FairTax, doom, and net-net

[Jeff Bone]

On Thursday, Apr 10, 2003, at 10:09 US/Central, Russell Turpin wrote:

> Jeff Bone:
>> And for all you progressivists out there:  that 50% raise is going to 
>> have a lot greater utility impact on the lower and middle income 
>> brackets.
>
> I don't think so.
>
> The lower and middle income tax brackets won't get
> a 50% raise, because their effective tax rate is
> far less than 33%.

Right, this was a mistake on my part.  I shouldn't've quantified the 
raise.  If, say, they are in the lowest non-zero tax bracket - 20%? - 
they'll get an effective 25% raise.  If they are below the taxable 
line, they won't get a raise at all --- but by the same token, they 
won't pay any more tax than they do now, i.e. none, as consumption 
below that same line (or lower) isn't taxed at all.

So:

Lowest income:  no direct change, indirect change in the form of lower 
pre-tax prices for goods
Low, middle, high income:  increased spendable wealth, i.e. a raise - 
and a substantial one at that

For the poorest Americans, this is no worse than what they've got now, 
and for the bulk of all Americans it is a significant increase in 
purchasing power.  This doesn't doom consumption, it increases it.

> Since they're trading one kind of tax for another,
> THERE CANNOT BE A DOLLAR BENEFIT OVERALL. If there
> is, it is not revenue neutral, and loses on that
> ground. You have described how virtually everyone
> with an effective tax rate above 20% is a dollar
> winner. Who are the dollar losers? There had better
> be a lot of them, to make up for the dollar winners.

The dollar losers are the parasites that suck up utility in the current 
system.  It's nearsighted to look at this purely in revenue collection 
terms --- the bet is that overall liquidity and productivity in the 
economy increase because of the increased spending power for the 
masses, and this translates into equivalent or higher revenue 
collection.  So you're not just shifting one tax to another --- you are 
improving some of the fundamentals in the economy, offsetting the 
dollar-loss on a false "all other things being equal" basis.

I would suggest you read some of the FAQs for FairTax, particularly 
"Average Americans," [1] "Wages," [2] and "Stable Government Revenue" 
[3] for a more detailed (and accurate) analysis.  A complete list of 
FAQs can be found at [4].

jb

[1] http://www.fairtax.org/pdfs/averageamericans.pdf
[2]http://www.fairtax.org/pdfs/wages.pdf
[3] http://www.fairtax.org/pdfs/stable%20government%20revenue.pdf
[4] http://www.fairtax.org/research.asp?PageID=21