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Fair Tax

Written by | November 23rd, 2008
I don’t know much about the fair tax, but increasingly, I keep hearing more and more about it.
I would like to know more about it, if anyone has some insight.
 
Here are the specifics: the fair tax is essentially a 30% sales tax, with a “prebate” mailed to everyone to cover necessities up to the federal poverty level. Advocates promise that we can eliminate the IRS, and everyone would then keep 100% of their paycheck…
 
The proposal’s technical merits are as follows:
  • Compliance is considerably easier to get from companies than it is from individuals; overall, I would expect the level of tax compliance to rise slightly under this scheme.
  • Consumption taxes are generally agreed to be economically preferable to flat income taxes, because they encourage savings and investment.
  • It ends the enormous amount of time that Americans spend trying to figure out their taxes.
  • It involves radical tax simplification, an idea that would be endorsed by virtually every economist as an improvement over the current system.
  • The prebate simplifies welfare policy by eliminating the means-testing component.
The downsides:  
  • It’s unlikely to raise as much revenue as claimed
  • Because the tax is not calculated separately, but included in the price, it would be to some extent less transparent than the income tax
  • It will end up being quite regressive, with the highest effective burden falling on the lower tiers of the middle class.
  • After eliminating the IRS, you’re going to have to create a new, very large government bureaucracy to manage distribution of the “prebate”. Also, now every American citizen will have to immediately register any change in address with the Federal government
  • This will not stop politicians from playing games with the tax code; stand by for long campaign arguments over increasing the prebate. 
 
I have found the below info at…
http://meganmcardle.theatlantic.com/archives/2008/01/huckabee_hawks_the_fair_tax.php 
Mark
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