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."

[RockinRight]

I have the book and have read it. After more research I think that the Fair Tax is a phenomenal idea. In reality, some prices will drop, some will rise, others will end up about the same. The market will adjust in a positive way, sure, but I don't think it will be a humongous economic boom that many think it will be.

[RockinRight]

There's one major flaw in that argument. A little something called "competition" that will bring prices down. One company might say "OK, let's drop prices a bit to capture more market" then others follow suit, continuing until prices fall to the same profit-level as before.

[GOPJ]

You were first...

[Little Ray]

Umm... That is absolutely wrong. It would be the entire pre-tax amount.

[Always Right]

In reality, some prices will drop, some will rise, others will end up about the same.

There is no way after price prices will drop. It is impossible without a reduction in wages. The money for all that additional money in workers pockets has to come from somewhere, and since this tax is revenue neutral, the only place it can come from is in higher prices. There is absolutely 100% no way around it.

[Scarlet Pimpernel]

Apparently, real freedom is not all that important to conservatives (There does seem to be a lot of interest by Americans, though). The ability to tell the government that YOU are not going to fund its latest folly must scare the crap out of conservatives and liberals alike.

[RockinRight]

That's why I said SOME will drop, SOME will rise. The end result would be about the same (before the tax, I mean).

[Always Right]

That's why I said SOME will drop, SOME will rise. The end result would be about the same (before the tax, I mean).

The end result will be most people will have more money in their pockets and ALL prices will have gone up. For people working that get to pocket more money, things will probably be just fine and perhaps better off. People on fixed incomes and/or rely savings are the ones who will be hurt.