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The Folly of the Fair Tax [1]

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Date: 2023-01-20

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Republicans in the House of Representatives are planning on voting on what they call the Fair Tax Act, which would replace all other federal taxes with a sales tax of 30%. There are several objections to this tax. The first is that it is unrealistic, in that it would never pass in the Senate or be signed into law by President Biden. Another is that it is regressive, shifting the tax burden from the rich to the middle class.

But the thing that amuses me the most is that Republicans praise it for simplifying things, allowing us to get rid of the Internal Revenue Service. In that regard, I must relate a couple of anecdotes.

I live in Texas, where the sales tax is 8.25%. I used to work for a small business. One day a customer came into the store and asked about a watch in the showcase selling for around $1,000. He told the manager he was interested in buying the watch, but then asked, “Would I have to pay the sales tax?”

“Are you going to pay cash?” the manager replied.

“No,” the customer answered. “I’d use my credit card.”

“Then I’d have to charge you the sales tax,” the manager answered flatly.

I was amazed at how brazen the manager was in openly admitting that she would be willing to cheat on the sales tax. Moreover, she was not the owner, and she was not working on commission. There was nothing in it for her. It was just part of her nature to cheat the state out of its cut.

On other occasions, she allowed customers to avoid the tax by paying cash, only it was done with a little more finesse.

There was a garage down the street from where I worked. The first time I used them to repair my car, I came to pick it up at the end of the day and was told it would cost me $432.63. Because it is my wont to pay cash as much as is reasonably possible, for no other reason than that is a personal preference of mine, I pulled out my wallet and starting counting out the hundreds. As soon as I counted out four hundreds, I started to get out the remaining $32.63, but the owner said, “That’s enough,” and I didn’t have to pay the rest.

Honest fellow that I am, it was not my intention to cheat in this way, for when it comes to paying my taxes, I am strictly on the up and up. But neither do I regard it as my job to enforce the law, insisting that the owner of the garage pay the sales tax, as if I could have made him do so in any event. Needless to say, I always paid cash on any subsequent repairs I had done there, and I always got the tax-cheat discount.

I don’t suppose I need to point out that if small businesses will cheat when the sales tax is just 8.25%, the temptation to cheat when the tax is 30% would be irresistible. In fact, some businesses would find it necessary to cheat in order to stay competitive.

Of course, it’s always been possible for a business owner to cheat on the income tax by not ringing up a sale when a customer pays cash. But the income tax is remote, something that business might have to pay when the owner files a return early in the following year. The sales tax is both immediate and certain, creating a much stronger temptation to cheat.

Enforcing the income tax is much easier than enforcing that 30% sales tax would be. Republicans can just forget about that siren song of getting rid of the IRS.

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[1] Url: https://www.dailykos.com/stories/2023/1/20/2148338/-The-Folly-of-the-Fair-Tax

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