Dr. Genetski:
Here in Georgia we have 2 prominent supporters of the Fair Tax (Boortz and Linder). We also have some flat tax advocates. Curious as to whether under classical doctrine there is a preference between the 2 ideas. Mike Hi Mike, Under classical economics a tax should be simple to understand, highly visible, and as low and broad-based as practical. It should not favor any particular group or business over any other and therefore not interfere with the market's efficient allocation of resources. Both a flat tax and the Fair Tax generally fit these criteria. I believe the flat tax is a more realistic objective than the Fair Tax, which would replace all federal income taxes with a national sales tax. The Fair Tax involves the repeal of the 16th Amendment, thereby eliminating the governments power to tax income. While I favor such repeal, I don't believe it's likely. From a practical (as opposed to theoretical) standpoint, my preference is for the flat tax. Ideally, any major tax reform should begin by repealing the 16th Amendment with a 5 year delay before having it take effect. One mistake with the Fair Tax is trying to spell out each detail of how you would replace all the lost revenue. Rather, a 5-year delay gives voters and policymakers time to debate and determine the essential services that the federal government has to perform, along with the revenue demands to perform these services. My guess is that once the government cannot tax income and everyone realizes that they have to pay for all services, the scope of government would shrink dramatically. I would be surprised if sales or excise taxes to fund essential services would be much higher than 10%. Unwinding Social Security and Medicare could be done by insisting that all workers put some percentage of their salary toward retirement benefits, disability and health care insurance. The money (perhaps 10%-15% of wages and salaries would go into the individuals own account as opposed to being confiscated by government. Commitments to retirees and those nearing retirement could be handled by government borrowing. The economic boom that follows these reforms would make it easy to pay off this debt. Getting rid of the 16th Amendment is the main barrier to fundamental reform. Without that, the flat tax appears to be the next best alternative. Bob
