August 27, 2007
Bartlett Slams FairTax in WSJ
FairTax, Flawed Tax (op-ed), by Bruce Bartlett:
[T]he FairTax rate is not 23%. [Supporters] get this figure by calculating the tax as if it were already incorporated into the price of goods and services. (This is known as the tax-inclusive rate.) Calculating it the conventional way that every other sales tax is calculated, with the tax on top of the price, yields a rate of 30%. (This is called the tax-exclusive rate.)
The distinction is confusing, but think of it this way. If a product costs $1 at retail, the FairTax adds 30%, for a total of $1.30. Since the 30-cent tax is 23% of $1.30, FairTax supporters say the rate is 23% rather than 30%. ...
In 2005, the U.S. Treasury Department calculated that a tax-exclusive rate of 34% would be needed just to replace the income tax, leaving the payroll tax in place. But if evasion were high then the rate might have to rise to 49%. If the FairTax were only able to cover the limited sales tax base of a typical state, then a rate of 64% would be required (89% with high evasion).
I've emphasized problems with the FairTax rate because public opinion polls have long shown that support for flat-rate tax reforms is extremely sensitive to the proposed rate, with support dropping off sharply at a rate higher than 23%.
But there are also massive technical and administrative problems with collecting all federal taxes at the checkout counter and relying entirely on state governments to collect the federal government's revenue...
In short, the FairTax is too good to be true, and voters should not take seriously any candidate who supports it.
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Tracked on Aug 27, 2007 10:11:09 AM
Obviously the work of another person who either did not read or did not comprehend the FairTax.
Mr. Bartlett has characteristically shown that his position shall not be altered by the facts. He has demonstrated his willingness to be a loyal political soldier devoid of conscious thought or demonstrated intelligence.
More shocking is that the WSJ would allow such erroneous material to appear under its banner. It strikes me as absurd that Bartlett spent so much time and effort to put forth a straw-man argument, unless there is a strong personal motivation to maintain the status quo.
The notion that evasion could reach such as high as indicated here is simply preposterous, and he knows it.
The current IncomeTax is inclusive in the cost of everything we purchase. The cost of compliance for the FairTax will be a fraction of the cost of compliance with the IncomeTax.
The FairTax gets the government out of the private business of 300 million Americans; does Uncle Sam really need to know that I bought & sold 100 shares of XYZ company?
The FairTax will empower people; consumers are the only true taxpayers. The math is good, only a fool puts forth a plan using known bad data.
Only an idiot criticizes a book he hasn't read!
Posted by: ctyankee | Aug 27, 2007 8:55:53 AM
It is indeed shocking that the WSJ would print this tripe. Not only does Bartlett not understand the FairTax , most likely because he hasn't read it, but he doesn't understand basic economics. Somehow his shallow understanding doesn't include the fact that the income tax is embedded in everything that we buy. The biggest losers in a FairTax system would be tax attorneys and politicians. Cry me a river!
Posted by: Maximus | Aug 27, 2007 7:21:37 PM
Can you say, "Hit piece," Mr. Bartlett? According to:
Bruce Bartlett (BB, with apologies to a true great, BB King):":"It was originally devised by the Church of Scientology in the early 1990s as a way to get rid of the Internal Revenue Service"
Me: This seems like a scientific approach to the review of FairTax; Scientologists are kooks, the FairTax must be a kooky idea.
BB: "In reality, the FairTax rate is not 23%. Messrs. Linder and Chambliss get this figure by calculating the tax as if it were already incorporated into the price of goods and services. (This is known as the tax-inclusive rate.)"
Me: Hmmm, I wonder what income tax rates begin to look like, if calculated, "externally" - as a percentage of what's left of taxpayers' income? Care to tell us THAT, BB?
BB: "This is only the beginning of the deceptions in the FairTax."
Me: Oh, like their website, FairTax.org, hasn't already thoroughly debunked most of these "straw men" that have been floated (all, that is, except this newest Scientology angle - and I doubt that they'll spend much time on that one - preposterous).
BB: "the federal government would have to pay taxes to itself"
Me: The idea here is to prevent government from competing with the private sector. But why even mention this, when later you say, "but its tax collection will also be ... higher."
BB: "The FairTax rate, however, is not high enough to finance the higher spending it imposes."
Me: Didn't do your research: "...The Beacon Hill Institute at Suffolk University and Laurence Kotlikoff, Professor of Economics at Boston University, have teamed up to provide a sound methodology for estimating the FairTax base and computing the FairTax rate. Their paper demonstrates that the 23 percent rate specified by the Fair Tax Act (HR 25) is eminently feasible and suggests what led Gale and the President’s Advisory Panel on Federal Tax Reform6 to reach the opposite – and incorrect – conclusion. (See Paper)" See also: Tax Panel rebuttal + Wm Gale rebuttal
BB: (Regarding the blanket 30% increase attributed in multiple places in your article, "tanks," "newly-constructed homes," the added amount that would be paid by "state and local governments.")
Me: Nowhere do you point out the price efficiencies that would be gained under FairTax. Kotlikoff and associates found that these ranged from 20% - 30%, and averaged them to 22% across the economy. Thus, we're ALREADY PAYING an embedded 22% in our retail prices. If you believe in market competition (do you?), then you must allow for the elimination of these embedded taxes - which means relative price stability (due to lower costs of doing business - for every business entity contributing at every stage of production). Thus, representing an add-on of 30% is blatant demogoguery.
BB: "Aside from the incredible complexity and intrusiveness of tracking every American's monthly income -- and creating a de facto national welfare program -- the FairTax does not include the cost of this rebate in the tax rate."
Me: The only purpose for tracking income, is for social security payouts. That "incredible complexity and intrusiveness of tracing every American's ... income" - last time I checked - is what the current income tax system, and theIRS, are all about. FairTax bases "prebates" on family size. Prebates are sent to ALL American families to untax the necessities, thus eliminating wasteful bureaucracy,and corruption-producing tax code rules and regulations.
BB: "the FairTax does not include the cost of this rebate in the tax rate."
Me: Somebody told ya wrong - like Prego spaghetti sauce, "It's in deah." That extra 5% you then introduce is the amount that Kotlikoff DEDUCTS from the 23%.
BB: "Rejecting all the tricks of FairTax supporters..."
Me: Hey, you calling me a trickster?
BB: "...professional revenue estimators have always concluded that a national retail sales tax would have to be much, much higher than 23%."
Me: Then, why hasn't William Gale, and the president's Tax Panel, delivered their economic methodology (substantiating higher quoted tax rates) to Kotlikoff or FairTax.org? Hmmm?
BB: "Perhaps the biggest deception in the FairTax, however, is its promise to relieve individuals from having to file income tax returns, keep extensive financial records and potentially suffer audits."
Me: Huh? What's to deceive? Individuals do not file income tax returns. Businesses don't either; businesses will file basically an expanded state sales tax return. Individuals would keep financial records, but not for the purposes of filing a return. And working families would not be subject to audit unless they ran a business.
BB: "the idea of making April 15 just another day, this seems to be a major selling point for their proposal"
Me: Duh. Like that's bad to get out from under the thumb of an intrusive government that has been proven arbitrary in the manner in which it administers the current tax code?
BB: "In short, the FairTax is too good to be true, and voters should not take seriously any candidate who supports it."
Me: Sorry, BB. Your commentary is to bad to be credible. Next time, at least familiarize yourself with the research and rebuttals to the demogoguery that is sure to assail it.
Readers should expect these assaults on FairTax to increase as this eminently workable - in fact, URGENTLY REQUIRED - tax plan gains adherents.
Posted by: Ian | Aug 27, 2007 8:01:11 PM