Don't just reform our tax code, replace it

Dallas Morning News | Scott Burns:

"We need to tax consumption. We need to stop taxing labor, capital and savings. We can't do that without dealing with the employment tax. ... We can [eliminate the employment tax] by replacing it with the same national sales tax that would replace the income tax and every other tax."

Scott Burns' recommendations are fair. Shifting taxes on capital and savings to a tax on sales is usually recommended as a way to encourage and reward savings and investment. So why wouldn't elimination of taxes on labor encourage and reward labor? Isn't that a Good Thing™? Why is it not a part of any Republican plan for tax reform?

Fair Tax advocates claim that prices at the cash register won't go up because elimination of corporate taxes and payroll taxes will lead to base price reductions of 20-25%, offsetting the new sales tax. (I have to wonder how that works for goods made in China.) Even if that proves true, would a 23% national sales tax (or whatever will truly be needed to be revenue neutral) lead to a boom in the off-the-books cash economy? There are many more retail sales transactions than paychecks issued. The numbers suggest a greater cost of enforcement.

By the way, base price reductions resulting from elimination of the hidden tax content of goods and services would apply to the price of labor as well, meaning salaries and wages would drop. Take-home pay should be the same, but the psychological pain of nominal wage cuts will be a big barrier to adoption.

The Fair Tax may sound good, but in practice it will likely be riddled with flaws like the income tax is today. And the rules and regulations designed to correct those flaws will result in the same kind of monstrosity that our current tax code is.