Response to Dr. Bill May's "Is Fair Tax the Answer?"

Response to: http://www.cavemannews.com/IsFairTaxtheAnswer.htm

First, let me say that I have a lot of respect for Dr. May. He has a long and lustrous career behind him and has apparently done well for himself. But I disagree with his assessments on this issue and I intend to point out just where I disagree and why. I hope Dr. May gets a chance to read and respond to this, but if the more likely case that he won't, I hope his readers get to.

Dr. May starts out by saying "One of my readers in commenting on an article that I had written suggested that the Fair Tax was the answer to all the world’s problems. I knew vaguely what the essence was, namely a national sales tax with liberal refunds for the poor". What he apparently doesn't understand is that those "liberal refunds for the poor" are actually "conservative refunds for every legal US citizen".

In his research, apparently Dr. May missed the fact that the prebate is calculated off of the National Poverty Guideline which is recalculated annually and is in place to offset the taxes that we pay on our necessities. To be fair, it is in place for ALL legal US citizens who register for it and that value generally decreases as the economy improves.

Dr May immediately goes on to say "As I explored the issue further, I found that with today’s government expenses, a Fair Tax would require a tax rate of about 30% on all purchases in order to satisfy the hunger of the federal budget", but I have to wonder just how much money Dr May invested in his research. The $22,000,000 that the FairTax had invested states otherwise. Please see: The FairTax, What Rate Works?

What I find most interesting is that Dr. May ended his first paragraph with "Add another 10% for California where I live.   At 40% people will start to do most anything to avoid those taxes", but what Dr May doesn't seem to understand is that State taxes are in place before and after the FairTax and that state taxes are positively affected by the FairTax. In fact, if Dr May had researched just a little further, he would have found that "On average, states could more than halve their sales tax rates, or 3.04 percentage points, from 5.25 percent to 2.02 percent" (P.4, Fiscal Federalism: The National FairTax and the States)

In the opening statement of his 2nd paragraph, Dr May writes "The proposed Fair Tax is supposed to give rebates to poor people so that in a way, it is progressive.   In my view, a flat tax is already regressive because even then, the rich pay far more than they receive in benefits". But let me point out that the FairTax is not a flat tax, it is a single rate tax on consumption. Flat taxes are for income. Additionally, the FairTax rebates are for ALL legal US citizens, not just the poor. What this mechanism does is provides for a more progressive tax system; in that, the more you spend (i.e the more resources you use), the more taxes you pay. Isn't that the underlying message that Dr May is trying to make?

Where I begin to agree with Dr May is in his assessment that "No matter how things are taxed, however, the real answer is that the government is way too big". But based on his following statements it appears that Dr. May doesn't fully understand that the FairTax will also help keep our over-bloated government and corrupt politicians at bay. The FairTax will effectively put the power to pay taxes back in the hands of We The People of the United States. By seeing the amount of taxes that we are paying (on every receipt of new goods and services that we purchase) we will have a better understanding of what the government is taking from us and we will try to minimize what we give them. See, with the FairTax we will have the choice to purchase new versus purchasing used versus saving or investing the money. We do not have that choice now, as our government just takes it from us without our consent.

Later in his assessment, Dr. May unwittingly provides an argument for the FairTax. I say unwittingly, because his lack of true research failed to reveal that with the rebates previously mentioned, many Americans would pay 10% or less. Let me explain. In his last paragraph, Dr May says "For taxes to be accepted as 'fair', the rate has to be a lot closer to 10%". Actually, to be "fair" everyone should pay the same rate at the register, but be subject to a lower tax rate based on the amount of resources one uses. The FairTax, with its prebate mechanism, ensure just that. Look at the following two charts I created which show exactly what your effective FairTax tax rate will be based on what you spend (NOT what you earn).

Married

Single

To close this out, I want to counter Dr. May's closing statement "The real answer as to the right kind of tax is simple:  Make it low enough that people don’t notice". Out of sight, out of mind. Right, Dr May?

Taxing people in the manner that Dr May suggests actually hides the taxes that we pay and ultimately we end up with a system like the one that is currently in place. The "embedded taxes" that are hidden from us today average out to be 22% in all, not just new but ALL, goods and services we purchase. The FairTax will eliminate those embedded taxes by eliminating Corporate Welfare and allowing you - the consumer - to see and control exactly what you pay in taxes.