Clarity –
You are the type of person I enjoy discussing the FairTax with because you make an effort to think things through. Obviously we are not going to change each others minds, but at least we can have a pleasant discussion.
1. Kotlikoff’s (actually, Beacon Hill’s) analysis was not more rigorous than Gale’s, he just used different numbers and assumptions. You need to read that study VERY closely because they do all sorts of sneaky things. For one thing, they assumed that the deficit would be $476 billion (or three times what it currently is) in order to get the rate down to 31.25% (tax exclusive.) Second, they did not account for any tax avoidance, that is, the legal actions people would take to avoid paying the FairTax. Buying used homes instead of new homes, for example. When you factor in these to facts alone, you get a tax rate of 45% in order to pay the obligations of government. (Admittedly, the government spends too much money, but the FairTax does not address that.)
2. I’m afraid you overestimate how easy it is for the wealthy to avoid paying income taxes (and, particularly, estate taxes). And you underestimate how easy it will be for the wealthy to avoid paying the FairTax. For example, Paris Hilton can simply go live on the French Rivera for a year tax free. If the rich try so hard to avoid our income tax, don’t you think they will do the same thing under the FairTax. They’ll make tax-free purchases for “business” or “investment” expenses. Vacation overseas. Buy yachts and villas in the Bahamas. There is simply no way to force them to spend all of the their money on taxable goods and services in the U.S. (Even Kotlikoff recognizes that, by the way, because I’ve discussed this with him.)
Also, the middle class keep 100% of the paychecks ONLY if prices rise by the full tax-exclusive rate of the FairTax. So their purchasing power does not increase at all, and their savings are worth considerably less. Read the Beacon Hill/Kotlikoff study and you will see. (Even Boortz and Linder admit this in their latest book, though in a completely muddled way so it is not obvious what they are saying.) Dale Jorgenson took them to the woodshed for misrepresenting his studies on the “embedded taxes” in their first book.
3. Again, I’m afraid it is an urban myth that one can simply avoid paying the estate tax. (Why do you think so many of them campaign so hard for its elimination.) At under $10 million or so in assets, you can take certain steps to minimize it’s impact, but above that level you have to pay the estate tax unless you give your money away. Many wealthy folks do leave their money in charitable foundations administered by their children, but those foundations are carefully regulated. The children can’t spend the money on themselves.
If you believe that Bill Gates and Warren Buffet are going to pay MORE in taxes under the FairTax than under our current system, you are not thinking through your analysis.
Suppose, for example, that Warren Buffet spends $10 million a year on TAXABLE goods and services (which for him would be a lot), his total tax under the FairTax would be $2.3 million per year, which is only a tiny, tiny fraction of what he currently pays.
There’s really no way to seriously argue that the FairTax increases the tax burden on the wealthy. Kotlikoff tries to make the argument that OVER GENERATIONS all wealth is eventually spent, so it will eventually be taxed. It’s a pretty weak argument, if you ask me. And as Keynes famously said,”In the long run, we’re all dead.” Relying on future generations of wealthy folks to pay taxes on their wealth is a pretty weak basis for increasing the current tax burden on the middle class.
Yes, I know you believe that the FairTax is a VOLUNTARY tax and that middle class folks can save on taxes buy simply consuming less and buying used, but you miss the point that EVERYONE will do the same thing, which will not only totally disrupt the economy (home builders, car manufacturers, etc.) but will result in a further loss of tax revenue, which will require the FairTax rate to be increased even farther.
Look, I’m all for tax reform, but the FairTax ain’t it. (Read “100 MIllion Unnecessary Returns” by William Graetz if you want to see a well-thought-out tax plan that incorporates a consumption tax.)
Oh, one final thing, Ireland has a corporate tax AND an income tax AND a consumption tax. So, saying that they simply reduced corporate taxes is not really accurate.
