Posted by
Andrews on Tuesday, December 18, 2007 2:30:11 PM
One more brief observation and a comment on my ongoing project:
First the comment:
My original plan was to review page by page "the book" of the FairTaxers to refute their claims. And I may still do that in time.
However, since "the book" won't become law, I think it makes more sense to actually review the bill itself. Sure, I will probably have to refer back to the book to see what the justifications are for parts of the bill, but I think the bill itself will be a better item to analyze. After all, it is the bill which will be law, not the book.
And now my observation:
The FairTax proponents argue that the 23%/30% tax will be offset by the loss of 22% "embedded taxes".
I discussed already how the removal of certain protective taxes will harm some industries, so I will ignore that for now. Instead, I will point out the other fallacy.
The proponents seem to argue that these taxes are evenly distributed, or, barring that, at least average out to 22% over an individual's purchases. And that is just not true. Taxes are applied in widely differing amounts, and there is no way that even "average" prices for a consumer will drop 22%.
Think about it. Taxes are worst on gasoline, alcohol and cigarettes among consumer goods. Logically, if you don't drive, drink or smoke you will lose the benefit of those taxes being dropped, so you will get less than the "average" 22% tax relief. In other words, you will get a 23%/30% tax increase, without getting the matching relief of losing 22% of embedded taxes.
Of course, this is a bit oversimplified, but you can see my point. Taxes are not uniform, so to say the 22% embedded taxes will offset the tax increase is just wrong. For some sales, prices will drop, and for others, prices will rise. In few, if any, will prices remain the same.
My main point is, by ignoring the differing impacts on categories of goods, the Fair Tax proponents fail to understand the true impact different consumers will feel. By sweeping these differences under the rug, they paint a picture far different from the reality and may be ignoring potential negatives (or maybe even positives) of their plan.