SEIFFE:  Tax Day 2007: Time For The Fair Tax? 

Tuesday, April 17, 2007

By Ralf Seiffe

Today is tax day and a favorite of media opinionistas everywhere because everybody loves to complain about taxes.  Liberal commentators will grouse about the rich paying too little and Republican politicians will have to face the fact that their signature issue--lower marginal rates--has worn out.   Tonight, the 10:00 p.m. local television news will have their crews and ActionCams assigned to the Main Post Office instead of lurking near the Dirksen Federal Courthouse.  Rather than catching a glimpse of some indicted state official scurrying out with his hat pulled low, they will film cheerful postal clerks standing at the curb accepting thick envelopes full of last-minute filings.  More esoteric discussion of the income tax system will simultaneously occur in the city’s excellent think tanks and some political affinity groups will host cocktail parties to celebrate a mythical holiday they call “Tax Freedom Day”.  No doubt a unicorn is part of their logo. 

All this does nothing to change the corrosive nature of America’s system of income taxation. 

What might change things is a completely new system that would sweep away the primary weapon of class warriors.  Let’s remember when the income tax was proposed in the early years of the last century, it was positioned as a replacement for the system of tariffs that then financed the federal government.  Its “progressive” supporters here in the Midwest and West assured themselves that the tax would only be paid by the “rich” on the East Coast.  For a couple of years after collections began on the first tax day in 1914, these predictions proved accurate.  Before the decade was out however, President Wilson discovered how useful an income tax is and jacked it up to confiscatory levels and used the proceeds to finance his idea of making the world safe for democracy; a bad combination of ideas, both then and now. 

Since Wilson, rates and allowable deductions have risen and fallen in an indecipherable pattern resulting in a thicket of regulations so dense that no one is capable of understanding them fully.  The objective appears to be to confound taxpayers so as to strike fear into them, keeping them from complaining lest they invite the scrutiny of a revenue agent.  But don’t blame the IRS--they simply deal with a Congress which can simultaneously believe that the tax system should be a cudgel to discipline the rich and that it’s an archaic mechanism with no place in a globalizing economy. 

Elsewhere, today, articles will appear that explain and often advocate for a replacement of our existing tax system.  Only one such alternative has any chance of success in my view, that being the so-called “Fair Tax.”  The reason it might succeed against impacted interests in real estate, insurance, intellectual services (lawyers, accountants, management consultants and fakirs) is the Fair Taxer’s grassroots efforts.  Beyond the wisdom of the system they propose and despite the objections of fellow contributor Bruno Behrend, the Fair Tax supporters are nearly messianic in their support and their work has pressed a foothold in America’s consciousness. 

I will let others explain what that wisdom is and instead, advise today to be a good day to seek out Fair Tax specifics or even read the Fair Tax Book co-authored by Representative John Linder and radio talk show host Neil Boortz. 

Instead, my interest today is to speculate how Republicans might use the Fair Tax as the issue to turn what now looks to be a dismal 2008 election season into one that will be regarded fondly.  Frankly, the argument on marginal income tax rates is over--we won.  Tax rhetoric, so powerful when marginal rates exceeded 70%, simply does not have such galvanic power when today’s highest marginal rate is about half of what it was when Ronald Reagan complained.  Combine that with the fact that only about 40% of American households pay any appreciable income tax, it’s hard to see how the political will can be accumulated to replace the current system. 

On the other hand, Fair Tax supporters tell us there is already a latent demand to change America’s tax system. Tom Wright, the articulate and reasonable advocate for the Fair Tax cause points to 65 congressional elections over the last three cycles which featured some element of the Fair Tax debate.  Of these, 60 Fair Tax supporters won.  If that kind of advantage holds in 2008, the danger for Republicans in making the Fair Tax a national issue is not the “kook factor” commentator Dick Morris says it would be but the risk Democrats might make it their issue first. 

One way Fair Taxers might help their cause is to overcome the public’s fear of a 30% tax added on to final sales.  That might be accomplished by enlisting a few large retailers to identify the taxes that we already pay but don’t know we are.  For example, if Wal-Mart or Sears or even small retailers wanting to help would print the amount of impacted taxes that the retail price contains.  This should include compliance costs as well as the cost of the chairman’s Gulfstream that is justified because it is deductible.  If so, shoppers would begin to understand that they are already paying a large proportion of the Fair Tax.  This tactic makes sense from Wal-Mart’s point-of-view too; they are so big that they are probably a perfect reflection of the US economy.  By adopting a Fair Tax, the economy will grow faster than it otherwise would--so would Wal-Mart.  

In any event, the stress of tax day has convinced me to vote for the first candidate who unabashedly supports the Fair Tax; Republican or Democrat.

© 2007 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.

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