The News & Observer had a letter to the editor today referencing this article of mine. The writer agreed with my point about the need for increased production and used it to justify replacing the income tax with a consumption tax. His basic point being that such a tax will "enhance economic growth." While I am glad he used my argument to justify the need for economic growth, I don't agree with him that a consumption tax will accomplish that goal.
There are economic reasons why a consumption tax will end up being a tax on incomes, thereby negating some of the benefits that the letter writer claims. But the bigger problem I see with his proposal is that it is, as he claims, revenue-neutral. Why would we want it to be revenue-neutral? Why would we want the government to continue to confiscate so much from the private economy?
The issue that we should be addressing is not the type of taxation, but the level of taxation. The more the government takes out of the private economy the more economic growth is hindered, and changing to a "revenue-neutral" consumption tax would do nothing to solve this problem. The government would continue to consume economic resources that would be better left in private hands.
Calling the consumption tax the "Fair Tax" is silly because it would end up not being fair. We are still dealing with politicians who would do their level best to make sure certain products and certain constituents would be exempt from the tax. I can see the debate in Congress now over taxing two ply toilet paper higher than single ply because the rich use more plies.
If I had to choose between a progressive income tax with a small limited government and a consumption tax with the current behemoth, I would choose the former.