Your responses to my blog were so interesting that I started this new blog to make the conversation easier to find.
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I’m not sure when you posted this. Sorry it’s taken me a while to respond.
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First I want to say that we are in total agreement that the President’s Advisory Panel on Federal Tax Reform did not focus exclusively on the FairTax, it was one of several scenarios that they studied; so you are right!

You may (and I would emphasis the word “may” because I would like to give you another chance) be right that because of the credence I give Bartlett, the WSJ and the President’s Advisory Panel that you may not be able to convince me.

All of that coupled with the fact that so far you have been mistaken when you claimed that the Panel “most definitely: did not study the FairTax”, and when you claimed, “The Panel wasn’t allowed to consider reforming payroll as well as income taxes”, and you were in error when you said, “the panel ignored a main advantage of the FairTax—eliminating the regressive payroll tax,” and then a few lines later, apparently completely unaware of the direct contradiction of your previous argument when you wrote: “No, the payroll taxes were included somehow” does leave me skeptical.
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I read that statement as the Panel only replaced income taxes with a NRST and calculated payroll taxes the same way they are now. The graph is only considering income earners and thus lumps all payroll taxes on to them. This of course would shift their graph to make it look more regressive than the FairTax since payroll taxes are the most regressive of all taxes.

One of the benefits of the FairTax is the wider tax base. There are about 300 million citizens in the US of which only about 150 million pay income or payroll taxes. Widening the base helps relieve the burden of those regressive payroll taxes on the working poor and middle class. I think it’s safe to assume that all 300 million buy things or have things bought for them and so would directly or indirectly pay the FairTax. This is why I think their graph shows increased tax burden for all incomes from $15k to $100k.

I have to admit it makes me suspicious that the Panel hasn’t yet released their data…from 2005 for Pete’s sake. I can’t imagine it has anything to do with national security or anything. It would answer a lot of questions if they did; maybe I assumed wrong. We do have the Freedom of Information act.

I can imagine all kinds of reasons for withholding the data, but suspicion and speculation is not really part of a good argument. I will say this; they probably simply threw away the cocktail napkins.

I urge you to look at the Panel’s report one more time. Notice the colorful graphics, the fancy fonts…the freaking CARTOONS! Please see it for what it is and all that implies…a sales brochure!

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So, in all honesty I have to admit that I feel you really haven’t been that impressive in you arguments up to now.

However, I am hopeful.

Perhaps you and the other new bloggers who seem to drift from website to website postings the same things over and over can get together and answer a few specific questions without referring me to The Beacon Hill Institute.

Question 1: Does your gross pay get reduced to your net pay?
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The equation in the paper I linked previously tells me AFFT fully intended that employees keep all their gross pay and employers keep their contributions to employees’ payroll taxes. Then there’s the issue of embedded costs.

The information I’ve seen for embedded costs was mostly from The FairTax Book. In chapter 5 there is chart 5.1 that was copied from Dr. Jorgenson’s work. I’ve seen it repeatedly said on the Internet by opponents of the FairTax that Dr. Jorgenson assumed all of an employee’s tax savings would go to the employer. There is even an email that’s supposed to be from him that says so.

So I thought, Dr. Jorgenson, knowing about withholding and that many employees have different deductions, just assumed all employees would just take it in the shorts? That just can’t be true. So I went looking and found a Google preview of United States Tax Reform in the 21st Centurywhere on page 62 Dr. Jorgenson states what he used for household income for his econometric model of a consumption tax.

“Finally, the income of the household sector is the sum of incomes from the supply of capital and labor services, interest payments from governments and the rest of the world, all of net taxes, and transfers from the government.”

I take “all net of taxes” as all actual taxes paid and implying “take home 100% of your paycheck.” For his econometric model which he used for other tax reform ideas, Dr. Jorgenson appears to have used “net of taxes” as a variable that was assigned to household income for the case of a consumption tax. This resulted in the chart of embedded costs on page 83, which is what is copied in The FairTax Book , minus the Flat Tax data.

This observation is in direct conflict with statements by AFFT in Fair Tax Rebuttal

It appears Dr. Jorgenson changed his mind. He did come out with his own tax reform plan soon after the FairTax. So consider this matter still under investigation. See debates at FairTax Blog

Also, I didn’t see a thing about compliance costs in that study. This is conformation of a statement on page 5 of the FairTax Rebuttal:

“It is important to note that the Jorgenson study did not take into account the reduction in compliance costs...”

As I pointed out in an earlier post, compliance costs savings could be huge, potentially far greater than the oft quoted $265 billion conservative estimate of the AFFT.

Read about it in What The Federal Tax System is Costing You

Now employees might willingly give up their portions of payroll taxes for a plan to save Social Security and Medicaid. This could be acceptable because no matter how many deductions one may claim one will never get payroll taxes as take home pay with the current code.

I think all this suggests there is certainly “room” for real wages to stay the same and prices to fall at least the amount of the FairTax considering all these savings will affect the entire supply chain of every product or service. However, whether real wages can stay the same and prices can fall depends on the unique economic factors of each and every product or service which includes all those in the supply chains.

However, the latest claim from AFFT is that no matter if wages fall or prices increase you will end up with at least the same purchasing power. It looks to me like they are playing it safe. Would you want, potentially, 300 million Americans pissed off at you?

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I have shown that it does using only the writings of the FairTax people, including FairTax 2007 who specifically said: “If businesses paid employees with gross pay, production costs would decrease by 11.55%”. Link provided above.
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I’m not finding that 11.55% figure anywhere at AFFT. I don’t know which Arduin, Laffer, and Moore Econometrics paper http://www.netaxpayers.org/fairtax3.html is referring to.

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So, it is a simple yes or no question.
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Well actually it’s not that simple.

While I know people would like a definite answer it’s not really possible unless there is a detailed economic analysis of the particular service or products you may produce. Besides, do we demand to know how many people will get a pay cut or lose their jobs or how many businesses will go under every time there is an income tax increase?

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However, if your answer is “no” then I would like to pose another question.

Question 2: Is it your contention that the withholding taxes withheld from your paycheck are NOT part of the embedded taxes which the FairTax does away with?
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I believe I’ve found evidence that suggests that withholding was considered as household income in Dr. Jorgenson’s study.

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That should be easy too, either they are part of the embedded taxes are they are not.

However, if you answer they are NOT part of the embedded taxes; I would like to ask another question.

To have reached this question, just to be clear, you are contending that people get their gross pay AND that the taxes now withheld are NOT part of the embedded taxes.
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Employees may have to give up their share of payroll taxes. If so, that's about 15% off of labor costs which is usually the highest cost. The calculations I've show before suggests AFFT considered employees would keep their share of payroll, but that may depend which industry one works in like the leather one so prices can stay low.

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Question 3.a: Since it has been established on the FairTax website that, “If businesses paid employees with gross pay, production costs would decrease by 11.55%” where does the extra half of the money come from allowing businesses to reduce the cost of production by 21%?
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Well I can’t find the original work quoted at netaxpayers.org.

But in general, costs are saved throughout the entire supply chain and they add up. Costs savings vary from a low of about 15% for industries like leather goods to a high of about 26% for trade goods. And remember, Dr. Jorgenson’s study did not include compliance cost savings.

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Hopefully you are convinced of the take-home pay argument and were able to skip these questions. However, without having your answer before I posed the questions here and in view of you entitling your first post here: “100% take home in the equations” in which you gave me the very helpful reference to “A Macroeconomic Analysis of the Fair Tax Proposal (PDF)” and referred me even to the right page where I found, “..wages are lower by the exact percentage of the payroll tax,” I would like to propose Question 3.b: Do you people actually ever read the stuff you refer me to? (Trust me, I don’t blame you a bit if you don’t).
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Let’s look at that entire quote from the footnotes on that page:

“There is a great deal of debate regarding whether the true burden on the payroll tax lies completely on the worker through lower wages. Even if this is the case, and wages are lower by the exact percentage of the payroll tax, the cost to the firm cited above is still inflated by the same percentage, maintaining the validity of the argument.”

The debate is about how payroll taxes are just included in the total cost of an employee so perceived wages are probably lower.

Yes, I read a lot.

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A little background now for the next question: according to the Tax Foundation, using figures from the IRS, the top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation's income yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns. The top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent).

Question 4: Do you dispute these numbers?
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No.

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Since those numbers are incontrovertibly true, I will assume you do not dispute them, so based on them I would like to pose:

Question 5: Since the wealthy save more that the middle class and those savings will not be taxed (thus reducing the current tax base) until they are spent AND since the FairTax does not tax the poor (thus reducing the current tax base) via the “Prebate” AND since taxes now collected in business to business transactions are exempted from the FairTax (thus reducing the current tax base) AND since used goods are not taxed (thus reducing the current tax base) how can it possibly logically follow that taxes do not go up on the only people left: the middle class?
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Because of the widening of the tax base and because the wealthy will actually end up paying more. Read the section “Who Pays More?” on page 3 of The FairTax and Middle Americans

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Question 6: Did the FairTax people include the money raised by assuming the Federal government paid the tax when they calculated the amount of goods which were to be taxed and then fail to account for the increased costs to the Federal government necessary to pay that same tax they were supposedly collecting from themselves?

(That question was just for fun. Since that is an easily proven fact for which I have provided multiple references, I just threw it in to determine whether you are just shilling for the FairTax and to determine how far you are willing to go in denying reality on its behalf.)
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As I showed previously, no matter how high prices might rise up to the full amount of the FairTax the government gets it right back the next month.

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Question 7: Since I have to calculate my Federal income tax and then use those figures to calculate my state income tax (as does everyone in all but 6 states), where do I save even one thin dime in tax compliance costs?
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It is suggested that states will adopt their own versions of the FairTax which would avoid this nicely. Plus it would widen the base and decrease the effective rate at the state level too. Several states already have their own FairTax movements.

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The FairTax calculations assume 100% compliance. The avoidance rate now with the income tax is about 15%. The President’s Advisory Panel assumed about a 10% avoidance rate with the FairTax. You yourself have stated, “Most likely evasion will be the same or less than currently.”

The President’s Advisory Panel assumed an avoidance rate less than with the current income tax and calculated the rate necessary for the FairTax to be revenue neutral would be 34% (exclusive).

Question 8: What would the FairTax rate be given your assertion that evasion would be about the same as with the income tax?
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The FairTax calculations don’t assume 100% compliance but use data from previous years that already has evasion at the current rate built in Tax Notes Article on FairTax Rate

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In your writings here, to prove one of your points you quote Kotlikoff as saying: “…the government can stipulate that all retail sellers provide buyers with a written receipt, regardless of whether the transaction is or is not in cash, specifying that the FairTax has been paid. Thus if sellers don’t mail in the taxes, there will be a paper trail of his evasion.”

Question 9.a: Are you now asserting that we (or businesses) will have to save a record of every transaction whether in cash or not and somehow make these records available to the Federal government?
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I believe Kotikoff added that lately just to answer the critics and show if evasion becomes a problem then there are solutions. Personally I’d rather see a large cash reward or one based on the amount of taxes evaded to encourage informants. I believe I read there is some kind of reward in the bill now, but I don’t feel like looking for it at the moment. I agree, adding more paperwork defeats one of the primary purposes. The total costs of additional paperwork would make large cash rewards cost effective.

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Question 9.b: Then how does your previous assertion make any sense?

The FairTax has been carefully calculated to be revenue neutral, raising the amount of money that the government now spends. This leads me to my last question for now:

Question 10: Since the Prebate will cost about $600 billion dollars a year (a very easy and irrefutable calculation: Prebate allowances multiplied by number of people receiving it); and since this cost is about the same as the Iraq war (just for some perspective on how large a number that is… about 23% of current Federal spending), and since the Prebate is a NEW program and was thus NOT included when the FairTax rate was figured to cover existing government expenditures; my question is: How are you going to pay for the Prebate? Where does the money come from?
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The $600 billion figure comes from the President’s Panel which is questionable since there's no data. The AFFT uses $486 billion and includes it in government expenditures used to determine the rate.

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I am almost beside myself in anticipation of your answers which I fully expect to be so well thought out and comprehensive that you sway me to the FairTax in spite of my current doubts.

I hope that you will therefore forgive me for throwing in a final bonus question.

You have said to another blogger here: “The burden of proof is on you now” and you challenged me in the title of your post to me to: “Prove it.” Without going back and researching every variation on this that has been posted by you FairTaxers over the last few weeks, let me pose my query:

Bonus Question: When a group proposes to change the tax code of the United States and further proposes to require an amendment to the Constitution of the United States, don’t you think that the burden of proof for their claims should rest with them and that they should somehow be able to back those claims up?
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The FairTax does not require an amendment to the constitution to go into effect. The founding fathers fully anticipated and used consumption taxes; however, they rightfully despised the thought of income taxes, equating them to tyranny.

The FairTax legislation itself completely dismantles the IRS, but does not keep congress from rebuilding it in the future. In the next session of congress John Linder plans an addition to the bill requiring the repeal of the 16th amendment within 5 years or the FairTax becomes unlawful. This is to address the concerns of those that fear a consumption tax plus an income tax.

The AFFT provide a considerable amount of research, probably too much for most, to back up their claims. Yes, it’s complicated with equations that are difficult to work through. It’s not surprise if anyone finds it a bit intimidating. It really helps to participates in discussions with others who may have a better grasp of such complex math.

I’d like to thank you because answering this post as well informed as possible led me on a long convoluted search that resulted in finding that early work of Dr. Jorgenson.

I’m also reading and posting at FairTax Blog I urge anyone reading this to join me there. For one I’m finding it difficult to carry on two or more conversations at once lol. But also because there are several thoughtful posters there that are making very good points that have helped me see things a bit more clearly.