John Tamny, editor of Real Clear Markets: The Flat Tax vs. the Fair Tax

Real Clear Markets:

So while there’s good reason right now to be pessimistic, there’s also reason to be optimistic given the certainty that we’ll eventually move in the other direction. On the tax front, whatever the result of President Obama’s attempts to move the cost of success upward, his efforts insure a strong response from those eager to simplify the income tax, or abolish it altogether.

When it comes to tax simplification, the debate seems to come down to the merits and demerits of the Flat Tax and the Fair Tax. The former would tax income at one flat rate, while the latter would tax our consumption.

At first glance, it should be said that both tax solutions are dreamy when we consider their economic implications. Both, if applied correctly, would lead to the abandonment of all manner of deductions that distort behavior and retard economic growth. If either were passed, the economy would no longer suffer under economy enervating incentives that cause people to plow money into sinks of wealth like housing, not to mention the purchases of federal and municipal debt that would be much less attractive absent their tax advantages. For the abolishment of the various deductions alone, the economy would boom given the more rational path that capital would take in the direction of productive investment.

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