Philip L. Hinson: FairTax panel
November 3, 2010
In your article dated Oct. 20, 2010 ("Ads stir election debate"), you made the following statement with respect to the FairTax tax reform proposal:
"A bi-partisan tax panel commissioned in 2005 by former President George W. Bush released a report in 2005 that raised many potential problems with a FairTax system."
Indeed that panel did object to certain aspects of the proposal. In fact, they modified the proposal as documented and recorded as a bill in Congress according to their own preferences and scored that modified version. Not surprisingly, their modified version was scored with a much higher tax rate than the FairTax as proposed. For example, the panel objected to the FairTax's mechanism for addressing regressivity (called a rebate or prebate) and substituted the mechanism used by most states with sales taxes. That mechanism, exempting certain items from the tax, is fraught with subjectivity and is not nearly as efficient or fair as the FairTax approach. However, the use of exemptions accomplishes the panel's real objective, which was to drive up the revenue neutral rate to the point that it became politically nonviable. The FairTax bill itself, as designed by economists and marketing professionals who surveyed the American people to determine what they wanted in a tax system, never was scored by the panel, a fact which the chairman of the committee, former U. S. Senator Connie Mack III, acknowledged publicly several months after the panel issued its final report.
The final report the panel issued in October 2005, interestingly enough, contradicted its interim report issued the previous April. That interim report, titled "America Needs a Better Tax System," was a scathing indictment of the current tax system.
In spite of the strong sentiments of the American people, which were enshrined in that document, the panel chose to recommend rather minor "tweaks" to the current system, rather than addressing its many deficiencies with structural reform. The current tax system exacerbates a broad range of adverse economic trends, such as:
■.The trade deficit and erosion of the manufacturing sector of the economy;
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■ The federal budget deficit to the extent that slower economic growth is a contributing factor;
■ The ongoing spiral of complexity and higher compliance costs, a dead weight loss to our economy;
■ The crisis in Social Security and Medicare,
■ The AMT;
■ Our low savings rate, a cause for concern to most serious economists;
As more and more Americans learn about these trends and their relationship to tax policy, support for the FairTax, as the most effective and comprehensive way to address them continues to increase. The panel chose to ignore those challenges and to submit recommendations in their final report that would have effected minor changes to the underlying structural problems. It is little wonder that after spending almost a year on its effort, the panel produced a report that not a single federal legislator was sufficiently impressed by to introduce as a bill into their respective chamber.
It also is noteworthy that the chairman and vice chairman of that committee, former U.S. Senators Connie Mack and John Breaux, since have become professional lobbyists. Lobbyists hate the FairTax and for good reason. It would be an essential element of any serious effort to reform the system of tax preferences and earmarks for campaign cash that the K Street crowd nurtures and profits so lavishly from.