All libertarians argue for cutting taxes, but they don’t always agree on how or how much. My preference would be to eliminate all taxes and let Americans make voluntary donations to any government programs they would like to see continued. Two of the most talked about plans are the Flat Tax and the Fair Tax. I believe either plan would be an improvement over the current system, but popular forms of each leave much to be desired for libertarians.
The Flat Tax would create one rate that would apply to taxpayers at all income levels, while eliminating most or all deductions and exemptions. There are various proposals, some of which retain some deductions and provide exemptions for low-income Americans. Rates of 10%-17% are being discussed.
The Fair Tax would eliminate the income tax and create in its place a national sales tax. One of the biggest benefits would be making the IRS obsolete, since income would no longer be taxed and tax returns would no longer need to be file. The Fair Tax proposal offers a tax rate of 23% on all consumption, with a monthly pre-paid rebate paid to all lawful residents of the U.S. with a valid Social Security number. (Those willing to forego the rebate and Social Security benefits could presumably work without having one.)
Either proposal would be a big improvement over the current system. I think all libertarians can agree on that. Both proposals would free Americans from filing complicated tax returns, estimated to cost the average taxpayer nearly 27 hours to complete. Both eliminate double-taxation of certain income that is occurring under current tax law. Both would bring an improvement in economic growth. Both would stop the social engineering and spending manipulations that are rampant in current tax law.
The biggest benefit of the Fair Tax, in my opinion, would be the elimination of the IRS, along with all the civil liberties violations the IRS brings to the table. No longer would the government have any need to know about our income or to snoop into our bank accounts and our business activities. Employers would no longer have to work as tax collectors.
Most of the benefits of the Flat Tax over the Fair Tax center on the easier political road it faces, since flat taxes have been tried. There is also concern that a national sales tax could be created without ending the threat down the road of a new income tax on top of it. There are many arguments in favor of each proposal over the other, but I won’t go into all of those here. For more information along those lines, you might find these three articles of interest:
But I also see problems with both. Proposals from both camps have a tendency to try way too hard to be basically revenue-neutral. With the level of taxation as high as it is today, why would we want revenue neutrality? We need to CUT taxes, STOP the printing presses at the Fed, and CUT GOVERNMENT SPENDING!
The Flat Tax leaves the IRS in existence. A big negative of the Fair Tax, in addition to the too-high rate being proposed, is its name. The FAIR Tax? Really? The only fair tax would be NO tax, and if that’s what we’re hoping to work toward, I can’t see any strategic sense in calling this the Fair Tax.
It’s one thing for libertarians to be ready to vote for either proposal as a step on the road toward greater freedom, but I think libertarians need to be looking at more radical proposals—proposals where revenue neutrality is not a concern.
—Kathleen Wikstrom, LPAR Vice-Chair