Posted by
Andrews on Friday, December 07, 2007 12:13:14 PM
Last short post on the FairTax before I do my page-by-page analysis of "the book".
The FairTax proponents seem to have an overly simplistic view of taxation and economics in general. They believe they will remove 22% of ill-described "embedded taxes" and replace it with one 23% tax, and that will be "revenue neutral" but also make everyone rich.
Well, one point they forget: The 22% of "embedded taxes" is not a uniform, monolithic whole. It is unevenly distributed, and, over the decades, has caused huge distortions in our economy.
For example: May industries are kept in business by tariffs keeping much cheaper foreign goods off the market. The moment those tariffs are removed, the industry in question will either shrink or collapse.
Now, I do not advocate retaining such taxes. I would love to see all traces of protectionism gone. But my point is different from that. I am saying that by treating the 22% embedded taxes as a monolithic whole, the FairTax proponents ignore many effects their tax changes will have. Should protected industries collapse due to removal of import duties, I don't see how the FairTax can claim to be "revenue neutral".
So, is removing protective tariffs good? Yes, of course. But the point is that the FairTax seems to ignore the fact that there will be short term negative consequences to doing so. And that makes me distrust them.
There is a history of apparent deception in the FairTax movement. First, they idiosyncratically call a 30% sales tax a 23% "embedded tax", apparently to make the rate sound lower. Now they ignore the short term economic harm some will suffer form their plan.
Come on FairTaxers! Either you are lousy economists or you are liars. Either way I don't have much faith in you. Why not just come clean? Say it is a 30% sales tax, and admit that you can't predict in advance whether it will be revenue neutral or not. Lastly, drop the "everything will just be better" rhetoric and admit that any change, even the greatest, has some negatives as well. Nothing is all good, and your plan is no different.
Just be honest, please.