My post last week about the flat tax generated a lot of friendly comment and email, but also some pointed questions about whether a national sales tax such as the Fair Tax would be a better approach. Since I’ve written favorably about a national sales tax, debated in favor of a national sales tax, and even testified to the Ways & Means Committee about the positive attributes of a national sales tax, I certainly have no objection to that reform. Any single-rate, consumption-base tax would be a vast improvement over our corrupt and punitive internal revenue code.
So why, then, do I spend most of my time on the flat tax? The simple answer is that I don’t trust Washington. We know the politicians are salivating at the prospect of imposing a broad-based consumption levy such as the value-added tax. And we know they want the VAT in addition to the income tax. What’s to stop them from saying they’ll impose a national sales tax, promising to repeal other taxes, but then pulling a bait and switch and giving us both? As I explain in this video, the national sales tax should only happen after supporters amend the Constitution to repeal the 16th Amendment and replace it with an ironclad ban on income taxation to protect against political duplicity.
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Amending the Constitution, however, is a daunting challenge. Does anyone really think a proposed amendment to prohibit income taxation would attract the required two-thirds support in both the House and the Senate? Even when Republicans were in charge, there were not enough votes to approve a watered-down balanced budget amendment, so it seems unlikely that a far bolder proposal could attract sufficient support. And even if Congress approved such an amendment, what are the odds that three-fourths of the states would ratify?
Some supporters of the national sales tax argue that the legislation is self-enforcing since it includes language repealing income taxes, but that would be about as effective as the French army. There would be nothing to stop a future Congress (or even the same Congress) from voting to re-impose an income tax at any future point. Does anyone want to trust America’s future prosperity to people like Sen. Harry Reid (D-NV) and Rep. Nancy Pelosi (D-CA)?
Other Fair Tax proponents point out – quite accurately – that there are no way of preventing politicians from also dismantling a flat tax and reneging on their promises. That’s a very fair point, but this is why we should compare the downside risks of both proposals. If we adopt a flat tax and the politicians then decide to stab taxpayers in the back, the worst result is that they reimpose something akin the current system. That’s bad, but the downside risk of a national sale tax is that the politicians impose the new tax and then conveniently decide that they want to keep the income tax. When the dust settles, the politicians have a giant source of additional tax revenue and we wind up becoming a European-style welfare state with a much bigger burden of government.
I’m not a big fan of taking wild risks, so I’ll stick with the flat tax.
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