Wednesday, April 13, 2011
Although the theory of a Fair Tax is appealing, the practical application raises concerns.
A Fair Tax proposes to eliminate the income tax and replace the lost revenue with a higher sales tax imposed on a wider array of goods and services. It is designed to be revenue neutral.
By shifting the tax burden from production to consumption, the theory is the economy would thrive, businesses would expand and employees would enjoy higher take-home pay. In addition, people could determine their taxation, in part, through their buying habits.
Fair Tax proponents contend the expanded sales tax would eliminate loopholes that render the existing system inequitable.
Those are appealing arguments.
But they are offset by concerns about other aspects and applications of a Fair Tax.
First, the expanded list of taxable items includes many basic human needs, not wants. Among them are food, rent, health care, prescription drugs, utilities, transportation, funeral services, counseling and mental health services.
As some Fair Tax opponents continue to point out in the Your Opinion forum, a sales tax is equitable based on sales, but not on people.
Low-income and high-income wage earnings may pay the same tax on sales, but those equal sales taxes will be vastly different as a percentage of income.
In addition, although the expanded sales tax postulates no loopholes, how long before lawmakers and lobbyists begin seeking tax breaks for the people they represent?
Another concern we pointed out in a March 2010 editorial in this forum relates to how a Fair Tax might impact local sales taxes.
Jefferson City now collects two voter-approved, half-cent sales taxes — one for capital improvements and another for parks. Similarly, Cole County collects a half-cent sales tax for capital improvements and another sliding sales tax for law enforcement.
If a revenue-neutral Fair Tax is imposed, would voter-approved earmarked sales taxes — local as well as state — be replaced, eliminated or augmented?
And would an expanded sales tax hinder voter approval or extension of earmarked sales taxes?
We concede the existing tax system is both complicated and imperfect.
But spreading the tax obligation among income, sales, property and numerous other taxes and fees helps equalize the burden.
Rather than transfer the burden, a better answer is to close loopholes and further equalize taxation.