The Un-Fairness of the Fair Tax

I probably don't need to tell you that the South Carolina GOP is dominated by politicians who have been placed there to insure that the moneyed interests are protected at the expense of the working and middle classes. But in case you are from Mars and think that our picturesque little state is all magnolia blossoms and butterfly bushes, I give you last week's skirmish over the "Fair Tax." 

In the House, there was much Democratic hand-wringing over the party's disenfranchisement on the Tax Realignment Commission.  The party's powerlessness is guaranteed to mean that the party of lower taxes will raise taxes on the people who can afford it least. 

The Commission is also being empowered to "study and make recommendations to the General Assembly of the advantages and drawbacks of a revenue neutral replacement of the state individual and corporate income tax, state imposed sales and use tax, estate tax, bank tax, savings and loan association tax, and taxes on beer, wine, and alcoholic beverages with a broadly based consumption tax modeled on the proposed federal Fair Tax as that form of tax would have to be adapted to apply on the state level."

How fair is the Fair Tax? Judge for yourself. 

The Fair Tax proponents propose replacing all other taxes with a much higher sales tax on goods and services.  In Missouri, the Fair Taxers, pushed their scheme through the Missouri state House a few weeks ago. The Institute on Tax and Economic Policy released a study of that plan on Thursday.  Because of a rebate for households below the federal poverty level, the impact on the poorest Missourians was limited but still negative.  The only real benefit of Missouri's un-"Fair Tax" goes to the wealthiest 5 % of taxpayers. 

According to the ITEP, even with the rebate for lower level taxpayers, the Missouri bill: "…increases taxes on the poorest 95 percent of the income distribution, and in particular on middle-income families.  The middle twenty percent of Missouri’s income distribution, those with an average income of $37,000, would see an average tax hike of $2,036, the equivalent of 5.5 percent of their income. Because the sales tax rebate is based on federal poverty levels ($10,210 for singles and $13,690 for married couples in 2007), the credit doesn’t do enough to help middle-income Missourians who are also impacted by regressive tax changes proposed in HJR 36. The poorest twenty percent of Missourians, those with an average income of $9,000, would see an average tax hike of $190, the equivalent of 2.0 percent of their income...By contrast, Missourians in the top 5 percent of the income distribution would see a tax cut, on average, under this plan. In particular, the wealthiest 1 percent of Missourians, with an average income of over $1 million, would enjoy an average tax cut of $22,864 under HJR 36."

So the rich get a tax cut, and the poor and the middle class? We take it on the chin.

But you don't have to worry about South Carolina copying the flawed Missouri approach. That's because Rep. Rex Rice (R-Greenville/Pickens) has introduced the first Fair Tax proposal in South Carolina.  Rice's bill would show those pesky Democrat-leaning lower classes just who the bosses are in the Palmetto State. Because he would eliminate any rebates for the poor.

How fair is that?