Paul Murray's weblog, with news you may have missed and my $0.02 worth on a number of topics.

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it."
- Art Buchwald

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Spare us from the FairTax zealots. Some people are relentlessly pushing the "FairTax," a national sales tax, as a miracle solution that will solve all our problems -- including allowing the elimination of the Internal Revenue Service.

When you have a blowhard talk radio host pushing the idea, it refuses to go away. And now GOP candidate Mike Huckabee is on the bandwagon. So the Washington Post takes a look:

A national sales tax won't work, at least not according to tax experts and economists of all political stripes. Even President Bush's Advisory Panel on Federal Tax Reform dedicated a chapter [PDF] of its 2005 final report to dismissing such proposals.

"After careful evaluation, the Panel decided to reject a complete replacement of the federal income tax system with a retail sales tax," the panel said. It concluded that such a move would shift the tax burden from the rich to the poor or create the largest entitlement program in history to mitigate that new burden....

To offset the burden on the poor, the FairTax system would send monthly checks to everyone in the nation, compensating for taxes paid up to the poverty level and ensuring that some minimum standard of living would go untaxed. The president's tax overhaul panel, in its final report, estimated that such a program would cost $600 billion to $780 billion a year, making "most American families dependent on monthly checks from the government for a substantial portion of their income."

But the biggest criticism is that the tax cannot be administered. Many economists say a black market would develop overnight, especially in the service sector.

"Under the FairTax, every time you purchase a service, you would probably get two prices -- one you can pay with a check or credit card that includes the FairTax, and one you can pay in cash and save 23 percent," conservative economist Bruce R. Bartlett wrote this week in the publication Tax Notes. "Because there would no longer be any audits of income, since the IRS would have been abolished ... massive evasion is inevitable."

At the same time, federal spending would shoot up because the government would have to pay sales taxes on purchases. To compensate, the sales tax rate would have to rise to more than 40 percent for the government to take in as much as it does now, said William G. Gale, a tax economist at the Brookings Institution. State and local governments, facing a new burden on purchases, would have to increase taxes to maintain current levels, as well.

FactCheck.org also has a good explanation of it: "while there are several good economic arguments for the FairTax, unless you earn more than $200,000 per year, fairness is not one of them."

Still not convinced? The idea originated with a group of Texas businessmen.

Labels: FairTax, taxation

posted by Paul Murray at 12:47 AM | permanent link |