If you go back all the way to the beginning of the 20th century, government revenue as a percentage of GDP has ranged from mid 18% range to the high 19% regardless of whether the economy was boom or bust and tax rates were high or low. For general discussion it is just easier to round it off to 20%.
How that 20% is collected has varied. You have excise taxes, income taxes, taxes masquerading as fees, estate taxes, gift taxes, corporate taxes, on and on. The bottom line is that every one of those taxes get embedded in the price of goods and services and are ultimately paid by the consumer. The method of collection can vary across a broad spectrum, but the money that gets paid as taxes comes out of the pocket of the consumer.
So, the Fair Tax, in order to eliminate all the other forms of taxation needs to provide roughly 20% of GDP to the government as revenue to directly replace the current tax system. The perceived tax rate may vary based on any gimmicks involved in the particular system. If you are going to do rebates (a gimmick), then a rate higher than 20% is necessary. However, the net effect will still be 20% if the system is set up to be revenue neutral. Eliminate the rebate, and you don’t need as high a rate. Politicians like the gimmicks to sell a proposal, but in general they do not really effect the burden the system places on the individuals. In the end, taxes are paid by the consumers and they generally balance out based on your level of consumption, regardless of the gimmicks in the system.
The overal benefit of the Fair Tax is that the consumer will end up paying a net 20%. Under the current system, they are paying a net 20% plus another 10 - 18% on imported goods and services.
Implementation of the Fair Tax will not be as easy as some would have it. All of the current inventory, both finished goods and inventory in the production flow have the 20% tax burden embedded in them already. A transitional process will be required to deplete current inventory and move to inventory which does not have an embedded tax content. This will be complicated, but it is doable and the tax bonus from the sale of imported goods and services will be a usefull tool during the transitional period.
“Implementation of the Fair Tax will not be as easy as some would have it. All of the current inventory, both finished goods and inventory in the production flow have the 20% tax burden embedded in them already. A transitional process will be required to deplete current inventory and move to inventory which does not have an embedded tax content.”
That is why there is a transitional credit included in the bill for holders of inventory as of the effective date of the FairTax’s implementation. If it were not for that credit, your point would be true.
“In the end, taxes are paid by the consumers and they generally balance out based on your level of consumption, regardless of the gimmicks in the system.”
I’m not sure I understand your point, but if you are suggesting that taxes “balance out” in proportion to consumption under the current system, then I would suggest otherwise. Because of all the “loopholes” under the current system, there are numerous examples of inequities. A friend of mine is a CPA who does some very high end tax returns. He told me that he sees cases all the time where a transaction can have entirely different tax consequences depending on the legal form of the entity involved.
I have often thought that if someone attempted to write a book describing the inefficiencies, inequities and illogical aspects of the Internal Revenue Code, it would be longer than War and Peace.
You can't answer because it isn't possible with out lying.