Excellent piece! I would only disagree with your comment that prices will be reduced under the Fairtax. While business costs can be reduced by around 10% of sales on average across 20 million businesses, retail prices will rise by 17% after adding on the 30% sales tax. (1.00 x .9 x 1.30 = 1.17). This assumes everyone will receive their gross pay or pension.

Other “unintended consequences” you might consider when thinking about the Fairtax include:

(1) The Fairtax proposal for the federal government to tax state and local government consumption is inappropriate under our republican form of government. One sovereign power (federal) cannot tax another sovereign power (S/L) and the Supreme Court has adhered to a long standing doctrine of intergovernmental tax immunity. The Fairtax rate will have to go up significantly due to this loss of consumption in the base.

(2) Including payroll taxes on the list of taxes to be replaced would create a class of 30 million workers that would pay no net federal tax annually after receiving the prebate. Compare that to current law where less than 1 million workers can reduce their income tax liability to near zero by using exemptions and deductions, and then totally offset the FICA amount by qualifying for the refundable EITC and Child Care credits. How many non contributers to the federal coffers can the country afford?

(3) Retirees who have paid into the SS Trust Funds for 45 years or so would be forced to resume paying for their pension and health care benefits with their sales tax dollars. Is that fair?

(4) The “prebate” which is actually a cash grant entitlement will cost upwards of $600 billion annually, the largest entitlement yet. Entitlements are squeezing out discretionary spending in the federal budget, and the prebate will only hasten the looming federal budget train wreck. A targeted prebate would cost less that $59 billion.

(5) Implementing the prebate “cold turkey”, without any experience with national sales taxes, would not be approved by the Congress. Congress is institutionally conservative and much prefers evolution to revolutions such as the Fairtax. A phase in over five years might be a better plan?

I stronly support your conclusion that the various tax plans need further study before making any changes.