Posted on 02/17/2008 7:34:33 AM PST by DivaDelMar
In his December 24, 2007 Tax Notes article, “Why the Fair Tax Won’t Work,” Bruce Bartlett purports to critique the FairTax, a proposal to replace almost all federal taxes with a retail sales tax plus a rebate. In fact, Barlett’s article has little to say about the FairTax and even less to say that’s accurate. Instead, most of his article misstates research on the FairTax, criticizes unnamed proponents of the FairTax, lambasts unattributed views of the FairTax, and engages in political punditry. This paper takes a close look at Bartlett’s “analysis,” exposing his repeated use of straw men for what it is rhetoric disguised as economics. (1)
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Bartlett begins his critique by accosting unnamed messengers (referenced by “FairTax advocates”) for supposedly suggesting that consumer, producer, and factor prices would be unaffected by the FairTax, with workers simply keeping the income and payroll taxes that would otherwise have been deducted from their paychecks.
Clearly, such an outcome is inconsistent with elementary economics, and no serious student of the FairTax would assert such an outcome. Nonetheless, Bartlett’s devotes, by my count, some 31 paragraphs, including a primer on the Great Depression, to demolishing this straw man. (2)
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Bartlett’s second concern lies in the calculation of the FairTax rebate. He takes issue with the proposal’s treatment of childless households, suggesting that the size of their rebates are too large. From this Bartlett surmises that Congress would raise the rebates to households with children thereby “greatly increasing the cost of the rebate.” But if the rebates to childless households are too large, the solution is not to make everyone’s rebate too large, but rather to cut rebates to childless households and, thereby, reduce required FairTax revenue.
Bartlett’s next “critique” is even less memorable. He claims that Americans won’t perceive their monthly FairTax rebate check as progressive even though the rebates will be a much higher percentage of the resources of the poor than they will be of the rich. Instead, he says, households will view the FairTax as proportional because everyone will have to pay the same FairTax rate when they spend their money, no matter the source of their money. This is no different from claiming that people judge tax fairness based on their marginal rather than their average tax rates. Were this the case, marginal tax rates under our current tax system would presumably be set to rise monotonically with income, which is certainly not the case. (4)
Bartlett’s contention here is symptomatic of a pervasive failure to stick to economics. Bartlett’s expertise does not, to my knowledge, extend to psychology or political science. So when he asks his readers to accept his assessment of perceptions or his judgment of political reactions, I, for one, start feeling queasy.
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Bartlett’s first significant economic critique of the FairTax appears five pages into his article, where he states “… there would be an enormous shift in the tax burden from the wealthy to those with lower and middle incomes.” (page 1245) As proof of this proposition he reproduces a table (his table 5, p. 1245) generated by the Treasury’s Office of Tax Analysis entitled “Distribution of the Federal Tax Burden Under the FairTax.”
Notwithstanding its source, there are two major problems with the Treasury’s analysis of the FairTax’s progressivity. First, the Treasury produced this table in response to a request from President Bush’s Advisory Panel on Federal Tax Reform. The Tax Reform Panel was charged with considering reform of the personal and corporate income taxes. Its purview did not extend to reforming the payroll tax. As a consequence, although the Treasury referenced the FairTax in the table, the Treasury completely ignores one of the most progressive elements of the FairTax, namely the elimination of the highly regressive FICA tax. Bartlett mentions that the table considers replacing only the income tax. But he fails to mention that were the table to include replacing the payroll tax, the FairTax would look much more progressive....
THIS IS AN EXCERPT. The Full paper is available at: http://www.fairtax.org/site/News2?page=NewsArticle&id=9321
So you won’t have anything to do with discussing the topic of the thread. Thought so. Middle name is disruptor.
I refer you to post #100. A few questions for inquiring minds regard the FairTax vs. the income tax.
You would have wasted your money so you want everyone else to do the same. Heaven forbid that you should sacrafice the least bit for future generations of Americans.
I understand the critical difference between a VAT and the Fair Tax.
It is YOU who misunderstands the dynamics of liberals and taxes. The Tax reform Act of 1986 was supposed to permanently lock the income tax rates into 3 levels (17%, 28% and 31%) in exchange for many write-offs being eliminated.
That lasted no longer than the first year of the Clinton term.
Enact your Fair Tax and within one-year of a liberal in the White House with liberal majorities on the Hill and the Fair tax gets all the bells and whistles you so wonderfully point out are the hall marks of a VAT.
Either you believe liberal will never touch your Sainted Fair Tax and resist their very nature to expand it into a monster - OR you don’t.
Was is so hard to understand about that? The Fair Tax is just the tool liberals need to create a nationwide VAT.
Bees buzz - Birds chirp - liberals expand and increase taxes. It’s what they do!
Remember what happened when they tried to slide amnesty by last Summer for illegal aliens?
Right now, it’s too hard with Bush in the White House and a narrowly divided Senate, it would be way to difficult to impose a point of sale consumption tax in addition to the income tax.
BUT, if the conservatives and the republicans can get their point of sale consumption Fair Tax in place, the heavy lifting is done for the liberals. We will have built their Trojan horse for them.
I am beginning to believe that there is no room for discussion with these Fair Tax people. All I get is the standard quotes out of “the book” which has been repeatedly shown to have loopholes and blind spots.
Did I mention that my business has been around since 1827, and in the family for the last 5 consecutive generations, with generation 6 working on his business degree? You have no concept whatsoever of what it means to "give back" for future generations.
You are just a shallow petty person with a big set of "net nuts" that in reality probably punches in as the pivot man in a large Dilbert pool.
And go ahead and mash the BooHoo button, I could not possibly care less at this point.
Spot on, again.
The mother of 4 will get a prebate to compensate for the tax on poverty level expenditures. Those who consume a large percentage of their income will pay a larger percentage of the tax. Those who save and invest, will not.
Bartlett begins his critique by accosting unnamed messengers (referenced by “FairTax advocates”) for supposedly suggesting that consumer, producer, and factor prices would be unaffected by the FairTax, with workers simply keeping the income and payroll taxes that would otherwise have been deducted from their paychecks.Intersesting comment coming from Kotlikoff who said:Clearly, such an outcome is inconsistent with elementary economics, and no serious student of the FairTax would assert such an outcome.
(39)AND:"Private consumers would receive lower (gross) wages under the FairTax because producer prices fall...."
"As calculated here, the effective (tax-inclusive) FairTax tax rate that would permit the federal government to maintain its real expenditures is 23.82 percent. That real revenue- and real spending-neutral rate is only slightly higher than the 23 percent rate in the FairTax legislation. Indeed, implementing the FairTax at a 23 percent rate would require a modest 2.73 percent reduction in real non-Social Security federal spending.A 0.82% inclusive increase is over 4% exclusive sales tax increase at the register.
And of course Congress would fall over themselves to go for "a modest 2.73 percent reduction in real non-Social Security federal spending.
There's more:
"Assume there is no monetary accommodation. The FairTax would cause producer prices and, therefore, the tax base for state and local governments to fall. Unless some measure is taken, state and local government revenue would fall. That would be the equivalent of state and local governments providing a tax cut to their taxpayers. We assume that state and local governments take the necessary measures to maintain the real value of their revenues, which, in this setting means raising their tax rates or expanding their state sales tax bases by conforming to the FairTax base.21 And that assumption implies that those governments will maintain the real value of their consumption purchases.One more thing he said, Diva Delmar wanted to know what the FED had to do with the Fairtax:
The extent of potential tax evasion under the FairTax and its implications to the FairTax certainly deserve careful study. However, concern about the omission of tax evasion regarding this study’s findings must be set against two other omissions that militate in the opposite direction.The first is the major capital gain that the federal government stands to accrue if, as seems likely, the Federal Reserve fully accommodates the introduction of the FairTax and permits consumer prices to rise by roughly 30 percent. That would reduce the real value of nominal U.S. government debt in the hands of the public (many of whom are foreigners) by about $1 trillion. Although that is a one-time windfall, it is a very large one and could certainly offset a significant amount of revenue loss from tax evasion,< were such losses actually to occur.
I understand liberals and taxes and their love affair with class warfare. The Fair Tax wipes the slate clean. If we subsequently allow liberals, Communists, Republicans, Greens, Constitutionalists, Libertarians, Democrats or any other flavor of politician that happens to get elected to use the tax code as a social engineering tool, shame on us.
Are we impotent? Did we not defeat the amnesty bill? Why do you attribute unbridled power to members of Congress? Do they not answer to us?
The Fed is an agent of confiscation, no different than the IRS. The Fed exists to bailout the banks and tax the people via inflation. Once you realize that, you understand the tax system exists to contract the money supply, nothing more.
Seems that public schooling and liberal colleges are a far bigger threat than the income tax. As evidenced by certain posters.
History has shown the Fair Tax Scam is actually EASIER to manipulate and LEGALLY evade. As it stands right now the core of HR 25 is the rebate prebate. Even though it is a formula, it shall be manipulated based on election years.
You will also have, just like in state income taxes, people manipulating for exemptions.
I know one of the first things lobbyied will be a demand for “parity” with the current system where the state income taxes were deductable from the federal income taxes.
It is not just the code itself that will be lobbyied and will become as absurd as the current system, it will be the interaction between state sales taxes, federal sales taxes, and state income taxes that will be reconciled based on who has the better K street firm.
The new essentials:
Cable/Satelite TV
High Speed DSL
A luxury car.
A computer
Vacations
Cell phone service.
Movie rental service because it supports a vital balance of trade industry.
NFL season ticket. (Senator Kerry thinks its a necessity)
all this will be lobbyied into the “formula” to give us a living rebate. Its for the children.
That’s all baseless conjecture.
There is nothing in the Bill to provide for specified “essentials.” Nothing. Again, conjecture is not a valid basis upon which to evaluate a tax proposal. You can raise any number of strawmen, none of which are relevant to the bill as written.
and none of the “bill as written” will ever become law, so you’re even.
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