Here's why the FairTax won't work. I hope the moderators will allow me to post these lengthy part 1 and 2. If so, Thanks. Submitted back in January 2003. A bit old but still informative. Also see related posts by NoNip: 1) The Sheriff of Nottingham (Part 2) and LessTax; 2) Get the IRS of our backs. "I'm a regular reader and enjoy reading the letters to the editor in the Ahwatukee-Foothills community newspaper. I am responding to the recent letter supporting a National Sales Tax (NST) which also referred the reader to the internet link www.fairtax.org I am against a NST and would like to inform your readers as to why. I also would like to give my recommendation for an alternative tax to our abusive federal income tax. The temptation of a NST is that we get our privacy back from Big Brother and we do not have to report our income in such a complicated, frustrating manner that threatens us with a time-consuming IRS audit and perhaps big dollar penalties and interest for errors. Perhaps the biggest danger of a NST is that it creates a large, powerful and dangerous black market for stolen goods that would be taxed otherwise. Then there's also the threat of Double Taxation. Although I have not fully studied Fairtax.org's platform, I understand that it points out that with the elimination of the individual income tax there would be a large reduction in the price of retail goods and all we would need is a 23% national sales tax. That would be on top of any local taxes which in our case would be to add about 8% for a Total Sales Tax (TST) of just over 30%. Even if businesses reduce their prices to what Fairtax.org predicts, or even lower, Uncle Sam still demands the same amount to operate on, resulting in our government increasing the NST%, if not immediately then in subsequent years. I believe the dynamics of how much businesses will reduce their prices upon the elimination of the federal personal income tax are too complicated to be predicted. Almost certainly, many businesses, under competitive pressure, will adjust down their wage scales or give fewer, smaller raises, if not immediately then over time. This would reduce back down the consumers' purchasing power; back in line with the lower prices. To avoid this possibility I certainly hope politicians would not recommend creating more new laws and expensive bureaucracies to control businesses from doing this. 23% is the recommended or Fairtax.org 'asking price' for a NST. If a NST succeeds and in the likely event that we cannot reduce significantly the amount of money our federal government currently demands to operate, I believe our government will sooner or later increase the NST%. To get an idea of how much higher than 23% the NST could go, let's see how much I might have had to pay in national sales taxes, or consumption taxes, in 2001. I paid almost $12,500 in taxes on my personal federal income tax return and spent or "consumed" after house payments and car payments about $30,000 or less. That's just over a 40% NST, plus 8% local taxes for a total of almost 50% total sales tax (TST). I could reduce my consumption figure of $30,000 by Fairtax.org's anticipated price reduction or by the current local 8% tax charge but that would increase the percentage calculated. Why? Because no matter what businesses or local governments wish to charge, Uncle Sam still demands the same, or increasing, amount to operate, as represented by my $12,500 in federal income taxes. It's just simple math and points out that any method like Fairtax's NST that fails to adequately address the main problem I have now pointed out repeatedly, of too much taxes or too big government, is just blowing so much 'smoke and mirrors', misleading the uninformed and desperate. Further, to be a 'fair tax' per Fairtax.org, I should adjust up my last year's taxes of $12,500 by the effect of supporting their recommended special credit for those below a poverty line or, for that matter, any other possible exemptions or 'deductions' that our social engineers or special interest lobbyists might, in the future, come up with, like food, medical expenses or utilities, etc. Also, because the wealthy currently pay a much larger share of the federal income tax and would therefore save alot in a NST environment, I believe I should again compensate by further adjusting up my tax figure by a significant amount. These adjustments would significantly increase the NST% rate or my estimated last year's TST of almost 50%. What would the impact be on the complex dynamics of the biggest sales transaction most people ever make, in other words, on the real estate market? Would someone who can presently qualify for a $100,000 home now only qualify for a $50,000 to $80,000 home? History does not support that Uncle Sam, (now, with a NST, as a lien-holder on our homes), not pursuing, without armed collectors, a taxpayer who has foreclosed on his home owing $20,000 to $50,000 in federal (sales) taxes. Perhaps this transaction would be yet another ideal candidate for the aforementioned exemptions that would significantly raise a NST%. However, more importantly, crime would increase. For example, in the Ahwatukee-Foothills communities, we recently experienced several convenient store robberies for cigarettes. Presently, in Arizona, the various cigarette taxes plus the usual sales tax now adds up to an average of just over 30%. In Canada, where Canadian cigarette manufacturers have their profits hit with a 40% tax surcharge and some provinces still continue to create and increase various tobacco taxes over the past 20 plus years, over 40% of cigarettes are said to be sold on the black market. Because of the increasing profitability of avoiding these increasingly higher Canadian tobacco taxes, organized crime has repeatedly proven itself very protective of this black market, inadvertently threatening many bystanders and even injuring and killing some. Many years ago I read a National Geographic article that mentioned how two competing motorcycle gangs had even gone to the extreme of blowing up adversaries in buildings without enough regard to innocent occupants. All just for the Canadian cigarette black market. All because of the good but failed socialistic intention of collectively protecting "our children". Our Arizona politicians and news media failed to inform us of this foreign precedent in their self-serving zeal to promote and increase our tobacco taxes. Perhaps with the looming threat of a NST our chiefs of law enforcement will speak up. With a NST, more goods than just cigarettes will be available to fuel the growth of a black market. The higher the NST%, the more crime. The tax-free status of the second hand or 'used goods' market Fairtax.org refers to, will become more criminalized. Also, more failing businesses will be more tempted to participate. Furthermore, imagine the influence that organized criminals could have by controlling this stolen goods market and thereby affecting the purse strings of the most powerful government in the world, our federal government. (For those who would like more proof, consider studying the similar unfavorable history of taxed gold transactions in european countries. In Arizona, we do not tax the buying or selling of gold.) However, there is also the danger of 'double' taxation. Some believe that self-serving, clever politicians will promise to phase out the federal income tax gradually over several years if and as the success of the NST proves itself, but then find some danger, small or great(see blackmarket stealing above), to keep it indefinitely for emergencies. This will over time predictably lead to the abuse of taxing by both methods. Because of our federal government's history of fiscal irresponsibility and abuse of emergency clauses, this threat of double taxation cannot be safely eliminated."
