'Fair Tax' Could Be Fred's Issue

August 17, 2007

 

Could the Fair Tax be a hinge issue in the upcoming presidential election? For the uninitiated, the Fair Tax is a national sales tax that would replace the federal income tax. It's a consumption tax, to be more exact.

 

Liberals should love this concept since it's the conspicuous consumption that so enrages them. But it's also the exploitation of that conspicuous consumption that keeps many of them energized and in office. They love to demonize the ‘haves' in order to rally the ‘have-nots.' There's no doubt the current tax system is unfair but not in the way those on the left would have you think. According to the IRS, the top 5 percent of wage earners pay more the 55 percent of the income tax. Conversely, the bottom half of wage earners pay less than 4 percent of the income tax. Yet all we hear about is our tax system punishes the poor while the very wealthy get all the tax cuts, neither of which is true. All three top-tier Democrat candidates oppose the Fair Tax, despite the fact that Americans under the poverty level would pay no taxes at all.

 

Now Fred Thompson has come out in favor of the Fair Tax concept – albeit tepidly – saying that the “principles and ideas found in the Fair Tax are a good place to start.” Thompson isn't the only Republican entertaining the national sales tax. Plenty of second-tier candidates are in favor of it, including McCain, but the two front-runners – Romney and Giuliani – have yet to take firm positions on the tax. That leaves Fred with a solid issue that could set him apart from the pack.

 

But that could be a double-edged sword. Experts acknowledge that the Fair Tax is quite popular with the Republican base but is looked upon with more skepticism by the public at large. The primary reason is the initial sticker shock. In order to raise the same amount of revenue we currently raise from the income tax, the rate would have to be set somewhere north of 30 percent. That may be a bit hard to swallow. Of course, you would have more expendable income because there would be no more tax withholding from your paycheck. Still, you pile on the state sales tax and you're staring down the barrel of a pretty hefty one-time outlay.

 

At least one aspect of the Fair Tax is problematic. The consumption tax, as envisioned by its proponents, would only apply to new items. Used automobiles, for example, would be exempt because that item has already been taxed. This could drive an extraordinary amount of consumers away from the new car market at a time when Detroit is already struggling.

 

One of the primary selling points of the Fair Tax is the huge exemption for those at the lower end of the pay scale. This sounds great but, in reality, this makes the Fair Tax unfair. Everyone should be required to contribute in some way to the general ownership of the country. The fact that so little is expected from so many has created our current welfare state. Not to mention that those on the lower end get the vast majority of the government largesse.

 

The fight that special interests will wage against the Fair Tax will be unprecedented; from so-called advocates of the working poor to the real estate lobby protecting the mortgage interest deduction. Fred Thompson is just the kind of personality the Fair Tax needs as its standard bearer but he should proceed with caution. It's the kind of issue that can make – or break – a candidate.