The right wing has long sought the abolishment of the Internal Revenue Services (IRS) and advocated for replacing the income tax with a national sales tax. A proposal that encapsulates these policies is known as the “Fair Tax.”
While the Fair Tax has recieved little support in the past, Sen. Dick Lugar (R-IN) — who is facing a highly competitive primary challenger from the right — announced his support for the policy yesterday in a video to his constituents posted on YouTube. Watch it:
In announcing his support for the policy, Lugar bragged that “individuals would have more money to invest in jobs and growth.” Yet the fact is that the Fair Tax would be highly regressive and end up imposing a gigantic tax hike on the American middle class.
While Fair Tax supporters claim the tax — which would impose a 23 percent sales tax on most items — would actually end up benefiting all Americans thanks to a “prebate” Americans would get to be able to purchase basic goods, the truth is that almost all Americans would end up paying more taxes under the proposal.
Conservative economist and former Reagan adviser Bruce Bartlett points out that President George W. Bush’s tax reform panel concluded that all but the top quintile of American earners would actually pay more taxes under the Fair Tax. ThinkProgress has assembled this data in the following graph:
As economist Brad DeLong notes, the Fair Tax would impose a “mammoth tax cut for the crowd making more than $200,000 a year and a substantial tax increase for those making between $30,000 and $200,000 a year.” While there is certainly nothing wrong in asking for fair sacrifice and higher taxes on those who can afford them in order to pay for a great nation, there is something very perverse about a tax scheme that lowers taxes on the rich and dramatically raises them on the rest of society.