read Republican economist Bruce Bartlett's response to the fair tax.
FairTax advocates repeatedly claim that their proposal
would allow all workers to keep 100 percent of their
paychecks. The clear implication is that withholding
would simply disappear. The worker now netting $800
per week would immediately get a $200 raise and start
taking home the full $1,000 gross wage that he is paid.
Instead of paying income and payroll taxes, workers
would pay their taxes when they buy things. The FairTax
would impose a 23 percent tax on all goods and services.
This is not really correct, but for now we’ll accept it at
face value for analytical purposes.
So on the day the FairTax is imposed, a worker’s
disposable income would rise, but he would have to pay
more for everything he buys. Whether he is better off or
not depends on what his effective tax rate is. Assuming
he spends all his income and no more than that, he will
be no worse off if he now pays 23 percent of his income
in taxes. That is, his effective tax rate (taxes divided by
income) is 23 percent. He has 23 percent more income,
but pays 23 percent more for everything he buys.
In this case, the FairTax is a wash. The worker is no
better off or worse off in terms of taxes than he is now. He
may still prefer the FairTax because he doesn’t like filing
tax returns, because he thinks it is fairer to pay taxes on
consumption rather than on income, or because he thinks
that exempting all saving and investment from taxation
will increase economic growth. These are perfectly valid
reasons to favor the FairTax or any other consumptionbased
tax system.
But what if the worker is now paying less than 23
percent of his income in federal taxes? In this case, he is
clearly worse off. The prices of the things he buys will
rise by more than his income rises from the elimination of
income and payroll taxes. Conversely, if one is wealthy
and in a tax bracket above 23 percent, that person would
be much better off. His income and payroll taxes would
fall by much more than the prices of goods and services
he consumes would rise.
9 comments:
"A worker now netting $800 per week would immediately get a $200 raise..."
His income would only rise because he would be able to take home all of what he earns. That's not a raise, it's the removal of a grave injustice.
"The FairTax would impose a 23 percent tax on all goods and services."
No, the Fair Tax only applies to new retail goods- not used goods, capital goods or things you've made at home. The tax would also be included in net prices, not added on at the register.
"So on the day the FairTax is imposed ... a worker would have to pay 23% more for everything he buys."
An average of 22% of the prices we pay now comes from all the taxes that businesses are passing on to consumers through higher prices. It's just a sneaky way of taxing consumers in addition to income and payroll taxes. Everyone has to pay these hidden taxes, including the poor, the handicapped and the elderly. They also increase the cost of producing goods in America which is why we have lost so many well paying manufacturing jobs and our exports are so uncompetitive in the world. By eliminating income taxes, the Fair tax would reduce the cost of producing goods in America by an average of 22% before it includes a 23% tax on goods sold in the US. In the worst case senario, some prices would rise by 1%. In the senario above, the elimination of the worker's 20% income and payroll taxes increased his income by 25%. People living at or below the poverty level would be completely untaxed and American exports would remain 22% cheaper then they are now and that would allow us to reverse our trade deficit.
"In this case, the FairTax is a wash. The worker is no
better off or worse off in terms of taxes than he is now."
No better off? The Fair tax would restore a trumendous amount of liberty and power to the people. It would boost our economy by bringing trillions of investment dollars lingering in foreign bank accounts back to America where it would be used to build new plants and offices and to create more jobs. We would no longer be living under the thumb of the government. No more worrying about being arrested, imprisoned or shot to death for not paying income taxes. I'd call that an upgrade.
"Conversely, if one is wealthy
and in a tax bracket above 23 percent, that person would be much better off. His income and payroll taxes would fall by much more than the prices of goods and services
he consumes would rise."
Good! Everyone in a tax bracket above 1% would be better off. With income taxes out of the way, we would all have a huge incentive and opportunity to become wealthy ourselves. Then we wouldn't need any government entitelement programs.
Jim, why would you repeat Bartlett? Check out what he has to say about minimum wages, universal health care, and equality for gays.
Of course if there is a proposal that would elevate the status of the ordinary American and lower the power of a politician, Bartlett will be against it.
He understands the prebate and blatantly lies about the FairTax.
I'm bummed you would quote him in a favorable way.
Why not quote Mitt Romney's lies or Rush Limbaugh's?
Grave injustice... I have gratitude for the GOvernment. Without government there would be no stability for a functioning economy. Any good economist will tell you that basic infrastructure and mechanisms to make a market work are only and can only done by Government. You like the roads? The legal system? Basic regulation? Basic research--which gives you your medications, computers--which the private sector refuses to do over the long term. The military gives us stability on the seas to open up trade. The list goes on and on of things that the government does. Remember the government in a Republic is of the people. We are the government. Might consider not being so harsh on yourself and the good things we've accomplished.
still more to reply to anonymous but I'm still working on my homework!
sheess the one thing I can say for you fair tax folks. You're passionate and you are active on the web!
DavidFL10 ... come on now. Why not quote him on gay marriage? What does that have to do with an economics question? Or universal health care. If I only quoted someone that I agreed with 100% of the time I wouldn't even be able to quote myself!
There are three types of politician in Washington.
A few want to solve the problems we face as a nation and are willing to do so.
Some will strive for solutions but only if their political party gets the credit.
Some would rather have the problems than the solutions because the existence of the problems gives their party more power.
Bartlett fits in the third category. Each of his hit pieces on the FairTax has been progressively more deceptive.
The difference between a lie and an error is the speaker's knowledge of the accuracy of the statement. You falsely believe you would pay 23% of your money to the feds under the FairTax. I can help you correct error.
The difference between deception and a lie is wordplay. Notice that Bartlett doesn't actually say anyone would be worse off under the FairTax. To do so while knowing the truth would open him up to a lawsuit. Notice that what he does is ask a series of misleading questions and hypotheticals.
He ends that article calling for a VAT with no poverty exemption. That, my friend, is the most regressive form of taxation known to man--a tax on survival.
I have no interest in a dialog with you if all I get to do is rebut the same tired mistruths that abound on the internet.
You can find a couple dozen arguments against the FairTax. Not a single one of them holds water and it is not worth my time to write a personal rebuttal to you for every copy and paste you can make.
Per your request, I indicated the first two issues I'd like to cover fully before moving on.
David
"I have no interest in a dialog with you if all I get to do is rebut the same tired mistruths that abound on the internet."
Sorry if it takes some time to do the back ground on your questions. One of my math professors as well as every single science professor and philosophy professor I have ever met has taught me to never accept a calculation or empircal argument on such cases on faith. Always double check the validity of the questions and proofs, as well as the math/logic of the person making the challenge. Its not an insult its an understandable needed requirement of debate, dialouge, and the search for good answers and policy.
If you aren't interested in dialogue thats your perogative. As it is with many fair tax people I have come across. That'd be unfortunate since the case has yet to be made by any of the supporters.
Attacks on Barlett aren't going to help Fair Tax supporters case. In fact you have such a tough road ahead to gain any political traction that attacking anyone might not be helpful to your cause.
I'm still going to keep plugging away on the Fair Tax because people need to be informed about the issues at hand.
Some regressive taxation can be good. I am a huge supporter of packs of cigerettes being huge even though it hits the poor the hardest since the cost of paying for health care for smokers and nonsmokers goes up because of the huge costs of taking care of lung cancer and other respitory problems.
There is no one size fits all economic policy. Which I think cue's me into why "Fair Tax is going to fix everything and bring us to Utopia" that some supporters have makes me want to look into it more.
I don't believe you personally hold that view since you are making an empirical case for it. But some I have come across do.
It kind of reminds me of conservative chrisitans with their challenges to evolution, the challenges to global warming and the communist/marxists of yore.
The passion of their belief may be overwhelming to them but their ability to prove their case is next to nill and based on a persistance in moving back the goal posts every time someone challenges something they can't explain.
Jim
and the fact that I share what I find with others is so that people like yourself can challenge them in an open forum and others don't have to waste time that I've already spent looking into it. You can outsource research which is why blogs are great!
http://people.bu.edu/kotlikof/New%20Kotlikoff%20Web%20Page/Revised%20Kotlikoff%20on%20Barlett%201-15-08.pdf
That is a point by point critique of the Bartlett hit piece.
google kotlikof + fairtax + will + work if that link doesn't work.
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