The Idiot’s Guide to the Fairtax
Hank Van Gieson reviews “The Idiot’s Guide to the Fairtax”
“The Idiot’s Guide to the Fairtax” was released in 2010, and for those of you that haven’t yet spent ten dollars on this pocket guide, here is my take on the content.
After reading it through for the first time, it wasn’t clear to me if the term “Idiot” was aimed at the intended readers or the author? Ken Clark is a well known financial advisor, but he made a huge error early on in his book. On a subject we are all familiar with, Ken wrote that everyone would get all their pay and retail prices would remain about the same. That is the long discredited “free lunch” myth. He did reference the “Dan Jorgenson” (?) study, but he might have been better off reading it himself. He wrote that the only way retail prices might increase would be if there was no competition, no availability of substitute items or no lack of collusion between sellers. He overlooked the single most likely cause of price increases which is that payroll costs won’t go down.
I realize that there is some disagreement on this blog about whether we will get our gross or net pay under the Fairtax, but there is no disagreement that if we get our gross, retail prices will rise.
After reading the book several times, Mr Clark does make many accurate points, but on balance, his book is badly flawed.
I would recommend that everyone keep their ten dollars and invest it in Ken Hoagland’s Fairtax Solution book which is due to be released this Thursday. I suspect that there will be a lively discussion of Hoagies book. Stay tuned!
Thanks Hank... I was wondering about this book myself but hadn’t had the time to read it yet. I recently criticized the press release from Rep. Steve King for similar nonsense.
My comment:
Argue the plan on its merits.. In my view, it’s positive tax reform - we don’t have to misrepresent it. All tax systems are an ugly beast - don’t falsely sell it as a magical unicorn shitting skittles.
Looking forward to reading Ken Hoagland’s book as well. I take it that you will be performing an equally comprehensive review? It would be great if you could quickly outline the accurate points within Ken Clark’s text, from your perspective. As you know, The Club For Growth supports both the Flat Tax and the Fair Tax as improvements over the current tax code.
I bought the book and it has helped me tremendiously with understaning everything I never understood! Great investment.
I too believe in curbing government spending, cutting the taxes middle class Americans pay, and turning the national deficit to surpluses. The truth is besides controlling health care costs (especially Medicare payments), there is little way to significantly cut spending without slashing things like Social security, the military, public education, VA spending etc.
So if you do the math, the only way to achieve the goals above is to increase taxes on the very wealthy, say the top 20%. They now hold 87% of the national wealth and by far profited most from the financial bailouts we all paid for. As shown in the next paragraph, they are not paying their fair share in taxes if you consider all the taxes we pay at the federal, state, and local levels.
In an analysis which includes all our taxes (income, social security, sales, excise, property taxes), a struggling middle class family can easily pay four times more in taxes than a millionaire couple living off their investments. Considering all these taxes, a middle class family’s tax rate on income from work is seven times higher than the millionaire’s tax rate on investment gains and income. Middle class families often pay more than half their entire wealth (>50% net worth) in total taxes each year, a 2500-fold higher rate than the third richest man in the world, Warren Buffett, who pays about 0.02% of his net worth in taxes each year. (For calculations: http://fairsharetaxes.org)
I know what you some will say: Taxing the welathy will hurt investment and so lead to job loss. That’s what what they said when Clinton raised taxes on the wealthy, but it lead to the best decade in job growth and federal surpluses. Bush cut taxes for the wealthy and it lead to the worst decade in job growth and the biggest federal deficits. Wealth concentration causes over-investment in which too much investment money chases to few worthy investments...investment bubble..investment bust....recession...job loss for the middle class. Wealth concentration in the very few also concentrates too much political power in the wealthy, which let’s them get more tax cuts and so on in a vicious cycle.
The proposed Fair Tax (or a VAT , or a national sales tax) would only place a bigger burden on the middle class. The rich only spend a small portion of their income and wealth, so their taxes would drop even further . Much of the middle class spends everything it earns to get by, so their taxes would increase. No serious economist disputes that the Fair tax is regressive.
My essay shows (http://fairsharetaxes.org) that the only way to make taxes commensurate to the ability to pay (and the extent to which the wealthy have profited from the services provided by all taxpayers) is to consider wealth, as well as income, in determining taxes. If we add a very small wealth tax on the wealthiest 20%, we could eliminate the regressive payroll, sales, and property taxes, reduce income taxes, cut the total tax payments of each middle class household by thousands, and eliminate the federal deficit. Even a tiny 1% tax on the portion of any family’s net worth over one million dollars would cut the 2011 federal deficit by 30%.
Thanks for reading.
Another FairTax debate?
Another FairTax debate might be in the making. An Emory University political science professor named Alan Abramowitz apparently had the audacity to criticize the FairTax in a blog post in The Hill, which (as I understand it) is a website devoted to news in the nation’s Capitol.
Specifically, he something to the effect that every legitimate study of the FairTax concluded that the required tax rate would be much higher than the 23% tax-inclusive rate (which, of course, is true).
Boortz took offense to these comments on his show, on his website and in a newspaper column, claiming that the “so-called legitimate studies” all distorted the FairTax and promptly challenged Abramowitz to a debate (though, not surprisingly, never bothered to contact Abramowitz directly).
Abramowitz read about Boortz’s challenge in the newspaper and accepted it (via a letter-to-the-editor). They will apparently try to hold the debate somewhere on the Emory campus, which is located in Atlata, where Boortz broadcasts from. Boortz says he will broadcast the debate.
I’ll try to keep you posted if anything develops.
http://boortz.com/nealz_nuze/2010/04/at-last-invited-to-emory.html
Hayden,
I also read that Boortz is using his (disastrous) 2006 debate with my friend Michael Graetz from Yale as proof he can handle Abramowitz. My recollection is that Boortz got beat up in that debate, particularly when he didn’t seem to understand that all Government employees salaries would be taxed under the Fairtax.
Please keep us informed on the date/time. Should be interesting.
So the study by Laurence Kotlikoff is not legitimate? Bold words. He’s a Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Research Associate of the National Bureau of Economic Research, a Fellow of the Econometric Society, and a former Senior Economist for the President’s Council of Economic Advisers. I may disagree with William Gale’s conclusions, but I don’t call his study illegitimate.
To counter, most would probably consider only studies of the Fair Tax Act with a published methodology as legitimate for proper rate analysis, which would exclude all but a few studies (Gale, Kotlikoff & Tuerck, Diamond & Zodrow).
Ah, Morph. Good to hear from you. I should have known you’d call me out on that.
Actually, I mispoke. The word Abramowitz used was “objective” rather than “legitimate.” I believe his precise words were:
“Every objective study of this has shown that the actual tax rate would have to be much higher than advertised to make up for the revenue that would be lost ......”
Now, I’m sure we could debate (and, in fact have often debated) what constitutes an “objective” study, but your point is well taken.
Incidentally, I have not seen Kotlikoff weigh in on the FairTax for a couple of years or so. I suppose he’s moved on to other things. (He’s probably the most prolific economic writer I’ve ever followed, and I agree with him on just about everything other than the FairTax.) I also wonder, however, if following the AEI debate he concluded that maybe the numbers in the BHI study don’t add up after all.
Just sayin’.
I might have spoke too soon. The latest info I have is that the debate will not take place, if at all, until Emory starts school again in the fall.
On another note: has anyone read Hoagland’s book? I flipped through it in the bookstore and, to put it charitably, I don’t think it exactly moves the ball in either direction. Frankly, I’m not even sure what the point of the book was. I’m wondering if anyone else got the same (or different) impression.