. – every year – that they now pay in the federal income tax – a huge selling point. The Tax Swap offers no such benefit because most voters will pay for it in the new sales tax. It is, after all, a revenue-neutral proposal not designed to give taxpayers relief.
In short, the appeal of the Tax Swap is relatively narrow, while the opposition to it will be very broad.
7. Revenue-neutral proposals miss out on another critically important benefit of bold tax cuts: Jobs.
Any measure that reduces government revenue, i.e., it shifts substantial resources out of government coffers and into the private sector, creates jobs. This is another huge selling point for simply ending the income tax that the Tax Swap cannot claim.
This job creation benefit of reducing total revenue has been substantiated by a study by the Beacon Hill Institute in 2010 which showed that for every government job lost due to spending cuts, two jobs are created in the private sector.
More jobs means more job opportunities – giving workers more choices for satisfying jobs and higher pay.
(cont)
4. Tax Swap proposals squander the opportunity to go on the offensive and make government small
Freedom is the absence of Big Government. To advance freedom, advocates for small government must proactively advocate for shrinking it dramatically.
Campaigns of advocates for small government should go on the offensive, constantly selling the virtues of boldly reducing the size, scope, authority, taxation, spending, assets and/or liabilities of Big Government.
Take past Libertarian candidates as an example. In 2014, over thirty Libertarian candidates running for federal office pledged that, if elected, they would work to end the personal income tax, balance the budget, and roll back spending to the year 1998 – a plausible and attractive proposal with no new tax. In 2016, 42 Libertarian federal candidates made the same pledge.
In 1996 and 2000, Libertarian Harry Browne ran for president on an even bolder platform. Ending the personal income tax, the corporate income tax and the FICA tax – while completely privatizing Social Security. He proposed cutting federal spending from $1.9 trillion to a mere $100 billion in total spending.
Volunteers, donors, and voters who heard Browne’s bold proposals were wild about them. LP membership grew threefold during his campaigns – by far the greatest growth rate the party has ever achieved.
Despite Browne’s effectiveness, you may still feel uncomfortable proposing to completely and immediately end the federal income tax. That’s OK, because there are alternatives.
As a federal candidate, one option is to propose to simply balance the budget. Today this requires a sizable cut. That alone would make a huge difference, and would stop the devaluation of the dollar – which is, in effect, a hidden tax. You’re saving taxpayers thousands of dollars every year by balancing the budget and stabilizing prices that they now lose to nonstop inflation. Plus, it’s an easy proposal to defend. You can paint your opponents who refuse to balance the budget as reckless and irresponsible – which they are.
Another alternative is to propose first balancing the budget, then phasing out the income tax and cutting spending accordingly. Pick a time frame you’re comfortable with, for example, a 3-year plan. But don’t go as far out as a 10-year plan – that’s too far off. History has shown that Congress has repeatedly violated its long-term plans, and they're not credible. Ten-year plans are used by today’s Big Government politicians as a way to avoid cutting government spending. We need to break this precedent and show that we can cut spending now.
Note that the LP platform calls for ending the income tax, but does not call for any replacement tax:
All persons are entitled to keep the fruits of their labor. We call for the repeal of the income tax, the abolishment of the Internal Revenue Service and all federal programs and services not required under the U.S. Constitution. We oppose any legal requirements forcing employers to serve as tax collectors. Government should not incur debt, which burdens future generations without their consent. We support the passage of a "Balanced Budget Amendment" to the U.S. Constitution, provided that the budget is balanced exclusively by cutting expenditures, and not by raising taxes.
(cont)
3. The Tax Swap aids and abets Big Government tax hikers
Many advocates of fiscal responsibility agree: 90% of what the federal government spends is either pure waste or does more harm than good. If they were to carefully scrutinize most state budgets, they would likely arrive at a similar conclusion: Most state budgets can and should be cut by a very large percentage. Most services that are viewed by voters as proper functions of government – roads, police, firefighting, and schools - are, and should be, funded locally. (Local governments are also over-funded and in need of downsizing.)
Therefore the fact that the Tax Swap aims to be “revenue neutral” is not a virtue, but a drawback. It leaves money on the table for Big Government politicians to spend on regulations, prohibitions, war, spying on its citizens, and meddling in personal freedoms.
Proponents of the Tax Swap have already gone on record selling “revenue neutral” as a good thing – when it should be sold as a bad thing. Advocates for fiscal responsibility should eschew, if not outright denounce, any policy like the Tax Swap that advocates keeping Big Government big.
What’s worse, introducing and promoting a consumption tax feeds directly into the agenda of Big Government advocates who would love advocates for fiscal responsibility to help them sell a massive new tax.
Advocates for fiscal responsibility should NEVER help to sell a new or increased tax. Our opponents may raise taxes anyway, but they should have to scratch and claw for every tax hike they pass. We should force them to cash in whatever goodwill they have with voters to raise a tax, and especially to introduce a new tax. Don’t take them off the hook by promoting the alleged “virtues” of a consumption tax.
(cont)
2. Who do you want to divide and conquer? Taxpayers? Or advocates of Big Government?
By promoting one tax over another, you’re helping proponents of Big Government because it divides, rather than unifies, taxpayers. Taxpayers are the last group any fiscal conservative should want to divide.
Swapping the income tax for the sales tax will cause taxes to go down for people in middle- and high-income brackets and will cause taxes to go up for those who do not currently pay, or who pay very little, income tax.
A tax swap could be viewed as a direct attack on the latter group, which includes many poor seniors on Social Security and the working poor, both important constituencies.
Working poor already lean strongly against new taxes.
Senior citizens already paid tax on their income. Why should they pay it again on a consumption tax?
Both are large constituencies important to any candidate running for office.
To threaten these groups with a tax hike, especially one that will be viewed as favoring those who are better off, is more marketing suicide.
Consider that low-income voters are already severely overtaxed, even if they pay no income tax today. They pay property tax – either directly as homeowners or indirectly as renters. They pay sales tax in most states. Most pay state income tax and FICA tax. And they pay many of the hundreds of direct and indirect taxes that everyone pays.
Plus they have much less discretionary income to pay those taxes. Any tax increase on this group is a heavy burden.
Plus, this is probably the group that is disproportionately harmed by Big Government (e.g. small business regulations) and which sees very few benefits to themselves. They’re on our side. It would be disastrous to be seen as harming this group even more with a tax increase.
Running on a new tax shifts the overall tax burden to these groups - no matter how many complicated exclusions for the tax you want to list. Your opponents will nail you on it and alienate these core constituencies. You will be pegged as another rich guy or woman who doesn't like paying the income tax or paying accountants - and who doesn't care a whit about everyday taxpayers who need and want to buy goods for their families.
And of course those exclusions, aimed at mitigating this point, add complexity to taxes, which is exactly how the IRS became the beast that it is today, loaded with provisions to appease one group or another and opening the door for special interest lobbying.
It’s best to avoid the whole debate about whether one tax is better/worse, more/less fair than another. They’re all bad and they’re all unfair. This is the wrong debate to be having and gets big-spending politicians off the hook. We need to turn the heat on Big Government spenders – not taxpayers!
The goal should be to get our opponents fighting over where to cut spending – not advocates of liberty fighting over whom to tax.
Instead, it’s far better to propose broad tax and spending cuts that cut taxes for most if not all taxpayers – and that never raise anyone’s tax.
The more broad-based the tax cut, the more it benefits everyone -- so there’s nothing for tax-cutters to fight about.
From a paper I wrote circa 2015:
Twelve Reasons the Tax Swap Proposal (a.k.a. “Fair” Tax) Is a Really Bad Idea
First let’s call the “Fair” Tax what it is: a proposal to swap the federal personal income tax for a 30% federal sales / consumption tax. And while some taxes may be worse than others, there is no tax that is inherently “fair.” Therefore, a more accurate descriptor of this proposal is the Tax Swap. Or a National Sales Tax (which is what Brian McClinchey seems to prefer).
1. Raising the sales tax is marketing suicide
Have you ever actually tried to sell a price increase? A thirty percent price increase?
That’s what a new 30% sales tax amounts to: a dramatic price increase on most of the things that everyone buys. Ouch!!!
Take note of ads in newspapers, on the Internet, on radio, or TV. Notice how many of them were bragging about a price increase? Have you heard any of them say, “Call today, and you’ll pay an additional 30% more for your (fill in the blank)!”
Consumers – and voters – are extremely sensitive to prices they pay out of pocket.
A candidate who runs on raising the price of everything that everyone buys is committing marketing suicide.
A new five percent sales tax would be a marketing nightmare. Running on a new 30% sales tax is marketing suicide. It severely discredits any candidate who runs on it claiming to be fiscally conservative.
It doesn’t matter that it’s a replacement tax. Voters will see it as a price increase, no matter how you try to justify it. You can bet your opponents will.
It doesn’t matter if you say their prices will go down and that they’ll pay the same in the end for goods.
First, they are not likely to believe they’ll ever see prices drop because they are not economists – and you’re not going to turn a voter into one. Arguments presented in a campaign must be very simple, or you just won’t have time to sell it to most audiences.
Second, they won’t believe you any more than they believe any politician trying to sell them a tax increase. Proposing a new tax is an extremely high negative that even Democrats avoid. When they do push a tax, it’s always on “the rich” or “corporations” --smaller groups that are easy for them to demonize without losing a lot of votes.
The Land Value Tax (aka Single Tax) has all of the advantages you list for the national sales tax with none of its drawbacks. With sales taxes you disincentivize sales, which is to say you depress economic activity. Land, however, is perfectly inelastic in its supply, thus taxing it cannot reduce its availability. All it does is increase its efficiency of use. You should educate yourself on the Land Value Tax (sometimes called the Single Tax) and the efforts of Henry George in his magnum opus "Progress and Poverty." Maybe start by going to YouTube and searching "for the land is mine DVD restored" and watch that. I can't imagine anyone proposing an overhaul as sweeping as this and not having it be the Single Tax, but instead a national sales tax. No sane and informed person would, so I have to assume you're simply uninformed. That's fine. Do the research. If you do you'll soon "see the cat" as they say.