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Taxing Sales under the FairTax What Rate Works?
Boston University ^ | September 2006 | Laurence J. Kotlikoff et al

Posted on 10/19/2006 5:11:50 PM PDT by pigdog

As specified in Congressional bill H.R. 25/S. 25, the FairTax is a proposal to replace the federal personal income tax, corporate income tax, payroll (FICA) tax, capital gains, alternative minimum, self-employment, and estate and gifts taxes with a single-rate federal retail sales tax. The FairTax also provides a prebate to each household based on its demographic composition. The prebate is set to ensure that households pay no taxes net on spending up to the poverty level.

Bill Gale (2005) and the President’s Advisory Panel on Federal Tax Reform (2005) suggest that the effective (tax inclusive) tax rate needed to implement H.R. 25 is far higher than the proposed 23% rate. This study, which builds on Gale’s (2005) analysis, shows that a 23% rate is eminently feasible and suggests why Gale and the Tax Panel reached the opposite conclusion.

This paper begins by projecting the FairTax’s 2007 tax base net of its rebate. Next it calculates the tax rate needed to maintain the real levels of federal and state spending under the FairTax. It then determines if an effective rate of 23% would be sufficient to fund 2007 estimated spending or if not, the amount by which non-Social Security federal expenditures would need to be reduced. Finally, it shows that the FairTax imposes no additional real fiscal burdens on state and local government, notwithstanding the requirement that such governments pay the FairTax when they purchase goods and services.

(Excerpt) Read more at people.bu.edu ...


TOPICS: Heated Discussion
KEYWORDS: fairtax; incometax; itchyandscratchy; taxes; taxreform
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This paper does an excellent job of dispelling much of the misinformation that has been put forth about the FairTax from The report by the President's Tax Panel, economist William Gale, and others including a number of posters on these threads.

The upshot of the paper is that a 23% tax inclusive rate is sufficient to maintain revenue neutrality even though the paper is a static analysis only, meaning that it does not take into account the many benefits of the FairTax for the U. S. economy and most of its taxpayers.

1 posted on 10/19/2006 5:11:51 PM PDT by pigdog
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To: Taxman; ancient_geezer; Principled; EternalVigilance; rwrcpa1; phil_will1; kevkrom; n-tres-ted; ...

An excellent article by several well-respected economists - and very much worth the study ...


2 posted on 10/19/2006 5:13:18 PM PDT by pigdog
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To: pigdog

Hong Kong did well under a 15% tax rate, but it is a city , not a large country.


3 posted on 10/19/2006 5:14:16 PM PDT by jmcenanly
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To: pigdog
Does this really mean I would get to take home my WHOLE paycheck and decide how much tax I paid by deciding how much to spend or save and invest?
Why hasn't anybody thought of this before?
4 posted on 10/19/2006 5:17:18 PM PDT by Uriah_lost (M.I.E. Mainer In Exile I'll come back when the Massholes go home.)
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To: pigdog

Except the paper still fraudulantly insists that governments can raise money by taxing themselves. The report also states that state governments will have to raise their tax rates to make up for the additional revenues because of the taxes imposed on the states. Not a honest third party analysis, but an analysis by a paid for fairtax shill.


5 posted on 10/19/2006 5:17:24 PM PDT by Always Right
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To: Always Right
Thanks; its about time someone exposed this thing. Not only that but wait till, if implemented, the government comes along and says: "Gee we still don't have enough money. So we'll keep the fair tax and reimpose the income tax as well."

The problem is spending. All Fairtax is about is substituting methadone for heroine for the tax and spend junkies.
6 posted on 10/19/2006 5:36:42 PM PDT by samm1148 (Pennsylvania-They haven't taxed air--yet)
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To: pigdog

It doesn't matter what the rate is. The point is that if it is a sales tax people will be constantly reminded of what their real tax rate is. From this they can make education decisions when they vote.

Whatever it might start out at, my guess is that it will steady out at around 15%.


7 posted on 10/19/2006 5:36:48 PM PDT by SampleMan (Do not dispute the peacefulness of Islam, so as not to send Muslims into violent outrage.)
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To: Uriah_lost
"Why hasn't anybody thought of this before?"
Excellent question ... and I really don't know but it's been "thought of" now - and in fact been extensively and intensively studied by a number of economists of which these are a few.

But to answer you oher questions ... YES, that's just what it means.

In fact, it is the most thoroughly studied and reviewed tax bill ever put before Congress.

8 posted on 10/19/2006 5:38:22 PM PDT by pigdog
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To: RobFromGa; Your Nightmare; Always Right; Dimples; sitetest; lewislynn; balrog666; xcamel; Mojave; ..

UFT ping


9 posted on 10/19/2006 5:39:14 PM PDT by xcamel (Press to Test, Release to Detonate)
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To: Always Right

Your post is merely nonsense and utter gibberish and merely indicates you either haven't read or don't understand the paper (or both).


10 posted on 10/19/2006 5:39:49 PM PDT by pigdog
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To: pigdog

Best damn B$ they can buy... again.


11 posted on 10/19/2006 5:44:17 PM PDT by xcamel (Press to Test, Release to Detonate)
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To: pigdog
Your post is merely nonsense and utter gibberish and merely indicates you either haven't read or don't understand the paper (or both).

You can't dispute anything, but you do win the award for posting the first personal attack on this thread. Shocking, I tell ya....

12 posted on 10/19/2006 5:45:58 PM PDT by Always Right
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To: samm1148
"The problem is spending."

Indeed, ONE problem is spending, but spending by itself accomplishes very little (and hasn't for almost 100 years now) and if spending were reduced it would vault right back up there since he pols can hide and play games with the reams and reams of arcane tax laws under the present system. It is the taxing system that must first be changed or reducing spending is hollow indeed.

I suggest you read the paper with understanding and realize that the income tax, its laws, its people (the IRS) and its records are ALL eliminated by the FairTax. With enough votes to pass the FairTax there will certainly be enough to retain it - especially as taxpayers realize how it reduces their effective tax rate.

In addition, the FairTax calls for the repeal of the 16th amendment. With the FairTax in place if we as voters let the government get by with the present out of control spending habits we deserve what will indeed happen.

13 posted on 10/19/2006 5:48:04 PM PDT by pigdog
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To: samm1148
All Fairtax is about is substituting methadone for heroine for the tax and spend junkies.

A very good analogy. Never heard it put that way, but dead on. The #1 problem by far is most definitely runaway spending.

14 posted on 10/19/2006 5:48:16 PM PDT by Always Right
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To: Always Right
"... you do win the award for posting the first personal attack on this thread. Shocking, I tell ya ..."

Sorry, but no - your #5 has that "distinction" and there'll no doubt soon be more from you considering your posting habits.

15 posted on 10/19/2006 5:52:36 PM PDT by pigdog
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To: Always Right
The #1 problem by far is most definitely runaway spending.

No kidding. The last time any politician talked about the Balanced Budget Amendment was 1994.

16 posted on 10/19/2006 5:53:01 PM PDT by Doe Eyes
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To: samm1148
You are exactly dead-on 100% right - and they will never ever admit it.

(Outside the incessant whining about personal attacks)

17 posted on 10/19/2006 5:53:10 PM PDT by xcamel (Press to Test, Release to Detonate)
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To: xcamel
Would you like to debate some of the points in the paper or merely continue to carp about things?
18 posted on 10/19/2006 5:53:56 PM PDT by pigdog
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To: jmcenanly

There is absolutely no reason the HK system wouldn't work here - if not even better.


19 posted on 10/19/2006 5:54:46 PM PDT by xcamel (Press to Test, Release to Detonate)
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To: pigdog
If the good Lord asks for just 10%, then thats good enough for the government ... anything more is unholy.
20 posted on 10/19/2006 5:57:27 PM PDT by MaDeuce (Do it to them, before they do it to you! (MaDuce = M2HB .50 BMG))
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