The Fair Tax

A few senior members of my extended family have recently stated their support for this idea on Facebook. Since I'm always looking for a fight, here goes. Please feel free to shred my ideas or correct my misperceptions of the Fair Tax.

First, the good news. "Fair Tax" is a great name. Hard to argue with the word "fair", but really hard to define the concept of fairness especially in the context of the vast generalisations needed in terms of federal tax policy. Wiping away the current system is a very attractive idea because the current system was not designed, but evolved. People of all political stripes can find many things about the current tax code to hate, I'm no exception.

I'm basing my rebuttal on my ideally fair (but totally unworkable) federal tax system, and a brief review of the fairtax.org website. My ideally (but unworkable) fair federal tax system would be an annual tax bill, collected by the IRS, as a percentage of average personal wealth over the tax year. Taxes are fair when the are maximally progressive; from each according to means, to each according to needs. This framework of fairness puts my plan right on the same individual philosophical ground as the Fair Tax. Of course, measuring average average wealth over a year is impossible but a nice theoretical model. More generally, I think taxes should be more federal and less local, and more progressive based on wealth rather than income. It would essentially be a property taxed based on total holdings including real estate. Every tax payer would file a quarterly balance sheet and would be taxed an amount based on a graduated scale. Again, unworkable but a nice dream.

My understanding is that the Fair Tax is essentially a national retail sales tax (as most states now have), administered by the states and paid to the federal government. This is progressive at the bottom of the wealth scale with a 'prebate' (cool word) to poor people that is intended to keep them from paying federal taxes. It is regressive at the high end of the wealth scale because rich people consume a smaller percentage of their wealth than everyone else, so they pay a smaller percentage of their wealth than those in the middle. This means that the bulk of the burden rests with the middle class, just where it is now. I would prefer to see the burden pushed up the wealth scale.

Philosophically this is federalist in the current usage of that word, meaning driven by the states. I'm opposed to that, as I prefer the federalist philosophy pushed by Alexander Hamilton which wanted a very strong central government both politically and financially.