By eliminating the personal income tax, corporate income tax, payroll taxes and estate taxes at the federal level, the FairTax would raise lifetime utility; the introduction of a federal sales tax would work in the other direction.
In this paper we analyze the effects of the FairTax proposal, a cousin of the flat tax proposals. Compliance could become very expensive to monitor and enforce. In the benchmark equilibrium, all reference quantities grow at the rate of labor force growth, and reference prices are discounted on the basis of the benchmark rate of return.
The essential results from the solutions of the benchmark and FairTax economies are summarized in Table 2and in Fig. Higher values of these elasticities mean a greater impact of the foreign exchange rate in domestic markets.
But what they apparently missed is that this loss to these governments is exactly offset by a gain to their taxpayers.
Disadvantages The Fair Tax is unfair to those not earning an income, such as seniors.Households must decide how much to work, and how much to save. The scale of change alone would probably make this plan unworkable unless a great deal more research is done. Although the IRS is eliminated, another agency would take its place. This output may be exported or sold domestically, modelled with a constant elasticity of transformation CET export function between the U. The model is first calibrated. The balance between investment and earnings from capital is restored here by adjustment in the growth rate g i that responds to changes in the marginal productivity of capital associated with changes in investment. The other major actor is the government, which imposes taxes and uses the revenue to spend on goods and services, as well as to make transfer payments to households. Were state and local governments to maintain their real income tax collections -- the assumption made here -- by increasing their tax rates appropriately, their taxpayers' real tax burdens would remain unchanged and there would be no need for the federal government to compensate state and local governments for having to pay the FairTax on their purchases. How It Affects the U. Compliance could become very expensive to monitor and enforce.
Joint Committee on TaxationU.