Andrew and I have been having a conversation about my advocacy and his opposition of the FairTax. He recently gave a reply A Partial Reply to yt_knight to some objectives that I listed. First, some common ground:

I largely accept all of the bullet points that Andrew puts forth (restated below).

1. Minimizes the individual harm done
2. Treats all individuals and all types of income and wealth similarly
3. Does not target specific acts or assets for favorable or punitive treatment
4. Has the lowest total administrative cost per dollar of revenue
5. Taxes only enough to cover needs, not more
6. Produces consistent results

I would argue about Andrew’s point #5 in my point #2 below. I also argue that we should maintain funding to pay down (and eliminate) the national debt but otherwise we are in agreement on his points.

I would also argue that we are not far apart on several of the 18 objectives that I put forth in my FairTax counter - change for change sake... blog entry even though Andrew chose to argue semantics.   If Andrew simply argued from common agreement that some form of tax system is required vs. pitting my objectives against a system of no taxes whatsoever it would have been more constructive. To avoid the game of semantics perhaps I should have rephrased objectives to communicate “keeping harm to a minimum”. For instance, point #3 could have been rephrased to “minimize barriers to economic growth” rather than “promote economic growth”.  A clarification/counterargument on these points… Again, I believe that our tax system should be:

1. 1.       Simple (i.e. ability for taxpayers to comply without expensive tax preparation fees).   I agree that it should be consistent too.
2. 2.       Fund our government at the same level. I argue that massive tax reform will be hard enough to pass without including provisions to cut spending. I agree that government spending needs to be cut but I argue that taxing and spending need to be addressed separately – otherwise neither will pass if they are bundled into one reform push.
3. 3.       Remove barriers to Economic Growth.  
4. 4.       Remove barriers to U.S. Competiveness Internationally – (Promote U.S. Competitiveness) – I argue that when taxes are ultimately priced into U.S. products and services (ahead of actual consumption) that competing products/services that strip these taxes (either partially or entirely) ahead of export have a great advantage. Andrew puts forth an argument that the U.S. might run afoul of the WTO. Really? Is our country sovereign or not? Besides, isn’t the U.S. paying the largest tab for peace-keeping military efforts globally? Why shouldn’t we have a right to have a tax system that levels the playing field in terms of global competitiveness?
5. 5.       Minimize barriers to Capital Investment in the U.S. – High Corporate taxes chase away capital investment in our lands. Any tax system (FairTax, Flat Tax, or otherwise) that eliminates corporate taxes does much to solve this problem.
6. 6.       Minimize barriers to Capital Formation in the U.S. In a prosperous society I argue that a proper balance will be struck between investment and consumption.   Also, when the burden of tax planning is removed from business (i.e. what is the tax consequence of purchasing that equipment this year vs. next fiscal tax reporting year), commerce becomes more fluid. Many bold initiatives are often shelved (or altered) because of tax consequences given our current tax code. 
7. 7.       Minimize loss of productivity as a consequence of taxation – I agree with Andrew that 5, 6, and 7 are interrelated. In addition, though, unleashing small business (removing barriers) will create even more productivity and higher GDP.
8. 8.       Respect privacy and civil rights. Andrew and I disagree here. The income tax is intrusive and abusive requiring a running tally of all sources of income. There is no requirement in the FairTax to report detail of all purchases to the taxing agency (only monthly totals).   A key problem with the IRS is that we are presumed guilty with the burden of proof on us. A reformed tax system should presume innocence with the burden on the government to prove otherwise.
9. 9.       Make the true cost of government transparent. Andrew missed my point here. My argument here is that tax incentives on the income side of the ledger are completely hidden from “We the People”. In order for government to be transparent, all spending should show up on the spending side of the ledger. It is impossible to see what programs are being assisted (funded) via tax incentives when their programs never appear on the spend side of the ledger. I believe Andrew and I agree that free markets that do not create winners and losers in the tax code are preferable.
10. 10.   Remove barriers to upward mobility. My argument here is that it is preferable for families to be able to choose when to pay their taxes vs. have the government reach into our wallets as we earn… If young families choose to rein in spending in order to save, invest, and build their nest egg and then choose to consume more (and therefore fund our government more) after they are on solid financial footing they have more control over their lives. Try doing that under our current tax system. Work two jobs & you get elevated into a higher tax bracket & the government takes even more earnings.
11. 11.   Lower the cost of employment – Andrew misses the point here. By removing income and payroll tax withholding along with all of the associated compliance issues the cost of employment drops period. Not sure why Andrew went off on other non-employment arguments with this point…
12. 12.   Minimize barriers to Create Jobs – Small business and entrepreneurship has the potential to create more jobs when barriers are removed. Currently, if it takes $10,000,000 in labor and services to get a company off the ground (R&D, legal formation, marketing, operations, etc.) the government will get their roughly $2,300,000 in embedded labor taxes before sale #1 is even made – unless, of course, we have tax incentives but we are trying to get away from that right?
13. 13.   Treat everyone equitably – no disagreement so no further clarification
14. 14.   Minimize barriers to capital formation and entrepreneurship – with the addition of my argument from #12 above… Also, forming capital is easier when there is no tax consequence on the investment side.
15. 15.   Level the playing field between small and large business. Andrew and I agree that relative size of business should be of no concern. High compliance costs favor large business. Large business has the wherewithal to lobby congress and create tax advantages. This cannot be said for small business. A tax system that levels the playing field is more equitable.
16. 16.   Remove Tax Planning as a Burden – Andrew tries to minimize this issue but many investment decisions (capital expenditures, etc.) under the current tax system require careful thought to tax consequences. As indicated, some expenditures are shelved or delayed due to tax unfavorable consequences.
17. 17.   Easy to administer – I argue that this is essential. If Andrew wants to argue for argument sake (see http://www.youtube.com/watch?v=teMlv3ripSM) that’s fine but simplicity is a goal because complexity costs money.  Yes, I agree that there is a balance but ease of administration should be considered.
18. 18.   Address Medicare and Social Security – Andrew claims that these programs are not part of the tax system. I wonder if Andrew gets a paycheck & sees that 7.65% of his gross wages (+ another 7.65% that the employer matches) is withheld. If these programs aren’t dealt with at the same time as the income tax where should they be dealt with?