The Fairtax plan will benefit the economy and the majority of Americans

Prebate Thanks for clarifying. One of the explanations of the prebate that I heard said that the prebate would go to businesses. I guess that's the difficulty of trying to communicate something complex like a new tax system; people are bound to get it messed up in translation. As for the state's treatment of the prebate, I would imagine they would use it (at the very least) as a way to allow taxpayers to deduct less from state taxes – but that's just speculation on my part. 1) The 23 Percent Math It's a little late in the game, but I finally read an explanation of the "tax-exclusive" rate that I understood – and I really think it's a complete snow job to say that the tax rate is 23 percent when the actual tax rate each consumer will pay on purchases is 30 percent. I get where the Fair Tax folks get the number from, but it's disingenuous to pitch the rate as 23 percent when the average citizen would be paying what they would consider (for all intents and purposes) to be a 30 percent rate. I would think that it would be terribly optimistic to aim for neutrality under a stagnant model given how much government spending continues to go up – but that's not Kotlikoff's fault, nor is it the fault of the Fair Tax advocates. Unfortunately I don't know enough to dispute the claim that a consumption-based tax will increase real savings and thusly investment. I can see that it would do that in the upper socioeconomic classes, but I can't see how that would be the case in the lower classes who don't adhere to logical economic patterns a lot of the time. The upper classes already save, so there's no gain. Plus, isn't our economy based in large part on consumption? Isn't that some of why we're experiencing the current volatility? Also, I fail to see any evidence that would show that tax evasion would decrease under the fair tax; in fact, I only see incentive to increase tax evasion. Illegal immigrants, drug dealers and prostitutes may be taxed, but they don't account for much money. In one analysis I read, the vast majority of drug dealers end up making around minimum wage (or less). It's the people higher up in the food chain that make the money – and those folks are laundering their money and paying taxes (maybe not on all of their income, but on at least what they report). 2) Regressive It's just mathematics. You can't have your cake and eat it too. There's no way you can give everyone lower taxes AND keep revenue coming in to the government neutral. The taxes that are lowered for the rich (who consume a tiny fraction of their income relative to the lower classes) have to fall somewhere. Given the way the prebate is structured, it has to ultimately fall on the middle class. The graph is from the President's Advisory Panel for Federal Tax Reform, the second link is from Bill Gale at the Brookings Institution (he's written in far greater depth), and the third is from FactCheck.org – which did its own analysis after looking at the President's Advisory Panel and the findings of the Brookings Institution (as well as the AFTR's proposal): http://www.factcheck.org... The Fair Tax wouldn't tax the rich on their wealth as you say – it would tax them solely on their consumption, because the Fair Tax would replace the Estate Tax and the Income tax. While the wealthy do consume a lot in sheer dollars, it ends up being a small fraction of their overall wealth (smaller than the amount taxed under the current system). The link you provided is interesting, but it goes into the whole tax-inclusive/exclusive rigmarole, so I don't find much value in it. 3) Enforcement Collection Problem Indeed – there is already an underground market for goods, but it's minimal because the incentives to opt into it are minimal. If the incentive to traffic in underground goods is increased (say with a significant consumption tax increase) – the trafficking in underground goods is going to increase. Just look at the small examples around the US (cigarettes, alcohol, etc.) and you can get an idea of how much tax evasion is going to be going on. Taking eBay alone (and ignoring all of the other online retail platforms) – here are some statistics to give you an idea of the logistical nightmare for policing all of these new retailers: - eBay has approximately 248 million registered users worldwide. - Marketplaces net revenues totaled a record $1.32 billion in the third quarter of 2007 http://news.ebay.com... Part of the problem is that these are only the transactions reflected inside of eBay's system. There's a whole black market outside of eBay where sellers/buyers just use eBay as a medium through which to find each other, and then arrange to sell the goods/services outside of an eBay transaction to skip the percentage of the transaction that would go to eBay. Imagine if they could save 30 percent by doing that instead of just 3-4 percent of the transaction. The car price thing makes sense – thanks for explaining that. As for imports/exports – your explanation seems to confirm what I'm saying. If we're going to simultaneously discount the cost of goods leaving the US to help them better compete overseas, while simultaneously trying to make up the lost revenue on those goods by taxing imports – the rest of the world is going to scream bloody murder. There will be serious repercussions from a policy like that – and in the current state we're in where so much of our debt is held by our economic competitors (like China) – they've got us by the short hairs. It's not impossible for the government to regulate Internet purchases – but it's very, very difficult (something not accounted for in the Fair Tax model). A 23 (30) percent incentive to buy something from overseas is a serious deal and it's going to fundamentally change a lot of people's buying habits. Taxing Undocumented ("Illegal") Immigrants Myth Undocumented labor is subject to the laws of economics too, just as surely as documented labor is. If employers are going to lower employee wages to around what they would be at the current post-tax level, they will certainly raise the wages of undocumented workers to compensate for the prebate. That, of course, assumes that there's no fraud and that the undocumented workers don't find ways to get the prebate. Even if they didn't, I could even envision a scenario where an undocumented worker could find a low-income resident to live with where they'd pool their resources (and get the prebate plus their untaxed wages). Capital Gains Tax Rate The Liz Pulliam Weston article you cited is based on flawed data (despite her claims using old data, the median amount of debt is between $5,100 and $9,000 - but I don't need statistics to tell me that, I see it anecdotally) – here's a great and thorough explanation why: http://www.creditslips.org...