Friday, January 04, 2008

Fair Tax

There's been a bit of talk about the fair tax, with Huckabee's support of the idea. Megan McArdle points out several good and bad things about it. What it is, essentially, is a 30% sales tax. However, it's not really a 30% sales tax. Let me explain.

Companies do not pay taxes. They just hand the cost of taxes down to you. Thus, the cost of income taxes, corporate taxes, etc. makes a $70 item $100. With the fair tax, it is proposed that we get rid of all income taxes, etc., cut out he middle man, and tax directly on goods. Thus, the $100 item will still be $100, but the government will get the $30 directly from the sale, rather than having that money go through various layers of taxation. People make the mistake of thinking that this will hurt the poor and middle class, but the fact of the matter is, the price of nothing will change. However, since we all know that the Left, who use taxes for social engineering, not revenues, will object on this ground, a suggestion has been made to include a prebate for the poor that will offset these mythical costs for the poor each year.

Let me propose something more radical. We should implement the fair tax and get rid of the IRS. And then we should pay every family a $15,000 negative income tax and get rid of the entire welfare bureaucracy. That way, everyone is paying the same (well, the rich buy more, so they will in fact pay more taxes), and everyone is getting the same. It seems that those who are in favor of equal treatment under the law should love this idea. I can't say that I love it, but it's a compromise that moves the government closer toward being the kind of thing I think a government should be -- small. Also, it would eliminate most of McArdle's objections.
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