I like the idea of the Fairtax but I agree that its implementation would be problematic and the likelihood of it passing is slim. At this point I see the proposal in the same light as the Ron Paul campaign.

It doesn't have a chance but it might succeed n getting certain issues on the table.

What I like here is the bluntness of Rudy. He is not going to be a nuanced wussie.He might, however, have listed in his 12 point list, just how he would deal with our tax horror. That might give many a reason to listen to ways to reform this system and not only get permanent tax cuts but also newer ways to deal with fairness in the tax system . Frankly, I vote against every tax that comes down the pike in my state, unless it benefits VETS.

Every specific version I have seen offers a litany of exceptions and exclusions and rebates and caps and credits

The only version I've seen is the one offered by Neal Boortz and Congressman Linder. It specifically has no exceptions or exclusions to prevent it from being abused. Also, it only has one rebate or as they call it, a prebate, as it comes at the beginning of the month.

Boortz plan has "no exceptions or exclusions," eh?

You must not have looked very closely at it. For instance, ALL resales of used goods are excluded - including houses, cars, land, and etc. - even though these items are part of GDP. I haven't looked at it since it first was introduced, but I seem to recall that interest paid on mortgages and credit cards is also excluded, as well as other areas.

Bottom line: his plan doesn't pass the laugh test. For crying out loud, Neal, take (and PASS) at least one course in Economics before you go and make a fool of yourself . . .

One hilarious example is that Boortz expects all prices to suddenly drop, reflecting the disappearance of the "embedded tax" on goods and services. What planet does he come from, again?

A primary rule of retail prices is the "rockets and feathers" analogy. When costs increase, prices rise like rockets to match them, BUT when costs fall, prices fall slowly and gradually, like feathers, matching the markets.

If Boortz thinks every business who experiences a sudden drop in costs is going to pass those savings on to consumers immediately, he really must be smoking something. Yet, this assumption is absolutely essential to making his plan work in practice.

He promises the fall in prices will virtually match the consumption tax added, so the whole thing will eliminate our income taxes and COST US NOTHING unless we are among the rich. Hey, great selling point! Even better if it were true . . .

Yeah, right. At least the old-time hucksters who came around peddling their snake oils and miracle elixers put on some little show to entertain the crowd first.

or that we would need fewer IRS enforcement agents

What would you say is the ratio of individual tax payers to retail businesses ? Is the number of enforcement agents required really uncorrelated with the number of taxed entities ?

If Boortz thinks every business who experiences a sudden drop in costs is going to pass those savings on to consumers immediately, he really must be smoking something. Yet, this assumption is absolutely essential to making his plan work in practice.

You're right. The price of everything will spike because of this. Since price spikes don't affect demand at all, the prices will stay high. Therefore, the FairTax won't work.

Mike ~ YES, the number of IRS enforcement agents is unrelated to the number of taxed entities.

Rather, it depends on the number likely to cheat.

In the present system, most taxpayers have all their taxes withheld, and the system is set up to check the numbers against the submissions by employers. The few not subject to withholding must make quarterly payments on their own, and account for their income. The result is a mostly voluntary system which works because, for nearly all taxpayers, the rewards of cheating are outweighed by the risks of being caught. Sure, people "fudge" on the margins, but typically in areas involving little money, and at least potentially arguable.

Boortz is asking many hundreds of thousands of service providers who have never had to collect, account for, and submit sales taxes before to do it perfectly from the beginning, not to mention putting huge temptations on all businesses to cheat at the margins - the rewards being much larger and the opportunity greater than with the income tax withholding system.

Besides, didn't Boortz originally claim the "Fair Tax" would eliminate the IRS altogether? Is putting a different set of initials on the buildings really "eliminating" it?

I could literally make a full time job of exposing the faults and fallacies of Boortz' plan, but no one has yet offered to pay me to do so. Any takers?

I'm not saying no consumption tax plan could ever work. I'm saying Boortz' plan is an amateurish attempt with more holes than Swiss cheese (but without the flavor).

The number of agents needed is not unrelated (I'll even use your broader term) to the number of taxed entities for the same level of thoroughness. In 2003, there were roughly 131 million individuals filing an income tax return. If we generously assume that 1 out of every 100 people owns a retail business, the number of taxed entities drops by two orders of magnitude. Are you really going to claim that the effort required to achieve the same level of verification requires a ratio of entities to agents two orders of magnitude greater ?

Boortz is asking many hundreds of thousands of service providers who have never had to collect, account for, and submit sales taxes before to do it perfectly from the beginning, not to mention putting huge temptations on all businesses to cheat at the margins - the rewards being much larger and the opportunity greater than with the income tax withholding system.

Never had to collect, account for, and submit sales taxes ? My understanding is that retail businesses (hence the national retail sales tax..) would be the entities collecting the taxes. In nearly every state, there already exists a sales tax that these entities collect (verification entirely individual state's burden).

If Boortz thinks every business who experiences a sudden drop in costs is going to pass those savings on to consumers immediately, he really must be smoking something.Yet, this assumption is absolutely essential to making his plan work in practice.

Also, you made the above assertion that prices must return to their previous levels immediately otherwise the plan fails, but you never adequately explained why you consider this to be the lynch pin that causes the failure. Why ?

Doctors, hospitals, accountants, insurance agents, bankers . . . these are among the many "service providers" who will suddenly be expected to collect and file "Fair Tax" returns.

I'm sorry if I was unclear about enforcement agents. The fact is most enforcement agents of the IRS are already devoted to businesses. Individuals are "kept in line" by the fear of the random audits - which are conducted by a few thousand auditors; individual returns are "red-flagged" by computer programs for unusual deductions, etc. Corporations, OTOH, are faced with droves of agents on-site full time. Exxon and other big companies have entire floors of their headquarters hosting IRS agents. I believe there were over 100 assigned to Enron, for the good that did . . .

You see, individuals have most of their taxes withheld, so the enforcement need is minimal. Corporations have their own staffs of lawyers and accountants working to reduce their tax burden, and they will always assume - as they should - the minimum liability for their company. The IRS keeps people on site to make sure the government gets what they believe is their fair share.

If businesses are to be the primary collectors, this is money the government doesn't have in hand - you can hardly withhold sales tax collections in advance - and will require close monitoring. To assume FEWER enforcement agents would be needed is naive; to claim the plan will "eliminate the IRS" is just insane.

The price drop Boortz promises is critical because his whole plan is predicated on lower and middle income taxpayers being better off, or no worse off, under the "Fair Tax." When their little "prebate" and the withholding they no longer pay don't cover the difference between their new taxes paid at the point of purchase, they will likely be displeased, and petition Congress for immediate relief.

Even if they don't precipitate an immediate crisis, the fact that prices will NOT immediately drop to match the "embedded" taxes as Boortz imagines means people will not be able to afford new cars, new homes, new equipment for businesses, "durable goods" in general, etc. They simply can't pay the extra tax on the first few months' "prebates." The economy tanks. It would be directly due to the Fair Tax, and pressure to repeal it would be overwhelming. So, even if passed and implemented, this plan wouldn't last long.

You see, individuals have most of their taxes withheld, so the enforcement need is minimal.

I don't believe that having taxes withheld minimizes tax fraud. I can arbitrarily set the amount withheld by simply filing a new W4 (if it's less than the greater of 90% of taxes due or 100% of prev year taxes, I'll get penalized). However, the fact that the money was withheld doesn't prevent anyone from filing a bogus return.

Even if they don't precipitate an immediate crisis, the fact that prices will NOT immediately drop to match the "embedded" taxes as Boortz imagines means people will not be able to afford new cars, new homes, new equipment for businesses, "durable goods" in general, etc.

Let's assume your scenarios occurs... prices don't drop and people can't afford to purchase the goods at the new artificially higher prices (nat'l retail sales tax + embedded taxes) so retailers aren't making sales at these new higher prices, what do you suppose the response of the retailers will be when sales drop due to artificially higher prices ?