–by Bill Randles
There is a great deal of talk about the need for tax reform and for creating a positive climate for business, but too little attention has been paid to how a proper tax policy can fix many of our economic and political problems. I believe the Fair Tax is the only tax system that can resolve many of Missouri’s structural economic and political woes. There has been a great deal of research and debate in Missouri regarding how the revenue base from a Fair Tax would compare to an income tax. The purpose of this article is to focus on how a Fair Tax would eliminate many of the barriers to economic development in Missouri and clean up a great deal of the political corruption inherent to an income tax.
The Fair Tax is simply a somewhat broader, flatter sales tax. The Fair Tax would eliminate personal and corporate income taxes in Missouri and replace them with this modified sales tax. One of the key benefits of the Fair Tax is obvious to anyone who has ever dreaded April 15. There would no longer be the angst, turmoil, and difficulty of preparing year-end tax returns. Each of us would pay our taxes each time we buy a new good or service. It would be clear, transparent, and within the control of the taxpayer. These are precisely the reason politicians and special interests loathe and fear the Fair Tax. It would not be subject to manipulation and special deals.
The income tax is the most efficient tool of political corruption ever devised. With it, politicians are able to reward friends, punish enemies, and surreptitiously control matters that ought to be beyond their purview. The rewarding friends is easy to see. Favored industries are given tax breaks to relocate, expand jobs, or do whatever else the politicians want. These tax breaks are, of course, not free. Whatever income tax breaks are given to these industries are made up for by ordinary citizens. It is a hidden subsidy, a hidden tax, and a redistribution of income all rolled into a deceptive little package. Politicians taut the benefits and very few folks take the time to calculate the cost.
Of course politicians want to retain the income tax. Without it how would they foist such things as the China Hub on Missouri’s taxpayers in the future? But it is also a tool of control. We hear a lot these days about closing tax loopholes but rarely see it happen. That is because those loopholes provide a secretive way for politicians to pass out favors or exercise control that does not have to go through the usual public process of legislation. Put simply, a legislature might not have the power to tell an individual to do something, but by offering a tax break if the person does it, they get the same result without pesky problems like public scrutiny and constitutional challenges.
But in addition to political corruptness, the income tax is simply built on a flawed economic model. It is a basic economic principle that if you tax something you get less of it. Therefore, if we tax income-producing activities it should be no shock we get less of them. Thus, in Missouri we get less businesses expansion, capital invested, and jobs created. To compensate for the problems caused by the income tax, Missouri economic developers try to recruit businesses to the state by offering them tax breaks. This makes about as much sense as hitting someone with a hammer in your right hand while you offer them a band-aid with your left hand. Here is a much more sane proposal: eliminate the tax system that deters business growth and job creation in the first place.
Politicians love to sell this or that special tax deal for a favored business by claiming that removing the tax burden is essential to get the business to come here or expand. Well why isn’t what is good for a handful of businesses good for all? By eliminating the negative incentive of the income tax we would unleash the economic power of Missouri’s private sector. Businesses would be encouraged to come to Missouri, to expand, and to innovate. When other states are trying to recruit businesses by offering them certain tax breaks, Missouri could simply say to them, your tax rate here is zero. Every Missouri citizen would benefit from the economic growth.
The Fair Tax would end the practice of politicians using the tax code to pick winners and losers. In exchange for politicians relinquishing power they should never have had anyway, we will make Missouri an engine of job creation and economic expansion. The Fair Tax is the answer. The only question is whether the public will be able to force the politicians to do the right thing.
