Fair Tax Nation

Replace All Federal Taxes on Income with the Fair Tax Act , HR 25

                                                            Coronavirus Lessons

                                                            by Philip L. Hinson

 

As the threat posed by the COVID-19 crisis hits a plateau and (hopefully) subsides, it is perhaps time to take a look at the broader horizon and evaluate some of the potential long term effects (primarily the overlooked positive ones).   Several that have caught my attention are as follows:

  1. The supply chain for essential medical equipment and supplies is now almost completely foreign – and a bright spotlight has been shined on that deficiency.

Perhaps it’s time to ask just why that is.  We FairTaxers believe that a big part of the reason is that we have a tax system that puts U.S. producers at a distinct disadvantage vs. their foreign competitors.  As several pundits have noted, this isn’t limited to medical equipment and supplies – it’s pretty much across the board – all industries.  And it isn’t just China. 

 

This isn’t a recent development.  More than ten years ago, Rep. Duncan L. Hunter1(R/CA), who was serving on the Armed Forces Committee in the House (at one point he was the chairman), observed that the U.S. Army was trying to develop and deploy a new tank for its armored units.   One of the critical components for this type of vehicle was high-grade steel for the armor plating.  Rep. Hunter said that the Army was disturbed to discover that all of the U. S. producers of this type of material had gone out of business and that the only sources for it were foreign.  Obviously, relying on foreign sources – ANY foreign sources - for such material which would become extremely critical in the event of military hostilities, and would introduce an element of risk that we would prefer to avoid, if at all possible.  If those foreign sources were in countries which were hostile to us or that aspired to displace us as the world leader, that ramps that risk up to an even higher level. 

To say that we have had a difficult time explaining the global competitiveness benefits of the FairTax would be an understatement.  When some of us have tried explaining arcane and esoteric concepts such as “embedded taxes” and “border adjustment mechanisms” to the general public, we have had a difficult time holding an audience’s attention long enough to achieve the desired level of comprehension. 

However, this raises another provocative question, since that problem would not seem to be unique to America.  That is to say that if a lack of economic literacy and interest is a problem in America (which has one of, if not THE most educated publics on the planet), would it not stand to reason that this same obstacle would prevent countries around the world from adapting to the new environment of the 21st century – the globalization century?  And yet, we know that is certainly NOT the case, as nations around the world have been shifting more and more of their tax burden from forms which are NOT border adjustable into forms which are.   This has been going on for more than 20 years now.  So the United States has been pretty much alone among the world’s most advanced nations during that period in not adapting at all to new operating environment of the 21st century. 

So when “talking heads” advocate restoring manufacturing to the nation without any explanation of how we do that, one has to dismiss such talk as mere bloviating and posturing for the masses.  It’s as if they do not understand that financial incentives have consequences.  In a capitalist economy, if you want to change behavior, you have to change financial incentives – something we could do by reforming our tax system2.  If, however, you are unwilling to change financial incentives, then it is highly unlikely that behavior will change – at least not permanently.

 

  1. “The Partisan War” is highly destructive and is a huge obstacle to this nation’s ability to meet its current challenges.

 I’ll bet you never expected to see Donald Trump exchanging verbal bouquets with the likes of Govs. Andrew Cuomo and Gavin Newsome, did you?

 

Neither did I.

 

Those instances of bi-partisan comity are certainly not the only ones, nor have these examples   of national unity been consistently adhered to even by the aforementioned national leaders.  It seems that the opposite side of the partisan division is quick to point out deviations from the rhetoric and specific actions which seem to refute the words of their partisan opponents.  My response to that is that, like ‘reopening’ the economy, eliminating (or reducing) the partisan war is not going to be like ’flipping a light switch’ and that we need to allow just a bit of leeway for those who are at least trying to bring the nation together.  That leeway should not be limited to our ideological clones, but should also cross the partisan divide.   

 

  1. The concept of ‘federalism’ has been validated in the 21st

Our Constitution was revolutionary in a number of respects, but perhaps the most ground-breaking aspect was probably the whole concept of ‘federalism’.  ‘Federalism’, as you know, refers to the notion that there were certain ‘enumerated powers’ that are assigned to the federal government, and all others were to be the purview of the individual states.   That distribution of authority, of course, was codified in the 10th amendment to that Constitution – part of our highly esteemed Bill of Rights. 

 

After some interesting back and forth with respect to who had the authority to ‘reopen’ the economy, it has apparently been decided that each state would make that judgement based on its specific conditions and data.  I have heard justifications for that arrangement which must have been similar to the debates that took place in Philadelphia during that hot summer of 1787.  You have heard them, I imagine – conditions are different between the middle of Manhattan and the plains of Wyoming and Kansas, etc.  Notwithstanding some predictable partisan sniping about specific governors’ decisions, my prediction is that the decision to empower governors will go down in history as one which enabled the optimum balance to be struck between economic and health considerations.

 

  1. Fact-based, data driven decision making has (once again) been validated.

At the beginning of the outbreak, one of the basic relationships of critical importance in designing the various forecasting models was that of the relationship between infections and deaths.  Now that antibody testing data is available, it seems obvious that the virus has been much more widespread within the general population than previously thought – as much as 10 times greater.  This means that the ratio of deaths to infections is much lower than previous estimates – perhaps as low as .1%.  That death rate is roughly equivalent to the flu virus3.  This validates a conclusion reached many years ago (around 1620) by Francis Bacon4- that knowledge can only come from observation.

 

This does NOT mean that in the absence of verifiable data, no attempt should be made to estimate with what we have – only that we should remain ever mindful of the limitations of this approach and open to modify our views as more data becomes available. In addition, we should also remain mindful that ideology and assumptions are no substitute for verifiable data.

 

The biggest question surrounding all of these lessons is how long they will endure.  As pointed out above, it isn’t as if they have never been brought to our attention before.   However, so far these fleeting glimpses of reality have not penetrated our collective consciousness to the extent needed to affect national policy-making.  Let’s hope this time is different.  As someone recently said, “Never let a crisis go to waste.”

 

 

 

 

  1. Not to be confused with his son, Duncan D. Hunter, who succeeded him in his House seat, after the elder Hunter’s unsuccessful Presidential campaign in 2008.
  2. By ‘tax reform’, I am referring to real fundamental structural tax reform, not the fake variety passed by Congress in 2017.
  3. https://www.livescience.com/new-coronavirus-compare-with-flu.html
  4. https://www.khanacademy.org/humanities/renaissance-reformation/baro...

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