Fair Tax

I’ve been wondering about this.

Political Calculations doesn’t seem to think it is such a good idea.

The main points are here, but the good stuff is in the bulleted short comments. Go to the site to read those.

1. “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.”

2. A rebate will be offered to offset some of this disadvantage for lower income workers, although everyone will receive it. “In effect, it would constitute a national welfare program with a flat payment for every American regardless of need.”

3. Imposing the FairTax will penalize certain groups more than others based on their situation in life.

4. The FairTax hinges on seeing prices fall by 22% on the day the FairTax takes effect, which is the estimated amount by which the price of the taxed good has been increased by the effect of “embedded” income taxes paid by people in the production chain for the product that is built into the price as we see it today.

5. The FairTax rate is not really 23%. It’s actually 30%.

6. The FairTax will be applied to items purchased by the government.

7. The FairTax will drive brand new, and in some cases, really perverse ways of avoiding paying the tax.

A superior option would be a Value Added Tax, which avoids nearly all of the problems inherent in the FairTax.