MONEY finds flaw in 'FairTax' bestseller [FairTax myth busted by major magazine]

CNN ^ | 9/7/2005

[Your Nightmare]

A bestseller advocating radical tax reform contains a critical flaw that misleads readers, according to a report in the October issue of MONEY Magazine.

...

While consumers would pay a federal sales tax on purchased items, the authors argue that prices at the store would stay the same. The reason: everyone involved in the process of production would no longer be paying taxes, so they could charge less for their goods and labor.

If true, that would mean a dramatic increase in Americans' purchasing power.

But, according to the MONEY report, the book fails to make clear that, in order for pre-tax prices to fall so sharply, companies would also have to cut wages they pay.

"Sure, you'd get to 'keep 100 percent of your paycheck,' as Boortz and Linder repeatedly write, but it would be a smaller paycheck," MONEY senior editor Pat Regnier writes. "That's kind of a big thing to leave out."

[Always Right]

It's been fun to watch, hasn't it?

I have a hard time believing anyone is as ignorant as pigdog or geezer. I have never seen such separation on this forum. I feel embarrassed for them.

[Always Right]

desparation.....

[ItsForTheChildren]

Ping to one of your favorite subjects.

[pigdog]

There are clearly more than the two alternatives you offer as the be-all and end-all options you proffer. And any claims about prices declining are hardly based upon a single economist as you state. None of you SQLers have ever been willing to admit that the costs of cascading taxation embedded into prices will be removed when the FairTax becomes law. This will certainly work to reduce prices and I have no doubt that studies are ongoing on these effects.

There is certainly no reason why there is not AT LEAST a third assumption having wages increase and prices decrease - but this doesn't fit the SQL playbill of disinformation so you never mention it as a possibility. It is, however, clearly another option to the two you present and probably the most likely of all. And your "economists assume" only two outcomes statement is nonsense. That's YOUR statement.

And there is nothing that I have seen in "The FairTax Book" that states that both benefits occur simultaneously in any event - that again is merely your statement to try to persuade others that any FairTax supporter is lying. They certainly could both occur and whether at the same time or reasonably close to each other is difficult to say. Are you trying to persuade us that only one will occur exclusively of the other? On what do you base that assumption???

Well, Nightie your #35 on this thread (of which you seem so proud) is just the same old rehash you're done previously. Perhaps you have re-arranged the order of some of the snippets, but that can easily be sorted out in my response to your original opost of this nonsense which was ---

---

"The 11 cut-and-pastes you stitched together in your post (and aren’t YOU the guy continually criticizing ancient_geezer for HIS cut-and-pastes??) Fall into 2 categories - FUD (Fear, Uncertainty, and Doubt) and OOC (Out of Context quotation). The FUD Factor items are marked with a “*” and the OOC items with a “+”.

The 11 items are:
1 - Garner (Zodrow, Gravelle, Gale)*
2 - Koltikoff+
3 - Response to Gale by Mastromarco/Burton+
4 - Mastromarco/Burton real estate +
5 - CBO Price Level*
6 - Slemrod/Bakija; Taxing Ourselves*
7 - Gravelle & Esenwein; CRS Overview*
8 - Wilkins; National Retail Federation*
9 - Zodrow; Transitional Issues*
10 - Bull & Lindsey; Monetary Implications*
11 - Hall; Price Level*

Let’s take the OOC items first -
Item 2 (Koltikoff) - in a two paragraph discussion of whether or not the FairTax is regressive in theory, the author made certain assumptions to illustrate a point. You merely took these assumptions and presented them as though they were a fact - his belief - he was presenting. They were assumptions to illustrate a point, not fact he was presenting.

Item 3 (Response to Gale) - You conveniently left out the portion where the responders point out that prices would drop with the assumption of the FairTax, and that Gale, in fact, was contradicting himself. Here’s a link to the entire response midway on page 14 (through midway on page 15) where it says:
” J. Gail Perspective: Consumer Pricing: Up, Down and Sideways Simultaneously”. Gale completely overlooks the fact that prices would drop with the onset of the FairTax as the responders point out. After this price drop, prices would then be raised up again to some degree by the sales tax which is the meaning of their statement “... prices will increase by the amount of the sales tax but returns to labor and capital will be higher.”

Item 4 (Real Estate Foundation) - The footnote you posted from this response also suffers from the same flaw in reasoning as Item 3 just above. Price will first decrease with the advent of the FairTax causing the after tax increase in wages mentioned as well as the increase of prices back in an upward direction from their decrease to the lowered level mentioned above

So much for your out of context quotations. Next we take up the FUD Factor Items:

Item 1 (Garner) with points from (Zodrow, Gravelle, Gale) - As with almost all of the liberal FairTax opponents, the discussion presents what amounts to a description of a VAT structure (calling it a “consumption” tax) and comparing that to a flawed description of the FairTax (which includes a discussion of exemptions/exceptions “required”). In addition the discussion goes on to the SQL “leap of Faith” (as do you) that prices MUST increase with the advent of the FairTax ... while showing no such convincing (or even fairly convincing beyond just stating it) evidence of why this would happen. Garner is obviously not too familiar with the FairTax as he describes a decline in bond values and the idea of corporations “losing” their depreciation - which of course is nonsense under the FairTax. He also uses heavily from well-known SQL sources such as Zodrow, Gravelle, and Gale which in and of itself should merit serious concern.

Item 5 (CBO) - Hardly a benefactor of the Status Quo (yeah, right) but also makes the “Leap of Faith” as in Item 1 that prices must increase with the advent of the FairTax. They do, of course, but only after first declining by the removal of the income tax component leaving them more or less the same overall. Despite that lapse, the opinion is offered that the Fed will step in to raise prices (without any clear or convincing indication of why this might be so; merely the claim that it is so).

Item 6 (Slemrod/Bakija) - Here, from a long time SQL advocate (Slemrod) we see the similar liberal “Leap of Faith” that the sky would fall in the opinion (offered again without any backup) that corporate earnings would fall by 20%. A slightly different twist is given in that the Fed rather than raising prices would now, God-like, merely “monitor” prices to decide if any action need be taken to PREVENT A PRICE RISE (rather than causing it as in Item 5. Perhaps rather than calling these sorts of SQL ploys a “Leap of Faith” (which of course they are), they should be called the Chicken Little Syndrome.

Item 7 (Gravelle & Esenwein - CRS) - Once again we see the Chicken Little Syndrome in full operation where any price reduction due to the FairTax is completely ignored and sweeping statements reflecting a great lack of understanding of the FairTax are made by claiming that the tax “must be paid” in an example industry having a 1-2% profit margin which “now owing a tax equal to 20% of receipts” - all the while ignoring the fact that the business does not pay the sales tax (at all, let alone out of its “profit margin”), but that the customer of the business pays the tax. In addition, the CRS folk seem to not understand that the FairTax is border-adjustable as well as the old unwarranted assumption about lower wages being required (for some reason). There are a good number of other flaws in the paper itself other than the selected snippet posted. We also see the use of the old chestnut of anonymous “... economists who judge a consumption tax to be superior to an income tax may nevertheless be skeptical about the advisability of making the change because of these transition effects. You’d think that at least these “unnamed economists” would appreciate the credit (?) of being named.

Item 8 (Wilkins - National Retail Federation) - This is a study originally commissioned by the NRF from Coopers & Lybrand (who had, as I recall, Wilkins as the leader of the group doing the “investigation”). It is of the Chicken Little/Leap of Faith persuasion and is impossible to tell much about - aside from the lack of veracity - since, despite requests, it was never published so others could investigate its pronouncements. This link:
http://www.fairtaxvolunteer.org/smart/PwCRebuttal.pdf
has a refutation of the Wilkins/PwC/NRF “study”. A HIGHLY RECOMMENDED READ!!

Item 9 (Zodrow - Transitional Issues) - this is merely George once again “doing his thing”. He pretty much makes the usual Chicken Little observations, but is at least honest enough to mention that the “... opinion on this issue is certainly not unanimous.“ And goes on to cite the Jorgenson 25% or so price decline. Kudos, George, for inserting a bit of much needed honesty into the discussion. Makes the Leap of Faith about the Fed being magical and omniscient.

Item 10 (Bull & Lindsey - Monetary Influences) - Makes the Leap of Faith about the wage decline without even considering the removal of the cascaded income tax in prices. This may be one of the reasons that Lindsey is no longer a Presidential Advisor on the economy.

Item 11 (Hall - Price Level) - Why is it not surprising that someone largely thought of as an author of the Flat Tax be strongly in favor of that over the FairTax (which he nowhere demonstrates an understand of aside from the requisite Leap of Faith that wages will be lowered and prices raised (the Chicken Little Syndrome again) while ignoring any price reductions offered by the advent of the FairTax.

So, let me see now if I have this straight ... the FairTax supporters may not use the economic data which is presented in good detail on the Americans For Fair Taxation website (because you say so) while you are quite free to use all of the snippets you can gather up from the known SQL defenders (who seldom, if ever, admit to being so - just like you) even if they are only op/ed pieces with little or no economic detail? By George, I think I’ve got it!!! "

---

To be correct we should note that the study in #8 is now "available", but only if you wish to buy it - which I certainly do not since it's been heavily rebutted.

That "stuff" is no better now than then - but nice try to try to trick the unwary!

[pigdog]

Who is it you are quoting in this post of "pressing Boortz abd Linder" and who is it you are making the claim that said:

"What The FairTax Book fails to mention is that prices can only fall this sharply if companies cut wages. I asked Jorgenson about this, and he agreed. Say your salary is $100,000 a year today, but you take home $80,000 after taxes."???

And who said "... concedes that the book is confusing about this ..." and even more explicitly, confusing about what? And who said it. These vague indefinite quotes of yours are rather strange - particular when all jumbled together. Let's get specifics.

And who made the quote starting "Part of the problem is the way Boortz and Linder are using ..."?

Are we talking here about Robbie and his (multiple) vanity posts??? Daniel Shaviro??? Always Rong??? Santa Claus???

Let's clarify the sources prior to splashing it all over as though it meant something.

[pigdog]

Correct, Rongie ... lies and misstatements of fact are never hard for you, are they? You seem to relish them, in fact and your posts are replete with them.

[Always Right]

Who is it you are quoting in this post of "pressing Boortz abd Linder" and who is it you are making the claim that said:
 

Pat Regnier, Money magazine, Oct 2005 Issue:

"What The FairTax Book fails to mention is that prices can only fall this sharply if companies cut wages. I asked Jorgenson about this, and he agreed."

 

"It is practically and logically impossible for the government be collecting the same amount of money as before and have everyone suddenly be better off," says Daniel Shaviro, a tax law professor at New York University.

 

[Always Right]

Correct, Rongie ... lies and misstatements of fact are never hard for you, are they?

You are a nothing piece of crud who has lost every ounce of credibility. Keep posting!

[Always Right]

Are we talking here about Robbie and his (multiple) vanity posts???

No, but Robbie probably spurred the article. Money Magazine confirmed everything Robbie said.

[Mind-numbed Robot]

Although I earlier agreed with the SQLers that you couldn't both give the employees withholdings back to them and also use THAT money to reduce prices it now occurs to me that that particular argument is where they hang much of their argument.

It is true you can't double dip on that particular money but that is not where the authors of the bill intend to get the price reductions. That is where the increased purchasing power will come from, for sure, because it is now going into the market place rather than to government coffers.

The author of this Money article obviously doesn't understand the bill either. However, it really doesn't matter whether the employer keeps the money or rightfully gives it to the employees. It is additional money in the business community, or market place, just the same. The rest is a personnel problem.

As has been explained 1,342,698 times on these threads, the price reduction will result from tax elimination and tax compliance cost reduction, and competition. If the employer decides to keep the employees money that will still be part of the cost reduction equation.

So, anyone caring to truly look at this matter will see that there really is an increase in purchasing power through increased spendable income for the common household's basket of goods AND lower prices on everything. Or said another way, prices remaining the same, after tax, and spendable income increasing.

That is why even skeptics grudgingly admit a dramatic economic boosts. Where else would it come from?

[Always Right]

The author of this Money article obviously doesn't understand the bill either.

Did you actually read the article? The author probably presented a more thorough understanding of the bill then I have seen presented by anyone. It wasn't a piece a propaganda like most Fair Tax pieces, and it wasn't a complete hit piece like William Gale does. It was a balance and honest look at the pros and cons of the tax. A bit too honest for some fair taxers.

[GregoryFul]

A significant part of baby boomer's savings is in their home equity, paid into from after tax income. Another large portion is stocks and bonds purchased and held outside of 401Ks and other tax deferred vehicles. My retirement savings are split between before tax and after tax funds. Except for the after tax contributions, these are subject to ordinary income tax rates when withdrawn - they shouldn't be, but that is another story (a portion should be cap gains rates, available to those who invest in the same manner (stock funds, etc) outside of these plans).

Now home equity is given special tax treatment, as often much of the "gain" is a result of monetary inflation produced by government policy. In the Fair Tax plan, this tax treatment would go away - I trade my house in, I get socked with a 28% tax, just for trading my house for one in a different clime, etc. If I do a reverse mortgage to support myself in my old age, as I spend, I get taxed at 28%, on already taxed savings.

There are obviously big consequences to different classes of people in this country if income taxes are replaced with consumption taxes. And it looks to me like those who have saved would be walloped with a big, quite unfair tax bill.

[Your Nightmare]

Are you still posting that crap when every quote in my post has been shown to be true?

I am really enjoying watching you make a fool of yourself.

[goldstategop]

What Money Magazine did NOT mention is that under the current income tax system, the government gets to keep half your pay and you still get the effect of a wage cut! It comes from the hidden hand of government. To liberals, that's not a decrease in purchasing power whereas if a private company does it, it a reduction in people's earnings. I don't know where to laugh or cry in the face of this conception the government knows better what to do with your money than you do.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[goldstategop]

Agreed. And if people were allowed to save more, the effect would be a larger inheritance for the next generation and greater social capital that would allow people to acquire wealth and live the way they want. Of course that doesn't mesh with the agenda of those who thing people are better dependent on government handouts... along with the high taxes that comes with that dependency. Quite simply, Money Magazine fails to acknowledge that in the real world, there are trade-offs. Under our current income tax system, there is no incentive to succeed because no one must be allowed to be better off than the next person.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[goldstategop]

What the Fair Tax does it is puts Americans into the drivers seat of deciding how much revenue the government can get through their spending patterns and consumption habits. They can always reward themselves with a tax cut at any time by just spending less. This is exactly why the Left opposes the Fair Tax: it has nothing to do with economic efficiency but every thing to do with individual empowerment. The Framers of our Constitution knew of income taxes but feared their effect on liberty and the size of government. In fact, for most of American history, the federal and state governments were funded by a mix of indirect and excise taxes. That changed in 1913 with the adoption of the 16th Amendment. The real reason for adoption the income tax was class envy. Its a view that hasn't changed in a century. We must punish people who have made too much money and confiscate and redistribute it for "the common good." The Fair Tax would cure this underlying evil.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[GregoryFul]

This tax holiday on income-tax-deferred accounts is one of them. If the deferred income taxes were collected from those accounts, we could reduce the FairTax rate from 23% to 19%.

So would you support having everybody declare their portfolios and tax the unrealized gains that they may have? Tax holiday, indeed!

[EternalVigilance]

Wow. Looks like the lovers of the IRS are having a field day. As usual, they're straining out a gnat (largely of their own ficticious invention) and swallowing the status quo camel. In other words, same stuff, different day...

[pigdog]

Everything in you post has been shown (several times) to be either taken out of context, misrepresented, or a presentation of information so blatently nonsensical that only Chicken Little could love it - or you Squirrels.

I am really enjoying watching you make a fool of yourself.

[woodbeez]

You quoted me but ignored, "prices are reduced by the same percentage". Same paycheck, same prices. Prices are reduced and with the NST included, remain the same. I get the same pay. I pay the same price. Government gets its share. I still don't see where I am getting ripped off.