Yet another article on the FairTax that ignores its two major flaws. It attempts to put the entire burden for SS/M on the wealthy, and it ignores how human behavior will drive the wealthy to reduce their consumption within the tax zone and leave a huge hole in projected revenues.
A National Retail Sales Tax would need to be at a lower rate than the VATs in use anywhere else the wealthy might choose to spend their money. Otherwise they’ll take their new higher take-home pay and spend it outside the tax zone and produce no FairTax revenues.
More broadly, people correctly have an aversion to taxes, which for some people distorts their judgment. This distortion of judgment I call Tax Derangement Syndrome, and occurs when people are so driven to avoid taxes that they make financial decisions which are suboptimal.
It’s a lot like people going out of their way to avoid a toll by driving an alternate route...and spending more (gas and time) in the process.
The FairTax, by nature of its ubiquity and its high rate, will drive many to seek to avoid it, resulting in inefficiency (on the part of the avoiders) and loss of tax revenue.
If the wealthy were to reduce taxable consumption, that would be great for capital formation and business startups. Except that with consumption taking a hit, there might not be a sufficiently large market for all that new business.