Posted by
Andrews on Thursday, December 13, 2007 9:31:57 AM
I realized I made mention of the 23%/30% controversy about the FairTax without actually describing what that is. I know a lot of readers already know about it, but for those who don't, here is a short synopsis:
Traditionally, sales tax rates are calculated as the percentage by which the pre-tax price is increased to get the final price.
The FairTax calculates rate as the percentage by which the final price is decreased to get the initial, pre-tax price.
In mathematical terms:
P=Pretax Price
F=Final Price
R=Tax rate
Traditional:
P(1+R)=F
1+R=F/P
R=(F/P)-1
FairTax:
P=F(1-R)
1-R=P/F
-R=(P/F)-1
R=1-(P/F)
So, using the example one always sees:
P=77 and F=100
Rate using FairTax definition: 1-(77/100)= 0.23 (23%)
Rate using traditional definition= (100/77)-1 = 0.298 (29.8%)
Some argue that this definition is to make the numbers more comparable to the "embedded taxes" which it replaces, but others (myself included) argue that it is a mathematical sleight of hand to confuse unwary voters.
Well, just wanted to clear that up.
If you want a slightly more amusing take on the whole issue, please check out the Wall Street Journal's "Best of the Web" pages on this topic:
here,
here and
here . More serious criticism can be found
here,
here and
here.
UPDATE 12/18/2007Today's Wall Street Journal's
Best of the Web has published another amusing summary of their take on the FairTax. Unfortunately, they have not yet published the article with a permanent article ID and an anchor for the item. When they do, it will be linked
here.
I also apologize for the third link in the original article. The link anchor does not work, and the editor has not yet added an anchor for that article. So, if you want to read it, please scroll down to the second headline on the page "Fair Tax Flimflam - II".
UPDATE #2 12/18/2007
I found a permanent link to today's best of the web. There is still no anchor for the article, but it is the first item, so not too hard to find. The link has been added above, but, if you don't want to scroll back, it is
here as well.