- The Washington Times - Monday, March 1, 2010


By Ken Hoagland Sentinel, $19.95,160 pages

Reviewed by Roger Lott

James Madison once said, “It will be of little avail to the people that the laws are made by men of their own choice if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood.” The great Founding Father’s words aptly describe the problem we have today with an arcane 67,500-page federal income tax code.

We need a simplified tax system that treats everyone by the same basic set of rules. Ken Hoagland, national communications director for Americans for Fair Taxation, may have the answer in “The FairTax Solution.” The idea is simple: Replace all federal income taxes, including those on investments and capital gains, with a flat consumption tax on new goods and services.

Most of us dread April 15, but Mr. Hoag- land says that if the FairTax is enacted, it’ll be just any other spring day. No more saving receipts all year, only to find that you need to scramble to find missing ones. No more lousy 1040s or W-2s. Instead, when you purchase a new good or a service, 23 percent of its price will go to the federal government.

Additionally, you’ll receive a check from the government every month that over the course of the year will add up to 23 percent of a poverty-level income for your family size. According to 2009 federal poverty guidelines, a family of five living in one of the 48 contiguous states would receive $494.31 every month. Mr. Hoagland claims it’s because of fairness that even the wealthy will receive these checks, but it probably has more to do with the convenience of not needing the government to know people’s incomes.

Not only would we no longer have to spend valuable time doing taxes every year, but the 100,000 employees at the Internal Revenue Service could put their skills to use in the private sector. Additionally, as Mr. Hoagland points out, businesses wouldn’t have to weigh normally wise business decisions against the provisions of the income tax code. According to the Government Accountability Office, the federal system inflicts efficiency costs equal to 2 percent to 5 percent of the gross domestic product.

For all its evident virtues, there are plenty of questions the FairTax ought to raise. One is how effective it would be at distinguishing between investments and consumption. Mr. Hoagland says education would be considered an investment in human capital and therefore would not be taxed. Would this include preschool and kindergarten, where the focus often is more on day care than education? Would people go out of their way to travel through university-sponsored “study”-abroad programs? Aren’t sports and music lessons investments in human capital? Would they count as education? Maybe the $22 million that Mr. Hoagland says has been put into researching the FairTax has resulted in ironing out these details, but they aren’t present in any of the book’s 139 pages.

Mr. Hoagland doesn’t provide any convincing evidence that the 23 percent consumption tax would provide as much revenue as the current system. Some numbers on this would be helpful.

Under the FairTax, those who would be retiring soon would find that the money they had saved over their working lives, during which they had to pay income taxes, would now be subject to consumption taxes. Those not near retirement wouldn’t face this problem because they would be bringing home much fatter paychecks thanks to the elimination of the income tax. This is just one of many issues that would need to be worked out.

In addition to eliminating the IRS bureaucracy, the FairTax would expand the tax base by including the 12 million to 20 million illegal immigrants in the country today (they wouldn’t be getting any checks from the government, though), and prostitutes, drug dealers and gamblers who engage in under-the-table dealings would be taxed like everyone else when they spent their profits on goods and services. Expanding the tax base would mean relieving some of the burden on honest Americans.

Mr. Hoagland at times uses convincing rhetoric at the expense of sound logic. He claims that the FairTax would give people more incentive to work because they would be able to take home more of what they earn. The reality is that people earn money so they can spend it. When you tax the things on which people spend their income, each dollar in someone’s pocket will have less purchasing power, and thus you reduce their incentives to work.

That doesn’t stop Mr. Hoagland from saying that the FairTax will rein in out-of-control government “because it takes the penalties off productivity and the expansion of the economy.” The author devotes most of a chapter to discussing problems with the federal government and then offers no more explanation than the one above for how the FairTax will fix such problems.

No matter your views on the proper role of the government, the FairTax makes a lot of sense for America in purely economic terms for eliminating the inefficiencies of the current tax system. Mr. Hoagland repeatedly emphasizes that the FairTax should not be a partisan issue and that in order for it to have any chance of passing, the American people will have to show almost as much determination to overthrow the political establishment as powerful lawmakers in Congress, lobbyists and special interests will have to preserve it.

Mr. Hoagland says other FairTax advocates should be “far more tolerant” and does his best to dispel misconceptions while admitting the FairTax isn’t perfect. He’s right to do this, because in the end, this is an idea that has never been tested, let alone in a country of more than 300 million people. The FairTax could, however, be critical to getting America back on track, and it’s important that Americans be educated on what this proposal could mean. Mr. Hoagland gets the job done with a patient and well-written, albeit incomplete, analysis of the consequences of the FairTax.

Roger Lott is a writer in Pennsylvania.

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