I was listening to the local liberal radio station this morning. Thom Hartmann was talking about the Fair Tax and what a bad idea it is. His argument against it was that it wouldn’t be fair to people who spend 100% of their income because they would be paying tax on all their money, while people who spend only 10% of their income wouldn’t be paying as much tax.

He’s absolutely right when he says that. But he makes it sound like it’s a bad thing. With the Fair Tax, you don’t pay income taxes, you only pay tax on what you spend. This will increase your paycheck by about 30-40%, which is a very good thing. When you spend your money, you pay the tax. People who spend 100% of their income will end up paying the same amount of tax.

When you look at the big picture, it’s not just a break even deal. The Fair Tax has some pretty good benefits, both for individuals, and for the country. You won’t hear Thom Hartmann talk about these.

• Most people overpay the government in their Income Tax withholding. Sure, they give you a refund when you file your yearly taxes. But the government has had your money in the bank earning interest. They give you back the money, but they keep the interest your money earned. I’d rather have all my money in my bank earning interest for me. Why should the government make interest on my money? They shouldn’t, that’s why.
• When the government takes your tax money up front, you don’t even have the opportunity to use your money to make more money. If you’re saving up for a new big screen television, your money earns interest while it sits in your savings account. When you buy the television (and pay your taxes) you end up with more money than you’d have had with the government taxing you first. In this example, it’s maybe only a few dollars more, but anybody who doesn’t value a few dollars is welcome to use the donation button and give the money to me.
• Under the Fair Tax there’s no need for the Internal Revenue Service to exist. Getting rid of it reduces the size of government. The annual operating budget for the IRS was about 10.7 BILLION dollars in 2006. ^[source] I bet we could use that money somewhere else. Like maybe to help pay down our massive national debt.
• By taxing dollars spent rather than dollars earned, we would be able to collect tax on the huge amount of unreported income. I am talking about people like drug dealers, who most likely aren’t filling out a W-2 right now. Of course, it doesn’t apply to just drug dealers, it applies to anybody who has income and chooses not to pay taxes on it now.
• Perhaps the greatest benefit to the Fair Tax would be the fact that we would be able to collect taxes on money earned by illegal Mexican workers. I know for a fact that there are a lot of illegal workers on company payrolls who claim enough deductions on the W-2 that no money is withheld from their paycheck. Once a year, they go back to Mexico, come back with a new identity, and start all over. They never pay any taxes. Under Fair tax, we still wouldn’t have any tax revenue on the money they send back to Mexico, but we would collect tax on the money they spend while living here. With an estimated 15 to 20 million illegals in this country, that would add up to a lot of money.

So the question is, is the Fair Tax really fair? Only if you think it’s fair that you earn interest on your money rather than the government earning interest on your money. And only if you think it’s fair that everyone pay taxes, not just honest Americans.

When you look at the whole picture, Thom Hartmann is just plain wrong.