CNN Covers the GOP Debate – the Fair Tax

So the GOP faithful went wild when the Fair Tax was brought up. This morning CNN asked Ali Velshi to explain this proposal. First of all, why ask someone who admits his head hurts when he has to think about tax policy. For example, watch how Ali confuses 23% and 30%:

And then everything you buy will have a built-in tax which will be equivalent to 23 percent of the total price you buy. It will be 30 percent more expensive than it is right now. So something today that costs $20, it should cost you about $24.60. But your tax is only at the end.

No – 30% of the $20 is $6 so that total price tag is $26 not $24.60. But let’s back up and check out how Ali introduced this proposal:

You wouldn’t pay income tax. There would be no corporate tax, no Medicare, no AMT, no payroll taxes, no estate taxes, no gift taxes, no capital gains taxes, no Social Security. If you earn $40,000, you’ll get, you know, your every 26-week installment of your paycheck.

If you think this is less than you are paying the Federal government now, you are correct. Think about it this way. Consumption is often touted to be two-thirds of GDP and this tax will take 23% of consumption. Clearly, the Fair Tax cannot cover Federal spending as tax realizations would be far less than Federal tax revenue under the current system. And current Federal tax revenue falls short of Federal spending.

But Ali Velshi is not capable of mentioning this reality. And it also seems that he is assuming people’s paychecks will not have state and local tax deductions. The revenues from the Fair Tax would likely capture no more than half of what the various Federal, state, and local governments will spend. But it would seem Ali Velshi is not aware of this budget reality. So why on earth did Tony Harris end with this nonsense:

HARRIS: Well, good. When you figure it out, because you’re the man, will you let us know?

I’ve said this before – CNN has really awful coverage of economic issues. And Ali Velshi may be their worst business reporter. So why is he “the man”?