A Fair Critique – A Pragmatic Analysis of the "Fair Tax" Proposal

The first thing I'd like to do is clarify a little about the prebate checks for those who haven't read the book. The basic idea is you get a check each month covering what you would be paying in taxes on the necessities of living up to the poverty line. Everyone gets this prebate, not just people below the line. It's set up this way so no one has to pay taxes on the necessities, but they would still have to pay tax for anything more. So it's not like there is no tax on food, just not on what you would need to eat to survive. I do agree though that the poverty level needs to be adjusted by someone other than the government.

The problem of adoption - The reason for switching cold turkey is to avoid paying both an income tax and a fair tax over the same time period. The money that you earned just before the switch will end up be taxed under the sales tax. The only way to avoid that would be to slowly lower the income tax while slowly raising the sales tax. Problems abound with this, but the main problem is trusting the government to do this in a fair manor. The thing to keep in mind is that this problem is kind of a growing pain, a small hit in order to avoid the major problems that will inevitably come with keeping the income tax system in the future.

Paint someone's fence? Collect the tax. Technically speaking waiters would have to collect a percentage based tax on their percentage based tip, which in turn is calculated after the percentage based tax is applied to the tab in the fires place.

You're supposed to be doing that now, too. Waiters are supposed to be claiming their tips as income and paying tax on it. Under the fair tax, unless you are a business these tips are considered personal income and are only taxed when you spend the money. This ensures that those tips are taxed even though they aren't claimed.

Can the numbers work - I'd like to point the the FAQs of the fair tax website to cover this. In particular these two points...

Is the 23% FairTax higher or lower when compared to the income taxes people pay today? Most people are paying that much or more today – much of it is just hidden from view. The income tax bracket most people fall into is 15 percent, and all wage earners pay 7.65 percent in payroll taxes. That's 23 percent right there, without taking into account the 7.65 percent employer matching! On top of that, you have to add in all of the hidden taxes embedded in the price of everything you buy, from goods (averaging 22 percent) to services (averaging 25 percent). 

Effective tax rates vs. stated tax rates
Because the 23-percent FairTax would not be imposed on necessities, an individual spending $28,808 would pay an effective tax rate of only 15.6 percent, not 23 percent. That same individual will pay 17.3 percent of his or her income to federal taxes under current law.

and...

Does the FairTax rate need to be much higher to be revenue neutral? The proper tax rate has been carefully worked out; 23 percent does the job of: (1) raising the same amount of federal funds as are raised by the current system, (2) paying the universal rebate, and (3) paying the collection fees to retailers and state governments. Unlike some other proposals, this rate has been independently confirmed by several different, non-partisan institutions across the country. Detailed calculations are available from FairTax.org.

Both of those from http://www.fairtaxvolunteer.org/smart/faq-main.html. You also need to consider how prices on everything would drop when all the companies who are saving money would drop their prices to compete with other companies in the same market. If that doesn't make sense we can get to it later, but the point would be that prices would drop to the equivalent of what they are now, and you'd be bringing in more money.

What about the big picture - it's very true that consumers wouldn't be aware of how much they are being taxed, but businesses certainly would. The government wouldn't just have free reign with nobody taking notice. There is a hidden advantage in that. Large corporations wouldn't be able to push the government to give the exemptions because there would be nothing to exempt, they are all only paying the one federal tax... all other corporate taxes are abolished (which is part of where they would save money and this drop prices). It also means that small companies as well as large would be effected the same with any change in the tax rate (notice I say tax rate and not tax code? How nice would it be to not have to worry about complying with our tax code?). The best way the government can collect more taxes is to stimulate the economy by bringing in more business. We'll get to that next.

Can it work - the percent taxed isn't big when you consider how they come to that number and when you consider how prices will be effected. When a company pays less to produce a good or service they won't be keeping the money they saved for themselves, they'll be turning that savings over to the consumer because that's what their competitors will be doing. They won't have a choice, and that's the beauty of a capitalist economy. Remember, taxes are only collected on the consumer level. If you are producing something and aren't selling it on a consumer level you are able to work without paying federal tax at all. This isn't tax fraud, it's set up that way on purpose to effectively make the US the largest tax haven in the world and thus bring more business back into the country (bringing in more business - see above). Producing good will be tax free, lowering the cost, and that saving will be passed on to whoever is selling to goods because, as mentioned before, that's what their competitors will be doing. When this sales tax is placed on the consumer level only it also eliminates the tax on used goods because they have already been taxed when they were new. This also allows companies selling used goods to work without paying taxes, and once again this will lower prices. And remember, the sales tax rate is set up so all this is covered.

One more thing to say on this - under a federal sales tax when the economy is boosted it directly raises government income. That's a win/win situation.

Sorry about the long post, but I had a lot to say on this one.

Surely the idea of a progressive tax system is to tax people further up the earning curve by a higher percentage. If we were plotting this on a graph, you would probably think that a flat sales tax would produce a straight line graph, ie everyone paying a proportional amount of their income on tax.

After a certain level though people at the higher end of the earning scale will be able to stop spending and start hoarding, this money of course would then be essentially tax free, the tax to earnings graph here would eventually level to a plateau.

A progressive tax on the other hand aims to produce an exponential graph, the more someone earns, the higher percentage tax they pay. As I outlined in the previous thread, an income level above a certain rate is an indication of an unfair system, a stable, healthy society will always try to keep the gap between the richest and the poorest as narrow as possible, if this gap increases too far the viability of a society is reduced.

I'm not so sure that I'm willing to let corporate america off of the hook. How could we get them to pay a fair share of taxes, which would help to lower the percentage of sales tax paid by all *the* rest of america?

So, as proposed now, if you incorporate, you don't have to pay taxes on anything that isn't resold (i.e. things that your business needs to operate.) Would office depot be tax free for only those that don't incorporate?

how would nasty intangible things like capital gains from stock trades be handled?

Ross Riley writes:
Surely the idea of a progressive tax system is to tax people further up the earning curve by a higher percentage. If we were plotting this on a graph, you would probably think that a flat sales tax would produce a straight line graph, ie everyone paying a proportional amount of their income on tax. After a certain level though people at the higher end of the earning scale will be able to stop spending and start hoarding, this money of course would then be essentially tax free, the tax to earnings graph here would eventually level to a plateau.

Oh, it's much worse than that. Villas in the Caribbean, assets in Switzerland - there is no end to the "unintended consequences" that this absurd tax will produce and it's a direct disincentive to investment in businesses at home. Why bother?

As I outlined in the previous thread, an income level above a certain rate is an indication of an unfair system, a stable, healthy society will always try to keep the gap between the richest and the poorest as narrow as possible, if this gap increases too far the viability of a society is reduced.

That's purely your opinion. I don't believe that for one second. A healthy society is one that encourages people to merit a significantly higher income than average. That means investing in businesses, providing jobs, and putting in long hours of thought and sweat. Everyone benefits, especially the guy taking all the risks.

As for exactly how our current governments feel about your idea - let's discuss state lotteries. Are they designed to reduce the gap between rich and poor? If not, does this "fair tax" remove that pox on our nation?

While I have questions and concerns about many aspects of the "Fair Tax" plan, there are two that most concern me. First is that the plan is specifically designed to be revenue-neutral, eliminating the need to immediately restructure the federal government, yet its effects on the pocketbooks of consumers is predicated on "faith" that businesses will return their new-found gains from their tax-free status to the consumer. Sure, we can talk about competition, but, especially for those people lower down on the income scale, a large portion of their expenses are for items that are either run by monopolies or are not very elastic in price. I have a mortgage at 5.25% -- if I refinance it, it may go down, but at what interest rate do mortgage loans become un-profitable for banks? I have a heat and electric bill from the local energy monopoly, a cable and Internet bill from the local cable monopoly, and with the way the phone companies are re-merging like drops of mercury, it won't be long before we're faced with a new telephone monopoly or duopoly in landline and wireless. I also have 7 movie theaters within 10 miles of my house, yet they all charge the same price for a ticket. Where's competition there? I have three gas stations within 2 miles of my house: one Mobil and 2 Exxons -- not much likelihood of competition there. And, speaking of ExxonMobil, where's the re-distribution to consumers of any part of that $38 billion profit? It's going to shareholders, where good corporate governance says it should, and where any new source of profits are likely to go under any tax plan. Competition works on the macro scale, but down here in the micro world, the laws aren't so neat.

The second thing that I haven't seen mentioned anywhere is the issue of health insurance. Most working people today receive health insurance through their employers, and employers provide health care because it attracts workers and because they are able to deduct health insurance benefits from their taxes. When they no longer have that tax deduction, health insurance just becomes another line on the expense side of the balance sheet. If all businesses are rational actors, then they should all come to the conclusion that it is an unnecessary expense; maybe they'll offer higher wages instead as compensation. Younger workers will take the money and run, while older workers will remain on the health insurance, driving up the risk profile and leading to premiums so high that employers will no longer be able to afford them. Any idea how this is going to be addressed?

rockman writes:
That's purely your opinion. I don't believe that for one second. A healthy society is one that encourages people to merit a significantly higher income than average. That means investing in businesses, providing jobs, and putting in long hours of thought and sweat. Everyone benefits, especially the guy taking all the risks.

I wasn't exactly dismissing that concept. Just pointing out that there is a finite level of income disparity that a society can tolerate. Look at countries such as South Africa where a massive gap led to rampant crime directed toward the privileged few.

The typical response is to gate the communities of the wealthy and imprison the criminals in ever higher numbers, in the end this spirals out of control, it's not just prejudice that can create Apartheid, economics can do the same thing too.

After a certain level though people at the higher end of the earning scale will be able to stop spending and start hoarding

But think about this... At any income level, the money you save isn't taxed until it's spent. If you start saving for your kids college education now all the money you save is taxed when it comes in and you have to work a lot harder to afford college. Think about how much you could save if the money wasn't taxed. Everyone could start hoarding.

healthy society will always try to keep the gap between the richest and the poorest as narrow as possible

No, that's what a socialist society tries to do. A healthy capitalist society aims to promote opportunity for individuals to end up better off if they work harder and spend smarter.

I'm not so sure that I'm willing to let corporate america off of the hook. How could we get them to pay a fair share of taxes, which would help to lower the percentage of sales tax paid by all *the* rest of america?

They would have to report all the money they took in from sales and pay taxes on it. Consider it a flat tax on businesses instead of individuals. If they sell you something for a dollar, tax included, then they pay $.23 on it. The rate is flat no matter the size of company.

So, as proposed now, if you incorporate, you don't have to pay taxes on anything that isn't resold (i.e. things that your business needs to operate.) Would office depot be tax free for only those that don't incorporate?

If you incorporate and still buy supplies at a consumer level you still pay taxes on them. Consumer level sales and services are taxed.

how would nasty intangible things like capital gains from stock trades be handled?

They would be taxed when you spent them.

I have a mortgage at 5.25% -- if I refinance it, it may go down, but at what interest rate do mortgage loans become un-profitable for banks?

Mortgage rates and tax rates are different things altogether. If you'd like to find out how it effects real estate check this out http://fairtax.org/real_estate.html.

I have a heat and electric bill from the local energy monopoly, a cable and Internet bill from the local cable monopoly, and with the way the phone companies are re-merging like drops of mercury, it won't be long before we're faced with a new telephone monopoly or duopoly in landline and wireless.

Very valid point. But what exactly is keeping them from raising prices now?

I also have 7 movie theaters within 10 miles of my house, yet they all charge the same price for a ticket. Where's competition there? I have three gas stations within 2 miles of my house: one Mobil and 2 Exxons -- not much likelihood of competition there.

That's a great example of competition. They all have the same prices because they are forcing each other to. Otherwise it's considered price fixing, which is what the music labels are under investigation for.

And, speaking of ExxonMobil, where's the re-distribution to consumers of any part of that $38 billion profit? It's going to shareholders, where good corporate governance says it should, and where any new source of profits are likely to go under any tax plan.

You need to understand the difference between a profit and a profit margin.

For you healthcare concern read this http://www.fairtaxvolunteer.org/smart/faq-main.html#18. In fact, read all of those. A lot of these questions are answered there.

I wasn't exactly dismissing that concept. Just pointing out that there is a finite level of income disparity that a society can tolerate. Look at countries such as South Africa where a massive gap led to rampant crime directed toward the privileged few.

The difference is in those countries the 'privileged few' were actively working to suppress the poor. A Fair Tax would encourage the poor to advance, not be held back.

Remember, this tax is already in effect and working successfully on the state level in Texas and Florida. It's not exactly an untested theory.

From the Miami Herald January 2006:
Between 2001 and 2003, Florida's richest 5 percent earned on average 13 times more than the poorest 20 percent, the fifth-biggest of such gaps in the country.

The rich in Florida made almost three times as much as the middle 20 percent, the third-largest gap in the country, preceded only by Texas and Kentucky.

Jarrod Taylor writes:
A healthy capitalist society aims to promote opportunity for individuals to end up better off if they work harder and spend smarter.

Okay let's take this to its logical conclusion.
If I am at the fortunate end of the income scale, money I don't spend, which will be a lot, will only be taxed if I spend it. Now I believe the US inflation rate last year was around 2.5%, whereas a fairly conservative investment strategy can yield around 5-8% profit. The logical conclusion is that the richer will continue to get richer without any compensation to the society that enabled them to receive this wealth.

Maybe if the sales tax was coupled with a 90% inheritance tax, forcing wealthier individuals to spend these savings it would be workable, though I'm sure they would just move money out of the system to avoid it.

Once that money is passed on to the next generation you destroy your argument for a meritocracy since those that work harder and spend smarter have already been surpasses by those favoured by the lottery of birth.

The rich will continue to grow richer, no doubt. But that doesn't mean the poor will grow poorer. The Fair Tax will make it easier for the poor to become rich.

And eventually all that money will be spent on something. Forcing the rich to pay more taxes is basically punishing success. We should be setting up a system to allow to poor to become rich instead of trying to make the rich help the poor.

The rich will continue to grow richer, no doubt. But that doesn't mean the poor will grow poorer. The Fair Tax will make it easier for the poor to become rich.

I disagree. I do not believe that society can give any degree of equality of opportunity by lowering taxation. The poorer in society need the state to provide free education, free healthcare, and guarantee a minimum level of income. Alongside this the state needs to provide help with childcare expenses for single parents to enable poorer families to be able to continue earning money.

Once you reach this level of state intervention then you can say that the poor have at least a chance of working for themselves and enabling them to progress out of their situation.

Of course there are many more problems with a flat sales tax. For instance how would a government increase taxation to influence behaviour? Taxes need to be increased on alcohol, cigarettes and most pressingly taxes need to be levied on companies that are causing pollution and contributing to environmental destruction. Without such tax related weapons in a government's arsenal there is no way it will be able to control the naturally destructive elements of society and industry.

A key point to the FairTax plan is that it taxes people who are not taxed at all now. Any criminal making illegal income is obviously not currently taxed on their income, however with a national sales tax their spending is finally taxed, same thing for the 10 million or so illegal immigrants. And tourists to the United States would now be taxed when they spend.

Another key point is that everyone gains their privacy back. No more hounding by the IRS to tell them where every dime of your income comes from. So those who promote privacy rights should love the FairTax because it gets the government out of you financial lives.

My last key point is that this also renders much of the K Street lobbying corps useless for their are no long income tax loopholes for them to push through Congress to get their clients unfair advantages.

@the sonofhob: I'm on the fence about the Fair Tax plan, but your 3 key points do nothing to convince me. Criminals will find ways to avoid the sales tax, just the way they avoid income taxes today. In fact, the existence of a 30% surcharge on everything could lead to a booming underground economy in all kinds of goods, the same way as organized crime is involved in illegal transportation of untaxed cigarettes and liquor today. And collecting national sales tax from tourists? I don't know if that will fly. If a US citizen travels to the EU, for example, and purchases something subject to the VAT, some stores will refrain from charging the VAT at point of purchase when show a US passport. For other VAT charges, a traveler can file a declaration upon departure and have the VAT refunded. My guess is, unless we want to hurt our tourism industry, we'll find some program similar to that is necessary.

Sure, the IRS won't be involved in my financial affairs anymore, but, at least that was a program that was out in the open and knew about. It's the other invasions of my privacy I worry about. For instance, did you see this article? Homeland Security is watching our spending habits and receiving reports from banks when we make payments on our credit cards higher than a certain percentage of our usual payments. When Homeland Security has data from every single retail transaction in America, they're going to have a field day with that info which will make Total Information Awareness look like kids playing secret agent.

I'm sure that some of the K Street lobbyists will find themselves out of a job because of no more lobbying about tax loopholes, but, since our government spends more than it takes in anyway, I'm pretty sure that most lobbying is for expenditures and contracts, with tax loopholes coming much further back in the pack.

@Jarrod Taylor: I understand the difference between a profit and a profit margin. Exxon's enormous profit this year came about because their profit margin increased when fears of war- and hurricane-driven shortages drove up the price of gasoline while not affecting the cost of production. Exxon didn't say, "Whoa! Our profit margin is getting too high leading to excess profits! We'd better give back some money to the consumer!" Corporations have one goal and one goal only: maximize shareholder value. They do that by raising profits. They raise profits by either lowering costs of production or raising prices. Sure, some companies will find it increases their market share and thus sales by reducing prices by a percentage equal to their tax savings, but many companies in industries with less-elastic demand won't. And companies which are already paying no taxes or receiving large tax credits may find that this tax proposal has no effect or a negative effect on their bottom line.

Finally, I had read the FAQ before and it says nothing about employer-supplied health insurance. The item you pointed me to discusses health-care prices. What incentive is there for employers to continue offering health insurance to their employees when there is no longer a tax benefit? And if there is no incentive, what is going to replace it.

Great points, thesonofhob. That's the best way to reverse our slide toward socialism.

I disagree. I do not believe that society can give any degree of equality of opportunity by lowering taxation. The poorer in society need the state to provide free education, free healthcare, and guarantee a minimum level of income. Alongside this the state needs to provide help with childcare expenses for single parents to enable poorer families to be able to continue earning money.

Once you reach this level of state intervention then you can say that the poor have at least a chance of working for themselves and enabling them to progress out of their situation.

Equality of opportunity is given by leveling the playing field, and giving incentives to help yourself by not punishing the people who have. Again, forcing the rich to help the poor is punishment for succeeding. Now I'm not against people helping each other, but I think it should be done without the governments intervention.

The poor will have an opportunity AND incentive to improve their situation when their income isn't regulated. A good example of lack of incentive if the Katrina victims. They have been given places to live and money to live on, but now many of them refuse to get jobs and move out of the government assisted living situations they are in. And why should they? Everything is being handed to them. Please note that I'm not talking about everyone that was hit by Katrina, just the ones that aren't doing anything get out of the mess they have been put in. I see the negative effects of this abused welfare system here in Atlanta everyday.

Of course there are many more problems with a flat sales tax. For instance how would a government increase taxation to influence behaviour? Taxes need to be increased on alcohol, cigarettes and most pressingly taxes need to be levied on companies that are causing pollution and contributing to environmental destruction. Without such tax related weapons in a government's arsenal there is no way it will be able to control the naturally destructive elements of society and industry.

The government shouldn't have the power to use taxes to influence behaviour. That's a big part of The Fair Tax, ending that. That kind of government control is isn't capitalism, it's socialism. The government should have no say in where I spend my money, or what I do to myself or my property. That kind of regulation stifles growth and innovation.

Criminals will find ways to avoid the sales tax, just the way they avoid income taxes today. In fact, the existence of a 30% surcharge on everything could lead to a booming underground economy in all kinds of goods, the same way as organized crime is involved in illegal transportation of untaxed cigarettes and liquor today.

http://www.fairtaxvolunteer.org/smart/under_economy.html

And collecting national sales tax from tourists? I don't know if that will fly. If a US citizen travels to the EU, for example, and purchases something subject to the VAT, some stores will refrain from charging the VAT at point of purchase when show a US passport. For other VAT charges, a traveler can file a declaration upon departure and have the VAT refunded. My guess is, unless we want to hurt our tourism industry, we'll find some program similar to that is necessary.

Those countries really shouldn't be doing that in the first place, and it's their problem, not ours. When competition forces prices to go back down to around where they are now it won't cost tourists any more money than they would spend now so it shouldn't be an issue for them.

Sure, the IRS won't be involved in my financial affairs anymore, but, at least that was a program that was out in the open and knew about. It's the other invasions of my privacy I worry about. For instance, did you see this article? Homeland Security is watching our spending habits and receiving reports from banks when we make payments on our credit cards higher than a certain percentage of our usual payments. When Homeland Security has data from every single retail transaction in America, they're going to have a field day with that info which will make Total Information Awareness look like kids playing secret agent.

That is a major problem, and there's nothing stopping that from happening now, in fact things are moving that was as it is. The Fair Tax isn't a solution to that, but it will stop the government from using that information to alter taxation so they can influence our spending.

I'm sure that some of the K Street lobbyists will find themselves out of a job because of no more lobbying about tax loopholes, but, since our government spends more than it takes in anyway, I'm pretty sure that most lobbying is for expenditures and contracts, with tax loopholes coming much further back in the pack.

True, it won't stop lobbyists from trying to influence government spending, but that's already a problem, and it's not linked to government income. Government spending is another problem in and of itself.

I understand the difference between a profit and a profit margin. Exxon's enormous profit this year came about because their profit margin increased when fears of war- and hurricane-driven shortages drove up the price of gasoline while not affecting the cost of production. Exxon didn't say, "Whoa! Our profit margin is getting too high leading to excess profits! We'd better give back some money to the consumer!" Corporations have one goal and one goal only: maximize shareholder value. They do that by raising profits. They raise profits by either lowering costs of production or raising prices. Sure, some companies will find it increases their market share and thus sales by reducing prices by a percentage equal to their tax savings, but many companies in industries with less-elastic demand won't. And companies which are already paying no taxes or receiving large tax credits may find that this tax proposal has no effect or a negative effect on their bottom line.

This answers that pretty well http://www.fairtax.org/pdfs/oil_and_gas.pdf.
And exactly which companies currently don't pay any taxes?

Finally, I had read the FAQ before and it says nothing about employer-supplied health insurance. The item you pointed me to discusses health-care prices. What incentive is there for employers to continue offering health insurance to their employees when there is no longer a tax benefit? And if there is no incentive, what is going to replace it.

That tax benefit means it's not really employer supplied health insurance, it's government supplied health insurance through the employers. This may help answer that one http://www.fairtax.org/pdfs/health_care.pdf.

The government shouldn't have the power to use taxes to influence behaviour. That's a big part of The Fair Tax, ending that. That kind of government control is isn't capitalism, it's socialism. The government should have no say in where I spend my money, or what I do to myself or my property. That kind of regulation stifles growth and innovation.

That my friend is where I leave this conversation. What you are in effect proposing is the most repulsive of capitalistic countries. Your government would happily sit by and watch the destruction of the environment, the disintegration of any welfare state and completely absolve itself of any public health resonsibilities. This is certainly not my idea of an attractive proposition. I'll put together some arguments and write a proper article about the opposite arguments to this proposition.

Ross Riley writes: [I was] jJust pointing out that there is a finite level of income disparity that a society can tolerate. Look at countries such as South Africa where a massive gap led to rampant crime directed toward the privileged few.

The typical response is to gate the communities of the wealthy and imprison the criminals in ever higher numbers, in the end this spirals out of control, it's not just prejudice that can create Apartheid, economics can do the same thing too.

Contained deep within these statements is the assumption that the "gap" between rich and poor is a permanent feature like one imposed by slavery or apartheid. But that's not the way it really works in our society. The rich tend to be those who worked hard all their lives and saved wisely. Then they die. They are replaced in the job market by youths and recent graduates. It's similar to the "structured unemployment" situation. An unemployment rate of 5% does not mean that the same 5% of the population is constantly out of work. Under most circumstances, everyone improves their economic situation as time goes on. Even catastrophes like Katrina don't alter the trend, they just set people back several years.

This is the very same falsehood that is used by the left-wing to promote their social programs. They prey on those who are currently in the lower-income bracket. They tell them there is no hope unless they "vote for me." That's exactly what's happening with the so-called black poor who were displaced from New Orleans by Katrina. Politicians are building give-away programs that provide almost no incentive for a lazy person to look for a good job. Once you are on the dole and have been convinced it is your "due," the downhill slide begins. Those who came to Houston with marketable skills left the dole long ago. The longer we support the remainder in hotels, in circumstances they can't hope to replicate if they get a job, the more we have selected and encouraged them to be chronically unemployed. In the end, we will be looking at a pathetic subset of the real New Orleans evacuee and the media will tell us those people are "typical." Well, there will be some truth in that, because they will be typical of the class of people created by overly generous welfare systems.

@Jarrod Taylor: Here's a research report on companies who paid no taxes during the years 2001-03. And, lest you think that it had to do with the recession, here's a link to reports showing that during the boom years of 1996-2000, 60% of US companies paid no federal income tax at all.

Thanks for the links to the white papers on the FairTax website. But after reading them, I come away with the impression that, while they are trying to sell this as a benefit to Joe Taxpayer, the majority of the benefit accrues to businesses. Despite all the white papers, documents, FAQs and other literature, it all comes down to the taxpaying public taking on faith that corporations are going to drop their prices by an amount equal to the sales tax rate. While businesses walk away with an assurance that their taxes will be eliminated, consumers have no such guarantee. Until the Fair Tax advocacy groups address the public's perception that companies will always charge as much as they can, I don't think this plan has a chance.

One other thing: I know you guys aren't professional representatives of the Fair Tax plan, but you are supporters. When you are out doing your grassroots promoting of the plan, telling people to "go look it up on this website" or "read this white paper" isn't going to win most people over. I'm not a normal person. :)

That my friend is where I leave this conversation. What you are in effect proposing is the most repulsive of capitalistic countries. Your government would happily sit by and watch the destruction of the environment, the disintegration of any welfare state and completely absolve itself of any public health resonsibilities. This is certainly not my idea of an attractive proposition. I'll put together some arguments and write a proper article about the opposite arguments to this proposition.

Oh no no no. I don't the think government should just sit idly by at all. When it comes to things like safety regulations there should definitely be some intervention, just not through taxes. The government should be stopping people from hurting each other, and destroying each others property, but not controlling what we do to ourselves and our own property, and not do any of this through our tax system. That's just abuse of power. As a side note, I think these things should be handled on a state level and things like foreign affair handled by the federal government. This decentralizes some of the power and lessens the burden on the federal government.

Here's a research report on companies who paid no taxes during the years 2001-03. And, lest you think that it had to do with the recession, here's a link to reports showing that during the boom years of 1996-2000, 60% of US companies paid no federal income tax at all.

Those companies were avoiding taxes through tax breaks, which will no longer exist. The companies selling on a consumer level will all be paying taxes as they should, unless they are already under reporting, which they are probably already doing now.

Thanks for the links to the white papers on the FairTax website. But after reading them, I come away with the impression that, while they are trying to sell this as a benefit to Joe Taxpayer, the majority of the benefit accrues to businesses. Despite all the white papers, documents, FAQs and other literature, it all comes down to the taxpaying public taking on faith that corporations are going to drop their prices by an amount equal to the sales tax rate. While businesses walk away with an assurance that their taxes will be eliminated, consumers have no such guarantee. Until the Fair Tax advocacy groups address the public's perception that companies will always charge as much as they can, I don't think this plan has a chance.

I agree. This perception needs to be changed. Even more so, no replacement plan will ever take effect without major public support, only reform plans. People need to take notice of places where this type of plan is working, and they are around. Most places with no income tax also have a higher standard of living than we do. But perception is a hard thing to change, and it's even harder to make people want to change.

One other thing: I know you guys aren't professional representatives of the Fair Tax plan, but you are supporters. When you are out doing your grassroots promoting of the plan, telling people to "go look it up on this website" or "read this white paper" isn't going to win most people over. I'm not a normal person. :)

Yeah, I know. But I don't usually get this involved. As a web developer I'm online a large part of most days and this stuff has really caught my attention. When Boortz and Linder wrote that book they just wanted people to have a simple reference guide but I don't think they expected it to be a best seller. They are coming out with a revised soft cover version to promote the cause more and address this perception issue. If nothing more, hopefully it will make people more informed about what's going on with their money. I don't think most people even know how much they pay in taxes, and that's a very sad thing.

Oh no no no. I don't the think government should just sit idly by at all. When it comes to things like safety regulations there should definitely be some intervention, just not through taxes. The government should be stopping people from hurting each other, and destroying each others property, but not controlling what we do to ourselves and our own property, and not do any of this through our tax system.

How do you suggest that a government does this then. Tax is a very efficient way of disincentivising unsavoury activities. For instance, in the UK tax on fuel is around 70%. If I drive to work every day in my 1 litre engine car it will cost me about $50 a week in fuel, if I was to buy an SUV with a fuel efficiency four times less than my car, my fuel bill would be $200 a week. I can't afford that so the government's environmental tax has been successful.

On the personal level if I choose to smoke 20 cigarettes a day I am not only injuring myself, I'm reducing the span of my life which in turn decreases the amount of tax I will pay to the state. Also I put a burden on the Health Service since my self inflicted illnesses use up resources that non-smokers are paying for. Therefore in our country at least, cigarettes are taxed at about 85%, which offsets the damage done.

Anyway, I don't suppose you guys will agree with any of what I write, but if you'd like to read the other side of the argument I have just posted an article here.....

sorry the link got chopped.....using-taxation-to-fight-inequality

How do you suggest that a government does this then. Tax is a very efficient way of disincentivising unsavoury activities. For instance, in the UK tax on fuel is around 70%. If I drive to work every day in my 1 litre engine car it will cost me about $50 a week in fuel, if I was to buy an SUV with a fuel efficiency four times less than my car, my fuel bill would be $200 a week. I can't afford that so the government's environmental tax has been successful.

A car with four times better fuel mileage will still cost a fourth less than said SUV, the final prices will just be different. If the government wants to curb reliance on oil they should be working on alternatives instead of placing extra taxes on ordinary drivers. Private companies are already doing this, as I'm sure you've noticed.

On the personal level if I choose to smoke 20 cigarettes a day I am not only injuring myself, I'm reducing the span of my life which in turn decreases the amount of tax I will pay to the state. Also I put a burden on the Health Service since my self inflicted illnesses use up resources that non-smokers are paying for. Therefore in our country at least, cigarettes are taxed at about 85%, which offsets the damage done.

If you were a smoker and had to pay for your own healthcare you'd think twice about your habit when it ends up costing you a lot more in insurance. While I do think people should have the option of doing things that are bad for them, I also think they should face the consequences, and that's one of them.

Anyway, I don't suppose you guys will agree with any of what I write, but if you'd like to read the other side of the argument I have just posted an article here.....

Always interested in learning more.

Ross Riley writes that past a certain point, people will "hoard" their money. First, what "point" is that, and how does that point differ from the current system? Second, will that money be hoarded in mattresses and buried coffee cans, or will it be "hoarded" in banks and stocks and bonds?

Or in other words, will it be invested and put to work?

In a country with one of the lowest levels of savings in the world, "hoarding" some of that income doesn't sound like that bad of an idea to me.

A question for the Fair Tax advocates on this thread, should any still be reading it: In what ways is Fair Tax better than VAT? I agree that moving away income tax as it stands is good, but why move to Fair Tax and not VAT?