In looking briefly at the "fair tax" it appears to be based on the idea of a personal consumption tax.  It also appears to be driven by the notion that special interest groups will be shut down if the income tax structure is eliminated.  Although I'm still learning about the "fair tax", I'd like to make a few observations on the basis of moving to a consumption tax - and if I'm wrong in my understanding of the fair tax movement and how I've portrayed it, please correct me....

My basic challenge to a consumption tax in place of an income tax is this: consumption will move off shore and it will not be taxed.

How is this possible you ask?  Think about all things digital that are now consumed or can be consumed in a digital fashion.  In fact, anything that is not a physical good, since physical goods cross through a border or come in through a port and they can be taxed at the point of entry:

Music, books, software, video, investments and travel.

This is a short list but it conveys the idea.  These are all items that can be put on servers in other countries and "consumed" by U.S. citizens within our borders without crossing a physical border.  I believe a consumption tax will move these types of transactions off-shore in order to avoid the "fair tax" if it were to replace the income tax.

What about the movement of physical goods - they must come through U.S. ports.  Yes, and just like the special interest groups that pressure and manipulate the U.S. tax code for breaks and privileges on an income tax the same would occur on a consumption tax: housing, cars, food, investments, electronics, etc. the battle for special privileges and tax breaks would move to the borders and ports of entry.  Instead of a break on income tax, special interests will ask for a break on tariffs and import duties.  The special interests on taxation would now impact treaties, tariff wars and all things that surround the border and our relations with other countries. 

If we acknowledge that digital goods could move off-shore to avoid the consumption tax then we can also admit the U.S. government, in order to capture tax revenues would seek control and regulation of all aspects of the Internet in order to impose taxation.  Free speech would be challenged and the commerce clause would come under attack.

Although I admit the Supreme Court declared the income tax unconstitutional in 1894, the 16th Amendment to the Constitution was ratified in 1913 giving Congress the legal position to tax all income regardless of its source.

So which is simpler?  A consumption tax that pushes consumption off-shore or a flat income tax ( a flat percentage like 18%, no exemptions, no exceptions, no deductions) that is applied to all - no caps and no floor.  Everyone pays in whether you make $400 per year or $400 million.

At this point I favor a flat tax and am not persuaded that the "fair tax" would be all that fair or simple.

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