> rate of 23 cents per dollar
Am I reading this right?
A 23% sales tax?
Who in the world would want to buy ANYthing at that rate, and how in the world is that supposed to stimulate the economy?
It might stimulate savings, I’ll venture.
“Who in the world would want to buy ANYthing at that rate, and how in the world is that supposed to stimulate the economy?
It might stimulate savings, Ill venture.”
There would some shifting toward savings and away from consumption, which is one of the economic benefits. Every serious economist I have heard speak on the subject has said that our savings rate is too low and is going to cause long term problems if not addressed. We cannot remain dependent on foreign sources of capital indefinitely.
There are, however, three primary reasons that the FairTax would stimulate the economy:
1. It would facilitate the repatriation of much of the app. $13 trillion (and growing) that is stranded offshore by the current tax system. This is capital that could be used to fuel our economy, rather than foreign economies.
2. Because it is “border adjustable”, it would create pricing shifts that would improve the competitive position of US producers (primarily mfg & ag) in foreign markets, as well as our own marketplace. The US is the only one of 30 OECD nations without a border adjustment element in its tax system.
3. It would eliminate several hundred billion $$ in wasted compliance costs. This is capital which could be much more effectively employed in our economy.
Every economic study that I am aware of has forecast a more rapidly growing economy under the FairTax than under a continuation of the current system, with GDP growth of typically 10 to 14 % higher in the initial years immediately after implementation. That is HUGE. None of us have ever lived through a year in which GDP grew by 10+%. That is Chinese growth rates in an economy three times China’s size. Obviously, those growth rates aren’t permanent, but by the time they leveled off, the US economy would be 1/4 to 1/3 bigger than it would have been under a continuation of the current system and THAT difference would be permanent.
Almost forgot. It’s important to note that, with regard to consumption, any decline would be
a) relatively small (compared to the entire economy)
b) temporary - 3 or 4 years or less (because economic growth would overtake it), and
c) comprised 100% of imports - there would actually be a small increase in the consumption of US produced goods (not only here but in foreign markets as well)
So while it may seem contradictory to forecast total net consumption declining and the economy growing, that is precisely what eliminating the bias that the current system provides to foreign producers over and above our own domestic producers will do. On a longer term basis, we end up with a faster growing economy with a better balance between savings and consumption and with US producers being more competitive on a planet where globalization is the biggest transformational change taking place.