Is the Fair Tax a shift of the burden more to the rich or to the poor?

Question

Assuming we are to maintain the current federal tax revenues (meaning the same amount of tax dollars are to be collected), and also assuming it is an impossibility that everyone will somehow end up paying the exact same amount in tax, then there is a shift in who is paying the taxes.

I have heard the proponents of the Fair Tax suggest that because the rich buy more they will be paying more taxes than before.

I have heard those against the Fair Tax suggest that that the burden falls more to the middle and lower classes because the rich will have more disposable income for investment, whereas the poorer classes have to spend all their money.

Does anyone actually have any factual hard evidence to support either position?

Anyone want to comment on why we spend so much time discussing taxation and so little on controlling Federal spending? (and yes, I am part of the problem with this question).

Answer 1

Since the fair tax proposal includes a monthly "prebate" to cover the tax on purchases up to the poverty level, the poorest of the poor would be somewhat protected. The problem there would be would they save the rebate amount long enough to spread over the month, or spend it early and then end up paying the much higher prices for the rest of the month? But at least they'd be reasonably protected.

The middle class could suffer. A married couple today with income in the mid-$40k's, with a couple kids, will pay very little if any income tax. Under the fair tax proposal, even after their rebate to cover the "basic necessities", they'd pay fairly substantial taxes.

Upper middle class people should make out well under this proposal. The rich can get richer - the growth of their investments wouldn't be taxed, just what they spent of it.

One thing I do see as good about the fair tax proposal is that it taxes the underground economy - no more getting paid under the table and avoiding taxes. Another good thing about it is that some of the arcane rules would be abolished.

Proponents say it will get rid of the IRS. Who's going to manage the prebate program, and send out the checks? And deal with lost or stolen checks? And collect and tabulate the taxes from all the businesses that collect them? And the million other details in maintaining the fair tax system. That will just magically happen? I don't think so!

The "prebate" is based on family size. Anyone who has read this forum over the last few months realizes there's a problem in defining dependent children and whose they are. This too is just going to go away? Or require some agency (OK, call it something other than the IRS) to manage it, and make the determinations.

And by the way, you parents saving for college - better step up the saving, it's going to cost a lot more, 23% even by the fair tax organization's estimate, than it otherwise would - you'll have all the expenses you have anyway, plus 23% tax on the education expenses. And education credits - sorry, those don't exist any more.

Please note, I'm no huge fan of the current system. It's way too complex, and has far too much cheating going on. But I don't see the fair tax proposal as a panacea either.