Now that the dust has cleared on another tax season, I’d like to address readers who are generally of a liberal/progressive perspective on a topic of great controversy: the so-called “Fair Tax” reform idea that continues to gain traction in Missouri.
Yes, it’s clearly pushed by free-market advocates, the Tea Party crowd and more conservative groups than you can shake a stick at. However, could the idea of eliminating the state’s personal and corporate income taxes, replacing them with a “revenue neutral” consumption (sales) tax, possibly end up supporting some of your overall societal goals? For the open minded, here goes.
Complexity hardest on the poor
Every taxpayer spends hours filing their Income Tax return, and yet it is still difficult to be in total compliance due to its endlessly increasing complexity. In fact, the poor, typically lacking sufficient education, find the forms especially difficult. There are free preparation services for lower-income filers, but many don’t know about them, have access issues, are still intimidated, end up hiring a tax professional (with money they can’t afford) or just don’t file at all.
By eliminating the income tax, we would eliminate this compliance burden. By collecting sales taxes at the point of sale, we shift the limited remaining tax filing responsibility onto businesses.
Consumers pay all the taxes anyway
On the surface, no corporate income tax seems outrageous, as the people will pay all the taxes. But, people already do.
By taxing corporate profits now, or at least trying to (see: GE recently or Goldman Sachs before them, etc.), do you think the “fat cats” just sit there and take it, shrugging their shoulders at lost net profits? Goodness, no. They simply raise prices; that is, as the market will allow. That market that might allow, by the way, is you and me buying an apple, a car or whatever. The consumer pays the money to the business that then pays the tax.
Not more regressive
The political left universally supports a progressive income tax, so the “Fair Tax” is maligned because it is said to be regressive. Yes, while the Federal Income Tax Code has many upper income brackets to accomplish this progressively, please realize that with Missouri’s top bracket at the archaic $9,000/year, our state essentially has a 6 percent flat tax.
There is even an argument that the current setup is a little regressive because the poor need that 6 percent of income to buy the necessities of life, whereas 6 percent to a wealthier individual is likely just extra disposable income.
So the fair tax proposal, seeking to not increase nor decrease the progressivity overall, has a “prebate” feature, whereby lower-income folks would get a monthly check in advance to cover the estimated Sales Tax for basic necessities. With the prebate, it is arguable that the fair tax might actually end up being slightly progressive in practice.
This would move Missouri residents from one flat, if not slightly regressive, income tax system to a different form of a flat, possibly slightly progressive, sales tax model. I realize this is a different perspective.
Corporate welfare thrives off corporate income
All kinds of Americans turn populist in light of corporate welfare programs. Since the income tax code is the typical conduit for these schemes, and reform is hopeless, let’s abolish the whole thing.
Now, while the right often criticizes “social welfare,” the fair tax does not effect the government’s spending side whatsoever. So while the left’s social programs are not touched, the “corporate welfare” that hides out in the cesspool of income tax credits would become extinct.
Enourages sustainable living
In essence, a tax is a cost. So taxing something, by definition, increases its cost, which discourages its usage. Like the proposal to raise the cigarette tax — increasing the cost of Marlboro’s would obviously prompt more smokers to quit an increasingly expensive habit.
Likewise, if hyperconsumption in general is environmentally destructive, then consumption should be taxed. Even better, the only products the fair tax applies to are new products. What a great incentive for everyday people to instead repair things, shop at garage sales, grow a garden, share, salvage. Less consumption of new products means less made-in-China, Walmart stuff and less consumer demand for big-box stores. In fact, don’t spend your time protesting at city hall to prevent a new super center, instead join forces with the Tea Partiers for once to support fair tax.
Compatible with democratic values
If one favors democratic values, then an open, transparent tax code that is easily understood by the average citizen should also be a priority. In a just society, a citizen should know what their cost of citizenship is – which is practically unknowable now.
The complexities that have grown out of the income tax code have somewhat backfired on its proponents that desire social justice. It has become a corporate welfare platform; it enriches lawyers and accountants that many citizens fear they must depend on to be compliant, and it ends up causing many citizens to resent government overall – not to mention leading to fights in capitals nationwide.
So, oddly enough, perhaps liberals and progressives should re-examine the fair tax, as it might be a partial solution for their priorities, if for quite different reasons than right-wingers espouse. But good public policy tends to be a win-win.
Steve Spellman hosts “The Mid-Missouri Freedom Forum” on 89.5FM KOPN radio Tuesday nights from 5 to 6 p.m.; Steve realizes every kind of tax is unfortunately collected by force, regardless. MU economics graduate student Abhi Sivasailam, who has studied this issue extensively, also contributed to this article.