In all of Neal Boortz’s books on the FairTax (see my recent article “The Flat Tax Is Not Flat and the FairTax Is Not Fair“), he maintains that, in order to be “revenue-neutral,” the rate would have to be 23% (figured inclusively–the tax is included in the price of the product), which is actually 30% (figured exclusively; that is, normally–the tax is added to the price of the product). Yet, FairTax proponent Laurence J. Kotlikoff, a professor of economics at Boston University, in a 2006 article I was just made aware of called “Is the United States Bankrupt?” (Federal Reserve Bank of St. Louis Review, July/August 2006, 88, pp. 235-49), says the rate needs to be 25% (inclusive) or 33% (exclusive).
So which is it? And yes, it really matters. Since the FairTax would be paid on the purchase of goods like a new car and on services like heart surgery, the extra 2% could amount to a great deal of money.
But as I have shown in my articles on the FairTax, even the 25/33% rate would be too low. With a federal budget approaching $4 trillion, we need low tax rates (“Low rates are good tax policy”–Neal Boortz) more than we need fair tax rates. Anyone for the LowTax?