This is what I posted on the 'Bell Gab' website about a guest who appeared on the pathetic U.S Radio Program "Coast To Coast" (which I even more pathetically listen to) who was promoting the so-called 'fair tax'. I'm reposting it complete so that's where the references to 'the guest' come from (The guest was Bill Spillane).
1.Total consumption spending was around $12 trillion in 2014, 25% (23%) of that is $3 trillion. Total direct federal revenue in 2014 was $3.2 trillion
http://www.usgovernmentrevenue.com/total, so even without adding in the cost of the 'prebates', a 23% sales tax rate would not be enough for the tax to generate enough revenue to make up for the loss of existing federal taxes. Quoting Arthur Laffer to say that the cost of federal tax compliance is around $1 trillion a year is simply not credible to me. In the first year, it would mean that retail businesses (there are around 23 million small businesses in the United States) would have to retool their computer systems and their cash registers to set up receiving the tax. If the 'fair tax' were to be 'hidden' as opposed to 'paid at the cash register' it would also mean they would have to change all their prices. Both of these would have very high costs, although they would be 'one time things' as long as the rate of the 'fair tax' didn't change.
2.I had an english instructor once who would write "MNS" on papers (I received it once, I believe). At the beginning of the year, she handed out a guide that explained what her acronyms meant. "MNS" meant "makes no sense". The guest's responses to how a 23% sales tax would somehow lead to lower prices or, at most, would barely raise prices and, even more so, the response to how the huge increase in sales taxes wouldn't lead to a massive black market "MNS".
3.I agree with the idea of eliminating corporate income taxes, partly because, as the guest said "corporations don't pay any taxes" but mainly because corporations should receive an incentive to reinvest their profits. So, I would increase dividend taxes to the 'normal rate' to partially make up for the loss of corporate taxes. Other than that, I would get revenue by shifting to pollution taxes and possibly increasing the capital gains tax rate. I would also increase pollution taxes so much that I'd have the ability to significantly decrease, if not eliminate, the corporate share of payroll taxes. Business payroll taxes certainly have a negative impact on job hiring (though how big I have no idea), as corporate income taxes are 'after profit' their impact is probably minor, though obviously they discourage investment. Of course, very few large corporations likely even pay the effective 35% rate anyway.
4.The idea that switching from the present tax system to the 'fair tax' would increase GDP by "10% in the first year alone", is ridiculous. One of the first things taught in macroeconomics is that in the long run the only way to increase real GDP per capita is by increasing productive capacity (new plant and equipment, better infrastructure, better education...). Even if eliminating income and other taxes did spur growth, the idea that productive capacity would increase significantly in the first year is laughable. Eliminating corporate income and payroll taxes likely would lead to greater growth, but it would occur over many years. Eliminating other income taxes and personal payroll taxes would likely have little impact, if any, on growth rates.
5.The guest promoted his 'prebates' but left out that lower income people already pay little to no income taxes and that even a great deal of payroll taxes are paid back to low and lower middle income earners through the EITC.
6.Switching to a 'fair tax' would not eliminate the IRS. To be sure, it would be smaller, but there would still be a need to ensure that businesses sent on their 'fair tax' remittances as well as an agency to fight the newly hugely expanded black market. There would also need to be an agency to hand out the 'prebates' and, more importantly, to prevent what would likely be massive fraud with the 'prebates.' I believe that the IRS also handles state income taxes, so, implementing a 'fair tax' would likely force states to eliminate their income taxes and move to sales taxes as well (or maybe increase property taxes). Many counties (and I believe cities) also use sales taxes as well. So the full effective sales tax rate (the nearly 30% the federal sales tax would have to be to achieve the same amount of revenue) as well as state, city? and county, would likely approach 50%! in many states.
The French Finance Minister and early economist Jean-Baptiste Colbert famously said: "The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing." While having as many different taxes as possible increases compliance costs, it keeps tax cheating and fraud to a minimum.
7.The guest said that a paying sales taxes are a 'choice'. This, is, of course, for everybody but the 'back to earthers' ridiculous. He also said that the effective rate on the 'flat tax' goes 'up and up.' This is simply not true. Many of the wealthiest save or invest a great deal of their income rather than spend it. None of that would be taxed. It is most likely that the middle class, or the slightly upper middle class would end up paying the highest percent of their income in 'fair taxes.'
8.The Fair Tax would almost certainly not eliminate lobbying and claims for 'deductions'.
Charities would certainly get a lot of sympathy if they argued that sales tax payers should be able to send in tax receipts and receive money from back from the government equal to a percentage paid to the charity. There are many other worthy tax deductions and credits, for instance those that benefit the physically and mentally challenged. Again, it would be hard to imagine these people not receiving subsidies to equal what they presently receive in tax deductions and credits. The fair tax would not eliminate lobbying, it would merely shift the demand from credits and deductions to direct subsidies.
