The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces. [BHKPT]

The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan. [THBP]

Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case. [THBNP]

The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be. [ALM]

Consumption benefits [ALM]:

• Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.

• Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.

• The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.

• By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.

Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system. [KR]

Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively. [JK]

Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax. [THBPN]

Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20. [THPDB]

On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base. [TBJ]

The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent. [WM]


References: [ALM] Arduin, Laffer & Moore Econometrics, “A Macroeconomic Analysis of the FairTax Proposal,” July 2006.

[BHKPT] Bachman, Paul, Jonathan Haughton, Laurence J. Kotlikoff, Alfonso Sanchez-Penalver, and David G. Tuerck, “Taxing Sales under the FairTax: What Rate Works?” published in Tax Notes, November 13, 2006.

[JK] Jokisch, Sabine and Laurence J. Kotlikoff, “Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax,” National Tax Journal, June 2007.

[KR] Kotlikoff, Laurence J. and David Rapson, “Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation,” NBER Working Paper No. 12533, revised October 2006.

[THBNP] Tuerck, David G., Jonathan Haughton, Keshab Bhattarai, Phuong Viet Ngo, and Alfonso Sanchez-Penalver, “The Economic Effects of the FairTax: Results from the Beacon Hill Institute CGE Model,” The Beacon Hill Institute at Suffolk University, February 2007.

[THBP] Tuerck, David G., Jonathan Haughton, Paul Bachman, and Alfonso Sanchez-Penalver, “A Comparison of the FairTax Base and Rate with Other National Tax Reform Proposals,” The Beacon Hill Institute at Suffolk University, February 2007.

[THBPN] Tuerck, David G., Jonathan Haughton, Paul Bachman, Alfonso Sanchez-Penalver, and Phuong Viet Ngo, “A Distributional Analysis of Adopting the FairTax: A Comparison of the Current Tax System and the FairTax Plan,” The Beacon Hill Institute at Suffolk University, February 2007.

[THPDB] Tuerck, David G., Jonathan Haughton, Alfonso Sanchez-Penalver, Sara Dinwoodie, and Paul Bachman, “The FairTax and Charitable Giving,” The Beacon Hill Institute at Suffolk University, February 2007.

[TBJ] Tuerck, David G., Paul Bachman, and Sylvia Jacob, “Fiscal Federalism: The National FairTax and the States,” The Beacon Hill Institute at Suffolk University, June 2007.

[WM] Walby, Karen, and Dan Mastromarco, “Promoting home ownership: How the FairTax’s benefits for homeowners exceed the mortgage interest deduction,” Americans For Fair Taxation White Paper, August 2006.

I don't believe this so called quote. If all income groups benefit then all pay less taxes. When that happens the govt gets less revenue. So this only works if you assume Congress will cut taxes. The other assumption- if you want to make it is that your tax will somehow grow the economy. Thats not a "fair" assumption at all. Why don't you supply some logic instead of just quotes.

While you're at it explain to me why I would agree to be taxed twice- first with an income tax when I saved my nest egg, then when I spend my nest egg.

Next, explain why just because we get rid of tax breaks for the rich with this change, they can't at more tax breaks on that fair tax in the next session of Congress.

Thanks.

That's pretty much all wrong.

The taxable base is significantly less than the annual transaction GDP of the USA. For example, used housing sales are exempt, and corporations are exempt from taxation of the things they purchase.

There is no evidence except wishful thinking that wages will go up. The belief is that since employers won't have to pay as much in taxes they will pass the savings onto employees, but that has almost never happened in history.

Disposable income actually does not rise either. Since this is a massive tax redistribution onto the middle class, the effective income for the middle class NECESSARILY has to drop since they are now carrying a higher portion of the overall tax burden.

Impacts on GDP are also made up. For example, Housing Starts are one of the big drivers of the retail economy. Yet under the tax plan, NEW houses would be taxable, while "used" houses would not be. That means that the Housing Starts part of the economy would be cut by roughly 25% out of the gate. That means that the annualized GDP gain of 2.5% would drop by roughly 0.3%.

Sorry this is just made up wishful thinking.

ih2005:

The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces. [BHKPT]

The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan. [THBP]

Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case. [THBNP]

The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be. [ALM]

Consumption benefits [ALM]:

• Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.

• Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.

• The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.

• By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.

Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system. [KR]

Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively. [JK]

Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax. [THBPN]

Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20. [THPDB]

On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base. [TBJ]

The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent. [WM]


References: [ALM] Arduin, Laffer & Moore Econometrics, “A Macroeconomic Analysis of the FairTax Proposal,” July 2006.

[BHKPT] Bachman, Paul, Jonathan Haughton, Laurence J. Kotlikoff, Alfonso Sanchez-Penalver, and David G. Tuerck, “Taxing Sales under the FairTax: What Rate Works?” published in Tax Notes, November 13, 2006.

[JK] Jokisch, Sabine and Laurence J. Kotlikoff, “Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax,” National Tax Journal, June 2007.

[KR] Kotlikoff, Laurence J. and David Rapson, “Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation,” NBER Working Paper No. 12533, revised October 2006.

[THBNP] Tuerck, David G., Jonathan Haughton, Keshab Bhattarai, Phuong Viet Ngo, and Alfonso Sanchez-Penalver, “The Economic Effects of the FairTax: Results from the Beacon Hill Institute CGE Model,” The Beacon Hill Institute at Suffolk University, February 2007.

[THBP] Tuerck, David G., Jonathan Haughton, Paul Bachman, and Alfonso Sanchez-Penalver, “A Comparison of the FairTax Base and Rate with Other National Tax Reform Proposals,” The Beacon Hill Institute at Suffolk University, February 2007.

[THBPN] Tuerck, David G., Jonathan Haughton, Paul Bachman, Alfonso Sanchez-Penalver, and Phuong Viet Ngo, “A Distributional Analysis of Adopting the FairTax: A Comparison of the Current Tax System and the FairTax Plan,” The Beacon Hill Institute at Suffolk University, February 2007.

[THPDB] Tuerck, David G., Jonathan Haughton, Alfonso Sanchez-Penalver, Sara Dinwoodie, and Paul Bachman, “The FairTax and Charitable Giving,” The Beacon Hill Institute at Suffolk University, February 2007.

[TBJ] Tuerck, David G., Paul Bachman, and Sylvia Jacob, “Fiscal Federalism: The National FairTax and the States,” The Beacon Hill Institute at Suffolk University, June 2007.

[WM] Walby, Karen, and Dan Mastromarco, “Promoting home ownership: How the FairTax’s benefits for homeowners exceed the mortgage interest deduction,” Americans For Fair Taxation White Paper, August 2006.

All of these sources come from Beacon Hill Institute at Suffolk University. BHI's clients include oil companies, the Heritage Foundation, and the Pacific Research Institute. Basically, you're looking at "research" paid for by corporate interests and right-wing think tanks. None - NONE - of the very real dangers of the so-called "Fair Tax" will be discussed by this source.

What the Fair Tax Good Will Do for You?

The implementation of the Fair Tax is predicated upon three assumptions.

Assumption #1 - All active businesses entities in the US, including US corporations, sub-chapter S corporations, limited liability corporations, sole proprietorships, trusts, and partnerships have embedded costs that average 23% and prices for all services and new products will decline by 23% if the Fair Tax is implemented.

Assumption #2 – A Federal sales tax of 30% will be imposed on all consumers, Federal, State, and Local governments, and non-profit organizations on the purchase of all services, such as medical, legal, loan interest, and insurance, and all new products (including houses, food, and prescription drugs).

Note: Business entities and investors will be exempted from paying the Federal Sales Tax on any new products or services constituting part of the business activity.

Assumption #3 - The Fair Tax proposal is defined as being "revenue neutral" in that it is expected take in the same approximate amount of Federal sales tax revenues as comes in from the existing Federal business income taxes, FICA payroll taxes and Federal personal income taxes.

Fair Tax shortcomings to the average working American appear to be that:

(1) NO GUARANTY OF PRICE REDUCTIONS: It appears intuitively obvious to the casual observer that most of tax savings, reduced costs and increased profits resulting from the elimination of the estimated 23% embedded cost will flow to the bottom line and be passed onto executives and investors and not to the customers or employees.

There is no legal requirement for businesses to reduce prices by the amount of any embedded cost elimination savings and no way to measure what they actually do.

Examples of windfall profits by US corporations in the past have a dismal track record. Look at the deregulation of the electric power generation and distribution industry that generated record profits and obscene long-term price increases to consumers; and Healthcare industry advocates stating that the "free market" healthcare HMOs were more efficient but required a 12% bonus to offer Medicare Part C over and above what Medicare was already obtaining from the healthcare industry for beneficiaries using Medicare Parts A and B.

The US pharmaceutical industry manufactures prescription medications around the globe, is given Federal government protection from allowing people to purchase prescription drugs outside the US, and gives Americans the highest prescription drug prices in the world.

Most of the profits resulting from savings for any purpose (elimination of “embedded costs”, moving jobs off shore, reducing employee wages and benefits, and importing manufactured products) went straight to executive perks (bonuses and salaries, stock option plans, and executive retirement programs) and investors with very little to none to employee salaries or reduced customer prices for products or services.

Anyone who seriously thinks a 23% reduction in costs will not disappear long before it hits the consumer prices or employee wages doesn't understand the current implementation of capitalism, business organization and tax regulations, and corporate protectionism existing in the US.

(2) IMPACT ON MOST WORKING AND RETIRED AMERICANS: The Fair Tax program is a reverse “Robin Hood scheme” that shifts the raising of tax revenues to finance the US Government operations from the business community (reduced to zero) and higher income Americans to the Middle Class, retirees, and children.

(3) If the average cost of ALL new products and services does not decline by 23%, then the 30% Federal sales tax on the allegedly reduced prices from elimination of embedded taxes will increase the costs/prices of new goods and services over and above the current costs/prices for new goods and services.

(4) The Fair Tax proponents allege that it will raise the same amount of Federal Revenue as the current tax code. This means that the revenue from Federal business income and payroll taxes currently paid by business entities will have to be paid by individuals and State and Local governments under the Fair Tax. By default, individuals will pay more in taxes over their lifetime under the Fair Tax, not less.

Also, the Fair Tax will result in everyone (children, working persons, and retirees) not in the top 5% of income brackets to pay the 30% Federal sales tax on every service and new product they buy from “cradle to grave”. Since this group spends just about all their available lifetime income on goods and services subject to the Fair Tax, their effective tax rate will be close to 30%.

CONCLUSION: Great for business (taxes go to zero), great for high income earners (top 5%) who do not spend the bulk of their income and disastrous for the remaining 95% of Americans. It is also disastrous to Federal, State, and Local Governments; and non-profit entities (now exempt from all sales taxes).

In addition, State and Local governments will have to increase taxes to offset the Federal Sales taxes they pay, and non-profit entities will have less income available to provide services.

In closing, I have grave reservations that any savings achieved by corporations from not paying the business portion of the Federal payroll taxes and business Federal income taxes will result in wage increases or reduced prices for the products and services they sell.

The writer states that "On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base. [TBJ]".

The objective of individual state sales taxes is to raise revenue. While the tax rate may be reduced, it will now be applied to additional products and services that are not currently subject to state sales tax, such as new homes, services, medical care including hospitals, doctors, medical services, dental care, etc..

While the average rate is lower, applying it to more items results in individuals and families paying the same total amount of sales taxes each year.

Paying 3% sales tax on $40,000 worth of products and services yields the same amount of revenue to the state as paying 6% on $20,000 worth of taxable products and services. The individual/family pays $1200 in state sales taxes either way.

ConcernedCitizen -- If you were to spend as much time studying the FairTax research and follow-on analyses as you do speculating about why it won't/can't work, you would be able to answer every one of your "objections." All of the questions related to concerns and assumptions like yours have been asked and answered -- many times. And the FairTax still comes out a winner (for *everyone*, not just the "rich" with whom you seem to have a big problem).

The "FairTax" is neither fair, nor a winner for the economy.

It makes the housing crisis worse.

It essentially eliminates any sort of taxes that are not import/export tarrifs (everyone self-incorporates and hence avoids all taxes)

it increases the tax beaurocracy

it presumes a linear Marginal Utility function which is a false assumption and hence it reduces the velocity of money

Its a dumb idea.