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Old 09-16-2008, 09:37 AM
 
Location: Pennsylvania, USA
5,217 posts, read 4,120,793 times
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23% Sales tax on items? What?

Okay.. this just doesn't work for me and here's why.

Right now we are all consumers.. middle, lower middle upper middle and the rich. The poor, not so much but I'm sure there is some consumption there.

Let's take a TV for example. I nice one is $1500.. obviously a poor person can't afford it, i'm not rich. .but I might splurge for one when I do find I have some tucked away for extras. So I buy said TV..

Now.. if you put a tax on that of 25% that adds like $345 to the bill..

But wait.. yeah. I'm not paying income tax anymore..thanks to the national sales tax. BUT.. when I was paying a lower percentage of my income on those taxes I MAY be able to afford those little extras.. remember.. middle income is no longer "comfortable" we're getting by. But now, instead, I'm paying 23 or was it 25% of my income on items I purchase.. so in essence we are all going to pay 25% of our income on things we consume.

What about those that are in the 3% tax bracket barely scraping by .. are they not to consume anything.

You can forget about middle class people consuming things..

and there goes our economy.. we're a nation of consumers and our economy is built on it... pull the rug out from consumers by doing that and watch how quickly this nation will tax.

Sure.. you're giving us whatever percentage we're NOT going to be paying in income taxes back to use to consume..but then for a lot of people that 25% consumption tax is taxing us harder.. and it's not allowing us to write off certain expenses.. like medical insurance.. caring and raising for our kids.

I just don't see how logically a flat tax is fair or could even work.

I've said it again and again. Those claiming that the progressive tax is not fair.. how much are you really suffering? What are you sacraficing to pay that tax bill? Are you REALLY hurting that badly? Did you eat spam out of can to pay that tax bill?

My point is not to say that you all do not deserve those extra luxuries.. you do if you work for it. .but the progressive tax is NOT taking that away from you. You are still enjoying the fruits of your labor. While the middle and working poor are not enjoying lifes luxuries and are happy to get by.. some of them working just as hard as you in the higher bracket. And you still have enough left over to invest and grow your money, shelter your money in tax shelters and tax free investments.
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Old 09-16-2008, 10:00 AM
 
Location: Pennsylvania, USA
5,217 posts, read 4,120,793 times
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Quote:
Originally Posted by NewMexicanRepublican View Post
This theory is great if you are on the receiving-side of the equation. Would you be OK if I decided to raise your taxes because I considered you to have "excess"? Not likely. Who decides what is "excess"? It is subjective. Ask a working couple earning $100K with two kids in college and a house payment. Good chance they are struggling to pay the bills. To someone earning $30K, they are "rich" and have "excess". That is the inherent dilemma with the current tax structure.

I don't neccesarily consider someone making $100K wealthy (particularly NOT in my neck of the woods, LI NY). However.. why is that person making $100K still struggling..

Because they made more they purchased more home. Their home could be a $600 or $700K 2000 + square foot home with central AC, SS countertops etc. Whereas the person at $30K a year probably doesnt even own a home and rents. And that's fine..


Most people that make that kind of money have nice houses, nice cars and manage to have nice retirement plans an college funds for their kids. At the end of the day, unless they truly try to live an extravegant lifestyle beyond their 100k a year salary, they are comfortable and set up nicely. No on e begrudges that. However, the person at $30K doesn't have the luxury to decide wether to push themselves to the max of comfort or live slightly below that. Because below that is probably truly slumming it.

The bottom line... the government is not taking food out of their mouths with the tax, but at a $30K level they start taking food out of peoples mouths.

Fundamentally, the nation needs to worry less about raising its income and more about controlling its costs. Since FDR, there has been a paradigm shift in the role of the government, along with expectations of its citizens. I believe it has been for the worse. The founding fathers intended to create an atmosphere free from govt. restriction so that each citizen could make his own way. If one reads the Bill of Rights, I think it is evident. There will always be a need to help those that are truly unfortunate. I believe this should occur at the STATE level.

I can completely agree.. we could all appreciate less of a tax burden if government did curtail their spending on all levels.

I would abolish Social Security, welfare programs, education programs with religious-based themes, and numerous other programs of that genre. The role of the govt. should be to ensure the defense of the nation, support the common infrastructure, ensure that States abide by the Constitution, and public health programs for the greater good.

Eww.. abolish Social Security.. well wether it's a good idea or not it's pretty much aboloshing itself. However, SS is a good thing. Without it I fear our elderly and our handicaps would all be homeless and destitute.. etc. I think SS is a wonderful thing to allow those that were hardworking to not have toworry about starving to death in their old age when they can no longer produce income. I agree that we all need to pay for the protection of our country.. but the bottom line is not all that live in this country can afford to contribute.

I am NOT poor and I'm not upper or rich. I'm probably right smack in the middle.. and maybe I'll move up that ladder.. I pay into programs I never used and Ihope to never use the welfare system or ever need a penny from the gov't. I do take comfort knowing it's there should some bad times befall me.. but itwould take a lot for me to get to that point. I just wasn't rasied that way.

There are proposals advocating flat taxes (percentage-based), consumption taxes, and a combination of the two. I submit that there should be a minimum "unit" tax, which recognizes that each of us, regardless of income level, uses the basic services of the government in some fashion. The low-income driver on the interstate does not cause less wear than the high-income driver. At a minimum, every adult American needs to pay something, with the exception of the truly needy.

How can those that truly can not take care of themselves be expected to give what they don't have to the "community". It's just impossible. Ive never been poor..but I have been down to my lsat dollar now and then


I was in New Orleans and Houston shortly after Hurricane Katrina. I was amazed at the attitude of the people there. Young kids with cell phones, expensive cars and wheels, cars with multiple video screens, and kids with thousands of dollars in jewelry glued to their teeth [ "grillz"], still receiving welfare checks. Still expecting FEMA checks to bail them out. My company offered excellent wages for non-skilled labor, and we could not find help despite the thousands of people on welfare. This is not an overstatement. Even today there is a critical labor shortage. At the same time, these same citizens are screaming about the influx of illegals to NOLA taking their jobs.

This "entitlement attitude" is why it is unfair to tax the high-income disproportionately - it is counter to the public good in the long-run as it furthers the dependence of the populace on the government and creates an expectation of entitlement. It is counter to the principles of the founding fathers: a nation of autonomous states. It erodes self-sufficiency, work-ethic, self-discipline, and sense of purpose and achievement, all of which are the cornerstones of a strong nation of free people. There should be INCENTIVE to succeed, not FAIL. If you work harder, you should be rewarded, not punished.

Each of us should pay for the privilege of living in the US. We should share in the cost of defending it. Above that, the government should have a minimal role. Nowhere does the constitution guarantee you a cell phone, shiny teeth, DishTV, and nice wheels and a Caddy with a big screen TV.
I do agree that there are a large chunk of those on welfare that do exactly as you described and it's disgusting. I wish we could find a way to make welfare work for the purpose it was supposed to serve while not causing the sense of "entitlement" of those that you have encountered.

I don't know what the solution is, but Ido not think a flat or consumption tax is realistic or the answer. It could just make things worse. I believe it will truly divide the line between the rich and the poor and wipe out the middle.
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Old 09-16-2008, 10:27 AM
 
2,180 posts, read 3,191,855 times
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Quote:
Originally Posted by TristansMommy View Post
Let's take a TV for example. I nice one is $1500.. obviously a poor person can't afford it, i'm not rich. .but I might splurge for one when I do find I have some tucked away for extras. So I buy said TV..

Now.. if you put a tax on that of 25% that adds like $345 to the bill..

But now, instead, I'm paying 23 or was it 25% of my income on items I purchase.. so in essence we are all going to pay 25% of our income on things we consume.

What about those that are in the 3% tax bracket barely scraping by .. are they not to consume anything.
Understand that I am not a proponent of this plan. That said, let me try to recast it for you.

Say, for the sake of the discussion, I make $40,000 (after FICA). Put me in a state in which I pay 5% income tax on everything beyond $10,000. Therefore I pay $1500 in state income tax. I would currently also pay roughly $4500 in federal income tax. This leaves me at $34000. $14400 goes away in rent or mortgage. $19600 left. $50 per week in groceries, $300 per month in utilities, $250 per month for a car. $10400 left.

$50 per week in gas, $300 per month in insurance, $100 in phone pm, $100pm in cable/computer, $50 pm in books. $3200 left. Hmm... I must be missing some expenses! Or at least underestimating some. So, let's wipe out most of the rest on clothes, presents, eating out, and vacations. Leave me with $2000 to sock away in my IRA.

Now back it up. I still pay the state's 5%, unfortuntely. But now, no federal income tax. I started with $40000 and am down to $38500. If everything I purchased had a 25% federal sales tax rate, then it would apply to $33500 in purchases I made (granting me that $3000 was on property taxes, which are not taxable). $8375 dollars in taxes.

Hmm... could be tough to pay. Somehow, the drop to 23% doesn't seem likely to help enough, either! $7705 in taxes.

Oh well! Clearly I am not frugal enough. *runs off to poor farm*
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Old 09-16-2008, 12:00 PM
 
Location: Cary, NC
31,683 posts, read 55,496,055 times
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Quote:
Originally Posted by jps-teacher View Post
Understand that I am not a proponent of this plan. That said, let me try to recast it for you.

Say, for the sake of the discussion, I make $40,000 (after FICA). Put me in a state in which I pay 5% income tax on everything beyond $10,000. Therefore I pay $1500 in state income tax. I would currently also pay roughly $4500 in federal income tax. This leaves me at $34000. $14400 goes away in rent or mortgage. $19600 left. $50 per week in groceries, $300 per month in utilities, $250 per month for a car. $10400 left.

$50 per week in gas, $300 per month in insurance, $100 in phone pm, $100pm in cable/computer, $50 pm in books. $3200 left. Hmm... I must be missing some expenses! Or at least underestimating some. So, let's wipe out most of the rest on clothes, presents, eating out, and vacations. Leave me with $2000 to sock away in my IRA.

Now back it up. I still pay the state's 5%, unfortuntely. But now, no federal income tax. I started with $40000 and am down to $38500. If everything I purchased had a 25% federal sales tax rate, then it would apply to $33500 in purchases I made (granting me that $3000 was on property taxes, which are not taxable). $8375 dollars in taxes.

Hmm... could be tough to pay. Somehow, the drop to 23% doesn't seem likely to help enough, either! $7705 in taxes.

Oh well! Clearly I am not frugal enough. *runs off to poor farm*
How did you account for the Fair Tax Prebate in this equation?

What factor did you allow for elimination of embedded taxes in the products we buy, and how that might affect pricing?

Those items are intrinsic parameters in the Fair Tax proposal, and I don't see any allowance for them in your example.
If you have interest in learning about the proposal, I offered a few links in the earlier post that offer information, the bills, and more external links to help clarify the provisions of the bill.
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Old 09-16-2008, 05:23 PM
 
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Quote:
Originally Posted by MikeJaquish View Post
The Fair Tax - Fair or Not Fair thread is not very helpful, other than to point out how easy it is for those with knee-jerk reactions to something they do not understand to take to the internet and demagogue ideas.
I don't think and didn't expect that you or anyone would read all 700+ posts in that thread. I was asked (at a half past midnight) to expand on a characterization of the Fair Tax as proposed as being not so good. There are in that thread at least a dozen posts of mine that go to that point, some in considerable detail.

Here are some brief examples...

First, the stated Fair Tax rate of 23% is deceptive because it is stated on an inclusive basis, whereas people are accustomed to speaking of sales tax rates on an exclusive basis. Under a 23% rate, people would expect to pay $123 in total for an item with a purchase price of $100. But they will actually pay $130 in total under the Fair Tax, because the 23% rate is calculated as 30/130, not 30/100. Thus the true Fair Tax rate, even as proposed, is 30%. Why is the Fair Tax rate stated this way? Because surveys showed that popular support for flat-tax proposals faded rapidly from substantial to zero as the rate moved beyond the low 20's.

Second, the calculations that purport to show that a Fair Tax rate of 30% will be revenue neutral are pie in the sky. They assume for instance that nearly 100% of the cost of preparing corporate tax returns can be recaptured. They assume that nearly 100% of the cost of operating the IRS can be recovered. What sort of offsets do you see included for the costs of unemployment, retraining, and other forms of assistance to the tens if not hundreds of thousands of tax lawyers, accountants, data-entry clerks, and computer operations staff who would all be thrown out of work on the day the Fair Tax went into effect? Where do you see the costs of the large new bureaucracy needed to track and verify the nature and location of every household in the country so that monthly prebate checks can be mailed to them figured in? What sort of offset do you see for the increased state and local taxes that will need to be imposed so that states and localities can afford to pay the new 30% tax on their own purchases of new goods and services?

Third, proponents of the Fair Tax assume that they can achieve at least close to 100% penetration into transactions in new goods and services, when existing state and local sales tax regimes barely reach a 50% penetration level. A part of that shortfall can be made up by taxing new services that state taxes currently exempt (such as the interest portion of your monthly mortgage payment to the extent that its stated rate exceeds the 10-year T-bill rate), but dreams of reaching anything approaching 100% are just that.

Fourth, by collecting 100% of all taxes at a single point in the production process (the point of final sale), Fair Tax plans create a huge incentive for fraud. Similar plans such as Euro-style VAT schemes get by with significant but tolerable rates of fraud only because taxation is imposed at each step in the production process, thereby limiting the degree to which any individual scheme can have an impact on revenues.

So there are a few things that I would say are not so good. Maybe some can offer ideas as to how those problems might be dealt with.

Quote:
Originally Posted by MikeJaquish View Post
Better, I think, to read the Fair Tax Bills, to study it. Better to visit the Fair Tax sites...to understand the model. Steven Covey, speaking on the Habits of Highly Effective People, says they, "Seek first to understand." That would be a very good first step to avoid demagogery of an unknown. Then, proceeding with some basis of understanding, one may be able to proceed to a productive conversation.
I was certainly no expert on the Fair Tax when that earlier thread began, and I would not claim to be one now. But over the weeks of that debate, I certainly did take time to both read and investigate the proposal as presented within the sites you recommend and quite a number of others. My conclusion was and is that there is no credible argument in favor of the Fair Tax in its present or any similar incarnation. If you feel to the contrary and that you might be able to engage in productive conversation in support of that feeling, feel free to proceed along those lines.
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Old 09-16-2008, 08:30 PM
 
4,268 posts, read 13,732,236 times
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Quote:
Originally Posted by TristansMommy View Post
23% Sales tax on items? What?
I neither disagree nor agree with a national sales tax but it would make an individual think twice about spending money on things. Personally, I think it would force people to budget better but I definitely see your points of view.

The TV example you referenced: IMO, the "rich person" buys it with cash and the "middle class" person buys it on credit so the "consumption" still occurs. I think this type of example holds true in both the "real world" and the "national sales tax" world. A "poor" person wouldn't buy one in either scenarios, IMO.

Luckily, it's all hypothetical and I speculate will never happen! I personally am for it b'c I can budget well and would feel empowered to make these choices.

Quote:
What about those that are in the 3% tax bracket barely scraping by .. are they not to consume anything.
There's a 3% tax bracket? I thought the lowest is 10%. Where's my Pub17?!

Quote:
I just don't see how logically a flat tax is fair or could even work.
It will never happen b'c most of us can't handle seeing an add'l 23% tacked on to our bill. It's a proven fact that government like to raise taxes on things that the taxpayer "can't see" (such as raising sales tax versus the tax base like in Social Security taxes). 23% you bet your bottom dollar that we'll see that!

Quote:
I've said it again and again. Those claiming that the progressive tax is not fair.. how much are you really suffering? What are you sacraficing to pay that tax bill? Are you REALLY hurting that badly? Did you eat spam out of can to pay that tax bill?
This is a wee bit extreme but I get annoyed when I think about how we paid $20,000 in taxes last year and Joe Schmo next door sits on his but t all day living on welfare (hypothetical example). I have no problem with paying taxes but our situation totally sux. We may make more than just "middle class" but we're definitely not living it. People in our tax bracket pay less taxes than us because most of their income are from investments and ours are purely from w-2, 9 to 5 j-o-b-s. There's nothing for us to deduct: we don't own a home, we don't have kids, contributing to Roth doesn't help us tax-wise b'c we make too much to claim the reduction in income, we don't invest heavily b'c we need short-term cash for our down payment to our first house next year, no medical expenses or anything in itemized deductions. Heck, even my student loan interest payments are (very) partial deductions!

Quote:
My point is not to say that you all do not deserve those extra luxuries.. you do if you work for it. .but the progressive tax is NOT taking that away from you. You are still enjoying the fruits of your labor. While the middle and working poor are not enjoying lifes luxuries and are happy to get by..
I disagree, progressive tax (though I am not disagreeing in the progressive tax structure b'c I realize in the end I make more and therefore should pay more) does hurt people like me because we don't get to enjoy the fruits of our labor. I don't get to enjoy life's luxuries. I'm borrowing unsubsidized loans to pay for school b'c of our income level and everyone around me gets a "free ride". When we're both out of school, guess where all my money is going to? Not anything luxurious that's for sure!

You are right, at the end of the day, paying more taxes doesn't "hurt" us financially as much those making less but when compared to people in my same income bracket, it gets extremely frustrating that we work so hard for success and all of it is goin to Uncle Sam.
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Old 09-16-2008, 08:38 PM
 
Location: Cary, NC
31,683 posts, read 55,496,055 times
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Originally Posted by saganista View Post
I don't think and didn't expect that you or anyone would read all 700+ posts in that thread. I was asked (at a half past midnight) to expand on a characterization of the Fair Tax as proposed as being not so good. There are in that thread at least a dozen posts of mine that go to that point, some in considerable detail.
Of course. I was not criticizing the selection, just that that unmoderated forum has a ton of waste posts on both sides (and all around) the question. The folks you directed there needed quicker access to good information, which I offered too.

Quote:
Originally Posted by saganista View Post
Here are some brief examples...

First, the stated Fair Tax rate of 23% is deceptive because it is stated on an inclusive basis, whereas people are accustomed to speaking of sales tax rates on an exclusive basis. Under a 23% rate, people would expect to pay $123 in total for an item with a purchase price of $100. But they will actually pay $130 in total under the Fair Tax, because the 23% rate is calculated as 30/130, not 30/100. Thus the true Fair Tax rate, even as proposed, is 30%. Why is the Fair Tax rate stated this way? Because surveys showed that popular support for flat-tax proposals faded rapidly from substantial to zero as the rate moved beyond the low 20's.
With a revenue neutral tax, the seizure of the public's wealth would be "revenue neutral." Government would not be taking more. The rate is hardly cast in stone, either.
The rate is nearly moot, but a great point to demagogue. Like any other tax scheme, the rate will fluctuate with political pressures.
This is a straw argument and uncompelling. "Popular support" is just a marketing problem as you were good enough to notate.

Quote:
Originally Posted by saganista View Post
Second, the calculations that purport to show that a Fair Tax rate of 30% will be revenue neutral are pie in the sky. They assume for instance that nearly 100% of the cost of preparing corporate tax returns can be recaptured. They assume that nearly 100% of the cost of operating the IRS can be recovered. What sort of offsets do you see included for the costs of unemployment, retraining, and other forms of assistance to the tens if not hundreds of thousands of tax lawyers, accountants, data-entry clerks, and computer operations staff who would all be thrown out of work on the day the Fair Tax went into effect? Where do you see the costs of the large new bureaucracy needed to track and verify the nature and location of every household in the country so that monthly prebate checks can be mailed to them figured in? What sort of offset do you see for the increased state and local taxes that will need to be imposed so that states and localities can afford to pay the new 30% tax on their own purchases of new goods and services?
I'll tackle that "paragraph!"

The proposed Fair Tax rate of 23% is inclusive, to better compare with the Income Tax it will replace. It is that simple.

The Fair Tax crafters also accounted for the wasteful manipulations corporations perform to comply with tax rules and to shield income. Take out those costs of managing to the tax code, and concurrently eliminate the deceit of the "employer-paid" payroll taxes, and the numbers look better than you allow.

The residual function of issuing checks would have to be performed, yes. How large is that "large new bureaucracy?" Sounds like a job for an Accenture or Paychex et al, which would be bid out every 5 years or so.
And the need to still register income for those participating in Social Security means that much of the registry will be in place already.
The Social Security Administration may be able to take on the job, especially since functionaries who count the shekels from wage earners' paychecks will have less responsibility.

Are you contending NO value from removal of embedded taxatins? I disagree. With the states' purchases from the private sector, we will see that the expense will not be 30%. Nor will it be 23%.
The reduction/elimination of embedded taxes will reduce that figure to a much smaller figure.

Work should be productive, and something to be proud of. We don't currently offer that opportunity. When people are doing make-work affiliated with a corrupt system; when that work is scheduled for elimination with extensive prior notice; I foresee those with ambition adapting and moving on and not looking back.
Those who do not handle life's changes without government assistance will receive some assistance. We have done that before. It should be a one-time expense, to be considered a reasonable part of the cost of upgrading to a more efficient, superior, and fairer way of raising revenues.
It IS unfortunate that a discussion of retiring an envy-based tax system stimulates the immediate reaction that people need welfare to learn truly valuable work skills.
It IS unfortunate that there will be functionaries who will linger and soak up every government handout they can rather than prepare to prosper when their careers change.
"Retraining tax lawyers?" Well, shucks. You've touched me. I have $100 to start that kitty. That would be a voluntary contribution of One Ben Franklin to get the ball rolling.
This make-work CCC dole system concern is an entirely non-compelling issue that in no way is a negative regarding implementation of a morally superior tax system.
Do we still weep for the buggy whip makers?
Times change, and strong people adapt. We can help the weak.

I have three retirement accounts, and a cash account. Not bragging at all. I hate it, because only one of them has a material amount of money in it. And I need to start another new retirement account.
All this is driven by silly tax considerations and an out-of-control tax code. If it was really MY money, as it would be under the Fair Tax, I could have ONE account, with ONE statement.
If my having ONE account costs some people their jobs, so be it. I'll live with the guilt.

Quote:
Originally Posted by saganista View Post
Third, proponents of the Fair Tax assume that they can achieve at least close to 100% penetration into transactions in new goods and services, when existing state and local sales tax regimes barely reach a 50% penetration level. A part of that shortfall can be made up by taxing new services that state taxes currently exempt (such as the interest portion of your monthly mortgage payment to the extent that its stated rate exceeds the 10-year T-bill rate), but dreams of reaching anything approaching 100% are just that.
100% of what? $$$? Transactions?
60% or more of the economy is service industry. Why should services NOT be taxed? What is special about them?

Quote:
Originally Posted by saganista View Post
Fourth, by collecting 100% of all taxes at a single point in the production process (the point of final sale), Fair Tax plans create a huge incentive for fraud. Similar plans such as Euro-style VAT schemes get by with significant but tolerable rates of fraud only because taxation is imposed at each step in the production process, thereby limiting the degree to which any individual scheme can have an impact on revenues.
How many hundreds of billions of dollars in tax fraud is perpetrated at all levels of the economy each year?
Are you stipulating tax fraud currently is non-existent? I didn't think so.
Are you saying that a Sales Tax will offer lower compliance? Why?
The reduction of compliance enforcement of taxpaying from over 150 million individual taxpayers to focusing on enforcement of 25-30 million businesses' compliance will help reduce fraud, but some tax fraud would be nothing new, I would propose.

Quote:
Originally Posted by saganista View Post
So there are a few things that I would say are not so good. Maybe some can offer ideas as to how those problems might be dealt with.


I was certainly no expert on the Fair Tax when that earlier thread began, and I would not claim to be one now. But over the weeks of that debate, I certainly did take time to both read and investigate the proposal as presented within the sites you recommend and quite a number of others. My conclusion was and is that there is no credible argument in favor of the Fair Tax in its present or any similar incarnation. If you feel to the contrary and that you might be able to engage in productive conversation in support of that feeling, feel free to proceed along those lines.
And I find in the opposite. It would seem that the envy-based taxation system under which we currently slave has no credible moral support.
I actually think the Fair Tax would cost me money, long and short-term. I also believe it would simplify my life, making the cost bearable. I also believe it to be the right thing to do.

The secret of any marketable (again, "Popular support") tax system is the ability to convince the individual that someone will pay more than they will.
That's good politics, but bad government, I think.
It would be nice to see good government win out over good politics for once.

Last edited by MikeJaquish; 09-16-2008 at 10:06 PM..
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Old 09-16-2008, 11:30 PM
 
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Slightly off-topic, but to clarify:

The 23% Fair Tax is inclusive of payroll taxes, which are currently ~7.65%. Net increase is ~15%.

Effective, statutory, and marginal tax rates are different things. For example, according to the GAO and IRS, the effective tax rate for an individual earning up to $58K is only ~3% on all income. The lowest statutory tax rate is 10%. The difference is due to deductions, as well as refundable credits. The marginal tax rate is the tax that is applicable to the last dollar of earnings.
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Old 09-17-2008, 01:15 PM
 
19,183 posts, read 27,776,326 times
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Quote:
Originally Posted by MikeJaquish View Post
Of course. I was not criticizing the selection, just that that unmoderated forum has a ton of waste posts on both sides (and all around) the question. The folks you directed there needed quicker access to good information, which I offered too.
The Politics & Other Controversies forum is just down the hall from this one. It is as moderated as this one is, though on different standards. In neither case do moderators filter out "waste points". In pointing to the earlier Fair Tax thread, I was not intending it as a general reference, but as a location where some of my own reasons for believing the Fair Tax idea to be substantially flawed could be found, which is what I had been asked to provide. At 12:30 in the morning, I wasn't going to spring into op-ed mode on the matter.

Quote:
Originally Posted by MikeJaquish View Post
With a revenue neutral tax, the seizure of the public's wealth would be "revenue neutral." Government would not be taking more. The rate is hardly cast in stone, either.
As proposed, the Fair Tax cannot achieve revenue neutrality (i.e., $-for-$ replacement of the revenues currently collected under the taxes it means to replace). Independent estimates of the rate that would in practice be required in order to accomplish revenue neutrality can run into the 50% and 60% range, not the 30% proposed. What you are saying when noting -- quite properly -- that the rate isn't set in stone is that the Fair Tax authors actually have no idea of what the actual Fair Tax rate would need to be in order to achieve revenue neutrality. It's a pig in a poke that they have dressed up as a 30% rate and that they then call 23%. No one can say with precision what the actual rate would need to be, but it can be categorically stated that 30% estimate is too low.

Quote:
Originally Posted by MikeJaquish View Post
The rate is nearly moot, but a great point to demagogue. Like any other tax scheme, the rate will fluctuate with political pressures.
The Fair Tax rate is hardly a moot point. The ability of national government to function depends upon it, as do the degrees of dislocation that would be introduced into the economy at large as the result of it.

The latter point on the other hand is an important one (though one rarely raised by Fair Tax proponents), as it further undermines the notion of a 30% rate. Lawmakers will over time be subject to the same political pressures (many of them quite legitimate) to tinker with the Fair Tax variables as they have been to tinker with the variables of the existing income tax. No one can imagine that there will not be revisions adopted, and every single concessionary adjustment or modification that is adopted will drive the prevailing Fair Tax rate higher.

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Originally Posted by MikeJaquish View Post
The proposed Fair Tax rate of 23% is inclusive, to better compare with the Income Tax it will replace. It is that simple.
It would be that simple if the Fair Tax were an income tax. It is a sales tax. More honest to define it as a sales tax, except that consumer research showed that it would garner much less support with a rate stated at 30% than at 23%, so publicizing the lower rate was the way to go. That the authors would engage in what are essentially deceptive practices with so basic a notion as the applicable rate does not suggest that high degrees of honest and independent analysis will be found underlying the rest of the proposal. And if you start to pick it apart, you soon find that indeed they aren't.

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Originally Posted by MikeJaquish View Post
The Fair Tax crafters also accounted for the wasteful manipulations corporations perform to comply with tax rules and to shield income. Take out those costs of managing to the tax code, and concurrently eliminate the deceit of the "employer-paid" payroll taxes, and the numbers look better than you allow.
All of this is wrapped up in what the authors call "embedded taxes", and both the level of them and a net ability to recapture them into the economy is overstated. It isn't me that is allowing anything. It's that the Fair Tax numbers and assumptions don't add up.

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Originally Posted by MikeJaquish View Post
The residual function of issuing checks would have to be performed, yes. How large is that "large new bureaucracy?" Sounds like a job for an Accenture or Paychex et al, which would be bid out every 5 years or so.
Even though the number of prebate checks would be nearly triple the number of Social Security checks, the monthly mailout function (currently being replaced by direct-deposit and related schemes in any case) is not the issue. The issue is the level of personal information that will need to be collected and maintained on an on-going basis concerning every household in the country. Whatever new or existing bureaucracy (and whether in the public or private sector), it will need to know all about you in order to establish your actual and continuing eligibility for monthly prebate checks of a certain size. When my son leaves home in Virginia to attend school in New England, they need to know. When my daughter at last divorces that no-account husband of hers, they will need to know that. Anyone who takes a liking to the Fair Tax idea because it will do away with that privacy-invading IRS had better take a second look. Anyone suspecting that the costs of running the IRS will be saved had better have a second look as well. The new bureaucracy will need to take on very similar functions with respect to individuals as the IRS now has, and it will need to add a new facility to monitor the compliance and accounting of every business in the country -- large or small -- that carries out any final point-of-sale transactions. The prospects for actual realization of net cost savings from "abolishing the IRS" are quite questionable.
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Old 09-17-2008, 01:33 PM
 
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Originally Posted by MikeJaquish View Post
And the need to still register income for those participating in Social Security means that much of the registry will be in place already. The Social Security Administration may be able to take on the job...
Yes, let Social Security do it...problem solved. Out of whose budget and with which additional thousands of employees will they take this task on? On its surface, this reduces simply to a proposal to make the IRS a part of SSA. Relabel the constituent parts and then claim that huge cost savings have been achieved? A lot of people would like to see a little more meat on the bone than that.

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Originally Posted by MikeJaquish View Post
Are you contending NO value from removal of embedded taxatins?
I am questioning that which I questioned. The estimates of both the current costs of embedded taxes and a future ability to recover those costs into some other presumably more productive application within the economy are seriously flawed and call into question the basic claims of efficiency and revenue-neutrality that the Fair Tax authors make.

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Originally Posted by MikeJaquish View Post
With the states' purchases from the private sector, we will see that the expense will not be 30%. Nor will it be 23%. The reduction/elimination of embedded taxes will reduce that figure to a much smaller figure.
Fair Tax proponents claim that 22% of the purchase price of all goods and services represents the costs of embedded taxes. Thus, with the Fair Tax in place, a good or service that now costs $1.00 should see a fall in its sales price to $.78, and, with the 30% surcharge tacked on, the final cost would be $1.014, or about the same as now. One problem here is that even if accepting the Fair Tax numbers as valid, state and local governments will fall short on the deal, and the situation is made worse by the fact that neither of the relevant Fair Tax numbers can reasonably be taken as valid. The strong suggestions in independent analysis are that the 22% is too high, and the 30% is too low. The Fair Tax leaves state and local governments needing to pass tax increases simply to stay where they are no matter how you slice it, and under rational assumptions those tax increases will be significant. The matter is simply glossed over in Fair Tax literature.

Quote:
Originally Posted by MikeJaquish View Post
Work should be productive, and something to be proud of. We don't currently offer that opportunity.
You are venturing now into the squishy world of should-be's and assorted soft-variables. Spin doesn't really count for much in the grocery store check-out line. You have very significant dislocation costs to cover in implementing the Fair Tax plan and the plan itself takes no satisfactory account for them.

Quote:
Originally Posted by MikeJaquish View Post
It IS unfortunate that a discussion of retiring an envy-based tax system stimulates the immediate reaction that people need welfare to learn truly valuable work skills.
Envy-based? Please. To repeat one of the basic premises of tax policy, you can only tax the money. Whoever has the money will pay the taxes. Envy doesn't enter into it.

Quote:
Originally Posted by MikeJaquish View Post
100% of what? $$$? Transactions? 60% or more of the economy is service industry. Why should services NOT be taxed? What is special about them?
Yes, transactions, which is why I wrote the word into the subject post. The point isn't over the split between goods and services, it's over whether Fair Tax claims to be able to tax 100% of the transactions that occur in the economy is realistic. It isn't. State and local sales tax regimes today reach about 50% of all transactions. Some of the gap, as I mentioned, can be closed by adding the 30% tax onto the sale of goods and services that are not typically subject to state and local sales tax. These would include such things as rent, a portion of the interest included in monthly mortgage payments (and credit card and car loan payments), the purchase price of a new home, the entirety of your monthly utility bills, and of course gasoline. (Yes, the Fair Tax would cause the pump-price of a gallon of gas to increase by 30% instantly.) But even with new taxation of these transactions, penetration will still fall well short of 100%. To preserve revenue-neutrality, that shortfall has to be made up. That can only be done by further increasing the sales tax rate.

Quote:
Originally Posted by MikeJaquish View Post
How many hundreds of billions of dollars in tax fraud is perpetrated at all levels of the economy each year? Are you stipulating tax fraud currently is non-existent? I didn't think so.
You were given no reason to think so, as the topic I spoke of was the inadvisability of concentrating all tax collection at a single point in the production process on account of its concentraing the incentive for fraud as well. You didn't address that point, except to note that some fraud occurs now. An interest in fraud should therefore be assumed, and tax schemes that serve to incentivize fraud by upping the available jackpot should be looked at with a careful eye.

Quote:
Originally Posted by MikeJaquish View Post
Are you saying that a Sales Tax will offer lower compliance? Why?
The reduction of compliance enforcement of taxpaying from over 150 million individual taxpayers to focusing on enforcement of 25-30 million businesses' compliance will help reduce fraud, but some tax fraud would be nothing new, I would propose.
An income tax is imposed on a flow of funds. The details of those flows can in large part be determined from examining financial records that are kept in any case. The Fair Tax would be imposed on flows of goods and services. These by nature are more difficult to track and examine in detail, a process which will be necessary given the proposed tax-free nature of flows of used goods.

Quote:
Originally Posted by MikeJaquish View Post
And I find in the opposite. It would seem that the envy-based taxation system under which we currently slave has no credible moral support.
I've refered previously to marginal utility theory which is the underpinning of any progressive tax structure. Is it that you both understand and disagree with that analysis? If so, where does the disagreement arise? If not, it might be worthwhile to look further into it.
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