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A wiser man once had an adage about throwing out the baby with the bathwater...
Well the current Republican candidates, with the exception of Huckabee and Ron Paul, want to do half measures (actually less than half!). I'm not happy with that.
The problem with a consumption tax in the US is that we are a consumption-based economy. I believe that Bernanke stated to Congress the other day that consumer spending accounts for 70% of US economic activity.
Even if the input prices are reduced by eliminating taxes on production there is still a psychological affect of paying a 30% tax on something you buy. Someone considering purchasing a $30,000 vehicle is going to think twice if they have to pay a $9,000 tax. Purchasing a much less expensive vehicle (maybe even Chinese) would be a reasonable consideration.
This behavior isn't bad if the goal is to reduce consumption but it could be disastrous to our economic structure in my opinion.
What about the psychological effect of embedded taxes, once people realize what's going on? And, I assume the $30k car you mention is after the FairTax enactment and after the price has gone down from a still higher price?
Although not an economist, Mr. Bartlett’s impressive knowledge of 65,000 pages of tax regulations and arcane minutia of the income tax system would -- overnight -- of course be rendered obsolete with the paradigm-shifting simplicity of the FairTax. At the same time, foreign manufacturers would no longer see a price advantage over the “Made in America†label; taxpayers would be freed from the embarrassing and wasted $265 billion dollars annually it costs to merely comply with the income tax system; and American earnings, investment, and productivity would no longer be subject to Congressional power struggles, the profit motives of tax lobbyists, and yes, the intellect of individuals such as Mr. Bartlett.
Do you see anything there that rebuts? Anything elsewhere in that piece? Did you notice that Leo Linbeck here contradicts the claim of Tuerck et al that embedded costs are $346 billion? Where did Linbeck get $265 billion from? If he doubts the $346 billion, why is it posted on his website?
How many people do you figure will need to be fired in order for all these prices to fall? If wages aren't going to be reduced but prices are, something's gotta give. I guess it's a given that the 115-120 thousand people at IRS will be out of a job since the entire agency is supposed to go away, but how many more out there in the private sector will end up out of work as of the day the FairTax goes into effect?
What explains the steep volume discounts that I might receive in buying say 500 computers instead of one? I assume that my steeply discounted price exceeds the actual cost of production and that the seller is in fact making a very reasonable profit from my purchase. But what would explain the significant difference between the unit-price charged on my single order of 500 units, and that which would be charged on each of 500 orders of a single unit? To be sure, there would be extra paperwork charges involved in the latter, and there would perhaps be additonal charges arising from individual rather than bulk shipping, but it seems difficult to accept that these can explain all of the dramatic difference in price. What is it then that would keep sellers from reducing the price that is applied to single-unit sales?
I ask because if there are means that sellers can and do resort to which allow them to keep prices from falling into some precast relationship with their costs of production, then the FairTax assumption that retail prices will fall, dollar-for-dollar, with the relief that they receive from tax and tax compliance costs is called into serious question.
"According to research by the Government Accountability Office, efficiency
costs are on the order of magnitude of two to five percent of Gross Domestic Product (GDP).10
Based on GDP of $13.259 trillion in 2006, efficiency costs are an additional $265 billion to $663
billion." (attributed to John Berthoud, president of the National Taxpayers Union)
The $346 billion figure comes from Beacon Hill. See page 4.
Best I could do on short notice -- Looks like two different ways of approaching the figures.
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