It might seem odd to link Fred Thompson to L. Ron Hubbard. But, as former Bush (Sr.) administration Treasury official Bruce Bartlett recounts in the current edition of The New Republic on-line, Scientologists once proposed replacing the federal income tax with a national retail sales tax. Their proposal is nearly identical to the so-called FairTax, which has been endorsed by Thompson, as well as John McCain, Mike Huckabee, Tom Tancredo, Duncan Hunter, and Democrat Mike Gravel. Georgians John Lindner and Saxby Chambliss have introduced FairTax bills in the Congress to establish a 23 percent national sales tax. (A previous open thread discussion noted that Huckabee’s relative success in Iowa was heavily influenced by the activities of Fairtax.org in that state. Huckabee's success probably accounts for the sudden lengthening of the list of Republican endorsers).
FairTax has several drawbacks. When you think of a 23 percent sales tax, you think of paying 23 cents on the dollar. But the FairTax isn't computed on the purchase price, but the post-tax value. Under FairTax, you wouldn't pay $1.23 for a $1 widget, but $1.30, since 30 cents is 23 percent of $1.30.
Unlike every other sales tax in the world, the FairTax applies to everything the government buys. FairTax doesn't take into account the increased government spending that this would require. Thus, it will either provoke a large cut in federal spending or a large tax increase. (Perhaps these are not really unintended consequences, if you are trying to drown the Federal government in the bath-tub).
What about the poor who bear the brunt of this highly regressive tax? FairTax envisions the Federal government tracking every household's monthly income and then cutting refund checks to minimize the pain to low-income tax-payers. Just operating this system would cost a bundle, forcing further cuts in spending.
Bartlett concludes: "For these and other reasons, every reputable tax expert who has ever looked at the FairTax has concluded that the true tax rate would have to be much, much higher than 23 percent (or even 30 percent) to work--and, even at that unrealistically low rate, the plan would inspire massive tax evasion. In short, the FairTax is a crackpot scheme from beginning to end."