Fair Tax Friday

sorry

Once again!

ecwoog

This does a great job explaining the fantasy math used by the Fai Tax supporters. They are using assumptions that any rational person could see is not real!

….Americans for Fair Taxation, however, has complained that H.R. 25 calls for a 23 percent inclusive (or 30 percent exclusive) rate, not a 34 percent rate. Our number came from the President’s Advisory Panel on Tax Reform (scroll to chapter 9 for the panel’s discussion of the FairTax), which calculated that a 34 percent rate on the actual price of consumer goods would be necessary to make the program revenue-neutral. Americans for Fair Taxation has said that the Advisory Panel did not use the FairTax as detailed in the legislation but instead made up its own plan. This complaint is disingenuous. The Advisory Panel did in fact begin with the 30 percent figure that proponents of the FairTax submitted. But the panel rejected those figures, claiming that they were based, at least in part, on the unrealistic assumption that there would be full compliance with the FairTax. In other words, proponents assume that no one will cheat on taxes. However, the Treasury Department estimates that the evasion rate for the entire U.S. tax system under current law is approximately 15 percent. The Advisory Panel accordingly assumed a 15 percent evasion rate for the FairTax.

More significantly, however, the panel found that FairTax supporters were employing questionable accounting. In calculating federal revenue, proponents assumed that purchases made by the federal government would be taxed at the full 30 percent rate. But when calculating federal expenditures, FairTax proponents did not factor in the additional costs of the 30 percent sales tax. The Advisory Panel thus threw out the revenue from federal purchases, noting (correctly) that increased revenue from taxing federal purchases is exactly canceled by increased costs in the federal budget. Unfortunately, the Advisory Panel has thus far refused to release its methodology, making it difficult to reconcile its projections with those of Americans for Fair Taxation.

Using a formula that corrects for the faulty assumption about government spending, William Gale, director of the economic studies program at the Brookings Institute, calculates that a 39.3 percent exclusive rate would be necessary for revenue neutrality. (We used the lower Advisory Panel number). A more recent study by FairTax supporter and Boston University economist Laurence Kotlikoff – working from Gale’s formula and adopting the same basic assumptions – determines that a 31.2 percent exclusive (or 23.8 percent tax-inclusive) rate would be sufficient.

Even if Kotlikoff is correct that a 31.2 percent rate is revenue-neutral, there remains some reason to doubt that the rate actually would be that low. The FairTax proposal assumes a 100 percent tax base on consumption. By way of contrast, most states that have sales taxes have roughly a 50 percent tax base. With the FairTax’s 100 percent base, consumers would pay taxes on a great many things that may not intuitively seem like consumption. The list would include:

Purchases of new homes
Rent
Interest on credit cards, mortgages and car loans
Doctor bills
Utilities
Gasoline (30 percent in addition to current taxes, which would not be repealed)
Legal fees

At today’s prices, gasoline would cost almost $1 per gallon more. A $150,000 new home would run $195,000 – plus the 30 percent tax that the buyer would pay on the interest on the mortgage. In short, the FairTax taxes everything that one buys, with the one notable exception of education. Any exceptions to the tax base (for instance, eliminating rent or credit card interest from the tax base) would require an offsetting increase in the rate…..

http://www.factcheck.org/taxes/unspinning_the_fairtax.html

ecwoodrow

We gave you the facts and no response at all. Should we assume you have seen the light that the Fair Tax is a bad joke?