Reason magazine just came out with a piece that unfortunately misunderstands the FairTax by quite a bit. I don’t think it’s a hit peice, per se, but there are at least two big points misunderstood in the article that I would like to correct:
1. It’s not a “loophole” that secondary markets aren’t taxed. It’s wrong to tax something more than once, and so the FairTax only applies to new goods and services. If this brings about an economic boom in thrift stores and flea markets, or makes America a more efficient and recycling society, that’s not a bad thing.
2. The price of goods should stay roughly the same, which means there shouldn’t be a great discouragement to our retail sector. Since highly inefficient corporate taxes are going away, those embedded costs which already make up 20-30% of the price of goods are simply being replaced by a sales tax. A lot of economic study has been done on this particular point.
In addition, one of the comments I noticed misunderstands the prebate. Government isn’t going to be monitoring everyone’s income anymore, and only giving the prebate to poor people. Everyone gets it – hence the “Fair” part of “FairTax”. Everyone gets enough of a prebate that no one pays tax on the basic necessities of life – only costs above the poverty level.
