FairTax Lite
Regular poster Hank Van Gieson proposes the following:
Fairtax-Lite is a broad based 14% national sales tax with
(1) no exclusions,
(2) A targeted prebate,
(3) no taxation of government entities,
(4) leaves payroll taxes and gift/estate taxes alone,
(5) no inventory tax credits and,
(6) implements the plan over five to ten years.
I would be happy to address any criticisms or concerns you might have for each of the Fairtax-Lite components
If you are really serious about getting rid of the income tax and the IRS, I suggest that Fairtax-Lite has a far better chance of gaining Congressional approval than HR25.
Starting with the Fairtax consumption base of $9353 trillion and the Fairtax revenue neutral goal of $2228 trillion, I first added $221 billion in private education consumption back into the taxable base.
I then added the entire prebate consumption allowance of $2112B back into the base, effectively eliminating the prebate which was my original plan. (I’ll restore a targeted prebate later).
Removing government consumption from the base lowers the base by $2009 trillion and lowers the revenue required by $211 billion. (Note: The reduction in revenue was made because Kotlikoff insisted that when BHI included the $916B in the base, an offsetting revenue addition of $211B was also made. Governments can’t tax themselves and raise any new revenue, so the offset was required. However, I’m not so sure any more that a revenue offset was added, in which case, the $211 reduction would be in error. We can check that out at the end and see what difference in the rate might occur if the reduction wasn’t made).
Leaving the payroll and estate/gift taxes in place reduces the revenue neutral requirement by $897 billion.
Eliminating the inventory tax credit reduces the federal budget deficit by $600 billion in the first year of implementation, but does not change the base/rate calculations. This is because the inventory credit was never included in the Fairtax base/rate calculations. It was essentially ignored by the study group.
The five year transition period does not change the rate calculations. (More about transition later.)
By making these changes, the consumption base would be $9679 billion, the revenue required would be $1120 billion, and the rate would be 11.57% inclusive and 13.1% exclusive.
Recognizing that some sort of prebate would probably be needed, even at these significantly lower sales tax rates, I then provided a targeted prebate to 37 million families at or below the poverty level with an annual cost of $59 billion. Adding this revenue requirement back in results in a base of $9679 billion, $1179 billion revenue required, and an inclusive rate of 12.2%, exclusive 13.9%. This is how I arrived at a 14% estimated sales tax.
Going back to the issue of whether or not there was a revenue offset to the inclusion of federal government consumption in the base, if the answer is no, then the revenue required with a targeted prebate would be $1390B and the rates would be 14.4% inclusive and 16.7% exclusive.
As for a transition that would be more evolutionary in nature, and thus more appealing to Congress, in round numbers, just implement a 3% national sales tax in year one, increasing the rate by 3% each year over the next four years to arrive at a total of 14%. The last year, or for that matter any year, can be adjusted for actual needs. At the same time, reduce income taxes by 20% per year with a simple line entry after 1040, line 63-(total tax-20%), and increase the tax reduction by 20% each year until the income tax is zero in year five. Not very complicated and very easy to implement.
Compared to the Fairtax, the Fairtax-Lite proposal would:
(1) Remove any possible constitutional challenge from the States;
(2) Reduce the number of workers that pay no net federal tax to current levels;
(3) Restore fairness to our nations retired community;
(4) Continue to have businesses contribute their share to the Social Security Trust Funds;
(5) Reduce the coming entitlement crunch;
(6) Eliminate the excessive budget deficit in year one of implementation;
(7) Reduce the possibility of future exemptions; and,
(8) Allow the government to “try before buy” with ample opportunity to correct unforeseen problems without wrecking the national economy.
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Hank,
Although I still support the Fair Tax proposal as drafted in HR25 (I’ll spare the group my reasons), I would have to congratulate you on a proposal that is the first constructive alternative I have seen. It makes you stand out favorably from the rest of the Fair Tax critics.
I do have a concern, knowing how committees of people (and particularly Congress) work, that the phase-out of the income tax under Fair Tax Lite can stall - and eventually stop before it reaches its conclusion. Nevertheless I am gratified by the goal of the elimination of income taxes and the IRS. Unlike the Flat Tax for example which retains the IRS, Fair Tax Lite would require the IRS to be brought back in order for Fair Tax Lite to be undone. I think that step would prove unpopular.
My plan is to continue to work with FairTax.org to build the grassroots base and push for HR25 as currently written. FairTax national reminds us that Congressmen and Congresswomen don’t listen to facts, they listen to numbers, and the numbers are growing.
However Fair Tax Lite has the makings of a fallback negotiating position in the event HR25 should get to the floor of Congress and then stall.
Congratulations on a well-considered proposal.
~Jim Bennett
Summit, NJ
PS: Let me make one point about my opposition to income taxes. I personally was never audited by the IRS or had a run-in with them. My position is simply one of economic philosophy.
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Hank,
I definitely agree your five year phase in. My main criticism of the fair tax (and remember I am a supporter) is that the implementation will be a huge shock to the economic system mainly manifesting in inflation as wages attempt to reach equilibrium. I’ve been kicking around the same idea of a five year phase increasing the fairtax and decreasing its replacement taxes proportionally.
Further, since there is so much debate on the actual rate needed, I thought we could have a five year target revenue neutral goal. After each year based on how close the fairtax was to the revenue neutral goal, the rate could be adjusted. So if economic growth outdid the new evasion-avoidance schemes, we could lower the rate. I’d like a pre-established formula for deciding the rate adjustment, but I’m pretty sure congress would never allow that.
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Hank — Your FairTax Lite idea would probably be a step in the right direction. Particularly the five year implementation.
My assumption is that politicians and citizens would quickly discover that the tax rate would need to be too high to completely replace the income tax system and it would be impossible to enforce above a certain level. Thus, we would end up with both an income tax and a consumption tax (as well as SS and Medicare taxes), which would be Jim’s nightmare come true. However, by implementing a consumption tax, that could give politicians an incentive to greatly simply the income tax at the same time.
What we might end up with could be similar to the tax plan proposed by Micael Graetz. http://en.wikipedia.org/wiki/Graetz_tax_plan
While I’m not familiar with all the details, I understand he would eliminate income taxes altogether for incomes under $100,000 and have a flat income rate of 25% on household incomes over than $100,000 and corporations. He’d make up the difference with a VAT. Not sure what he’d do about social security and Medicare taxes. Guess I’ll need to read his book.
Anyway, Hank, it’s a testiment to your diplomatic skills that you could propose an alternative to the FairTax without immediately being crucified (at least, as much as one can be crucified over cyberspace.) Now, you just need to get on a certain talk-show!
I have to agree with Jim on this one. The FairTax has been pulled along so far at this point that it doesn’t make sense to start from scratch with a proposal that has no congressional support. At least this aternative seems fairly well-reasoned and would make an adequate secondary proposal, should the FairTax fail once out of committee. Kudos to Hank, but I’m continuing in my support of the FairTax until further notice.
Hank - well thought out - good work.
Like Andrew, the potential shock of no transition concerns me. But, like Jim, I agree the risk that a transition will not complete successfully is even more worrisome.
During the transition, any and all ills in the economy, society, religion, the weather and the migration pattern of elk will be blamed on the FairTax Lite and the complaints will be repeated so often and so widely that, regardless of their merits, they will become perceived as popular fact.
I think that the tension between supporters and critics goes far deeper than math and rational economic considerations. Given a transition, the critics will smell blood and the new system will never make it through alive.
Similarly, reporting income to the government is a deal breaker for me. IMO, government knowledge of income is the currency that funds the political brokering between economic interest groups and, thus, government spending. It also results in a single entity that, by itself, is one fifth of our GDP and nearly 10 times as large as the largest private collection of capital.
I believe the FairTax, more than being about economic analysis or the efficiency of public funding, is fundamentally a revolt that seeks to wrest power from the government that ballooned out of control in the last century. In that situation, I am not sure that compromise on the terms is well advised. Personally, I think compromise is how we got here - I don’t think it will work to get back down.
I would prefer to take the power back swiftly, slam the door between me and the Fed and throw away the key. Will it cause problems? Sure - most revolutions do initially - but the long term payback is worth it.
That said on a public network, I wonder what my chances are of being audited
I’m a bit confused on one thing: Why keep the payroll tax? Still, it’s an interesting alternative.
Barry,
Good question! The first and obvious answer is that by leaving the payroll tax as is, it drastically reduces the sales tax rate–from over 30% to 14%. This in turn makes illegal evasion less of a concern if, as seems to be the case, the evasion rate rises rapidly as the tax rate increases. It’s a risk/reward kind of thing.
Next, changing the way SS is funded creates some serious problems. When combined with the prebate, a large segment of workers may pay no net federal tax, yet will still receive full retirement and health care benefits. Is that really what we want in our country?
At the same time, after paying into the trust funds for forty five years, and now drawing a pension as promised, under the Fairtax I will be forced to resume paying into the trust fund with my sales tax dollars. Very unfair and I would consider it a major breach of contract for all retirees.
Politically, completely untaxing businesses is a non starter, particularly with the liberal members currently in control of the Congress. By getting rid of the business income tax and the associated compliance costs, the tax burden on businesses will be reduced by 60% which is not too shabby.
Finally, Social Security is a different type of program with different problems. In all likelihood, changes will be made to the plan that will extend solvency for another 50 years before the Fairtax even gets considered. There really isn’t any good argument for including Social Security in a plan to replace the income tax. Focus on what you really want to accomplish, and maybe progress can be made!
Thanks for your comments!
Very well said, Mark. I couldn’t agree more (especially about being audited). :p
Barry:
Far be it from me to speak for Hank, but I believe based on his past posts he would keep the payroll tax because the FairTax, as written in HR-25, requires that retirees who have already paid into Social Security and are now getting benefits would have to begin paying back in to Social Security. I agree with him on this point.
Hank:
I’m still no fan of sales taxes, but this is certainly a more palatable proposal than the FairTax. What appeals to me in particular are the targeted prebate - it makes no sense to send a prebate check to millionaires just so you can say the tax “treates everyone the same”; and the phase-in over five years.
That said, I prefer to stick with a simplified progressive income tax, and I still believe corporations should be taxed on their profits.
Just got back from another thread, where Morphh and I have been going around about what Dr. Dale Jorgenson said about wage accomodations under the FairTax.
Jorgenson has an interesting proposal called “Efficient Taxation,” which I kind of like. So I thought I’d throw it out there to widen this discussion. Read it here.
Bill,
Just read the Jorgenson plan and I still maintain that I find it morally reprehensible for a government to place an automatic claim on the income I sweat for. To be perfectly clear, income taxation (and especially forced withholding) amount to a fundamental denial of personal property rights, without which no other rights can exist. I believe this to be by design. Our government, by establishing direct income taxation and forced withholding, has laid the groundwork for a populace that is no longer sure what they can truly claim as their own. This amounts to a win-win situation for government and the cronies and thugs it employs.
We cannot claim to live in a moral society if we continue to allow this fraud to be perpetrated on our neighbors and ourselves. Government might must be subordinated to natural rights through whatever means available to us. The FairTax represents just one of those means, which is why I will continue to support it, among other things, to reach that end.
Hank,
Great job and always find your arguments and calculations quite compelling and very well thought out. You are an excellent asset to the Fair Tax movement, your challenges and alternatives keep us on our toes and force us to do more than blindly follow and agree with everything that’s put out there.
HOWEVER, I have to agree with Mark Bostleman and others. The Fair Tax “as is” IS the compromise for me, otherwise I would be supporting something like the Ron Paul group proposes or other more extreme groups. I’m not opposed to providing the government it’s source of revenue for a time, through the Fair Tax and once that’s in place, turn our FULL attention to reducing spending. However, the main drive for me in supporting an alternative tax system is REMOVING THE GOVERNMENT FROM MY LIFE and the right to control the compensation I receive for my labor. Any plan that does not completely remove the IRS and it’s imposing regulations is unacceptable to me. I, unfortunately have suffered the wrath of the Internal Revenue Service, and have known many others who have been through the same nightmares. I have seen the current Tax System take Outstanding Individuals and turn them into fugitives and outlaws, for simply not understanding the convoluted system. They loose control, make a couple more bad decisions and are soon buried in a mountain of a mess that they feel they have no way out of....and that is not just perception it is usually the reality. Again, anything that keeps the IRS or any governmental agency involved in our day to day lives, I have no interest in supporting.
Hank,
Now were talkin’. I thing you will be able to eliminate payroll taxes with the 14% sales tax but at least your idea is a reasonable compromise. We need to do something fast before we become another third world country.
There are many good ideas being given and it would do us all good to keep an open mind. I spent all weekend making a HHO generator for my car because I read that it can increase you fuel mileage by 30% to 70%. I just installed it and drove 35 miles. It seems to be working.
While Fair Tax Lite is not an idea I support, I at least would not feel stabbed in the back if this is the way it ends.
~Jim
Jim, et al,
I really appreciate all of your comments made re Fairtax-Lite. There should be little question that this blog is the premier Fairtax blog in America. The only blog where both advocates and opponents can rationally discuss the details of HR25 without vilifying each other. I also believe that this group has a better understanding of the details than even Linder/Boortz or AFFT. I recall that James Kidd, with the patience of Job, blogged the entire bill line by line. (where is James?)And we all learned a lot!
Concerns about Fairtax-Lite seemed to be limited to the phase in proposal, and the possibility that we might wind up with both the income tax and the sales tax, legitimate concerns. In my opinion, there is no way Congress will commit to an untried national sales tax without a phase in that allows corrections along the way. No member of Congress, even Linder, would be willing to risk the national economy based on ESP. (LK’s 100 year computer model). As for the repeal of the 16th, I can only offer that Fairtax-Lite, by not taxing state and local governments, has a better chance of getting State support for not only a national sales tax, but also a constitutional amendment. I do not understand several other comments that seem to overlook that both Fairtax and Fairtax-Lite get rid of the IRS/IRC and the income tax. The government will be out of your life, or at least have a greatly reduced presence.
Some of you seem to be willing to just keeping on doing what you are doing. I’m not willing to put this proposal on the shelf and treat it as a fall back position. It would still be on the shelf 20 years from now, and we need to change the brand of dog food if we want the dogs in DC to eat it. Let’s take a reality check. HR25 has been introduced five times over ten years, without any substantive changes as far as I can tell. The number of cosponsors has gone from 35 to 71, yet there is still only one member on the Revenue subcommittee of the House W&M Committee that supports HR25, and that’s where the action has to start. Co-sponsorship is basically a no risk favor to Linder, because the legislation isn’t going anywhere. The members of Congress have perfect cover to ignore the Fairtax, in the form of the Presidents Commission report that you dislike so much.
I also recall the AFFT goal of establishing 3000 Fairtax advocates in each Congressional district, a total of 1.3 million supporters. If the latest petition drive is any indication, it took a lot of arm twisting just to get 100,000 signatures. I suspect there are maybe 20,000 hard core Fairtax advocates, and the shelf life of many of them is two to three years.
How much longer are you all willing to show up at the post office on April 15th, attend rallies with your t-shirts and signs, yet fail to understand that the Fairtax isn’t even on the radar screen in Washington, D.C? The Fairtax’s 15 minutes of glory ended with the disappearance of Huckabee, for better or worse.
I know I have zero influence on what lies ahead, but I sincerely believe that we have nine months to propose and perhaps make significant changes to HR25 for introduction in January 2009, and perhaps greatly improve the chances of the legislation being considered. The starting point is the sure knowledge that a national sales tax is far preferable to the income tax. The economic evidence is overwhelming! As Rudy Guiliani once said, if we had it to do over, we would have a national sales tax rather than the income tax, but the question is, how do we get there from here?
There are really only four basic changes to be made:
(1) Don’t tax Governments. The rationale for doing so was flawed to begin with in that untaxing all businesses leveled the competitive playing field. Taxing governments was overkill. We also now know that taxing the federal government made no sense-it was a zero sum game which created no new revenue. And there is going to be enough trouble with the States over any proposal to let the federal government encroach on what has been a revenue method reserved to the States. Treating State and Local governments as consumers also raises serious Constitutional issues.
(2) Don’t mess with Social Security. It’s a separate problem with separate solutions, and including SS in the taxes to be replaced, increased the Fairtax rate to unacceptable levels.
Social Security can be thought of as a long term annuity with monthly premiums that guarantee a better retirement life. Yet, with the prebate, millions of workers may pay no net federal tax, yet still qualify for full benefits. Meanwhile, current retirees, having paid into the trust funds for 45 years or so, would be forced to resume paying with their sales tax dollars. A breach of contract with our senior citizens which will cause big problems.
(3) The cash grant entitlement known as the prebate is an economic 800 pound gorilla, which will hasten a federal budget train wreck. I don’t know where it is written that everyone is entitled to buy essentials tax free, but it makes no sense to me. A targeted prebate for just those at or below the poverty level is an order of magnitude cheaper, and greatly reduces the paperwork, data gathering, and reporting on families that would be necessary if everyone got the prebate.
(4) And finally, phase it in!!! Without the “try before buy” feature, this thing is DOA. Congressman Jim Sexton, while chairman of the Joint Tax Committee said it best when he wrote that “Congress is institutionally conservative, and much prefers evolution to revolution”. He isn’t alone in that view. It took five years to institute the income tax, what is so unacceptable about taking five years to get rid of it?
There are several actions that I propose be taken to advance some version of the national sales tax. First, I hope that John McCain gets elected President, because he seems to be the sort that might direct not only a 10th Amendment Commission with the goal of reducing the size and cost of government by 10% in the first couple of years, but he might also convene a new tax commission with better ground rules that would allow the commission to look at the Fairtax or Fairtax-Lite, the Graetz proposal. and at least three others I can think of. I’ve sent letters to his campaign advancing those proposals.
I also intend to write John Linder and Leo Linbeck, and basically lay these thoughts on them. Will they even consider any of this? I don’t know, but it’s worth a try.
Again, thanks for your interest!
Stay tuned!
Dear Hank,
Wow. I appreciate your work. An alternative. But wait. I have some comments:
(1) Do tax Governments. This encourages fiscal discipline. An agency that spends unwisely loses the funds and the taxes go back to the general fund. I think that most agencies will respond well to that kind of incentive and spend their money better. For example, the Department of Agriculture may buy a new car and pay the FairTax, or they may buy a used car and save the Fairtax. That saves money and the FairTax. Which do you think they will do? (They really are decent managers. This concept encourages that, which the current purchasing philosophy doesn’t.)
(2) Do mess with Social Security. It will be a quagmire within a few years, according to all I have read. If you remove the current flat tax and fund it from the general fund (with funds from the FairTax) the funding problem is solved and subsequently, we can work on changing the fund to a private retirement fund or - yea, I know - do away with it entirely.
(3) The Prebate is less of a burden than the income tax deductions. check the FairTax website out for a reference, but I tend to agree with their assessment. The biggest advantage that I see is that if the Prebate is applied toall households, the government does not need to know your INCOME. What business is it of theirs anyway? Of course, you could make it a requirement that someone who wants the prebate submit a justification. I would support that.
(4) Don’t phase it in. Congress will diddle (yes they will) with the FairTax and the special interest groups will get their changes in. It will be pointless to let Congress mess with it. Don’t. Oh yes, It took 30 years to institute an income tax. Special interest groups got it in and we suffer for it.
Hank, I think you are thinking and I like that. We have legislation in fornt of Congress which will change the face of our country and kick our economy in the butt. Help us make that happen.
Casey Elliott, PS, PE and a FairTax advocate
Darn spell checkers anyway!
Hank / Hayden, I’m ready to see a tax bake off... Kepner hybrid tax plan vs Van Gienson Fairtax-lite, both hybrid income/sales tax. Fight Fight Fight..
Casey, I found a IE spellchecker that works pretty good IE spell
Morph –
Actually, I think the larger point is that there are alternatives out there to the FairTax. (Not saying mine is a valid alternative; maybe Hank’s is.)
Unfortunately, not one person in a hundred realizes that there have probably been a dozen, well-thought out alternatives to our current income tax system that have been proposed (usually by economists or academic types) over the last decade or so. Sadly, since those alternatives don’t lend themselves to simplistic one-line slogans (”Do away with the IRS!”) and aren’t promoted by talk-show hosts, they don’t get any traction. So many people believe that the FairTax is the ONLY alternative out there.
Moreover, since ANY tax reform plan is going to have a good amount of negatives to it — yes, even the FairTax –,, the academic proponents of other tax plans will honestly discuss the negatives as well as the positives of their proposal. That’s what you do in academia, you have to disclose the bad as well as the good. Unfortunately, the most vocal FairTax proponents are under no such academic or ethical constraints. They can and do say and write whatever they want (”Keep 100% of your paycheck but prices will stay the same!”) and it doesn’t matter a whit to them whether they are intentionally lying or just don’t understand what they are saying.
And if they subtbly alter the wording in later editions of their books, the original claims are the ones that are remembered and repeated endlessly. (Just hop over to FairTaxGroups.com.) So, if there is one thing I would hope folks would get from this discussion of FairTax Lite is to realize that there are alternatives out there. You just have to look.
And, of course, Morph’s articles in Wikipedia on the Graetz Tax Plan and the Efficient Taxation of Income are great places to start.
Casey,
Allow me to reply to your post #16 points.
(1) This certainly a novel (and incomprehensible to me) approach to restoring spending restraints on the government? I don’t know much about federal procurement policies, but I don’t think the Secretary of Agriculture is going to go down to the local Joe’s Used Car Emporium and try to find a used creampuff? The government buys vehicles in fleet quantities, and I don’t think there are any fleets of used vehicles. No used tanks, ships, or aircraft, and I don’t think our troops will be shopping for uniforms at Goodwill. Seriously, I agree that our federal procurement managers are probably competent, as you suggest, but what is the practical incentive you believe would help save federal consumption dollars?
(2) You need to expand your understanding about the general health of Social Security. Try reading Bill Bradley’s book “The New American Story” published in 2007. According to that Rhodes scholar, Social Security can be made solvent for the next 100 years by: (1) gradually raising the retirement age to 70; (2) bringing all state and local employees into the plan; (3) Raising the current cap on earnings; and (4) using a “chained” approach to figuring the annual COLA.
Back in 1983, Greenspan and company revised the SS plan and extended it’s solvency for 60 years. I’m confident that a similar action will be repeated in the not too distant future. By the way, I certainly agree that Medicare is broke, but no matter who gets elected, national health care will certainly be a priority in the next administration.
(3) The problem with the prebate is not so much the amount, but the fact that it is an entitlement. Putting another $600 billion on autopilot will guarantee an economic train wreck in the near future. And, I still don’t understand why you and others keep writing that the government won’t know your income under the Fairtax. That just isn’t correct. The SSA will still have to receive your earnings statement in order to determine your benefits. Perhaps you meant the intimate details of your financial situation is what you don’t want the government to know??
(4) Whether HR25 is phased in or not, the special interests will have their say. My point is that no one, not even the most ardent Fairtax supporter in Congress, would be willing to put the nations economy at risk overnight with an untried tax revenue system. Without a phase-in plan, the Fairtax will be DOA. The five years I was referring to was the time from passage of the legislation (1909) to the ratification of the 16th Amendment (1913). What 30 years were you referring to? Just curious.
Casey, just a suggestion, but you might consider that this blog is aimed at “Advanced Fairtax Studies”, not Fairtax 101, and there is no real role for Fairtax “cheerleaders”. Lord knows that fairtaxgroups is badly in need of some civil posters, but the members of this blog are not trying to convert each other (anymore), just trying to understand the details of HR25, and perhaps even make constructive suggestions for change to Congressman Linder. As I wrote earlier, it is my judgement that collectively, the participants on this blog have a better understanding of the Fairtax than any other group.
Your participation is appreciated.
Dear Hank,
(1) To answer you, Hank, I used the Department of Agriculture a an example
because I used to work there. We always bought the rankest, cheapest damn
cars you ever laid eyes on. Why? To make a buck stretch farther. We always paid for it at resale. Most government agencies are pretty careful with
their purchases to the point of robbing Peter to pay Paul. The concept of requiring government agencies to pay a sales tax reduces their purchasing power which encourages thriftiness.
Is this a mistake on my part? I don’t think so but I am willing to listen. Anything that makes government employees more careful with their expenditures and more thrifty is a good idea in my opinion. What’s stopping them from going to Ricart Ford (I am locating myself here!) and saying we want 100 used Ford F150’s circa 2006? Nothing. They don’t need to buy new and they can afford to negotiate a fleet price whether it’s new or used. They don’t do that now because they are not allowed to. Change the paradigm!
(2) Believe it or not, I am familiar with Bill Bradley’s treatise. I just don’t agree with him. There are ways to salvage Social Security and Mr. Bradley has mapped out a proposal. I have another proposal: Gradually phase out SS and promote individual retirement investment. Take the reins out of Congress’s hands so they cannot rob the retirement fund as they have consistently done since the ‘30’s, allow people to invest in their future and, of all things, allow that investment to be used to fund the private sector. Savings and investments rule.
As for health care, after extensive talks with more than one doctor in my family (and nurses and medical technicians), I have concluded, (I’ve been told, I mean, through all kinds of horror stories) that the medical field has been taken out of the hand of doctors and put in the hands of insurance companies. A national health care system will further castrate the medical profession. Who do you think dictates how much and how often I get medicines that my doctor prescribes? I’ll give you a hint! Not the doctor.
(3) I don’t like the prebate. However, I do think it is workable and politically necessary. It is less money, by a lot, than the deductions that are currently on the books for the income tax. If that is a cost for changing our tax system, I am all for it.
No, the SSA does not need to know our income, although that could well be the way the SSA will try to administer their regulations. They only need to know that we qualify each quarter. (Yes, Mr. SSA guy, my employee made sufficient wages to qualify them for another quarter of SS.)
My, my, aren’t you insulting today. I have nothing to hide, but that doesn’t mean that I want the government or anyone else to know information about my private life. Do you?
Did you pay your taxes? How much money did you make last year and the year before and every year of your adult life? Do you still beat your wife? Insulting, isn’t it? Yet you tell the IRS that same information (except the last one, I hope) every year. Do you really think that information is private?
(4) You have valid points here, I grant. However, I don’t feel that the FairTax is unattainable and a phase in allows opponents to get their nose under the tent wall. Nosey bastards!
First of all, there is documentation that the first effort to introduce the income tax happened in the 1880’s. Yes the amendment passed in 1909. Do you think the Congressmen that passed that amendment had any idea what they unleashed on our country?
Second, there have been some really radical legislation passed in the United States solely due to grass-roots support.. (Women’s suffrage, the 18th and 21st Amendment)
After years of frustration at our current tax system, I finally see a proposal that in not based on income (and as such penalizes productivity) but on wealth or, as one paper states, on resources. It eliminates several taxes that I pay that nobody thinks of. If it frees me from managing my business to reduce taxes, if it frees me from withholding from my employees, if it reduces the stress in my life, then I am all for it.
(5) You know, Hank, I had fun with the previous part of this post but this part pains me. You come across as very arrogant with the final paragraph. I am a reasonably intelligent person, a civil engineer with an advanced degree. A significant part of an engineering education includes (it hurts me to say it) economics. I posted here because I recognized the content of the comments and the thoughtful intent. I did not slam you and I will not now. My previous comments were not arrogant or aggressive.
I have a point of view that you don’t share. That’s not an excuse for you to denigrate me or my opinions. In fact, I am not a cheerleader for FairTax. I can only say that FairTax has spent the money, paid for the research, submitted the legislation and created the grass-roots organization that just might make it happen. Face it. If the FairTax were passed, the United States would be a better place. A better place that under your proposal, FairTax Lite. (And that does not mean that I don’t admire your idea. I do.)
I enjoyed your response to this point. I guess I will pretend you didn’t write this last paragraph. Here’s to the hope of many more invigorating posts. Stretch my mind.
Oh, and to Morphh: spellcheckers are only as good as the spellers using them. I like to blame the spellchecker (I use Word) but I am the spelling challenged one!
Casey Elliott, PE, PS
casey.elliott (at) earthlink.net
Regarding post 21, point 3. According to the FairTax bill, employers will be required to report wages, including tips, to Social Security. The bill doesn’t repeal Social Security laws and eventual benefits would still be calculated based on reported earnings. If Social Security benefits were changed to provide poverty line spending, as an example, reporting could be limited to just quarters worked as suggested in the post. But, including that concept in the bill would have relegated it to the dustbin in no time.
There is an online paper “Simulating the Macroeconomic and Microeconomic Effects of the FairTax” coauthored by Kotlikoff that might help provide a different perspective on why some, including me, think the FairTax will not be enacted as proposed. A quote from the paper: “switching to consumption taxation provides much better savings incentives. It also redistributes resources from older spenders to younger savers.” Another quote: “the initial rich elderly and middle aged as well as some middle age middle-income households are made worse off, but their welfare losses are quite small compared to the welfare gains experienced by the current poor and future generations”.
There hasn’t been a lot of discussion about who will be spending and who will be saving. The paper says it best: “once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups”. According to the data, that means those born 1970 or later save and gain. There are many baby boomers who will not favor a tax plan that makes them worse off simply because they won’t have the time to supplement their retirement resources. Keep in mind they’ve saved retirement resources based on paying a lower tax rate during retirement than during their working years. And they’ve paid into Social Security 40+ years to support prior generations of retired workers. Requiring they now sacrifice their monetary welfare in retirement to support future generations of workers is asking too much from many of them.
I agree with Hank that a “flash cut” to the FairTax as it’s currently written will not happen. A phased in consumption tax allowing sufficient time to address anticipated and unanticipated consequences makes more political and economic sense.
Let me admit that I’m coming to the party here a bit late. I confess my support of the FairTax to the doubters, but I’m hear to educate myself and hopefully reinforce my view that this is the right thing for America. I am going to break up my responses here into a series of posts to address the points in smaller chunks as time permits today.
One minor critique... Hank quotes some bizarre numbers here like “$9353 trillion”. My thoughts are that all of these numbers stated as thousands of trillions are missing a decimal place, but this is a bit confusing.
Now, on to my agreements and disagreements...
The “targeted prebate”, and “reducing the number of workers that pay no net federal tax to current levels” seems a bit confusing to me. The prebate is designed to allow for tax free consumption up to poverty level spending for everyone. You propose to direct this prebate at “37 million families at or below the poverty level”. This obviously involves maintaining the IRS intact in it’s current form as well as ensuring income tax filing in the future to justify the poverty level recipients. This seems to be a much more complicated system than maintaining the FairTax method of treating everyone the same and applying the prebate to all, and removes the requirement that the government have knowledge of everyone’s income.
You claim that your proposal will “Restore fairness to our nations retired community”. I’m not sure exactly how this is achieved if this community is still paying the sales tax. My assumption here is that Barry in post 7 has expounded upon you reasoning here by saying, “after paying into the trust funds for forty five years, and now drawing a pension as promised, under the Fairtax I will be forced to resume paying into the trust fund with my sales tax dollars.” I contend that a better solution would be to simply issue all prebates via a debit card system and exempt seniors from the Social Security component of the FairTax rate. This would seem to maintain the fairness, but at the same time increases the likelyhood of giving grandma the money to buy the new big screen TV to get a bit of a discount on it.
Another part that I truly don’t understand is your conclusion of, “Reduce the coming entitlement crunch”. I am going to make the assumption here that you are referring to Social Security/Medicare, and maybe this assumption is wrong... I would have to completely disagree with this conclusion. The whole idea of the FairTax is that this will be an enormous boost to the economy in terms of growth. This growth would create new jobs that would be taxed, but having no sales tax component for these entitlement programs excludes gains from the shadow and underground economies. This seems like missing out on the bigger picture for growing the Social Security/Medicare revenues that will be what truly allows us to reduce/avoid the coming entitlement crunch.
Hopefully I’ll have time to post on some of the other items in the proposal and the comments. Generally speaking though, it’s nice to see someone actually trying to come up with an alternative rather than simply espousing a point of view that the FairTax will not work.
Here comes part two of my thoughts on this thread...
This is addressing Hank’s post at 15. Specifically, I’ll take aim at item number 2 first. As I mentioned above, I think that the funding of Social Security via the sales tax provides a large tax base for Social Security funding, and therefore potentially higher net revenues for Social Security. As far as “breach of contract with our senior citizens”, this is already occurring every time these citizens make a purchase of any kind anyway. The Social Security component that employers pay is yet another cost of doing business that is passed along to consumers. Furthermore, I would guess that many retirees have pensions and retirement accounts that are tied to the stock market so they, as indirect shareholders, are actually getting hit twice, once as a consumer and once as a shareholder. I’ll concede that the shareholder example is a bit of a stretch.
My further contention on this subject would be that seniors should be happy to at least know with clarity that they are paying these taxes. At least the FairTax eliminates the embedded and therefore hidden nature of these taxes and puts them there on every receipt for every purchase they are making. Personally, this would be a better alternative than paying the taxes anyway in an indirect manner.
My other point of contention in this post is item 3. Hank contends that, “A targeted prebate for just those at or below the poverty level is an order of magnitude cheaper, and greatly reduces the paperwork, data gathering, and reporting on families that would be necessary if everyone got the prebate.” This logic is completely backwards in my mind. The targeted prebate will require the government to gather income data in addition to the head count under the FairTax. Furthermore, this will greatly complicate the process of validating the documents dramatically increasing, not decreasing, the administration costs. Even if this targeted prebate is delivered on an applied for only basis meaning that not everyone has to submit the income component I would still contend that this would be vastly more expensive administratively than simply providing the prebate to everyone.
One last point here, wouldn’t there be significant legal issues with the government collecting this financial data on only a subset of the population? I could be wrong here, but this seems like an area that would be open to serious legal debate.
Hayden seems to be implying that the FairTax advocates are presenting the FairTax in a propaganda like method. This does not strike me as a just criticism as the authors of the FairTax books seem to only be guilty of putting the best face on the proposal. Of course, I suppose that presenting something in a favorable manner is the very definition of propaganda. Let’s face it, you VERY rarely see truly unbiased discussion on subjects like this.
The real trouble I have with this post (#19), is the accusation that the FairTax is popular only based upon catchy slogans or taglines that get tossed about pertaining to it. Yes, some people like to drop these kinds of phrases, but honestly, is this really an offensive thing if it’s said to prompt discussion. Personally, whenever I talk to anyone about the FairTax, I let them know my concerns and the most popular concerns that I believe actually hold water. Evasion, taxing the savings of seniors, the effectiveness of taxing government entities, and the hurdles to overcome in Congress are among my primary concerns.
I think the REAL reason that the FairTax has gained so much support is simply organization. This appears to be a very well organized effort, and has had years of research devoted to it. I honestly can’t say much about the Flat Tax ideas, and nothing about the other two that Hayden mentions as I haven’t had the time to research these yet. The FairTax does seem to be the only one that has gathered much in the way of support in Congress though. I understand that we still have a LONG way to go, but let’s face it, the FairTax has made it into the national political arena. This is an amazing achievement for a grassroots effort.
Basically, I think you can point to any topic that has a degree of controversy to it and you will find advocates who are less than forthright. This comes back to basic human nature. I think the intelligent thing for anyone to do concerning the FairTax is look into it for yourself. There are always going to be advocates and opponents to this, and some are going to outright lie about the strengths or weaknesses. If we could all just debate the subject openly and without fear mongering or making it out to be the cure for all the nation’s woes I think we could get a lot further.
Scott — I agree with you completely that “the intelligent thing for anyone concerning the FairTax is to look into it for yourself” and that we should”just debate the subject openly and without fear mongering and making it out to be the cure for the nation’s woes.”
Joshua (and Morph and Mark) allow us to do that here, which is why I enjoy posting on this board (although I’m sure most of you are sick of me.) But, I will tell you Scott, this is the ONLY forum in which any dissent to the party line is tolerated. (OK, there are a couple completely off-the-wall sites that trash the FairTax, but I don’t really count those.)
But I disagree with your statement that “the authors of the FairTax books are guilty only of putting the best face on the proposal.” I would agree with you that that would be permissible in the context of debating a controversial issue, but they have gone far, far beyond that. They REPEATEDLY make intentional misstatements and misrepresentations that the KNOW are not true; and trash anyone who try to point out some of their misstatements or inconsistencies.
(As just one example, whenever anyone points to the William Gale study, Boortz will respond by saying “That’s not the FairTax. Gale changed the FairTax and exempted food, housing and medicine before analyzing it. That’s what all these guys do. First they change the FairTax, then they analyze their own flawed version of it and claim it doesn’t work.”)
Then these mistatements are repeated over and over by people who listen to certain radio talk shows, follow certain politicians or frequent certain websites, so that things that are simply not true become accepted conventional wisdom, which makes any serious discussion of the FairTax almost impossible (other than on this board, of course.)
So, millions of people are convinced, for example, that Harvard and MIT conducted studies “proving” that the FairTax works, that every independent economist who’s studied the FairTax has concluded that it would work, and that anyone who claims otherwise is either in the pay of lobbiests or has some secret agenda to perpetuate the current income tax.
See what those of us who believe in truth, justice and the American way are up against?
I am probably missing your point here, but your example doesn’t seem to backup your argument... You contend that the authors defend their misstatements in your example by pointing out “their misstatements or inconsistencies”. The example you have chosen however seems to be an honest point of debate.
This is like saying “the average price of cars in America is $20,000″. Then someone else comes along and does a similar study but exempts all mid-sized and smaller two door cars and light trucks. Additionally, we will not include any vehicles in this study that are sold for under $12,000 since these vehicles do not have our criteria of required features including cruise control, remote keyless entry, etc. Our finding is that the average price of cars in America is actually $35,000.
Boortz points out that the “FairTax” that is the subject of the William Gale study is NOT actually the FairTax. The exemption of items greatly impacts the tax base and therefore what the FairTax rate would need to be. These exemptions, I would guess, would reduce the tax base by tens of billions of dollars and that will obviously inflate the sales tax rate in order to remain revenue neutral.
Thanks for the thoughtful response though. I hope to discuss this more here. I really think that there is a measure of truth to your argument, but I think this was a bad example.
Scott –
You have just proved my point!
The William Gale study IS the FairTax. There is no serious dispute over that. Anyone can look it up themselves. Gale does NOT exempt housing, medicine, food or anything else from his analysis.
Boortz, however, consistently claims that the Gale study is NOT the FairTax for the obvious reason that he does not want any of his listeners to bother to read it for themselves.
Now, reasonable people might dispute Gales methodology, calculations, results etc., just as the later BHI/Kotlikoff study did, but that’s a far cry from claiming that the study did not examine the FairTax.
So, do you understand my point? Here you are, a thoughtful, intelligent guy, who is trying to objectively examine the pros and cons of the FairTax. The first place someone like you should logically start to examine the cons would be the Gale study (or the President Tax Reform Commission’s report). Yet you (like thousands of others) have been bamboozled by Boortz into believing that the Gale study was NOT the FairTax, and therefore it would be a waste of your time to examine that study.
So, do me a favor and take a look at the Gale study (which was published in the May 15, 2005 edition of Tax Notes; I think there is a link to it somewhere on this blog). Then, regardless of whether you agree with his conclusions or not. let me know whether it was or was not a study of the FairTax and whether or not Boortz is being honest when he says that the Gale study exempts housing, medicine, etc.
Thanks for your very civil reply and I look forward to some further civil, yet spirited discussions on the subject.
Scott / Hayden, This argument depends on which Gale study people are talking about. Gale has done several national sales tax studies over the years. Many critics, including on occasion Hayden himself, bring up the 40-50% inclusive rate studies done a while back by Gale. In this argument, Boortz is correct (and I believe was correct in his reply to Hayden). However, Gale’s latest study (2005) is, I believe, of the FairTax plan, which suggested a 28.2% rate for 2007 and a 31% rate from 2006–2015 (an increase that accounts for the replacement of an additional $3 trillion in revenue collected through the Alternative Minimum Tax (AMT) impacting the middle class over the 10 year period). The study also concluded that if the tax base were eroded by 10% due to tax evasion, tax avoidance, and/or legislative adjustments, the average rate would be 34% for the 10 year period.
The argument is further complicated by use of inclusive/exclusive rate quotes, as Gales earlier research put the exclusive rates at 60 percent or higher (even 100%). Someone could very well be speaking of Gale’s 34% inclusive 10 year rate and correctly say 53%, but without clarification may be interpreted as the inclusive rate of the earlier studies, which were not the FairTax plan. So as always... “it depends”.
Wow Morphh... Thanks for the great link to the back and forth between Hayden and Boortz. That was quite enlightening. I’m a bit disturbed though that Hayden seems to be making the same argument three years later when it seems that he was very professionally countered by one of the authors.
Hayden, I definitely agree with you in that the FairTax is not the “perfect” solution, but let’s face reality. Nothing is going to be perfect, especially not any system that is designed by hundreds if not thousands of individuals. The FairTax has numerous strengths, and a few weaknesses too. I absolutely feel that it’s merits far outweigh it’s deficiencies. Furthermore, I think that it is a vastly superior system than what we currently have to suffer with.
Even taking a conservative view of the FairTax benefits. If we realize even half of these benefits, it will still be the greatest economic boon the US has seen in decades if not in history. Assuming that the snakes in DC begin working on corrupting it, this system will at least eliminate the insanity that has become our current system. The supermajority requirement for adding exclusions to the tax will hopefully ensure that it remains relatively clean for some time to come.
Thanks again to Morphh for the great link, and thanks for your continued contributions. You might want to find a better argument/example in this particular case though because I think you are coming up short here. I say this in purely looking at the intellectual value of your argument and the opposing statements.
Scott — As you can see, this debate has been going on a looong time.
However, with all due respect, you (and Morph) are proving my point. By intentionally misrepresenting the Gale study, Boortz (and now Morph, who knows better) has given you the perfect excuse not to bother looking it up and reading it. Thus, you — who seem genuinely to want to see both sides of the argument — don’t read the most well-researched and thorough debunking of the FairTax that’s ever been published.
And if you’re not going to read the Gale study, you probably won’t read:
1. The President’s Tax Reform Commission Report (Chapter 9)
2. The Bruce Bartlett articles and study
3. The many columns by Jay Bookman of the Atlanta Business Constitution.
4. Rich Lowrey’s articles in NRO.
5. The Wall Street Journal editorials.
6. The LA Times editorials.
7. The Institution for Tax and Economic Policy report.
8. The many comments by Dale Jorgenson (supposedly a “guru” behind the FairTax until he came out against it.)
9. The Congressional Joint Committee on Taxation reports.
Thus, you wont’ ever understand why virtually EVERY independent (i.e., not on the AFFT payroll) economist, columist, government agency, and advocacy group — from the right to the left — has concluded that the FairTax won’t work. Instead, you will get your “facts” from people who are making money by advocating the FairTax.
This reminds me of the debate on “intelligent design.” There are so many people who WANT to believe that evolution can’t have occurred, that they will cling to any unsupported statement made by “intelligent design” advocates and refuse to read any of the many, many articles, studies and reports debunking these claims.
Similarly, there are so many people who WANT to believe the FairTax will work, that they will accept without any skepticism the unsubstantiated statements made by proponents but not bother to read any of the many, many articles, studies and reports debunking those claims.
One more thing.
I’m NOT trying to say that there aren’t any legitimate arguments in favor of the FairTax, Morph and others make them everyday. Nor am I saying that all criticism of the FairTax is valid.
However, there is a very big difference between actually discussing/debating the pros and cons of the FairTax (as occurs on this board), and the dismissal and distortion of any criticsim of the FairTax that is constantly done by some of its more vocal proponents.
Hayden, I don’t see where I misrepresented anything. Please reread my post and explain...? I also don’t see where I gave Scott any excuse not to read the 2005 study (perhaps the older studies). Read it.. I have. I find that Gale is the most educated and respectable FairTax critic out there. In fact, I stated that his 2005 study was a study of the FairTax and listed the rate findings. I think Gale’s and BHI’s studies are the only two well researched published rate studies available. However, I didn’t note, but now will, that the BHI study was built on the Gale methodology and done after Gale, claiming to correct some of Gale’s errors. Gale has not published anything since debating their research with updated or refuted data. The debate, however, did not seem to be about who was correct or more “independent”.
I’d like to fully debunk your claim that “virtually EVERY independent (i.e., not on the AFFT payroll) economist, columist, government agency, and advocacy group — from the right to the left — has concluded that the FairTax won’t work.” This is completely and utterly untrue. Eighty economists, including Nobel Laureate Vernon L. Smith, wrote an open letter to the President, the Congress, and the American people, supporting the FairTax. There have been just as many (if not more) economists, columists, and advocacy groups that have come out for the FairTax. In fact, here is a list of advocacy groups that support the plan, which greatly outnumbers those against it.
* American Farm Bureau Federation
* Americans For Prosperity
* Associated General Contractors
* Citizens for an Alternative Tax System
* Council of Smaller Enterprises
* Grassfire.org Alliance
* Heritage Foundation
* Libertarian Reform Caucus
* National Association for Senior Concerns
* National Bureau of Economic Research
* National Retail Sales Tax Alliance
* National Small Business Association
* National Small Business United
* National Taxpayers Union
* Small Business Survival Committee
You don’t note in your list of critics that many of the WSJ articles and such are written by the same people (Bartlett for one) and that most listed above have their own agenda, who also end up making their money criticising the FairTax - they don’t work for free. They also never seem to publish anything substaintial or researched - just pot shots with no analysis, while the FairTax economists publish their research for peer-review. They criticise tax plans for not having research, so AFFT commissions the research, then critics charge that the research is flawed as it was commissioned. When you run out of legitimate arguments, you attack credibility (the Lawyer in Hayden coming out).
Hayden, you are correct in your assumption about my reading of many of these articles. I have not read most of these for myself, and I therefore cannot comment on the rebuttals contained within these articles and documents. I do know that the FairTax books do cite specific examples from the President’s Tax Reform Commission Report (PTRCR), and I actually have read the Bartlett article.
The information cited in the FairTax books indicates that the PTRCR report makes some vastly different assumptions from the FairTax studies. In addition to this, the PTRCR does not include the payroll tax, and I believe it has other significant differences that make this a very inaccurate comparison.
The Bartlett report was very difficult to read for someone without a firm understanding of economics. I was able to follow the general flow of the report though, and found some definite flaws with this study. In looking back at the Bartlett report, one of the first assumptions he makes which substantially changes the FairTax is the amount of the prebate for children. I’m not specifically defending the numbers used for prebate amount for children, I’m just pointing out that he is making broad assumptions that directly change the FairTax bill itself. Next he goes on to “parse words” by factoring the prebate into his income calculations. This seems much more a shell game to me than a valid argument.
The argument against embedded taxes is more directly addressed in the second FairTax book. Personally, I had a similar doubt but I find the argument that wages will generally rise more than prices to be more valid. His argument about the “double free lunch” is simply an attempt to put in a negative light a badly written piece of the original FairTax book. That’s right, I agree that the way the original FairTax book is written in respect to what will happen to prices and wages leads the casual reader to some incredibly inaccurate conclusions. My initial read of this was that prices would rise by 1% on average while take home pay would rise by more like 30% or more. This obviously is NOT correct and the authors go on to point this out in the second book. A more realistic scenario is what comes from the Arduin, Laffer study that points to a 25% rise in prices and a 27% rise in wages. Keep in mind that this does NOT take into account the prebate.
While there are some decent arguments raised in the Bartlett report, I find it generally a poor document. If someone who is admittedly a novice when it comes to economics can spot problems with the Bartlett report relatively easily, then I would contend that it probably has deeper flaws.
As to some of your other reading materials... I’m not real sure about the WSJ, but a quick Yahoo search for “wall street fair tax” brings up an article by Bruce Bartlet as the very first hit. This makes me a bit skeptical about the WSJ as a reliable and unbiased source.
Thanks though for giving me more sources to look into for opposition to the FairTax. I’m still in favor of it from all I’ve read so far, but I’m also keeping an open mind. If someone can really debunk the FairTax without making vast changes to it and making what I would believe to be wild assumptions about consumer behavior upon implementation, I’ll change my position. Until that time, I’ll continue to be in favor of it. The FairTax is NOT without flaws, but it is certainly better than our current system.
Scott,
David Tucker of BHI and Laurance Kotlikoff of Boston University both published papers that were critical of Bartlett’s “study”. David Tucker’s paper was also published in Tax Notes.
* Memo to Bruce Bartlett: Just Do The Math
* Why the Fair Tax Will Work – Bartlett’s Unfair Attack on the FairTax
Thank you, Morph.
Your point about the BHI-team study’s having been built on Gale’s own methodology, and Gale’s never having responded to the BHI conclusion, is a point I have made repeatedly on this blog. If I were a jury member evaluating two expert witnesses such as Gale and BHI, the fact that Gale remained silent after having been criticized by BHI would tilt me in favor of believing BHI.
Hayden’s last response to this comment, in effect, was that the Gale paper made more sense to him than the BHI paper. I am sure Hayden’s opinion is well reasoned, but that does not explain why a renowned economist such as Gale, whose credibility was on the line, never responded to BHI.
Even Hayden has acknowledged in the past that Kotlikoff and BHI have enough professional integrity and independence that they would not publish a study that they do not personally support simply because they are being compensated. No one has questioned their credentials as economists.
~Jim
I have a little time now sitting at the airport, and I wanted to follow-up yet again. Morphh has some excellent points in post 33. The research conducted supporting the FairTax seems much more thorough. The FairTax sponsored research has cited sources and has refuted rebuttals and yet the authors of the rebuttals do not seem to defend their own positions in response to the FairTax proponents. This definitely does not strengthen the opposing position, rather it makes the opposition appear at best disorganized and at worst flat out lying about their opposing position.
The list of organizations provided by Morphh is a bit impressive, but honestly few of these organizations seem to have any credentials in economic issues. The one organization I find interesting is the National Association for Senior Concerns. I find this one particularly interesting since may critics of the FairTax point to the fact that seniors reap the least benefit from the new system. Yet this is an organization dealing with senior citizens that seems to find merit to the FairTax that is supposed to be so bad for the very group they represent.
Well... Time for me to read the open letter that Morphh linked in this post. I will also look into some of the other sources that Hayden cited, but as I mentioned already I find the Bartlett report suspect and by association the WSJ.
Regarding seniors, critics often leave out that social security benefits are CPI-indexed which will maintain the real purchasing power of their benefits. They’ll also receive the rebate. For elderly living at the poverty level, the living standard increase will be roughly 23 percent. Kotlikoff makes this statement in his Bartlett rebuttal, which is a good read.
realize Morph is probably on the verge of disconnecting my computer, so I will try to tone down my rhetoric.
Scott — You actually seem to be making a good faith effort to learn the pros and cons of the FairTax. In fact, from your posts, I suspect you probably already know more about the FairTax than 95% of the people who have heard of it. If someone, whether you or Morph or Jim, supports the FairTax after having examined it, then good for you. Frankly, that’s what democracy is all about. None of us are going to agree on everything. And since my tax obligations would be reduced by 80%-90% if the FairTax were enacted as proposed, I would be thrilled if the American people voted in the FairTax (after really understanding its implications).
I, too, did not think the Bartlett rebuttal was particularly strong, which is why I usually do not cite to it. As to the WSJ, the FairTax folks have made several persentations to the editorial board over the years, yet the WSJ has consistently criticized it. (The editorial board is different from Bartlett, who is an independent columnist who’s columns might be, from time to time, published in the WSJ.) Having said that, I personally would not put any stock in what the WSJ editorial board writes. They are anti-tax fanatics who rarely let facts get in the way of their arguments
I guess the problem with citing groups for or against something, is it ends up as an “My father can beat up your father,” type of argument. It doesn’t really prove anything. You need to examine the actual arguments and research yourself. I have personally spoken or corresponded with most of the economists and columnists I cited (and many of the economist Morph cites), so I know where they are coming from. On the other hand, I have not heard of most of the groups Morph cites, but I am well aware of the number of “astro-turf” organizations around with impressive sounding names that are actually fronts for some group or another that have nothing to do with the sound of the name. But, since I don’t know anything about them (except for the Heritage Foundation), I can’t say for certain what their motives are for supporting the FairTax, if indeed they do so.
As to why there are not more “rebuttals” of the BHI “studies,” well, in the first place, it takes time and money to do an economic study. Economists, like the rest of us, need to get paid. An advocacy group like AFFT can sponsor research and, say, offer BHI or Kotlikoff a million dollars (I’m picking that out of thin air) to conduct research and produce reports in favor of the FairTax. Then, AFFT owns the report, which they don’t have to release if it doesn’t put the FairTax in a good light, or they can have the report massaged and revised in such a way as to paint the FairTax in as good a light as possible. The BHI report on the “23% rate”, for example, was held by AFFT for more than a year before it was released. I can only surmise that was because they needed to massage it in such a way as to make the FairTax look better. (By, for example, by “burying” the $476 billion deficit the study assumed.)
Now, let’s assume you are an economist who works for a university or the Brookings Intitute, or wherever, and you are skeptical of the claims of the FairTax supporters and want to do a study examining those claims. Well, unless there is an “anti-FairTax group” out there willing to pay you, you need to prepare a proposal outlining what it is you intend to do, how much time it will likely take, how much it will cost, and why the study has merit. Then you need to seek a grant to fund this study. All of that takes time, and there are a bazillion other proposals being made for grant money at the same time, so you need to show why yours is more important than some other.
The Brookings Institute, for example, studies economic policy in general. It is presumably far more focused on “real world” issues than hypotheticals. Thus, it is probably more concerned with the economic effects of the Fed’s monetary policies and the Bush tax cuts, than on a hypothetical tax plan that isn’t anywhere close to seeing the light of day. So, even if Gale were to propose doing a reply to the BHI “rebuttal,” I suspect the Brooking Institution is likely to respond, “You’ve already done a study of the FairTax; let’s move on to more important things.”
And, frankly, I believe one reason that the FairTax has not seen more academic studies is because it really isn’t taken seriously in the academic community. It’s thought of as one of the many proposals pushed by fringe groups, and is not considered a “real” proposal. I believe that is a mistake, because the FairTax obviously has a great deal of grassroots appeal, and its momentum will continue to grow unless it is given more widespread scrutiny. (Michael Graetz, for example, has pointed out that most folks in the academic commuity thought the movement to abolish the estate tax was just a bunch of fringe groups, so there was never any organized effort to challenge the claims made by the well-financed groups seeking to end the “death tax” until it was almost too late. He has warned against making the same mistake with respect to the FairTax.)
One of the benefits of the Huckabee campaign was that it did, at least temporarily, put the FairTax in the national spotlight. (Which is why you finally started seeing columnists in mainstream press wrting about it.) So I believe you probably will see more economic studies on the FairTax coming out over the next couple of years. However, I doubt you will hear much about any of them that are critical of the FairTax, because they aren’t normally published on the internet and certain radio talkshow hosts certainly will not hightlight them, but I’m sure Morph and Joshua will.
So keep your eyes peeled.
Hayden,
Time and funding were not issues for Dr. Gale. Dr. Tuerck told me on the phone it would not have been difficult for Gale to review the Kotlikoff-Beacon Hill paper, and he, Tuerck, was surprised he had not seen a reply from Gale.
~Jim
The National Bureau of Economic Research has come out in support of the the FairTax? And I thought the Heritage Foundation was for the Flat Tax.
That was an old list I had collected through different sources, some verified and some not. NBER was probably Kotlikoff, and I don’t recall if I validated the org. I believe you’re correct regarding Heritage - they have been big flat tax supporters, perhaps because they did some of the initial research (like NBER). Might have come out of Al Ose’s book.