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TAKING TAX POLICY ADVICE FROM L. RON HUBBARD. A significant number of Republican candidates -- including Fred Thompson -- have endorsed the "Fair Tax," a plan to replace income and payroll taxes with a national sales tax (in its most recent congressional iteration, at a rate of 23%.) Bruce Barlett has an interesting piece noting the roots of these policies: a plan by Scientologists to destroy the I.R.S. This wouldn't be a big deal if the policy wasn't as crackpot-ish as its origins would suggest, but:
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.This plan, of course, has also been endorsed by former vaguely principled fiscal conservative John McCain of "Straight Talk Express" fame, which admittedly would be of more interest if his presidential campaign was still relevant. --Scott Lemieux
