Making the Moral Choice: The Fair Tax

The Fair Tax, as proposed by the Americans for Fair Taxation (AFT), proposes to eliminate our current income tax system, including all payroll taxes, death and gift taxes, ordinary income taxes (including capital gains taxes), and self-employment and corporate taxes.

In place of all these taxes, a single 23 percent national sales tax will be imposed on all final (retail) purchases of goods and services. There will be no tax on used goods. Research indicates that at this rate, assuming there are no exceptions or exclusions, an amount equal to the tax revenue raised under the present system would result. Although not a perfect system, the Fair Tax does have many attributes that mitigate the shortcomings of the present system, when seeking a form of taxation that supports moral behavior on the part of the taxpayer.

The Fair Tax is very simple—one rate on all new goods and services; it is transparent and visible; individual decisions by taxpayers are informed and free. Individuals decide how and when they choose to spend their earnings and pay their taxes. We all know that spending patterns evolve differently for individuals and families over a lifetime. This pattern is effectively duplicated with the Fair Tax in the regular cycle of earning, saving, and spending.

The AFT proposal is so simple and transparent that any taxpayer wishing to decide on a specific course of action will have the knowledge to make an informed, free choice—a moral choice. Over a lifetime one makes innumerable choices: Spend now or save for college, for example. With a clear, simple tax system, taxpayers can better harmonize their spending/tax decisions with their overall plans for themselves and their families. The larger point is that the AFT proposal, perhaps more than any other plan now on the table, encourages the taxpayer to control this distribution of funds and thus better realize the moral implications of his economic activity.

Such a directly controllable and highly visible tax system will encourage greater taxpayer involvement in the political process. Under the Fair Tax the average citizen’s confidence in the fairness of the tax system will contribute to a reawakening of the electorate and its interest in public policy formation. At the same time, special interests and their role in influencing tax legislation will be eliminated and the power of the government to choose winners and losers through manipulating the tax code will be greatly reduced.

Under a sales tax, the opposite is true: The income tax does not permit the freedom of choice that a sales tax system permits. A tax on consumption is purely voluntary in that it is paid not when one realizes income, but when it is reduced to expenditures for an individual’s personal consumption. By not taxing income until it is consumed, a consumption tax like the Fair Tax rewards savings and investment over consumption (savings that redound to the good of the economy). A tax on consumption rewards thrift and deters profligate behavior while granting individuals the opportunity to determine for themselves

Author

  • Leo Linbeck Jr.

    At the time this article was published, Leo Linbeck III was a father and businessman in Houston, Texas.

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