Notes against the Fair Tax legislation

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As Ludwig von Mises said decades ago, there is no such thing as a fair tax, all taxation is theft by the state.

Dear Congressman

by Laurence M. Vance

I recently discovered that you were a supporter and cosponsor of H.R. 25, "The Fair Tax Act of 2005." Since I have written about the FairTax proposal, I thought I would contact you and provide you with the resources that I have contributed to this subject. I first decided to e-mail you. I sent you a brief note with a link to my review of Neil Boortz's The FairTax Book ("There is No Such Thing as a Fair Tax") that was published by the Ludwig von Mises Institute on December 12, 2005. I received via e-mail what looks like an official letter that you send out to people who inquire about the FairTax. Since no mention was made of the article I linked to, I next decided to write you directly. I printed out and sent to you, with a brief letter, not only my article "There is No Such Thing as a Fair Tax," but also another article on the same subject called "The Fair Tax Fraud" that was published by the Ludwig von Mises Institute on May 18, 2005. This time I received from you via U.S. mail the same official letter that you sent to me via e-mail. Since I suspect that you never saw my e-mail, my letter, or my articles on the FairTax, I am writing you a public letter that you will be able to view online at any time.

I applaud your support of "simplifying the tax system, making the government less intrusive, and creating an environment more conductive to saving." However, I think you are mistaken in your belief that the FairTax will contribute to these ideals.

You say that "H.R. 25 sets the sales tax rate at twenty-three percent in 2007." The rate of 23 percent can only be obtained by using the new math of the FairTax people. The rate is actually 30 percent. Because you and I live in Florida, we know that the state sales tax rate is 6 percent (plus an additional discretionary sales surtax imposed by many counties). If we buy something for $1.00, we will pay an extra 6 cents in state sales tax, for a total of $1.06. That is a 6 percent tax rate. Under the FairTax, if we buy something for $1.00, we will pay an extra 30 cents in federal sales tax (on top of the state sales tax). That is a 30 percent tax rate. The FairTax supporters want us to take the $1.30 and say that since 23 percent of that is 30 cents then the FairTax rate is 23 percent when in fact it is really 30 percent. Obviously, advertising a rate of 30 percent would scare away too many potential supporters of the FairTax.

I am glad that you acknowledge the "adjustments to the rate in subsequent years." The typical FairTax supporter implies that the rate will always be 23 [30] percent. Because the FairTax eliminates separate taxes for Social Security and Medicare, the adjustment to the FairTax rate will certainly have to be upward in order to pay for the ever-increasing cost of these programs. But I would argue that the FairTax is dangerous because it makes it easier for Congress to raise taxes: a penny here, a penny there. Before we know it, the rate publicized by the FairTax proponents will be over 30 percent, which means an actual rate of close to 40 percent.

You say in the second paragraph of your letter:

This legislation promotes freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.

I fail to see how the government taxing me promotes freedom. Not only do I end up with less of my money to spend, the government uses my tax money to support a myriad of federal programs that take away my freedom. And what is fair about the government making 30 percent on the sale of every new good and service? As the economist Murray Rothbard said: "There can be no such thing as "fairness in taxation." Taxation is nothing but organized theft, and the concept of a "fair tax" is therefore every bit as absurd as that of "fair theft."" The only way to promote economic opportunity is by reducing taxes and government spending - the FairTax does neither.

You are correct about the FairTax repealing the income tax. However, since it does not repeal the Sixteenth Amendment to the Constitution, we could be plagued with both an income tax and a national sales tax. And yes, the FairTax does repeal other taxes like the corporate taxes, Social Security taxes, Medicare taxes, gift taxes, estate taxes, and capital gains taxes. But there are other taxes that the FairTax does not eliminate, like the excise tax on gasoline (currently 18.4 cents per gallon), the excise tax on cigarettes (currently 39 cents per pack), the tax on handguns (currently 10%), and the various taxes added to the cost of an airline ticket. The FairTax also creates new taxes, since it will tax Internet purchases, new homes, medical procedures, drugs, and tickets for sporting events.

I see that you have accepted the myth that the FairTax would abolish the IRS. It might abolish the dreaded name of the IRS, but its functions will still be there. If there is no IRS or other organization to collect taxes, then who will bother to pay them? There will have to be some kind of federal bureaucracy to oversee the collection of the FairTax. The Fair Tax Act of 2005 tells us that there will be a "Sales Tax Bureau" set up in the Department of the Treasury. There will also be the "Office of Revenue Allocation" and a "Problem Resolution Office" with "problem resolution officers." This sounds like an IRS to me.

You say that this legislation is "pro-family" because it "allocates a sales tax rebate for certain families, based on family size and income." But then you turn around and say that "every family would receive a rebate of the sales tax on spending up to the federal poverty level." Is it "certain families" or "every family"? Having read the "The Fair Tax Act of 2005," I can see that it is your second statement that is correct. Every family - from Bill Gates to the welfare mother with four children - will receive a monthly check from the federal government to offset the sales tax that they have paid on the basic necessities of life. This means that the FairTax is another income redistribution scheme. Welfare will be made universal. Millions of new citizens will now be on the federal dole.

One of your statements leads me to question whether you have even read the FairTax bill that you cosponsor. You say that the FairTax "permits exemptions from the tax for property or services purchased for business, export, or investment purposes and for state government functions." But according to Sec. 703 of H.R. 25, entitled "Government Purchases": "Purchases by State governments and their political subdivisions of taxable property and services shall be subject to the tax."

The only thing the FairTax does is change the way the state confiscates the wealth of its citizens. Because the FairTax is revenue neutral, it fully funds the welfare/warfare state. "The real issue," as your fellow House member Ron Paul has said, "is total spending by government, not tax reform." I urge you to reject H.R. 25, "The Fair Tax Act of 2005," and instead work toward drastically lowering federal tax rates and spending while eliminating the myriad of federal programs and regulations that rob us of our time, our money, and our liberty.

June 26, 2006

Laurence M. Vance lives in District One in the Florida panhandle, which is represented in the U.S. House by Congressman Jeff Miller. He is a freelance writer and an adjunct instructor in accounting and economics at Pensacola Junior College in Pensacola, FL. He is also the director of the Francis Wayland Institute. His new book is Christianity and War and Other Essays Against the Warfare State.