Bartlett, Bruce, Statement Before the Committee on Ways and Means U.S. House of Representatives, July 26, 2011

…“There are, however, a number of problems with the FairTax that its supporters tend to dismiss or downplay. Here are a few.

The true rate is not really 23 percent. Thought of the way people think of state retail sales taxes, the rate is actually 30 percent. The 23 percent figure is derived this way. On a $1 purchase, the tax would be 30 cents for a total price of $1.30. Since the 30 cent tax is 23 percent of $1.30, FairTax supporters argue that the true tax rate is 23 percent. Nonsupporters are more inclined to think that this is just a trick to make the tax rate appear lower than it really is in order to increase support for the FairTax.

Another oddity is that the FairTax would apply to all government spending, including federal spending, as well as private spending. This will undoubtedly force state and local governments to raise their taxes. And it serves no logical purpose for the federal government to tax itself.

The FairTax would apply to new home sales as well as rent. And of course, mortgage interest and local property taxes would not be deductible because there would be nothing to deduct them from.” …

…”FairTax supporters argue that the prices of all goods and services will fall by about as much as the 23 percent tax that would be imposed because of the elimination of existing federal taxes. It is all a wash, they say. As prominent FairTax advocates talk show host Neal Boortz and former Rep. John Linder explain:

 Once the FairTax takes effect, you’ll be receiving 100 percent of every paycheck, with no withholding of federal income, Social Security taxes, or Medicare taxes – and you’ll be paying just about the same price for Tshirts and other consumer goods and services that you were paying before the FairTax.

 The principal documentation for this assertion appears to be a paper commissioned by Americans for Fair Taxation by Harvard economist Dale Jorgenson that is unavailable on its web site or anywhere else as far as I can tell. Although it is often implied by FairTax supporters that Prof. Jorgenson supports their proposal, this is not the case. He has his own tax reform plan that bears no resemblance to the FairTax.

Jorgenson has also been publicly critical of the FairTax. In 2007, he called it ‘reform by focus group.’  In 2008, Jorgenson said, ‘The main weakness of the FairTax is its comprehensiveness. It tries to roll everything into one tax, which simply can’t carry all that weight.’  He has also testified before this committee that a national retail sales tax would need a rate of 40 percent to equal all federal revenues.

And in a 2005 academic article, Jorgenson said, ‘The very high tax rate of the national retail sales tax provides powerful incentives for tax evasion and renders effective tax administration difficult.’”…

…”FairTax supporters have always glossed over the huge incentive for evasion once the existing machinery of tax compliance is abolished and all federal revenues are collected at exactly one point: retail sales. This is a key reason why the Reagan administration rejected the idea. In its 1984 tax reform report it said, ‘A federal retail sales tax, when combined with the retail sales taxes levied by most states, would provide irresistible inducement to tax evasion at the retail level.’”…