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The FairTaxers give a misleading answer to the first question everyone asks about their idea: How big will the tax be? The FairTaxers say they want a 23 percent sales tax. Most people will assume that a product that costs $100 before the tax is added would cost $123 with the tax. Actually, the tax would be $30 and the total price $130. They call it a “23 percent” rate because $30 is 23 percent of $130.

Ramesh's first sign of ignorance. Currently ever item purchased contains embedded taxes thanks to businesses passing on the cost of their income taxes and associated compliance costs onto the consumer at each stage of production. The total percentage of these VATs amounts to nearly 23%. A $100 item today actually costs $77 with a $23 tax. This is known as the tax inclusive costs. The Fair Tax will remove the embedded tax by eliminating corporate income taxes and applying the rate of 23% one time, externally from the actual price, at the point of sale on only new items. This is known as the tax exclusive rate. Do the math 23/77=30%. The bottom line is the amount of tax collected($23) will be the same regardless which rate is quoted. AFFT uses the 23% rate because the Fair Tax will replace the income tax and its 23% embedded tax.

Several groups of people would be adversely affected by the tax. Retirees, for example, have paid taxes on their wages during their working lives. After a FairTax was implemented, they would find themselves also having to pay higher taxes on everything they used their accumulated savings to buy. The value of non-retirees’ accumulated savings would drop, too.

Once again Ramesh proves not to have a clue. The overall tax burden will be lower under the Fair Tax. Currently under the income tax retirees are taxed on their savings and any capital gains. These forms of income taxes will be eliminated by The Fair Tax. They will consequently have more purchasing power and be able to save and invest more than with the income tax.

The middle class would also pay higher taxes. Under the FairTax plan, the federal government would give all legal residents of the U.S. a “prebate” to cover sales taxes on all purchases up to the poverty line. That would protect the poor (except for illegal immigrants; higher prices are supposed to induce immigrants to come legally so they can get their prebate). And the rich would pay less than they do now, since returns to investment typically are a large share of their income, and these would go untaxed.

Ramesh continues to distort the facts. All economic classes will pay taxed based on what they can afford to spend. The Prebate has no direct connection to the costs of goods. The prebate will be based on already established guidelines from the Department of Human and Health Services. people must prove citzenship.

Section 302 of HR25/S296:

(2) IDENTIFICATION REQUIREMENTS- In order for a person to be counted as a member of the family for purposes of determining the size of the qualified family, such person must--

`(A) have a bona fide Social Security number; and

(B) be a lawful resident of the United States.

Ramesh's thinking on the prebate for the rich is 180 degrees backwards. The wealthy will pay more out of pocket for taxes on items since the prebate will be a much smaller percentage as compared to income given that the prebate is based solely on the household size.

If prices stay flat after a sales tax, workers can’t keep their “entire paychecks”: Wages have to fall. The paycheck you’re keeping would be smaller. (Think about it this way: If existing taxes are embedded in the cost of every product, they’re embedded in the cost of labor, too.) If wages don’t adjust downward, then unemployment has to rise. If the Federal Reserve increases the money supply to prevent this combination of falling wages and rising unemployment, then consumer prices will increase.

Prices may stay flat for certain industries but rise slightly in other industries. The price rise will vary among industries. The increase in purchasing power will more than offset any price increase. Ramesh also ignores one fundamental point. The elimination of corporate income taxes will spur U.S. companies to return to the U.S. those assets they transferred over seas to avoid income taxes thereby creating more jobs and lowering unemployment.

Most experts in tax administration also say that enforcing sales taxes gets hard quickly once the rates hit double digits. That’s one reason that many countries with broad-based consumption taxes levy value-added taxes, which are collected in smaller amounts at each step along the production and distribution chain, instead of sales taxes, which are collected in one big lump at the end. The fact that no country relies on sales taxes to the extent the FairTaxers advocate does not, however, faze them.

Who are these experts Ramesh? HJow many is most? You better tell that to the eighty economists who have signed onto the Fair Tax and sent a letter to President Bush in support of The Fair Tax.

Households would not have to prepare returns, and would thus enjoy more privacy. On the other hand, the federal government would still have to know people’s wages in order to determine how much they have earned in Social Security benefits. (Which leads to another problem, albeit a surmountable one.

How is that anymore intrusive than what we have now? How is not having to fill out a multitude of tax forms seeking information about every aspect of a person's life anymore intrusive? It's far less intrusive.

How likely is it that Congress and the president — any Congress, any president — will agree to create a new tax system that punishes the middle class and senior citizens? One that taxes people when they buy a home in which to live, but not when they buy a house as an investment?

Ramesh is really twisting in the wind at this point in the article. The Fair Tax will over the overall burden. People will no pay any tax on homes with previous owners as used items will not be taxed! There will not be a different class for purchasing a home as an investment under The Fair Tax in order to avoid the tax.

AFT also advocates the repeal of the Sixteenth Amendment, which permits a federal income tax. Doing so would require the approval of 38 states’ legislatures. Good luck with that.

Again Ramesh shows ignorance. First of all it's not AFT it's AFFT(Americans For Fair Taxation). The Fair Tax will immediately defund the IRS. AFFT is working on concurrent legislation(House Joint Resolution 16) that will repeal the 16th Amendment.

The FairTax is not going to come close to reality.

Ramesh hasn't been doing his homework on this point. The number of cosponsors for The Fair Tax has grown with each session of Congress since 1999. Politicians don't support bills out of altruism. They do so because they feel the heat from their constituents. Those who have signed onto The Fair Tax did so due to increased pressure from a growing grassroots movement. Michael Reagan recently agreed to be the Honorary Chairman of the Fair Tax National Victory Campaign. He wouldn't have joined if The fair Tax was losing support.

Good informative post.

Once again Ramesh proves not to have a clue. The overall tax burden will be lower under the Fair Tax. Currently under the income tax retirees are taxed on their savings and any capital gains. These forms of income taxes will be eliminated by The Fair Tax. They will consequently have more purchasing power and be able to save and invest more than with the income tax.

You are wrong. Retirees are not taxed on their savings. They are taxed only on the earnings of their savings.

Under the Fair Tax proposal, they would be taxed on their entire savings, (savings plus earnings) should they decide to cash in their savings and use it to buy something. As a consequence, they will have paid tax twice on their savings, first when they earned it, and second when they spend it. Some Fair Tax that is!

Currently ever item purchased contains embedded taxes thanks to businesses passing on the cost of their income taxes and associated compliance costs onto the consumer at each stage of production. The total percentage of these VATs amounts to nearly 23%.

I don't care how many times you post your bad math, it never stops being funny.