New Thoughts Political

I finished the FairTax Book today. I think all in all I support the idea. Here are the questions that I am going to e-mail to them. Maybe some of you can see something that I've missed.

1. The 23% figure we all quote is terribly misleading. If something costs $100 before the FT is added, what should it cost after tax? $123 right? Wrong. It will cost $130. This is technically correct- $30 is 23% of $130, but in reality we're telling a lie. A tax of 30% will be added to the sale price of everything that you buy. They are acting like prices on shelves will include the tax in the cost, but I doubt that will happen. If Walmart can list something as $5 or $6.75 (or whatever) they will always choose the smaller number.
2. We are going to shelter the amount of money from taxes that companies currently have in inventory. In other words, if you have $1 million worth of cars currently in inventory then your first $1 million in earnings doesn't get FairTaxed. Cool right? Makes sense? Except that our authors admit that this will create a $350 billion shortfall in tax collection the first year. Also, who gets to decide what their inventory is worth? The Pentagon has $80,000,000,000 worth of toilet seats, right...
3. The book talks about a projected 10% growth in GDP in the first year which will drive down interest rates because people will start saving more. Cool, right? Again, flawed. The Federal Reserve sets prime rate, and they generally do so to contain inflation. In the eyes of the Fed, 10% growth is a bad thing. They say anything over like 4% causes inflation. This would cause them to raise (by a lot) the prime rate, not lower it. This would make large capital investment hard- i.e. buying a home with a 18% rate or a car won't happen. People will put off these purchases thus slowing the economy. they left that stuff out.
4. Education expenses (college, private school, etc.) are the only untaxed expenses. why? It makes no sense. I value education more than most, but I don;t see how this is fair. The heart medication you have to take to live is taxed 30%, but college is tax free.
5. People who are already well invested take a hit. I pay tax on my 403(b) contributions and I will have to pay 30% more when I spend that money. No biggie for me, but what about Kaphy's dad who is able to retire? He is getting hit twice on this money.
6. Who decides what gets taxed. They say they only tax goods and services at the retail level. Does this mean that if Intel needs a plumber they don;t pay tax, but if I need one, I do? Or is the fact that this is the end of the 'plumbing line' make it taxable? Confusing to me.
7. We are putting faith in the businesses of America. Poof- on January 1st everything at Walmart will cost %23 percent less (we will pay 7% more for items, don't believe the hype). I can't imagine American businesses trusting that their cost will go down 23%- I just can't. You say "but E, over time they will see that as truth and lower prices." True, but in the mean time, we are all paying 30% more for everything, EVERYTHING. This could cripple us and we might never recover.
8. On the plus side, I can see this as a fix to a lot of things. Social Security and Medicare especially. this will encourage growth and the return of some business. I think the authors over-reach a little in this regard. OK, so you can now get American labor for 30% cheaper. Is that less than in India or China? I doubt it.

Food for thought,

E