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
1. …believe that taxing the creation of wealth is better for the economy than taxing the wealth when it is spent.
2. …believe that returning people’s tax payments to them is welfare.
3. …have no problem with a tax code that is wordier than the Bible.
4. …believe the IRS is a good department and does a good job.
5. …believe that the worst thing you could do is tax the wealth of old geezers who are living off of the sweat of the younger workforce.
6. …love to tell everyone you see that the FairTax was created by Scientologists.
7. …believe that what Bruce Bartlett says is the gospel and that scores of other credentialed economists are only paid shills.
8. …have a habit of going to online chat rooms and posting insults about the “Fairy Taxers.”
9. …think that calculating a tax the same way as the tax it is replacing is dishonest.
10. …think the economy has always been fine under the income tax.
11. …call the FairTax a “cult” because you can’t think of anything else to say.
12. …believe that cutting one tax by 25% and raising another by the same amount is inflationary.
13. …think inflation is caused by high taxes.
14. …think Milton Friedman is an idiot.
15. …have a soft spot in your heart for European style VAT’s.
16. …wrote the ten planks to the Communist Manifesto.
17. …think the prebate is Marxist but not the Communist Manifesto.
18. …sell some sort of tax advantaged product.
19. …claim you clamor for tax reform but have no earthly idea how to do that.
20. ...howl in outrage when the BATF violates the 2nd Amendment but have no concerns when the IRS violates the 1st, 4th and 5th Amendments.
Proves you’re only here to disrupt the thread (as usual). Big whoop.
You misunderstand the mechanics of the VAT. The value-added tax (VAT) is a multi-stage levy on the value added in each stage of the production and distribution of a commodity or service, from the-earliest stage, up through-the final retail sale. It is not simply collected at the final point of sale. As it is inflicted, tt becomes a component of PRICE—embedded as the Corporate Net Income Tax is embedded, so the consumer utlimately pays it. A VAT is collected and inflicted at every stage of production.
There is no comparison between a consumption based tax that is inflicted at the point of final sale and a European style VAT, none.
Good one. Freepmail me with anymore you have.
Actually, that pretty well describes any "conservative", on just about any topic.
So Bartlett's comments are rendered untrue and invalid because Bartlett presumably has a vested interest in the way things are done now?
Everyone has a vested interest in something or other..... including the Fair Tax, in some cases.
So.....what and where is your vested interest?
Or Kotlikoff's, who has been advocating breathlessly for the Fair Tax for years? Seems like pride can be a "vested interest", too -- pride, rep, chops, and the possibility of further consulting work down the line.
Oh, we are just all corrupt and venal -- to venal to have an opinion worth ventilating, or even listening to!!!
lol
What do you see as advantages that the income tax has over a consumption tax?
There are a lot of economists who advocate for the FairTax. It has somehow slipped my attention that there are those that advocate against it.
In past lives they sold the whole prohibition scam to America - we all know how long that lasted..
I’ve never suggested that nominal prices will remain constant. NEVER. I have consistently maintained that purchasing power will remain constant when the Fair Tax is implemented. The Fair Tax changes the point at which the tax is collected. To the extent that your purchases exceed the poverty level, everyone will pay tax out of their gross pay. The question, properly framed, compares purchasing power pre-Fair Tax and purchasing power post-Fair Tax.
Removing the embedded taxes cannot possibly raise the nominal pre-tax price of an item. Your suggestion that “Many things will actually cost more per item after you account for your dreaded embedded taxes. So MANY things will now cost 1 - 10 % more after removing the embedded taxes than they do now” is nothing short of absurd. Simply removing a component of cost cannot increase the nominal price of the item.
If suppliers and retailers did not reduce prices in response to market forces, Wal-Mart would be a failure.
The rest of the lettered economists haven’t caught their breath from laughing so hard yet. Give them time...
We have all been giving you an enormous amount of time to answer some very simple questions about your position on the income tax vs. the FT. How much more time should we give you?
Asked and answered many times.
You just can’t hear the answer.
(”we” bing the voices in your head again?)
Refresh my memory. Do you favor maintaining the income tax and the IRS as they currently exist? Everyone on this thread would like to see how you originally answered that question.
please put another quarter in the slot and call someone who cares..
IOW, you don’t want to discuss the topic, you simply want to disrupt, hurt insults, hold hands with your comrades and make yourself look foolish. Is that about it?
There's your problem. If food is one of your major expenditures then the FT will hit you harder than a household with no kids - especially in a Sate that does not now sales tax unprepared food. Even if you account for the prebate. A mother of 4 teenage boys will never buy into the FT since she does not want a adjusted gap increase in her food costs. There is no way the purchasing power will stay the same. Virtually everyone is different.
It took years for Wal-Mart to break into the food industry. Why? Because of the way food is distributed. They have taken lower margins on food than a traditional GS and some suppliers have stopped doing business with them. Their ability to buy meat has been hurt because of their practices - for example.
If it was irrelevant you wouldn't make such a big deal out of claiming you have answered it. You haven't. I don't expect you ever will.
Do you have a list of economists who have stated their opposition to the FairTax?
You once claimed that if there were 75 who lent their names to it then there were 75,000 who thought it was stupid. You subsequently claimed that there were a total of 45,000 economists in America. Which do you want to defend?
Do you support maintaining the income tax and the IRS as they currently exist?
Frankly, you have been all over the place on this. But the one thing you have never done is answer the question directly.
Why do you think that maintaining the income tax would be better for America than adopting the FairTax?
The only answer you have ever given to this question is denying you support the income tax. But asked what you would support in place of it you claim you have answered that many times. You haven't.
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