The "FAIR"TAX

Well, the blunt answers to your contentions are: 1. Yes, overall prices are likely to decline more than the increased burden on spending. 2. No, the rich do not live like skinflints, and therefore are not going to stop spending in such a way that they can somehow "beat" inflation to get by. 3. Yes, the investment costs going up by virtue of the yields going down will have some measure of crowding out at the top and bottom, but it will be because more savers entered the economy. That will then result in more capital equipment investing in the economy, which is better for the poor as much as it is for the rich. Let me start with your point on the $20,000 earner. The citizen gives the government the 3000 immediately, rather than at the end of the year. If the citizen is savy with their understanding of accounting, they can get most of it back, but that takes work, and over a years worth of it. If that money went into a savings account at the beginning of the year, then at 5% interest, they could have $150 by tax day. As such, they have to wait till AFTER tax day to get the money, and then invest it late. That is a cost implicitly imposed on them because of government beaurocracy. Simplifying the tax code may guarentee that that citizen gets the 3000 back eventually, but that doesn't change the cost of taking the money from them now rather than later. The Fair tax offers the "money now" system, giving that person the ability to save the money in a bank account early, and tax them only when they spend the money. To your credit, of course they will EVENTUALLY spend the money, but what they earn in interest, for the period that they were able to keep it, can partially mitigate the costs of that consumption tax. You assumed with that 20K earner that she/he spent every dollar of their income. Under that assumption, that person has 17K that they earn throughout the year with the chance of getting some of it back in september of the next year. With the fair tax, someone spending all 20K will have an effective income of $16,260. To your credit, it appears worse on the surface. But, with that in mind, lets say that fair tax has lackluster performance on decreasing prices, say some small amount like a 5% reduction in prices. Well, that means that the effective income of the individual increases 5%, which makes their income $17073. Wait a minute, that's MORE than they would have had under the current structure, and they have it sooner rather than later! It's more likely, given that the tax burden is passed entirely onto the consumer (aka, no more corporate taxation), that the prices will have to decrease more dramatically in leu of record profits. Let's assume a 10% overall decrease in prices, we have a 17,886 effective income for that individual earning 20K a year. Now, the effective corporate tax rate for most retailers or producers is 35%, which means that it could even be reasonable to assume that a 10% decrease in price is lackluster performance by any measure.. That rate is charged to both producers and retailers, which means that one product has to account for an at least 70% effective tax rate before it ends up in a consumers hands. This is to ignore the numerous corporate taxes that could also disappear as a result of the Fair Tax. In the end, the person spending all of their money is getting a higher value for their dollar than beforehand. But, if we assumed that the higher value afforded them the ability to invest more, than we have made him more likely to save his money. Enough with that example. One thing I've chosen not to talk about is a stipulation of the Fair Tax that I was unfamiliar with until about a week before this topic was brought up. There is a universal "prebate" that is distributed to every family using today's poverty model. This prebate is essentially a check equal to the amount one would pay in taxes while living at the poverty line. This creates, as a by product, an increasing tax burden on spending behavior. If someone earns twice the poverty line (which would be your 20,000 a year person), then they would only have paid HALF the tax burden because the first half of it was given to them by the government (if they spent all of it). Therefore, someone who is earning more income, and spending it, as the middle class and rich will, pays a higher tax burden closer to the 23% that the Fair Tax charges. The larger proportional burden will remain on the consumers, and those will be the wealthy. Check the Fairtax.org website for some more details with it, but the end result is the higher tax burden being shifted onto the poor is solved when you find out that the poor (and everyone) are being paid the taxes on the first 10K of income.