Posted by
Andrews on Thursday, December 06, 2007 4:45:18 PM
I have just noticed a new fallacy of the FairTax advocates:
They claim that removing the 22% of "embedded taxes" in the cost of a product will cause a 22% drop in price, which will allow them to tack on their "23% tax" (which looks a LOT like a 30% sales tax).
The problem? It assumes that prices are tied directly to costs, the way the Marxists used to assume prices were entirely determined by the cost of labor. Boehm-Bawerk disproved the Marxists before 1900, and the idea that cost alone determines prices was probably disproven (in theory, if not explicitly) before then as well. Actually, just reading Adam Smith would let you know that removing 22% in taxes would not result in any specific drop in prices. (Nor does it matter that these are "taxes" and not other traditional costs, the principle is the same.) Supply and demand is complex, and removing 22% on the cost of supply side says nothing about what the final price will be. It will probably be lower or the same, but there are certain degenerate cases where it may even increase prices. But the point is, by saying 22% reduction in taxes will reduce prices 22% is massive economic ignorance.
So, as the book is appearing to be more and more economically suspect, I think I will take the time, "read the book" as the FairTaxers keep telling me to do, and go through page by page, tearing down any fallacies I find.
I'll post here as I do this, so you can find out along with me what interesting errors are hidden in "the book".