aSide Order

A FairTax Teaching Moment

The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation’s plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession’s impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government’s revenues were this bleak, the year was 1932 in the midst of the Depression. Is raising taxes the answer to the problem? Of course not.

Which brings me to this FairTax teaching moment.  The tax base shrinks every time a job is lost. 6.7 million jobs have been lost since December 2007. Over 5 million of those have been lost since January 2009. And everyone is saying that its going to get worse before it gets better.

It doesn’t take a rocket scientist to see how taxing income and investment leads to federal revenue losses in a big way during a recession. Revenue flow under the FairTax plan is not near as volatile during a recession. Under the FairTax, the tax base remains the same, which is about 30% larger (and growing) than under the current income tax plan. More importantly, a consumption based taxing system is more stable, more predictable, and less reactive to political actions.

In fact, if Washington could get their spending under control, and barring another ‘man made disaster,’ under the FairTax recessions would become a thing of the past.

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