Wednesday, August 17, 2005

Demolishing the FairTax (for the last time)

Now don't get me wrong: I'm a huge fan of substantive debate. I really do enjoy it, but this is a blog about propaganda, not policy. So after this post, I'm gonna stop responding to all arguments regarding the FairTax that are not phrased as one-sentence talking points. The reasoning behind this is twofold: one, it saves me time; and two, arguments played out in talking point form more closely mirror the national debate than finely detailed discussions. Besides, it'll be highly stylized and fun, I think. So here we go, last time around: today on the chopping block is commenter Merrill Bender, who took exception to several points I made in my rebuttal to Neal Boortz's response. To wit:
I think the facts, The Research section, the FAQ section, the Rebuttal section provide detailed economic data up to a PhD level in support of the Fair Tax.

. . .

Also check out the link on the left to the "Economists Letter" where 75 nationally known Economists and Economic professors from Harvard, Stanford, Rice, Boston and more come out square in support of this Tax Reform plan.
I don't have the exact citation handy, but the authors of Death by a Thousand Cuts contend that economics is an inexact enough science that lining up experts to support or oppose any given measure is child's play. Now I don't mean to downplay the validity of economics as a science; rather my point is that the debate is best joined on the moral/philosophical level, since all those economists are basing their support around theory and projections rather than proven, prosperous real-world examples.

Besides, fancy figures and quantitative analyses won't convince Middle America because most of them know very little about economics. I'd rather pit narrative against narrative and let the people decide which sounds best to them.

My Biggest reason for support is not hatred of the IRS but in how this can truly untax the working poor. No other proposal eliminates the Payroll tax which is the highest tax that working poor families and many middle class families have to pay.
A noble goal, to be sure. But there are plenty of ways to achieve it, from exempting all wage earners below the poverty line to abolishing Social Security. Not that I necessarily advocate either; I'm just saying it's not like the FairTax is the only game in town for low-income tax relief. And besides that, if the poor are going to receive SS eventually, it's only fair that they should pay something into the system, even if it is just a pittance (unless they're literally struggling to survive).
There are two Governments that are are ranked 15th and 19th in Economic GDP that rely almost solely on Sales or consumption Taxes to fund all Government operations. Florida and Texas.
Well now, here's where things get interesting. Let's begin with Florida: according to Wikipedia, the Sunshine State earns most of its GDP from tourism. What that means is that non-residents, who wouldn't contribute to the tax base under an income tax scheme, provide a significant portion (perhaps even a majority) of Florida's tax revenues when they go there on vacation. Thus the state can easily subsist without an income tax due to its generous coastline and proximity to the equator, but these characteristics obviously don't apply to the US as a whole.

Poking around Wikipedia further on the subject, I ran across another curious factoid: a list of nations that don't levy income taxes (toward the bottom). Not surprisingly, it's rather short, consisting in its entirety of Andorra, the Bahamas, Brunei, Kuwait, and Monaco. What do all these nations have in common? Well, for one thing, they've all got tiny populations (Kuwait is by far the largest at 2.3 million, and the rest all have well under a million), and none are major powers. Beyond that they break down into two categories: tourist traps and rentier states.

Andorra, the Bahamas, and Monaco, like Florida, rely primarily on tourism to support their economies. Thus, the same argument I advanced in reference to the state also applies to those nations. Brunei and Kuwait are what are known in poli-sci circles as rentier states, nations whose governments derive nearly all of their revenue from natural resources and keep the populace essentially disenfranchised with minimal taxation and extensive welfare services. Because the citizens of rentier states pay so little in taxes (actually, individual citizens in Kuwait and Brunei pay no taxes whatsoever), they have no grounds to demand that the government respond to their needs, and political development stagnates.

So, that takes care of Florida and every other income-tax averse nation in the world; on to the glorious state of Texas. The Lone Star State has a diversified economy that's grown steadily over the past 15 years, so I can't use the same tack I took against Florida. But I'll deflate the Texas defense with two observations. The first is that the Texas state government uses more than just sales taxes to fill its coffers: a brief look at RAND Texas' state expenditures page reveals that it also draws money from, among other sources, a state lottery, natural resource taxes, property taxes, "sin" taxes on alcohol and cigarettes, inheritance taxes, and federal funds (like every other state). The second observation involves the significant number of services the federal government provides that state governments don't. In case you're feeling unimaginative, here's a sampling: the branches of the military, the intelligence agencies, the State department, the census department, the Bureau of Indian Affairs, the treasury . . . need I continue? (And if you want to argue that there are certain services states provide that the feds don't, such as drivers' licenses and police, feel free--the feds still come out far ahead in the final analysis.)

All of that is to say that the argument that "it works for the states, so it'll work for the federal government" is poorly founded.

And finally, we come to the following piece of silliness:
Even a cursory study of history shows that nation/states that relied on consumption taxes flourished and prospered, supported democracies/republics, had expanding economies, and high levels of civil rights for their citizens. The exact opposite is true for empires that relied on income/poll/head taxes. These taxes were used to support despots, eventually collapsed the economies in which they were applied, and sundered civil rights.
Oh, come on. This line of argument is the rhetorical equivalent of taping a "Kick Me" sign to your own back. Let's take a couple of examples: Sweden taxes its citizens to death by libertarian standards with both income taxes and VATs yet boasts one of the highest standards of living in the world. Hell, the US has had its income tax on the books for 92 years--an era that saw our ascent to the top of the world's economic powers. So how long does the eventual decline take, anyway? And what nations exactly are you talking about that rely only on consumption taxes? A couple miniscule resort states with fewer residents than a mid-size US town? We've already established that those are all that exist in the present day, so if the consumption tax is such a commonsense notion that automatically makes nations prosperous, why hasn't anyone else caught on yet? The other arguments weren't that great, but the appeal to history is just laughable. Income taxes per se a primary cause of despotism and economic collapse? Try governmental profligacy, corruption, and excessive deficit spending, which can occur under any tax system.

But even if all the arguments presented pro the FairTax weren't so weak, I'd still oppose it on principle. Not a single supporter has been able to counter my assertion that every wage earner in this nation owes a portion of his/her paycheck to the government to subsidize the maintenance of civil society. I think of it as a "membership fee" for this great nation that's drawn directly from the living it safeguards your ability to make. And to my mind, abstractly, no tax scheme could be fairer. That's not to say that the current income tax system doesn't need reform, but I'm not wavering from my basic support of an income tax as the backbone of US government revenue. Does that make me a dogmatic income-tax booster? Yeah, kinda. But the FairTax supporters are going to have to work much harder to show how taxing consumption is "fairer" in principle than taxing income if they want my endorsement.