Confessions of a former flat taxer: FairTax is better
By DENIS CALABRESE
As presidential candidates crisscross Iowa in coming months, one of the few things they will all have in common is an unwillingness to defend our disgraceful federal income-tax system. It penalizes workers, savers, the poor, the elderly, American farmers and manufacturers, small businesses, entrepreneurs - just about everyone except tax lobbyists and their well-heeled clients.
But will presidential hopefuls embrace a real alternative? Two primary substitutes have been put forth: The FairTax Plan and the flat tax. The FairTax would replace all federal income and payroll-based taxes with a national retail sales tax of 23 percent. A monthly rebate paid to all citizens in advance would, in essence, cancel out taxes on spending up to the poverty level.
Both the FairTax and flat tax would reduce marginal tax rates and the destructive tax bias against earnings, savings, and investment. Both end double and triple taxation of savings and investment. Both systems are better than our current broken mess, but the FairTax is hands down better economically and politically than the flat tax. Fundamental tax reform is not going to be accomplished twice in our lifetimes, so we should choose wisely.
As a former chief of staff to the congressman who was the flat tax's most vocal supporter, I was a strong flat-tax proponent until the FairTax was developed. The flat tax is a vast improvement, but I want the best possible system. And that's the FairTax.
The flat tax strives for transparency but retains the corporate income tax and payroll taxes, which embed invisible federal taxes in everything we buy. It strives to encourage work, but retains a direct tax on labor. The FairTax abolishes the income tax, payroll tax, corporate income tax, gift and estate taxes and all federal taxes based on income. The FairTax broadens the taxpayer base by capturing the underground economy, illegal immigrants and those who have bought their way out of the tax code. The flat tax does not.
The FairTax eliminates the intrusive, inefficient IRS; the flat tax retains it. The FairTax abolishes individual income-tax forms; the flat tax does not. The FairTax untaxes education; the flat tax does not. The FairTax imposes no tax on small businesses or farms, but the flat tax may tax small businesses and farms even if they are losing money.
International competitiveness is another key area of difference. Our tax system actually subsidizes foreign products by exempting them from taxes, but it penalizes American farmers, manufacturers and other exporting businesses by imposing taxes on our exports. The flat tax makes this even worse. The FairTax stops this senseless, self-inflicted economic damage.
Unlike most tax proposals, the FairTax does not pit one income or political group against another because it offers advantages across the economic and political spectrums. It abolishes all federal taxes on the poor, raises real wages, promotes the "Made in America" label and American jobs and untaxes pensions and Social Security. It taxes accumulated wealth when spent and is highly pro-growth because it untaxes earnings, savings and productivity; repeals corporate income taxes and estate taxes; and promotes investment and capital formation. It reduces marginal tax rates for most Americans.
The flat tax is not as progressive, not as pro-growth and not as transparent. The flat tax retains the same vulnerability to politics that will let lobbyists and politicians again create the very same complex, loophole-filled, unfair system we have today.
More co-sponsors endorsed the FairTax in the first two weeks of the 110th Congress than endorsed the flat tax in the past five congressional sessions combined. The FairTax has hundreds of thousands of supporters across all party lines. On the merits, the FairTax is truly best for America in the 21st century and beyond.
DENIS CALABRESE, chief strategist for FairTax.org., is a public policy and communications professional and the former chief of staff to Congressman Dick Armey.
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