FairTax worldwide FairTax overview One level up
The sales tax ends the income tax' discrimination against domestic products (in favor of foreign ones). The income tax is basically a negative subsidy to domestic products!
The sales tax DOESN'T discriminate because it either applies to both local and foreign products (when they compete on the domestic market), or to neither of them (when they compete abroad). The income tax, on the other hand, DOES discriminate because it ALWAYS inflates only the price of domestic products, never the price of foreign ones (no matter where they compete). Therefore, unlike the sales tax, the income tax undermines the competitiveness of domestic products both internally and abroad.
This simple but staggering fact drives the most profound implication: the FairTax GREATLY diminishes the negative impact that government size has on economic competitiveness, thus allowing “big government” to be economically competitive and therefore politically viable.
In a global market with free moving capitals, using the income tax to fund “big government” is simply futile. By discriminating against domestic business (in favor of foreign ones), the income tax turns government revenues into a direct burden for the local economy preventing it from competing effectively. As a consequence capitals flee, sinking the economy further and forcing the government to scale back. The sales tax simply breaks this cycle changing the game entirely.
The bottom line is that the income tax is the very reason why social democracy is unsustainable and should be viewed as its #1 enemy. The sales does away with such nonsense allowing a country to freely implement the political choice of its people, without any extraneous pressure from the global market.
In fairness, the sales tax discriminates too, but it discriminates against domestic
consumers, not producers. Consumers are much less mobile than capitals, and they don’t really compete with foreign consumers anyway. And it is plenty reasonable for a country to be financed by its own citizens (particularly the ones that are in a position to spend a lot).
An important consequence is that, in a global market where countries compete for capitals, one country adopting the FairTax will force other countries to do the same (in order to regain competitiveness and avert a capital flight). A country’s one-time, immediate increase in competitiveness upon adoption will be quickly offset by a sudden, one-time appreciation of the local currency. The exchange rate jump will get noticed, draw attention and speed up the rate of adoption.
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