What is a Fair Tax System? -Matt

Trick question; there is no fair tax system. 

But what if we accept the notion that the government needs funding, what kind of funding they should receive and what should it look like?

The founders struggled with the question and developed a notion of a direct tax and an indirect tax.  A direct tax would be something inescapable while an indirect tax would be avoidable.  In modern parlance a tax like the income tax would be seen as a direct tax while something like sales tax would be seen as an indirect tax.  The founders decided that in a truly free society, if man was really his own keeper, than an indirect tax should be the only form of taxation; which is why we see the use of stamp taxes as a method of taxing consumption.  If you don’t like the tax, don’t buy the product. 

Interesting side note: The Boston tea party was such a revolt because the consumption of tea was seen as unavoidable and was considered a direct tax. 

It wasn’t until 1913 when we see the 16^th amendment to the constitution to overturn the thinking of the founders.  Now a direct tax on income was the norm and all men work for the government, with or without consent.  When implemented the typical tax rate was 3%.  Now it is not uncommon for tax rates to be north of 30% and when you tack on sales and other taxes 50% of income can go to the government.

This isn’t fair (no matter how you define the word).  But what would be?

To be fair, a tax to me must be nominal, uniform, and simple.

Since the government can only consume (and not produce) any and all money directed to it is unrecoverable.  It does not add value to anything.  For this reason money going to it, being directed away from something else profitable, must be kept to a minimum.  If there is an aspect of government that can be done by the private sector it must be done in the private sector.  For this reason money going to the government must be kept to a minimum.  If this is done the burden on the private sector to support the public is a minor burden.  This is akin to my argument against a balanced budget amendment.  Of course we can balance the budget, it only takes money!  More money!

Uniformity is another aspect of a fair tax.  If all men are created equal and all have equal standing in our courts then the application of a tax should be uniform.  When a government operates at its most basic function then the consumption of services between individuals is the same.  A rich person and a poor person use the same amount of government and should be taxed the same.  If we removed the direct tax of income tax and only use a consumption based tax then we’ll see the rich paying more in taxes as a result of greater consumption. 

Since the onus to pay a tax is on the individual then the system in place should be so basic even the most uneducated citizen can understand the burden.  Our tax code is 73,954 pages large.  Even the most intelligent people in the country would be hard pressed to follow every rule.  If a tax system is to be fair, it must be understood by all.  For example, a 4% sales tax on any purchase is easy to follow and account for.

By nature, taxes are not fair as they constitute unwilling confiscation of wealth from the individual to the government.  But, there are clearly ways where the collection of such taxes could be done more fair.