IRS Scandal Is The Latest Evidence That We Need A Fair Tax

Forbes.com

On the surface, conservatives and progressives seem to be in agreement about what should be done about the IRS scandal:

Larry Kudlow: “…must find out exactly what happened and who was involved, and then come up with a fix so it never happens again.”

Steven Rattner: “…the matter needs to be fully investigated, those responsible need to be held accountable and procedures need to be put in place to ensure that nothing like this can happen again.”

However, abuse of IRS power has been going on for almost 80 years.  It began under FDR, not long after the IRS was created.  In reality, there is only one way to ensure that something like this never happens again.  The IRS must be abolished, the 16thAmendment must be repealed, and most existing federal taxes must be replaced by the FairTax, which is a national retail sales tax.

Stepping back for a moment, it is striking that so many government employees could participate in an unlawful attack on conservative organizations and political donors and not realize that they were doing something wrong.  Indeed, some of the accounts of the bureaucratic hoops that organizations with conservative-sounding names (but not ones with liberal-sounding names) were forced to jump through in order to get 501(c)4 status sound almost gleeful.  (“Hey, I’ve got an idea.  Let’s make them send us copies of their Facebook posts!”)

Striking?  Yes.  Surprising?  No.  Certainly, what transpired at the IRS would not have surprised James Madison...

The Founders saw the dangers in direct taxation, and that’s why they prohibited it when they wrote the Constitution.  The latest IRS scandal is a wakeup call.  The 16th Amendment was a mistake.  The income tax gives the federal government more information about, and power over, citizens than is compatible with freedom.  The only permanent solution to the problem of IRS abuse is to abolish the IRS and institute the FairTax.

The FairTax is a simple national retail sales tax.  Administering it would not involve collecting any information regarding individual citizens.  The FairTax would be easily capable of collecting sufficient revenue to replace our current individual and corporate income taxes, payroll taxes, and death tax.

The benefits of the FairTax go far beyond restoring and safeguarding our liberty.  The FairTax would also produce a rapid, perhaps even violent, expansion of real GDP (RGDP) and employment.  (One caveat: to enable fast growth, the Federal Reserve would have to stop trying to manage the economy, and simply provide a stable dollar.)

The FairTax plan also includes a “Prebate” feature, under which every American individual (or family) would receive a monthly check equal to the FairTax that they would pay if they earned an income at the poverty line and spent all of it on items subject to the FairTax.  Right now, the Prebate would amount to $335.38/month for a family of four...

Because the FairTax would not tax savings and investment at all, and because its compliance costs would be nil, the FairTax would deliver the highest rate of economic growth of any tax system.  Here’s why.

Both GDP and jobs are driven by capital investment.  Each incremental $210,000 of investment in nonresidential fixed assets would yield about $100,000 of GDP and create one real, self-sustaining, average job.  The FairTax would maximize RGDP growth because it would maximize private sector savings and investment.

Under the FairTax, every large corporation in the world would move its headquarters to the U.S. to avoid the corporate taxes imposed by other nations.  America would become multinational corporations’ preferred platform for export manufacturing.  Illegal alien billionaires would be running their yachts aground on our shores and begging for asylum.

It is not unreasonable to expect that, with the FairTax, U.S. real GDP (RGDP) would grow at more than 5% per year for a long time.  However, if all that happened was that the private sector reinvested the cash freed up by abolishing taxes on savings and investment, the FairTax would approximately double our long-term economic growth rate...

Going into a period of fast economic growth, it would be important that we not adopt the FairTax at a “static revenue neutral” tax rate.  A tax rate that produced revenue neutrality in the first year would give the federal government far too much money to spend in later years...

A move to the FairTax would benefit the poor and the middle class the most.  What “the 99%” need most are more jobs and higher real wages.  The only thing that can produce these is fast economic growth.

The FairTax would also reduce income inequality.  Capital and labor split the sales dollar, with capital taking its share first.  The FairTax will lower the cost of capital, and this will raise the percentage of GDP going to workers.

Even if someone worked in the underground economy and received all of their income in cash, they would not be able to avoid paying the FairTax when they go to Wal-Mart.  Obviously, if people who don’t report their income are forced to start paying taxes, the citizens who currently report all of their income can pay less...

The current scandal demonstrates that the IRS cannot be “reformed” into something compatible with a free society.  It is a creation of progressivism, and, at its core, progressivism holds that individual freedom is obsolete.

The current imbroglio gives us a golden opportunity to abolish the IRS and institute the FairTax.  Only in this way can we secure liberty, promote desperately needed economic growth, and ensure that every young American has a fair chance to become a productive citizen.

 

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