Fair Tax Flaws

With the Republicans, especially Mike Huckabee, talking so much about the Fair Tax, it's about time Democrats learned what it is and why it is a terrible idea.

 First, we have to discuss what it is. The Fair Tax is a 23% sales tax-inclusive rate that would replace all federal income and investment taxes. It would also theoretically give rebates back to everybody at or below the poverty line so they would end up paying no net sales tax. There would be numerous benefits, such as lower costs on consumer goods and less bureaucracy to handle tax collection.

At first glance, it sounds pretty good. It's simple. Poor people are getting their money back. But when you look at the numbers, it falls apart. To start, the 23% tax-inclusive rate is misleading. A 23% tax-inclusive rate is actually equivalent to a 30% sales tax rate if measured in the conventional sense. Then, the sales tax rate that the bipartisan Advisory Panel on Tax Reform determined would be needed to obtain the amount of revenue currently obtained through our tax system is 34%. This would end up significantly raising prices. A $10,000 car under the current system, for example, would cost $13,400 under a Fair Tax that is 34%. Now, there is the issue of the rebate to those under the poverty level. It is true that the rebate would balance out the system so that people who make $15000 or less are better off. However, those who make between $15,000 and $200,000 suffer a great deal. The rebate does not help them as much, and having one sales tax rate would be easier for the rich to pay than the poor. This second point is true due to the fact that the poorer you are, the larger percentage of your income you spend. Finally, the cost to the government would be enormous to pay out all of these rebates. The Treasury Department estimates that they would end up costing between $600 and $700 billion. That would make it the largest source of federal spending. Is that cost really worth it? If you ask me, the answer is absolutely not.