tag:blogger.com,1999:blog-8336173835252185480.post6136885727192143210..comments2023-09-24T11:30:13.297-05:00Comments on State and Local Public Finance: A Fresh Look at Federal Taxation?Unknownnoreply@blogger.comBlogger1125tag:blogger.com,1999:blog-8336173835252185480.post-77453129846131719872010-02-24T14:16:38.677-06:002010-02-24T14:16:38.677-06:00Sean, the fair tax is a very interesting topic. I ...Sean, the fair tax is a very interesting topic. I have the major concerns:<br /><br />First, how reliable is the estimation of 23% rate for the national sales tax to be "revenue neutral"?<br /><br />It seems that the rate was estimated based on a projected base that includes all sales, which is three times larger than the current sales tax base. That is, if it were estimated with the current tax base, the rate would indeed be 69%! <br /><br />Moreover, I am not sure whether price elasticity has been fully considered in the estimation. Even if we can include all sales in the tax base, such a high rate would have significantly reduced the size of tax based due to price elasticity or evasion. <br /><br />The second concern is about vertical competition of tax base. If the federal government levies a high national sales tax, it will create difficulty for states to generate further revenue from sales tax. <br /><br />A possible outcome is that states will over time shift to a high reliance on state income taxes. The outcome would be a income-sales tax swap, which I am not sure is desirable, because it may be more efficient, both economically and operationally, for the national government to levy the income tax. <br /><br /><br />rather than the current available sales base.Zhirong (Jerry) Zhaohttps://www.blogger.com/profile/07073293673519003452noreply@blogger.com