Head on over to The New Dominion and read the op-ed on the so-called Fair Tax. The money quote:
As a result, replacing most federal taxes with a national sales tax would mean very large tax increases on most Americans and very large tax cuts for the wealthy.
Yep, that’s what I call fair – NOT!
VIVIAN J. PAIGE | All Politics is Local 
But it says “Fair” in the title . . .
I’d really like to see the paper. That number just seems too high. The feral government spends about 20% of our GDP. It does not seem reasonable that sales taxes would need to be so high.
It is not stated in the op-ed, but part of the sales tax plan is to give everyone a check for the amount of taxes below the poverty line. So if poverty line is $10,000 and the tax rate is 20%, everyone would get a check for $2000.
Of course, under no circumstances would I support a sales tax unless its implementation were dependent upon the repeal of the 16th Amendment.
Sounds like you know very little about the “Fair Tax.” From what I can tell, a national retail sales tax (which is what the Fair Tax is – without an income tax) would be a good move.
The great advantage is getting the government out of our lives. The government does not need to know what church I attend or what charities I support. It doesn’t need to know how much money I make, or how I make it.
Whereas now the feds get no tax money from the black market, any money made on the black market that is used to purchase cars, video games, and assorted “bling” would get taxed.
I do think, however, that such a sales tax would occasion a great rise in the second-hand market. It would be a bonanza for the Boy Scout Yard Sale!
Brian – I have no idea who you were directing that comment to. Couldn’t be me, since I didn’t write the editorial.
AEM – the government doesn’t have to know what church you attend or what charities you support. Just don’t claim the deductions. And to say the feds get no money from the black market really isn’t true. We do have a federal gas tax, right?
So your solution is that I have to pay extra for my privacy?
And I really don’t think the gas tax brings in quite as much money as the proposed sales tax would.
Sure. Lots of people do. I have a number of clients who chose not to deduct their charitable contributions.
And you said that the black market brought in no federal dollars. I just pointed out that your comment was incorrect.
Before resigning the position to run for the 14th District Senate seat, I was the State Director for the FairTax volunteers and I will be happy to answer any questions you might have about the FairTax.
First of all, the poor benefit most from the FairTax. The reason is that most of our current tax burden is hidden in the prices of goods and services. Even for those who pay no income tax, the actual tax rate once these embedded taxes is considered is 28.34% (7.65% FICA plus 22.4% of their remaining income in embedded tax) The FairTax may appear higher because it is transparent, but it is actually much lower as the Prebate provision returns all tax on spending up to the poverty level. The currently embedded taxes disappear, and there will be no FICA deduction as it is incorporated into the FairTax.
But the best benefit to the poor is the return of manufacturing jobs to replace low paying service sector jobs.
See http://www.fairtax.org/PDF/ComparingAverageandMarginalTaxRates.pdf for an analysis by Boston U Economist Laurence Kotlikoff.
Since you’re such an expert on this, how about looking at the op-ed and telling us where it is wrong?
Yes, Donald, I have a question. Could you please restate that in English? Are you claiming that the retail price of all goods and services actually incorporates a 22.4% “embedded tax”? And how was that calculated? Finally, if the “Fair Tax” were to be adopted, are you trying to tell us that the retail price of all goods and services would automatically drop by 22.4%? Really?
No, BM, pay attention. Those who pay no federal income taxes pay that in embedded taxes. Without the embedded taxes, yes, the prices on the things that they buy WOULD drop by that much. Why would they not? MacDonalds would cut it’s prices to try to take market share from Burger King and KFC, and Burger King and KFC would follow suit to maintain their market share. Start here.
The prices on thing the wealthy buy would decline by different amounts — probably by less, because the poor tend to buy from larger corporations (General Mills, General Motors, General Electric, etc.) which pay higher income tax rates.
Don’t sales taxes discourage consumerism? Whenever anyone mentions doing anything to adjust the sales tax, business owners big and small (the businesses, not the owners themselves, who are usually just average-sized) will pop out of the woodwork to tell you how bad sales taxes are for business.
As it turns out, I’ve just read through the Budget Analysis prepared by The commonwealth Institute for Fiscal Analysis. In it, the point is made that sales taxes are “highly volatile and unreliable over time” and “highly dependent upon economic conditions.”
Again, I’d like to hear from Donald on why this wouldn’t apply to the Fair Tax.
Taxes and duties get cut all the time, and consumers don’t see a concomitant drop in prices. It’s funny how little textbooks can inform someone about actual market mechanics.
But don’t worry your little head, Mouse. I’m sure you’ll have something useful to contribute some day. (But to be fair, I do think it’ll be a very long time before VJP posts a question about organizing Beanie Babies.)
I don’t know, Vivian. Looking at Figure 2, it seems that, at least until 2006 when the food sales tax was implemented, sales taxes tracked right along with personal income taxes. (Which makes sense — people spend less when they earn less. When they earn less, they pay less in income taxes.) In fact, going to the 2006 Virginia Department of Taxation Annual Report, which this paper cites, the standard deviation for the sales tax is only 16.64% of the mean, whereas the individual income tax had a standard deviation of 22.77% of its mean, and the corporate income tax had a standard deviation of 34.0% of its mean. Sales taxes, over the years given in the annual report, had LESS variability than the personal income taxes.
I grant that this is a crude analysis. I should put in all into logarithms, compute an average growth rate, and take the magnitude of the residuals. I’ll get to it later and let you know if the results differ from this first cursory analysis.
Meanwhile Vivian, could you please answer some other questions that arise from this paper:
Vivian, can you explain the “land preservation tax credit”? What are they, and how are people “repackaging and selling these credits”?
“[The] new long-term care insurance tax credit has direct benefits to
those who purchase this expensive, albeit valuable, insurance protection.” This article seems to imply that normal health insurance purchased by an individual does not have such a credit. Is that true? (If so, it is a deplorable situation — are not BOTH health insurance policies?)
Finally, let me say that I thought the elimination of the car tax was a bad idea. It is a voluntary tax — if you don’t want to pay it, drive a clunker.