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
The folks I quote were writing Constitutions while doctors were performing blood lettings and surgery without the benefit of anesthesia or sterilization. Your point is, what, exactly?
Just as any other sales tax.
If you said the truth, according to how we compute sales taxes, 30%, then you would have a greater risk of having the prospect run away from you as fast as he could.
Then you would have to shout "wait you haven't heard about the pre-bates yet!"
And the “Bill of Rights” encompasses the first ten amendments, not the 16th.
And on the danger of enumerating rights, I recommend Federalist Paper No. 84, here: http://patriotpost.us/fedpapers/fed_84.html
I’m not certain that the Fair Tax will work, but i am certain that it would be sooo delicious to see all at the IRS have to go get a real job in the private sector. And keeping said job has to do with profit and loss.
Oh yeah, that thing called profit and loss..... Gee now let me see....How does that work? Yeah, you have to work efficiently right?
The prebate is factored into the rate calculation, just as exempting “necessities” would narrow the base, necessitating an increase in the rate.
When I’ve explained the rate difference to groups, I always start with the $1.00 example I gave you. When I ask what the rate of the tax is, they ALWAYS respond: “23%.” When I explain that if they want to spend $1 on goods and they will have to pay 30 cents in tax, and I ask what the rate is, they ALWAYS respond “30%.” After saying, “But wait a minute, you just told me the rate was 23%!” I launch into a discussion of tax inclusive rates vs. tax exclusive rates.
THERE IS NO INTENT TO DECEIVE, only a genuine desire to provide a valid basis of comparison to the income tax.
Your intent is different from the known effect. Not what one would expect from something claiming to be fair.
If within 2 minutes of initiating a discussion on the rate we disclose the fact, yes FACT, that the tax exclusive rate is 30%, how is that unfair?
Before making a decision on a policy, don’t you want all of the facts or is your mind made up such that you don’t care to hear all of the facts?
The rebate and an exemption schedule are equivalent in intended effect, i.e. to avoid taxing the essentials of life. A rebate is a more effective approach than exemptions, since the rebate:
It occurs to me someone should mention the basic premise of the FairTax. The current income and payroll tax system is perverse, unfair, incorrect, indefensible, incompatible with a healthy economy, dangerous to our future as a nation and basically un-fixable. Every time we meddle with income tax to fix some problem, we create new opportunities for influence-peddling and indulgences, taking a step closer to bureaucratic despotism and the dissolution of freedom. Or the chaos of revolution - after all, you don't think folks will stand for this forever, do ya? As long as there is a direct tax on individuals someone will desire to wield it as an instrument of power and influence. And we'll never get the issue of spending for power and influence.
But we can't just throw the whole thing out without causing tremendous upheaval and destroying the country. That's the status quo the spenders and looters would prefer, to prevent us interfering with their power. The FairTax is the answer to the challenge. Replace the payroll and income taxes with the FairTax and the relationship between spending and taxation becomes crystal clear. The tremendous influence of the government over social policy, which has always been misused, is now diminished to let us live freely again.
So, I view the FairTax as kind of a litmus test. Are you going to be part of the problem or part of the solution?
thanks for the ping, interesting to see another one come clean.
I don’t care how many tomes, over how many articles, over how many years, you have made these comments to me.
It’s typical liberal nature that if there is a federal consumption tax ever imposed at the cash-register, the liberals will not be able to resist the urge and desire to turn that point of sale collection of federal monies into a VAT.
Argue the fine points of the Fair Tax proposal all you want. As long as there are democrats in Congress living and breathing, they will eventually turn any point of sale consumption tax at the federal level into a VAT.
There is nothing you, or the Fair Tax books or articles or professors, or spreadsheets or anything else can do or say to change my mind. Liberals never met a tax they do not want to expand and enlarge. The Fair Tax is a nice fat tool to leverage a VAT into our wallets.
PS: love the tagline.
Thank you. I’ve been arguing with that guy for years on this very point and you are the first person to recognize the obviousness of my point.
Hell, if there were some way to guarantee that it would never become a VAT, I actually like the idea. But the true-believers keep attacking me instead of looking at the reality of the situation.
The inclusive vs exclusive concept is not difficult. I have come to believe that the reason some people don’t “get it” is not because of ignorance OR stupidity. They don’t get it out of stubbornness. It is a filibuster. If we get hung up on an inclusive vs exclusive discussion, we will have less energy to spend on discussing the benefits of FairTax and how to deal with some of the likely problems that will need to be solved.
The necessity for a filibuster reveals there is a hidden agenda somewhere. I believe it is likely some people here are protecting their turf by picking at the FairTax. Lord knows there are a lot of people earning their livelihood in the tax compliance industry. That is a major part of the expense of the IRS system.
So to those tax lawyers, tax accountants, tax code instructors, tax preparers, and Turbotax code writers out there, I am sorry if the Fairtax would put you in the category of buggy whip makers. Some of you will find work in the inevitable (but smaller) bureaucracy of the FairTax. To the rest of you, welcome to the productive part of the American economy.
And I am going to spend time today trying to figure out how to pay the correct tax on some stock I sold last year. It was acquired at a discount in a company stock plan, which makes it a little more complicated. But that’s OK, because we love the income tax so much.
like I said: And we'll never get the issue of spending for power and influence.
It starts with a lie, is calculated with a lie, lives in denial, and makes impossible promises.
I’m starting to think Obama is taking the noise to content ratio directly from the boorts/linder book.
I doubt if anyone here would complain about less spending. But you haven't explained how less spending and the income tax is better than less spending and the FairTax.
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