Part of the campaign’s swirling political debate surrounds the opposing candidate’s tax proposals. As the media talking-heads, campaign commercials, and the upcoming debates will highlight one candidate promises to raise taxes and the other to lower them. Now, of course, the taxes discussed revolve around certain segments of the population and in an election that needs to do its best to unite the public has only served to spend its time dividing it along the same lines we have seen in the past. Both parties have tax plans that are nothing more than variations of past programs and repackaging old ideas. Each candidate is presenting to the American people nothing new and the same expected lines that we have heard from countless state and national campaigns for years. It is the belief of the FairTax that it is time for something new. The current tax code has been around for 99 years and will reach the centennial mark early next year soon after the inauguration. There is a possibility that we will be swearing in a new President, but we will still be operating under the same old system, regardless. But to clarify, we should be specific, what will we see from these two candidates? And how will that stack up to the FairTax?
The Democrat’s tax plans are summed up with the Warren Buffet rule. They believe that the millionaires and billionaires should pay more, which include families making a combined income of $200,000 or more. Already the word millionaire is rather loosely defined; hardly comforting for the sake of clarity and transparency, two values sorely missing from our current code. It should be noted that there is nothing in the historical record that shows raising taxes spurring economic growth. But the argument is that the raised taxes will be used for “investment”, read increased spending, on certain hand-picked areas of the economy. It is yet another Keynesian ploy that we have seen over the past four years that rests in the belief that government spending can be used to counter the natural business cycle. This tax and spend promise ignores the past four years of over $1 trillion deficits and an $800,000,000,000 (yes, that is a billion) stimulus plan that never brought even the fake unemployment number under 8%. More of the same will only bring us more of the same. And with an overwhelming number of Americans believing that we are moving in the wrong direction and a record number of Americans on food stamps and out of the labor force, this is untenable at best.
The Republican’s plans are less ambitious as they make them sound. The line is given that the tax decreases that are planned would spark a recovery similar to that experienced after the Reagan tax cuts in the 1980’s. While there is far more historical evidence of tax decreases spurring growth, it is a mistake to pretend that there would be a recovery akin to what followed the tax cuts under Reagan. The issue at hand is that the tax structure is not as openly oppressive as it was in the 70’s. While the tax code has indeed become infinitely more complicated and intransigent the top rate is half of what it was in the 70’s. Ronald Reagan cut that rate during his term in office from 70% to 28%, there should be no doubt as to why economic success followed. The problem with the theory that another round of cuts could be just as successful lies with the fact that our tax code is too broken to effectively change it with merely a rate cut. Now the plan to repeal the dramatically outdated and regressive AMT is a step in the right direction but at this point is nowhere near enough. The Republican plan also includes the reduction of the corporate tax rate by 10%. That would mean taking our current rate, currently the highest in the world at 35%, down to 25%. While it will be better and bring down the cost of doing business we still have to realize that 25% puts us at the same rate as China, Greece, Iran, Portugal, and Vietnam among others. It does finally put us underneath Mexico, by a paltry 3%. It becomes apparent that our system is flawed when even a large cut to one rate puts us on par with countries that are financially bankrupt and others that are morally so.
Enter the FairTax. The problem surrounding tax rate inequality is erased under the FairTax. One need not pay attention long to the current debate to see just how divisive the tax code can be. Either it was Republicans cutting that tax rate so that more did not have to pay or it is Democrats complaining about how much the rich pay and demand that they be elected to bring about a sense of economic justice. Perhaps you are worried about the increasing influence of corporate lobbyists that divert the attention of our elected officials away from representing their constituents. This is the driving force behind the rapid expansion of the tax code and is a major complaint from many about how politicians do business. If you want a tax code that remains stable, even in times of economic hardship then look no further. Our deficit and increased spending can be tied to unemployment easily. For every person that loses a job, the government loses 100% of its tax revenue and starts paying out a variety of benefits. Using a consumption model, that number is guaranteed never to rise to 100%. This system is far more stable which also means that when hardship comes, our leaders are less likely to take kneejerk and divisive steps that run the risk of setting us back even more than we are now, like running up a $16 trillion debt for instance. This tax plan also has the opportunity to really let the market free again. To remove the encumbrances of the tax code, its punitive rate on businesses, the cost of time and money to file, the overhead involved in searching out and lobbying for the numerous loopholes and exemptions, will give our companies the certainty that is lacking in our markets. It will also send a clear message to companies offshore to bring their business back to the United States. The FairTax will constitute the greatest stimulus this country has ever seen by doing something radical, by letting people keep what they work to earn. The FairTax is also an ideological statement that looks at the federal government and says that it is no longer entitled to our work.
As we inevitably hear more about the candidate’s tax plans in the coming weeks please realize that whoever is talking is most likely wrong. Neither of the major parties will fix anything and will make no long term changes because the tax code is too easy to manipulate and any change made by one party can be undone within a few years by the other. The FairTax is the only chance to make substantial tax reform because it is tax replacement, not merely tweaking a system that is fundamentally flawed. As you can see, neither candidate for President is running on the issue of the FairTax. Despite whoever else is running, only one of these two candidates will win, the game is rigged that way. To ignore that fundamental rule is to invite folly. There is no hope of a third party win or of a FairTax supporting outlier to swoop in and “save the day”. 80% of the public already identifies with a particular political party, the independents only make up 20%, and no matter how hard you try you cannot cobble together a majority with a base of twenty percent. Look at the history of our own tax code, it got its start on the fringe of American politics but we did not have to elect anyone from those parties to get it. The income tax wormed its way into the discourse until 1913 when every major political candidate for President supported it. This movement needs the same wave of popular support. It can only be won by the American people and will not be given by the American politician. So, you can either sit on the sidelines and watch, achieving nothing. Or you can get in the game and make it count. The FairTax as an idea will never die; ideas have a surprising longevity to them. But the only way it will succeed is through your voice and actions. It is actually pretty simple, if you are unhappy with a service, you ought to ask for your money back. And with the trajectory we are on, it could not come a moment too soon.