http://www.taxreformpanel.gov/final-report/
(see section 9)
Box 9.2. Comparing the Treasury Department’s Revenue-Neutral Rate Estimate with Estimates Made by Retail Sales Tax Proponents
In their submission to the Panel, proponents of the FairTax claimed that a 30 percent tax exclusive sales tax rate would be sufficient not only to replace the federal income tax, but also to replace all payroll taxes and estate and gift taxes and fund a universal cash grant. In contrast, the Treasury Department concluded that using the retail sales tax to replace only the income tax and provide a cash grant would require at least a 34 percent tax-exclusive rate.
Some may wonder why the tax rate estimated by FairTax advocates for replacing almost all federal taxes (representing 93 percent of projected federal receipts for fiscal year 2006, or $2.0 trillion) is so much lower than the retail sales tax rate estimated by the Treasury Department for replacing the income tax alone (representing 54 percent of projected federal receipts for fiscal year 2006, or $1.2 trillion).
First, it appears that FairTax proponents include federal government spending in the tax base when computing revenues, and assume that the price consumers pay would rise by the full amount of the tax when calculating the amount of revenue the government would obtain from a retail sales tax. However, they neglect to take this assumption into account in computing the amount of revenue required to maintain the government’s current level of spending. For example, if a retail sales tax imposed a 30 percent tax on a good required for national defense (for example, transport vehicles) either (1) the government would be required to pay that tax, thereby increasing the cost of maintaining current levels of national defense under the retail sales tax, or (2) if the government was exempt from retail sales tax, the estimate for the amount of revenue raised by the retail sales tax could not include tax on the government’s purchases. Failure to properly account for this effect is the most significant factor contributing to the FairTax proponents’ relatively low revenue-neutral tax rate.
Second, FairTax proponents’ rate estimates also appear to assume that there would be absolutely no tax evasion in a retail sales tax. The Panel found the assumption that all taxpayers would be fully compliant with a full replacement retail sales tax to be unreasonable. The Panel instead made assumptions about evasion that it believes to be conservative and analyzed the tax rate using these evasion assumptions.
10/20/2006 Hundreds of thousands of FairTax supporters were deeply dismayed and angered to learn that the President's tax panel ignored millions of dollars worth of solid, independent research on the FairTax legislation, research completed by some of the nation’s top economists over the last decade. Despite access to the FairTax legislation and all of the research, the panel itself virtually overnight created an alternate and severely flawed national retail sales tax plan, which they then scored and condemned. This is exactly the kind of misdirection that the American people see as the hallmark of Washington lobbyists who put their own careers ahead of the clear national interest to develop a simple, fair, and transparent replacement tax system. The panel failed the American people in the two most fundamental tasks: 1) They failed to define true criteria by which reform should be evaluated; and 2) They failed to grade tax reform plans against those criteria. Instead of the fundamental reforms the panel was charged with developing, they recommended changes that further complicate an already overly complex tax system, one that is also too expensive to operate and an unfair burden to taxpayers. We provide excerpts here from the FairTax.org challenge to the false findings of the tax panel and we rebut the main contentions of their report.
http://www.taxfoundation.org/blog/show/1112.html
First they calculated that a 64% to 87% NRST would be necessary to fund federal government. This shows they are complete idiots. By declaring that the federal government requires that amount of taxation on retail sales and services, they are broadcasting how large they think federal government is.
Never mind that their calculations were flawed, they proceeded to announce that government was as large as 87% of retail sales in the USA. That is an astounding number. Not one of the committee members thought to express horror over such numbers. Nor did they require that assumptions be checked. The entire design of their response was to create a subterfuge of recklessness to underpin their predetermined rejection.
Any reasonable person would have sounded the alarm on such numbers before they were broadcast. Any reasonable person would have rejected the analysis of 64% to 87% excise tax because if it were even close to the truth, the shock of such numbers would have reverberated throughout the Halls of Congress for years and years.
But Congressional offices reacted in disbelief to such numbers and their own academic liaisons reported that those numbers were preposterous.
Second, the committee recommended keeping the Income tax and doing away with mortgage deductions. This recommendation was so politically asinine that the entire two year effort of Mack and Breaux was declared a horrendous boondoggle, a completely wasted effort.
And that is what the IRS wanted. They wanted no change to their code, they wanted it kept as-is including the monstrous Alternative Minimum Tax. And that is what we have today.
So they won the first round with panel tampering. The next round is going to bring them out into the open where everyone can see them and what they stand for.