Michael Bindner is assuming that prices won't drop to around the amount of the FairTax which shows he hasn't really read about it.

All costs of a business are passed on into the price of the products they sell. These include all the business taxes and the employees’ payroll taxes. These costs also include all the expenses involved in paying the tax: accountants, bookkeeping, time, and learning about the tax code and probably more. This is especially high for small businesses where about 80% of us work. A good estimate is small businesses tend to waste $7 just to pay $1 of taxes.

There is also what’s called the tax gap which is the difference between what’s owed and what’s actually paid where those that pay must pay higher rates to make up the difference. I’ve seen figures of 15% - 40% for citizens that don’t pay the taxes they are supposed to. I’d like to find a breakdown about what kind of people are not paying, but I suspect many of them are just individuals or small business that get frustrated with the pile of forms that must be filled out and decide to just chuck the whole mess into the trash and take their chances.

Then there’s a real but difficult to quantify expense of lost efficiency. Basically, what would businesses do with the time and money now spent involved in paying taxes? Why they would run their businesses even better, more productively and efficiently.

The AFFT really only considered the savings in taxes when they calculated what the rate would have to be, they apparently don’t want to promise too much. However, businesses will be able to save all these compliance costs as well and pass the savings on to us. I added up all these hidden costs and in today’s dollars could very well be 1.5 trillion or more! Can’t guarantee this, but the potential savings are there and are profound.

Look at it this way, all wealth is created by businesses. It makes complete sense to relieve businesses of these wasteful expenses and inefficiencies allowing them to spend every minute and dollar they can creating as much wealth as possible…wealth that one way or another helps us all. This will allow economic growth the likes we have never seen and is the most important promise of the FairTax.

Then there is the effect of widening the base. Currently there are approximately 300 million Americans of which only around 150 million pay federal taxes. I think it's safe to assume all 300 million buy things or have things bought for them so would be paying the FairTax.

Of those that don't pay federal income taxes some are so wealthy they have their wealth stashed away in tax free investments like municipal bonds or in offshore accounts. By the way, Alan Greenspan says there’s approximately 10 trillion American dollars hidden in these offshore accounts and he expects them to repatriated in short order to take advantage of the new tax free American investments. This will help fuel economic growth as well, allowing businesses access to low interest loans or bonds for improvements that might be necessary with increased demand for their products or services.

Then there's the underground economy estimated to be 1 - 1.5 trillion consisting of criminals, illegals and whatnot. They will finally pay their fair share of taxes.

There certainly is no free lunch, but there are separate tickets to share the tab. The FairTax is the best way share the burden of taxation.

Oh yeah, I don’t want to forget that once our products have the hidden taxes and compliance costs removed from their prices they will be far more competitive in world markets. As it is most countries use a VAT and have it refunded on exports giving them a significant advantage against American made products. We are the most productive people in the world and once we have a level playing field they’ll be no stopping us.

The best minds in the world in economics have known about the benefits of a consumption tax since the computer revolution made it possible for them to run complex econometric models. Congress has already wasted at least 10 years of strong economic growth. Where would we be today if congress had acted? Would middle class Americans be making $10k, $20k, $30k or more per year now? Quite possibly since growth could easily have been 10% higher per year.

It’s high time we eliminate these hidden burdens on businesses and bring the remaining unseen costs to the surface where they belong. We must rise up and demand it because congress is reluctant to give up the power to manipulate, control, punish and reward the people through the complexity of the current income tax code.

I urge the reader to read as much as possible at FairTax.org. Discover the truth yourselves.

First, the fairtax is perfect. It was surgically constructed to confront and solve every conceivable crisis. NO issue has been unaccounted for and it still works perfectly. Secondly, the fairtax will be a reality soon. Huckabee will certainly get the VP spot, garnering enough mod and value votes to win the general election. The fairtax will give the traditionally useless VP an excellent platform to educate Americans on this brilliant tax plan. Americans will demand the fairtax and it will be law. Even if one hates the right so much as to oppose a great tax plan, one should at least be up on every aspect of the plan. Read the book.

If you don't quite understand what he's talking about, and don't see the logic in how it would be cheaper, then you obviously haven't researched the Fairtax. Have you been to the Fairtax site? Better yet, have you read "The Fairtax Book"? To answer your specific question, you need to look up the definition of "embedded taxes". Businesses DON'T pay taxes, they jack their prices up to compensate for the tax they have to pay and WE end up paying it. If there are no business taxes, then there is no embedded tax. To remain competitive the savings are passed onto the consumer, then the Fairtax is added at the retail level. The Fairtax percentage is comparable to the "hidden" embedded taxes percentage. The Fairtax simply replaces the "hidden" embedded tax with the upfront Fairtax. Prices will remain essentially unchanged, some slightly higher, some slightly lower, depending on how much savings the companies will see from the lack of business taxes.

Oh, and who cares about a $3 gallon of milk or a $5 lunch when you just use your monthly prebate? Never heard of the prebate? It serves the exact same function of the "standard deduction" and "exemptions" seen on income taxes today. The difference is instead of getting a break on how much tax you have to pay at the end of the year, it's getting a break on the taxes you have to pay every month (when you buy things of course).

I request that you do a little research before you post negative views of the Fairtax. The reason being, other people looking for information on the Fairtax will see your un-educated view and develop your same negative opinion. The "Fairtax" deserves a "Fair" explanation of it's workings instead of slanderous opinions.

Sorry if I sound rude, but I've been seeing alot of mudslinging on the Fairtax lately that gives it a bad name. The reasons that are given as to why the Fairtax is bad or doesn't make sense are because of un-educated opinions and they post them everywhere and even write whole articles about it. It's ridiculous and I've decided I need to start contributing to set things straight.

Another Fairtax book is coming out this month (Feb), and I hope it is read my millions in order to learn about the Fairtax. Until then I would like to invite you to read this article, that will set many questions straight, titled "The Fairtax - The Truth" by Neal Boortz, co-author the "The Fairtax Book.

http://www.townhall.com/columnists/NealBoortz/2007/11/27/the_fairtax_--_the_truth

The Fair Tax is not perfect. I go into a few of the problems on my blog, which you can reference, as well as the solutions.

Additionally, the 80% figure for small business reflects the number of such enterprises, not their employment size. 54% of us actually work for large businesses - and the number is more if you include franchise slaves.

States which rely on a consumption tax more than a redistributive income tax tend to actually be in worse shape, since they can't spend enough or tax enough to provide needed services. Look at the Southern states and you will get my point.

I like your thoughts about Huckabee, who I have endorsed - although we will see if he is VP or the top of the ticket. We will have a better idea on Tuesday nite. McCain could still have a public snit between now and the GOP convention. If he pulls a Howard Dean and he doesn't yet have a first ballot victory assured it could get interesting, especially if there are primaries left and you have Huckabee v. Romney. We already see how that looks.

You are right, its worse than I thought after reading the Fair Tax Act plain language text. The Fair Tax will result in a 23% across the board spending cut (unless you have a provision that raises spending by that amount, I may not have gotten that far. This would be deflationary.

I have a Masters in Public Administration, with advanced coursework in public finance. I can tell you right now that the provision of taxing public spending will not fly.

This is why the Bush Tax Reform Task Force rejected it out of hand and why I made suggestions on how to fix it.

It seems to be almost a fetish among the proposers that activities are only taxed once, that taxes be totally visible and that government be cut as part of the scheme.

Neither is a concept I would fall on my sword for if I were you. Reducing the impact that the IRS has no most taxpayers should be enough. It would be monumental to do this. Leave the biases out of it.

The other oversights in the Fair Tax are the revenue neutrality (which mask the need to balance the budget by allowing the Bush tax cuts on the wealthy to expire or repealing them January 1, 2009) and the need to increase the Fair Tax rate as the Baby Boomers retire, since there is not income tax under the Fair Tax to be increased to redeem the funds in the Social Security Trust Fund.

One final observation on the Fair Tax. It would damage the U.S. credit rating, which depends on the ability to tax incomes. Taxing sales will decrease the attractiveness of lending to the U.S. Government. Income Taxes are counter-cyclical at the high end, meaning that high income taxpayers generally do not see their incomes fall in bad economic times, therefore increasing taxes on this class of taxpayer, who dedicates more money to savings than the average taxpayer, has the effect of increasing consumption. Depending on only the average tax rate eliminates some of this effect, making U.S. debt instruments less attractive.

You haven’t suggested why it’s not a good idea to remove all tax burdens from businesses, the creators of wealth.

You put a lot of faith in the President’s Panel. Let’s look at that report carefully now. http://www.taxreformpanel.gov/final-report/
Notice, no where do they show their assumptions, equations or calculations. Do you see the colorful graphics? How about the fancy fonts? How about the freaking cartoons? Don’t you see what it is? A sales brochure!

Now why you would believe an undocumented sales brochure put out to sell the ideas of some bureaucrats and thus themselves, is completely beyond me. This “so impressive” document is the foundation of many arguments against the FairTax. Until the Panel releases their methodology, which they have refused to do for years, it is irrational to think of it as anything other than the advertisement it is.

It is suggested that states adopt their own versions of the FairTax. In doing so they widen their base and actually lower their previous rate.

What are you talking about a 23% spending cut? First of all prices will drop as I pointed out in first post. Then anything the federal government spends in one month on taxes it get right back the next month since the FairTax is collected no latter then a month, 2 weeks for big businesses.

It has to be revenue neutral or Democrats will never pass it. We’ll fight for budget cuts on a different battlefield. Just having the tax so obvious on every receipt is a conservative victory I think.

Your saying our credit rating is based on the ability of our government to steal its citizens’ money? I would think it would be based on the total value of our economy or something. Consider too the 10 trillion American dollars that will come back here from offshore accounts. How about all the foreign money that will come here for tax free investing. Oh let’s not forget the foreign businesses that will surely relocate here. Credit rating going down…I think not.

The FairTax is a ripoff. It's like starting a monopoly game where all the property is already sold and saying it's fair because everyone gets an equal $200 to pass go. Every one who can (the rich) will avoid the tax by buying large items overseas. See fairtaxfraud.com for the truth about this horrible tax bill.

FairTaxFraud promotes a No-Tax plan where all revenues come from a 50% tax on investment. That would destroy this country.

Read some stuff on basics economics or just stop spamming forums will ya FairTaxFraud?

I resist the notion that only businesses create wealth or that taxation is somehow a penalty. Taxation is a payment for services rendered to the public - like defense, roads and the incarceration of dangerous people (and not so dangerous people who should be freed).

The velocity of tax revenue returning to the government does not change the fact that spending would be reduced by 23% under this scheme. Its not a cash flow issue, its an authorization to expend issue. If all government expenditures on goods, services or salaries (with the exception of education) were taxed, those line items would have to be increased by 23% to provide the public with the same level of service.

Also, the tax loss is less than you think, especially since the record keeping required by the Fair Tax and the reporting for Social Security are not insignificant.

I think one of the assumptions of the Fair Tax is that people somehow have not gotten over the sticker shock of Net Pay vs. Gross Pay that they experience when they get their first job washing dishes or flipping burgers. It matters not whether the tax revenue is paid on top of what they spend or on top of what they earn - they still pay it (unless they don't spend).

I agree that the Fair Tax must be revenue neutral - but not to current revenue but to Clinton era revenue, which was making progress in retiring the debt.

However, the rate to do that would be too high.

I am all for abolishing the IRS - or rather decreasing its impact on the lives of citizens. You can do that without a supply side agenda, and indeed must because supply side economics doesn't work. Any time it has been tried a rather Keynesian deficit has popped up and the economy has been fueled by borrowed money.

Investments in wealth creation are made because customers demand services (either public or private)and infrastructure is required to provide these services. After services are provided, profits are created, which either fund further investment (if there is customer demand) or are transferred to personal consumption.

The ability to borrow is based on the ability to pay the money back. In the government's case, that is the ability to tax. The United States can borrow so much because it can tax high incomes at a higher rate. If it could not tax at higher rates its bond rating would go down.

Transition to a Fair Tax fromt he current tax code would be progressive, but only because the Bush Tax cuts have made effective tax rates for the wealthy lower than the middle class by taxing dividends at a lower rate than wage income. This is temporary. The correct baseline is the CLINTON tax rates. A Fair Tax revenue neutral to those rates would be higher and it would transfer tax burdens from the wealthiest Americans to the middle class.

The Fair Tax does not work as written if the baseline is the Clinton era tax structure, a requirement that after-tax appropriations levels be held constant and that debt repayment return to the levels experienced in that time period.

The proposals on my web page do work under the assumptions I just described. Also, as a VAT, they only tax business income the one time, since purchased services and material are exempt from VAT taxation. The only double taxation is the high income surtax - which is essential if you wish to repay the debt.

There has been much misunderstanding-deliberately promoted by income tax system defenders recently-about the effects of the FairTax on different income segments of the taxpaying public. Let's clear the air a bit.

The greatest benefits of tax reductions under the FairTax, according to respected economists, accrue to low income taxpayers (an average 14% reduction) then to the middle class taxpayers(an average 7% reduction) and then even to the wealthy (an average 5% reduction).

How can this be and still raise enough revenues to replace all taxes now collected under the income tax system? It's because the taxpayers base is dramatically broadened under a consumption tax by bringing in illegal immigrants, as consumers, and the $1.5 trillion annual underground economy. In addition, the very wealthy pay the full 23% rate on spending, which is an increase over the typical 15% capital gains tax now paid on dividends and stock gains when redeemed (Warren Buffet's recent complaint). In a nutshell, the more you spend under the FairTax, the more taxes you pay. Remember, too, that all the gimmicks that those with tax lobbyists and tax lawyers are able to exploit in the current 67,500 pages of income tax regulations also disappear (along with the role of tax lobbyists as there are no exemptions, loopholes or deductions).

The President's Advisory Panel on Tax Reform declared that taxes would go up on the middle class under a consumption tax when they ignored the definitions in the actual pending FairTax legislation and created their own flawed consumption tax. They quietly loaded it with exemptions they felt more "realistic", ignored the distributional effects of eliminating highly regressive FICA taxes (you know, the ones that represent the highest tax payments by low and moderate income taxpayers) and refused to examine the $22 million of FairTax research. They then declared a consumption tax (which many writers have wrongly assumed was the FairTax) as requiring a higher rate and punitive to the middle class.

The FairTax monthly prebate actually wipes out all federal taxes on the poor and a diminishing amount of taxes are reimbursed the further one is from the poverty line.

There is great resistance to the FairTax within the circles of those who profit from the complexities of the income tax code. Last year 53% of all lobby expenditures in Washington, DC were paid to tax lobbyists. It's big business that includes not only lobbyists and tax related think tanks and tax reforms groups (entirely devoted to tweaking the income tax code) but academicians who have built careers on understanding the arcane details of the code.

Add to that the center of resistance to a simple, transparent system without gimmicks-the Congressional tax writing committees themselves. In truth, Congressional Members from both parties are addicted to using the tax code to reward friends and contributors, punish opponents and inept attempts to manipulate citizen behavior through the code. In other words, our tax writing process is driven by all the wrong reasons.

The corrupted tax writing process is the single biggest reason that our tax code is so complex that it costs taxpayers $265 billion a year just to complete tax returns. It is so complex that the IRS can't answer taxpayer questions right more than six of ten times and the IRS comes up $350 billion short of owed taxes every year (some cheating but mostly because of errors) raising the average taxpayer bill by about $2,000 annually.

On the merits, the FairTax takes politics out of the tax code and the tax code out of business decisions. It untaxes the poor, untaxes creation of wealth and gives the middle class a break. It is the politics that are tough because passage requires overcoming powerful institutional players. To this end, Mike Huckabee and a host of other candidates have joined 72 Congressional co-sponsors and a growing army of citizens who believe that the public can still drive public policy ( a novel idea first suggested by the Founding Fathers). Otherwise, we are stuck with a system that makes debt more favorable than wealth, puts the "Made in America" label at a severe competitive disadvantage and punishes labor and investment. It's a system driven by politics, power and profit instead of economics or fairness. It's a lucrative gig for those in Washington and a destructive torture for everyone else.

Instead of borrowing money from China to pay out rebates to American taxpayers (as welcome as they will be) maybe we should think about what happens to the American economy when we make the USA the most desirable "tax haven" in the world. We have lost at least $12 trillion in American capital to offshore locations in recent years. Economists who have studied the FairTax agree that this wealth and a lot more in foreign investment (read jobs) will rush to our shores once the FairTax is enacted.

As FairTaxers say, "Dare to Be Fair". The FairTax won't be perfect and the transition will require adjustments but compared to the badly broken income tax system that so bedevils taxpayers and damages our economy, it's well worth it.

The FairTax research-as well as a recent article on how the FairTax helps the middle class by brilliant Boston University economics chair, Larry Kotlikoff, can be found at FairTax.org

The corrupted tax writing process is the single biggest reason that our tax code is so complex that it costs taxpayers $265 billion a year just to complete tax returns. It is so complex that the IRS can't answer taxpayer questions right more than six of ten times and the IRS comes up $350 billion short of owed taxes every year (some cheating but mostly because of errors) raising the average taxpayer bill by about $2,000 annually.

On the merits, the FairTax takes politics out of the tax code and the tax code out of business decisions. It untaxes the poor, untaxes creation of wealth and gives the middle class a break. It is the politics that are tough because passage requires overcoming powerful institutional players. To this end, Mike Huckabee and a host of other candidates have joined 72 Congressional co-sponsors and a growing army of citizens who believe that the public can still drive public policy ( a novel idea first suggested by the Founding Fathers). Otherwise, we are stuck with a system that makes debt more favorable than wealth, puts the "Made in America" label at a severe competitive disadvantage and punishes labor and investment. It's a system driven by politics, power and profit instead of economics or fairness. It's a lucrative gig for those in Washington and a destructive torture for everyone else.

Instead of borrowing money from China to pay out rebates to American taxpayers (as welcome as they will be) maybe we should think about what happens to the American economy when we make the USA the most desirable "tax haven" in the world. We have lost at least $12 trillion in American capital to offshore locations in recent years. Economists who have studied the FairTax agree that this wealth and a lot more in foreign investment (read jobs) will rush to our shores once the FairTax is enacted.

As FairTaxers say, "Dare to Be Fair". The FairTax won't be perfect and the transition will require adjustments but compared to the badly broken income tax system that so bedevils taxpayers and damages our economy, it's well worth it.

The FairTax research-as well as a recent article on how the FairTax helps the middle class by brilliant Boston University economics chair, Larry Kotlikoff, can be found at FairTax.org

Fairtax is inevitable. The snowball is starting down the hill. The people are going to assert their power. Thanks Ken Hoagland for all you do. We the people run this country not the politicians. Write your congressman. They will listen. Mine even called me back to discuss the Fairtax. We will stay after them until we get this done and when it is done the people who accomplished it will go down in History like the founding Fathers who brought this nation back to its roots. The problems that will be solved by the Fairtax are myriad.

Xianleftist_Michael:
Give me one example of where a real dollar is created that’s not a business or at least legally should be one.

Your assumption about any rise in government spending due to the FairTax was not accounted for is wrong. See equation 12 on page 670:

http://www.fairtax.org/PDF/TaxingSalesUnderFairTax.pdf

Do you ever read anything at FairTax.org before you post?

It is my position and only mine that the FairTax rate reflects 11/12 government consumption it doesn’t need to. Again suggesting the AFFT plays it safe intentionally.

Here’s the form for businesses in appendix A:

http://www.fairtax.org/PDF/PlainEnglishSummary_TheFairTaxAct2007.pdf

It’s one page. Do you expect me to contact Wal-Mart and ask them to send me a copy of their tax forms? I can, however, guarantee theirs is orders of magnitude more difficult to fill out.

As I said, I can’t guarantee there will be tremendous savings to business with the adoption of the FairTax, but I can show you some info on it:
http://www.fairtax.org/PDF/WhatTheFederalTaxSystemIsCostingYou.pdf

As I said, I believe the AFFT is playing it safe.

It matter very much when someone pays their taxes. Having it stolen from you before you can even touch it is just morally wrong. A tax on consumption allows one to pay when they can. If some unexpected expense comes up one can always reduce consumption by clipping coupons, buying generic and/or buying used. In this way it is somewhat flexible in following the rise and fall of individual fortune. In fact in really tough times one should be able to spend less taxes than the prebate and thus come out ahead.

Supply-side economics certainly did work when there was excessive taxation. The Reagan tax cuts approximately doubled revenues before the end of his presidency. The problem was the democratic congress spent every dime of it and then some. Unfortunately the Left had to demonize and discredit Supply-side economics because they believe in big government that must have lots of money to spend and lot’s of dependent people to buy votes from. Search the web and you’ll find plenty of Lefties rewriting history.

I prefer Laissez-faire over Keynesian economics based on the wisdom of Milton Friedman and promoted by the Chicago School of economics. Laissez-faire is the freest of free market economics with little if any government involvement. As Milton Friedman pointed out economic freedom leads to human freedom and political freedom. Political freedom ironically leads to the destruction of economic freedom as the masses start voting for more and more government programs in the mistaken belief that governments are supposed to solve problems. That’s the only problem with it.

Governments can only interfere with the free market and take freedom away from individuals, but some of this is necessary, of course, like for a national military. Anyway, history proves that everyone is better off when government is minimal and the free market is truly free.

Milton Friedman liked to point to Hong Kong as a good example of Laissez-faire economics. This very small and overcrowded country with very limited natural resources managed tremendous economic growth that vastly improved the lives of millions of people. Anyway, the FairTax will give us many of the benefits of Laissez-faire without changing government spending.

Not sure what you are saying about wealth creation. It is definitely bottom up in a free market. Demand for a product or service increases investment in those products or services by those hoping to maximize their return on their investments at whatever risk they are willing to take. Increased capital is directly related to increased wages as it makes workers more productive.

As businesses grow they create a greater demand on infrastructure. Some infrastructure is best done by governments like roads where others like communications is best left to private industry. Anything the government does of course lags behind the needs of business and costs far more than what private industry could offer.

You make it sound like government must build the streets and whatnot before business can even start. I believe what’s done today is investors create an industrial park by buying the land and putting in all the streets, electrical, sewers ect then offer lots for sale to businesses.

Just show me where you get the idea that our credit rating is related to our tax system.

What do you mean about the Bush or Clinton tax rates? The only thing that matters is that it’s revenue neutral. Clinton “saved” a lot of money by decimated the military and our intelligence gathering ability which probably contributed to 9/11.

It’s nice you’re now admitting you’re a Leftist in your sig. It should be clear I’m a Libertarian by now. I’d prefer we start the FairTax out at 15% and just tell the government to live with it by cutting out all the nonsense that government has no business doing. However, I recognize this is a non-partisan proposal so am willing to fight the budget cutting battle another day.

As far as I know European VATs require every business along the supply chain to fill out paperwork. Apparently all countries that use a VAT also have income taxes. The point of the FairTax is to get rid of as much of this paperwork as possible which burdens our businesses terribly.

Besides, this is American. We lead the world, we don’t follow it.

Is it morally wrong for an employer to withhold health insurance before you see it in your check? No? Didn't think so.

Economics is not a matter of opinion. You may not prefer Keynes, but with modifications his general theory still applies.

Income taxes went up under Reagan, although the growth was Keynesian. You can't not have growth when you borrow trillions of dollars. If anything is morally wrong, it is fueling current economic growth by saddling your kids with trillions in debt, which creates an entitlement for the wealthy at the expense of the average taxpayer. Enacting a Fair Tax without an income surtax targeted at paying back the Debt is simply sealing those gains.

I did read the Fair Tax site, by the way. I think I actually did a pretty good job of laying bare the assumptions on which it is based. Because most of the public DISAGREES with many of those assumptions, the Fair Tax as proposed is DEAD.

AS AMENDED, and it will have to be with the current and likely future Congress, it has a chance.

The analysis you cite on federal expenditures appears to analyze the difference is at the macro level. It ignores the impact on individual appropriation authority, which is not trivial. There is nothing in HR 25 which increases appropriation levels to the extent required to hold agency budgets harmless.

Ken talks about taxing the underground economy. This is a Canard, since prostitutes and drug dealers will still be evading filing Fair Tax returns on their sales. Their consumption will be taxed, but you could argue that it is taxed now in the same manner, since when they spend money in the economy their consumption contributes to the income tax expenditures hidden in the costs of the goods and services which they consume (unless they are buying drugs, which are not taxed and will not be under the Fair Tax). Its a wash.

Also in response to Ken, revenue neutrality to the 2007, 2008 or 2009 tax codes is intellectually dishonest. The NONTEMPORARY TAX CODE is the one in force after the 2001 and 2003 tax cuts expire. Give me a 10 year estimate of Fair Tax revenue neutrality, if you dare.

Also, I am not disagreeing with you on the need to end the practice of filing individual tax returns. I favor the same thing for the vast majority of taxpayers. However, that cost is not relevant to a discussion of economic cost and benefit of the Fair Tax, since reducing these costs also reduces the size of the economy subject to the Fair Tax - it shrinks the base, requiring a higher Fair Tax rate than the 24% rate currently proposed (23.82 rounds up to 24 - if I can't trust the proponents to be honest about even that bit of rounding, who can I expect honesty about the other issues).

Let me underline something here. The composition of the House and Senate for the near future underline the fact that the Fair Tax is not going to be enacted anytime soon in its current form. There must be compromises. In order to be electable, Mike Huckabee should explore a few of these in the near future, since his reliance on this plan is not helping him in the primaries. He was a governor, so I know he is up to the task.

Regardless, in order to enact the Fair Tax, you must be aware of the beliefs you bring to the table (which in politics are as or more important than the analysis) and the beliefs of the folks with whom you have to compromise. Making them see the truth of your analysis is not your task. The part that takes emotional courage is to find a set of COMMON BELIEFS and decide which beliefs you will compromise on and which beliefs you won't compromise on. If you are unwilling to compromise on any of your beleifs you are in the wrong business and I suggest that you find a new hobby - politics and policy may not be for you. Winning is only for elections, compromising on your beliefs is an admission that maybe the other guy's (or gal's - given the likely Speaker of the House) are as valid as yours and as worthy of respect. Also, because you are arguing for a change, the burden of compromise is mostly on your shoulders.

About the Tax Notes paper. Their analysis was about the cut in spending required because the law cites a 23% tax rate rather than the needed 23.82% rate. It says nothing at all about increasing appropriation levels required to hold government purchases harmless (I am assuming that salaries are included in this - if not the problem is worse). The increase in government purchases required to hold spending levels harmless is $209 billion. This will make the Fair Tax Base lower, since this spending will not occur in the economy without an increase in appropriations. The multiplier effect here is staggering, since this lost spending means that the spending in the private economy is less. There are teritary effects as well, as the people who bought things from federal employees also reduce their spending, etc. To limit the contractionary nature of this provision, the Fair Tax Rate would need to be increased.

For those of you who don't understand what I am saying about government spending, let me put this into concrete terms. Let's say that Matthew is a contract specialist with the federal government. When Matthew writes a contract for furniture for the Office of Policy (they are buying new cubicles for all those Democrats to use in 2009) he currently adds no sales tax. If he wants to buy the same amount of furniture, he needs to spend 23% more on that deal. Either he makes 23% less deals or his agency needs a 23% budget increase for that purpose, as well as a 23% increase to keep the same level of staffing. For salaries and purchases, the total required is $209 billion (not including the other $84 required for the same level of transfer payments). What part of adding $300 billion to spending and entitlement authority don't you understand?

One final point about airing criticism of the Fair Tax on this site. (see ega178 comment above).

This is actually a good thing for the Fair Tax proponents as long as they take it in the right way. If the world criticizes your proposal, it means they are taking you seriously. They take you even more seriously if you adjust your proposal to take what they say into account. If you ignore them, however, then they ignore you - which reduces your effort to a fraud designed to separate your followers from their money. Neil may be doing a rather good job in selling the idea to his friends, but when he can begin to compromise with his opponents, he will be serving the interests of his followers, since having a "perfect" position which never passes does them no good (unless they enjoy paying for something they will never get).