The FairTax

It is regressive. That's Econ 101 2. Their math is fuzzy. Not only do they make the mistake in counting the prebate as negative taxation instead of additional income, but their notion that we'll see no increase in prices, everyone will get a pay raise and a prebate, everyone is better off is saying there's such thing as a free lunch. There isn't. I will respond to that notion as simply as I can: Simply, the embedded taxes are removed, prices should go down. FairTax brings it back up, and then somehow, the workers also get a pay raise (from no withholdings). If the price is the same and % of the price that's tax is still the same, then that cannot possibly work. There's no such thing as a free lunch. Their way of calculating it is saying that the payroll taxes are passed entirely onto employees with lower wages, and entirely onto consumers with higher prices. Sorry, they can't have it both ways. In reality, if these taxes are currently passed entirely onto workers through lower wages, then the prices will either remain the same and workers' wages will go down to what they were after-taxes under the old system (to pay this new sales tax), or prices will increase 30% to pay for the higher wages. If these taxes are currently passed entirely onto consumers through higher prices, then the same thing will happen. Either prices will be the same, and workers' wages will go down to what they were after-taxes in the old system, or prices will go up 30% to pay for the higher wages. 3. If it just replaces the embedded taxes, then it can't make up for the revenue from embedded taxes AND from the income tax. Simple mathematical logic 4. They say it will get rid of the IRS, but they will need 2 new bureaucracies: One to administer the sales tax and another to keep track of sending out hundreds of billions of dollars in checks every year to compensate taxpayers for the regressive nature of sales taxes. The prebate would require an IRS-like system to validate each person and the amount of "prebate" they are due. 5. The claim that pimps and drug dealers will pay sales tax when they spend their earnings, and that will increase revenue in comparison to the system of today. Maybe, but they're forgetting something, and this causes an overestimation of revenue gained from this. The FairTax will untax the johns and junkies when they earn their money. So instead of taxing the john when he earns it, it will be taxing the pimp when he spends it. 6. That also provides one other problem. The reason people like Al Capone got jailed was for income tax evasion. The reason they were able to arrest him was because he was claiming he had little or no income, but it was obvious he had lots of income because of the luxury items he owned. Income tax evasion is the only thing they were able to prove, so they were able to get him locked up for something. The FairTax would eliminate the ability to prosecute people like him for tax evasion. 7. It counts revenue from government purchases in making the FairTax revenue neutral. What it doesn't realize is that the revenue from government purchases is directly offset by the increase in spending to pay this new tax. In other words, the Department of Defense may pay the tax for a new weapons system, but that money goes right back to the government. It's a wash. 8. That provides another problem. State and local governments will need to pay this additional tax, but they won't get any revenue back from it. They will need to increase their tax rates to pay for it. Simply depending on backdoor tax increases to finance the lower federal rate. I'm sure more arguments are out there against the FairTax, but I'll leave it at that