Steven E. Landsburg has a piece in Slate proclaiming the FairTax (yes, I’ve decided to give in and go with the no-space version for now) to be “brilliant.” After all the discussion here about difficulties with enforcement and transition, along with questions about whether progressivity over people’s lifetimes is just as good as (or better than) progressivity in a single tax year, I still have my doubts. But I am sure of one thing: The FairTax is 100 times more serious and well-thought-out than this:
Jan. 10 (Bloomberg) — Republican presidential candidate Rudy Giuliani proposed a tax overhaul plan that would reduce capital gains and corporate tax rates and allow many Americans to file a one-page return.
The plan would reduce the corporate tax rate to 25 percent and the capital-gains tax to 10 percent. The current corporate tax rate is 35 percent, and the capital-gains rate is 15 percent, set to rise to 20 percent in 2010 as President George W. Bush’s tax cuts expire.
If all of his proposals were enacted, “It would be the biggest tax cut in American history,” Giuliani said in an interview on Bloomberg Television.
Giuliani said he would explain in coming weeks how he will pay for the tax cuts. The plan will include a 5 to 10 percent reduction in spending at federal agencies, including staff reductions.
The one-page return sounds cool, and a lower corporate tax rate may be a good idea, given that the U.S. rate is currently the second-highest in the developed world. And if you don’t care much about progressivity (and I assume Giuliani doesn’t), the other cuts are okay, too. But if you don’t have any way to pay for the cuts other than an airy wave toward “a 5 to 10 percent reduction in spending at federal agencies,” you’re nothing but a buck passer. Or a fantasist:
The tax cuts might just pay for themselves, Giuliani said.
“If you bring that tax down responsibly, you’re going to make money on it because you’re going to pick up more businesses,” he said.
The supply-side argument is that by reducing taxes on entrepreneurship, investment, and high-value labor you’ll get more of all three–and as a result more economic growth. This argument, while often exaggerated, is not nonsense. But only in the rarest circumstances do such tax cuts generate enough revenue to pay for themselves. You’ve got to either cut spending, which I don’t think is a realistic option going forward with the coming budget pressures from Medicare, Medicaid and Social Security, or come up with another source of income. The FairTax identifies that source of income–a national sales tax. So whether it’s realistic or not, it’s still an awful lot more intellectually responsible than the spend-now, pay-later approach of the current president and his wannabe imitator Giuliani.
Update: I guess I should mention that even Mike Huckabee is, as predicted by James Pethokoukis, beginning to distance himself ever so slightly from the FairTax. From the AP report on Thursday night’s GOP debate in South Carolina:
“The first thing is not to raise taxes,” said former Arkansas Gov. Mike Huckabee. “Cut the marginal tax rate, if anything, and eventually go to a fair tax,” he added, referring to his plan for a national sales tax to replace the income tax.