The "Fair Tax" sales tax has popped up on the DU board a few timea and I wonder why a concept that sucks money from the poor/middle class so as to reduce the tax on rich is of interest at DU?
Granted that it is "easy to understand", but that is its the only plus -An Even easier to understand "fair tax" would be a 3% Wealth tax with a 200,000 deductible on the Net worth wealth calculation and a 2,000 per return credit. But that would hit the rich, so you will not see that being sold to you as "fair"
One could expect the rich to pay near Zero on the sales tax "fair tax" because that was what they paid on the sales tax called the "luxury tax" in the 90's. The rich will spend $20 to avoid a $1 sales tax if they have to - but they do not have to do so - as it is extrenely easy for them to avoid this so called "fair tax". A sales tax can be relatively progressive - as in the Vermont Sales Tax - but you will get as the Delay fair tax will be the Texas sales tax on a national scale - and that is in no way progressive.
But I do like the Texas GOP's talking point on the sales tax that it benefits the poor a whole lot because the poor can budget their tax bill very easily - because when they need to cut back on their budget and want to cut the tax they pay, the poor can just stop buying those louis Vuitton handbags and all that excess food that is making the poor overwieght. :-)
By the way the sales tax level in the book suggested in no way reproduces the tax take of the income tax - the real rate needs to be more than double that rate - or as Bush would like us to do - we would be having our kids pay for our current years government expense. If you like screw the middle class GOP ideas, then the FAIR TAX sales tax is for you!
I have read the book and various analysis and the points and wording below are not original, but appear to need to be repeated. First the toss to the progressives - the prebate - does not make up for the bias in favor of the rich. The McGovern prebate ($100 per month) when actually proposed in 72 was shot down by the GOP because it creates a "universal dependence on a government check" - and today it is a bait to get the harsh Texas style tax passed - nothing more. And the alternative of giving the welfare mother a lower sales tax rate would lead to the new “crime” in which low-taxed individuals purchased items for high-taxed individuals.
The initial NO exemptions approach will not last, so It is not a simple tax as the items to be taxed, and at what pricing level (Vermont excludes low price clothes but not high price clothes) and tax level and the auditing of the sellers for actual payment to the government is difficult. They call any non-payment "leakage" - and when all problems are worked into the calculations the tax level needed (the book screws up the math such that a 23% tax as stated in the book becomes a sales tax of 30% when charged as one normally would if you are to collect the dollars claimed in the book) the sales tax needed will approach 57% - which will generate a lot of cheating (off the books sales). The Tom Delay proposed law H.R. 25, Section 101(b)(1) states “FOR 2005- In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service.” which the usual GOP lie or con or highly deceptive language since the actual rate propsed is 30% (a purchase of a $130 is a tax of 30 on an item costing 100 but with the the phrase “of the gross payment” the GOP pretend that because the 30 can be divided by 130 giving a ratio of 23$ the sales tax is 23% - I do like how the GOP lie!). A 1998 analysis by the William Gale of the Brookings Institute calculates that in reality (to pay all current government expenditures while also compensating for such factors as tax evasion), the national sales tax might have to run as high as 67 percent - and from the far right National Review's article by Bruce Bartlett comes agreement that "23%" is too low to cover current government spending - and from the bi-partisan Congressional Joint Committee on Taxation of a few years ago when we had surpluses comes the statement that we'd need a "GOP type rate of 36 percent, not 23 percent, to equal current federal revenues - which means in a normal real world manner of talking we are asking for a 57 percent rate.
And God help you if there is inflation - income tax tax brackets creep will seem like nothing to the increased taxes under the sales tax as the government has no choice but to inflate the dollar to reduce the problem of todays National Debt. Buying a house for $200,500 paying a fair tax of $78,000 for a total cost of $338,000 will after a 20% price increase in "value" mean a resale will need to collect $93,800 of tax - government caused inflation rewards the government with hugh increases in income. And if a retiring Baby Boomers has some after tax money they have saved, they will pay tax again on that money when they spend it (the rich can avoid this via the out of country purchases).
And the special interest effect of the income tax will seem minor once folks use sales tax manipulation to reduce evils like eating fatty foods or sugar by setting an additional 200 percent tax on those items. Heck the Government won't have to ban firearms as they would put a 500 percent sales tax on them. Or a 1,000 percent sales tax on ammunition.
FairTaxers "self-limiting tax" words are a con to cover the poor being able to buy less. The intrusion into ones life as the government studies who buys what so as to fine tune the tax may well lead to a national sales tax ID card so as to track your buying habits in detail - perhaps for National Security needs of the Department of Homeland Security.
Likewise, the Boortz assertion that individuals would be better off following a switch from an income-tax structure to a national sales tax in part because they would pocket 100 percent of their paychecks is a con - the book asserts that while consumers while would pay a federal sales tax on purchased items, prices at the store would stay the same because everyone involved in the process of production would no longer be paying taxes, so they could charge less for their goods and labor, yielding a dramatic increase in Americans' purchasing power - except that the book hides the fact that companies would also have to cut wages they pay - a fact noted by Money Mag editor Pat Regnier.
http://money.cnn.com/2005/09/06/pf/taxes/fairtax /
Meanwhile, the rich will not pay at all. The 90's luxury tax as you may recall was on those $100,000 boats and $35,000 cars - and it was interesting to watch as boats were bought "overseas" and registered as "used" when docked in the US, and cars likewise were always "used and non-tax paying. Indeed there is nothing that can not be purchased through a tax haven for one of the rich's other homes, and then shipped to a residence in the US. The 13000 very rich end up with near to zero tax creating a hole of about 20% in the tax take, over and beyond the hole created by the bias in favor of the rich, that must be made up by the non-rich.
There are many excellent studies on the effective shifting of the tax burden to the middle-class from the rich that results from replacing the income tax with a sales tax. But this post has gotton too long already!
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