A Fair Tax for Progressives

The Huffington Post

Millions of Americans who recently endured needless hours of toil and stress completing tax returns want fundamental tax reform and relief from the oppression of the current tax code, which includes a $400 billion annual compliance burden and which even progressive economists concede is a national disgrace...

 The FairTax would replace nearly all federal taxes with a single-rate tax on national consumption spending coupled with a cash payment to all households of record to offset taxes paid on private spending up to the poverty level.

The FairTax is not a tax cut for the rich. By definition, "rich" people are those with high net worth and/or high lifetime income who consume a lot -- like Bill and Melinda Gates. People with high wealth and lifetime income who theoretically consume at the poverty level would not be materially rich but impoverished -- until they spend more commensurately with their wealth and lifetime income. Until they do, why would we want to tax away their investments (which presumably expand employment and global output) or their charitable contributions (which presumably direct aid to the least advantaged and most deserving)?

The current tax code destroys wealth and diminishes wealth creation excessively, but it does not effectively tax wealth (in the sense of raising revenue). The FairTax would tax spending from wealth in addition to fostering more wealth creation. Some progressives will contend that the FairTax is less progressive than the current code as measured by effective tax rates relative to single-year gross or taxable income. But they should consider that a tax is more truly progressive if its burden falls most on the people who consume the most -- and they are those who tend to have the highest wealth and lifetime income. There is never a strong correlation between current income per capita and current expenditure per capita. Again, keep in mind that millionaires and billionaires who spend a lot from their wealth can often fall into the low-income category.

Some progressive economists, such as Cornell's Robert Frank, have even argued that income inequality is not an egalitarian concern per se. The issue for Frank is consumption inequality, which the FairTax would likely reduce.

Under the FairTax, real GDP and national income could be 10 percent higher than under the current code in just a few years. Most of us would be paying more in taxes, but would be richer on an after-tax basis. However, a 2007 study by economist David Tuerck and the Beacon Hill Instituteconcluded that if we group taxpayers by expenditure per capita, the average taxpayer in the top decile loses under the FairTax (with lower levels of after-tax consumption than under the current system, despite growth in income)...

The full article can be veiwed here.


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