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SEIFFE:  A Fair Tax Strategy

Saturday, February 4, 2006

By Ralf Seiffe

Last year, The Illinois Leader published an opinion I wrote entitled, “The Day The Fair Tax Died”. The article appeared soon after the President announced an early start to his second term with an Advisory Panel charged with examining and recommending changes to America ’s hopeless tax system.  After reading the charter and scanning the panel’s members, I predicted there was little hope of imaginative recommendations. Indeed, their work products proved so timid that they disappeared faster than a light beam into a black hole; no luminescence has been seen from them since. 

My preference would have been to apologize for that prediction but, it turned out to be very accurate. The panel completely ignored any substantial change to our tax system, suggesting only minor modifications to the IRS code. Now, however, several events may have aligned to re-vivify the case for a Fair Tax.

First, let's agree that trying to re-engineer the current system is a useless enterprise. No one completely understands the Code and its very complexity is a danger to liberty. The George Ryan trial offers topical proof; one of the ex-governor’s attorneys confronted an IRS agent with the Code and that supposed expert proved ignorant. More than showing ignorance of the law may be an excuse the jury accepts; this effective courtroom demonstration sent the message that ignorance of the law is no barrier to indictment, either. The tax system is so complex and so open to interpretation that the government can always find some flaw in our income tax returns and bring criminal charges against taxpayers who had no intention of violating the law.  

Such caprice is the best reason to expunge the income tax but, there are good economic reasons too.  Arguments against the current tax code include its compliance costs and the distortion it introduces into our economic decisions. It burdens American products with a stack of invisible taxes and makes our goods relatively more expensive than our competitors’, essentially subsidizing them and biasing domestic companies to build new factories off-shore.   

The Fair Tax organization has also assembled voluminous and convincing evidence that supports a switch to their version of a consumption tax.  And, despite the Advisory Panel’s snub, they have kept working to illustrate the Fair Tax’s many positive benefits. New economic studies issued by an authors holding a wide variety of opinions shows that their plan actually meets the 12 tax system objectives the President’s advisors set better than those the panel actually recommended.  

So why the cognitive dissonance?  

Could it be that status quo’s defenders value their personal political prerogatives more than the public policy advantages that a modern, low-cost, less-intrusive and more transparent tax system would provide?  Probably true; if the debate over taxes were simply about equity and efficiency, we would have gone to a consumption-based levy long ago.

The real reason is that tinkering with a $12 trillion economy’s tax laws confers celebrity and relevance on otherwise undistinguished politicians and creates a cess- pit of big-dollar influence peddling in which these same politicians can wallow after they leave office. This symbiotic interdependency between the tax code and politicians has proven to be an insoluble problem as any number of earlier tax reformation attempts demonstrate.   

No argument promising generalized economic benefits can overcome the personal and specific benefits politicians enjoy under the current system. No real change to the tax system will occur until that calculus changes. Ignoring promises of better economic times in exchange for defending the current tax code are sins of omission for which there is no tangible penalty.  

Reformers, if they want to be successful, must make resisting change a liability by reframing the argument is terms that rely less on economics and more on civil rights. The problem is; how can such a strategic change be accomplished?  How does one change the terms of the debate from the dismal science to one that gets the attention of the economically disinterested?   

Three current events may provide the answer reformers may be seeking:  

The first is Jack Abramoff’s conviction. This K Street poster child’s legal problems should provide reformers with all the evidence required to illuminate the disgusting self-interest of their legislators. Indeed, the “drip-drip” strategy with which the Democrats want to continuously embarrass Republicans could serve by providing recurring, helpful vignettes. Positioning the interests of the beltway versus the interests of Main Street with Abramoff’s image and growing legal troubles are a gift reformers should exploit.  

The second event is John Boehner’s election to replace Tom Delay. With only half the Republican caucus supporting him, the new House Majority Leader has a big job just to convince his own party that it’s time for a change.  A really bold idea that pits economically conservative Republicans against big government Democrats, at the most basic, ideological level, might be just the thing that unites Republicans of good will, herds in the RINOs and makes Boehner an historical figure.  

Finally, the dissatisfaction in which conservatives hold their own party officials has become so acute that the mainstream media is cautiously predicting a Congressional party switch. Republicans need something to galvanize their voters to survive in November. The trouble is that the news media is defining them as unimaginative and out of options. The base knows that cutting the budget by a nearly invisible 1% isn’t enough and new tax cuts have lost their magic because their marginal value has fallen.  

But tax structure is unexplored territory. It has as much -- or more -- economic potential than further tax cuts and has fresh, political cache. Voters will soon learn that an explicit consumption tax forces politicians to decide whether to put their own or the public’s interests first. No longer could they hide behind green baize hearing tables or at fancy, expense account watering holes protecting incomprehensible tax laws for unknown beneficiaries.  

For once, the Senate may be leading the way. Johnny Isakson, the junior Republican from Georgia has fired the first shot by filing a bill to eliminate the tax code by 2008 or to force the Congress to vote affirmatively to reauthorize it. 

Smart Republicans and other conservatives should bring a companion bill to the House floor and make tax structure the most important discussion this summer.  By leveraging current events into a debate over political perquisites versus the average Joe’s, they might disappoint The New York Times or The Washington Post.  But they will inspire Joe -- and his friends -- to vote their self-interest and work to retain the current majority.  

© 2006 Ralf Seiffe

Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois and is a political analyst and columnist for the Illinois Leader and Illinois Review.