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Not a pipe dream2005-01-07 17:19:55wtfisu


The FairTax proposal is, while not perfect, certainly a better proposal than the current system- and in your defense of the current system (for example, that 'people rely on their mortgage deductions') you demonstrate a fundamental lack of understanding about how the current system really works. For example, a tax deduction on interest paid simply means I buy that interest with pre-tax dollars. It might be simple to assume that this saves me money, but does it really? What it actually does is lower the cost (to me, and to millions of other homeowners), which in turn raises demand for borrowed money in the market... which has the effect of raising prices. Net shift in expense: zero. The price to borrow, being made artificially cheaper, adjusts in the market to reflect it's real value. Thus, supply-side shifts while demand-side shifts. The net effect will be a wash- borrowers will not be able to deduct interest, but will pay a lower interest rate. Lenders, by the same token, will receive a lower interest rate, but will not pay taxes on their interest income... and where will the taxes go? Out front, as a line item on your receipt. We'll shop for mortgages with their real price tag out front, instead of looking at the sticker value (which, incidentally, includes the income tax for the lender- it's part of the lender's costs, after all) and computing how much we'll get 'back' from the IRS. Ultimately, that is what a shift in tax mode will be- a shift from income to consumption-based taxation. Net change in how the markets will work: not much. The markets will continue to adapt to supply and demand, the government will collect roughly what it collects today, the sky won't fall. ...now, if this was the ONLY change, I wouldn't be interested. However, the FairTax proposal does much more than that- it makes figuring taxes and auditing the trail of taxes much, much simpler- and simple translates into cheaper compliance, which is good for everybody. There will still be call for accountants- after all, someone has to keep the books for a business to run- what will disappear is the byzantine procedures and bizarre spaghetti logic of the current code that so many of them devote their lives toward exploiting. Chris Joosse