As many who know me are aware, I’m a proponent of the Fair Tax, an income tax reform idea introduced by John Linder (R-GA) that is being pushed heavily by him and Neal Boortz. There are more and more members of Congress coming on board with this idea as the days and weeks go by, but many members of the Democratic Party are starting to line up on the other side of the fence, wanting absolutely nothing to do with it. I will freely admit to being confused by this. After all, the Fair Tax removes the vast majority (and in many cases all) of the tax burden from the lower income brackets.
It hit me last week when thinking about it, however, what it was that is poking the Democrats into action. In the current income tax system, there are a number of different little things here and there in the code that provide for Income Redistribution. Under the Fair Tax, however, all of these would disappear and putting in items to put them back into the Government’s toybox would require some rather blatant legislation for taking money from one group of people and giving it to another.
One of the largest of these in the current tax code is the Earned Income Tax Credit. With the EIC (as I understand it, which may not be as good as an accountant, mind you), taxpayers are granted a credit on their taxes if they meet certain guidelines based on income, number of dependents, and the like. Logic would say that if the EIC amount exceeds your tax liability, then the remainder would simply stay with the government. This, however, is not the case. If the EIC amount puts you into a situation where there is some left over after you zero out your tax liability, then you receive the remainder of it a refund. This, in my opinion, is rather blatant income redistribution. Some other taxpayer provided the money that went to fund the EIC for that taxpayer. The taxpayer receiving the payout from the government didn’t work for it or earn it. Yet, due to its inclusion in the labyrinthine tax code of the United States, people fail to actually look at it in that manner.
If the Fair Tax is implemented, the EIC will go away. You won’t be filing your taxes every year, so there will be no “hidden” means of putting in income redistribution of this type. It would be much harder to set up a system where people pay a different Federal Sales Tax based on their income than it is to give money to them when they file their tax return.
One of the major ways that politicians stay in office is by giving largess to their constituents. This could be anything from funneling money to a special project in the district from the governmental coffers to situations like the EIC. Given that the Democratic Party bills itself as the party of the lower and middle classes in the country, the EIC (and programs like it) have been part of their arsenal for remaining in office and attempting to make gains in the political arena. If those things were removed, it would be a painful blow to their political goals. Therefore it really doesn’t surprise me all that now that Democrats are lining up against the Fair Tax. Given the realities of the Fair Tax, it disappoints me, but it doesn’t surprise me.