The understanding

of America’s system of

government comes hand-in-hand with the understanding of America’s

economy. Ever since the 16th amendment was ratified, the government

has had copious amounts of money at their disposal. With that money, the

government has funded the Federal Reserve and all their banks, Fannie Mae,

Freddie Mac, countless other GSE’s, and given subsidies to many businesses. The

reality is that the contemporary government works with its constitution and its


            Many agree

with the idea of a Fair Tax. That is, no income tax. If the government were not

integrated with the economy, that would seem like a fair way to tax the people.

What people forget is that the economy relies on the government to supply the

Fed with money, give subsidies to many businesses that would otherwise not be

able to survive, and support huge GSEs like Fannie Mae and Freddie Mac. When

the economy is in a recession, the federal government has always played the

leading role in turning around the economy.

            The Fair

Tax is basically a sales tax, which relies on the sales of goods to be

obtained. Here is how the Fair Tax would not be reliable: Say, we have a

working Fair Tax. We then experience a recession as foreign markets surpass

ours and investment goes to foreign businesses. With the investment in American

companies dropping, a recession ensues. With a recession comes less

consumption, as people are more likely to save during a recession. Less

spending means less tax collection, and less money for the government. The

government now cannot sponsor those GSEs (which millions depend on), give

subsidies (which many industries depend on), and cannot afford to drop Fed

interest rates in the fear of major inflation, all because the government has

not collected enough money.

            Now, let’s

say the Fair Tax is revoked and the 16th amendment is ratified. The

government, now in the aforementioned recession, is taxing income. People may

stop spending, but people will not stop working, so we don’t lose tax

collection. Now that the government has some funds, they can subsidize, sponsor

those GSEs, and drop the interest rates a bit, because they will have the money

to dispense rather than having to print more money. This would stimulate the

economy and lead it away from recession.


the income tax is the safer option.

            Ron Paul

and Mike Huckabee are sponsors of the Fair Tax. Politically, it makes sense,

because people do not want to be taxed. As explained above, it would not work very

well. If people understood how the economy and the government work together, it

would not be a good political move to support the Fair Tax. We need to educate.

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