I would not consider Kotlikoff as being a "credible economist" simply because he believes in the "gov't as household" fallacy. But that aside, do you understand how that 23% was calculated? Are you aware of the questionable assumptions required to make it work?
Here's the paper I'm looking at so you can check it out for yourself:
http://www.fairtax.org/PDF/Tax Notes article on FT rate.pdf
And here's Gale's critique (which I would suggest looking at first since it was written prior to the above):
http://www.urban.org/UploadedPDF/1000785_Tax_Break_5-16-05.pdf
My immediate takeaway from the two papers is there would be an increase in
used sales (excluded) and a fall in production of
new goods (thanks to the tax), especially in autos. That doesn't leave a hell of a lot of room for the already crippled manufacturing sector.
Furthermore, this concept increases the burden on those at the median since rents are now included in the tax scheme, never mind all of their regular spending (food, clothes, utilities). Let's not forget the issues of "sticky wages and prices". That creates a dilemma immediately at the producer's end.
There are some interesting effects on the financial sector, though. Almost everything associated with equity markets would be taxed. But considering the backlash over a measly Tobin tax, I highly doubt they would let this go through without great uproar.
One of the loopholes that stands out, as I think about it, is the exclusion of "business to business" sales. Those at the median and below are unlikely to be business owners. Meanwhile, those in the upper quintiles
do have the capacity to create companies (even if they don't really exist). This allows the "rich" to escape the consumption tax by footing the bill to their "companies". And since there is no more IRS under this scheme, who's going to investigate?
Overall, the promises of this scheme are dubious, and literally is shifting the tax burden on those at the median (and surrounding quintiles). If your goal is to empower the middle income earners, this is a terrible way to do it. As for the poor, nothing seems to change (assuming the demogrants actually cover the discrepancies).
I don't understand the "intricacies" perhaps as well as you do, so maybe you can straighten out these wrinkles I'm perceiving? But looking at the two presentations, I'm currently on side with the "apples-to-apples" comparison of Gale's over the "fixed assumptions" of the former.
Very good questions, I don't have all the answers as these are by far the most advanced questions I have been asked. I quit following this plan closely (or at all) a few years ago, but at one time I would have called myself an expert.
As to how they came up with 23%. I think it will work. If not, at least now congress cannot punish specific groups, regions or activities. IF WE NEED TO RAISE TAXES WE ALL PAY MORE TAXES. So when taxes are raised, it effects everyone. Thats a good thing.
I do not think that the production of new autos would be impacted at all. Used items can only rise in value up to a certian point below what the new counterpart cost. Since so much of the make up in what an item costs is the taxes paid by the company to produce it, the price of new cars would probably go down, if anything. But I don't have a crystal ball.
I think a better way to say it is that more used goods would retain value. But I think 1999 Nissan Altima in decent shape would still be a $2500 dollar car. And a new one would still be $25,000. I simply think it would be easier to sell used goods... other than cars.
Used cars are currently quite a bit cheaper than new ones, yet plenty of people still opt to buy the new, because they want the new and they can afford it. Same would work here.
You had one very perceptive response, the least benefit comes to those in the $80-$120k crowd. Though the percentages are negligible. I mean seriously, its less than 5% in any scenario I've seen. But consider, the "tax burden" isn't really felt like it is now. This isn't money taken out of your check, it is money included in the cost of goods and services you buy. So being smart and frugal can reduce your tax. Also, since I think I have shown fairly well that prices will not be 23% higher than they are now, even though they arent as benefited, you really cant say they are hurt. Their purchasing power would still go up. They would have ALL of their checks to spend how they wished, on goods that probably cost the same or less than they do now. And they still get the prebate.
Basically I see it like this. Although the percentage of revenue generated from the median quartiles goes up, they arent affected as much as one would think that statement implies. This all hinges, of course, on competition driving prices down after the implementation of a 23% tax. I think that is almost as sure as night follows day. But I could see how a select few services and goods could not have a reduction in price. Namely, it would have to be one without much, if any competition. So although the percentage of revenue coming from these quartiles goes up, so does the purchasing power. I guess the way to say it is they aren't benefited as much as others, but they still have a benefit. If Im lucky, Ill be in this quartile this year. I still would want the FairTax.
Can you think of a product/service that doesnt have competition? I cant.
Anyway, there are some weird things about this, that is for sure.
I am well aware it isn't perfect. The elderly, for instance, have saved their whole life. The money they saved was taxed, now they buy things with that money, and its taxed.
But what I think this does is increase the purchasing power of everyone.
Is the FairTax perfect? Nope.
But I get rather frustrated at people when it is discussed. They find a flaw or two and then they are done with it. We can sit and find flaws all day long with our current tax system.
Our current tax system was designed in the later part if the 19th century. We dont use much that was designed back then anymore. Yet folks like Buck cling to it, all the while screaming how terrible it is because the rich keep screwing everyone by avoiding taxes.
Let not the dream of a perfect plan impede the progress of a good one. - me lol, but Im sure someone else has said it somewhere.
Knowing what you know about the FairTax and our current taxes, if we were starting a new country tomorrow, which would you impliment?
The fairtax is a 21st century tax, the income tax is a 19th century tax. England abolished an income tax a couple hundred years ago and had a economic boon lasting over a century. It only ended when they implemented the income tax again.