The Fair Tax, if implemented, would qualify as the biggest economy-destroying event in the world history. This is even after taking into account the decision of the Federal Reserve Board to tighten monetary supply after Black Tuesday, and the subsequent market crash in late 1929.
Many of these “well-respected economists” fail to take into account even basic economics into the application of the ‘Fair Tax’. While the fair tax is a noble undertaking the introduction of this new tax scheme would do nothing more than destroy our economy during its implementation.
First thing, the assumption that prices would decline if the Fair Tax is to be implemented is just that, an assumption. In regards to prices there is much misinformation provided by the Fair Tax proponents, the greatest being that businesses set their prices to compensate for the taxes they pay. This in itself is wildly inaccurate. Basic economic theory states that business will charge a price for a service (or product) at a rate which the market will support. In other words, it’s not businesses that have the ability to set prices for their products but rather the market. The whole purpose of a business is to provide that service or product at that market price while keeping costs down enough to enable a profit. An assumption stating that prices will decline due to the cut in taxes is an assumption that while valid is not one that can be guaranteed, or banked on.
Let us even forget that above statement for the moment, and let us assume that a drop in prices will occur due to implementation of the Fair Tax. First, we have no idea how much prices will decline any thoughts on how far they may decline is simply just a guess, no one really knows and no amount of research will give a firm amount of that decline due to market forces. However, any decline in prices will not result in more purchases of a product, as occurs and is the secret to the profitability of discount retailers in our day and age. The reason for this is psychology in the market place in a period of deflation. The best we can hope for after the implementation of the Fair Tax would be a period of stagnation or lack of economic growth. In deflationary periods people put off purchases for the belief prices will fall further, and this deferred economic policy ends up becoming self-fulfilling. People stop making purchases, businesses are left with larges amounts of goods on hand and in order to remove this inventory they stop making further purchases and reduce prices to remove their excess inventory. This type of scenario can play itself out through our entire economy throwing vast numbers of people out of work, which would create a vicious cycle. This is very akin as to what happened at the start of the great depression, people where thrown out of work and prices kept falling as there was no support for prices. This also happened to farmers even during the great dust bowl prices plummeted and created our current system of price supports for various parts of our agriculture industry. At best we can hope for scenario akin to one Japan faced during the nineties and early this decade of small declines in economic strength or a prolonged recession.
All of this is in addition to any of the other difficulties such a system would face as has already been previously mentioned; such as avoidance of taxation through a black market (case in point look at the mob and their traffic of tobacco products into New York), non removal of excise taxes, incentives for home ownership (why buy a house when you can rent and pay the same taxes?) and a new bureaucracy to manage the new taxation system.
At best we end up with a system that allows those in the higher strata of the income bracket to pass their taxes onto the middle class while avoiding any of the current methods for reducing those taxes, and at worse a system that can create the necessary ingredients for an economic collapse.
I’ll have to pass on this one.
"All of this is in addition to any of the other difficulties such a system would face as has already been previously mentioned; such as avoidance of taxation through a black market (case in point look at the mob and their traffic of tobacco products into New York), non removal of excise taxes, incentives for home ownership (why buy a house when you can rent and pay the same taxes?) and a new bureaucracy to manage the new taxation system. "
You seem to have only a superficial grasp of what the FairTax is and how it functions. You give the good old "black market" shibboleth with no definition of what you mean nor any definitive backup information and you cite apocryphal data relating to sales tax arbitrage between states with is completely eliminated under the FairTax.
You also cite "incentives for home ownership" as a negative when if fact it is one of the very positive parts of the FairTax which is clearly shown by the information on the FairTax website.
You seem to actually have done little in investigating the matter and make what amounts to a claim of having decreasing prices with taxpayers having more and that this combination will be "the biggest economy-destroying event" in the history of the Universe (or perhaps it was Intergalactic Space. IAE, it seemed a bit much - especially since just the opposite is the thing that will occur.
Also your claim that prices will decline with the elimination of the income tax is an "assertion" clearly means that you believe there is no income tax costs embedded in prices today. You certainly on a very sharply-pointed platform with that claim as most people certainly realize that is not the case.
But I'd be glad to read your detailed economic analysis of how the FairTax will drive our country "to hell in a handbasket" for perusal. Just be sure it is adequately presented as to methodology and data sources as is the lead-in paper in this thread. Since you're so positive of your claim, I'll just wait here on line as it shouldn't take you long ...
But you do. Let's see.
First thing, the assumption that prices would decline if the Fair Tax is to be implemented is just that, an assumption.
Okay, fine. Prices don't fall. So what? You are taking home 100% of your income. It still takes 25% of your income to pay taxes. What's the difference? At least you can save a portion of it before it is stolen from you.
Now you make 100 dollars, you keep 75 after taxes.
Under a NRST you make 100 dollars you spend 100 dollars but only get the equivalent of 75 dollars worth of pre NRST goods. So what?
Basic economic theory states that business will charge a price for a service (or product) at a rate which the market will support.
You have never studied that of which you speak. The FT org has never claimed what you state. It has always been put forth that competition would cause prices to fall.
All of this is in addition to any of the other difficulties such a system would face as has already been previously mentioned; such as avoidance of taxation through a black market
It has yet to be demonstrated on these threads how a black market in Big Macs, toothpaste, milk and dental fillings will occur.
why buy a house when you can rent and pay the same taxes?
The appreciation of the value of rental units doesn't accrue to the lessee.