Posted on 02/17/2008 7:34:33 AM PST by DivaDelMar
In his December 24, 2007 Tax Notes article, “Why the Fair Tax Won’t Work,” Bruce Bartlett purports to critique the FairTax, a proposal to replace almost all federal taxes with a retail sales tax plus a rebate. In fact, Barlett’s article has little to say about the FairTax and even less to say that’s accurate. Instead, most of his article misstates research on the FairTax, criticizes unnamed proponents of the FairTax, lambasts unattributed views of the FairTax, and engages in political punditry. This paper takes a close look at Bartlett’s “analysis,” exposing his repeated use of straw men for what it is rhetoric disguised as economics. (1)
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Bartlett begins his critique by accosting unnamed messengers (referenced by “FairTax advocates”) for supposedly suggesting that consumer, producer, and factor prices would be unaffected by the FairTax, with workers simply keeping the income and payroll taxes that would otherwise have been deducted from their paychecks.
Clearly, such an outcome is inconsistent with elementary economics, and no serious student of the FairTax would assert such an outcome. Nonetheless, Bartlett’s devotes, by my count, some 31 paragraphs, including a primer on the Great Depression, to demolishing this straw man. (2)
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Bartlett’s second concern lies in the calculation of the FairTax rebate. He takes issue with the proposal’s treatment of childless households, suggesting that the size of their rebates are too large. From this Bartlett surmises that Congress would raise the rebates to households with children thereby “greatly increasing the cost of the rebate.” But if the rebates to childless households are too large, the solution is not to make everyone’s rebate too large, but rather to cut rebates to childless households and, thereby, reduce required FairTax revenue.
Bartlett’s next “critique” is even less memorable. He claims that Americans won’t perceive their monthly FairTax rebate check as progressive even though the rebates will be a much higher percentage of the resources of the poor than they will be of the rich. Instead, he says, households will view the FairTax as proportional because everyone will have to pay the same FairTax rate when they spend their money, no matter the source of their money. This is no different from claiming that people judge tax fairness based on their marginal rather than their average tax rates. Were this the case, marginal tax rates under our current tax system would presumably be set to rise monotonically with income, which is certainly not the case. (4)
Bartlett’s contention here is symptomatic of a pervasive failure to stick to economics. Bartlett’s expertise does not, to my knowledge, extend to psychology or political science. So when he asks his readers to accept his assessment of perceptions or his judgment of political reactions, I, for one, start feeling queasy.
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Bartlett’s first significant economic critique of the FairTax appears five pages into his article, where he states “… there would be an enormous shift in the tax burden from the wealthy to those with lower and middle incomes.” (page 1245) As proof of this proposition he reproduces a table (his table 5, p. 1245) generated by the Treasury’s Office of Tax Analysis entitled “Distribution of the Federal Tax Burden Under the FairTax.”
Notwithstanding its source, there are two major problems with the Treasury’s analysis of the FairTax’s progressivity. First, the Treasury produced this table in response to a request from President Bush’s Advisory Panel on Federal Tax Reform. The Tax Reform Panel was charged with considering reform of the personal and corporate income taxes. Its purview did not extend to reforming the payroll tax. As a consequence, although the Treasury referenced the FairTax in the table, the Treasury completely ignores one of the most progressive elements of the FairTax, namely the elimination of the highly regressive FICA tax. Bartlett mentions that the table considers replacing only the income tax. But he fails to mention that were the table to include replacing the payroll tax, the FairTax would look much more progressive....
THIS IS AN EXCERPT. The Full paper is available at: http://www.fairtax.org/site/News2?page=NewsArticle&id=9321
Ping.
What is your interest in seeing the Fair Tax implemented? How will you personally benefit?
ping for later reading.
Tax Reform? Fuggedaboutit!
If it was ‘fair’, it wouldn’t need rebates. Fair is in the eye of the begetter.
I guess she isn’t interested in the more recent developments where LJK and DJ have backed of their original extraordinary claims. Go figure.
It’s the whole rebate part that puts me off... why should the poor be exempt from sales tax on “essentials” while the middle class and rich are not. Doesn’t sound “Fair” to me. Why not just exempt certain items from a national sales tax?
......FairTax.org-sponsored research acknowledging that wages must fall if consumer prices don’t rise and that consumer prices must rise if wages don’t fall
Thanks. I have been called a liar well over a 1000 times by fairtax supporters for stating that fact. I am glad Kotlikoff publicly acknowledges it, because very few fairtax supporters do. Appologies accepted.
Just can not be bothered with anything that changes our preconceived notion!!!!/s
[In dining room conversations across the country ....]
Lookee here, Martha Rae. Mr. Kotlikoff defines Sigma as Theta minus B/R. Shoot. I always figgured it as plus B/R.
Well, that decides it for me. I'm in favor of the Fair Tax. What channel's Wheel of Fortune on, anyway? Oh, and git be a beer, wouldya?
umm, didja notice the rebate plan is optional and applicable to all households, regardless of income?
Who would argue that a 23% tax billed at 30% is fair?
When the foundation is a mirage nothing can be built upon it.
Additionally, in order for fair tax to work, people would need to take at least a 30% pay cut.
Sorry...the only "fair tax" is an across the board Flat Tax. This deceptive "fair tax" scam isn't going to fly.
Add to that mix the assured increase of the "fair tax" percentages as black markets grow and increasingly deny the government the revenue it thinks it deserves.
The "fair tax" system doesn't eliminate the IRS; it pours Miracle Gro on it and gives it powers that would make the Secret Service blush.
As the long as the Income Tax (sic) is enshrined in the Bill of Rights..(now there is a chuckle worthy topic) then any law imposing the Fair Tax can be coupled with increased income (sic) taxes, there is no getting around that fact.
Well, again... why even have a rebate? Why not just exempt certain items such as food, clothing, and medical care?
Amen.
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