On a somewhat related note, there has been some blog chatter about Bruce Bartlett’s Wall Street Journal op-ed on the Fair Tax. Aside from the inherent difficulty of trying to get something like the Fair Tax enacted without Congress turning it into a giant add-on to the current tax system, many of the flaws critcs like Bartlett point to stem from one major defect — the Fair Tax attempts to be revenue-neutral because it takes the current size of the federal government for granted.
The bottom line is that a big government needs big revenues. Getting that revenue requires a tax system that is more intrusive and has higher rates than we would ideally like. The Fair Tax mitigates the intrusiveness and the progressivity of the current tax code, but because it is designed to bring in the same amount of revenue, it can’t completely abandon it. To quote some jerk with a first initial and Roman numeral in his name, “As long as Washington spends the vast sums the IRS sucks out of the private economy, reformers can either make the code simpler while hitting some Americans with higher taxes or incentivize investment with consumption-tax schemes that mirror the complexity of the income tax.”
There are some things you can do to move away from taxing investment and toward taxing consumption, as the Fair Taxers are trying to do, but big government is a big brake on fundamental tax reform.