Saturday, August 20, 2005

FairTax Estimated Revenue And Revenue Neutrality

We have already estimated the tax base for the FairTax (using 2003 data) as $9246.2 billion dollars.
Computing the revenue for the FairTax is then fairly straight forward.

23%*$9246.2 billion = $2126.6 billion dollars.

We have previously figured the cost of the prebate at $502.4 billion dollars.

So the net revenue from a 23% FairTax (with 2003 data) is:

$2126.6 - $502.4 = $1624.2 billion dollars.

We have previously figured the amount of revenue the FairTax must replace (using 2003 data) as $1660.5 billion dollars.

So our back of the envelope calculation of estimated FairTax revenue using 2003 data is within $36 billion dollars, or 2% of the actual amount of revenue we need to replace. Given the somewhat crude nature of our figuring, this is not unexpected. However it should show clearly that the 23% FairTax rate being revenue neutral rate is plausible.

So what would the FairTax rate have to be to be exactly a revenue replacement for the 2003 data? Well, the revenue we are seeking to replace is $1660.5 billion dollars. The prebate adds another $502.4 billion dollars. So we need to raise a total of $2162.9 billion dollars from the FairTax, on a tax base of $9246.2 billion. $9246.2/$2162.9 = 23.4%. So you can clearly see, that the 23% FairTax rate is in the right ballpark for revenue neutrality.


At 9:22 PM, Blogger James Kleitz said...

Very well put. Awesome! There is one minor thing that you left out though. The retailer's reimbursement...1/2% of all transactions.

Thanks for including our blog

At 7:11 AM, Blogger Mark said...

Dont worry about 1/2 percent for the retailer. Thats the least of Fairtax problems, math wise.

Fairtax has huge math errors, fallacies. Lets just take two.

1) The Fairtax assumes it can tax federal government spending - military and otherwise. It can not possibly do it.

You can pretend to tax the federal government -- in fact, thats exactly what Fairtax would want. It pretends it can collect 300 billion in taxes. But it wont collect a dime.

Here is why. The government has to pay the taxes to itself. Thats like me taxing myself 10,000 dollars a day.

Its exactly like that. I can write the check for 10,000. I can even deposit the check to myself for 10,000. But at the end of the month, I dont have 300,000 dollars.

Amazingly, Fairtax has missed this flagrant error. Neal Boortz wrote "the federal government itself will become a major taxpayer."

Simply impossible. The Navy can write an check for the 4 billion in sales tax on a 12 billion dollar air craft carrier -- the Treasury can even cash the 4 billion dollar check. But the Treasury had to PAY the 4 billion dollars. It wont be ahead a dime.

This alone -- this error by itself - means the fairtax rate wold have to be more like 35%-40%.

Another huge math error, though this one is more about politics and math.

Fairtax assumes it can tax every dollar fo the 2 trillion dollar medical care industry. Nonsense. It can't collect 460 billion dollars from this market. Thats 460 billion more dollars fairtax is short -- and the rate would have to raise to well over 50%.

Here is why Fairtax cant really tax health care. The first day that nursing home patients, cancer paitents, ER patients, ALS patients, etc, get these "sales tax" bills, they will scream bloody murder.

How would parents react, whose child is battling luekemian, and they are spending 250,000 dollars to keep their child alive. What will they think and say when they get a tax bill of 58,000 dollars?

Insurance isnt going to pay this. This will be part of the "deductable"

Many of these people CANT pay it, its just not possible. Congress will be swamped with complaints, millions of complaints. ANd COngress will quickly give health care an exemption.

SO if fairtaxed ever passed -- it wouldnt last long. Maybe two months. Far more likely -- it just wont pass to begin with, as the congress starts to realize who they will enrage if they tax them.

And remember -- the tax on health care wont be 23%. It would be at least 40%, because of the impossibility of taxing the federal government on itself.

At 5:39 PM, Blogger Ian said...

Gov. Huckabee's advocacy of the FairTax is the single most important policy position in this election. Research findings explain why:

The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces [BHKPT].

The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan [THBP].

Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case [THBNP].

The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be [ALM].

Consumption benefits [ALM]:

• Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.

• Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.

• The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.

• By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.

Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system [KR].

Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively [JK].

Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax [THBPN].

Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20 [THPDB].

On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base [TBJ].

The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent [WM].

ALERT: Kotlikoff refutes Bruce Bartlett's shabby critiques of the FairTax.

At 6:01 PM, Blogger MARK said...

Talking about whether Fairtax would be 23 or 30% is like two mental patients, deciding whether the Halle Bopper commet will come get them on a Tuesday or Wednesday.

Fairtax is a farce -- literally, a farce. It wouldn't be near 30% -- it would be more like 70-100%, and collapse. The only question is - how high would it get, before the whole system crashed -- 70 or 100%

First of all, Fair depends on the absurdity of the FEDERAL government PAYING ITSELF 800 billion or more each year. Utter nonsense, complete and utter nonsense.

Don't believe me that Fairtax depends on the government paying itself a large portion OF ITS OWN TAXES?? Read the book. Page 148, "The federal government itself will become a MAJOR taxpayer."

No, the federal government CAN NOT pay itself 800 cents, much less 800 billion dollars. Why? Because of LOGIC. When the government writes itself a check for those taxes, it has to PAY the check. You can't possibly count it as income.

As amazing as it is - these fools are depending on the federal government PAYING itself.

And thats just the START of the absurdity. This would be THE HIGHEST SALES TAX ON EARTH.

Not only would this be the highest sales tax on earth -- it would apply to things NO ONE ELSE even taxes. These morons are going to tax cancer surgery -- chemotherapy, nursing home patients. If you spend 500,000 to keep your child alive, these morons will hit you with a 200,000 tax.

If you want to buy a new house -- if you saved your money for years, and now want to buy the home of your dreams for 400,000, these morons would TAX you 150,000 in SALES taxes. You might only make 40,000 a year -- so what. They don't care. You will be taxed 150,000 on that new house.

Heaven forbid you buy a new house the same year you have high medical costs -- you could easily have 300,000 dollars going to SALES taxes -- even though you only made 30,000.

Its insane -- its a farce -- its bullcrap. Its literally a farce.

I hope they pass it. I want to see this farce in action.

Sadly -- Fairtax "leaders" know its a farce, and they aren't trying to pass it. They are trying to fool stupid people -- gullible people. And that they are doing.

Please pass this tax - PLEASE. I would love it.

At 3:50 AM, Blogger MARK said...

Fairtax would be the HIGHEST sales tax ON EARTH.

If you got cancer, and needed surgery and chemo, Fairtax could easily cost you 200,000 in SALES tax on your efforts to stay alive, or keep your child or spouse alive.

Why? Cause Fairtax is on on medical costs- all doctor bills, second opinions, lab work, surgeries, emergency room visits, everything. No other nation even taxes such things - Fairtax would be the highest sales tax on earth on them.

Fairtax fans have no clue that this tax --the worlds highest sales tax -- would apply to their rent. No nation on earth applies a sales tax to rent - Fairtax has the worlds HIGHEST sales tax, and applies it to rent to,

And you would have to pay this sales tax - incredibly - on all insurance preimums you pay. You car insurance -- add a sales tax. Your health insurance - add a sales tax. Your life insurance -- add a sales tax.

Your utility bill - add a sales tax.

Not just any sales tax- the HIGHEST SALES TAX on earth.

Fairtax leaders know this plan is a crock - they aren't really trying to pass it. They don't want to pass it. If they passed it, it would create a huge backlash, and the leaders would be exposed. They aren't about to let this pass.

You folks are being fooled by these fairtax leaders. Its a farce tax.


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