Is it Constitutional? My layman's reading of the Constitution leads me to think FairTax is Constitutional. Article I Section 8, paragraph 1 gives Congress the power "To lay and collect Taxes, Duties, Imposts and Excises,... (provided that)... all Duties, Imposts and Excises shall be uniform throughout the United States ..."
The 16th Amendment to the Constitution gives Congress the power "... to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." The 16th Amendment does not require that income be taxed; it only allows Congress to tax income. Presumably Congress could tax spending instead, as long as the tax is applied "without apportionment among the several States, and without regard to any census or enumeration." So there would be no need to repeal the 16th Amendment.
Does it Fund the Government? As proposed, no, it does not. Supporters claim that FairTax would be "revenue neutral"; that is, it would raise just as much money as the government collects today through taxation. Proponents also tout the time and cost savings that will arise if no one has ever to complete an I.R.S. form again.
Yet tax collections do not fully fund the government now. The 2009-2010 federal budget called for tax revenues (all sources) of $2.32 trillion, and spending of $3.55 trillion. Any tax scheme that is "revenue neutral" would leave us with trillion-dollar deficits each year into the indefinite future.
Many conservatives argue that the prospect of such deficits would help to shrink the size of government. During the 1980s, Ronald Reagan introduced the notion that lower tax rates would help to "Starve the Beast" rein in spending and reduce the size of government.
Reagan likened the federal government to a teenager who spends too much money. Reagan's solution: cut the kid's allowance. Trouble was (and is), if that teenager has access to your checkbook and all your credit cards, then arbitrarily and unilaterally cutting his allowance may not be such a good idea.
We all know how that worked out. From 1980 to 2005, federal civilian employment declined 13.4% (source: U.S. Office of Personnel Management). But federal spending increased 378% during that 25-year period, and the deficit ballooned from $907.7 billion to $7.93 trillion an astounding 774% increase (source: Congressional Budget Office).
Man, that is some beast!
Reagan failed to consider an important human factor in his budgeting process: electoral politics. Elected officials, not budget analysts, vote to approve budgets. And most politicians simply lack the political will to cut spending and eliminate programs, especially ones popular with their supporters and campaign donors. So whatever else it does, it's a good bet that FairTax will not help to reduce federal spending.
At this point in our history, we don't need a tax system that is merely "revenue neutral"; we need one that is "spending neutral," at least. And only a "revenue positive" system will fund the budget and begin to reduce the burgeoning national debt.
That raises the question: if FairTax is merely "revenue neutral," why do it at all? Is it just tax simplification, to save people time and money or to put legions of accountants, tax attorneys, and I.R.S. employees out of work? No, those may be benefits (unless you're an accountant, a tax attorney, or an I.R.S. employee) but they are not sufficient to justify a wholly different approach to federal taxation.
FairTax: A Regressive TaxNo, the reason conservatives support FairTax must have something to do with who pays the lion's share of the tax burden. And it does: FairTax is a blatantly regressive tax scheme. Under FairTax, corporations would pay no taxes at all, the wealthy would pay less tax than they pay now (at least as a percentage of their incomes), and the tax burden would shift dramatically to people of middle and lower incomes.
An example makes the point. A friend of mine, I'll call him Tony, is a cop. On his municipal paycheck, Tony supports eight people: himself, his wife, five daughters, and his mother-in-law. By contrast, my wife and I are retired. Without going into details, I would say that our income exceeds Tony's.
Those facts were reflected in our basic tax liabilities (that is, before any credits) for 2009: ours was more than quadruple Tony's (source: TurboTax computations using real numbers). To my mind, that's as it should be: our income is higher and we only have two people to support, not eight.
A consumption tax like FairTax would almost exactly reverse our tax liabilities, for the simple reason that it costs so much more to feed, house, clothe, educate, entertain, and transport eight people than it does two retirees. And every meal eaten, every new outfit worn, every school notebook opened, every live concert enjoyed, and every tank of gas pumped would carry a 30% federal sales tax in addition to state and local taxes.
FairTax: Discriminatory?Tony's family illustrates a second point: FairTax may be discriminatory, at least on a family basis. Tony's family is Hispanic. In the U.S., Hispanic households average about four people, Black households comprise about three people, and white households have about two people (Source: 2000 U.S. Census). Under FairTax, white households are likely to pay less federal tax simply because four people consume more than two or three people do.
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