Score the Fair Tax

Current tax system’s $430 billion tax annual compliance cost is from Art Laffer and his team of economists.  The exact amount is not the main point.  Whether it is $860 billion, $430 billion or $43 billion, it is money wasted and subtracts from our GDP ( I am obsessed with growing GDP).  So eliminating the IRS and current tax compliance costs will increase our GDP.  Score this for the Fair Tax.


The approximately $500 billion in Fair Tax ‘prebates’ is a worthwhile and necessary price to pay to keep our tax system progressive.  Compare this $500 billion with estimated cost of over $900 billion for special interest tax breaks.  Fair Tax eliminates these; hence we have a net savings of at least $400 billion.  Add this $400 billion (and likely more as there will be more capital for private entrepreneurs) to the GDP.  Score 2 for Fair Tax.




The current income tax system doles out about $456 billion more to favored taxpayers then the prebate provides to everyone with a valid Social Security number in ensuring that no one pays tax on the cost of the basic necessitates of life. The prebate is estimated to cost $489 billion per year (about 4% of the 23% meaning that the FairTax rate would be 19% without the prebate.) Compare that with the $945 billion cost of income tax deductions, preferences, loopholes, credits, favors as estimated by Joint Committee on Taxation. The prebate is half the cost of the current system’s deductions, preferences, loopholes, credits, & favors & unlike the latter treats all Americans equally.


Focus more closely on special interest tax breaks and our nations debt.    Remember that one critical Fair Tax aspect is the elimination of special interest tax breaks.  How many billions a year go to these interests?  Answer is about $900 billion or more.  Do the breaks increase GDP?  Rather these breaks subtract from GDP.  Also subtracting from GDP are $billions in annual tax compliance costs (may be over $400 billion).  Our economy is in dire straits.  We risk foreign creditors balking at financing our debt.  Why buy Treasuries when the US increases debt by 10% a year but only grows GDP by 2%.  We need to grow GDP more.  The Fair Tax is one significant way to grow GDP for multiple reasons including the zero percent corporate tax rate while keeping tax system progressive and revenue neutral.  Score 3 for the Fair Tax.




About economics501

1 - free market Capitalist; 2 - Fitness Entrepreneur; 56 years old, VP at an Investment Bank in NYC, ex Venture Capitalist, happily married with 2 girls. Education: Rutgers and NYU. I allow Ted Hruzd, my friend to blog at will here. He has many posts here. I have known Ted since we were both students at NYU. Ted also works for an Investment Bank as a VP in Equity Global Markets. ------------------------- I was very very Socialist leaning as a 22 year old. I then strongly believed in Gov role in helping the poor. However, as a USDA Child Nutrition Programs, I personally accounted for millions of fraud, abuse, and waste of tax payer money. I came to believe that the poor would be best served with less Gov programs and more with direct aid via tax system. Then after 5 years I became a free market capitalist, was a venture capitalist in 2007 and helped start 2 high tech companies. I dedicate this site to champion free market capitalism as the best road to Prosperity. Please join in. If you disagree, fine, but please post with dignity and class and be civil. Argue with facts always.
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2 Responses to Score the Fair Tax

  1. Mark says:

    We do need a new tax code — but we don’t need liars and con artist trying to fool people. And that is what we have with Fairtax — liars and con artists.

    I offer 50,000 dollars cash — real legit offer, legally enforceable — to anyone who can prove Fairtax is what the hype says it is — a 23% personal retail sales tax to replace all other fed taxes, including SS.

    The fact is, and Fairtax leaders know this, about 80% of Fairtax has NOTHING to do with normal personal retail sales taxes. That’s right, the biggest part of Fairtax is NOT a personal retail sales tax. Yes, Fairtax does have a retail sales tax, but that is only a small part of the plan.

    Find out what else is in their fine print, footnotes, and tax tables. See for yourself why Fairtax is being pushed by hustlers and those they fool. Read the fine print..

  2. Econ501,
    (1) Art Laffer and his team of economists made the same idiotic assumption that used to be a part of the IRS compliance model until 2006. At that time, the IRS scrapped the old model as being unrealistic and adopted a new IBM model which significantly reduced compliance cost estimates. The major change was to get away from the assumption that the hourly value of a family sitting around the kitchen table doing their taxes was $40/hour. The new model just estimates out of pocket expenses and does not try to place a value on time. Other simplifying changes resulted in the 2010 individual tax compliance cost estimates of $34 billion rather than the $110 billion for 2005 which is still used by AFFT. Is your free time worth $40/hour?

    (2) The prebate is an out of pocket cost, while the current tax expenditures are simply revenue not collected. One is a cost, the other is not. Adding the two together results in nothing.

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