Since when does the government want to be fair?

I recently stumbled across a tax reform proposal that is gaining some traction out there. I've been reading about it and trying to sort out fact from fiction. It's called the Fair Tax. Right out of the gate, the name gives me pause, as does the animated flag flying on the page, but I am trying to be open minded about this...

The short form of the tax is that it is a national sales tax. All new goods are taxed while no used goods are. So, a new house is taxed. A previously owned house is not. The rate of tax is 30%. (They say 23%, but they mean that the tax is 23% of the total after the tax is figured in.) Services also appear to be taxed as well. So, you'd pay an additional 30% to visit the doctor. This is offset by the abolition of the Payroll, Social Security, Medicare, and Federal Income Tax. This will also supposedly lead to the disbanding of the IRS. The piece that makes it interesting and worth actually thinking about is the rebate. Every household gets a rebate equal to tax that would be collected on necessities. This amount is standardized by the number of people in your household. A couple with two children would receive $465 each month, regardless of how much sales tax they paid that month. So, if you are below the poverty level, you get back more than you put in. This is what makes it effectively graduated. The more you spend, the more tax you pay. The more you pay, the smaller the rebate is in comparison.

The site touts many benefits. This is a tax neutral plan, so the government revenues stay the same as under the current system. Since it eliminates payroll taxes and tax compliance costs, manufacturers can sell their goods for less and pay their employees more. This is constantly referred to as beating hidden taxation. Because the goods cost less, there is no real impact on your wallet from the new tax. If something cost $10 before. The price would drop to around 7.70, such that the "fair tax" would bring it back to $10 again. Consumption is also allegedly more stable than income as a tax base. Even when people lose their jobs, they use savings to buy stuff. Other benefits include getting rid of the IRS, tax laawyers, and tax professionals. But even they would not be impacted because they are smart people and would have enough advance notice to retrain.

They also have answers for charitable giving and mortgage interest. Both of these are deductible under income tax, but are not under fair tax. Apparently, this is ok, because the fair tax wll drive interest rates down. This will save you more on your mortgage than you gain by the interest deductions. And you are paying the mortgage with post tax dollars under the income tax. Depending on your income level, you only get a percentage of the interest back. With the "fair tax" you have more dollars to begin with, so you manage a net gain.

As I said, I am skeptical, but have yet to find an unbiased analysis of the proposal. If you read any of the pro fair tax sites out there, you'l find that the fair tax will solve all the country's problems. Since manufacturers can lower prices, our products will be in higher demand overseas. There are a number of things to be skeptical about. And that is going beyond the name, the animated flag, and the ringing endorsement that Tom DeLay is for it and President Bush is considering it. Given the amount of tax dodging these guys do now, how likely is it that they will put forth a plan where their burden is higher?

The whole thrust of this plan is that the rich consume at a higher rate because they can afford to. So, this hits them more. Yet every example they show proves that the fair tax is less than the income tax. If it is less for every individual, and there are no payroll, income, or corporate taxes, how is it revenue neutral. Also, in cases where the fair tax clearly offers no benefit, they seem to be manufacturing one. Take charitable giving, for example. They state that 70% of people don't itemize, so the charitable giving deduction is pointless anyway. Further, with more money in their pockets, people will be as generous if not more so. They don't say what percentage of charitable deductions come from people who don't itemize, yet they conclude that the charity take will increase. Logic dictates that people who don't itemize get a bigger benefit from the standard deduction. I think it is at least as safe an assumption as the one the fair tax people are making to say that the 30% who itemize count for as much, if not more, charitable giving as the 70% who don't.

Moreover, the plan looks like glorified trickle down economics. On Monday, my take home pay goes up. By Wednesday, prices have dropped around the country to reflect the cost savings on goods production. Because a company that suddenly had extra money would NATURALLY pass it on to the consumer, right?

This has rambled and meandered a bit. What I'd like is for someone to either show me unbiased evidence that a national sales tax is a good thing or, failing that, help me to organize the opposition.