Fair Tax proponents don't mention wage cuts


Published: Thursday, December 1, 2005 at 6:01 a.m.
Last Modified: Thursday, December 1, 2005 at 12:08 a.m.
letter about the Fair Tax. I've never read the Fair Tax book, but in the October issue of Money Magazine there is an article where I got the following information.
There is a list of things the authors of the Fair Tax book say will happen if we make the switch to a sales tax. First, we start collecting 100 percent of our earnings in every paycheck, second we all get virtual raises, since payroll taxes are no longer siphoned from our checks.
The prices of consumer goods and services remain essentially the same, with the removal of embedded taxes compensating for the added consumption tax.
Part of the problem is the way Boortz and Linder are using the idea of embedded taxes. Harvard economist Dale Jorgenson noted that because the taxes paid by everyone in the chain of production are embedded in the cost of goods, prices could decline an average of 20 percent if all those taxes were scrapped.
What the Fair Tax book fails to mention is that prices can only fall this sharply if companies cut wages. Sure, you'd get to "keep 100 percent of your paycheck," as Boortz and Linder repeatedly write, but it would be a smaller paycheck. Boortz denies that the book intentionally overpromises. But he concedes that the book is confusing about this and vows to correct it in later printings.
Mel Freese, Bronson

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