Columnist Lanny Davis takes a fresh look at the Fair Tax today. The Fair Tax, you may recall, would impose a 23 percent national sales tax on goods and services and eliminate all other federal taxes, such as levies on personal income and corporations and the payroll tax for Social Security and Medicare.
I’ve never been a fan of the Fair Tax because some economists say the 23 percent figure is unrealistically low. And I suspect Congress would be pressured to tweak it on an annual basis. Davis also reasonably skeptical.
He writes: “The Fair Tax plan reduces some of the regressive effect of a consumption tax by paying those who live at or below the poverty level a ‘Family Consumption Allowance’, or ‘pre-bate,’ on purchases of ‘basic necessities.’ One expert on the Fair Tax wrote me that a family of four at or below the poverty level would receive a $565 pre-bate payment the first of each month.
The 23 percent consumption tax level is set in order to keep federal revenues neutral — meaning the revenues estimated to be generated by a 23 percent consumption tax would be about equal to current revenues generated by the income and all other taxes. That’s the theory, anyway. Proponents also argue that goods and services prices will not go up because the 23 percent consumption tax is about the same as the “embedded” 22 percent tax in all goods and services needed to pay for current taxes.”
The 23 percent consumption tax level is set in order to keep federal revenues neutral — meaning the revenues estimated to be generated by a 23 percent consumption tax would be about equal to current revenues generated by the income and all other taxes. That’s the theory, anyway. Proponents also argue that goods and services prices will not go up because the 23 percent consumption tax is about the same as the “embedded” 22 percent tax in all goods and services needed to pay for current taxes.”
