Thursday, July 28, 2005

FairTax Debates

Purchased an advance copy of Boortz and Linder's FairTax book. One of the most cogent rebuttals I've heard concerning the FairTax is that in order not to send deficits sky-high, the national sales tax proposed would have to be something on the order of 30% or so... which would inevitably prompt avoidance behavior, further reducing state revenue. Therefore, it will never pass.

I'm not sure of the extent to which the numbers eventually fall into place: nobody is, because it depends on the specific proposal put into law. FairTax is a real piece of legislation, not an incremental wonkish tinkering. Therefore, it faces higher hurdles than the sort of everyday, out-of-sight Congressional business we're accustomed to getting from DC.

However, even if this is true, thhere are four mitigating reasons to support the FairTax proposal.

1. The US will guzzle the world's capital, as any corporate leader with a brain and the chance to relocate his company to a country with no income tax, but a solid infrastructure and reasonably predictable legal environment will do so. This will create profound economic growth, and mitigate tax revenue loss.
1.a. Budget deficits are only relevant in proportion to the size of one's actual budget. Although we would prefer otherwise, my wife and I carry debt that would crush friends of ours who are still students -- and others who have higher incomes similarly can blissfully service debt that would crush us like a sugar cube.

2. "Values" votes. First of all, no politician who seriously attempts to help get rid of the IRS will ever have to fear for his re-election, particularly (though not exclusively) in the Red States. As a simple increase in freedom, FairTax has an appeal that's hard to beat... only few will actually prefer having to testify against themselves every April 15th, sweating over whether they've accidentally forgotten something that might count as "imputed income," whatever the heck that means in any given year.

3. Class statements. However much the egalitarians don't like it, expensive cars are on the road for a reason: they make powerful statements of financial success. A lawyer can't drive around town in a beat-up pickup: not if he wants to attract the level of client he'd prefer. When "new" is more expensive than used... "new" will become a statement in and of itself. Therefore, avoidance behavior, while likely to occasionally occur, will not be a problem for big-ticket items.

4. Skyrocketing home-ownership. How'd you like to pay no taxes on the part of your income that pays your mortgage? FairTax on its own would do vast amounts to restore blighted neighborhoods. I know this is politics, but let's keep it real for a second, anyway. How many lower and lower-middle-class families are out there buying McMansions? Not a lot. Most of them are moving into fixer-uppers. By taking housing income effectively out of the federal tax scheme, there will be a major secondary-market housing boom.

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