With tax reform on everyone’s mind, Emily Messner at the Washington Post’s “The Debate” blog tries to analyze the Fair Tax… without knowing all that much about it:
However, one troubling aspect of the Fair Tax is that even with more money in workers’ pockets thanks to the elimination of income taxes, seeing a 23 percent (or more) tax tacked onto absolutely everything could cause consumers to rein in their spending. Housing could be hit especially hard — can you imagine a home costing 23 percent more than it does now? On top of that sticker shock, presumably the helpful deductions for homeowners would be wiped out with the implementation of this Fair Tax.
Wow. I’ve seen my ten year old cousin offer a more informed assessment on the merits of Brussels sprouts (to be fair, he gave it a premature “thumbs down” too).
The above, I suppose, is what passes in modern journalism as trenchant analysis and debate. Enough carping, here’s why that criticism is ludicrous on its face.
Under the Fair Tax legislation, the tax is applied to new products at the retail level only. Since existing housing structures aren’t “new,” there will be no federal retail tax applied. Ms. Messner, at the very least, should have known that fundamental detail before throwing her hat in the pundit’s circle.
Second, basic economics dictate that once all the federal income and corporate taxes are removed, the price level of goods and services will drop (as will the cost of doing business). This is the reason that the FairTax will implement 23% sales tax: the predicted drop in the price level is that very amount. No, this 23 number is not in deference to Doug Flutie’s touchdown bomb on Nov. 23rd 1984 against Miami. Nor does it have anything to do with Nov. 23, 2005 separation of Nick and Jessica. (But… is it simply a coincidence???).
Once the Fair Tax is applied after the hidden costs of the income tax are removed, the price level will remain flat. Sure, you can argue the economics as to whether the end result will be an actual wash. But, with enough Emily Messners in the media, the debate will never make it that far.
We’ll still be stuck arguing over whether the Fair Tax is tastier than Brussels sprouts.