Chapter Four is titled "Truth About Its Consequences". The authors claim that the very powerful senior citizens' lobby will prevent the FairTax from passing because it would be very detrimental to those living on fixed incomes. Again, they cite the 30% increase in prices they expect.
They say--correctly I think--that the effect of the elimination of the income tax on people of all income levels will not be either universally positive or negative. But they claim that the middle class will almost all lose money.
Here is where they introduce the fact that under the FairTax a home bought for investment purposes will be far less expensive than one bought to live in.
I believe Hewitt and Adler have a very valid point here, since the FairTax is only paid once, by the final user at the retail level. And remember, this only applies to new items. Used items are not subject to the FairTax.
So how do the proponents of the FairTax forsee a scenario like this settling out: Investor A buys a home for investment purposes, rents it to Tenant B for two months, then sells it to Tenant B for a big discount on what Tenant B would have to pay for a new home? Would there need to be a minimum amount of time an investor would have to own the property before he were to sell? Would it be a time period, like one year or five years? Or would it be tied to a monetary amount, like long enough for the FairTax on the rents to equal what the FairTax would be on a new home? Is this scenario already covered in HR 25?
Conversely, would "new" simply mean "the first time a home was acquired by an end user", no matter how old the property actually was? The FairTax would then be paid on the purchase price; thus preventing any home built after the FairTax goes into effect from escaping being subject to the tax, unless it's never lived in by an owner.
As Chapter Four continues, the authors list many of the social benefits now supported by tax deductions that would no longer be encouraged by tax benefits. The mortgage interest deduction, IRA's, charity deductions, adoption credits, medical deductions, and foreign tax credits are among thse listed that would no longer exist under the FairTax.
In addition, Hewitt and Adler list several ways in which high net worth individuals would escape taxation on their existing assets and would be able to leave larger estates to their heirs, thus creating an even larger gap between ordinary Americans and the "economic aristocracy".
The authors point out that many items that are traditionally non-taxable will now be subject to the FairTax, and that business that depends on things like foreign tourism will be adversely affected by, what the authors claim will be, far higher prices.
My take: Aside from the real estate issue, which I've addressed, Hewitt and Adler's points largely rely on their opinions--backed up, they say, by the economists they choose to cite--that are completely at odds with the economic studies Boortz and Linder choose to cite.
FairTax proponents argue that once embedded federal taxes are removed from the cost of items and replaced by the FairTax, the prices at the register will be about what they are now. Hewitt and Adler argue that there will be no price reductions, and that the addition of a 30% sales tax will mean massive price increases only slightly offset by the elimination of all withholding, and the monthly "prebate".
The elimination of the current tax deductions bothers me not in the least. What, pray tell, are you going to deduct your expenses FROM? Withholding will be eliminated under the FairTax. And no one gives to charity, or adopts a child just for the tax consequences. Does it make financial sense to give $1000 to a charity so the government will give you back $330? Or pay the $330 in tax and keep the $660? As they say, "do the math".