I enjoyed reading your article regarding the FairTax. I've been a fan of the FairTax for a couple of years now and noticed a couple of things I think you overlooked.
First, you discuss spending money outside the US and postulate that this would increase under the FairTax. I'm not sure this is the case. Most foreign countries also have corporate and/or VAT taxes which increase the cost of goods in their country, and, therefore, US citizens seeking to avoid the US FairTax would probably end up spending the same amount (or more) to pay the embedded taxes on foreign goods.
Second, you do not discuss the tax revenues raised from consumption by foreign tourists visiting this country. The same holds true for the current underground economy. Criminals and illegal workers do not typically pay income and payroll taxes, but do spend much of their money in the US.
You also do not fully consider that prices for US goods are likely to fall, due not only to the increased incentive to work, but also due to the decrease in operating and material costs throughout the production process due to the removal of income and payroll tax costs, and the reduction in corporate tax compliance costs. FairTax.org estimates that the total "hidden" or embedded tax in all goods and services currently averages 22% of the retail price. Once these embedded costs/taxes are removed, the FairTax would only nominally raise the cost to consumers by 1%.
Under the section discussing potential losers under the FairTax, you properly point out that the elderly/retired population has already paid taxes on the income they've accumulated. However, you neglect to consider that when they spend their accumulated wealth today, embedded costs/taxes are included in the price they pay for goods and services – thus they are already being “taxed” twice. The removal of the embedded taxes and costs from retail prices and replacing it with the FairTax will effectively be a wash – retired individuals will still pay approximately the same amount for goods and services they pay today. The same holds true for the “poor” and families earning under $200,000 – they won’t be paying any more for things they consume than they do today. The “poor” will additionally be refunded the entire 23% sales tax amount (middle income families only receive a partial refund of all sales taxes paid), thus, actually come out further ahead under the FairTax than they do under today’s tax system.
Also under your ‘losers’ section – Tax professionals; a great number of professional organizations have indicated their members have much more profitable and valuable services they could offer their clients if so much time and money was not dedicated to paying taxes and minimizing the tax consequences of business decisions.
As far as IRS agents and employees go, I sure that, with the increase in savings and investing, banks and financial firms will have enough openings to absorb the 100,000+ IRS personnel looking for a more productive way to contribute to our economy.
Be sure to continue to Page 2 of "A FairTax Discussion"
