I know you’ve all been spending this last day examing the Fair Tax idea. So what do you think?
I think it’s great. It’s simple and it’s transparent. These are two great angles. Simple means that everyone can understand it. Transparent means everyone can see exactly how it’s working. Between them, it means that everyone can see the worth of the idea, and how it’s being used at any time. Handouts to various consituents can’t be disguised. I think I am a big fan already.
However… one piece does stick in my craw. No purchase is taxed except actual consumption. Corporations are not taxed at all. The reasoning seems to be that their money is either going to people who use it to consume something and are taxed then, or is being reinvested in the business which is worthy of tax-free status. I don’t agree with either of those arguments. First, that people will eventually get the money and consume it. This line of thought gives companies a reason to never disperse profits. Much like non-profits today, they are incentive driven to put all the money in the company, whether or not that is a productive use of that money. I am reminded of Stanley Kaplan. They somehow got a non-profit status. They make huge huge amounts of money, but since they are technically a non-profit, they keep pouring that money into luxuries. Take a look here. Or here. Or here. Is there any reason any other company wouldn’t do the same?
Let’s imagine a hypothetical. Imagine you are the owner and manager of a company. You have $60,000 in corporate profits. You really want to get one of those sweet new C6 Corvettes. If you give yourself a salary of $60,000 and buy the car, you pay the tax (about $15,000). If you pay it to yourself in any form and then buy it, you pay taxes. But, if your company buys the car, you don’t pay anything. That’s a business transaction and isn’t covered. Now this happens in this example because the shareholder/owner (who would otherwise get the money) and the employees (who get the benefits of the money) are the same. Nevertheless, it illustrates that this creates a warped incentive to keep as much money in the business as possible.
It is also a double-standard. Why is the assumption that businesses keeping money is reinvestment, but not so for families? If I go down to Home Depot and buy a new gate, that is an investment in my house. The carpteting I am buying is also and investment in the value of my house, not to mention a safety feature form my toddler son when he falls down the stairs. But these are fully taxed, regardless of how it will be used.
The best analysis of double taxations I’ve ever seen is this brilliant cartoon.
This a gaping flaw, however I still would have to come out for The Fair Tax. Looking for comments on this one, please.