GeorgiaTex-
I’m somewhat familiar with Gale’s analysis, he and economics Prof. Kotlikoff of Boston University have gone back and forth on this. Gale’s approach to the FairTax is dismissive and contains some erroneous calculations. Prof. Kotlikoff has been more rigorous in his approach to the FairTax and I suggest reading some of his publications on the matter.
2. There are several things you are missing. For one, taxes would not be slashed on the truly wealthy, because as it is currently, they can avoid federal income tax to a substantial degree through various accounting gymnastics. Between wealthy tax dodgers, tax cheats and the underground economy, the tax base would be broadened considerably. So the tax burden would not need to increase on the middle class because the tax base is broadened. Additionally, because the middle class would suddenly receive the entirety of their income, they would have the freedom to choose when and how much tax they are going to pay. That is a HUGE opportunity for the middle class to try to build wealth instead of just continuing on the paycheck-to-paycheck treadmill they are on now.
3. The FairTax doesn’t tax wealth, but it comes much closer to it than income tax. Estate tax is a joke because it can usually be avoided anyway. Once again, you’re talking about the wealthy, who have all the tools at their disposal necessary to avoid paying taxes legally. You will never stop the truly wealthy from being wealthy, and we shouldn’t try to. And what you’re forgetting is that while many wealthy people are able to live off their interest and dividends in good times, when the market is slow and their portfolio shrinks, they DO spend some of their principle capital. Meanwhile as it is now, they get a tax holiday for a year because their stocks didn’t grow. Yet they still were able to cruise down to starbucks in their new Bentley that gets 12 miles to the gallon and buy their $10 latte (with extra foam please). Does that sound fair to you? Consumption is a far more fair and stable source of revenue to fund our federal government. Yes if someone wants to be a miser and live it poverty while having a fat bank account they can avoid paying tax, but that’s not a very realistic scenario, and even if it were, when they die and pass on that money to their children, I guarantee it will be spent at some point along the line. And when it is, it will be taxed.
