The downside of a flat consumption tax?
1) it lowers the tax obligation of the top bracket at the expense of the middle class
2) they take away incentives to middle class taxpayers, re: home ownership, retirement planning, etc.
3) revenue projections rely on unsubstantiated ideological (overly optimistic) economic assumptions that they cant support.
The
"fair" tax proposal floating around today is similar to a proposal from 5-6 years ago.
Relying on data from Bush's Advisory Panel on Tax Reform, here is what FactCheck.org found on the earlier bill:
Quote:
We wrote that the bipartisan Advisory Panel on Tax Reform had “calculated that a sales tax would have to be set at 34 percent of retail sales prices to bring in the same revenue as the taxes it would replace, meaning that an automobile with a retail price of $10,000 would cost $13,400 including the new sales tax.” A number of readers pointed out that H.R. 25, the specific bill mentioned by Gov. Huckabee, calls for a 23 percent retail sales tax and not the 34 percent used by the Advisory Panel on Tax Reform. That 23 percent number, however, is misleading and based on some extremely optimistic assumptions. We found that 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...
...With the prebate program in effect, those earning less than $15,000 per year would see their share of the federal tax burden drop from -0.7 percent to -6.3 percent. Of course, if the poorest Americans are paying less under the FairTax plan, then someone else pays more. As it turns out, according to the Treasury Department, “someone else” is everybody earning between $15,000 and $200,000 per year. The chart below compares the share of the federal tax burden for different income groups under the current system and under the FairTax. Those in the highest and the lowest brackets will see their share decrease, while everyone else will see their share of taxes increase.
(charts from Bush's advisory panel on tax reform:
.....it is revenue-neutral only through an accounting trick. It will collect more money from those earning between $15,000 and $200,000 per year and less from those earning more than $200,000 per year. It is possible that the FairTax would make most people better off, but much of that gain would be a direct result of making the tax code less fair.
FactCheck.org: Unspinning the FairTax
|
There is a reason that every president and every Congress, both D and R, since Teddy Roosevelt have support a progressive tax system, differing only on the rates.
It is fair and it works.