FairTax lacks practicality
The tea party patriots' movement claims to be united by core values expressed in the nation's founding documents, such as the Federalist Papers. Tea is an acronym that stands for taxed enough already. Many tea party patriots have called for fundamental tax reform, demanding that the nation's progressive federal income tax be replaced with the "FairTax," which is a federal retail sales tax. Taxing consumption, assert many members of the tea party, is more fair and practical than a progressive income tax that unfairly burdens more than it burdens others. But are these calls for reform truly in line with what the founding fathers wanted? Would the founders lampoon a progressive, federal income tax, and would they believe that the FairTax is a fairer and a more practical solution?
The Federalist Papers elucidate what some of the founding fathers may have had to say about the tea party's movement against a progressive, federal income tax. In "The Federalist No.10," James Madison makes it quite clear that he believes those who lack property or who have relatively little property are a powerful faction that will outnumber, and may seek to oppress, those who have acquired more property as a result of their superior faculties. He claims the most powerful faction will prevail in a dispute, resulting in the oppression of the more propertied: "The apportionment of taxes on various descriptions of property, is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party, to trample on the rules of justice. Every shilling with which they overburden the inferior number, is a shilling saved to their own pockets."
Madison ultimately believes that this danger will be averted under the American form of government because of the many interests that compose it, its system of checks and balances and its separation of powers. This statement strongly suggests though, that he would look at a progressive income tax as tyranny by the majority. Madison was not opposed by taxes levied by the federal government; in the U.S. Constitution and the Federalist Papers No. 12, 31 and 32, he and the other founding fathers make it quite clear that the government could levy taxes directly and indirectly. However, "Federalist No.10" suggests that Madison and the other Founding Fathers were opposed to taxes that differentially impacted those who owned the most property.
The founders would perhaps be likely to agree with those in the tea party's claim that the FairTax is fairer because unlike the progressive income tax, the FairTax affects all individuals at the same rate for their consumption, regardless of their income. Whether they would see it as practical though is debatable. In "Federalist No.31," Alexander Hamilton explains: "A government ought to contain in itself every power requisite to the full accomplishment of the objects committed to its care ... the federal government must of necessity be invested with an unqualified power of taxation in the ordinary modes."
In "Federalist No.12," Hamilton stated that duties collected on foreign goods would provide the federal government with enough revenue to fulfill the duties assigned to it by Constitution and by legislation. This may have been true during the late 1700's, but it is unlikely that such a revenue stream would be sufficient to fund the activities of the federal government today. From its extensive court system to its sophisticated military equipment, and from tax incentives for home owners to the funding of the nation's present-day criminal justice system, the modern American state simply requires much more funding than it did in 1787, when the Constitution was adopted.
Replacing a progressive, federal income tax with the FairTax would be likely to result in a drastic loss of revenue that the federal government depends upon to meet its obligations. The FairTax seeks to ensure that no American pays federal taxes on spending up to the poverty level and then only pays taxes for consumption of retail goods after that point. According to economist Paul Anthony Samuelson, the reality is that spending on consumption goods sees a significant increase upward until family income is between $40,000 and $60,000. Families with incomes below this point tend to spend all of their income on the consumption of these goods, but those with incomes above this point tend to devote a greater percentage of their income to consumption of luxury goods and saving, which begins to rise as income continues to rise.
Thus, the FairTax may effectively reduce the amount of taxes that are collected from the very wealthy as they save their incomes and pass on their wealth, which would go relatively untouched by the FairTax plan, which also eliminates gift, estate and capital gains taxes. This may be especially dangerous considering the extent to which wealth is concentrated in this nation. According to sociologist G.William Domhoff, as of 2007, the top 1 percent of households owned 34.6 percent of all privately held wealth, and the next 19 percent had 50.5 percent, which means that just 20 percent of the people owned a remarkable 85 percent of all wealth. This left only 15 percent of the wealth for the bottom 80 percent. In terms of income, the top 1 percent of income earners received 21.3 percent of all income in the year 2003, while the next 19 percent received 38.6 percent, and the bottom 80 percent received 38.6 percent.
While the founding fathers would be likely to deride the progressive federal income tax as tyrannical, however, it is unlikely that they would accept the FairTax as a viable alternative. Indeed, Hamilton, in "Federalist No.12," claimed that: "A nation cannot long exist without revenue. Destitute of this essential support, it must resign its independence and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue there must be had at all events."
As much as they were concerned with taxes that did not oppressively drain the rich of their resources, they were equally concerned with creating a strong and well-funded national government. These were their priorities as the founding fathers, and if they were given the opportunity to consider the costs of a modern government and the concentration of wealth in American society, they would perhaps ask the tea party activists to go back to the drawing board to conceive of a plan that would effectively supply the government with the revenues that it needs without differentially taxing the more propertied classes.
Ben West is a Rutgers College senior majoring in political science. His column "The Red Lion" runs on alternate Mondays. He welcomes feedback at firstname.lastname@example.org.