"When U.S. businesses start operating with no federal tax component on either capital or labor - companies around the world will start outsourcing their jobs to America." --Neal Boortz & Congressman John Linder, FairTax: The Truth

I want to challenge this line of thinking.  Why?  I believe the cost of labor is a much larger driving factor in outsourcing than the percentage of tax that is paid and how it is paid.

Which is worse a 22% tax burden or an 18x cost of labor?  One of the arguments of those in favor of the FairTax movement is that America has a 22% tax burden on all goods and services that are created in the U.S.; and that eliminating this 22% tax with a consumption tax will reverse the trend of job losses to off-shore location...

If the cost of labor in the U.S. is $18.00 hour and the cost of labor off-shore is $1.00 per hour does it really matter that a 22% tax is baked into the $18.00 U.S. labor rate?  Not really - at least not when the difference is 18x.  If the gap was only 22% then sure, but the gap is so wide the basic cost of labor must come down before the 22% tax burden becomes a real factor.

Cutting the U.S. minimum wage by 50% will do more to restore jobs in America than will changing our tax code from income to consumption.  If the cost of labor doesn't come down, shifting taxation to the point of purchase will not suddenly create economic nirvana in America.

I agree with the FairTax position that simplifying taxation is an absolute necessity - but cutting costs will make our country more competitive.  Cutting costs will keep jobs in America and create economic stimulus.  In order to cut costs, we must cut government spending and government handouts.

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