Is the current system broken?
1. All tax replacements start with the current system brings in $x in taxes. So it's replacement must. Thus any tax replacement is just a redistribution of the tax, usually (as in the fairtax) lowering the burden on the rich and very rich placing that additional burden on the middle class, since the biggest tax break in the fairtax is for the poor.
2. The second thing is the current system is complex because life is complex. There is rarely anything free in life and there is rarely any simple solution that is also the best solution. That's great that the government gives a "standard deduction" with the fairtax. But where are the exemptions for charities, handicap, medical exemptions, housing exemptions, schooling, etc.? Are you saying that these were all bad laws, that these individuals don't deserve any tax break?
3. There may be a large portion of payroll taxes/compliance taxes, that corporations would save. But they won't pass along the savings. I'm sure there will be some advantages, but the economy has been tough recently with several large corporations claiming losses. They have this chance to make a bleak situation much better and they are going to give money back? It'll just be an easy way to pass along the price increase that they wanted to pass along.
My biggest problem with the fairtax is currently we have a lot of #'s but they are all projections. No one knows for sure what the first year with this tax would be like. How many industry individuals predicted the Wii would be sold out for a year, sell nearly 20M in it's first year and would likely cruise to an easy victory this generation? Not one that I know of. But they based their expectations off of the best information that they had of the market. My concerns are:
1. We save $x billion (no one has given me an exact #) on the cost of compliance. These are almost fully the cost in individuals salaries. Yes, I think that this may be a bad thing. This is billions of dollars of skilled labor losing their jobs accross the country. All signs are that we are very close, if not in a recession. I understand that if the tax dissapears and they aren't giving us value, we have no other option, but it's not the best time in our countries history for a change like this.
Also, what about other industries such as construction? If they are charging this tax on new homes, any one that has the money will likely push up their start dates to a time period before the tax begins. Any individual not this lucky, will likely have to push their date back (due to lack of downpayment, lack of ability to get approval) or downsize their house. Fine again and all, but I would expect a boon for the construction industry before the tax, then a crippling period of time where very little building was occuring.
I would also expect this effect accross the other industries but not as hard. It'll be Christmas the week before the tax goes into effect as every buys goods that will last a long time. Thus, I expect sales for the first six months of the sales tax to be well below any prediction that has been talked about. I'm thinking all I would buy is uncanned foods, and gas until my stash ran out.
2. Fair tax gains exemptions eventually becoming as convoluted as the current tax law.
3. Tourism will certainly be harmed by that large of a tax on sales.
4. Government becoming dependent on even higher taxes. Sales taxes are highly cyclical. We could have one great year of sales, followed by a very poor year in sales. So it will never be as simple as we got 10% less than we needed last year, so we need 10% more sales tax next year. Income is much more stable. The other part of this is that our government is notorious for spending the money it is given. They got an extra $1 billion in tax? Likely they will create several new programs using that $1 billion extra in tax. Thus creating a future yearly tax need of $1 billion to keep those programs going. This is a large reason we have such a huge deficit now. When we, as a country, are doing good, we get fat. But, when we aren't doing good, we never trim the fat.
5. State taxes typically piggy back off of federal tax. As such, I foresee increased costs of compliance surrounding state issues and all Americans in states with Income tax to have an increased state compliance cost.
6. Used sales will increase significantly detracting for the # of new sales that can be acheived.
