Is the Fair Tax in Our Future?


Critics of Donald Trump once counted tax evasion among his many faults. But it turned out that he wasn’t breaking any tax laws. He was simply utilizing the complex web of exemptions, deductions, and other rules available to reduce his tax bill to near zero.

It would be hard to imagine a worse tax system than our federal government’s. It is based on taxing economic productivity, which in a free market system benefits us all. Politicians use taxation not only to generate revenue but to pursue a grab bag of policies ranging from welfare programs to “climate change,” home ownership, and subsidization of state and local taxes.

The tax code is hopelessly complex and expensive to operate. Individuals and businesses spend around $37 billion and over 3 billion hours annually in tax compliance, up to 10 times as much as taxpayers in other wealthy countries.

Phil Gramm was right 25 years ago to suggest that the best option would be to scrap our entire tax system and replace it with a single national sales tax. He didn’t succeed, of course, but the concept is so sound it still remains active in academia, think tanks, and government white papers.

Representative Buddy Carter introduced the Fair Tax Act of 2023 in Congress this year and was promised a floor vote. This bill would eliminate all personal and corporate income taxes, payroll taxes for Medicare and Social Security, estate and gift taxes as well as the Internal Revenue Service itself.

Instead, there would be an effective 30% consumption tax, but households would get a tax rebate check each month adjusted for family size and income. The rebate would have the effect of exempting all purchases up to the poverty line from taxation. The tax rate and rebates could be adjusted to make the tax revenue neutral and roughly as progressive as our current structure.

Still, Democrats and their media buddies immediately attacked the proposal as “ tax cuts for the rich, period” and a “Republican dream to build a wealth aristocracy.” Even the Wall Street Journal criticized it on political grounds, worrying that even though it “made sense,” it might hand Democrats a juicy campaign issue.

But its critics, perhaps intentionally, misunderstand the bill. Americans would not, on the net, pay more taxes, nor would low income earners be punished. The tax burden wouldn’t grow but only be redistributed.

Outsized deductions and other tax shelters would vanish, meaning the ultra-wealthy and the big spenders would pay taxes more appropriate to their incomes. Savers would obviously benefit. Investments could grow tax-free.

Some critics argue that tax evasion would be a problem. But that’s true of any tax scheme, including the one we have now. The IRS estimates that Americans underpay their taxes by $500 billion annually, in addition to the billions of fraudulent claims in programs like the Earned Income Tax Credit.

The Fair Tax wouldn’t have to be perfect to be more efficient and less cumbersome than our current system of self-reporting buttressed with audits. Avoiding the stressful hassles with the IRS would be a welcome relief to many Americans.

A more substantial concern is that future legislatures may try to augment the consumption tax by adding back income and other taxes so that we end up with the worst of both worlds. A constitutional amendment prohibiting an income tax would be preferable. Otherwise, careful consideration must be given to rigid self-activating safeguards to protect taxpayers.

The Fair Tax has never passed because of political opposition from groups that have too much to lose by giving up the status quo. Yet if government wants to subsidize things like housing, electric vehicles, or healthcare, it would be more transparent and accountable to appropriate the money rather than disguising it as a tax deduction or credit. Likewise, if Americans want to financially support charitable causes, and they do, they should do it with their own money, not a partial government subsidy that comes with strings attached.

Tax reforms are always opposed by those who benefit from the current structure. But the Fair Tax would be a far more equitable and transparent way to fund government. It deserves a look.

Published in Economics

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There are 4 comments.

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  1. Raxxalan Member

    Big supporter.  We should consider it for our side once the national divorce is done and we are starting from scratch. 

    • #1
  2. OccupantCDN Coolidge

    Politicians have too much too lose. If not for the campaign contributions from all those groups that need a tiny tweek to the tax code. How would any congressman get re-elected?

    A flat/fair tax would be a huge step in the right direction. But even with such a tax, Donald Trump would have still paid nearly zero taxes. Remember that a lot of his deductions stemmed from the failure of his Atlantic City Casinos. He got a $900 Million write down on that loss alone.

    He got tax deductions, not because he’s a brilliant business man, but because he’s a failed business man.

    • #2
  3. drlorentz Member

    Oliver Anthony has some serious competition.

    I’m just a public policy analyst
    Living in metro
    DC Lamenting regulatory capture
    And capital gains tax rates, you see

    Too bad tweets don’t always get embedded here.

    • #3
  4. Bryan G. Stephens Thatcher
    Bryan G. Stephens

    drlorentz (View Comment):

    Oliver Anthony has some serious competition.

    I’m just a public policy analyst
    Living in metro
    DC Lamenting regulatory capture
    And capital gains tax rates, you see

    Too bad tweets don’t always get embedded here.

    Ah, National Review simply do not care that elites have eaten well while the Middle Class has shrunk. It is all our fault, don’t cha’ know?  

    • #4
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