According to The Politico, the so-called FairTax is an issue in the special election to replace the late John Murtha in Pennsylvania. The Republican candidate Tim Burns apparently said some nice words about the idea before taking them back, and Democrat Mark Critz ran an ad saying that the FairTax would constitute a tax increase, a charge that the FairTax people have called a lie.
I was unable to find either the Critz or FairTax ads so I am not clear on the precise details of the charges. But it certainly is reasonable to say that the FairTax would constitute a substantial tax increase in the current environment. That is because the proposal has always had a 23 percent tax rate. Yet during the time this proposal has been kicking around federal revenues as a share of GDP have ranged from a high of 20.6 percent in 2000 to 14.8 percent in 2009. As Stan correctly pointed out yesterday, by every measure federal taxes are at their lowest level as a share of income or the economy in 60 years. And no matter how much the tea party people deny it and rant about overtaxation that is a fact.
If the FairTax people were honest about wanting to replace federal taxes in a revenue neutral manner, they should have reduced their proposed rate by at least five percentage points over the last 10 years. Since they haven’t and because they said 23 percent was revenue neutral back in 2000, it’s reasonable to assume that replacing all federal taxes with a 23 percent sales tax today would have to constitute a tax increase equal to almost six percent of GDP. This is simple math.
As I have explained on more occasions than I care to recall, the FairTax is a totally crackpot idea. The fact that its supporters always claim that the same rate will equal current federal revenues no matter what federal revenues are is actually among their lesser deceptions. For more details see here.