It is truly disappointing to see such misinformed information in the
Wall Street Journal.
Mr. Barlett's analysis of the Fair Tax is so flawed it is difficult to
know where to begin. I am sure the author of this piece is better
informed than his writing would indicate, but since he didn't do it, I
will try to fairly represent the Fair Tax. Let's just take it in the
1. The Fair Tax represents itself as a 23% tax to fairly compare it with
the income tax it is designed to replace. If your income tax rate is
23%, for $100 in income you pay $23 in taxes and are left with $77. Yes,
the $23 is 30% of your remaining $77. In exactly the same way, if you
spend $100 dollars, $23 would be taxed away.
2. Products would not simply cost an additional 30% percent as Mr.
Bartlett states. The prices currently paid by consumers reflects the
costs of the taxes paid by industry at every step of production to the
federal government (payroll taxes, corporate income taxes, etc.). These
costs would be eliminated, and competition will force producers to pass
those savings along to their customers, whether that customer is a home
buyer, a state government, or the federal government. The best
economists suggest that prices of all goods will fall 20 to 25%, largely
offsetting the sales tax. In addition, it is important to remember that
the dollars that we would use to make our purchases would come to us
3. The statement "The FairTax does this by sending monthly checks to
every household based on income." is just plain wrong. As I hope the
author of this piece knows, the prebate will be paid to every household,
period. No income tests or other invasive tracking required. This surely
is one of the best features of the Fair Tax - we no longer would be
tracked by the federal government and we would all be treated equally,
as we should be in a free society. The Fair Tax would return us to a
society that respects the privacy of us all.
4. The statement "the FairTax does not include the cost of this rebate
in the tax rate." is just plain wrong. Any analysis of the Fair Tax
includes the cost of the prebate and the resulting 23% rate is
calculated to bring in the same amount of money to the federal
government as it now collects through its maze of income, payroll, and
other taxes that will be replaced.
5. The statement "the tax-inclusive rate would have to be 36% and the
tax-exclusive rate would be 57%." is just plain wrong. The proposed 23%
rate has been confirmed to be revenue neutral by several independent
institutions. The detailed calculations are available for anyone to
analyze. It is important to note two large sources of increased income
that result from the Fair Tax. The present compliance cost for our
unwieldy income tax is estimated at $235B (yes, billion) per year. This
would largely go away as collection of sales taxes is already being done
in just about every state. The large underground economy, estimated at
$1T (yes, trillion) per year, is currently untaxed, but would be under
the Fair Tax.
6. The question "What possible incentive would the states have to be
vigorous in their federal tax collections?" has an easy answer - the
states will receive a collection fee to cover their costs of collecting
the Fair Tax.
It is hard to believe that an article so misinformed about the Fair Tax
can still be written after all the effort that has been made to explain
it over many years. The information is all out there, one only has to