Reassessing the Fair Tax

In the United States, debates over the optimal tax base have raged since the implementation of the income tax in 1913. Recently, the controversy has centered around the Fair Tax. Advocates of the Fair Tax contend that it will achieve two goals. First, they claim it will maintain revenue neutrality. Second, they claim it will tax only consumption rather than impinging on income and savings. We use insights from the Austrian tradition of economics to question the desirability of the first claim and to question the feasibility of the second claim. We conclude that debates over taxation in general would be more fruitful if they returned to more fundamental issues--namely, the quantity of resources over which the state possesses ultimate ownership.