I’ve just read a couple of things about the Fair Tax (H.R.25 aka National Retail Sales Tax) and they both missed a major point. By eliminating the hidden cost of corporate income taxes and taxing all goods at point of sale, the Fair Tax immediately makes American products more competitive in world markets and at home. This is one reason that the combination of the Fair Tax with a continuation of corporate income tax or, worse still, with a Value Added Tax is such a bad idea. Both of those leave hidden costs intact in American produced goods.
The Fair Tax is, as its name implies, intended to improve the fairness of the tax system, largely by removing the burden of compliance from the average citizen and by allowing people some control over how much tax they pay by modifying their spending habits, but that’s not the whole story. It’s also intended to remove the hidden costs that drag down the economy, to improve economic growth by helping business be more efficient, to make America’s businesses more competitive in a global economy without resorting to trade barriers or subsidies and to reveal the full cost of government to every voter in every retail transaction. Throwing a VAT into the mix takes the Fair Tax from being a powerful pro-growth, pro-honesty initiative to being just another opportunity to hoodwink Americans with a tax increase disguised as tax reform.