The Deceptive Presentation of the FairTax Proposal

Bruce Bartlett says when you read the fine print and uncover the deceptions, the FairTax proposal is far less attractive then its supporters woudl have you believe:

FairTax, Flawed Tax, by Bruce Bartlett, Commentary, WSJ [Update: open link]: Former Arkansas Gov. Mike Huckabee's unexpectedly strong second-place showing in the recent Iowa Republican straw poll is widely attributed to his support for the FairTax.

For those who never heard about it, the FairTax is a national retail sales tax that would replace the entire current federal tax system. ...

Rep. John Linder (R., Ga.) and Sen. Saxby Chambliss (R., Ga.) have introduced legislation ... to implement the FairTax. They assert that a rate of 23% would be sufficient to replace federal individual and corporate income taxes as well as payroll and estate taxes. Mr. Linder's Web site claims that U.S. gross domestic product will rise 10.5% the first year after enactment, exports will grow by 26%, and real investment spending will increase an astonishing 76%.

In reality, the FairTax rate is not 23%. Messrs. Linder and Chambliss get this figure by calculating the tax as if it were already incorporated into the price of goods and services. ...[T]hink of it this way. If a product costs $1 at retail, the FairTax adds 30%, for a total of $1.30. Since the 30-cent tax is 23% of $1.30, FairTax supporters say the rate is 23% rather than 30%.

This is only the beginning of the deceptions in the FairTax. Under the Linder-Chambliss bill, the federal government would have to pay taxes to itself on all of its purchases of goods and services. Thus if the Defense Department buys a tank that now costs $1 million, the manufacturer would have to add the FairTax.... The tank would then cost the federal government $300,000 more than it does today, but its tax collection will also be $300,000 higher.

This legerdemain is done solely to make revenues under the FairTax seem larger than they really are, so that its supporters can claim that it is revenue-neutral. ...

Similarly, state and local governments would have to pay the FairTax on most of their purchases. This means that it is partly financed by higher state and local taxes. ...

State sales taxes have long exempted all but a few services because of the enormous difficulty in taxing intangibles. But the FairTax would apply to 100% of services, including medical care, thus increasing their cost by 30%. No state comes close to taxing services so broadly. Consumers would also find themselves taxed on newly constructed homes. Imagine paying 30% ... on top of the purchase price...

Since sales taxes are regressive ... some provision is needed to prevent a vast increase in taxation on the nonwealthy. The FairTax does this by sending monthly checks to every household based on income. Aside from the incredible complexity and intrusiveness of tracking every American's monthly income ... the FairTax does not include the cost of this rebate in the tax rate. ...

Rejecting all the tricks of FairTax supporters and calculating the tax rate honestly ... professional revenue estimators have always concluded that a national retail sales tax would have to be much, much higher than 23%.

A 2000 estimate by Congress's Joint Committee on Taxation found the ... rate would be 57%. In 2005, the U.S. Treasury Department calculated that a ... rate of 34% would be needed just to replace the income tax, leaving the payroll tax in place. ...

Perhaps the biggest deception in the FairTax, however, is its promise to relieve individuals from having to file income tax returns, keep extensive financial records and potentially suffer audits. Judging by the emphasis FairTax supporters place on the idea of making April 15 just another day, this seems to be a major selling point for their proposal.

Yet all but six states now have state income taxes. So unless one lives in one of those states, this promise is an empty one indeed. In short, the FairTax is too good to be true, and voters should not take seriously any candidate who supports it.

Comments

says...

Let me begin by saying that I agree with this critique of the Fair Tax proposals. Some of it is misleading and dishonest, particularly the inclusive tax method they use to get the figure of 23% rather than 30%.

That said, the fact that more honest estimates of what such a national sales tax would have to be 57% to remain revenue neutral is rather telling about the state of fiscal affairs in our federal government, and I am fond of the idea of having such transparency in our tax code. We are in desperate need of this sort of simplification. If paying a 57% sales tax strikes one as absurd and causes some manner of outrage, remember that you are already paying it in one way or another. Perhaps we need to scale back our federal spending and make the public aware of the real cost of this country's bread and circuses.

[Don Lloyd]

It's really hard to say which is more deceptive, the FT or BB's description of it.

"...The FairTax does this by sending monthly checks to every household based on income..."

While this might be true due to a stupid change, AFAIK the intent originally was to send a check to every household, period, with no need for income monitoring.

An entire article that doesn't note that the final after-tax prices will not increase anything like the amount of the tax rate due to the elimination of previously embedded
taxes cannot be taken seriously. The FT has lots of discrepancies between its descriptions and reality, but this article sets no higher standard.

Regards, Don

[chris]

Bartlett is the one being deceptive about 23 versus 30. Look, you make $100. The government taxes you 23%. You have $77 left to buy butter with. Or you make $100. You pay no income tax. You go to the store and buy $77 of butter and pay $23 in taxes. Okay that's a 30% tax, but there's really no difference. You might as well get mad that our 23% income tax rate is really 30%.

Bartlett is just using scare tactics for people who are afraid of math here. He's insulting our intelligence.

It's been a long time since I've taken public finance but I don't see why it's impossible to raise as much revenue with consumption taxes as with income. Maybe people (men more than women) just work 40 hours/week no matter how much you tax them, but would ease off the consumption if that was taxed instead? That might not be a bad thing either.

I think the FairTax thing has the potential to be the kind of progressive consumption tax Robert H. Frank supports. I'm sure its Republican sponsors wouldn't dream of that but they are in for a surprise.

[anon]

Will churches have to pay the tax? If so expect there to be an outcry as they do not pay property taxes or income taxes now. Under the bill they will be paying income taxes at least indirectly.

[Bruce Webb]

How many people pay an effective federal tax rate of 23% now? Let alone 30%? They can try to fiddle around with rebates however they want the net effect of all 'Fair Tax' 'Flat Tax' 'Consumption Tax' proposals is a shift in the tax burden from the wealthy to the middle class, offset or not with some crumbs thrown to the working poor.

It is the same shell game over and over, when you break it down into dollars the middle class gets screwed again and again while the wealthy would walk away whistling.

says...

I don't see where filing of an income tax return fits in to all of this. It's like if you don't like my first argument than try this one instead.

Given that the vast majority of people get all their income from wages and that even interest income is reported to the IRS there is already no reason for these people to have to file.

All that wold be required is for the IRS to send a filled out form to the taxpayer and have them sign if everything was correct. If not, then they would have to do some paperwork.

Others have pointed out the technical flaws in the plan, so I'll just say that one of the reasons the tax code is so "unfair" is because people want it that way. Some interests like the beneficial treatments they receive. Legislators are not likely to give up this "quo" for the "quid" of campaign contributions.

The other property of the current tax system is its use to control behavior. There are the "sin" taxes which are imposed for (allegedly) moral reasons, and then there are the taxes intended to influence consumption patterns such as the gasoline tax currently being revised. Legislators are unlikely to give this tool up either. Changing a tax rate is much easier to trying to enact new legislation. How would you influence consumption otherwise in any case?

[robertdfeinman]

That last comment was by mean. Apparently the typekey software is still misbehaving.

[BJ Feng]

Given that our economy is dependent upon personal consumption, wouldn't a flat sales tax discourage this type of behavior? I think a flat tax would have far greater consequences for our economy than anyone has cared to discuss so far. And the fair tax only applies to the Federal Government correct? States would still have their income and sales taxes, not to mention property taxes. My fear is that consumption would fall, dragging the economy down with it, and government revenue would fall short of expectations, allowing the government to propose additional taxes, such as an income tax in addition to the fair tax.

[spencer]

All I have to do is look at the cast of characters pushing the so called Fair Tax and I know that it is some scheme to transfer the tax burden from the wealthy to the middle class.

Everything else is just minor details.

These are the people who's solution to everything is to reduce the returns to labor.

[Nate]

Where is Warren Buffet when you need him? A consumption tax to equalize the effective tax rate on the ordinary income of the "hard working" class of America, and the capital gains and dividends of the "slackers" class of America.
Chris already ripped Bartlett a new one by showing the proper way to look at percentages. I need not repeat him.
Bartlett's argument about government having to pay the tax is really meaningless. It just alters the accounting. It may cost the DoD an extra 30% for something, but that extra money goes right back to the government. The States could easily cite their budgets and receive annual allocations for reimbursement, although exempting the government from the tax would make the most sense.
Will the initial bill be anywhere near what a possible final bill could look like? Of course not.
I would suspect a hybrid system might be possible. Get rid of individual income tax filings of households with incomes of less than $100k. Combine all forms of income (ordinary, cap gains, dividends, etc.) to get to this figure and tax the excess of $100k at some rate to make the system progressive.
I believe "every other developed nation" has a national sales tax. So why don't we?

[Lord]

Paying a 57% sales tax shows the absurdity of the tax, not of taxation. 'You' do not pay this already unless 'you' are all of the country. Distribution matters a lot. Putting the burden on so narrow a source as consumption is the problem. It would be effective at creating a large number of miserly, not so effective at collecting much tax.

[ken melvin]

These guys keep trying to kill the goose that lays the golden eggs - the working class, those without whom they could not exist. Where do they think it all comes from? If they should succeed, it would all come tumbling down.

[persiflage]

I don't get Spencer's argument. The principal criticism of the rich by the poor and middle class is that the rich are able to buy much more stuff, and better quality stuff (i.e., more costly) than those "less fortunate". Under the Fair Tax proposal, the rich would pay far more in consumption taxes than the poor or middle class. What's not to like about that? Especially with a "prebate" that assures that all americans are exempted from consumption tax on the basic necessities of life. The current Federal Tax system is unfair and incomprehensible even to tax professionals, not to mention legislators who lard on more and more special deals, exemptions, relief, etc. each session of congress, without a clue that they often are duplicating or triplicating special provisions that are already in the voluminous tax laws. The avoidance of coercion embedded in current tax policy and the voluntary nature of a consumption tax would be worth it to at least try something different. The current Federal Tax Code is busted and cannot be fixed.

[JR]

"Aside from the incredible complexity and intrusiveness of tracking every American's monthly income ... "

My goodness, imagine if they did that!!

Wait a second....damn it's a sunk cost!

[Ian]

Naysayers railing against the FairTax become, ipso facto, defenders of the an INCOME TAX system. Prof. Larry Kotlikoff believes that the current tax system IS bringing the country to nothing less than an "economic meltdown" by virtue of the invisibility of actual taxes paid. If Americans do not understand the true cost of their government, they're unlikely to hold Congress accountable - thus the enabling mechanism to continued profligate spending.

Even with the foregoing notwithstanding, do FairTax naysayers really believe:

• Workers love having their pay confiscated, hourly, through gov't withholding and don't mind getting their money back by involuntary servitude - to the tune of 50 hours/year (on average) - preparing an annual tax return?

• That certifying the number of persons in your family (annually, and, ancillarily, upon change in household) is an abrogation of our freedom - more intrusive and complex than filing a tax return every year subject to threats and intimidation by theIRS.

• It's better to have theIRS fishing through citizens' income transactions (complete with audits, interest, penalties, and threats against individuals, families, businesses as well as confiscation of their homes, property, and bank accounts) rather than - Gawd forbid - issuing a gov't check to an individual (while pretending that Social Security payments disbursement logistics really can't work for "prebates")?

• That an monthly advance tax rebate is the same thing as "being on the dole" ? (Only lobbyists, special interests, and business deserve "handouts" ? - the politician gets a payoff from a lobbyist, the lobbyist gets a payoff from its client, and the citizen gets higher taxes and/or prices that pay for it all.)

• "Hidden taxes" in higher prices are fine because they're not "taxes," per se? (Hey, forget that families are really paying business's costs for complying with a business income tax code - staff, consultants, submittals, etc.)

• It's far better to have a gargantuan tax collection "service" in Washington, than to have 50 decentralized, smaller, leaner state collection agencies collecting taxes from fewer sources?

• That the work by notable economists (paid tens of millions of $'s by Americans for Fair Taxation) doesn't carry weight because it was paid for by private funds instead of some gov't / quasi-gov't enterprise?

• That FairTax's backing by many economists doesn't carry any weight because (the Brookings') Wm Gale's testimony before the President's Commission on Tax Reform is - somehow - above all that?!

(NOTE: The Commission/Gale made up their own "consumption tax" requirements, as if that constituted a legitimate rebuke of the FairTax plan. Dr. Kotlikoff has requested - but never received - Gale's technical "modus operandi" which would definitively explain just how Gale's conclusions can be reconciled with Kotlikoff's well-documented technical work.

Let us work, together, to end the enslavement of the Tax Code and to restore Liberty to America's working families.

America's working families are paid because the companies they work for sell goods and services. Let's pay for government the way America's families are paid - when something is sold.

says...

'Lord says...

Paying a 57% sales tax shows the absurdity of the tax, not of taxation. 'You' do not pay this already unless 'you' are all of the country. Distribution matters a lot. Putting the burden on so narrow a source as consumption is the problem."

'You' most certainly do pay this already. Can you illustrate a tax that is a significant source of revenue for the government which is not passed down to the consumer?

persiflage,

My thoughts, as well. Who buys new cars and new houses? It certainly isn't the poor-to-middle class. They buy used cars and houses, if they own at all. I don't see how this tax is all that regressive. The rich may spend a smaller percentage of their income, but they certainly spend a great deal more in real dollars. And a tax like this on new goods would certainly reduce consumption and increase recycling of goods. If 57& is too much, again I say perhaps it's time to reevaluate our bread and circuses.

says...

"I don't see how this tax is all that regressive. The rich may spend a smaller percentage of their income, but they certainly spend a great deal more in real dollars."

You don't see how it's regressive because you do not know what regressive means. Your second sentence defines the tax as regressive: "the rich may spend a smaller percentage of their income...."

says...

"You don't see how it's regressive because you do not know what regressive means. Your second sentence defines the tax as regressive"

Thank you for the correction. Clearly I'm not an economist. I still believe the rest of my points are valid, however.

[Orwell is dead]

You can always tell in advance the topics that bring the trolls out...

Something about "free lunch" and all.

[David Wright]

One commenter above rightly corrects another's use of the word "regressive", and correctee responds most graciously. The corrector is right about the definition of the word, but he is wrong to presume that the "fair tax" proposals are regressive.

All the "fair tax" proposals couple a flat sales tax (which alone would indeed be regressive) with a flat yearly payment to every citizen. By adjusting that payment, you can make the system as progressive as you want. Typical "fair tax" proposals set the payment so as to make their system more progressive than the current federal tax system, precisely in order to counter critics such as the corrector who reflexively critics such as yourself who reflexively presume all flat-tax advocates to be eveil, screw-the-poor class warriors.

To see how this works, consider some numbers. Suppose the tax is 30%, and the payment is $5K. A poor person who earns $10K will have $15K of disposable income; if he spends 90% of that, he will pay $4K in taxes; in the net the government will have supplemented his earnings by $1K, meaning his effecive tax rate is -10%. A rich person who earns $100K will have $105K of disposable income; if he spends 60% of that, he will pay $19K in taxes; in the net he will have payed the government $14K, meaning his effective tax rate is 14%. See how it works?

[Gil]

Yes, D. Wright, but does the FairTax replace all taxes at the local, state and federal level? Which levels of government get what part of tax income? And if the level of tax income goes down so won't inevitably the payment goes down too? I agree with others where the changing nature of tax income would have the income tax reinstated and then people would then be double taxed.

[Ian]

With regard to effective percentages that different income groups would pay under a FairTax regime, Prof.'s Kotlikoff and Rapson (10/06) have said,

"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.

"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."

Study: http://snipurl.com/kotcomparetaxrates

---

Further,

"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."

Study: http://snipurl.com/kotftmacromicro

[Tuesday]

My limited knowledge of the FairTax comes mainly from listening to radio-hack Neal Boortz. It bothers me that he continually promises lower taxes to every demographic while still claiming revenue neutrality.

It never seems to add up.

Then he was caught in the lie of double-counting the FICA tax savings, promising employees that they would get the additional money in their paychecks while also raving about the savings employers would garner by not having to pay all of the current FICA.

That never really added up either.

But my biggest concern that no one seems to have addressed involves my substantial (to me) cash savings. How would the FairTax prevent double taxation on my non-tax-deferred regular bank savings? I've already paid my taxes once on this money and I certainly don't won't to pay it again.

Any answers from the FairTax supporters out there?

[Bob]

I'm curious to hear what economists think will happen in the cash economy if a 23/30-57% sales tax is enacted. And how much more would it cost to enforce collection of these taxes.

The incentive to provide "discounts for cash" would be huge. No?

[Tim S]

I have to say this.The people who make there living of the tax system to day. Are getting better at putting out misinformation about the Fairtax bill HR25.I ask you have you took the time to read the bill for your self? If not please do so. Remember the people that make their living with system that we have do not what it to change.
They will say or do any thing to keep the system that is in place at this time. Do you really belive that the leadership (rich) of this country relly cares about the middle class or lower class. Wake you people. Take the time to learn some thing for your self for once. And not listen to people that are only looking out for them selfs.

[Boonton]

Bartlett's argument about government having to pay the tax is really meaningless. It just alters the accounting. It may cost the DoD an extra 30% for something, but that extra money goes right back to the government.

That wasn't what he was complaining about. He was complaining that tax supporters are counting that 30% as additional revenue but are neglecting to count that 30% as additional spending. The tax is being made to look 'revenue neutral' but if implemented gov't would have to either accept more deficits or a 30% spending cut just to keep everything the same.

I would suspect a hybrid system might be possible. Get rid of individual income tax filings of households with incomes of less than $100k. Combine all forms of income (ordinary, cap gains, dividends, etc.) to get to this figure and tax the excess of $100k at some rate to make the system progressive.

Ahhh but then how is the gov't going to be sending out those checks to lower income households to counter the 'fair tax''s unfair regressivism? A hybrid system is what we have now. There are a host of different taxes on different types of income as well as certain types of consumption. Do I think that's ideal? No! But I suspect it's probably better not to put all the eggs in one basket. There probably should be income taxes because, well, there's a lot of income being made. Consumption taxes to keep the edge off income taxes being so high that it inhibits the economy, also taxes linked to 'user fees' (for example, gas taxes going towards road construction) and yes even sin taxes to a degree.

Ian

Workers love having their pay confiscated, hourly, through gov't withholding and don't mind getting their money back by involuntary servitude - to the tune of 50 hours/year (on average) - preparing an annual tax return?

Six of one half dozen of another. If I have to pay $30 to buy $70 of things I want and need how is that different than having $30 of my $100 paycheck 'confiscated'? Hourly? Nice rhetoric. Divide my 60, why don't you call it minuterly or 60 again to make it secondly.

I spent maybe 30 minutes doing my tax return. With wage income, some stock sales and yes even a 401K cashout. Probably 70% of Americans can spend that amount of time or less. The 50 hour figure is almost certainly nonsense. It may be 50 hours for someone who just arrived from the moon and has no idea what income tax is & must read the 1040 instruction book page by page or maybe it's 50 hours for people who have very complicated financial lives but be honest...if you have a very complicated financial life it's probably because you're making good money and you're pretty smart about it.

That certifying the number of persons in your family (annually, and, ancillarily, upon change in household) is an abrogation of our freedom - more intrusive and complex than filing a tax return every year subject to threats and intimidation by theIRS.

And how is the IRS going to send those rebate checks out to lower income families unless those families have to do what they do now to establish who they are?

It's better to have theIRS fishing through citizens' income transactions (complete with audits, interest, penalties, and threats against individuals, families, businesses as well as confiscation of their homes, property, and bank accounts) rather than - Gawd forbid - issuing a gov't check to an individual (while pretending that Social Security payments disbursement logistics really can't work for "prebates")?

Social Security disburses without serious regard to income. While the gov't does have real time access to wage income to do what you want it would have to have huge access to just about all transactions and then calculate income for us. That would save us some paperwork but would almost certainly make your privacy concerns look pretty silly. Why not just have the IRS do tax returns for us and ask us to just sign off on them unless we object and want to file our own?

Yes you can avoid this by having a simple flat payment made to everyone whether it's Joe Homeless or Warren Buffet. But you lost the ability to provide more relief to the poorest people unless you spend a lot more providing relief in general. In other words, you only get one shot at providing relief. Compare this to a 'negative income tax' which provides a sliding scale of relief based on income.

"Hidden taxes" in higher prices are fine because they're not "taxes," per se? (Hey, forget that families are really paying business's costs for complying with a business income tax code - staff, consultants, submittals, etc.)

I once temped in the tax department of a huge company. A half dozen, at most, handled the income tax filing for a company that made billions and had thousands of employees. Paperwork? Every time a sale is made a tax has to be paid in your system. With a rate between 30-50% there's a huge incentive to make sales happen 'under the table'. Heck, in NJ even with sales tax rates of 7% many people, when they sell a used car, will dramatically understate the selling price on the title. What do you think will happen if the rate's 50%?

Cars are relatively easy to enforce because they have titles that you have to get the gov't to issue. And you don't want to really drive them with fake plates or no plates. Most items sold have no titles and will be easy to make 'fall of the truck'. The paperwork hidden in this 'fair tax' will be a lot more dramatic and a lot more corrupting than you think.

The corruption I think is the true hidden cost of this idea. Today income taxes make their corruption legitimate through the political system. Yes a political lobby may get a loophole giving favored treatment. BUT at least that loophole is agreed upon by the political system. AS ugly as that is it at least is not corrupt in the sense that it disregards the rule of law. Yes we sometimes overlook 'under the table' work but for the most part we respect the rule of law. There are people making a few thousand a year working under the table...there's very few making $50K. I think with this tax the corruption will be a major problem. Everyone will do it. Go and buy something for $100, the clerk will be happy to take $50 on check or credit card (for gov't reporting) and then $50 cash under the table.

To fight this the gov't would have to engage in massive profiling. NJ does this in a much more limited way. If you buy a 2005 Corvette with 15,000 miles on it for only $1,000 on the title you will get a letter from NJ DMV asking you to explain why the reported transaction was so far below blue book standard prices. But what will 'standard prices' be if everyone is cheating every time they go to a store? Big businesses, who will not have such an easy time hiding transactions, will have a powerful incentive to lobby for laws clamping down on small business which they will argue have a unfair advantage since they can operate 'outside the law'. The rich will lobby against those 'prebates' on the grounds that the poor are 'street wise' and are dodging the 'fair tax' anyway.

If the gov't doesn't get draconian in enforcing the tax then the rate has to go up and the corruption factor gets all the worse. When corruption becomes institutionized in a society you are setting yourself up for major economic problems. How can property rights, contracts etc. be enforced if many transactions are happening in the 'hidden economy'?

[taoist]

Tuesday,

I'll answer your questions. The numbers of the FairTax primarily add up from the simplicity of the system. Right now, Americans spend billions of dollars and untold hours to file tax returns, that are invariably incorrect, resulting in a system where Americans waste tons of money filing their returns, the IRS wastes tons of money trying to get the right amount from all the misfiled reports, and the rich and criminal hide tons of money from the IRS. Since the FairTax is a sales tax for new goods sold at the retail level only, no one can hide from the tax (including criminals, illegal aliens, rich people with offshore accounts, and heck, even tourists for good measure) and it is simple to enforce (just monitor the sales of all registered businesses). This massive simplicity greatly reduces the price to the government, and the recaptured income streams greatly increase the amount of taxes being collected. Another reason taxes are lower is because currently corporations are taxed, which increases the price of goods via hidden taxes that pass down to consumers. One of the major influences of every corporate decision nowadays is the tax burden of the corporation. By getting rid of corporate taxes, the FairTax lowers the cost of goods considerably before it imposes a sales tax. That lowering also counts as reducing your tax burden. The FairTax bill does take some steps to avoid the double taxation effect when switching systems, but that is a legitimate concern.

Bob: Quite a few economists have weighed in. The Center for Fair Taxation, which came up with the FairTax, started only with the presumption that America's tax system needed to be revised. They then researched all sorts of different schemes, and chose the one with the best effects and with the most support of the different groups they polled. The FairTax is not some hare-brained scheme but is in fact the most researched piece of tax legislation proposed ever. Here's the effects:

No corporate taxes reduces the price of goods considerably, but then the sales tax imposed brings them up to a similar price again (exactly where the price is in relation to the original depends on how much the industry was previously taxed). No corporate taxes also causes America to become THE corporate tax haven. Businesses flock to our country. Meanwhile, no income tax causes Americans to have essentially a 30% raise right off the bat. Spending increases right off the bat, just as it did as soon as Bush cut taxes.

For those critics who try and claim that the FairTax is a scheme to transfer the tax burden from the wealthy to the middle class or poor, I point out that the monthly prebate the FairTax bill includes does little for the rich, but significantly offsets the tax burden of the poor and middle class, guaranteeing that every American is above the poverty level. By current definitions, we would literally wipe out poverty.

[Bruce Webb]

Yep there will be exactly no cost in tracking the current living places of every single American. And good luck tracking the truly poor, people who often don't have mailboxes or checking accounts and may spend periods living out of their cars, or in motels, or on the couches of friends.

Its all nonsense. The only way to make this thing remotely revenue neutral for the poor and lower middle class family would be to set the prebate equally to the taxes paid. Which maybe makes you wonder what the point would be. The Economic Right is fond of complaining that the poor don't pay taxes, yet they trot out a plan under which the poor certainly do pay taxes even after prebate and want to claim 'no harm no foul'. Sorry the numbers don't add up. A family of four with two school age children making $40,000 have no federal income tax liability today. Would that be the same under Fair Tax? Doesn't look like it.

Fair Tax is a move to lower marginal tax rates on the wealthy. End. Full stop.

[Boonton]

taoist

Since the FairTax is a sales tax for new goods sold at the retail level only, no one can hide from the tax (including criminals, illegal aliens, rich people with offshore accounts, and heck, even tourists for good measure) and it is simple to enforce (just monitor the sales of all registered businesses).

Hahahah, good one. The enforcement will be a nightmare and require a very intrusive gov't for reasons I've given above. Just about every transaction will carry with it a powerful incentive for cheating which will either mean a much higher rate on 'above board' transactions or massive enforcement efforts and probably both.

As I pointed out this already happens now. I dealt once with a contractor who agreed not to charge me sales tax if he was paid in cash. That made sense when he was buying $30,000 in materials. Granted no one really tries to avoid $0.70 sales tax on a $10 DVD by offering the clerk cash under the table but what about when that tax rate is 30-50%?

For the most part, most Americans do not spend billions of hours on their income taxes. For probably a majority of Americans, their income taxes consist of nothing but copying two numbers from their earnings statement into two boxes on the 1040EZ, looking up another number in a table, doing some substraction and getting their refund. Add a little more complication, say a mortgage interest deduction, a few dependents and maybe a few stock sales. Even this is not very difficult to do and you've probably covered the tax returns of maybe 80% of Americans by now. Also once you do it, the next time around is all the easier. In other words, once you know which box to put your mortgage interest in, it's all the easier next year. Needless to say, computer software has made this even easier while also giving you some good financial analysis for your own personal benefit.

Yes if you are a day trader or you flip houses for a living you're going to have a more complicated return that will take you a while to do or may cost you. But then again if that is your business you probably have already invested many hours in learning it. The complexitity is there because you WANT it there, you want those special exemptions and rules so you can maximize your return.

In the end I suspect this 'simplicity' argument is as mythical as the 'administrative cost' argument when it comes to healthcare. Yes there is gain to be made in cutting paperwork and many people are making good money doing that but you're not going to get a free lunch by 'cutting paperwork'.

Also consider that the complexity argument is also about privacy. Income taxes are complex because we don't ask the gov't to monitor all our transactions. The gov't just gets to see a few aggreagates such as 1099 and W2's. The reason taxes get complicated is because we then tell the gov't what the income is.... We say, for example, "yes we sold some stock for $10,000 but we purchased it for $9,900 so the income is only $100 and not $10,000". Yes in theory the gov't could start looking into minute detail but it doesn't do that automatically. If there's no audit, no investigation it is only collecting aggregates.

This can get complicated but if complication is your hangup the optimal solution would be to leverage database and computing power and have the gov't watch everything. Then we'd only have to file if we felt they made a mistake just like an old person only has to contact Social Security if they have a problem, otherwise the check comes automatically every month.

[Pitt]

Meanwhile, no income tax causes Americans to have essentially a 30% raise right off the bat. Spending increases right off the bat

Yes...in Canada and Mexico. The level of cross-border shopping to avoid the huge sales tax would be enormous.

Between that and the cash economy, it's impossible to take arguments for this tax seriously without substantial hard evidence on tax evasion rates in similar circumstances.

Moreover, the large increase in prices would cripple the US's $100 billion international tourism industry, and would raise the prices of $800 billion of imported goods, driving up prices in general in the US.

Like most things that look too good to be true, the "FairTax" is as well.

[Lord]

It is interesting to consider the effects of the tax. With the income tax gone, everyone that could would want to come to the country to work, build up their assets, and when time came to retire, would return to their country to spend it. The only thing the govt could collect on are the essentials that people cannot defer, but if they exempt that, they will have no means of raising much of anything. The difference between systems of taxation are often exploited to avoid them. The rich already own, they do not have to acquire.

[MB]

Am I missing something here...

The fair tax sounds like a total economy killer. What could be a worse incentive for purchasing goods and services than a huge sales tax?

Hmmm, buy that tv with the 23% tax on top, or just sit on the money. Oh, and if I'm an employer, what salary am I offering for the next available position-- x minus 10 or 15% (hey, it goes farther, right, since the income's not being taxed).

I'm all for LOWER taxes, but the fair tax sounds like the dumbest darned thing i have E-V-E-R heard of.

[Boonton]

A counter argument would probably be that nothing is changing net net. Sure prices at the store will be much higher but on the other hand you'll have your whole paycheck. Problem solved, right?

I think the mistake is reducing the tax base. Right now we collect taxes from a diversity of sources. There are consumption taxes (state sales taxes, various sin taxes, fuel taxes, if they ever do a carbon tax to fight global warming that too would be a consumption tax) as well as taxes on income and wealth. Is it negative to tax any of these things? Sure. Consumption fuels the economy. Income producing activity feeds the economy and makes it grow. Wealth is an incentive to earn income.

But while taxes are an evil they are necessary. The premise behind the 'fair tax' seems to be that we should shift all taxation onto consumption. Now there's probably an argument that we should make our tax structure more consumption based and less income based but why 100% consumption based?

So far the only argument I've seen presented here is 'simplicity'. But as we have seen it's anything but simple to track every single retail transaction and ensure it is taxed. But let's pretend that the gov't did make it simple. Suppose all cash was eliminated and the gov't forced us to use gov't issued debit cards. Computers would monitor all transactions and debit us automatically whenever a tax was incurred so there would be no escape from the tax AND no need to actually do anything to comply.

Would it be a good idea then? I'd say no. The idea of the margin implies a sliding scale of good or harm. In other words, say cutting a tax rate from 40% to 35% will do some amount of good. Doing another cut from 35% to 30% will also do good but not as much as the first cut. Diminishing returns that's called.

Likewise harm would work in the opposite direction. Going from 30% to 35% will cause some degree of harm. From 35% to 40% will likely cause an increasing degree of harm.

Setting the income and wealth taxes at 0% and loading everything onto consumption will, IMO, probably do a lot of harm from the dramatic increase in consumption taxes while the benefit in reduced income & wealth taxes will be lessened. This is a gut instinct informed by some economics education. I'm sure better minds than mine can articulate this in more rigorous mathematics but I hope I'm communicating the idea.

[benp]

To Boonton
Now there's probably an argument that we should make our tax structure more consumption based and less income based but why 100% consumption based?

Do you know anything about the fair tax? The whole point of going completely to a sales tax is to get rid of the IRS's compliance costs and provide people with a clear picture of how much they pay in taxes. Its fine if you think it is a bad idea, but its a pretty basic tenant of the fair tax.

But as we have seen it's anything but simple to track every single retail transaction and ensure it is taxed.
My credit card does a pretty good job of keeping track of my transactions, and I would be surprised if almost all businesses didn't keep track of what and how much their customers were buying. The real question is whether the fair tax would be more or less conducive to cheating than the current system not whether "every single" transaction that should be, is taxed.

Consumption fuels the economy. Income producing activity feeds the economy and makes it grow. Wealth is an incentive to earn income.
I don't really know what this means, but I would say that the idea consumption fuels the economy is a pyramid scheme. Productivity growth increases our standard of living, and money not spent is invested, either directly or with a bank as an intermediary.

[Boonton]

Do you know anything about the fair tax? The whole point of going completely to a sales tax is to get rid of the IRS's compliance costs and provide people with a clear picture of how much they pay in taxes. Its fine if you think it is a bad idea, but its a pretty basic tenant of the fair tax.

Errr, yes. The compliance costs of the Fair Tax are likely to be just as high if not higher. Perhaps the picture will be clearer but I suspect that's a long shot. The problem will be riddled with so much non-compliance a person's true tax rate is likely to be well hidden. Unless I keep careful records of everything I buy thru the year, how will I know what my total taxes paid were?

My credit card does a pretty good job of keeping track of my transactions, and I would be surprised if almost all businesses didn't keep track of what and how much their customers were buying.

That savings that will be achieved by cheating would be 20-50% of the base purchase. There's little reason to think with such a big piece of pie on the table both consumers and merchants will not seek out ways to split that bounty. Again look at the example I gave of buying a used car in NJ where the stated price of the transaction is almost always lower than the true price...at least when the sale does not involve dealers.

I don't really know what this means, but I would say that the idea consumption fuels the economy is a pyramid scheme. Productivity growth increases our standard of living, and money not spent is invested, either directly or with a bank as an intermediary.

It mean that consumption, income and wealth are all positive things for the economy. If you didn't need too tax $1, it would be best to not tax any of these three. If you did happen to need to raise $1 in taxes, though, I don't think the best method would be to put the whole burden of that dollar on just one of those things.

[Stephen W. Stanton]

Bartlett gets a fact wrong...

There's no effort made to track incomes. Everyone gets the same check.

It's akin to the personal exemption in the income tax. Everyone gets a check equal to what the tax would be on poverty-level consumption.

says...

What Nate says.

And

http://worthwhile.typepad.com/worthwhile_canadian_initi/2007/06/why_focus_on_pr.html

Here is where I depart from the normal progressive agenda, for both theoretical (disincentives to save an invest) and practical (income is tricky to define, and the result lots of clever people doing socially unuseful work redefining income as costs) reasons.

[reason]

That was me above!

[me]

Bruce, Spencer and Ken are winners. The KC Fed has looked at this and agrees with what they are saying. Asset values would go down, not up. Anyone that postponed consumption until retirement gets screwed.

Ask that jerk Boortz about the FT with any criticism and he doesn't know, he just refers to the Web site. Linder is a moron. when he was my congressperson I asked him why IBM and other could do away with pensions. He said the poor companies couldn't afford it? Like I can. Oh and Bubba Chambliss, yep, up for reelection next year and under 50% in the poles for voting 97% of the time with Bush. Georgia wants health care for children yet Bubba votes against SCHIPP with bush.

[Boonton]

It's akin to the personal exemption in the income tax. Everyone gets a check equal to what the tax would be on poverty-level consumption.

The downside to this that you still have a regressive tax. At the very bottom the tax will net out to next to nothing but as you go up in income it will take a higher and higher bite until you get rich enough for the % to start falling.

One way to solve this is to just make the check so big that you don't care. This carries with it two problems:

1. Do you really want to make it that easy to have a living without working?

2. If the check is big, the tax rate is going to have to be high.

The other solution would be to target the checks by income. You could do some useful things with this such as not sending checks to people who don't work and have no disability that prevents them from going to work. You could also target the rebates so they maximize the return on work...sort of like the negative income tax.

But then you guys are selling this as an elimination of all paperwork tracking income so it kind of defeats the point doesn't it?

Also, one more thing, why exactly will it be more transparant to eliminate income taxes. Income taxes are very transparant. I know exactly how much is withheld from me every month. Every tax return clearly tells me how much I made, how much was withheld, how much was refunded and how much I ended up paying in taxes. With a 'Fair Tax' I don't have any of that information unless I bother to hold onto every receipt for everything I buy during a year and enter it into a spreadsheet. I can only estimate how much I spend on state sales tax every year.

[Lord]

Some of the other considerations are if companies paid the tax they would be disincentivized to expand here, but if they didn't then suddenly everything would become a business expense. Everything new would be shunned while everyone would try to buy used, and all manner of goods would suddenly become used. Buying new abroad and bringing it in used would have to taxed but at what price? And a trip abroad for medical services would become a necessity. Will customs do bodily inspections? The underground economy would become the economy. If financial transactions are tracked, then cash would become king. Simpler than the income tax? Really?

[R.C.]

As someone who isn't yet 100% sold on the desirability of the FairTax above alternative systems, I am hungry to see a real debate on its merits. I long to see substantive arguments against the FairTax as written, rather than against some straw-man rewrite of the bill.

Bruce Bartlett's column contained none of what I long for.

In fact, it's shocking how ignorant Bartlett's column is...and it still managed to get past any editors or fact-checkers and into Journal! (Or perhaps for pure-opinion pieces, there aren't any such checks.)

First he confuses the FairTax with another, different, proposal made by a different group (C.A.T.S. is the group with the ties to Scientology with which Bartlett confuses the FairTax supporters).

Then he trots out the 23%/30% semantic debate, and manages to botch the math. When you replace the IRS with the FairTax, the IRS part of the cost of an item goes away. This portion (embedded taxes and compliance costs) would amount to anywhere from 20% to 30% of the item 's retail price, depending on the item or industry. But let's be conservative and say it's only 20%. In that case, a $100 item does not cost $130 after the FairTax; rather, it costs $104, because $100 minus the embedded taxes is $80, and $80 plus a 30% FairTax is $104, not $130.

Then he states that the prebate is based on income, which it is not. For a household of a given size (a given number of adults and dependents) the Cost of Living is X. The FairTax paid on purchases up to the Cost of Living would therefore be X times 30%. To prevent anyone paying taxes on the cost of living, they're paid that amount as the prebate. It's that simple. No income-reporting required.

Then Bartlett states that the FairTax system is more intrusive than the current one. Again, he is mistaken.

The FairTax would still require households to provide the number of persons living there, with valid Social Security numbers. To that extent, it *is* intrusive. But the current system requires the same information, PLUS income, sources of income, charitable gifts, gifts received, capital gains, et cetera. This is stuff I wouldn't talk about with some of my relatives 'round the dinner table, yet the IRS demands it annually. Much of that would go away under the FairTax. This makes the FairTax obviously far less intrusive than the current system.

Then there's the question of circumvention, but it's mostly spurious. We're not comparing the FairTax against some imaginary system where 100% compliance is enforceable. We're comparing it against the Income Tax. So, one has to ask: Which is easier to hide: Income, which only exists as paper or electronic data? Or cars, houses, toys, lumber, and all the manufacturing space for producing same?

The point is that, when compared to the current system, the FairTax obviously reduces the "black market" effect. Yes, there'll be small (and I mean, tiny) businesses that'll sell goods under the radar. And this will surely increase under the FairTax, since one always gets more of what one provides incentives for.

But the current system draws no revenue from people whose income is illegal income. Prostitutes and Pimps, Drug Dealers and Smugglers, Thieves and Looters...they all pay nary a cent to the IRS. But...they do purchase consumer items. This income is the "black market" propped up by the current system, and this market, which would be shut down under the FairTax, is far bigger than the black-market sale of houses and cars and computers is ever likely to become. For a change, the crooks would pay their fair share of policemen's salaries.

Bartlett may have written his column, but he didn't research it. I sincerely believe a man of his education and experience couldn't have seriously put any time into investigating the FairTax and come away so entirely ignorant of it. And I have no reason to believe he's being intentionally deceptive. (A man so intelligent would be less ham-handed in deceiving, making assertions that were less easily dismissed.)

No, I suspect a K Street tax attorney or lobbyist, whose livelihood would be substantially curtailed if the FairTax were enacted, did his "research" for him. Bartlett is a busy man; he can't be bothered to use his own brain to fact-check his opinions, when others are willing to do the mental leg-work for him. He just believed what he was told.

So don't call him dishonest, or ignorant; his sin in preparing his column was probably only sloth.

[R.C.]

Other FairTax advantages:

1. If you don't provide a valid SSN, you don't get your prebate. Illegal immigrants would either have to go home, or fake a SSN (which problem would immediately be detected when the person to whom that SSN really belonged stopped receiving their check, and called up to ask why), or just do without the prebate. This represents a financial disincentive for visa overstays -- not a bad way of enforcing the stay limits.

2. Marginal incentive to save and invest goes up. The more savers and investors we have as a percentage of the population, the more difficult it will be for the far left to vilify investors as "fat cats" or say that capital gains should be taxed.

This, interestingly, would finally achieve through voluntary means what Socialism and Communism have always tried to achieve through armed force: The general ownership of the means of production. After all, more than half the U.S. population are investors already. With such a strong incentive to invest, we might get that number up to 90%+ over time. And of course increased savings and investment reduces overall, long-term, dependency on government. That's always a good thing.

3. There might be a mild reduction in the incentive toward planned obsolescence. I can't say if this is a good or bad thing overall, I just make note of it. The FairTax does create an incentive to "buy used" since a consumable item's FairTax is only charged on the first time it is sold to a consumer, not on later re-sale.

Since a used item is more easily sold, for a higher price, if it appears to still be in good shape with a long useful life remaining, a good which was more durable would be more desirable (its resale value would be higher). So people might trend toward buying better-made items.

ON THE OTHER HAND...,

There would certainly be a burgeoning business in identity theft in order to fraudulently obtain prebate checks.

[Lord]

I guess we have the closest measure of its simplicity looking at the VAT tax in Europe. It can be done, but I wouldn't call it simple and to replace rather than complement other taxes puts an undue burden on it and a very great incentive to cheat. There are cases of fictitious companies with heavy tax liabilities going broke there to bypass it. It is intrusive to determine the amount of the tax. The advantage would be the enforcement would focus on companies rather than individuals. Distributional effects would likely be bad, especially when frequent trips abroad become common to avoid taxation here. No wonder Europeans travel abroad so much.

[ruff]

Rich people would be much better off with a national sales tax vs. income tax because they spend a much smaller percentage of their income on goods and services. Most middle class and lower class people spend all or nearly all of their income on goods and services.

That is why, if you look at the group that is pushing this tax, they are all well to do people.

http://www.itepnet.org/sale0904.pdf

The above study of the economics of a 30% sales tax shows that the bottom 80% of tax payers would see increases in taxes averaging $3200 per year, 50% higher than now. The top 1% of tax payers would see average decreases of $225,000 per year.

The only reason people bring up these tax schemes is to further enrich the wealthy. I have an idea, why don't we tax people based on their total wealth? I have no problem with that since my total wealth is well below $100,000.

In 2001, total net personal assets in the United States were around $42 TRILLION. 3.5% of the population AT THAT TIME held $13.8 T, or 32.6% of the NET wealth. So say the government needed $2 T to run, and in 2008, using a modest 1% increase per year, we had $45 T, tax our net wealth at 4.5%. My bill would be around $3500, which is a heck of a lot less than it is now. The poor would be covered, since they have a lot less wealth than the wealthy.

http://findarticles.com/p/articles/mi_m2893/is_3_25/ai_n16361290

There you go, I fixed it for ya. Remember, NET wealth. So subtract all your credit card balances, mortgages, car loans, etc.

[Lord]

Taxing services would get quite intrusive, moonlighting and all. No reporting, no good left behind, no tax.

Yes, the rich already own, they don't have to acquire, so perhaps a wealth tax to complement it would necessary.

[Nate]

"I have an idea, why don't we tax people based on their total wealth?"

A tax on wealth is a disincentive to save. Our country already has a problem with saving for the future, taxing wealth would only serve to push the national savings rate even lower than current unsustainable levels.

Of course this would make individuals more dependent on government handouts like social security and medicare for tax free long term savings. Having everyone dependent on the government is one of the left's main goals.

[Patricia Shannon]

Nate says...
"I have an idea, why don't we tax people based on their total wealth?"

A tax on wealth is a disincentive to save. Our country already has a problem with saving for the future, taxing wealth would only serve to push the national savings rate even lower than current unsustainable levels.

What incentive to save to we have now? Have you looked at the interest rate on savings accounts lately?
==============
I am in Rep. John Linder's (R., Ga.) and Sen. Saxby Chambliss's (R., Ga.) district, and I know that they vote extremeely consistently for the welfare of the rich. It would be totally out of character for these people to be touting the "fair tax" so heavily if they did not expect it to benefit the very rich.

[Lord]

Society as a whole 'saves' nothing, nor can it, for there are very limited means of transferring wealth from the present to the future. Saving is little more than an accounting convenience. The monetary authorities must see that production continues regardless of what society saves. If savings suddenly rose, rates would have to be cut to provide the same production for consumption and consumption for production. If they fell, rates would have to be raised to limit consumption to what could be produced.

[calmo]

I don't know when I've seen such a cluster of Lord posts. Lucky us.
And philosophical too, no? Take this last bit: Society as a whole 'saves' nothing, nor can it, for there are very limited means of transferring wealth from the present to the future. Saving is little more than an accounting convenience. What could it mean, people? That inheritance is totally overblown? That wealth is not transmitted from father to son? My money in the bank now might not be there by the weekend? It B all Heraclitian flux?
Maybe it means "society is a dud saver, but families score big time"?
Ok, Lord knows I'm slow: The monetary authorities must see [unlike me, who has a hell of time with it, you?] that production continues regardless of what society saves. Currently and notoriously, we have a negative savings rate which means....the authorities are sleeping ...or in a back eddy preparing for a tremendous burst of production?
Don't mind me, one line at a time:If savings suddenly rose, rates would have to be cut to provide the same production for consumption and consumption for production. China just comes to mind and with huge savings rates prompting "saving glut" talk from the very highest places. So far no rate cuts, but that might be a "long and variable lag" thingie or that "consumption" and "production" need to be further specified to account for international anomalies and what Roach used to refer to as "global imbalances" (before he was stoned by a throng who could not take it anymore).

[Boonton]

Then there's the question of circumvention, but it's mostly spurious. We're not comparing the FairTax against some imaginary system where 100% compliance is enforceable. We're comparing it against the Income Tax. So, one has to ask: Which is easier to hide: Income, which only exists as paper or electronic data? Or cars, houses, toys, lumber, and all the manufacturing space for producing same?

Believe it or not the latter because there's so much of it to keep track. I don't need a bank account to hold a thousand toys or ten tons of lumber. If you drive by a piece of property and see nine tons of lumber tomorrow will you notice? Will you bother to ask me if I sold one ton and if I did, do I have the sales tax money? If I told you I sold that ton for $100 when the market price is more like $200 will you believe me? What if I told you the lumber was partially rotted hence the discount? How would you know? Perhaps I'll tell you I threw the ton of lumber out and didn't sell it at all. Or maybe I had it moved last night to my other property? All this the govt would somehow have to monitor. THEN it has to do the same thing for EVERYTHING ELSE....EVERYTHING!!!!

Hiding significant amounts of income is actually quite tricky. How many people do you know that make a normal, middle class or better living without declaring any income? Perhaps there's some out there pulling it off as construction contractors but the bulk of people are not able to easily hide their income to a significant degree. Holding it as cash is risky and expensive. Putting it in banks creates an instant paper trail that always runs the risk of being uncovered if the gov't audits intensely enough.

But the current system draws no revenue from people whose income is illegal income. Prostitutes and Pimps, Drug Dealers and Smugglers, Thieves and Looters...they all pay nary a cent to the IRS. But...they do purchase consumer items.

This is what you're concerned about? The massive amount of untaxed income from pimping? For this you would have the gov't monitor and control just about every possibile private transaction in the entire economy?

BTW, how exactly will the tax be collected from prostitution provided by prostitutes? I guess pimps would be exempt because they're more 'wholesalers' than final retailers?

[reason]

Calmo...
you got it - what Lord said is only correct in the case of a closed economy. A society CAN save a whole by buying and then later selling foreign assets. But of course the paradox of thrift still holds globally - unless we find interplanetary or intergallactic trading partners.

[Lord]

Inheritances, savings, wealth, matter a great deal RELATIVE to the rest of society, but not for society as a whole. Internationally, it can only work if society is saving more in them than other societies are saving in yours. Not a likely situation given the rapid aging of the rest of the developed world. Growth in developing nations does offer some storage dimensions, and some possibility of liquidation when they become rich enough to acquire those assets, but we may run out of developing countries faster than we imagine. The other storage dimension has been in long lived goods, homes, infrastructure, plant, and to an extent education, institutions, inventions, and the like.

[Tim S]

I was going to make a comment on the above posts. However, I see that it is not worth wasting my time. To explain something to a closed mind. That would like a few people in power control there lives. It is a sad thing. That it has turned out this way in the Untied States.

[reason]

Tim S...
why write anything at all then? Your post makes no sense at all.

[BobOhio]

The author ignores the reality that we already pay the taxes itemized in examples -- we just pay it differently. Imagining paying 30% sales tax on your home also includes imagining you and your employer not paying income/wage tax. The bottom line still holds that we would pay the same amount, just more simply. If the sales tax rate would be 57% to equal what we now pay, then it would be EQUAL. Wasn't someone with a better sense of the ovious available to write this article? It doesn't actually say anything except "be afraid of nothing."