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Published:April 25th, 2008 12:40 EST
FairTax: the Solution or a Problem?

FairTax: the Solution or a Problem?

By Krzys Wasilewski

WASHINGTON, DC. On April 15, 2008, Rep. John Linder (R-GA) received a list with over 100,000 signatures of people who, like him, think that the fair tax would be the best solution to economic problems of the United States. But how many people really know what the fair tax is?

“In this life nothing is certain but death and taxes,” said Benjamin Franklin. For many of his countrymen death and taxes have grown to be synonyms, one hardly distinguishable from another. But then, Franklin was among those lucky Americans who did not have to bother about the IRS. The Internal Revenue Service was created in 1862 by the Lincoln Administration to keep the federal budget in one piece during the Civil War. The war ended, but not the IRS – even such great generals like Ulysses S. Grant and Tecumseh Sherman were unable to defeat the monstrous body. It was easier to siege and burn Atlanta than get rid of the IRS.

The fair tax, would make the IRS irrelevant. As much as it is a socially and politically divisive issue, one advantage of this tax is unquestionable: it is simple. Instead of many taxes that Americans now have to pay and later report to the IRS, they will pay only one, easily calculated tax. “Americans would keep their entire paycheck and have the power to choose exactly when and how much they will pay in taxes,” says Rep. John Linder. In other words, for each dollar spent on products or services, everyone will pay 25 cents (some experts say the more accurate number is 30 cents). That's all. No additional local or federal burden because, as says Linder, “It has always been a belief of mine that all taxes should be voluntary.”

Apart from ordinary taxpayers, the fair tax also appeals to a great number of economists. Laurence J. Kotlikoff, a professor at Boston University, wrote in a Wall Street Journal article that “The FairTax would reduce the excess burden of our tax system by roughly two-thirds! A very conservative estimate of this annual saving is 2% of GDP or about $250 billion for the coming year. Add in the $250 billion in wasteful tax compliance, and we're talking about significant savings.” He concludes his essay arguing that: “The FairTax is a reform every Democrat who cares about equity should love. And it's a reform every Republican who cares about efficiency, transparency and growth should champion.”

But not everyone shares Kotlikoff's optimism. Bruce Bartlett, who served as an economic adviser in the Reagan and George H. W. Bush Administrations, admits that while the fair tax appears spotless, the truth is more complicated. “[T]he cost of everything you buy—including many, many items not now covered by state sales taxes—is going to rise by 23 percent, the FairTax rate. This includes things like new homes and medical care,” he wrote for the Atlanta Journal-Constitution. Bartlett underlined that unless all the 50 states introduce the fair tax, Americans will have to pay 25c more for everything, including local government services. “It sounds like a silver bullet,” Bartlett wrote about the fair tax, “until you do the math.”

Rep. John Linder, who sponsors the FairTax bill, may hope for some 70 votes in the House of Representatives. His project, first introduced in 1999, came to the limelight recently when one of the Republican presidential hopefuls, Mike Huckabee began preaching about its advantages during his campaign tour. But as soon as he dropped out of the race, the fair tax disappeared from the media. None of other presidential contenders from both parties have picked the topic.

But John Linder and those 100,000 people who sent him their signatures remain certain that the right time will come for the fair tax. “We have made the FairTax an important topic in the Presidential Election, sent over 100,000 petitions to Congress demanding real fundamental tax reform, and we have amassed a grassroots movement that is a million Americans strong, and growing every day.”

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