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
Your assertions run counter to the econometric analysis and are are otherwise unsubstantiated conjecture.
I have a very hard time believing that small businesses will suffer under the Fair Tax. The record keeping burdens will be much lighter than under the income tax and those who have collection responsibilities will be compensated for their trouble. By comparison, the income tax imposes a number of uncompensated costs on small business which will be removed when the Fair Tax passes.
Spending will never be “under control” until EVERY AMERICAN has a vested, personal, visible pecuniary interest in the cost of government. The income tax successfully hides the true cost from the masses who erroneously believe they pay no tax. The income tax, particularly entity level taxation, is the epitome of “plucking the goose without inducing any hissing.” —Jean Baptiste Colbert
You are correct. The rate discussion is one of the reddest of herrings. And I am part of the tax compliance industry...an industry that arose not because we produce ANYTHING that is worthwhile or a real contribution to the GDP, but because the government instituted a make-work program for accountants and lawyers. It is a travesty. I appreciate your cogent thoughts.
Stumping for the FT that doesn’t address any real problems?
(other than in the minds of tax-paranoids)
Please explain how a single, point of sale consumption tax can be transmuted into a tax that is inflicted at every stage of production.
Simple...
Dem-O-Tax-Crack-Addicts.
oh joy ANOTHER BLOG posted on news on a fair tax scam...
My, aren't we touchy today. It took one post to switch from trying to discuss facts to name-calling. Like that earns my respect for you or any of your ideas.
You’ve not explained how a simple, single point of sale consumption tax can be transmuted to a tax that is inflicted at every level of production.
So, is there something special about the income tax that precludes the imposition of a VAT? Why do you raise this strawman argument only with respect to the Fair Tax?
What precludes the imposition of a VAT today?
because the amount of the rebate can be manipulated by politicians.
Increase the formula.
Adjust what is or is not a necessity.
It makes the system more lbbyist friendly.
Take a good look in the mirror before you start in with the attacks, OK?
The prebate, like any aspect of the income tax, can be manipulated by politicians. This is a strawman argument against the Fair Tax.
The Prebate allows families to purchase goods and services up to the poverty level, as determined by the health and human services commission, effectively tax free.
a minimum wage is supposed to do the same type of thing and is routinely manipulated.
And you’ve just made my point. Anything can be manipulated by the politicians. The Fair Tax is no different. The Fair Tax, AS WRITTEN, is much cleaner and far less susceptible to manipulation than the income tax.
The prebate is provided to all, at a flat rate, on the basis of family size. As written, there is no ability in the Fair Tax Bill to change the prebate on the basis of income, to track products purchased or to provide differential reimbursements on any basis.
Wow, and making up whole new sections of the FT bill too... Amazing!!
Start at the point of consumption and engineer backward to the beginning of the process.
The point is that a VAT in Europe is collected at the point of sale. The hardest part of implementing the VAT will be achieved (by stealth) in implementing the Fair Tax. Once the point of sale collection is hard-wired, it’s easy to go backstream and add in taxes along the production process.
The next question is how does anybody succeed in getting John McCain to frequently talk in detail about the Fair Tax? Both Barack Obama and Hillary Clinton don’t want anything to do with either tax cutting or with any kind of tax reforms such as the Flat Tax and the Fair Tax. John McCain also doesn’t seem to be interested at all in the Fair Tax!
A one stick band aid is a non starter in the real world. that is one reason the current system works is because it is self adjusting for labor content.
And by making taxes more visible to the taxpayer the FairTax is the ONLY alternative on the table that will have any chance of lowering spending. Do you agree?
What is standing in their way now? Why don’t they just create a VAT and be done with it? For that matter, why don’t they just add a national sales tax to the code now?
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