From Charlie's source:charlie said:. . .
I highly recommend that all of you take a look:
http://en.wikipedia.org/wiki/FairTax#endnote_endorsement
". . .
Congress’s Joint Committee on Taxation evaluated a similar proposal and determined that a revenue-neutral plan would require a tax rate of around 36%.[4][5] Other estimates range up to a 50% tax.[6][7][8] When presented as a traditional sales tax, these rates would be 50% and 100% respectively.
These studies suggest any of three likely outcomes to a FairTax-like tax regime: 1) a sales tax is imposed at the revenue-neutral rate, having no effect on the fiscal budget. 2) a sales tax is imposed at a lower rate, with the resulting budget gap filled by new federal debt. 3) a sales tax is imposed at a lower rate, with the resulting budget gap filled by reduction in federal spending.
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Economist William G. Gale at the Brookings Institute writes: "Under the AFT proposal, taxes would rise for households in the bottom 90% of the income distribution, while households in the top 1 percent would receive an average tax cut of over $75,000."
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Taxes without withholding and with self-reporting, such as FairTax, can see evasion rates of 30% or more. William Gale has estimated that an evasion rate of 20% would require a sales tax rate above 51% in order to replace revenue lost through evasion. [16][17]
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Opponents also argue that the increase in sales tax (needed to replace the loss of revenue from other taxes) would produce such a high rate that there would be a much higher incentive to trade on the black market, and much of the economy would be driven underground.
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If the FairTax bill is passed, elimination of income taxation is not guaranteed, and passage of this measure may in fact simply add an additional tax system. The definitive elimination of income taxation requires a repeal of the Sixteenth Amendment to the United States Constitution.[19] Since passing the FairTax would only require a simple majority in each house of Congress and the signature of the President, and repeal of a Constitutional Amendment must be approved by two thirds of each house of Congress, and three quarters of the individual U.S. states, it is possible that passage of the FairTax bill will simply add another tax system rather than replacing the existing one.
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In this case, individuals under the current system who accumulated savings from ordinary income (by choosing not to spend their money when the income was earned) paid taxes on that income before it was placed in savings. When individuals spend their money saved under the current system, that spending would be subject to new federal taxes. People living through the transition find both their earning and their spending taxed.
The FairTax proposal does not address the transition effect on taxpayers who have accumulated significant savings from after-tax dollars, especially retirees who have finished their careers and switched to spending down their life savings. Under the FairTax proposal, this money would be fully taxed again as it is spent. Critics have spoken out against the FairTax proposal, claiming that it would result in double taxation. [20] [21] [22]
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States and municipalities would see their cost of debt increase. Currently, the federal income tax system provides tax advantages to state and local government bonds. Specifically, the interest paid on such securities is exempt from federal taxation. This "tax discount" allows state and local governments to issue debt at low yields, which reduces their interest costs. By eliminating income taxes, FairTax removes the tax advantage of holding state and local bonds. Issuers would have to offer higher interest rates to attract investors.
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The current federal tax regime allows individuals to deduct the interest cost on home mortgages. This tax break reduces the actual cost of home loans. Since FairTax ends income taxation, the cost of a home loan will no longer be reduced by the tax deduction. In addition, FairTax taxation would be applied to new construction, including homes.
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Retailers suffering from tax-free direct mail competition or from tax-free sales from out of state retailers would see a major competitive disadvantage removed. However, this would have the effect of discouraging consumers from purchasing items through the thriving mail-order and online industry, potentially hurting a multi-billion-dollar segment of the American economy.
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The proponent's side of the story is also presented in this source. Maybe some of you believe the proponent's view of this tax is always right and that none of the issues raised above is real. That's not naive.