The Grassroots Corner April 22nd, 2024

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  • Source: FAIRtax
  • 04/22/2024

Pushing back on ITEP

We normally disagree with the Institute on Taxation and Economic Policy (“ITEP”), especially after ITEP published a study that - we think unfair - argues the FAIRtax is regressive. However, we came across the following ITEP article, which both makes sense and makes the case for the FAIRtax: 

In that article, ITEP contends that last year’s plan of nineteen states to declare sales tax holidays worth about $1.6 billion was politically popular but an ineffective gimmick with significant downsides. The article cites Florida’s sales tax holiday, which “chopped up its sales tax structure to offer exemptions on purchases of arbitrary items like random toys, tickets to sporting events, and boating supplies.” The article also excoriates Florida for not having an income tax, thereby hindering “… one of the most effective ways to tax higher incomes and wealth… .” We disagree with that part of the ITEP article.

But the article goes on to attack Florida’s tax holiday on gas stoves, asking rhetorically, “You may be wondering why a state where more than 90 percent of the homes have electric ranges needs this exemption on the books. Well, it’s because it doesn’t, and the proposal was nothing more than an opportunity to score political points and increase the likelihood of asthma in children, apparently.”

The article comes to the following three conclusions: 
  • Tax holidays leave a regressive tax system—one that asks more of low- and moderate-income families—unchanged and do little to benefit families most in need of support.
  • Sales tax holidays poorly target those who are disproportionately impacted by regressive sales taxes, and wealthier families are more likely to benefit from them.
  • Retailers are given leverage during sales tax holidays and can exploit consumers with higher prices or watered-down sales promotions.
It may come as a surprise that we agree with ITEP on this one. Without a Prebate and elimination of payroll taxes, sales taxes are regressive. But the larger point is that the FAIRtax, unlike tax holidays, provides no exceptions such as sales tax exemptions on specific items. The FAIRtax imposes a tax on all retail consumption of services and new tangible goods with no exceptions. The FAIRtax Prebate is a better mechanism that lets consumers, not the government, decide what “tax holidays” they want to take. 

When the government exempts tax on some items but not others, it substitutes its judgment for yours as to what items deserve a tax break. When the government gives breaks to some, others clamor for “me too” exemptions. Soon, the tax base erodes, and the remaining items must pay a higher rate to make up for the shortfall the “holidays” generate. As taxes rise on remaining goods, consumption decreases, leading to a vicious cycle.

The FAIRtax prebate decides “tax holidays” more efficiently. Next time your progressive friends attack the FAIRtax as regressive, remind them about ITEP.

If you know a better way to respond to progressive criticism of the FAIRtax, I would love to hear from you.
We need more of you to send in pictures and news. If you have something to share, please send your material to me,, (908) 578-4975, or fax (908) 598-2888. When others see your activity, they are inspired, and the process snowballs. When the process snowballs, Congress Members, Senators, and even the President start to listen.
Jim Bennett
AFFT Grassroots Coordinator & Secretary


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