Gary Johnson on a fair tax system for America

Gary Johnson on a fair tax system for America

OCALA, Fla., February 5, 2014 — Everyone has probably heard the old saying which claims that the only sure things in life are death and taxes.

While each of us is obligated to pay something so our government can function, there is debate over not only how much this should be, but how to pay in the first place. That is where the debate over America’s most famous tax, namely that on earned income, begins.

Some say that the federal income tax should be repealed. They claim that a replacement called the “fair tax” ought to be considered.

Many have heard about the fair tax, but fewer know much about it.

“Simply put, the Fair Tax is a consumption tax, rather than a tax on income,” former New Mexico Governor Gary Johnson explains to Communities Digital News. One of America’s foremost libertarian voices, he stood as a candidate for the 2012 Republican presidential nomination. He ultimately left the GOP to run as the Libertarian Party’s standard-bearer. Today, Gov. Johnson continues his advocacy for individualist public policy.

He continues: “The basic idea, embraced by many economists, is to eliminate virtually all federal taxes, from income taxes to payroll taxes, and replace them with a single tax on purchases.  In the most widely accepted version of this consumption tax, the rate paid on purchases would be 23%, which roughly equates to the lowest current income tax rate of 15% plus payroll taxes.  Key to the concept is a “prebate” that would provide every household with an advance tax refund each month that would have the effect of exempting purchases of necessities from the tax.” 

Gov. Johnson is far from alone in his support of the fair tax. Dan Mastromarco is an Annapolis-based attorney who has been leading the charge for years on fair tax-related matters. He tells CDN that the fair tax “is revolutionary legislation introduced in the House and the Senate that consigns the income tax it to the cairn of history. The concept is to raise necessary governmental revenue – not from the fruits of our labor – but from what we choose to consume beyond the necessities of life.

“It is best described as a total tax replacement plan because it replaces the individual and corporate income, payroll, and estate and gift taxes, with a 23 percent national retail sales tax on the consumption of new goods and service without exception. The FT does not tax educational expenditures, investments, business inputs or charitable donations.”

Some say that a national sales tax would eliminate the prospect of economic growth. What can be said about this idea?

“To the contrary, I am convinced replacing taxes on income and productivity with a consumption tax would provide a tremendous boost to growth,” Gov. Johnson says. “Workers would actually receive their entire paychecks, without the federal government taking a huge cut.  Then, their tax burden would be determined by their purchases, not their incomes.

“Likewise, if, as even President Obama has said, reducing the business tax rate by a few percentage points would create jobs and growth, just imagine the job creation that would result from eliminating income taxes on businesses entirely.  I firmly believe that change alone would create millions of jobs.”

Mastromarco claims that “(s)uch an idea has zero support in modern economic thought. What recommends the FT, side from the salient effects on fairness and civil liberties, is its salutary effect on economic growth. Growth results from the replacement of our special interest, exception-laden tax system with one designed by economists  (a neutral system that broadens the base more than any other plan that does not twice tax returns on capital).”

He goes on to mention that “(t)he FT Plan eliminates the tax bias against work, saving, and investment, leading to substantially higher rates of economic growth, faster productivity growth, more jobs, lower interest rates, and a higher standard of living for Americans. Laurence Kotlikoff estimates the FT increases capital stock over the century by 96 percent – 44 percent by 2030 – increasing real wages by 17 percent over that same period rather than declining by 8 percent. Beacon Hill Institute estimates GDP increases of 8 percent in year one.

“Wages would be 10% higher in year one and throughout the decade. The FT would in fact eliminate a projected decline in our wellbeing.”

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