Fair Tax Isn’t Fair to Lower, Middle Incomes

Republican presidential candidate Herman Cain was interviewed Oct. 2 on “Fox News Sunday” and on “This Week.”
Cain was chairman and CEO of Godfather’s Pizza from 1986-96. From 1995-96, he also was chairman of the board of directors of the Federal Reserve Bank of Kansas City.

Candidate Cain, somewhat surprisingly, won the Republican presidential straw poll in Florida last month and, according to the new CBS News poll, he is now tied for first with Mitt Romney among the Republican candidates.

In both of Sunday’s TV interviews, Cain was asked about his “9-9-9” tax plan, a bold proposal to replace the current federal income tax with a 9 percent sales tax, a 9 percent income tax and a 9 percent corporate tax.

Cain has indicated that he sees the 9-9-9 plan as a precursor to the “fair tax,” which would be a national sales (consumption) tax that would take the place of the federal income tax.

He is only one of a number of people actively promoting the “fair tax” idea.

But would the “fair tax” be fair? I think not.

Advocates for this tax plan consider it fair because “the more you spend, the more you pay.” In addition, it is fair, they say, because everyone is taxed at the same rate.

However, it seems clear to me that the fair tax proposal, as well as the 9-9-9 plan, would tax the lower and middle classes more severely than at present, even with a “prebate.”

In addition, unless the wealthy are already avoiding taxes through various loopholes, as many are, it means a huge tax break for them. (The rather complicated plan for prebates is explained at FairTax.org.)

Take, for example, a couple with an annual income of $25,000. Most of that income would of course be spent on necessities, even though they might receive some prebate.

Thus, in all likelihood, almost all of their income would be subject to the sales (consumption) tax.

But consider a couple with an annual income of, say, $250,000. They no doubt would pay far more taxes, for they would spend far more than the first couple.

But in all likelihood they would also put a sizable proportion of their income into savings, buying stocks and bonds or making other investments that would probably increase their future wealth.

Thus, the latter would pay a far smaller percentage of their income for taxes while increasing their wealth in years to come.

In most cases, the greater one’s income, the smaller the percentage of that income would be used for taxes.

So, the so-called fair tax cannot be called fair for low-income people struggling to get by financially. Conversely, it would unfairly favor those with above-average incomes.

LeroySeat was a missionary to Japan from 1966-2004 and is both professor emeritus of Seinan Gakuin University and pastor emeritus of Fukuoka International Church. This column appeared previously on his blog.

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