HOSTILE ARGUMENT: THE FAIR TAX WILL TAX GOODS AND SERVICES THAT HAVE NEVER BEFORE BEEN TAXED

Today, we continue a series of articles about handling attacks on the FAIRtax. We often hear that the FAIRtax will add a new sales tax on goods and services that have never been taxed before. When we go to a lawyer or an accountant today, or if we hire a landscaper, we normally do not pay a sales tax on their services. So, what is fair about making consumers pay tax on these items under the FAIRtax?

Most state sales taxes are applied only to tangible manufactured goods sold at retail. Most retail services, except perhaps for automobile repair, are exempt. The FAIRtax taxes these services.

It is important to understand the shifting role services have come to play in our economy. Manufacturing's share of real GDP in the United States has held constant at slightly over 10% during the last half century—going back to 1960. Manufacturing employment, however, has been a different story. In 1960, manufacturing employment in the United States as a share of real GDP was slightly under 25%. In 2011, its share dropped to under 10%.[1]^, [2] One expects this trend has continued for over thirteen years since that data appeared.  One also expects that going forward, services will play a more significant role in employment. Therefore, taxing services will bring the tax system into closer alignment with the modern economy.

Another argument favoring taxing heretofore untaxed services is that taxing services captures the illegal and underground economy that does not pay tax today. When all goods and services generate tax revenue, criminals and undocumented non-citizens start to bear their fair share of the cost of government.

Taxing services and previously untaxed goods will not significantly impact retail prices because the FAIRtax removes present taxes that are invisible today.

Taxing services in the United States has precedents in Europe. From personal experience in Germany, the Netherlands, and Austria, attorneys’ and accountants’ services include the value-added tax. Those countries have come to understand the sense in taxing services.

            I would love to hear how you would handle the criticism that the FAIRtax imposes a tax on services that have never been taxed.