More on the "Fair Tax"

Here's the theory.

Your local widget factory makes widget.

Currently they have to pay taxes - Payroll Taxes, Corporate Taxes, Capital Gains Tax, whatever. And instead of paying those taxes they pass on the taxes to you.

Let's say, for imaginary purposes, that such taxes add up to 30% of what you pay for your widget.

Now we move to a Fair Tax - which gets rid of Payroll Taxes, Corporate Taxes, Capital Gains tax and whatever. They are all gone. The only tax is the extra 30% you have to pay for your widget.

Fair Tax proponents believe that at this point those companies will immediately drop the price on all their products by 30%, to reflect the fact that they don't cost as much to make.

I think that companies will happily pocket the additional 30% in savings, giving bonuses to themselves or making investments or what not.

What do you think?

Got this listening to the joker filling in for Rush Limbaugh this week, where several people called in to make this point.