You Can't Soak the Rich

"Presidential candidates, instead of disputing how much more tax to impose on whom, would be better advised to come up with plans for increasing GDP while ridding the tax system of its wearying complexity. That would be a formula for success."

I couldn't agree more with this this opinion column by David Ranson in the WSJ today. I'll let you read the article, but I have to pile on (as always).

"Hauser's Law," as Ranson proposes we call, which states that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP," really helps makes the case for the Fair Tax.

If you're not familiar with the Fair Tax, here's the basic idea:

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue replacement, and, through companion legislation, the repeal of the 16th Amendment. This nonpartisan legislation (HR 25/S 1025) abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax -- administered primarily by existing state sales tax authorities. The IRS is disbanded and defunded. The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.

The actual proposed rate is 23% (a tax of $0.23 on every retail dollar spent), so as to be revenue neutral. Since this is retail tax, it pretty nearly taxes the U.S. Gross Domestic Product. Notice how the Fair Tax is 23% of GDP (or pretty close to it) and "Hauser's Law" is 19.5%? Coincidence? I think not.

And the funny thing is, since this tax is truly progressive (unlike most payroll taxes, which are, in fact, regressive because they are capped), you might actually pay LESS taxes under this plan, despite that initially high looking 23%. If you don't believe, why don't you try the Fair Tax Calculator and see for yourself?

Scientia est potentia. Knowledge is Power.