The Only Fair Tax

Posted by Craig

Recently Alan Greenspan supported the idea of changing the tax code from income based, to consumption based. A lot of news stories have been done on this topic, and it seems most believe Greenspan had finally snapped. It may be why Sen. Harry Reid recently came out in a tirade against Greenspan calling him a crony for the Republican Party. But Greenspan may be on to something. The tax code in this nation is grossly unfair. Even a conservative like me can see the widening gap between the upper class with the middle and lower classes. This divide is one of the reasons that I support the consumption tax.



Consumption taxes work kind of like this. Instead of income taxes that tax a portion of the income an individual, family, or business makes, the amount of money you spend determines the tax you owe. Income taxes are unfair, because as you increase in income, you the percentage you owe also rise. Democrats claim that higher income earners should be obligated to increase their tax burden since they yield higher incomes. This is unfair to those that have been able to benefit through hard work to get to the level they enjoy. It is not equal, and sure isn’t fair. However, consumption taxes only tax goods, products, and items that are sold. So if you buy more items, you pay more tax. This is fair.

The higher income earners will still pay higher amounts of taxes in total dollar amounts to lower income earners. And, unlike the income tax, people have the ability to control how much tax they pay, by limiting their purchases. If you are taxed by income, if you try to improve your financial earning potential, you really are penalized by having to pay more taxes. But, if you increase your income and keep your purchasing habits much the same as before the income increase, you have real opportunities to keep more money.

Not only does this system become more equitable, but it also cuts down on the bureaucracy in Washington, and all over the country, due to the simplicity of the code. At some estimates, there are over 144,000 workers needing over $8 billion a year to maintain our current code, and that doesn’t include the $250 billion for compliance. We have accountants that charge high fees to fumble through what seems like miles of paper work. How easy would it be to buy a car, and know you have two maybe three taxes to pay: sales, consumption, and possibly excise?

I have heard Rush Limbaugh and other conservative talking heads discussing this idea for quite sometime. But let’s face facts, these people are entertainers and have little to do with policy changes. But to hear someone from inside the policy machine, Alan Greenspan, to mention means that perhaps this new system is gaining momentum. I have even hears that President Bush is supportive of a measure that would use this new system.

Here is what Alexander Hamilton, the nation’s first Secretary of the Treasury and proponent of a national bank, had to say on taxing from his Federalist papers, No. 21:


“There is no method of steering clear of this inconvenience, but by authorizing the national government to raise its own revenues in its own way. Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them.

The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. If inequalities should arise in some States from duties on particular objects, these will, in all probability, be counterbalanced by proportional inequalities in other States, from the duties on other objects. In the course of time and things, an equilibrium, as far as it is attainable in so complicated a subject, will be established everywhere. Or, if inequalities should still exist, they would neither be so great in their degree, so uniform in their operation, nor so odious in their appearance, as those which would necessarily spring from quotas, upon any scale that can possibly be devised.”

There still exist such details as the correct proportion to tax, if items such as food, heat, and other objects of living would be taxed, and how the tax will be collected. But overall, I believe that it would insure that the wealthiest people would pay a higher proportion of taxes given their propensity to spend and lower income families would spend less tax due their restraint in buying elaborate items. I recommend the following website, Americans for Fair Taxation, where I did find some of the points I delivered, for a deeper look into the idea of consumption taxes.