The Fairtax plan will benefit the economy and the majority of Americans (a)

I'm disappointed that my opponent either gave up or ran out of time because he seemed so much more knowledgeable about the FairTax than most folks. In any event, however, he was faced with a fundamental disadvantage, which is when you examine the underlying claims made by the folks pushing the FairTax, you will find they are simply not true. In summary, here are the main problems with the FairTax. 1. FairTax proponents claim that the FairTax rate would need to be only 23% in a "tax-inclusive" rate in order to be revenue neutral. As my opponent admits, that translates to a 30% "tax-exclusive rate," which is how sales taxes are normally computed. So an item that costs $100 on a tax free basis would cost $130 when the FairTax is added. 2. Notwithstanding the above, all independent studies of the FairTax over the last decade have shown that the 30% tax-exclusive rate would be not be revenue neutral. The tax rate would need to be at least 40% even if there were no tax evasion, and 50%-60% if even a relatively low amount of tax avoidance is factored in. (A common sense analysis of the numbers would also show you that a 30% rate could not possibly work.) 3. Those numbers are only for the tax at the FEDERAL level. You would need to add state and local taxes to the final retail cost of the good. And, since the FairTax taxes the spending of state and local taxes, the state and local taxing authorities will need to increase their tax rates. That is, if the State of Georgia were to build a road for $1 billion, it would need to pay the federal government an additional $500 million under the FairTax (at a 50% tax-exclusive rate), to bring the total cost of the road to $1.5 billion. The State of Georgia could only get this additional $500 billion to pay for the FairTax by raising the taxes on its own citizens. Thus, state and local taxes would increase under the FairTax, which will add another 10%-20% to the total cost of the good and service (depending on whether states eliminated their income taxes and adopted there on versions of the FairTax.) Thus, when both federal, state, and local taxes are factored in, an item that costs $100 on a tax-free basis, would cost at least $160-$180. 4. Such high tax rates would lead to increasing levels of non-compliance. The non-compliance rate in England is around 15%, and it has a VAT of only 20%. (VAT's, by the way, are much easier to collect than the FairTax would be, because they are collected at every level of production, not just at the final retail sales leve.) Imagine what the non-compliance rate would be under the FairTax with a combined tax-rate of 60%-80%. Obviously, it would be astronomical, which would increase the required tax rate and the non-compliance rate. 5. Non-compliance would not just be illegal tax evasion (through underreporting of sales, black-market activity, misuse of business certificates), but would also be perfectly legal tax avoidance strategies (through buying used goods rather than new goods, taking vacations abroad, delaying purchases, or simply hanging on to cars, houses and other items longer than we otherwise would). In addition, overall consumption would drop as prices increased on both taxable and non-taxable goods and services. 6. This reduced consumption would harm businesses in general, but would specifically devastate car manufacturers, home builders and the retail industry. 7. Moreover, the high tax rate would be particularly burdensome to the middle class and retirees. Even though they would be able to avoid paying taxes on certain items, there would be many essential goods and services that they would simply have to buy no matter what the cost. These include medical care, insurance, utilities, gasoline, food, clothing , rent (if they don't own a house), furniture, prescription drugs, etc., etc. -- all of which would be taxed under the FairTax. The most tragic scenario would be a parent who loses his or her job (and thus her health insurance) then gets diagnosed with cancer. Not only will they need to pay hundreds of thousands of dollars for cancer treatment, but they will be taxed on that spending as well. Or, think of the octogenarian who has to go to a nursing home. Half of his life savings will go to pay the cost of the nursing home, the other half will go to the government to pay the FairTax. I mean, this would be a crime. For all the above reasons (and the others I've discussed), the FairTax is a terrible idea. If the main proponents of the FairTax ever had the guts to debate it honestly, the public would quickly realize this. Alas, the few times they have ever engaged in any public debate on the FairTax, they simply claim they have never read any of the studies showing that the FairTax would need to be 50% or higher, so they cling to their assertion that the rate would need to be only 23% and the debate goes nowhere. Having said that, I do believe that a consumption tax -- whether its a retail sales tax or a Value Added Tax -- could, and probably should, play a part in our tax system. Moreover, I also believe that many of the purported benefits of the FairTax could be enacted into comprehensive tax reform. Here's an example: a. Eliminate (or substantially simplify and reduce) corporate income taxes. This would make American companies much more efficient and our products cheaper. b. Tax capital gains and dividends as ordinary income (since the corporate tax is eliminated, this would eliminate the "double-taxation" argument.) c. Greatly simplify the personal income tax by eliminating all exemptions, deductions and credits. All people who make the same income should pay the same amount of taxes regardless of how they derive their income, how large their mortgage is, how many children they have, how much they give to charity, etc. We could still keep mildly progressive tax rates (e.g., 10%, 20%, 30% or whatever would be necessary), but the complexity of the income tax would be greatly reduced. d. Medicare costs are expected to skyrocket over the next few decades. So let's replace the Medicare tax with a national consumption tax (whether a retail sales tax or a VAT doesn't really matter). No prebate. Don't exempt anything. Thus, the tax rate could be kept fairly low. This would expand the tax base to include the very people who are benefiting from Medicare -- i.e., retired citizens -- and reduce the taxes on working families. Yes, there would be some unfairness, but far less than we would have under the FairTax. (If, like me, you are in favor of universal health insurance, the consumption tax could be expanded to pay for that. But I realize that is a debate for another day.) e. I would probably keep social security and estate taxes more or less where they are today, though obviously they are subject to reform as well, but that's a topic for another day. All of the above would provide many of the benefits of the FairTax, without the negative consequences. Our corporations would be more efficient. Our exports would be cheaper. Tax compliance would be easier and therefore much cheaper. There would be less incentive and opportunity to game the system. Taxes would be perceived as being more fair (although, clearly, we could never satisfy everybody as to what is "fair"). For an alternative tax plan that incorporates a consumption tax, please see Yale law professor Michael Graetz's tax plan that he calls the "Competitive Tax Plan." http://en.wikipedia.org... For those of you have have read the debate this far, thanks for sticking to it and I truly hope you learned something. Feel free to post any questions or comments you might have and I'll try to answer them the best I can.