Bartlett’s FairTax Fiction Fails to Smear
September 14, 2007
His “natural habitat” threatened by the growing popularity of the FairTax, Bruce Bartlett rather sadly resorts to the most damning fiction he can create in order to malign this thoroughly researched proposal. Misdirection is, of course, a valuable skill for pickpockets and stage magicians but in the case of public policy, it is a coarse path that reflects poorly on the performer and ill-serves honest debate.
The FairTax was developed, independently of any other proposal, over the course of several years by noted economists after extensive market research was conducted into what the public desired in the way of a national tax system. It was originally developed and has gained popular support precisely because the current income tax system has so damaged the nation and so bedevils individual taxpayers. Its origins, therefore, can be found in the sincere desire of citizens, economists, and public policy experts to see fairness, simplicity, and transparency replace the mind-numbing complexity of the tax system which so well serves self-styled experts like Mr. Bartlett.
Although not an economist, Mr. Bartlett’s impressive knowledge of 65,000 pages of tax regulations and arcane minutia of the income tax system would -- overnight -- of course be rendered obsolete with the paradigm-shifting simplicity of the FairTax. At the same time, foreign manufacturers would no longer see a price advantage over the “Made in America” label; taxpayers would be freed from the embarrassing and wasted $265 billion dollars annually it costs to merely comply with the income tax system; and American earnings, investment, and productivity would no longer be subject to Congressional power struggles, the profit motives of tax lobbyists, and yes, the intellect of individuals such as Mr. Bartlett.
A federal tax policy that serves the public interest instead of personal and political ambitions is an idea that is now powerfully resonating with the public. Distortions such as Mr. Bartlett’s are increasingly being seen by the public as self-serving attempts to maintain the broken and destructive income tax system. Mr. Bartlett’s statement, for example, that the FairTax prebate is based on income calculations is being met with widespread laughter from a public that understands much better than Mr. Bartlett the actual design elements of the FairTax. The existence of “embedded” income taxes, the logic of applying the FairTax to government spending, the difference between “inclusive” and “exclusive” calculations of both income taxes and FairTax rates, and the more than $20 million of FairTax research are permeating the public consciousness and rendering ineffective the increasingly obvious sleights-of-hand by defenders of the tax code.
Our FairTax campaign now verges on becoming a powerful national movement because the public desperately desires a better way to collect federal taxes for the common good and recognizes the current system as both inherently flawed and then further corrupted by inside-the-Beltway machinations. It is understood by those who are joining our effort that overcoming the self-interest of the increasingly disdained Congress and the army of income tax system defenders is no small task. Distortions such as Mr. Bartlett’s, however, just fuel the growing grassroots wildfire to drive public policy right over the broken income tax system and all its camp followers.
Leo Linbeck is Chairman and CEO of Americans for Fair Taxation. He is one of the founders of FairTax.org and directs the national grassroots campaign in support of the FairTax.
My guess is that few readers made it with an open mind past Mr. Bartlett attributing the FairTax's origins to the Church of Scientology. That organization may have a similar proposal or a proposal with a similar name, but I know for certain that the mainstream FairTax proposal found at www.fairtax.org has no connection to it.
I know this because the two principal founders of the FairTax movement, Leo Linbeck and Bob McNair of Houston, are friends of mine who served on my board at the Dallas Fed. I was there as they began to develop their proposal in the mid-1990s. I watched them pitch their fledgling idea to their friends and business associates, and I watched them urge prominent economists to do independent research on their proposal. I even accompanied them to San Francisco to pitch it to Milton and Rose Friedman. (I still remember Rose's homemade cookies.)
We should give the FairTax a fair chance. In fact, I posted a blog with that title a few weeks ago. See http://www.bob-mcteer-blog.com/. A fair chance means a thorough evaluation and discussion of its merits without the distraction of a red herring.
National Center for Policy Analysis
Former President of the Dallas Fed
In the interests of full disclosure, we reprint the original editorial here:
Fred Thompson channels L. Ron Hubbard
Dianetics, the Tax Plan
by Bruce Bartlett
The New Republic Online
Post date 09.06.07 | Issue date 09.10.07
The basic theological tenets of the Church of Scientology are well known: a fanatical hatred for psychiatry coupled with a creation myth that involves an evil alien ruler named Xenu and his sundry galactic allies. The basic tenets of its tax policy are somewhat less familiar. But Scientologists promulgated and, at one point, heavily promoted a proposal that would replace all federal income taxes with a national retail sales tax (nrst). And the theology and tax policy aren't entirely unrelated: Xenu used phony tax inspections as a guise for destroying his enemies.
In a strange confluence, the Scientologist proposal happens to be nearly identical to one of the trendiest conservative tax proposals of the year, the so-called FairTax, which has been endorsed by John McCain and Fred Thompson, as well as second-tier presidential candidates Mike Huckabee, Tom Tancredo, Duncan Hunter, and Democrat Mike Gravel. Georgians John Lindner and Saxby Chambliss have introduced FairTax legislation in the House and Senate that would establish a 23 percent national sales tax.
But, when you mention any hint of the nexus between Scientology and the nrst--as I did briefly in a recent Wall Street Journal op-ed--you'll be denounced by FairTax supporters as a smear artist. This retort, however, is simply evidence that these FairTax supporters don't know the history of their own proposal. That's too bad. Perhaps if they understood its origins in Scientology, they might have a greater appreciation for its inherent flaws.
The story of the FairTax's provenance is one that I can tell with some firsthand knowledge. In 1993, fresh from a stint at the Treasury Department, I spent a few months at the Cato Institute. I was filling in for Steve Moore--now an editorial writer at The Wall Street Journal--who took a brief leave from his job as director of the think tank's fiscal studies program to advise former Texas Representative Dick Armey. It was there that I was visited by a man named Steven L. Hayes, the founder of group called Citizens for an Alternative Tax System (cats) that promoted the nrst, and who was, as Moore pointed out to me, a prominent Scientologist.
It wasn't hard to figure out the Scientologists' motives for hawking the nrst. The IRS had refused to recognize Scientology as a legitimate church--a fact that seemed to enshrine their popular reputation as a "cult." To remedy this situation, Scientologists waged war against the IRS. At various points, the Church attempted to infiltrate the tax authority and even hired private investigators to examine the private lives of IRS officials. And the same impulse behind these measures led them to devise the nrst. One church spokesman told National Journal's Paul Starobin, "We thought, If this [discrimination] is happening to us, there must be a lot of people to whom this is happening.' ... How could some positive changes be made?" Since nearly every state has a sales tax, it would be a simple matter to get them to collect a federal nrst, rendering the IRS instantly superfluous, a ripe target for abolition.
As Starobin told the story, cats wooed the Texas political elite, including Robert A. Mosbacher Jr., the son of George H.W. Bush's secretary of Commerce. Mosbacher urged Hayes to reach out to Jack T. Trotter, an attorney close to Texas Representative Bill Archer, the ranking Republican on the tax-writing House Ways and Means Committee. Although Trotter and Hayes held several meetings, nothing came of it. According to Starobin, Trotter feared that the Scientology connection would turn off too many potential supporters. (Hayes, for his part, has always denied that the church played any role in his group after helping found it.) But Trotter was hooked by the sales tax idea and wanted it expanded to include the payroll tax as well. He formed Americans for Fair Taxation (AFT) in 1995 to promote the cats proposal, but without the taint of Scientologist involvement. AFT promoted the FairTax for a decade, elevating the plan to its current popularity.
By the time that Trotter had shunted the Scientologists aside, the church was losing interest in tax reform. In 1993, the IRS finally recognized Scientology as a legitimate religion, ending the rationale for a vendetta against the tax collectors. Cats basically withered. Its last tax return, filed in 2005, showed contributions totaling $1,725. A year later, the group appeared to be completely defunct. (Interestingly, in 2003, the group's tax returns listed my old colleague Steve Moore as a director.)
A brief digression: A few years after I encountered Hayes, he gained notoriety by suing an anti-Scientologist organization called the Cult Awareness Network (CAN). When CAN declared bankruptcy in the wake of this suit, Hayes purchased the organization's assets and name at auction. Overnight, CAN ceased to be a thorn in Scientology's side.
The reason I brought up the Scientology connection in the first place was not to create guilt by association. Rather, it was to explain that cats had one very specific goal: the abolition of the Internal Revenue Service. Anything else that the nrst might accomplish was entirely secondary. And, in the rush to rid the world of the IRS, the plan's authors neglected some important details, not to mention some key facts.
For starters, the FairTax is deceptively calculated. When you think of a 23 percent sales tax, you think of paying an extra 23 cents on the dollar. That's how every sales tax in the world works. The FairTax, on the other hand, doesn't represent 23 percent of the pre-tax value of the item you bought, but the post-tax value of the item. So, under FairTax, you wouldn't pay $1.23 for a $1 widget--but $1.30, since the 30-cent tax is 23 percent of $1.30. How straightforward!
The legerdemain doesn't end there. Unlike every other sales tax in the world, the FairTax actually applies to everything--every pencil, every tank--the government buys. Unfortunately, the FairTax proposal doesn't take into account this increase in government spending. Thus, it will either provoke a massive cut in federal spending or a massive increase in taxes.
And what about the poor who bear the brunt of this highly regressive tax? The FairTax would track every household's monthly income and then cut checks to minimize the pain, a logistical challenge that will ultimately resemble some welfare state nightmare. What's more, this would cost gobs of money, forcing further cuts in spending.
For these and other reasons, every reputable tax expert who has ever looked at the FairTax has concluded that the true tax rate would have to be much, much higher than 23 percent (or even 30 percent) to work--and, even at that unrealistically low rate, the plan would inspire massive tax evasion. In short, the FairTax is a crackpot scheme from beginning to end. That would be true even if the Scientologists hadn't authored it.
Bruce Bartlett was the deputy assistant secretary for economic policy at the Treasury Department from 1988 until 1993.
Originally posted on The New Republic Online: http://www.tnr.com/doc.mhtml?i=20070910&s=bartlett091007