The Fair Tax As Obamacare Killer | Eastern North Carolina Now

    Publisher's note: The author of this post is Dr. Roy Cordato, who is Vice President for Research and Resident Scholar at the John Locke Foundation and contributor to the Carolina Journal, John Hood Publisher.

    RALEIGH     I have never been a fan of the Fair Tax, a proposal to abolish the income tax and substitute a national sales tax. My opposition has nothing to do with the merits of a national sales tax as opposed to an income tax per se. Clearly, as an economist, I agree that the proper and most efficient tax base is consumption, not income, which is consumption plus saving.

    My concern always has been that it would be impossible to eliminate completely both the current income tax and the possibility of bringing it back at some point in the future. In other words, by creating an infrastructure for a new national tax, we could end up, in the long run, with both.

    Instead, I have supported converting the current income tax into a consumption tax by eliminating savings from the tax base, making all savings deductible, and flattening the rate.

    But while the proposal I like, typically called a consumed income tax, would in principle be equivalent to the Fair Tax in its impact on the economy, there is one advantage that the Fair Tax would have that could, depending on what ultimately happens with Obamacare, change my thinking. By eliminating the income tax and the IRS, you would also be eliminating the enforcement mechanism for Obamacare's individual mandate.

    Under the Affordable Care Act — Obamacare — everyone who is not receiving health insurance as part of his employment benefits package or a government program like Medicare or Medicaid is required to purchase a federally approved health insurance plan. The IRS through the income tax system enforces this "individual mandate."

    Every year, when a person files his tax return, he must show proof that during that year he was covered by a health insurance plan that meets all of the requirements of Obamacare. If the tax filer is not insured, the IRS levies a penalty. It is collected by reducing the uninsured taxpayer's income tax refund.

    It is generally recognized that the individual mandate is essential to the operation of Obamacare. It is how healthy, low-cost health care consumers are forced into the risk pool, which in turn subsidizes higher-cost unhealthy individuals, particularly those with pre-existing conditions.

    The constitutionality of the individual mandate ended up being based on this enforcement mechanism. U.S. Chief Justice John Roberts was the deciding vote in this case, and he determined that the penalty collected by the IRS was not a fine at all but a tax.

    Ultimately this was because it operated through the income tax system. If it were levied directly on the noncompliant citizen like, for example, a fine for not complying with an Environmental Protection Agency regulation or even a speeding ticket, then it would no longer be a tax and Obamacare would lose its constitutional status.

    In this regard, the advantage that a Fair tax would have over a consumed income tax is that it would abolish the existing income tax and the IRS. In doing so, it would also be abolishing the mechanism for enforcing Obamacare's individual mandate.

    This would mean that a new enforcement mechanism that could pass constitutional muster as a tax rather than a fine would have to be both devised and approved by Congress as an amendment to the original Affordable Care Act. This would be extremely unlikely, particularly with any Congress that would pass a Fair Tax in the first place.

    If my assessment is correct, the implementation of a Fair Tax could accomplish something that two Supreme Court cases and the election of Republican majorities in both chambers of Congress has not — the effective repeal of Obamacare.

    Does this mean that I have changed my mind on the merits of a national sales tax versus a flat-rate consumed income tax? Not necessarily, but the reality of using tax reform to kill two birds with one stone makes, in my mind, a properly implemented sales tax at the national level more appealing than it once was.