Wednesday, October 12, 2005

No Fair Tax 

It's interesting to me that the government has rejected the idea of a national sales tax or "fair tax" by use of an apples-to-oranges comparison. As Andrew Chamberlain notes from the report,
Using Treasury Department data, panel member Ed Lazear, a Stanford University professor and a senior fellow at the Hoover Institute, estimated that a national sales-tax rate would need to range between 64% and 87% in order to replace revenues from the corporate and personal income tax while preserving exemptions on drugs, food, clothing and other goods and services typically excluded from state sales taxes.
But Fair Tax proponents have explicitly stated that they would not exclude those from taxation, providing instead a rebate equivalent to essential purchases. The proponents have figured the rate at 23%; I recall other estimates running in the 33-40% range, but again I think those would have allowed some deductibility for

The tax panel is instead looking to cap deductibility of employer-paid benefits and of home mortgage interest. Chamberlain notes that this would "allow dramatic across-the-board reductions in [tax] rates". So they would rather broaden the base on the income tax, and by comparison Lazear narrows the base for the sales tax to make his point. Hardly a fair comparison.

(h/t: my student John Lorenzini, who is blogging himself for SCSU's Investment Club)