Wednesday, January 04, 2006

Deciding What Tax Is Fair

Lone Ranger recently posted The "Fair Tax" Pfffft , his well-written opinion of the Fair Tax scheme proposed by two of Georgia’s finest, talk show host Neil Boortz and Congressman John Linder. I urge you to read LR’s thoughtful opinion.

The following was my response to this delightful professional:

Out of curiosity, I found Mr. Boortz passed the bar before graduating from law school in 1977, and had practiced law up until signing his contract with WSB in 1992. Congressman John Elmer Linder, though not a lawyer, had been a practicing dentist (at least painful extraction seems common to both professions).

On the topic of expected fraud, you are mostly correct, but you probably understate the magnitude of the actual fraud expectation. The largest threat to the proposal would be the sudden rise of bartered goods under a "gray market" economy.

In 1985, the U.S. Treasury was aware that the "undergeound economy" was so huge that if properly taxed, it would have wiped out the deficit in one year (if memory serves, about $800B). Although political correctness has changed the name of the u.g. economy, the numbers today are even larger. Your question of how the government could assure compliance, therefore, seems very convincing in the negative.

Although I believe a lower federal sales tax is preferable to today's Byzantine income tax regulations, I favor exemptions for food, clothing, medicine, etc., as long as they are domestically produced.

Finally, the founding fathers understood implicitly that our Federal government (a monopoly) should tax only to pay for duties and obligations it alone is best suited to conduct (e.g. defense). Otherwise, states should handle locally and tax as necessary. Of course, people would be free to move to states with less onerous and more equitable taxation schemes. Sounds a little like competition, doesn't it?