[Dimples]

Fine, then the replacement revenue for the employer's contribution to FICA falls on the employees. If they don't buy enough, the NRST rate will have to be increased to accomplish the revenue neutral requirement.

This underscores one of the central problem with the economics of the FairTax. You, Myrddin, are correct: the FairTax calculus requires the employee to shoulder at least a portion the burden of paying the formerly employer paid portion of payroll tax (other consumers, who were NOT employees, must also shoulder some of the burden.) To do so, two things MUST happen, and happen FULLY:

First, ALL sums formerly contributed by employers at payroll tax must be transferred to employees (consumers in general) either directly through increased wages (a distributional problem) or indirectly through reduced prices. Not a DIME can be diverted to any other purpose (corporate debt reduction, expansion, profit, etc.)

Second, consumers must INCREASE their level of consumption in proportion to the magnitude of the aggregate transfer. No amount of said transfer can be diverted to investment nor savings. 100% of it MUST be consumed or the FairTax falls short of revenue neutrality.

Of course this contradicts one of the most touted predictions of the FairTax: that the elimination taxation of investment will create an irresistible incentive to invest rather than spend.

This also flies in the face of another FairTax prediction: that consumption will be sharply curtailed in the early year of implementation (see Jorgenson, et.al.)

While were at it, this need (to increase consumption to cover taxes formerly paid by employers) also undermines an "advantage" of the FairTax: that you can "choose" how much tax you want to pay by choosing the nature and level of your consumption. Of course, to stay revenue neutral, everyone must either "choose" to to increase their consumption as describe above, or must hope someone else will "choose" to take up the consumption slack one leaves behind by "choosing" to consume less or consume differently (in a non-taxable way.)

The same problem exists for sums available from the repeal of the Corporate Profit Tax.

[lucysmom]

Excellent post. Many of us have said the same thing, but none has said it better.