I've been reading through these responses to Landsburg's article and there is a common theme: gripes that the poor spend more of their disposable income than the rich. That's the whole point of why this tax system is ideal. A proper comparison would compare the present tax system to this new tax system, not the rich to the poor under this new tax system to see that everybody is better off or the same (ah! a Pareto improvement? no way!)

The poor would be taxed at a rate similarly to their present rate (especially with the suggested system of placing higher taxes on luxury items and lower taxes on subsistence items. Did anybody else have a snack tax in their state?) This leaves the rich with the opportunity to buy more than they had previously or to invest more money. Either way this is good for the American economy: more money going into the hands of efficient businessmen which will lead to more jobs, more inventions, better medicines, lower prices.... who knows!? (let's not even start the discussion about outsourcing...) So, doesn't this leave the government with less revenue? Probably, but done correctly and gradually over a few years, it can be viewed as a nice little tax cut. Yes, why don't you just rephrase the plan as a "tax cut", maybe get a little more support.

The fact is that Landsburg was correct in saying most Macroeconomists you ask will be in full support of this plan. Unfortunately, that doesn't make this article a very good example of "every day economics". Indeed, his article doesn't even begin to touch on the things that Macroeconomists know and the assumptions that they are making to come to the same conclusion as Huckabee. I mean it takes 9 years of post-secondary training to become an economist and some PhD's still don't have the intuition it would take to explain this tax system.

That Rich Americans don't demonstrate the same penchant for buying luxury goods off shore that they currently demonstrate for claiming their income off shore. There's no reason to assume that.

I am glad this NST idea is getting some play nationally. The one thing no one seems to understand in the whole rich/poor argument is that the NST would only apply to products bought *NEW*. I don't know about you, but I buy a lot of stuff used. Whether on eBay or from the used car dealer, I buy used stuff whenever I can because you can get a better deal. I know a lot of poorer people who are like that. Well, we all know that most rich people are going to buy all of their stuff new and in doing so be constantly subjected to the sales tax. Meanwhile, the products that I am buying used I don't have to pay any tax on. (The reason for this is because the taxes were already paid on them once when they were brand new). For a great book on this subject, pick up "Fair Tax". Seriously, if you look at the economics presented in the book you can clearly see that we can solve all of our underfunding issues with a NST. That means, Medicaid, Social Security, Etc. We'll actually have a larger tax base than on the old system. Again, I think this is a brilliant idea and now that I know Huckabee is a supporter of it I am much more apt to vote for him.

Where to begin with this response? First, it's not a "gripe" to point out that the poor spend nearly every penny of their income (and usually even more, in the form of credit card debt) - not a gripe, an actual fact. Two, neither Landsberg nor you have come anywhere near demonstrating increased Pareto efficiency of this silly tax plan. Assume a boat, indeed. Third, you state that the poor would be taxed at a rate similar to what they're taxed now. Well, by and large, the poor aren't taxed at all now. The poor, generally, qualify for the EITC even if they don't take advantage of it. Your way of describing the gigantic tax cut the rich would see is deliciously Orwellian: "This leaves the rich with the opportunity to buy more than they had previously or to invest more money." Well, yes. If you were speaking English and being straightforward, you'd have just called it what it is, which is a gigantic tax cut for the rich.

You are apparently in the Laffer curve camp here, because you're implying that gigantic tax cuts for the rich will be all upside (more jobs, more growth) and no downside (immense federal deficits that distort the lending markets). While you're at it, you toss in "more inventions" and "better medicines" and although you don't say so, I assume you'd include enhanced male sexual performance, too. Why not? In rightwing fantasy land, the solution to federal deficits is tax cuts; the solution to too much federal revenue (in the early Bush years) was, er, tax cuts; the solution to too few "inventions" and not enough good "medicines" is tax cuts. In other words, it's magic!

In fact, if you give the people who pay 40-60% of the income tax a huge tax cut, the federal government will be run into the ground, or tax rates on the middle class will have to go way, way, way up. Everybody knows this. So when you say that most macroeconomists "come to the same conclusion as Huckabee," you're lying, because they haven't and they won't. I mean, this is another one of those inconvenient facts that you're assuming away. You assume or predict or otherwise believe that serious economists buy this, but in reality - where I live - they, in fact, do not. They can be asked. They HAVE been asked. This debate has been settled, although the news has not found its way to you.

Prebate!!! Some of you clowns that insist the poor will now be taxed evidently haven't even bothered to read the Fair Tax plan. There is a PREBATE to ensure no American pays federal taxes on spending up to the poverty level. The FairTax prebate is a rebate of taxes paid on spending up to the poverty level. It is paid, in advance, on a monthly basis and is equal to the FairTax rate times the family consumption allowance. This is paid to all valid Social Security cardholders who are U.S. residents. There is an annual consumption allowance, based on the poverty line, for every household in America. For example, a couple with 2 children would have a $27,380 consumption allowance. This means they would not pay any tax on the first $27,380 that they spend. Since they'll have to pay at the counter when they buy something, this is prebated to them monthly. So you are refunded in advance the tax money you will be charged when you spend your income. In this case it would be $525/mo in taxes. So you will be sent a $525 monthly prebate to cover your upcoming taxes for the month. A couple with 6 kids will be tax free up to $41,300. This is better for poor people. Please do a little research before you post.

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A (false) underlying assumption among those who support proposals like the NST is that everybody spends everything. While this may be true from a the multi-generational perspective, it is certainly not true in the short run. There has been for some time now a huge and growing financial management industry that encourages individuals to SAVE SAVE SAVE (for retirement, for vacations, for future generations, etc.) Perhaps surprisingly, many do, despite what you read about the overall savings rate in the news sources. Result = a great many people and families have at least some savings. Moreover, in addition to "cash" (much of which is accumulated from after-tax dollars), most people have at least some equity in their house and while some of this is unrealized cap gains, some of it is equity from the prin portion of the mortgage payment. Like your cash nest egg (IRA's and 401k's excepted), the prin you pay is paid with after-tax dollars. (The current deflation of home valuations is an anomaly and probably temporary. A great many people have equity in their home despite the current real estate market.) To be fair (and the NST is often called "The Fair Tax") all prior savings and equity accumulated from after-tax dollars would have to be exempted from the NST. Otherwise savers face completely un-fair double-taxation. The NST proponents need to think about this and offer some realistic suggestions as to how to manage a potentially long and complex transition from after-tax savings to an NST, especially since they want to abolish the IRS and reduce govt bureaucracy and oversight. Otherwise, Huckabee-like proposals severly punish savers by changing the tax rules (dare we accuse him of advocating a huge tax increase on savers?) .

I am sure Landsburg knows all this but chooses to ignore it for the sake of his argument.

tlcastle9, you seem to know what you are talking about. How about some links, like a nice summary of the current state of tax reform ideas ... I found only old stuff with google such as <link>

Simple fact is that this would increase inflation by 1/5, which is more than 10 years worth of inflation, over night.

That would absolutely destroy the purchasing power of the poor and make the American economy worthless.

You want to help the poor, then abolish ALL sales tax.

I agree that tlcastle9 seems to know where it's at.

On the good point about not double taxing pre-NST savings, I'd propose we create a structure like a health savings account, with no limitations, linked to a debit card. At the time a NST is enacted, we can fund the pre-NST savings account (PSA) with any liquid investments and securities we hold as savings. Then any purchases made with the linked debit card would carry no sales tax. I have no idea what to do with non-liquid investments, such as houses.

But speaking of such, I am confused by the treatment of investments in the "Fair Tax" bill -- pure investments are not taxed. So ... I buy a house to live in, I pay 23%. I buy a house to rent out to people, I pay 0%. Do I have that right?

The "prebate" is interesting (perhaps more so if it were increased to cover loss of EITC and we had a more accurate poverty level calculation), but at least for those who don't spend 100+% of their income and live below the official poverty level, they would get a "rebate" on sales tax they did not in fact pay.

But the unresolved problem in all of this is the regressive nature, as pretty well explained by tlcastle9. We can try an experiment: Person A makes $1000/mo and spends $1000/mo. Person B makes $10,000/mo, spends $5,000/mo, and makes 10% income on invested savings. At the end of one year, the interest on the monthly savings adds another 5.12% to that individual's income -- effectively a discount on future taxes. I spend $100 today, I pay $23 in taxes. I invest that $100 for a year (at 10%) before spending it, I pay only $12.48 out of the original $100 in taxes. When you're not living hand to mouth, you can do that.

The simple fact is that they would get their first monthly prebate check overnight and immediately have 20% more income to purchase goods. The purchasing power of the poor would be constant in the short run and increased in the long run.

Actually the "simple" truth of the matter is what other people said pages ago: the prebate just pushes the tax regression up a few rungs to the middle class. Just because the poor are exempted, doesn't mean a regressive tax is suddenly not regressive. The bottom end pays more than the top end, plain and simple even if you move the goalposts a few notches and redefine where the effective bottom end is.

Not to mention it wouldn't be so "simple" to administer and deliver these magic prebate checks.

When you propose an institution that would be as complex and more expensive than the IRS just to get the Fair Tax system to status quo, how is that better?

The prebates go to all current Social Security cardholders who are US residents. Meaning the middle class will get the prebates as well. All the way up to the top. It's not moving the goalpost a few notches, it is providing everyone with a fair tax system. The prebates do not stop at any level. Bill Gates will get one. You will get one. No one will pay taxes on any spending up to the poverty line, PERIOD. Please read the proposal. This is equal to the standard deduction + exceptions in most case. Add the abolishment of all social security and medicare taxes, and you'll bring home more money.

So, you'll bring home up to 40% more money, you won't pay taxes on any purchases up to the poverty line. You and everyone else has more purchasing power and a lower effective tax rate with this system. The bottom is the bottom. This helps low income families.

" immediately have 20% more income to purchase goods."

And have to spend 20% more on goods.

THAT IS THE DEFINITION OF INFLATION YOU TWIT.

How can you not understand that?

It is not inflation because the increase in revenue at the point of purchase is not an increase in profit, it's an increase in tax. We're just shifting when we pay the tax. For there to be inflation, there must be an increase in vendor profit, which starts the cascade. After the vendor pays the tax to the Feds, he still only has the same amount of money to go out and buy more inventory. And this point, the value of goods is equalized. Thus no inflation you twit.

For what it's worth, in terms of inflation, the proposal actually does say that the increased price would be reflected in the increases paid under social security benefits (anyone analyzed what that would do to the social security fund?). So maybe it would qualify as "inflation," maybe it wouldn't. But semantics can't keep the fund afloat. And what would happen to private pension benefits? The Pension Benefit Guarantee Corporation is in a helluva lot worse shape than Social Security.