Politics & Policy

Fairtax Foul Play

Tax reform is being spun negative in the South Carolina race for the Senate.

Inez Tenenbaum, the Democratic party’s choice for the open Senate seat for South Carolina, has chosen to make tax reform, specifically her opposition to it, the centerpiece issue of her candidacy. At every opportunity she has attacked her Republican opponent, congressman Jim DeMint, and his plan to eliminate the IRS and replace the current system with a national retail sales tax. A recent Tenenbaum ad accused DeMint of “supporting a new 23 percent tax on middle class families” that would “bankrupt Medicare by 2009.” To date, however, she has offered no alternatives of her own.

Advocates of the “FairTax” plan, including DeMint and more than fifty of his House and Senate colleagues, are not supporting higher taxes or a “new” tax. Rather, the FairTax legislation (H.R. 25) would repeal many federal taxes, including personal income, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes in favor of a flat, 23 percent national retail sales tax. To make this system fair for low-income Americans, all taxpayers would receive a “pre-bate,” so that no one would pay taxes for consumption up to the poverty line.

Inez Tenenbaum clearly hopes that voters don’t understand basic economics and that they will forget about the price-ratcheting effect of producer, employee, and hidden consumer taxes buried in the current price of every good or service Americans purchase. Of course, economists understand the impact of hidden taxes, and their studies have shown that when these embedded taxes are removed, prices will come down.

Dale Jorgenson, former chairman of the Economics Department at Harvard, has projected an average producer-price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax.

In addition to having a smaller impact on consumer prices than detractors may suggest, abolishing the IRS and eliminating the current tax code will provide significant economic and time benefits to taxpayers. The overall IRS-induced paperwork burden is currently estimated at a staggering 6.7 billion hours per year with annual costs of $225 billion for tax filing, record keeping, and tax-accounting advice (the equivalent of about $850 for every man, woman, and child in America). By abolishing the current tax code, the FairTax would lower total compliance costs by an estimated 95 percent. Thus, the immediate impact of implementing the FairTax will be an improved standard of living for all Americans and, with a lot of paper-shuffling out of the way, will mean that people will have more time to spend with family and in productive work.

Tenenbaum and Democratic critics of the FairTax are simply being disingenuous in labeling Jim DeMint a “tax hiker.” Rep. DeMint has proven himself to be a great friend of taxpayers, having received “A” grades on the National Taxpayers Union’s comprehensive fiscal scorecard in four of his five years in office. Does Inez Tenenbaum like the fact that Americans have to waste billions of hours and dollars complying with the tax code? Does she like the fact that all of us — rich, poor, and middle class — lose out because the tax code creates inefficiency, incentives to cheat, and thousands of loopholes for special interests?

In the parlance of today’s youth, Tenenbaum is just being a “hater.” She is more than willing to put someone else’s ideas down, and in the process she is hoping to focus attention away from her own past votes to increase taxes and her lack of a viable alternative.

Instead of attacking DeMint for coming up with tax reform solutions, Inez Tenenbaum should come clean on the issue. If she thinks America can do no better than the 50,000-page, loophole-ridden tax code we have now, she and her special-interest allies who engineered so many of those loopholes should just say so. But Tenenbaum should not get a free pass when she tells South Carolinians that her opponent wants to “raise” taxes.

– Paul Gessing is director of government affairs for the National Taxpayers Union. Write to him at 108 N. Alfred St., Alexandria, Va. 22314, or visit www.ntu.org.


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