While I do that, I have a number of questions I'd like to ask supporters of the FairTax proposal. If you could address these difficulties I have, I would greatly appreciate it:
Five Questions for FairTax Supporters
1. If the FairTax plan is revenue neutral and many Americans will pay less tax and corporations will pay almost no tax, who will wind up paying more and how much more?2. If the FairTax is really such a less destructive way to collect taxes, then doesn't that give the Federal government even more of an incentive to raise taxes under a FairTax system, knowing that it is not nearly as destructive as under the current system? Efficiency is a terrific thing, but might it have a downside? Is giving the U.S. government more efficient ways to collect taxes a good thing if you believe taxes should be lower?
3. What, if anything, is exempt in the FairTax plan? Does the FairTax make a distinction between a new house and a house with a previous owner? I've read that internet access and tuition would be exempt from the FairTax? Why are they exempt? What guarantee do Americans have that it would stop there?
4. What guarantee is there that the FairTax will not end up with as many exemptions and loopholes as the income tax? I'm from a country where the amount of federal sales tax you're required to pay differs depending on if you want to purchase a single donut or you want to purchase a dozen donuts. Why couldn't that happen in the U.S.?
5. Used goods are exempt from the FairTax and so are goods and services used by business. What exactly is considered a used good for taxation purposes and who pays the tax? It's not as clear as you might imagine - take for example a dealer "demo" car with 5000 miles on it. It's clearly a used car, but the dealership does not pay taxes on it, since it's a business. It seems to me that consumers could avoid paying high taxes by buying "slightly used" goods and businesses could find a way to offer them to the public.
Consider this scenario: My business buys a state-of-the art computer system for $5000, not paying a cent of taxes, since it's a business purchase. We use the computer for business purposes for a month, then sell in on eBay, for a price of, say, $5500. It's clearly a used good, so FairTax should not apply. If a consumer wanted to buy the computer at a store, he'd have to pay $6500 - $5000 for the computer and $1500 in tax. Buying the computer is a great deal for the consumer, but it's also a great deal for the business - they get to use a computer for a month and make $500 in the process. It's a bad deal for the government as it now collects no tax.
What measures would be put in place to prevent such a system? There's nothing fraudulent here. Would you put into place a law saying that businesses can't sell used business items? Would you require a distinction between used items sold by consumers and used items sold by businesses? It's not clear what the answer is here, but it calls for a lot more complexity than I've seen in any FairTax proposal.
If you have some answers to these FairTax questions, I'd love to hear from you - please contact me by using the feedback form.
