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It's a cute philosophical argument. But doesn't it, in practice, come down to the same thing? One person's spending is another person's income. Let's say Alices makes a sale to Bob, for $10. Two ways of taxing it. An income tax, which taxes Alice 10%, so she pays $1 to the government. Or a sales tax, which taxes Bob, so he pays $1 to the government, and he has to go sell something to someone else to earn money. Most likely in the first case, Alice would just raise prices by 10% to cover the difference, so it really ends up the same.
It does end up approx. the same monetarily, which is why the FairTax people call it “revenue neutral,” but Alice’s product’s final price includes the sum of all the income taxes of all the producers who made it a product Alice could sell to Bob.
Bob’s paying the income tax of the materials manufacturing laborers for the time-slices during its manufacturing in addition to paying for their work-product. He pays for the income taxes of all the delivery workers moving materials around countries and continents until it gets to Alice’s store. And he’s paying for a tiny chunk of Alice’s income tax.
The huge savings of the FairTax come in enforcement reduction and compliance reduction. Right now, Alice has to spend some time doing her business and personal income taxes, Bob has personal income tax, so does Caleb the miner, Dan the driver, Edward the shelf-stocker, and so on. And if any one of them gets it wrong by fraud or mistake, they get a penalty up to jail time.
Instead of the IRS paying agents to hunt down three hundred million potential tax criminals, the FairTax would lay off the IRS as its backlog gets cleared, sunset the income tax amendment, and introduce a revenue service which would only investigate the tens of millions of businesses. Nobody who isn’t an independent service provider or retail manager would ever have to worry about the tax man again, and the FairTax would be automatically calculated at point of sale (the cash register), listed on the receipt, and sent to Washington DC each day or week.
The FairTax is actually set lower than the current revenue collection by the IRS, but the automation and reduced enforcement will result in the same net revenue for the federal government despite lower taxes.
Since it directly taxes the economic trade of value for value, instead of income or wealth which are both proxies for economic activity, the wealthy have no legal way to save a chunk of their profits before the government takes their cut.
It would even decouple revenue from labor, which will become a bigger and bigger problem as more of the income-taxed economy becomes automated.
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