In a comment arguing for the FairTax, yt_knight said the following (among other things):

I think/hope we can also agree that anybody can pick holes in any system (Current System, Flat Tax, VAT, FairTax, etc.).

I also think/hope we can agree that if we were in the classic runaway stagecoach scene with the stagecoach speeding toward the end of the cliff that we would not debate for too long what the lesser of all evils would be…

Now, even assuming that the premise of the runaway stagecoach were valid, I would still not agree. Even a runaway stagecoach offers degrees of trouble. If two people on a runaway stagecoach argue over solutions, one proposing regaining control of the horses and the other shotting themselves in the head, are we not to "pick holes" in the competing theories and just pick one on faith? Even in a crisis it is possible to make the crisis worse by an ill considered choice. In fact, if anything, the panicked decision making that yt_knight proposes is liable to result in making the situation worse. In a crisis more than any other time we need to choose carefully. So, to use his wording, we need to "pick holes" in a crisis even more than at other times.

However, I do not grant that our current tax system compares to the runaway stagecoach scenario. Yes, it is a horribly broken system which extracts a lot of money and does slow the economy. On the other hand, after nearly a century to claim that we face immediate destruction unless we abandon it soon is absurd. We have more than enough time to discuss and debate the issue.

Now, to address one other problem. The idea that I am simply "picking holes" in the FairTax, and that the same could be done to any system. My criticisms of the FairTax fall into two categories and they are hardly 'picking holes".

First, I have argued that the FairTax will have unforeseen negative consequences. This is important, as if we are to adopt a system we need to know before we start what the results will be. We know well the negatives of the present system. Obviously we will never know in advance all the negatives of a new system, but trying to figure out as much as we can is an important first step, so we don't jump into a new system based on a lack of information.

And yes, there are negative sot all systems. I have limited myself tot he FairTax as it is getting all the press. Were someone to come out strongly for a flat tax, I would mention then that by focusing on income it would continue to encourage all the current tax avoidance schemes which we currently see. (On the other hand, it would avoid the current problem of trying to limit income to avoid jumping brackets, due to the flat scheme.)  However, it would be up to the reader to decide if the negatives outweighed the positives of the scheme.

And that is my point in showing the unseen negatives of the FairTax, to allow readers to decide for themselves if those negatives are enough to dismiss the FairTax as an option. I personally think they are, but even if one dismisses my conclusion, surely there is a benefit in describing the negative outcomes that have not been mentioned by the advocates. If only so we can make an informed choice. To call that "nit picking" or "poking holes", one would also have to call Consumer Reports, Underwriters Laboratories and real estate disclosure laws "hole poking". Having adequate information has always been assumed to be a benefit, and I simply follow in that tradition.

The second category of criticism, which overlaps with the first in many cases, are those criticisms which intend to show mistakes in the claims of the advocates. Presently, the vast majority of analysis done about the FairTax has been done by those who actively advocate for the plan. That being the case, showing where their assumptions or conclusions are in error is essential so we can decide how much credence to give their other claims. If they fail to understand basic economics in one area, then we can take a more skeptical position on their other claims. Again, this seems an unobjectionable position, as seems important to assess the knowledge of an advocate before accepting his claims.

So, I would argue that, while obviously one could find problems with any system, that does not make finding such errors any less valuable. Nor do I think we need to apply such scrutiny to every system for it to be of value. If I find enough shortcomings in the FairTax that it appears our current system is preferable, then we know we should not adopt the FairTax, an analysis of other choices is not needed. I need analyze other choices only if the FairTax is preferable tot he present system but I argue that it is still inferior to other choices. At that point I would be obligated to apply the same critical analysis to other options.

However, at the moment I am neither trying to show the FairTax is inferior to other choices nor inferior to the present system. My intent is to (1) show unanticipated consequences, (2) point out where the advocates' claims are incorrect and (3) ask questions where a situation exists which the advocates seem to have overlooked. Yes, doing so has convinced me the FairTax is inferior to even the present mess of a tax system, but I am not trying to convince others of that yet. All I am doing is pointing out that the overly optimistic claims made for the FairTax are based on errors and ignorance of all possible effects. And to do that, I simply need to analyze the FairTax itself.

POSTSCRIPT

There were two other paragraphs in the comment which deserve mention. First, a statement which needs a small correction:

I think/hope that we can agree that all business taxes (corporate, payroll, etc.) filter down to consumers in the form of higher prices for products/services.

The only reason I mention this is that I have heard this claim many times, even made it myself when a bit younger, and need to correct it slightly.

Costs in general are passed on to consumers, and need to be or else the owners will lose money. And taxes are essentially nothing but another cost. So, in general taxes are passed along to the consumers. However, that is not always possible. Price elasticity is limited, and the optimal final price for the new cost may not completely cover the increase in taxes.

As taxes generally strike all industries equally, or at least strike a single industry, it may be possible, though somewhat risky, to cover a part of the tax increase by reducing wages. However, if any employers decide not to follow suit, then those attempting to reduce wages will lose their best workers to the employers who do not.

So, most likely, any tax increases which cannot be passed along to consumers will be taken out of profits. Either individual owners or shareholders will see a decrease in their profits.

Of course, there is one final option. Should the increase in taxes be impossible to pass along to the consumer, while wages are inflexible, and the profit margins too low to allow them to be decreased to cover the tax burden, the company can always scale back operations or even close entirely. Though it is not often mentioned, this is another possible response to increased corporate taxes.
 
(To see an earlier discussion of this, read my essays "Beware Populist Deception" and "If We Must...".)

The other comment deserving attention is this invitation:

I put forth a friendly invitation on my May 19th blog post to set some common objectives for a tax system that is independent of any tax solution (FairTax, Flat Tax, VAT). Before you decide to further rip the FairTax, why not critique the 18 objectives that I listed and/or refine/add more and then we can discuss how to best achieve them.

Now, I have discussed the goals of a tax system several times, though not in a really systematic way. But I do think such a discussion would be valuable. So, for the moment, I am putting my summary of objections to the FairTax on hold, until I can read yt_knight's blog and respond here in a new post.

After that I will get back to writing my comprehensive summary of objections to the FairTax. And, since I am going to look at what the general goals of taxation should be, I am reviving two other essays I have been postponing, a general argument for federalism and an overview of the function and purpose of government.

They may not all be completed today, or even this weekend. It depends on how many other interesting topics arise, and how disciplined I am. But that is the plan for the immediate future.

UPDATE

My apologies to yt_knight, I really did mean to respond to his post this afternoon, but, as you can tell from everything else I posted this afternoon, I stored up a number of topics in the two days I wasn't writing anything longer than a paragraph or two. I have most of that out of my system now. I do want to write something about the silliness of people talking about politics in terms of "branding", but I think that can wait.

So, if nothing blows up at work, and my hands hold out, I should reply to yt_knight's thoughts on what a tax system should include sometime today.

Until I finish writing it, and as it gives me a chance to plug my blog index, you can find my previous writing about taxation under the first heading on my blog index. It is not yet comprehensive, covering only through April 24, 2008. But it does contain a lot of my articles on taxation and the FairTax.