"I am talking about when they reinstitute the income tax on top of the sales tax due to massive revenue shortfalls with the FairTax plan."
I think this is the point in the thread in which I ask about your qualifications in the area of economics and you acknowledge that you have none, but then deny making any economic forecasts.
That saved a lot of back and forth posting, didn't it?
1. The cost of all levels of government go up: federal, state, and local. This is because all of these entities are required under the bill to pay the full FairTax on each and every one of their non-education related purchases, salaries and employee benefits.
2. The cost of the "prebate" goes up because it is just the TaxRate multiplied by a fixed basic spending allowance.
So, the higher the FairTax rate is, the more money that the government needs to spend to maintain purchasing power neutrality. This means extra FairTax revenue is needed by the government as the FairTax rates goes higher.
The other thing that happens when the FairTax rate goes up is:
3. After-tax prices for new goods/services will rise proportionally with the FairTax rate, and human behavior being what it is this will lead to a reduction in the consumption of these taxed items. This reduction can take many forms: people buy used, people fix what they have, people do without, people buy cheaper items, people barter for items, people use business exemptions to make the purchases tax-free, people make black market/underground transactions.
So, the higher the FairTax rate goes, the more depressed that taxed consumption base becomes, so FairTax rate increases will likely NOT bring in the additional revenue that is expected, but only a fraction of the predicted increase in revenue, and possibly a decrease in revenue.
To sum it all up, raising the FairTax rate causes the government to need more money to remain purchasing power neutral. This requires the FairTax rate to go up even higher. And raising the FairTax rate also causes the taxable base to shrink, which requires the FairTax rate to go up even higher. Very bad feedback in this system.
Not a pretty picture of a working system, the only thing you can do is to find the point of optimal collections, and lve with that amount of revenue, or increase the collections it through much tighter enforcement, or supplement it with other taxes, like the emergency income tax that I think would happen on the productive...
I can't prove this will happen, but it very well could, and there is no way you can disprove it either. It is too big of a risk.
Can you imagine the hoarding of items that would occur jsut prior to this being enacted? Can you imagine all the business people and owners deferring all their income possible into future years when it won't be taxed by an income tax? Transistion would be another disaster.