Not true. There have been many such rational bases discussed:
DEBUNKING THE FairTax:
A Fair Question about Fair Tax
OPEN LETTER TO BOORTZ/LINDER (FairTax)
JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive)
Fair Tax - Straightening Out Some Confusion
FAIR TAX BOOK- 2nd Ed. Revisions
A FAIRTAX PRIMER
WAGES: It has been made clear by many proponents of the FairTax that they are expecting 100% of their current gross pay, and that many employer/employee wage relationships, including those for government workers are controlled by contract. So, we'll assume every wage earner gets to keep 100% of their current gross pay. Everyone can figure out for him or herself what that gives them in terms of a take-home pay increase.
BUSINESS COSTS: If we assume that businesses get to keep their half of the payroll taxes (7.65% of all payroll costs up to first $95k per employee), plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), this gives the business about 8% of cost savings with which to potentially reduce prices.
PRICES: For domestic goods, if we assume that the entire 8% is passed along to the consumer, this means that pre-tax prices will be 92% of present day prices. That $10 twelve pack will now be $9.20. Of course, the twelve pack of imported beer is still $10 pre-tax. Once the 30% FairTax is added, the price of the domestic beer will be $11.96 and the price of the imported beer will be $13.00 even. So, domestic prices will go up about 20% and imported item prices will go up about 30%.
GOVERNMENT EXPENSES: Since the government expects this plan to enable them to purchase the same things they purchase now, they will need to raise sufficient revenue in order to achieve purchasing power parity. Since they will be paying the 30% FairTax on every item, we can assume that for stuff they buy, they will see the same 20% price increase on domestic items and 30% increase on imported items as other end consumers. So they will need to increase their dollar intake by this 20%+ to enable them to buy the same amount of stuff. And, of course all government salaries will have the 30% FairTax paid on the salary, less the employer half of the payroll taxes, so this is a net 22.35% increase in the cost of the entire payroll of the US government (and states too, but that is another can of worms).
ENTITLEMENT COSTS: Since the social security payments are linked to CPI, when this 20%+ price rise slams through the economy all the social security checks will have to be raised to cover this massive FairTax caused inflation. They will rise by at least 20%, and a litle more because the basket of goods will include some imported items like oil. Medicare/medical expenses will have the FairTax added, for a 20%+ increase.
GOVERNMENT PURCHASING POWER PARITY: with the cost of Payroll, plus everything they buy, plus the entitlements, all going up 20% plus we can assume that the governement will need to collect approximately 20%+ more of the new inflated dollars in order to buy what they are today with today's more stable dollars.
FAIR TAX RATE: Assuming nothing else changes regarding purchasing behavior, size of the government, etc. this means that the 30% FairTax would need to immediately raised 20% (to 36%) just to bring in all the inflated dollars that are required to fund the govt at present level. The price of domestic beer is now $12.50 and the import is $13.60. This assumes no evasion and no reduction in spending by consumers on new goods and services when the large sales tax is imposed. (an unrealistic assumption by the FairTaxers)
SAVED MONEY: All dollars that are post-tax savings would be devalued by the FairTax inflation by 20% in terms of what they can buy with their hard-earned and saved after-tax money.
Does this sound like a utopia to anyone? Isn't it very likely that a 36% sales tax (or much higher like 50%) will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed. And every dollar that is taken from the legitimate economy is another increase that is needed in the FairTax rate in order to feed the government the amount of money it needs.
Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?
And once people either stop buying, or buy used, or barter for services, or buy on the black market, or funnel purchases through their businesses for a tax exemption, it is very likely that the FairTax inclusive rate would be 33%-- which is an exclusive rate of 50%, making the problem worse.
The FairTax plan makes the false ASSUMPTION that 23% inclusive will be enough to fully find the government at today's level.
FairTaxers generally agree that the FairTax will cause higher prices and FairTaxers think that these will be ok because the purchasing power is what matters. Wage earners will receive a pay increase with their 100% paychecks to compensate for the higher prices.
Domestic prices will rise about 18-25% after a small (max 8%) price cut and then the 30% FairTax is added-- and rise the full 30% for foreign items.
Stick with me here for just one more minute. The government will also need a "raise" to pay the higher prices (because the government pays the FairTax on everything too), and it will take the form of additional revenue that needs to be raised. That additional revenue can ONLY be raised by increasing the FairTax rate, there is no other source to generate revenue. So, the 23% rate when multiplied by 1.18 is now 27.1% inclusive, which is 37.2% exclusive.
And that assumes no reduction in the base. If we assume just the very minimum that the base reduces 8% due to reduction in shelf prices-- ie. no reduction in unit volume of sales, just an 8% lower price for everything, then we need to divide the 27.1% by 0.92 to get a new inclusive rate of 29.5%, which is 41.8% exclusive. And this assumes ZERO evasion, and the same exact level of unit sales as now.
Most recently the FairTax commission found that the FairTax Rate was grossly understated by the FairTax people and that the actual rate would have to be MUCH HIGHER than 29.87% exclusive due to 1)government paying itself tax and 2) erosion of the taxable base due to all factors. Just a 15% erosion in base, coupled with a Federal government costing 20% more than presently (the cost with the FairTax added) makes the rate 33% inclusive which is 50% exclusive.
The FairTax people need to go back to the drawing board and plug in the new reality where prices go up 18-25% and stick that in their models and see what somes out the other side. It won't be pretty is my expectation.
I want to see elimination of corporate taxes, elimination of death taxes, additional reductions in the marginal income tax rates until we find that we are the Laffer optimal point.
In addition I want to see Social Security privatized, and I am willing to pay extra money to pay for those who were promised this benefit, and never receive a penny of it myself. I also want to see Medicare reformed from top-to-bottom. I also want to see Tort Reform to reduce the exorbitant costs of insurance on our medical costs.
These are what we need to do, incremental improvements in what we already have. This is already working and we should keep at it...even Boortz seems to think so. Boortz (9/20): "...the economy continues to go like gangbusters. We are right in the middle of an historic economic boom. Don't let the mainstream media or the Democrats tell you otherwise...we've never had it so good...
Rob:
Not true. There have been many such rational bases discussed: ---
--- what we need to do, incremental improvements in what we already have.
This is already working and we should keep at it...
Your Nightmare
How about the Flat Tax?
Our economy is quote 'working' [cross your fingers] despite a messed up income tax system. -- And you fellas can't come up with a rational basis for your opposition to cleaning up the mess..
Actually even in this post the points you make (which are presented with no rational basis and no definitive backup studies (except for your own "opinion forecasts" which certainly do not qualify as any sort of definitive study at all since you're not an economist). Almost every point in this point has been refuted or is a gross distortion of things in evidence.
All you have done is merely searched far and wide for negative things to throw out against the FairTax, hoping that some of them will stick in readers minds - despite the fact they are not based in truth (and many are only your own uninformed claims). Let's look at them:
WAGES: After almost a year of claiming otherwise at least you are now beginning to admit that full wages will be the norm under the FairTax. Since you now agree with the FairTax on his point it must be merely a holdover from long ago when you insisted the opposite. Might as well remove it and save space and bandwidth.
BUSINESS COSTS: When you claim an 8% reduction in prices it's hardly reasonable even using the items you (incorrectly) state as you mention ER fica at 7.65% -
"plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), "
It's noted that you conveniently use "corporate taxes" when it is actually business taxes that are involved and not merely corporate taxes. That means your 2% is artificially low along with your chosen compliance cost percentage. The intent here is not to name a specific price reduction, but to note that most of your "opponent colleagues" have stipulated to the 9% figure we use in comparative purchasing power examples (that you've refused to participate in). Other points later relate to this intentional understatement also. Many FairTax supporters believe the price reduction will likely be greater than the 9% figure, but that's not the issue. Your misstatements are.
PRICES: Imported beer will be taxed at the same rate as domestic when sold for consumption (23% ti - more than presently generated as tax revenue) and not before (and not when imported to the distributor) so that entire "analysis" is ephemeral at best. The rest of your "analysis" here is nothing less than patent nonsense since it is the COST of things to the taxpayer that is the important point as the PRICE they pay at the cash register includes the marginal FairTax rate while the actual COST to the taxpayer would be determined at the effective FairTax rate. Only a true demagogue would continually emphasize the marginal rate which a taxpayer will never pay; instead the money that comes out of his pocket over the year is the effective tax rate which for most taxpayers is MUCH less that the marginal rate you pretend and which a taxpayer can determine for himself by using the FairTax Effective Tax Rate Calculator. The calculator by design does not show negative effective tax rates but will stop at 0% and while some will have negative rates, most people will be shocked to see how low their effective rate will be after all the demagoguery on these threads about "everyone will pay 20% (or more) for everything" which can now be seen for the demagoguery it truly is.
GOVERNMENT EXPENSES: Your claims here also make no sense since government expenses merely are a shuffling of fund amounts from one pocket to another. Any "expenses" as such that the pay merely are returned to hem as tax revenue. Your entire paragraph is meaningless and is merely intended to misinform and frighten any who know no better. Oh, and while on he subject, "government salaries" aren't taxed at "30%" as you falsely claim. Correctly, the gross wages of non-educational government employees will be tax at 23% of the wages (less the effect of the 7.65% ER fica) so your pompous claims there are wrong, too.
ENTITLEMENT COSTS: An odd attempt to insert something here that is already done in the way of having a cost of living adjustment in Social Security as though it were somehow new to the FairTax. It isn't. That aside, actually there are NO entitlement costs since the prebate is not an entitlement at all but a rebate ... and it says so in the bill with the definition:
"... `Each qualified family shall be eligible to receive a sales tax rebate each month. The sales tax rebate shall be in an amount equal to the product of-- ..."
... so that your intentional use of the wrong descriptive word will not go unnoticed. Your use of inflammatory phrases such as "... when this 20%+ price rise slams through the economy ..." are also noted for what they are (nonsense) since they also are mere demagoguery.
GOVERNMENT PURCHASING POWER PARITY: Actually your attempt to make everything inflated by "breathing heavily on it" as you do - since you've offered no concrete information but merely your own assessment that everything will rise in price by "20%" (or more, depending upon which paragraph one reads - as you're not consistent between them). Nor have you even shown hat there will be any inflation at all and groanup has clearly shown you several times there will be no such effect.
FAIR TAX RATE: Actually your unsupported claim that:
"... post-tax savings would be devalued by the FairTax inflation by 20% ..."
... is merely another of the many you've made in this post. The truth of the matter is just the opposite - purchasing power will rise. This has been shown by repeated comparative purchasing power examples by several FairTax supporters on these threads. It is as true for savings as it is for newly-earned funds since taxpayers will be paying at their effective FairTax rate and NOT the marginal rate (or more) as you pretend. And here, too, we see more of the unbridled, crass demagoguery when you make the further unsupported claims that:
"... a 36% sales tax (or much higher like 50%) will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed ..."
... which merely sounds more like the pronouncements of William Gale of Brookings Institute when he tried to pin a "94% tax rate" on what he (and you) believe to be the FairTax donkey. Sorry, pal, that sort of nonsense from either of you won't fly.
Further along in your rant, we see the rhetorical question (thrown in for extra effect since you've seen it offered by other opponents):
"Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?"
... that's easily answered - NO!! And for several very good reasons not the least of which is the removal of the income tax (and others), the IRS (and its funds), the change of the Tax Code as well, and the destruction of the income tax records. In addition if there are sufficient votes to pass the FairTax (and there will be) there are certainly sufficient votes to prevent an income tax from being restarted from the ground up ... and keep in mind the repeal bills that are making their way through Congress (and which the FairTax bills call for). Once taxpayers realize the economic and administrative and logistic benefits of the FairTax it will be a practical impossibility to turn back to an income tax no matter how much you may like it (for whatever reason).
"And once people either stop buying, or buy used, or barter for services, or buy on the black market, or funnel purchases through their businesses for a tax exemption, it is very likely that the FairTax inclusive rate would be 33%-- which is an exclusive rate of 50%, making the problem worse."
Nice scare tactic but one that assumes nothing that has ever been shown in even he wildest study of the actual FairTax bill. Get real!
"... The FairTax plan makes the false ASSUMPTION that 23% inclusive will be enough ... "
That's no "assumption" at all (as opposed to your assumption that something else will happen) but rather the multiple results of a number of different economic studies - all saying that the 22% to 24% FairTax rate is revenue neutral. Nothing you claim alters that.
"FairTaxers generally agree that the FairTax will cause higher prices and FairTaxers think that these will be ok because the purchasing power is what matters. "
Both wrong and right. Wrong because there is no general agreement that prices will rise with the removal of he income tax. If anything, the more common opinion is that prices will decline with he removal of income tax and that even with the imposition of the FairTax MOST taxpayers will be better off economically by having greater purchasing power under the FairTax than they did under the income tax. Many comparative price examples between the two tax system have shown his on these threads and you - or your colleagues - have never been able to refute these examples. Your spurious claims about "price rises" are completely without basis as well.
"And that assumes no reduction in the base. If we assume just the very minimum that the base reduces 8% due to reduction in shelf prices-- ie. no reduction in unit volume of sales, just an 8% lower price for everything, then we need to divide the 27.1% by 0.92 to get a new inclusive rate of 29.5%, which is 41.8% exclusive. And this assumes ZERO evasion, and the same exact level of unit sales as now."
Sadly, that's complete gibberish as the tax base INCREASES under the FairTax and is about twice what it was with the income tax. If fact, there will be many more contributing to the tax rolls that do at present since under the FairTax those in the illegal economy (who now pay little or nothing in tax revenue) will pay the full FairTax when they purchase at retail. Your "mumbo jumbo arithmetic" is unworthy of anyone attempting honesty.
Nor can you assume anything but zero evasion under the FairTax since evasion is a taxpayer not paying the tax he should be paying and when an item is purchased at retail the very act of purchasing it and receiving the receipt is de facto and de jure compliance with the tax law. Theft of tax funds by a merchant who has agreed in writing to collect and forward he tax (and be paid to do so) is a series on one or more crimes but is certainly NOT evasion - perhaps theft of government would be a more correct word. Also, collusion between a potential taxpayer and a seller (which seller is still liable for the tax if not paid by the buyer) is another type of defalcation as well and will certainly be very infrequent since only one party gains while the other shoulders most of the risk of punishment - and why would he do that?
"... Most recently the FairTax commission found ..."
... funny that you mention the Tax Panel since their "findings" were not about the FairTax but about some alterations they assumed into a hypothetical Retail Sales Tax law with great differences from the FairTax. They did not at all review or comment on the FairTax but merely ignored it so your offering of the Panel's findings are no better than its efforts to bury the FairTax (since they were undoubtedly scared silly by the 75% or so volume of Comments supporting the FairTax that they freely received. Seems you're also "scared silly" by it also since you're obviously that way for some reason. Claiming the Panel did review the FairTax puts you into the category of Mr. Gale of Brookings which aligns you with the far left, "government should decide all" crowd and yet you've loudly cried how "conservative" you are many times and how you so admire Reagan" ... certainly those things are greatly at odds with each other.
"... I want to see elimination of corporate taxes, elimination of death taxes, additional reductions in the marginal income tax rates ..."
Actually it's good to hear that since the FairTax accomplishes all those things and even more in the way of economic benefit to our country. it eliminates all the hings just mentioned along with all he mechanisms, forms, tax code involved, etc. In fact it would even save the 300,000 trees wasted each year on tax forms, publications, etc. so the Green and Save-The-Forests folks should back the FairTax too, no doubt. In effect, too, every taxpayer (not just the oldsters or those enmeshing themselves in government-mandates tax free goody plans) will have their own tax-free savings and investment plan (and have more funds to take advantage thereof due to the increased purchasing power), so the privatization of S/S should actually be more easily done. I would also expect benefits in the M/C entitlement (and preferably its elimination) since market action rather than the present government interference would be more likely to reduce costs there.