FairTax: The Truth: Answering the Critics
by John Linder, Neal Boortz, Rob Woodall
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Book Summary Information
Author: John Linder, Neal Boortz, Rob WoodallEdition: Paperback
Audio: English (Unknown); English (Original Language); English (Published)
Published: 2008-02-12
ISBN: 0061540463
Number of pages: 243
Publisher: William Morrow Paperbacks
Book Reviews of FairTax: The Truth: Answering the Critics
Book Review: Avoiding the Critics -- Again
Summary: 1 Stars
In order to answer one's critics, one must first face criticism honestly. Unfortunately, the authors fail to do so in their latest book.
The primary criticisms of the FairTax fall within three categories: (a) the FairTax rate would need to be extremely high in order to replace our current tax system and still fund the government, (b) the burden of the FairTax will fall primarily on the middle class, and (c) the FairTax will be virtually impossible to enforce. Despite listing these criticisms among the many that they allegedly refute, the authors fail to address any of these three major criticisms with any degree of substance.
1. The Tax Rate. The FairTax has been studied several times over its decade-plus year history by a number of independent economists, policy groups, and government agencies and commissions, including; (a) the Joint Committee on Taxation (2000), (b) the Institute on Taxation and Economic Policy (2004); (c) William Gale of the Brookings Institution (2005); (d) the President's Tax Reform Panel (2006); and (e) Bruce Bartlett (2007). Each of these groups or individuals produced studies or reports that are available on-line to any interested person. Some of these studies are extremely thorough and well-documented, and -- to the extent they examined the required rate under the FairTax -- they generally concluded that the true FairTax rate would need to be much higher than the rate advocated by the FairTax proponents, usually somewhere in the 50%-60% range.
What is the authors' response to these studies? That they're wrong. That's about it. No real analysis of the substance of those studies. Essentially, the authors say that the studies critical of the FairTax must be wrong because (a) they were done either by a bunch of mindless bureaucrats or biased think-tanks, and (b) the studies contained projections over multi-year periods. Of course, elsewhere in the book the authors are perfectly willing to tout the merits of studies favorable to the FairTax, despite the fact that such studies were done by bureaucrats or think-tanks (usually paid by AFFT) and contained projections of multi-year (and, sometimes, even multi-decade) periods.
If the authors seriously wished to refute any of these studies critical of the FairTax, they could have presented the studies in an honest and straightforward fashion, and then attempted to point out the flaws in the critics' analyses. Instead, they mostly take potshots at, make sarcastic comments about, and impugn the motives of anyone who dared produce a report suggesting that the tax rate would need to be far higher than that advocated by the FairTax proponents. That can hardly be considered "answering the critics."
I would suggest that anyone who is really interested in substantive debate on the pros and cons of the FairTax, and why the required rate would need to be so high, to simply pull up one of those studies on the web and read it. Particularly the William Gale study (May 15, 2005 ed. of TaxNotes magazine) and the final report of the President's Tax Reform Panel (Chapter 9). You will learn far more about the problems with the FairTax from those studies than you will from either of the FairTax books.
2. Effect on the Middle Class. Any tax reform plan that eliminates taxes on the poor and slashes taxes on the wealthy can only be revenue neutral if it raises taxes on the middle class. That's not bashing the rich; it's simply an economic fact.
How do the authors' respond to this argument? First they seem to say that the rich currently don't really pay all that much in taxes, because capital gains and dividends are only taxed at a 15% rate. Of course, that is wholly inconsistent with the authors' usual complaint that the rich pay far too much in taxes. It also conveniently overlooks the fact that the rich tend to spend a much smaller percentage of their incomes on goods and services than do the middle class. Thus, if Warren Buffet earns a mere $100 million in capital gains this year, he might currently be taxed at a 15% rate. But if we switch to the FairTax and Mr. Buffet only spends a couple of million dollars on taxable goods and services (which for him would probably be a lot), his effective tax-rate would go close to zero.
The fact is that is that, for better or worse, the rich currently pay higher effective income tax rates than do the middle class. Moreover, those fortunate enough to inherit large amounts of wealth also pay high estate taxes. Under the FairTax, both the income tax and the estate tax would be eliminated, and replaced with a tax plan that would fall disproportionately harder on the middle class.
The authors then say that middle class folks shouldn't complain about paying more under the FairTax. If they just worked harder and spent less, they'd get soon get rich enough so that their effective tax burdens would go down. That argument might make good radio, but it hardly addresses the fundamental issue that the FairTax increases the tax burden on the middle class. (To be fair, in another part of the book, the authors discuss a study done by Dr. Laurence Kotlikoff of Boston University who believes that, over the long run at least, the tax burden on the middle class would not increase under the FairTax. While I certainly respect Dr. Kotlikoff, I think it's fair to say that he's probably the only mainstream economist who's ever studied the FairTax who actually believes that would be the case. Other economist who's studied the FairTax has concluded that it would substantially raise the tax burden on the middle class.)
And for those who believe that the tax burden under the FairTax is going to be shifted to illegal aliens and the "underground economy" (which is a favorite argument of the authors), if you actually do the math you will find that the money's simply not there. Even the economists who support the FairTax agree that we're not going to be getting much additional tax revenue from those sources.
3. Enforcement Issues. The FairTax will be incredibly simple to avoid. Folks can and will choose to buy tax-free used cars and tax-free existing homes rather than new cars and newly built homes, each of which would be subject to the FairTax. We'll buy our vacation homes FairTax-free as "investment expenses," and rent them out from time to time to satisfy the FairTax police. We'll send our children to FairTax-free private schools. We'll go skiing FairTax-free in Canada. Paris Hilton might decide to spend her tax-free inheritance on year-long FairTax-free splurges on the French Riviera. A talk-show host might use his tax-free book royalties to buy a FairTax-free yacht in the Bahamas and use his tax savings to buy a FairTax-free luxury villa on the same island.
In other words, the government won't be able to force people to buy taxable goods and services, and, being the tax-hating Americans that we are, most of us will choose to buy as few taxable goods and services as possible and instead shift as much of our consumption as possible to tax-free purchases. Thus, expected tax revenues will plunge and the tax rate will need to be increased even higher.
The authors' response to this argument? Well, they basically ignore it. They do spend several pages arguing that illegal tax evasion won't be too bad under the FairTax, but they completely ignore all the perfectly legal ways that folks will alter their spending habits to avoid paying the FairTax. It's as if the authors believe that we'll all have so much extra money in our pockets under the FairTax that we'll consider it our patriotic duties to pay the FairTax and gladly consume as many taxable goods and services as possible.
And for those of you who still believe that prices won't rise under the FairTax so there wouldn't be any reason to try to avoid paying the tax, the authors -- to their credit -- devote several pages to explaining why prices must rise under the FairTax if we are to keep 100% of our paychecks.
Having said all that, there is certainly a degree of merit to the FairTax proposal, which is why it has attracted so many loyal supporters. We can all probably agree that our current tax system is an unholy mess that is in need of serious reform. The idea of replacing our current convoluted hodgepodge of a tax system with one comprehensive tax that we could all understand and that would be simple to comply with is certainly appealing. And most economists believe that a consumption-based tax system is more efficient than an income-based system and less likely to be corrupted by lobbyists and the political system. All of that is aptly explained by the authors.
But any tax reform plan -- including the FairTax -- is going to have pros and cons, good points and bad points, create winners and losers. In order to evaluate the merits of any proposed tax reform plan, one has to be willing to honestly discuss the good as well as the bad. And that's where the authors fail, and ultimately do their readers and their supporters a disservice. They simply cannot honestly discuss the many substantive criticisms of the FairTax. It's as if they're afraid that if they honestly admit -- let alone discuss -- the real problems with the FairTax proposal, nobody will be left to support it.
Thus, the authors do not really "answer" their critics at all, at least with respect to the major criticisms of the FairTax. Rather, they duck the hard questions and make pithy, sarcastic, substance-free comments in books and on the radio where they never need to engage in real debate. People genuinely interested in examining the merits of the FairTax never read or hear any truly substantive discussions of the pros and cons of the proposal, but instead are treated to a barrage of declarative statements (usually shouted over the radio) of what amount to "We're right! Everyone else is wrong!"
Neal Boortz -- who's clearly a talented talk-radio host -- has spent literally hundreds of hours promoting the FairTax on his radio show over the last several years, but, to my knowledge at least, has never allowed even one knowledgeable critic on his show to honestly debate its merits. Congressman Linder -- who by all accounts is a decent and hard-working Congressman -- routinely avoids debating his opponents on the FairTax.
If Mr. Boortz really wants to answer the FairTax's many critics, he can simply invite a few such critics onto his show to discuss the pros and cons of the FairTax in an open and honest fashion, and, hopefully, free from the sort of personal attacks that are usually made against critics of the FairTax. Congressman Linder could hold town-hall debates -- not merely pro-FairTax rallies -- in which the merits and criticisms of the FairTax could really be explored.
To help get things going, here's a partial list of critics of the FairTax with whom Mr. Boortz and Cong. Linder might consider debating or discussing the good points and the bad points of the proposal:
William Gale, The Brookings Institution
Dale Jorgenson, Harvard University
James Poterba, MIT, and member of the President's Tax Reform Panel
Lindy Paul, former chief economist of Joint Committee on Taxation
Bruce Bartlett, conservative columnist and former economist with the Reagan administration
Rich Lowry - National Review
Jay Bookman - Atlanta Journal Constitution
Allen Buckley - Attorney and Libertarian candidate for U.S. Senate
John Suggs -- Editor, Creative Loafing Magazine
Robert McIntyre -- Citizens for Tax Justice
Any editor of the Wall Street Journal editorial page
There are many others to choose from, but that's a good list to start with. I suspect that any of them would probably be more than willing to spend an hour or more of their time to discuss their concerns about the FairTax, either on the air or at a town-hall event. If the authors really wish to confront and respond to the many critics of the FairTax, they didn't need to write a book. All they really need to do is pick up the phone, call up one of a dozen knowledgeable critics and turn on Mr. Boortz's microphone.
Summary of FairTax: The Truth: Answering the Critics
In 2005, firebrand radio talk show host Neal Boortz and Georgia congressman John Linder created The FairTax Book, presenting the American public with a bold new plan designed to eliminate federal taxes and the IRS, jump-start the U.S. economy, bring back lost industries and jobs, and recapture billions of untaxed dollars hoarded by criminal and offshore businesses. Their book became an immediate #1 New York Times bestseller, propelling a powerful grassroots tax reform movement that's spreading like wildfire across our nation.
Now, three years later, the authors are back to answer the outspoken and misinformed critics of their innovative proposal. Offering eye-opening new insights not covered in the original book, FairTax: The Truth debunks the negative myths and gross misrepresentations of this groundbreaking idea. The FairTax plan is simple, brilliant, and it will work?enabling you to keep all the money in your paycheck; eliminating the fraud, hassle, and waste of our current system; and revolutionizing the way America pays for itself.
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