I know that there has been some talk about a national sales tax in the estate tax thread (I believe Belle and Kat both mentioned it) but I think it is important enough for a new thread.
I have long been in favor of John Linder's Fair Tax Bill. Our current system is ridiculous. I own a business and some rental property and my tax return is absurdly complicated. I will provide a link to the website but here it is in a nutshell:
1. Eliminate all Federal taxes (income, FICA, gift, estate, corporate) 2. Replace with a national sales tax estimated to be about 23% to be revenue neutral 3. Provide a rebate to everyone based on the poverty level. So everyone receives a check every month for the amount of taxes charged on purchases up to the poverty line. In other words the poor would pay NO taxes. No payroll tax, nothing. 4. It is estimated that prices would fall by about 20% because of the elimination of corporate taxes. 5. We would all know exactly how much we are paying. When the govt decides to raise taxes, there would be none of this raise taxes only on certain people garbage, everyone would be effected. 6. There would be no more(or at least significantly less) tax avoidance. Taxes would be collected at the point of purchase. Criminals (drug dealers etc.) would even have to pay.
I know it seems unlikely, but it would be my dream come true. If I was given the power to have anything I wanted, I would first enact a playoff system in college football, and immediately after that enact the Fair Tax.
Actually, Belle did not mention it, but I have heard some about this before. My husband has researched it more completely than I have, and I think he is a supporter, he just doubts it will ever pass.
Posted by no. 6 (Member # 7753) on :
It sounds too naive. Rather like "trickle-down" economics. The rich get richer, and then they hoard.
Posted by Portabello (Member # 7710) on :
quote:2. Replace with a national sales tax estimated to be about 23% to be revenue neutral 3. Provide a rebate to everyone based on the poverty level. So everyone receives a check every month for the amount of taxes charged on purchases up to the poverty line. In other words the poor would pay NO taxes. No payroll tax, nothing.
The problem with these two is that 1) Everybody would have to keep track of everything they buy, causing unnecessary paperwork and 2) the government gets to know everything we spend money on.
Posted by no. 6 (Member # 7753) on :
How could those in "poverty level" afford to buy in the first place, to receive a "rebate"?
I agree that we need to revise our tax system, but this is not the way.
Posted by Altáriël of Dorthonion (Member # 6473) on :
Seems like a good idea to me. What;s the catch though. Its sounds too good to be true.
Posted by holden (Member # 7351) on :
I'm not sure what you mean Port. We wouldn't have to keep track of anything. Tax is paid at the point of purchase. The govt would receive the revenue directly from the companies that collect it. It wouldn't have any names on it. You don't need to be concerned about either of the things you mentioned.
Posted by Portabello (Member # 7710) on :
You'd have to keep track of all your purchases in order to be reimbursed for the taxes you paid.
Posted by no. 6 (Member # 7753) on :
This plan would nearly eliminate charitable spending. There would be no incentive for business to donate anything.
Posted by Katarain (Member # 6659) on :
I disagree. Isn't good publicity a good motive for charitable giving?
-Katarain
Posted by The Pixiest (Member # 1863) on :
I would prefer a yearly flat income tax that everyone pays in a lump sum, with no with-holding and that we move the due date from April 15th to the first Tuesday in November.
Posted by no. 6 (Member # 7753) on :
It's not enough. I work for a non-profit, and, if it weren't for the tax incentives, we would get far less.
Sad, but true.
Posted by ketchupqueen (Member # 6877) on :
And what about the black market of smuggled goods that would inevitably spring up?
Posted by saxon75 (Member # 4589) on :
I've got a potential problem. It seems like being below the poverty line is likely correlated with not having a mailing address. How would these people receive their refund checks? If they can't receive their refunds, it ends up being a much higher tax burden on them.
Another problem is people without bank accounts. These people would have to go to some sort of check-cashing place, who usually take a big chunk of the value of the check in payment for the service. So that would amount to an additional burden.
Posted by holden (Member # 7351) on :
No Port, as I understand it, everyone would get a check for the same amount equal to sales taxes paid up to the poverty line. So hypothetically if you didn't spend up to the poverty line you would be receiving a transfer payment but there would be no keeping track of anything.
Posted by Bob the Lawyer (Member # 3278) on :
For that matter, a 23% tax after a 20% reduction on the price of all goods would likely not be enough to cover everything the government is spending on now. Of course, this could be offset by slashing social spending, which to many may be a very good thing to some minds, but at least come out and say it.
Posted by Belle (Member # 2314) on :
I checked out some of the information at the link, and I think part of its incorrect. In their section on education, that website claims
quote:Tuition expense is not tax deductible. Today, to pay $10,000 in college or other school tuition, a typical middle class American must earn $15,540---and this number reflects only federal income taxes and the employee payroll tax
Tuition expense is tax deductible, and there are also Hope Credits and Lifetime learning credits available (though you can only take one, not all of them)
Moving the tax deadline to the 2nd Tuesday in November is a stroke of pure brilliance. Posted by Belle (Member # 2314) on :
saxon, how do those people receive refunds now for the income tax they pay?
Or are you specifically talking about people who don't file income taxes at all?
Posted by Portabello (Member # 7710) on :
quote:No Port, as I understand it, everyone would get a check for the same amount equal to sales taxes paid up to the poverty line
The poverty level is based on your income, not your outcome.
Posted by no. 6 (Member # 7753) on :
I still can't see how you could issue rebates to people without tracking.
Porter's point seems valid.
Posted by aspectre (Member # 2222) on :
Fair Tax: 100% inheritance tax. If there is a shortfall, shoot national sales tax supporters.
Posted by holden (Member # 7351) on :
No 6 I think you are overestimating tax incentives as a reason for charitable giving. When an individual or corporation gives to charity they receive a tax deduction. This means that less of their money will be subject to income taxes. But since income taxes are much less that 100% companies or individuals would still be better off financially to keep the money.
Example: You are in the 28% tax bracket and you give $1000 to charity. That is $1000 that you don't have to pay tax on so it saves you $280 dollars. However if you simply kept the money and paid the taxes you would still have $720.
Giving to charity does not make money for anybody. People give to charity because they WANT to, not because the government provides them with benefits for doing so. I believe if people could keep more of their money, they would give more to charity not less.
Posted by Katarain (Member # 6659) on :
Speaking of Education credits, are they subject to the standard deductible? In other words, if the amount is lower than the standard deductible, are they not counted? Because on last year's taxes, it looked to me like they were in addition..but I was doing my taxes online (one of the links on the free file section of irs.gov), and it appeared as if they were not counting my education credits anywhere.
-Katarain
Posted by saxon75 (Member # 4589) on :
quote:Or are you specifically talking about people who don't file income taxes at all?
Pretty much.
Posted by no. 6 (Member # 7753) on :
I disagree. We haven't seen what would happen without these incentives. You underestimate the power of greed, I think. Posted by holden (Member # 7351) on :
The poverty level is set by the government. For example let's assume that the poverty level is $15,000 just as a round figure. As I understand it everyone would recieve a check for the sales tax on this amount so in this case $3,450. There would be no tracking. Everone gets the same check. Very simple.
I see the point about people who don't have mail boxes etc. but I don't think we can create national tax policy based on that small segment of the population. I'm sure we could find a way to get the money to them as we do with welfare payments etc.
Posted by Belle (Member # 2314) on :
kat, here's a link for you - note it goes to a pdf file.
Maybe that will help you figure it out. Posted by Mike (Member # 55) on :
quote:It is estimated that prices would fall by about 20% because of the elimination of corporate taxes.
I'm guessing that this estimate is based on how much corporations could lower prices while keeping the same profit margins. A more likely scenario is that corporations will keep prices where they are, or maybe lower them slightly, and reap huge rewards, at least in the short term before things come back to equilibrium.
Posted by Portabello (Member # 7710) on :
quote:There would be no tracking. Everone gets the same check. Very simple.
In that case, it's not a rebate on the taxes you've paid. It' just getting paid for being poor.
Posted by ketchupqueen (Member # 6877) on :
Wow, what a job that would be! Posted by TomDavidson (Member # 124) on :
Lots of problems with this plan. For one thing, it won't match existing federal revenues. For another, it dodges the question of how corporations will be taxed. Do they get deductions based on "income," too? It also requires considerably more paperwork and hassle than our existing tax code for the vast majority of people.
Posted by Belle (Member # 2314) on :
So long as it enables people who are poor to have the money needed to buy what's necessary for their families, does it matter whether we call it a rebate check or a welfare check or a paycheck?
Posted by holden (Member # 7351) on :
quote: Speaking of Education credits, are they subject to the standard deductible? In other words, if the amount is lower than the standard deductible, are they not counted?
This is a great example of how ridiculous our current system is. There are many different ways that education expenses count under the current systetm. There is the Hope Credit and the Lifetime Learning Credit. If you don't qualify for either and you itemize than you can deduct qualified education expenses. Just figuring out which method applies to your situation takes a lot of time and effort.
Posted by no. 6 (Member # 7753) on :
Then people wouldn't get taxed on income, but could put all of their money into savings, mutual funds, etc.? Hoarding, I say.
Posted by Belle (Member # 2314) on :
Tom, could you explain this?
quote:It also requires considerably more paperwork and hassle than our existing tax code for the vast majority of people.
I'm not a supporter or opponent to this plan, I'm still trying to learn about it. One of the advantages touted is that it reduces or eliminates a lot of paperwork so I'm curious as to why you think it will do the opposite.
Posted by rivka (Member # 4859) on :
And I agree. [edit: with elaine]
Moreover, it would encourage those who could afford to do to make large purchases from other countries. And strongly discourage tourism and tourist purchasing.
[ April 14, 2005, 01:30 PM: Message edited by: rivka ]
Posted by holden (Member # 7351) on :
quote: Lots of problems with this plan. For one thing, it won't match existing federal revenues. For another, it dodges the question of how corporations will be taxed. Do they get deductions based on "income," too? It also requires considerably more paperwork and hassle than our existing tax code for the vast majority of people.
Wow. I'm not sure how you can say any of that. How do you know that it won't match federal revenues?
Corporations will not be taxed. Corporate tax will be eliminated. No dodging involved.
Exactly who would it require more paperwork for? There would be some paperwork and hassle involved with implementing the system but individuals would have NO paperwork to do.
If you are going to make these kind of blanket statements please back them up with at least one fact.
[ April 14, 2005, 03:43 PM: Message edited by: holden ]
Posted by TomDavidson (Member # 124) on :
"One of the advantages touted is that it reduces or eliminates a lot of paperwork so I'm curious as to why you think it will do the opposite."
I misunderstood the plan as proposed. holden's clarification does indeed eliminate the paperwork complaint. If everyone gets $3K back from the government, and no one -- including, presumably, corporations -- can deduct anything, then we'll see a lot less paperwork. It also eliminates the use of taxation as behaviorial incentive.
On the other hand, this plan rewards hoarding and implicitly punishes those who need to spend a larger percentage of their income. The richer you are, the better you off with this system -- particularly if hard assets are not taxed in any way.
-------
Holden, what I'm asking is if corporations, when buying and selling things, will still need to pay the sales tax in the same way that individuals would.
[ April 14, 2005, 01:33 PM: Message edited by: TomDavidson ]
Posted by Katarain (Member # 6659) on :
Wow. Thanks Belle.
I think I shouldn't claim the Lifetime Learning Credit--taking the Tuition and Fees deduction would be much better. I'll have to try to change that tonight and see what happens.
*crosses fingers*
-Katarain
Posted by no. 6 (Member # 7753) on :
What Tom said.
Posted by saxon75 (Member # 4589) on :
I'm more or less of the opinion that the tax code should not be set up to optimize convenience, it should be set up to optimize fair distribution of the tax burden.
Posted by holden (Member # 7351) on :
quote:Moreover, it would encourage those who could afford to do to make large purchases from other countries.
This is assuming that price levels stay the same and we add 23% on top. It is projected that because of the elimination of corporate taxes prices would actually drop significantly (I believe 20% is the projection) so price levels would be virtually unchanged.
Posted by Portabello (Member # 7710) on :
quote:So long as it enables people who are poor to have the money needed to buy what's necessary for their families, does it matter whether we call it a rebate check or a welfare check or a paycheck?
To many people, yes.
Posted by Portabello (Member # 7710) on :
If corporations are not taxed for anything, then almost everybody will be setting up corporations as bullet-proof tax shelters.
Posted by TomDavidson (Member # 124) on :
quote: It is projected that because of the elimination of corporate taxes prices would actually drop significantly (I believe 20% is the projection) so price levels would be virtually unchanged.
See, this is why I asked whether corporations would also have to pay the sales tax.
Because this whole "price levels would be virtually unchanged" thing assumes that corporations see a massive reduction in the amount of tax they're paying. If they do, the only way you won't see a significant reduction in federal revenue would be if everyone else saw a significant increase in the amount of tax they paid. So either you get a federal revenue reduction or a substantially higher tax burden on individuals, as corporations will no longer be contributing. This will almost certainly drive the use of corporations as not only tax shelters but purchasing agents for luxury items; the rich will be buying houses and helicopters, for example, through shell companies.
[ April 14, 2005, 01:42 PM: Message edited by: TomDavidson ]
Posted by Rappin' Ronnie Reagan (Member # 5626) on :
quote: How do you know that it won't match federal revenues?
How do you know it will?
Posted by holden (Member # 7351) on :
Tom here is the answer to your question about corporate taxes from the FAQ.
"What is taxed? The FairTax is a single-rate, federal retail sales tax collected only once, at the final point of purchase of new goods and services for personal consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed."
So the next question I'm sure will be "Well won't corporations receive a windfall under this kind of system?" The FAQ also has an answer for this:
"Will corporations get a windfall with the abolition of the corporate tax? Corporations are legal fictions that have not, do not, and never will bear the burden of taxation. Only people pay taxes. Corporations pass on their tax burden in the form of higher prices to consumers, lower wages to workers, and/or lower returns to investors. The idea that taxing a corporation reduces taxes on, say the working poor, is a cruel hoax. A corporate tax only makes what the working poor buy more expensive, costs them jobs, lowers their lifestyle, or delays their retirement. Under the FairTax plan, money retained in the business and reinvested to create jobs, build factories, or develop new technologies, pays no tax. This is the most honest, fair, productive tax system possible. Free market competition will do the rest."
The FAQ is very comprehensive and I think it addresses every concern that has been brought up so far.
Posted by rivka (Member # 4859) on :
quote:
quote:Moreover, it would encourage those who could afford to do to make large purchases from other countries.
This is assuming that price levels stay the same and we add 23% on top. It is projected that because of the elimination of corporate taxes prices would actually drop significantly (I believe 20% is the projection) so price levels would be virtually unchanged.
Pfft. That's the claim, but I don't believe it for a minute.
Israel has a similar system. The only reason it does NOT scare off the tourists is because tourists can get a rebate at the airport of all VAT (Value-Added Tax) paid.
Posted by DavidR (Member # 7473) on :
To address no.6's concern about removing tax incentives to donate to charity, I cannot speak for everyone else but I can speak for myself. I have never given to charity for the purposes of getting a tax break. I give to charities because I believe in what they are doing and I give according to what I can afford to give. In my case, if I had more money because I was paying less in taxes then I would also be giving more to charities. So in my case this kind of change would actually result in more charitable donations by me and not less. Maybe I'm atypical, but I have only my own experiences to relate to here and they are the opposite of what you are saying.
Posted by Portabello (Member # 7710) on :
quote:Business-to-business purchases for the production of goods and services are not taxed.
It seems that almost everybody would manage to create a corporation in order to avoid taxes.
Posted by Belle (Member # 2314) on :
Here's what the website has to say in the Research section, though be skeptical because they also claimed that tuition wasn't tax deductible and it is.
quote:Revenue Neutrality
The FairTax is designed to be revenue neutral. In other words, it is not meant to increase or reduce the amount of money flowing to the federal government. Most of the data necessary to analyze the size of the FairTax base and the required revenue neutral rate are available either in the National Income and Product Accounts (NIPA) published by the Department of Commerce or the Federal Budget.
A number of adjustments to NIPA personal consumption expenditures need to be made to arrive at the base which the FairTax actually would tax. NIPA personal consumption expenditures include as consumption by homeowners the amount for which owner-occupied housing would rent. This imputed amount of consumption is not taxed by the FairTax and, therefore, it is subtracted for purposes of calculating our base. Similarly, NIPA treats education expenses as a consumption item but under the FairTax education is treated as an investment and not placed in the taxable base. Conversely, because the FairTax would tax all consumption, not only personal consumption but also consumption through government, government consumption is added to the tax base.
The FairTax would replace individual and corporate income taxes, payroll taxes and the estate and gift tax. Accordingly, the amount that these taxes raise ($1.7 trillion) is the amount that the FairTax would need to raise. Therefore, the rate required is 23%.
Posted by no. 6 (Member # 7753) on :
"Free market competition will do the rest."
That is an incredibly naive statement.
Just look at the way the oil companies are getting investigated for price manipulation. Again, you underestimate the power of greed.
Posted by TomDavidson (Member # 124) on :
"Corporations are legal fictions that have not, do not, and never will bear the burden of taxation."
*blink* Is this an idealized statement? Because it does not seem to reflect reality.
Posted by holden (Member # 7351) on :
quote:This will almost certainly drive the use of corporations as not only tax shelters but purchasing agents for luxury items; the rich will be buying houses and helicopters, for example, through shell companies.
Also addressed in the FAQ. I would point out that when moving to a new system it must be compared to the current system, not to some perfect fool proof system that does not exist. Do you think that the rich do not avoid taxes under the current system? I assure you that they do.
"Does the FairTax improve compliance and reduce evasion when compared to the current income tax? The old aphorism that nothing is certain except death and taxes should be modified to include tax evasion. Tax evasion is chronic under any system so complex as to be incomprehensible. As a percentage of gross domestic product (GDP), tax evasion is beyond 2.0 percent, compared to 1.6 percent in 1991. Tax evasion continues to be in the range of one quarter of income taxes collected. Almost 40 percent of the public, according to the IRS, is out of compliance with the present tax system, mostly unintentionally due to the enormous complexity of the present system. These IRS figures do not include taxes lost on illegal sources of income with a criminal economy estimated at a trillion dollars. All this, despite a major enforcement effort and assessment of tens of millions of civil penalties on American taxpayers in an effort to force compliance with the tax system. Disrespect for the tax system and the law has reached dangerous levels and makes a system based on taxpayer self-assessment less and less viable.
The FairTax reduces rather than increases the problem of tax evasion. The increased fairness, transparency, and legitimacy of the system will induce more compliance. The roughly 90-percent reduction in filers enables tax administrators more narrowly and effectively to address non-compliance and increases the likelihood of tax evasion discovery. The relative simplicity of the FairTax promotes compliance. Businesses need answer only one question to determine the tax due: How much was sold to consumers? Finally, because tax rates decrease, tax evasion is less profitable; and because of the dramatic reduction in the number of tax filers, tax evaders will be more easily monitored and caught under the FairTax system."
Posted by rivka (Member # 4859) on :
Again I say PFFT!
It will make it laughably easy for the rich to hoard, buy luxury items through shell companies; and place a large burden on the poor, especially the transient poor.
This plan was devised by someone well-off, and boy does it show.
Posted by saxon75 (Member # 4589) on :
holden, is there any reason for your support of this tax system other than it would be less complicated?
Posted by holden (Member # 7351) on :
Tom, as I'm sure you know, only people can pay taxes. The corporate tax is paid by corporate customers. If there were no corporate tax prices would fall based on competition.
Posted by fil (Member # 5079) on :
I clearly see not-for-profits that make a living on corporate assistance taking a hit. Many choose to donate money and while I assume they choose based on ideals that they support, communities they live in, whatever, it is clear they do so for the tax relief, not the good feelings or advertisement. Unless you are active with any given not for profit, it is rare to know how folks donate unless they make a big deal out of it. Some do, but many more do not.
Also, it stands to be repeated...rich people spend less of their money as a percentage than poor people. Most poor folks spend most or all of their money every month and wait desperately for the next paycheck or welfare check (some spend MORE than they have...see rising personal debt in US). Rich people, as a rule, do not. A loaf of bread to someone who makes a million a year is no more expensive than to those who make $10,000 a year and they probably eat just as much or as little on average. But as a percentage of their income, it is huge difference.
I also wonder are Corporations not paying any tax or are they charged at point of purchase, too? Meaning, if they have to pay 23% at point of purchase for materials to be made into the products we buy, I don't see them lowering prices. I see them increasing them by, oh, 23% or so. So far, I don't see corporations adjusting prices based on costs when it benefits consumers. Oil prices go up and that day you see it in the gas stations. Oil prices go down...and maybe we will see it go down weeks later. And if they don't pay purchase taxes as point of purchase, then I see wealthier business folks living in corporate condos, driving corporate cars and eating corporate dinners...or, as I see it, tax-free stuff by the bucket load.
Posted by Portabello (Member # 7710) on :
quote:This plan was devised by someone well-off, and boy does it show.
Who was it devised by, rivka?
Posted by TomDavidson (Member # 124) on :
"Conversely, because the FairTax would tax all consumption, not only personal consumption but also consumption through government, government consumption is added to the tax base."
If I'm reading this correctly, under this plan, the government would pay taxes to itself when purchasing items from businesses, but other businesses would not. And if government consumption is as large as I recall, I suspect that this is a key component of the target 23% rate; were the government exempted in the same way that businesses are, I doubt the plan would be feasible.
Note that the plan does not in fact tax all consumption. It specifically excludes consumption by corporations, which -- quite oddly -- it says does not and will never exist. Intriguingly, the government is considered a consumer under this plan.
[ April 14, 2005, 02:00 PM: Message edited by: TomDavidson ]
Posted by no. 6 (Member # 7753) on :
rivka's well off?
Posted by TomDavidson (Member # 124) on :
"Tom, as I'm sure you know, only people can pay taxes. The corporate tax is paid by corporate customers."
Ah. I suspected they meant something ridiculous like this.
By the same logic, my employer currently pays my real estate taxes. And if I no longer paid real estate taxes, my employer would realize those savings, right? *grin*
[ April 14, 2005, 02:02 PM: Message edited by: TomDavidson ]
Posted by rivka (Member # 4859) on :
*takes THWAP she has been holding in abeyance*
*releases near elaine*
Posted by holden (Member # 7351) on :
quote: holden, is there any reason for your support of this tax system other than it would be less complicated?
Yes. Complication is actually way down the list for me.
1. Politics. No more would politicians be able to promise tax cuts to certain demographics while raising taxes on others. No more class warfare.
2. Fairness. I don't think that the truly poor should pay taxes while they are truly poor. Under this system they pay nothing. I believe the rich should pay more in $s than the middle class. The rich spend a lot more money and thus would pay more in taxes. (Again before you say they will avoid taxes, I am comparing this to the current system, not a hypothetical perfect system)
3. Economics. I urge you to read the FAQ about economic growth as well as the signed letter from Economists on the site.
I believe this system would be better for everyone. Not just the rich, not just the poor, everyone.
Posted by holden (Member # 7351) on :
quote: By the same logic, my employer currently pays my real estate taxes. And if I no longer paid real estate taxes, my employer would realize those savings, right? *grin*
What? Corporations don't have any money. Corporations are owned by people. I own one myself. Every dime of taxes that my company pays comes out of my pocket. This is true of every company no matter how large or small. If those taxes were eliminated I could and would be forced to charge less for my services because my competitors would lower prices on their services. Prices in general would fall. My profit margin would remain the same.
Posted by Portabello (Member # 7710) on :
quote:1. Politics. No more would politicians be able to promise tax cuts to certain demographics while raising taxes on others. No more class warfare.
But this is exactly what implementing this tax code would be.
Posted by no. 6 (Member # 7753) on :
Ouch.
Posted by TomDavidson (Member # 124) on :
"Corporations don't have any money. Corporations are owned by people. I own one myself. Every dime of taxes that my company pays comes out of my pocket."
This is remarkably naive -- or willfully blind. I can't tell which. The whole point of corporations is that, for legal and financial purposes, they are people.
I "own" a number of publicly-held corporations, for example, through stock purchases. And, yes, the taxes paid by these corporations ultimately affect their bottom lines, and thus the value of the stock I own.
But what you are missing here is that I am not contacted by the government to pay, say, Microsoft's taxes out of my own pocket. I don't even have to mail in the teensy amount for which I would in theory be responsible.
You are, as you've pointed out, incorporated. You choose to pay your corporate taxes out of your pocket because you do not maintain a distinction between your pocket and the pocket of your corporation. That's fine, although it would get you in trouble -- eventually -- if you ran Tyco. But the important thing here, for the purposes of this conversation, is this scenario:
1) You buy a chair. It costs you $25. 2) Your corporation buys a chair. It costs $20.
Which one -- you or the corporation -- buys the chair? I'm guessing, since you're not stupid, that the corporation will do it. It'll be the corporation's chair. But since you are, as you've pointed out, your corporation, the chair is for your exclusive use. The only difference here is that $5 did not go to the government. (Note: I assume that there's going to be paperwork involved in this step, presumably as some sort of rebate or pre-established tax immunity through purchase orders.)
Now imagine this result rippling across everyone in America who knows how to incorporate. That $5 the government's not getting adds up quickly, and I guarantee you the rich aren't going to line up to pay it.
[ April 14, 2005, 02:37 PM: Message edited by: TomDavidson ]
Posted by holden (Member # 7351) on :
I guess it all comes back to your world view. If you believe we should punish the rich for being rich than yes this is not the right system for you. A system like the current system but with much higher marginal brackets is more your cup of tea.
Posted by TomDavidson (Member # 124) on :
I don't consider taxes to be punishment. Why do you?
Posted by holden (Member # 7351) on :
quote: I "own" a number of publicly-held corporations, for example, through stock purchases. And, yes, the taxes paid by these corporations ultimately affect their bottom lines, and thus the value of the stock I own.
You just conceded my point. If you feel better by calling it naive before admiting it is a fact, I guess that is fine by me.
How stupid do you think the sponsors of this bill are? Do you really think that in practice everyone could just go form a corporation and use it to buy everything and thus avoid taxes? Give me a break Tom. There would have to be a mechanism in place to prove that your purchases were for legitimate corporate purposes. No system is perfect but as stated in the FAQ the incentive for tax avoidance/evasion under this system is much less than the current system. Once again that has to be the comparison. You can't compare it to some perfect system that does not exist.
Posted by ketchupqueen (Member # 6877) on :
But since it doesn't exist yet, you can pretend it's a perfect system, is that it?
Posted by holden (Member # 7351) on :
I never claimed it was perfect, only better. Much better.
Posted by TomDavidson (Member # 124) on :
"There would have to be a mechanism in place to prove that your purchases were for legitimate corporate purposes."
What mechanism would that be, exactly? Because, see, I'm seeing paperwork again. And, frankly, I'm hard-pressed to identify the distinction between a chair purchased for holden the corporation and holden the homeowner; it's difficult to imagine the form that would somehow manage to nail down the distinction.
-----
As a side note, I don't think the sponsors of this bill are stupid. I think they're deliberately trying to bankrupt the government, as they feel taxes are immoral in principle.
[ April 14, 2005, 02:58 PM: Message edited by: TomDavidson ]
Posted by holden (Member # 7351) on :
quote: But what you are missing here is that I am not contacted by the government to pay, say, Microsoft's taxes out of my own pocket. I don't even have to mail in the teensy amount for which I would in theory be responsible.
You are, as you've pointed out, incorporated. You choose to pay your corporate taxes out of your pocket because you do not maintain a distinction between your pocket and the pocket of your corporation. That's fine, although it would get you in trouble -- eventually -- if you ran Tyco
This is a logical fallacy. It even has a name. Mental accounting. People have a tendency to classify activities into separate categories or accounts. You pointed out that it was my corporation (the seperate legal and financial entity) that paid the taxes. On a very superficial meaningless level this is true. In reality my company, that I own 100% of now has less money. I have less money. I paid the taxes.
The same is true of your stock ownership. While you did not write a check to pay your share of MSFT's taxes, your stock is worth less, you have less money, you paid the taxes.
Posted by holden (Member # 7351) on :
quote:What mechanism would that be, exactly? Because, see, I'm seeing paperwork again
Tom when I buy a chair now if I were dishonest and wanted to call it a "corporate" chair I could do so and write it off. If I did this and were audited I would be penalized. There would have to be a similar mechanism.
One more time. I have never said the system would be perfect, only better. We would have to maintain some kind of enforcement agency for corporations. There would be none for individuals however, thus significantly less resources would be required than under the current system.
Posted by Bob the Lawyer (Member # 3278) on :
quote:As a side note, I don't think the sponsors of this bill are stupid. I think they're deliberately trying to bankrupt the government, as they feel taxes are immoral in principle.
Gold star for Tom.
Posted by holden (Member # 7351) on :
quote: As a side note, I don't think the sponsors of this bill are stupid. I think they're deliberately trying to bankrupt the government, as they feel taxes are immoral in principle.
Gold star for Tom.
If you get gold stars around here for baseless speculation I hope I never earn one.
Posted by Bob the Lawyer (Member # 3278) on :
holden, it's a simple matter of something not adding up. The faq says that most people are paying as much as, if not more than a 30% flat sales tax right now. This implies that the average joe will see no change or maybe a decrease in the amount of taxes he is paying over the course of a year under the new system. We also know that corporations aren't paying any taxes, there is no estate tax, etc. And yet, all social programs, the military, etc. are still going to be funded? How? Everyone cannot win and since this is being sold as big savings for corporations and individuals only one other thing can collapse.
It is also ignoring the fact that it assumes the corporations are not going to cooperate to keep prices high, something we've seen them do in the past. This plan offers them no more incentive to do that than the have now, why would they not do it then? Especially considering the gains are astronomical. You may argue that they wouldn't do that as competition would drive prices down. But as there are already examples where this has not been the case I have no choice but to think you're naive.
It also glosses over trade by saying that all products will be on an equal playing field as all imported and domestically produced goods will have the same 30% sales tax applied to them. Offshore companies, of course, are still paying taxes to their own countries, where American companies are paying none. This will not exactly stimulate a desire to sell products to the US, and no, that isn't a good thing.
Posted by TomDavidson (Member # 124) on :
"This is a logical fallacy. It even has a name. Mental accounting. People have a tendency to classify activities into separate categories or accounts. You pointed out that it was my corporation (the seperate legal and financial entity) that paid the taxes. On a very superficial meaningless level this is true. In reality my company, that I own 100% of now has less money. I have less money. I paid the taxes."
I submit that this is not meaningless, as one of the legal entities capable of buying a chair would do so, under the other plan, at a discount. Clearly, which entity is doing the buying matters a great deal.
Frankly, I'm a little disturbed by your "I am my corporation" attitude, as it's exactly this philosophy that leads to terrible corporate malfeasance.
-------
Looking at your list of advantages that you perceive for the new system, I can't help wondering how you'd feel about charging tax on ALL purchases, regardless of whether corporations bought things or not. This change to the plan would not invalidate any of the advantages you listed, and would substantially reduce the 23% rate to something less onerous for individuals. We could still send a $3K check to Microsoft every year, too.
[ April 14, 2005, 04:34 PM: Message edited by: TomDavidson ]
Posted by holden (Member # 7351) on :
quote:Especially considering the gains are astronomical. You may argue that they wouldn't do that as competition would drive prices down. But as there are already examples where this has not been the case I have no choice but to think you're naive.
Bob there are indeed examples of corporate collusion. These examples are the exception not the rule. The vast majority of industries have many many participants making collusion impractical and in many cases impossible. If you are arguing that most prices for goods in America are set by companies colluding as opposed to the free market it is you that are naive or at least ignorant of basic economics.
Posted by Bob the Lawyer (Member # 3278) on :
I would say that I'm cynical However, I might be willing to concede that point, but can I assume you agree with my others?
Posted by holden (Member # 7351) on :
quote: I submit that this is not meaningless, as one of the legal entities capable of buying a chair would do so, under the other plan, at a discount. Clearly, which entity is doing the buying matters a great deal.
Out of context Tom. I never said that which entity buys the chair is meaningless. I said both under out current system and the Fair Tax system we would have to enforce rules about corporate purchases.
What is meaningless is which entity pays the taxes. Whether it comes out of the corporate account or my personal account, my personal net worth is lower by the exact same amount.
quote:Frankly, I'm a little disturbed by your "I am my corporation" attitude, as it's exactly this philosophy that leads to terrible corporate malfeasance.
Why don't you try and come up with a logical point instead of questioning my integrity. Corporate malfeasance is due to greed and dishonesty. It has nothing to do with the fact that people not companies pay all taxes.
Posted by fil (Member # 5079) on :
So why not make ALL purchases taxed? Only people can buy things, not corporations.
Posted by holden (Member # 7351) on :
No Bob, I don't agree with your other points, that was just the quickest to respond to. I have a phone meeting in 5 minutes so I will respond to the others as soon as I can.
Posted by Bob the Lawyer (Member # 3278) on :
I just hate being ignored.
Posted by holden (Member # 7351) on :
quote: So why not make ALL purchases taxed? Only people can buy things, not corporations.
The fact the corporation are exempt to me is not a key part of the plan. If an alternate plan was proposed with a lower rate to reflect the fact that many things would be double triple quadruple taxed etc. that would be fine, but more complicated and thus to me less desirable for the same outcome. However if it would make people feel better that somehow "big corporations" were paying their fair share it would be fine with me.
Posted by fil (Member # 5079) on :
I am not sure why everyone paying tax at the point of purchase would be more complicated. It would be less. We wouldn't need a corporate watchdog group to see how they were spending their money and whether or not they were buying chairs for their shareholders or something like that.
I also would want to know what a "purchase" is. I got the goods part. Donuts, coffee, computers, etc. Are services taxed the same way? Medical appointments, counseling services, babysitting, etc. What about purchasing stocks? Purchasing real estate?
Posted by holden (Member # 7351) on :
quote:It also glosses over trade by saying that all products will be on an equal playing field as all imported and domestically produced goods will have the same 30% sales tax applied to them. Offshore companies, of course, are still paying taxes to their own countries, where American companies are paying none. This will not exactly stimulate a desire to sell products to the US, and no, that isn't a good thing.
Are you saying that the goal of domestic economic policy should be to make other countries more competitive in our market? Who cares if foreign goods and services are more expensive here compared to domestic goods and services? That is not our problem, other countries would likely adopt a similar system to be able to compete.
Posted by holden (Member # 7351) on :
quote:I also would want to know what a "purchase" is. I got the goods part. Donuts, coffee, computers, etc. Are services taxed the same way? Medical appointments, counseling services, babysitting, etc. What about purchasing stocks? Purchasing real estate?
It is my understanding that direct to consumer services like medical appointments would be taxed. I believe that the purchase of investments would not be taxed but that service fees to make those purchases would be. For example it is my understanding that stock commissions would be subject to the tax as well as real estate agent fees on real estate transactions.
By the way good point about it being simpler if all purchases including corporate purchases were taxed. I meant it would be more complicated to determine the rate that would need to be charged in order to be revenue neutral if the tax applied at all stages of production.
It would also be more difficult to know how much we are truly paying in tax when we make purchases and that is one of the primary benefits of the system. If the tax rate is 23% and everyone knows it the govt would have a difficult time raising the rate when it would effect EVERYONE. We would not let it happen unless there was a very compelling reason.
Posted by Dan_raven (Member # 3383) on :
I really have to go but I will be back.
Here are the downsides that I see.
1) Groups will lobby to get special tax breaks, but it will be groups like the AARP demanding tax breaks for seniors purchasing things and the Asparagus Producers saying that with out a sales-tax break they will collapse so we had better pay it.
2) Black Market and resellers go wild. Picture this. I own a business that sell cars. I sell all my cars for $1. each to my brother. I pay the 25 cent charge on the car. He resells the cars at his lot for a retail price without the tax and makes a profit. My company then buys from him a widget who's price equals the cost of the cars he sold plus a small commision for me.
3) Prices will jump up the 23% immediately, and will only come down once increased profits allow for competition to lower the costs. That 23% increase however, will hurt sales creating a drop in profits which will slow down the competition. Where 20% is a predicted goal, it will not be uniform.
4) The poverty line will become difficult for congress to raise, so that people will be forced to live on less and less real money every year. When congress tries to raise it they will be met by the same people who complain that the minimum wage can not be raised.
5) Joe makes 10K a year. He spends it all on rent and food. He pays taxes on his entire income because it all goes into staying alive.
Mary makes $100,000 a year. She goes to Canada to buy her car, saving thousands in taxes, and Mexico to buy her jewelry. She pays taxes on only 1/3 her salary.
They both get 20K back for minimum poverty expenses. All of Joe's gets taxed again when he spends it. None of Mary's does because she puts it in the bank for her trip to Europe next year.
Is this a fair distribution of the tax burden?
Posted by holden (Member # 7351) on :
And now your final point Bob. I'm not ignoring you.
quote:holden, it's a simple matter of something not adding up. The faq says that most people are paying as much as, if not more than a 30% flat sales tax right now. This implies that the average joe will see no change or maybe a decrease in the amount of taxes he is paying over the course of a year under the new system. We also know that corporations aren't paying any taxes, there is no estate tax, etc. And yet, all social programs, the military, etc. are still going to be funded? How? Everyone cannot win and since this is being sold as big savings for corporations and individuals only one other thing can collapse.
I have never said that everyone will pay less in taxes under this system. In fact, I think that many people will pay much, much, more. For example, how about a person that has a $20 million dollar portfolio of muni bonds and no other income. Muni bonds are exempt from federal and often state taxes. Some are subject to the alternative minimum tax but many are not. Let's say that the yield on this portfolio is 3.5%. This person has an annual income of $700,000 tax free. Under the Fair Tax, they would pay tax on consumption. These kinds of people consume a lot. Criminals and tax evaders would also be added to the tax base. Some individuals not in these categories may end up paying marginally more than before but they will have much greater control over how much they pay. The poor that must consume all that they make would pay nothing. Everone else has a choice how much to consume and thus how much tax to pay.
You are also assuming this is a zero sum game. It is not. The former head of the economics department at Harvard predicts that GDP growth under such a system would be over 10% the year it is implemented (see the website). That means the tax base would be expanded significantly and the tax rate could be lowered. It is my understanding that the 23% revenue neutral rate includes only long term average economic growth.
Posted by holden (Member # 7351) on :
quote: 1) Groups will lobby to get special tax breaks, but it will be groups like the AARP demanding tax breaks for seniors purchasing things and the Asparagus Producers saying that with out a sales-tax break they will collapse so we had better pay it.
2) Black Market and resellers go wild. Picture this. I own a business that sell cars. I sell all my cars for $1. each to my brother. I pay the 25 cent charge on the car. He resells the cars at his lot for a retail price without the tax and makes a profit. My company then buys from him a widget who's price equals the cost of the cars he sold plus a small commision for me.
3) Prices will jump up the 23% immediately, and will only come down once increased profits allow for competition to lower the costs. That 23% increase however, will hurt sales creating a drop in profits which will slow down the competition. Where 20% is a predicted goal, it will not be uniform.
4) The poverty line will become difficult for congress to raise, so that people will be forced to live on less and less real money every year. When congress tries to raise it they will be met by the same people who complain that the minimum wage can not be raised.
5) Joe makes 10K a year. He spends it all on rent and food. He pays taxes on his entire income because it all goes into staying alive.
I really have to go too but quickly: 1. How is this different than under the current system? If we start with a system with no tax breaks it will be much harder to get special treatment than under our current system where there are tax breaks for everything possible.
2. There are ways to game the system that would have to be dealt with. Do you have any idea what people do to game the system now? It would be less profitable and thus less frequent under the Fair Tax.
3. You are underestimating the free market. Information is digested almost instantly. If I am a retailer and I know I can gain market share and keep the same profit margin I am dropping prices today not in 6 months.
4. Since everyone receives the check based on the poverty line, not just the poor, I see no reason it would be difficult to raise. Small business does not want to raise minimum wages because it would hurt profits and thus employment levels. Again we are singling out one group in favor of another. In this case raising the poverty line would be the same for all.
5. No Joe pays no taxes. He receives a rebate for every dime.
[ April 14, 2005, 06:48 PM: Message edited by: holden ]
Posted by TomDavidson (Member # 124) on :
"I believe that the purchase of investments would not be taxed but that service fees to make those purchases would be."
Hm. You know, I find it suspiciously convenient that corporations and investment purchases are completely untaxed under this plan. Posted by WigginWinning (Member # 7811) on :
Why would Corporations cut prices just because they're not paying taxes? Corporations have never shown any inclination to pass increased revenue onto the customer. They pocket the cash and that's exactly what they'd continue to do.
Posted by no. 6 (Member # 7753) on :
The problem is this:
Say a local non-profit puts on a Golf Tournament (this happens a lot in the Napa Valley, where I live). The local businesses sponsor the tournament usually for these reasons:
a. Get free advertising b. This advertising is not in their normal operating expenses, which has a cap on what they can use for this purpose, but is counted as a charitable donation. Its all good when you can write off publicity without using it in the "loss" column.
This works well. Now, I, as a private individual donate to local causes that I love to support, but usually don't claim these on my taxes (I really can't afford to donate that much). It's great that people like us do this out of sheer altruism, but for most businesses, and there has to be some exceptions, it's all about the bottom line.
Posted by holden (Member # 7351) on :
quote: Hm. You know, I find it suspiciously convenient that corporations and investment purchases are completely untaxed under this plan.
Try not to be so cynical Tom. Every idea that you don't agree with is not necessarily an evil plot to make the rich richer and help those dastardly corporations.
I have never heard of a sales tax that taxes investment purchases (various state sales taxes for example). I don't know why you expect this sales tax to be different. As to corporations, it is obvious that you will continue to insist that taxing corporations is somehow different than taxing the PEOPLE who buy corporate products and the PEOPLE who own corporate stock so I can't help you with that particular hang up.
quote:Why would Corporations cut prices just because they're not paying taxes? Corporations have never shown any inclination to pass increased revenue onto the customer. They pocket the cash and that's exactly what they'd continue to do.
WW, they have no choice. I am not suggesting that corporations would want to share potential profits with consumers, they would be forced to by competition. This is a very basic economic principle that holds in the vast majority of cases.
Posted by TomDavidson (Member # 124) on :
"I don't know why you expect this sales tax to be different. As to corporations, it is obvious that you will continue to insist that taxing corporations is somehow different than taxing the PEOPLE who buy corporate products and the PEOPLE who own corporate stock so I can't help you with that particular hang up."
Because, as I've pointed out, corporations do an enormous amount of buying and selling on behalf of the corporation. The PEOPLE in those corporations don't buy stuff. When I order a server for Edgewood, I don't rush out and put it on my VISA -- even if I personally place the order.
The money comes from a different bucket, both legally and ethically.
And this plan acknowledges this fact, by saying that all money which comes from a corporate bucket is untaxed, but money which comes from a personal bucket will be taxed. The mere fact that they make the distinction concedes my point.
And as a consequence, we will see more people putting money into -- and using money from -- corporate buckets.
Posted by aspectre (Member # 2222) on :
You live in a fantasy world, holden. What percentage of individuals hire lobbyists to manipulate legislators? Do you think that corporations would waste money on ineffective lobbying? On lobbying that didn't make them even more money than they spent?
And you haven't a clue as to economics. Economic activity -- ie resource use, especially including use of government services and publicly-owned properties&rights-of-way -- is directly measured by cash flow. And nearly all corporate entities have higher cash flow than nearly all individuals. TANSTAAFL : There Ain't No Such Thing As A Free Lunch This plan is solely a way of charging individual workers to provide the non-working wealthy with free three-martini corporate lunches.
[ April 15, 2005, 04:26 PM: Message edited by: aspectre ]
Posted by holden (Member # 7351) on :
quote: This plan is solely a way of charging individual workers to provide the non-working wealthy with free three-martini corporate lunches.
How ironic Aspectre. The non working wealthy are exactly the people that would have the largest tax increase under this plan. See my example above of the person with the municipal bond income.
Tom I have never said that it doesn't matter whether corporations or individuals make purchases. It cleary does under either tax code. I have said that whether the corporate entity or you personally PAY THE TAXES, your net worth will be exactly the same. You keep trying to make the switch Tom and it isn't working. Besides I don't even care about the corporate exemption. It just makes it a true retail sales tax as opposed to a hybrid sales/VAT tax. Why don't you spend some time at the web site and come to a logical conclusion. I am certain that you did not do so before your initial negative response based on your ignorance of the basic structure of the plan.
quote: Economic activity -- ie resource use, especially including use of government services and publicly-owned properties&rights-of-way -- is directly measured by cash flow. And nearly all corporate entities have higher cash flow than nearly all individuals.
What does this have to do with anything? I have never made any comparisons about cash flow of indidviduals and corporations. That bordered on meaningless mumbo jumbo in the context of this discussion.
This is not a free lunch, only a better system. Taxes will still be paid by everyone but the very poor.
quote:And you haven't a clue as to economics.
Oh really? I'd wager my economic education/experience against yours any day.
edit (removed reference to my educational background, brought it up only to respond to above quote but decided my motives could be misinterpreted)
[ April 15, 2005, 10:46 PM: Message edited by: holden ]
Posted by TomDavidson (Member # 124) on :
"It cleary does under either tax code. I have said that whether the corporate entity or you personally PAY THE TAXES, your net worth will be exactly the same. You keep trying to make the switch Tom and it isn't working. Besides I don't even care about the corporate exemption."
Ten bucks says that if you contact the holders of the plan and ask them to eliminate that exemption, they'll demur. I strongly suspect that the exemption is in fact one of the fundamental reasons for the plan in the first place.
And, no, your net worth will NOT be the same under this plan if your corporation buys your goods.
Posted by holden (Member # 7351) on :
quote: And, no, your net worth will NOT be the same under this plan if your corporation buys your goods.
AGAIN. You made the switch AGAIN. I suspect that you see the difference perfectly but are trying to confuse people who aren't paying close attention. You keep coming back to people cheating by making false corporate purchases. Yes that is possible and would have to be dealt with but is unrelated to the networth statement you are referring to. I was talking about corporate/individual taxes under the current system not purchases under the Fair Tax and I think you know that. Please stop using debate tricks to try and win the argument. It is (or should be) beneath you.
Posted by TomDavidson (Member # 124) on :
It's not a debate trick, holden. It's pointing out a very real consequence of the tax.
Posted by fil (Member # 5079) on :
I think the problem with this discussion is that in an ideal world, this would be nice. If we could assume all or even most people would pony up the money in the correct way, report their income in the correct way and so on maybe it would work. Maybe (still not convinced even on the idealism level).
But the proof is in the pudding. Most people are looking for loopholes. Corportations, doubly so. Owners of those corporations, more than that. Just the fact that we are only now catching on to the bigger ones doesn't mean it hasn't and isn't happening as we speak. Any tax plan should be made with the knowledge that if there is a loophole, it will exploited early and often.
Also, regarding paperwork, I don't see it being any less, really. People will still need to report their income (as we do now). What is income? How much is earned at work? Sure, someone in poverty will have little or nothing to report. But so would the owners of Google, who just reduced their annual salaries to $1. Would they get a refund check every month just like the family that brings in $10,000 a year of income? Why or why not?
How is this plan better/different/easier than a flat tax plan? I assume some of the same issues apply...in a flat tax plan, Google CEO would owe taxes only on his $1.00 salary, not necessarily the bajillion dollars in value of his shares.
Why can't they come up with a plan that would annually tax a person's net worth regardless of where the money is coming in? That would be fair and equitable, I would think.
Posted by holden (Member # 7351) on :
quote:People will still need to report their income (as we do now). What is income? How much is earned at work?
No Fil, there is no income to report. As mentioned in the thread previously EVERYONE receives the poverty level rebate it does not matter what your income level is. Income levels are completely irrelevant under this plan which is one of the primary differences between the Fair Tax and a flat tax plan. Only retail stores would file a tax return at all. You would file nothiing and keep track of nothing for tax purposes. fairtax.org is the website by the way if you have any interest in understanding the proposal.
Tom, I just realized something that changes the whole conversation. You are concerned that you could form a corporation and use it to buy (in your example) a chair for personal use and pay no tax. Actually that wouldn't be a problem because the corporation would pay the tax also. Under "What would be taxed?" the Fair Tax website says:
quote:Business-to-business purchases for the production of goods and services are not taxed.
In other words, final goods and services are taxed no matter what entity makes the purchase. This is exactly like our state retail sales tax. If a corporation buys a chair, it pays sales tax like anyone else. If it buys raw goods to make a chair it does not. As this is not a VAT plan it makes sense that taxes would apply only to the final product. So I think your concern is no longer a valid one. Does this change your thinking at all?
Posted by TomDavidson (Member # 124) on :
"Does this change your thinking at all?"
It helps, yes. Quite a lot, in fact. Although I'm still concerned by the investment and B2B exemptions. Frankly, I think it'd reduce paperwork even more to eliminate them -- and would bring down the 23% retail tax, while we're at it.
Posted by Destineer (Member # 821) on :
Seems like the burden of this tax would fall massively on the middle class. Unlike the poor, they will not be exempt from the tax. Unlike the rich, they spend a large portion of their income on goods and services rather than saving or re-investing.
Posted by Destineer (Member # 821) on :
quote:Why can't they come up with a plan that would annually tax a person's net worth regardless of where the money is coming in?
Probably because it's fairly difficult to assess someone's net worth. I have no idea what mine is. Also, such a tax would discourage saving (which is all too rare in America anyway).
Posted by holden (Member # 7351) on :
quote:and would bring down the 23% retail tax, while we're at it.
You're right, the numerical rate charged on retail purchases could be lower if we taxed at every stage of production but those taxes would be figured into the sales price of final products so we would pay the same amount anyway. Under such a plan part of the tax burden would be hidden. I prefer to know exactly what I am paying.
As to taxing investment purchases, we don't do so now, so what is your concern?
Posted by Morbo (Member # 5309) on :
quote: Seems like the burden of this tax would fall massively on the middle class.
I agree. But the middle class has been getting socked harder every year with the income tax. I wonder if the middle class would fare better or worse in the present income tax system or a national retail tax?
Holden pointed out, investment income that's currently exempt from taxes would be taxed when spent.
And he also pointed out criminals would pay more taxes.
This includes the estimated 8-12 million illegal aliens--presumably, they would pay the sales tax but wouldn't get a rebate check. Although, some of thme pay FICA now, not sure if they get tax refunds or what the net difference would be between the two systems.
What about social security taxes, Holden?
Posted by holden (Member # 7351) on :
Man I hate it when that happens. I had a whole long explanation and my computer locked up and I lost the whole thing and now I have to go.
Here is the short version Morbo: Social Security and Medicare taxes would be eliminated . The 23% revenue neutral rate includes revenue from payroll taxes.
The middle class spend a higher proportion of their income than the rich. This is a fact. However I believe they would still be better off under the Fair Tax. middle class scenario The line item about cost of hidden taxes and compliance (the amount retail prices would fall based on no corporate income taxes or compliance costs) is up for debate. However even if you assume they are wrong by 50% the family would still be much better off. How can this be considering no free lunch?
1. No more tax avoidance by the rich (or anyone else). Some people in the "very rich" category would pay significantly more in dollar terms than they now pay.
2. Everyone who buys anything on U.S. retail market would pay. Criminals, non citizens, everyone so tax base would be larger.
3. Economic growth. However this is not a necessary assumption to make the idea attractive.
Posted by Portabello (Member # 7710) on :
quote:Under such a plan part of the tax burden would be hidden. I prefer to know exactly what I am paying.
For me, this is a very big advantage of the fair tax.
quote:2. Everyone who buys anything on U.S. retail market would pay. Criminals, non citizens, everyone so tax base would be larger.
Of course, there would probably be a big black market that pops up to avoid those taxes.
Posted by Lyrhawn (Member # 7039) on :
Has anyone read "The FairTax Book" by Neal Boortz and Congressman John Linder?
It's entirely about the Fair Tax debate. I just picked it up at Costco today and started reading it. I'm hooked on the idea, but reading the debate on this thread has produced doubts.
One recurring argument is that coporations will not reduce prices when their taxes are lifted. I think that's silly. OF COURSE one of them will, maybe just one, a little bit in the beginning. That one guy starts outselling everyone else because his product is cheaper, then everyone else lowers theirs below his, then he lowers his again. Eventually it'll balance out, but at the correct amount of savings to the consumer.
A good example of this is the employee pricing plans on cars right now. One company says "you pay what we pay" and pretty soon all the big three are on top of it with the same deal, plus cash back!
Also, if you're worried about a corporation committing fraud, keep in mind that by eliminating the vast majority of filers, you free up auditors to be far far more scrutinizing of those that remain, making it very hard for them to get away with anything.
I'll write more when I finish the book.
Posted by TomDavidson (Member # 124) on :
quote: OF COURSE one of them will, maybe just one, a little bit in the beginning.
How has cable and landline telephone deregulation worked out for you?
Posted by The Silverblue Sun (Member # 1630) on :
quote: It sounds too naive. Rather like "trickle-down" economics. The rich get richer, and then they hoard.
Forbes did a study and found out of the top 100 richest people in the USA, they paid about and 8% tax share on their income.
This wouldn't be as bad as trickle down economics. Trickle-Down economics is what you get under a Monarchy with a bad king.
Posted by Airguitarist (Member # 2647) on :
holden, is there a mechanism to deal with purchases from other countries? Someone used the example of the rich person buying their car in Canada and their jewlery in Mexico, and thus avoiding a lot of "Fair Tax" taxes. This could potentialy be a very big problem under such a sysrem unless the Fair Tax has provisions dealing with importing untaxed goods for personal use.
Posted by Lyrhawn (Member # 7039) on :
quote: How has cable and landline telephone deregulation worked out for you?
Is one example really statistically significant? We're talking about the entire US economy, not just the telecommunications industry. Price wars are a landmark of American economy. They break out all the time, in all industries. The airline industry has been warring over pricing for the past decade. Cheaper, smaller airlines have been taking over large amounts of what was previously only the large airlines' domain, and they are reaping the benefits (though, in the airline industry these days, no one is really reaping HUGE benefits, I know that).
I think the argument for "you underestimate the power of greed" works both ways. Hoarding it will keep you at the same level all the time. Undercutting someone else's prices will raise your overall income and make you richer. Thus the greedier person will lower his prices to boost sales, and others will follow.
Also, if you want to look at telecommunications. Cell phone companies have been in a price skirmish that I'm sure will erupt into all out war soon.
Posted by fugu13 (Member # 2859) on :
Tom -- cable and telephones are natural (local) monopolies, operating under a special set of circumstances.
Which doesn't mean minimal regulation isn't the way to go, it merely affects what minimal regulation is appropriate.
And oddly enough, cable and phone companies have all gotten into price wars resulting in lower prices, which is exactly the argument that was made
However, the viewpoint you were arguing against is still naive. Yes, companies will lower prices some, but that's largely irrelevant. The question is, will the lower prices make up for the decreased value a middle class family is bringing home due to higher taxes? Also, remember that every dollar a company lowers prices due to tax breaks is one dollar they're not paying to employees instead, which is sort of the whole trickle down argument, and one reason its flawed -- it ignores the demand side, the need of consumers to purchase the goods produced by the company. And no, one choice is not equivalent to the other -- dollars given to workers are taxed, whereas dollars used to lower the prices would not be, and more importantly in some ways, dollars given to workers generally result in a smaller direct impact on worker pockets because they entail higher overhead on the part of the company.
Posted by TomDavidson (Member # 124) on :
quote: cable and phone companies have all gotten into price wars resulting in lower prices
Except in my area, where deregulation immediately created a number of gentlemens' agreements that have resulted in higher prices. Not that you'll get them to admit to it. And the less expensive cell phone plan to which I subscribed has actually vanished, replaced by a plan that would -- were I not grandfathered in -- give me a hundred extraneous minutes for $10 more a month.
I'm not saying that competition isn't a good thing, but I'm saying that collusion is a more likely scenario. Posted by fugu13 (Member # 2859) on :
I think you're thinking of the wrong period in history, Tom. There hasn't been any true deregulation of late.
The big deregulation was the breakup of Ma Bell.
Posted by fugu13 (Member # 2859) on :
Tom -- cell phone plans have increased in price largely because of phenomenal expenditures on networks by the providers. Compare cell phone plans with comparable features to home calling plans if you want a demonstration of what a deal they still are.
Posted by TomDavidson (Member # 124) on :
If I actually used any phone features besides voice mail, Caller ID, and call waiting, I'd probably care more.
What I want on a cell phone: unlimited, unbounded data transfer at semi-presentable speeds (both incoming and outgoing), fully-functional Bluetooth (for both modem and accessory functions), and no roaming fees. The cell phone providers which offered this kind of functionality are now running in terror from it; to get this kind of service legitimately from a U.S. provider, as opposed to just taking advantage of a technical loophole which they'll intend to close, runs at least $60 a month -- and more if you dare to actually use a Blackberry or Windows Mobile device, since the data plans for PDAs are considerably more expensive than the cell-phone equivalents.
Cell-phone companies have been preying on the ignorance of American consumers who have apparently never traveled to Europe and consequently think that being able to take a picture or view a music video is something nifty that is worth paying extra money for. *wry laugh*
Posted by Lyrhawn (Member # 7039) on :
I just finished reading The FairTax Book.
I'll admit I'm not wholly convinced, a lot of it just seems too good to be true, but I can't poke any substantive holes in the argument. It looks like it would be a boon to lower class and middle income workers. At the very least I think it deserves serious, VERY serious consideration from the Congress, the President, and the newsmedia. I just finished writing both my senators and my representative about the issue.
The benefits of this Act seem almost endless. US workers finally being competitive in foriegn markets, an end to companies taking their money overseas to sink into tax shelters, and end to corporate lobbying (to a large degree) in Washington to get special favors, an end to an overly complicated tax system that bogs down our economy in a tax code that costs billions every year just to try and figure out. And the list goes on.
The loudest argument I've seen so far on here is the concern that businesses won't pass on the tax savings to the consumer. I find it hard to believe they wouldn't, as I've stated before, it only takes one small business to cut prices before they all jump on board. And either way, the cut is stated at 23% cut in the price of goods, meaning the price would fall 23%, but that entire amount isn't totally derived from the seller of the item, it's an imbedded cost that comes from the entire line of people involved in producing the item. Suppliers would lower prices to be more competitive in the new market, businesses would force them too.
It's either that, or when the new national sales tax was implemented, costs on goods and services would skyrocket and EVERYONE would see their sales plummet as consumers can no longer afford their prices. Could they really survive that scenario? Why risk it, when they can lower their prices and make the issue revenue neutral, while increasing their own productivity and lowering their costs from a less complicated tax system?
The decreased cost of product is only one piece of the larger benefits the Act would provide.
I'm interested to see if anyone can poke a serious hole in the FairTax Act.
Posted by Lyrhawn (Member # 7039) on :
Fugu -
quote: The question is, will the lower prices make up for the decreased value a middle class family is bringing home due to higher taxes?
What do you mean by this? What higher taxes? The amount of money a middle class family brings home can only increase under the FairTax Act, as they are now bringing home ALL of their money.
Posted by TomDavidson (Member # 124) on :
quote: The amount of money a middle class family brings home can only increase under the FairTax Act, as they are now bringing home ALL of their money.
Until, of course, they have to buy things. Posted by fugu13 (Member # 2859) on :
Bleh, sorry, thinking flat tax; I was sleepy and busy working on an essay.
Similar principle applies, though, as a sales tax will more adversely affect middle-class consumers, plain and simple.
Also, there's one very big potential issue: during economic troubles, consumption of luxuries (those things most commonly sales taxed) drops dramatically. This dramatically decreases government revenues, just when social support programs are most needed.
Oh, and the implementation of a large sales tax can't help but create a gigantic black market.
Posted by fugu13 (Member # 2859) on :
Oh, and to go down your list:
quote:The benefits of this Act seem almost endless. US workers finally being competitive in foriegn markets,
As US workers are arguably the most competitive workers in any decent sized nation in the world, I'd be fascinated to hear how this works.
quote:an end to companies taking their money overseas to sink into tax shelters,
Well, yes, but only because tax shelters won't exist. "An end to companies taking their money overseas" full stop won't happen -- and honestly, the use of tax shelters isn't particularly troublesome except insofar as it disrupts government income. Plus, this isn't a particular benefit of the "fair tax"; its easy enough to take care of it even with income taxes, if we so cared.
quote:and end to corporate lobbying (to a large degree) in Washington to get special favors,
Ahahahahahahahahahaha! This one's just a riot. Government lobbying is a gigantic industry designed to get laws and regulations instituted and removed as benefits the lobbying parties. Tax laws are only a small piece of that pie, corporations are more concerned about the laws which govern the conduct of their business.
quote:an end to an overly complicated tax system that bogs down our economy in a tax code that costs billions every year just to try and figure out.
Yes, we do rather pay a lot of accountants, but its not like that money is lost to the economy. It actually increases our (monetary) productivity, as countries from overseas need to bring in foreign capital in order to get the best help to comply with american tax code. This isn't an argument for the system, but against the notion that it bogs down our economy all that much due to its cost of understanding (if at all). It bogs down the economy due to the complexity of complying with the rules, not understanding them. There are lots of simple taxation systems, this is just one of them.
Okay, so as far as real, substantial benefits we've got one benefit that could be provided under near any system of taxation if we just chose to do it, and one benefit that could also be had by near any system of taxation, and will almost certainly be had by any substantial reform of the current system.
Where are these particular benefits of the "Fair Tax" you're supposedly advocating?
Posted by Lyrhawn (Member # 7039) on :
Okay, piece by piece:
Tom -
quote: Until, of course, they have to buy things
At which point they will purchase things for slightly more than they were to begin with. A reduction in the tax on the suppliers/producers will reduce the price for the consumer, I've yet to hear a good argument against what I said earlier about that. The sales tax will bring the cost back up to slightly more than what it was to begin with.
Fugu -
quote: Oh, and the implementation of a large sales tax can't help but create a gigantic black market.
Compared to what? The black market economy already functioning in the country? Costs to businesses will go down, as the sales tax brings them back up again, there'd be no need for any kind of illegal market. Even so, if there were one, people still have to buy regular things from places. How is the average person going to participate in this black market?
I have to go now, I'll cover other stuff more in depth later.
Posted by Storm Saxon (Member # 3101) on :
Has the buying stuff 'overseas' problem that airguitarist mentioned been refuted, yet?
Posted by Dagonee (Member # 5818) on :
Couldn't customs handle that easily enough? I mean, sure, there could be smuggling, but we already have mechanisms in place to go after that.
Now, moving luxery purchases overseas and keeping them there would be a problem. I could see a lot of vacation homes popping up in other countries because of this.
Posted by Storm Saxon (Member # 3101) on :
I don't know....
Hold on a sec and I'll see what some of the liberal thinktanks are saying about this.
Posted by fugu13 (Member # 2859) on :
C'mon, Lyrhawn, its a basic application of market principles:
The decreased price (due to no sales tax, largely) from participating in a black market is offset by a increased risk of punishment, which may be approximately calculated by multiplying the chance of being caught by the "negative value" created by being caught.
(In this case I'm mainly referring to a black market as a place where legal goods are sold illegally, rather than a place where illegal goods (such as stolen ones) are sold illegally; it may be better to call the former a "grey market" in order to distinguish)
Where the sales tax is below that risk factor, black markets of this sort are minimal. When the sales tax comes near or surpasses that risk factor, black markets sprought up like flies. Take a look at what happened during prohibition for a roughly similar situation, or at how pirated movies and software are treated in much of southeast asia.
As for "how the average person is going to participate in the black market", just like every other average person has participated in every other large consumer black market that exists -- easily. And regarding the "no need for any kind of illegal market", that's silly on the face of it.
Posted by Storm Saxon (Member # 3101) on :
Computer where I'm at is not behaving.
Did get wikipedia up. As usual, *seems* to be very fair in its treatment of the subject.
A couple interesting points from the wikipedia article:
quote: Black markets Opponents of FairTax argue that imposing a national sales tax will drive transactions underground, creating a vast black market. This effect can occur for two primary reasons:
The first arises from the use of a sales tax rather than a value added tax (VAT). A VAT imposes a tax at every intermediate step of production, so the goods reach the final consumer with much of the tax already implicit in the price. Thus the retail seller has little incentive to conceal retail sales, since he has already paid much of the good's tax. Retailers are unlikely to subsidize the consumer's tax evasion by concealing sales. In contrast, a retailer has paid no tax on goods under a sales tax system. This provides an incentive for retailers to conceal sales and engage in "tax arbitrage" by sharing some of the illicit tax savings with the final consumer. Under a sales tax system, the purchase of intermediate goods is not taxed, since those goods are supposed to be used to produce a final, retail good that will be fully taxed. Individuals and businesses may be able to manipulate the tax system by claiming that purchases are for intermediate goods, when in fact they are final purchases that should be taxed. At present, however, some business owners overstate business expenses or claim that expenses that are largely or solely personal are business expenses. No income tax would mean no business expense deduction. It is important to note that a VAT and a sales tax have no impact on who bears the tax burden. Rather, a VAT conceals most of that burden by distributing it along the value chain. In contrast, a sales tax explicitly identifies the entire tax amount on the consumer's receipt. Both tax structures distribute the tax burden between the consumer and producer depending on a specific product's supply and demand characteristics.
Opponents also argue that the increase in sales tax (needed to replace the loss of revenue from other taxes) would produce such a high rate that there would be a much higher incentive to trade on the black market, and much of the economy would be driven underground.
[edit] Implementation hazard If the FairTax bill is passed, elimination of the all other forms of taxation is not guaranteed, and passage of this measure may in fact simply add a new tax. The income tax is especially problematic, as it requires a repeal of the 16th Amendment to the Constitution of the United States to eliminate definitively [16]. Since passing this new tax plan would only require a simple majority in each house of Congress and the signature of the President, and repeal of a Constitutional Amendment must be approved by two thirds of each house of Congress, and three quarters of the individual states, it is very possible that passage of the FairTax bill will simply add another tax burden rather than replace an existing tax system.
[edit] Transition effects on savers Because the FairTax proposal replaces various taxes with a single sales tax, individuals who live through the transition will experience unique effects.
In this case, individuals under the current system who accumulated savings from ordinary income (by choosing not to spend their money when the income was earned) paid taxes on that income before it was placed in savings. When individuals spend their money saved under the current system, that spending would be subject to new federal taxes. People living through the transition find both their earning and their spending taxed.
The FairTax proposal does not address the transition effect on taxpayers who have accumulated significant savings from after-tax dollars, especially retirees who have finished their careers and switched to spending down their life savings. Under the FairTax proposal, this money would be fully taxed again as it is spent. Critics have spoken out against the FairTax proposal, claiming that it would result in double taxation. [17] [18] [19]
FairTax supporters claim that the current system is no different; due to "hidden taxes" embedded in the current prices of goods and services, savings are being taxed a second time already when spent.
In contrast to ordinary savings, money in tax-deferred savings plans such as IRA, 401k, etc. would be withdrawn tax free. There is currently $11 trillion in such accounts. This represents a future tax revenue owed to the Federal government under the income tax system which has been estimated at $3 trillion. [20]
I didn't even think about the whole black market bit, but that does present a really huge problem, doesn't it?
Note that I am not opposed to this idea on its face. As I already mentioned, the sources promoting this idea wouldn't promote it unless it helped to fulfill their long time ambition to reduce taxes on the wealthy and business and dismantle social welfare programs.
Posted by fugu13 (Member # 2859) on :
Oh, and here's a little math of interest:
Total consumer expenditure in 1998 in 1992 dollars was $5.2 trillion ( http://cber.cba.ua.edu/rbriefs/ab0899.html ). Based on Bureau of Labor Statistics statistics, roughly 12% of that goes to food, 5% to healthcare, 30% to housing, and 10% to insurance and pensions. Even neglecting other things that wouldn't be subject to the "Fair Tax", that's 43% of that eligible to be taxed. Even if we put food into the taxable category, the below calculation doesn't change drastically.
Since people can't spend more than they have, we know that expenditures x plus the rate of the fair tax times expenditures will equal 43% of $5.2 trillion, allowing us to calculate how much in revenues the fair tax might bring in for any given rate (well, in 1998, and I'll try to use cotemporal numbers for the rest of my analysis). So (x + x*.23)=.43 * 5.2 trillion, or 1.23x=2.236 trillion, or x = 1.818 trillion. Therefore the revenue for the tax would be around .418 trillion (in 1992 dollars), which is 488.52 billion in 1998 dollars (that would be about 625.26 billion if food is taxed).
Individual income tax in 1998 was 928 billion, though granted that includes certain taxes that might not go away under the plan, such as unemployment tax. So we're not at the break even point at a 23% tax by any means.
But wait, lets see how much of a discount businesses in 1998 could have given consumers due to no longer having to pay corporate income tax (which again, is not a particular advantage of the "Fair Tax", just of having no corporate income tax). Corporate income taxes in 1998 were 213 billion. 213 billion into 5.2 trillion (since discounts would be across all sorts of corporations, not just ones making goods subject to the fair tax) is .041, or a bit above 4 %. Since that 4% would be an approximate straight discount on untaxed items, consumers would have an approximate 121.5 billion dollar discount on those items (assuming food is untaxed; less if it is) which could then be spent on taxes, making the effective tax increase on consumers 448.52 billion - 121.5 billion or about 327 billion, which is an effective tax increase on taxed items of . . . about 17%.
That is not a small rise.
Posted by fugu13 (Member # 2859) on :
Oh, and two things:
Corporate income taxes have been cut significantly since 1998, so the discount from their elimination would be less.
And this is assuming every bit of the cut in corporate income tax goes to price decreases, and every tax the corporation currently pays on behalf of the employee goes to employee salaries. Both are naive assumptions.
Posted by fugu13 (Member # 2859) on :
Plus I ignore the loss in government revenue due to elimination of corporate taxes, that's a giant increase in the gap between revenues at a 23% tax and those under the current tax system.
Posted by Lyrhawn (Member # 7039) on :
Explain the 43% thing again, why is only 43% of that 5 trillion dollar figure taxable under the FairTax bill?
Also, why would there be a large amount of luxury purchases made overseas if the price of products in America isn't meant to rise? If they DID rise, I could understand that, but they aren't supposed to.
Posted by Brinestone (Member # 5755) on :
Rather than a rebate check, why not give people under the poverty line a card that gives the company permission to waive their sales tax? Then the only paperwork is proving you're below the poverty line for the year and that you deserve the card.
Posted by fugu13 (Member # 2859) on :
First, the notion that prices on products wouldn't rise is ridiculous. Far more tax is paid by consumers than by corporations, meaning that the decrease in price of goods (due to decreased corporate taxes) cannot offset the increased tax necessary on consumers to achieve revenue replacement.
Don't engage in pipe dreams when trying to discuss tax law.
The 43% is very straightforward (or 55% if food is included). I removed healthcare expenditure, housing expenditure, insurance and pension expenditure, and possibly food expenditure. The tax bill as written would appear to only apply to the initial sale of a piece of property (including a house or the like), so that's why the 30%, and the pension/retirement and cash gifts constitute things which are neither goods nor services, and thus not taxed.
I am surprised the bill seems to include all healthcare in taxed items; I shall do a quick estimate of the calculations for an updated percentage, with all but 30% (say, 20% for housing (non-new houses) and 10% for pension/retirement/cash gifts). So we have 70% of expenditure taxed, meaning a much increased revenue, about 795 billion 1998 dollars. Still short of even individual income taxes, much less individual income taxes plus corporate income taxes plus social security tax plus the various other taxes removed by the bill.
However, this increases the tax increase for consumers, as fewer goods have the discount from a lack of corporate income tax absent the new sales tax, meaning the effective tax increase on goods is around 18.5%.
And that's assuming no real (in the economic sense of real) salary increase, since all corporate savings not already paid on behalf of the consumer are assumed to go straight into price decreases, which is as before noted, extremely naive.
Posted by fugu13 (Member # 2859) on :
Brinestone -- because that would result in massive fraud. Think how easy it is to forge a driver's license.
Posted by Lyrhawn (Member # 7039) on :
Now I'm just confused.
According to the FairTax Book, eliminating income and corporate taxes will reduce the price of products. According to you, it will dramatically increase it, and will then increase it even more after the sales tax is put on top of that.
Does the your report, labor statistics about how 5 trillion dollars worth of consumer products were purchased. Does that count purchases made by the government? Does that count purchases made by other corporations? Does that count American products purchased by foriegn customers? Does that count products purchased by foriegn tourists in America?
Posted by fugu13 (Member # 2859) on :
No, no, eliminating the income tax (including corporate income taxes) will minorly decrease the cost of products, but the tax will make the price to consumers much greater. That's explicitly stated several times and appears in the math as well.
Why this is so should be quite obvious, and I don't really care if a propaganda site or book says otherwise. Currently X amount of money passes through the hands of the government, most of that being from individuals and a significantly smaller part being from corporations.
Since now all that government revenue must be replaced by consumers, the consumer is now paying this large sales tax on each item, 23% (which I think is a lowball number, but its what I'm using for purposes of this comparison).
On to the business discount: since the biggest discount a business can give to the consumers is all the money they now have that they're no longer paying in taxes, we can figure the maximal percentage of discount by dividing the total taxes into the total consumer expenditure -- actually, I just remembered we should chop off about 30% of this that isn't on expenditures channeled through businesses, but that only makes the result 6% intead of 4%. Doing so results in an approximate 4% (now considered 6%) discount on goods and services. Even if we imagine a magnifying effect bumping that up as high as 10% (which is absurd), that's still matching a 10% discount on original prices up against a 23% increase on original prices, resulting in a net 13% increase on original prices (from the consumer's perspective).
The exact calculations require a small bit of thought, but here's what the obvious part boils down to: right now goods and services have an effective cost to consumers of X. If the tax increases the original price by an amount Y, then in order for prices to stay effectively the same businesses must also be decreasing the price by the amount Y. Thing is, the amount Y (aggregate) is exactly the amount of government revenue under the tax.
So lets review: government currently makes A (corporate taxes) + B (personal taxes; this is just an extremely high level look, of course). For a sales tax to be revenue neutral, it must thus bring in about A + B, which we shall set equal to Y. For prices to remain effectively neutral, corporations must receive back at least Y, and give Y back to the consumers. However, corporations only receive back A, which happens to be considerably less than Y (take a look at the IRS website sometime; individuals pay much more total taxes). So the max corporations can reduce prices by is A, which is much less than Y, leaving the difference, B, to be paid by individuals as an increase in effective cost of goods.
Now, this does ignore some possibly increased efficiencies and the like, but the vast difference between A and Y is not going to be overcome.
And I told you where I got the information, and its consumer spending, not consumer goods purchased. That means money spent by individual consumers on goods, services, and other things. The BLS website has tons of PDFs on the breakdown by year, socioeconomic level et cetera. I recommend taking a look at the multi-year summary.
Posted by Lyrhawn (Member # 7039) on :
Well in that case, you haven't included all the possible revenue from the FairTax. I'll look at the website later and see what the additional figures are, if they are even all on there.
However, if goods rise in price by 15% even, let's say, and I'm getting back an extra 20% of my paycheck from not paying income, social security, and medicare taxes, aren't I still coming out on top? I'm paying 15% more, but I hav 20% more money, that's still a net increase of 5% in my cash flow.
Posted by Lyrhawn (Member # 7039) on :
Another thing, if large corporations store their funds in off shore accounts, that makes all that money untaxable anyway. Isn't that the very point of a tax shelter?
If America were made virtually tax free, minus the consumption tax, corporations would no longer move their large gains overseas to tax shelters. Otherwise, if there is no benefit at all to moving to the Cayman Islands, why are so many doing it?
Also, the FairTax would make the tax code insanely less complicated, meaning foreign investors would no longer have to spend millions trying to figure out our tax code before investing here. That would certainly spur investments in America.
Posted by Brinestone (Member # 5755) on :
Doh! Hadn't thought of that. Can you tell economics isn't really my thing?
*slips out of thread to let the gurus have at it*
Posted by fugu13 (Member # 2859) on :
I was speaking against the notion that effective prices on goods would not rise, which is separate from if income increases rise enough to offset the definitely increased price of goods.
As for how that would play out, that's not the sort of calculation that can be done seat of the pants, it would require extremely detailed calculations. On any accurate seat of the pants calculation, the rise in prices would be pretty much exactly offset by the decrease in taxes, for obvious reasons (see what the difference between what corporations can give back and what the increase in price of goods is? B, which is how much consumers paid in income tax that they're now getting back in paychecks, theoretically -- though the behavior of supply and demand indicates that the amount paid on a person's behalf by his employer will not be fully added to his paycheck by the employer when those expenses no longer exist).
Given that, the question of the true effect of using a sales tax to replace the income tax needs complex and close analysis, using various models, many of which will be inadequate for the simple reason that its such a drastic change.
Posted by Lyrhawn (Member # 7039) on :
Also, explain to me in more detail how this huge black market is going to erupt out of nowhere. First of all, billions of dollars in taxes go unpaid every year anyway by individuals and small businesses, so I don't take extremely seriously the argument that this will get even the slightest bit worse.
Second, how am I, the average consumer, going to buy something on the black market. Am I going to eat at the black market McDonalds? or buy a tv from the back of some guy's trunk to avoid Best Buy? You make is sound so incredibly obvious, not to mention easy as pie. Show me the study that says a huge black market would appear if a national sales tax were introduced. For that matter, why isn't it already in operation?
I'm sure there IS already an illegal black market at work out there, but you make it sound as if it'll be as easy as walking to the corner store and beinga able to buy illegal goods, or legal goods illegally. I seriously doubt it would happen in such numbers as to adversely affect a majority of the population.
Either way, such fraud and scandal already happens on a large scale, that's why we have law enforcement officials to look into it, and that is what they do. I don't know what fantasy land you live in to think that any other system, including the current one, wouldn't have the exact same problem, therefore I don't count it as a substantive argument against this specific plan.
Posted by Lyrhawn (Member # 7039) on :
"Given that, the question of the true effect of using a sales tax to replace the income tax needs complex and close analysis, using various models, many of which will be inadequate for the simple reason that its such a drastic change."
So you'd agree that at the very least it requires more study, rather than simply being dismissed by "seat of the pants" calculations?
Posted by Lyrhawn (Member # 7039) on :
And an earlier point on lobbying. Half the reason the tax code is so stupid now is that lobbyists keep getting little tax breaks here and there inserted for the corporations they work for. Will all lobbying cease? No, perhaps I was being very overzealous when I said a majority of it would, but certainly a sizeable portion of it will be. With no taxes, they can no longer by vying for tax breaks, tax incentives, tax giveaways, and all that other crap for their people.
To a certain degree this would decrease lobbyists hold over Washington, though probably not in an extremely substantial way. It will however stop the "I gave you a million dollars for your campaign, so cut my industry a break on taxes" thing. Which is offset by the "I gave you a million dollars, so cut my industry a break on regulations" but it's still better than what we have now.
Posted by fugu13 (Member # 2859) on :
Have you read the accounts of people on hatrack about the software black markets in SE Asia? It is a matter of just walking to the corner store, there.
And the economic analysis for their appearance is obvious.
Their exact nature would depend on complex social dynamics.
For instance, you wouldn't necessarily walk to the corner store, but the owner of a local TV store might have a "yard sale" -- maybe even at his actual yard -- which has a good number of new TVs oddly available, that he bought from the store himself with his significant employee discount yet have not been opened.
Posted by fugu13 (Member # 2859) on :
I was dismissing the notion there wouldn't be a price increase by seat of the pants calculations, which is perfectly reasonable. Furthermore, you've been talking about not seeing a single good counterpoint, when quite a few are still up in the air.
To see how I would rebut your post on lobbyists, allow me to first show you a quote of yours, then how I modify it:
quote:tax incentives, tax giveaways
quote:incentives, giveaways
The government is the single biggest spender in America. The existence or nonexistence of a corporate tax does not particularly decrease its ability to spread pork around, merely the means which are used.
There might be a short minor respite while lobbyists retool, but the reason the lobbyists exist isn't the tax code, its that the cost of corporations to get Congress to give them what they want is less than the opportunity cost of doing so. The elimination of a particular method is largely irrelevant, all that matters is if there are still sufficient avenues for it to occur.
Posted by Dan_raven (Member # 3383) on :
And don't get all excited about companies bringing in their $$ by closing off shore tax havens. Instead they will be buying bulk purchases of goods from some small island nation's web-site based tax free economy. A ream of paper that costs $10 in the US suddenly goes up to $12.50. They can order it from Tiawan Paper Co for that $10, and if they order in bulk and get it shipped into the US for $1. Suddenly they are buying 20000 cases of paper from over seas.
Posted by Dagonee (Member # 5818) on :
That, I predict, will be fairly easy to stop, Dan.
Posted by Storm Saxon (Member # 3101) on :
So, they buy the paper, ship it here and have to pay the tax on entry, but how does the U.S. determine the value of the stuff to put the tax on accurately? Further, while it's pretty clear when large orders of things are being shipped into the country for businesse, what of the individual? Some one goes to fabulous Mehico and buys some stuff and comes back with it. At the border, he says it's a gift from his dear cousin, Pancho. What then? What of international orders over the internet shipped into the U.S.? In order to calculate the value to tax, the company in another country must be willing to go through the hassle of talking to the U.S. government, creating delays, etc.
Posted by Dagonee (Member # 5818) on :
We already have to handle all that, though, with customs.
Posted by Tresopax (Member # 1063) on :
The key question is: Can we make it 23% more costly to operate a black market? If we can, it won't be worth buying from a black market, and thus that problem will be minor. If we cannot, people will flee legitimate markets and head to the black market for lower prices. Right?
If we can fix this problem, I think the Fair Tax is an excellent idea. Given that the government costs a certain amount, we want to collect that amount as efficiently as possible, with as few negative side effects as possible. Right now I think we collect taxes in a horribly inefficient fashion.
The biggest benefit to the Fair Tax, I think, would be the emotional costs eliminated. By this I mean that it seems unfair and even painful to give away money we earn in taxes. That's a big reason why preparing taxes is so hated. I think it would be much easier to swallow a system in which you keep all the money you earn, but instead have to pay a sort of transaction fee whenever you buy anything in America. The resulting tax collected would theoreticly be the same, but it would feel like you are freely choosing to pay it each time you make a purchase, rather than having it taken from you. I think this emotional benefit would be very significant... in addition to the benefit of reducing paperwork.
I don't know why this is called the "Fair Tax" though. It would almost certainly be less "fair", given that the poor would probably still end up paying too much. It should be called the Efficient Tax, because it's really designed to be efficient, not fair.
Posted by Lyrhawn (Member # 7039) on :
I still don't understand, depending on the facts, why this is so much harder on the poor. If anything, from what I've read, it looks to be easier on the poor. You really think the poor are out there buying luxury cars and other high prices items? There's no tax on rent, or the basic necesities of life, or really many of the things they need.
I think this would help them to put some money away to help their kids have a better life.
Posted by fugu13 (Member # 2859) on :
Dagonee -- considering the EU employs a border bureaucracy which I think is far more massive than our own in order to handle the issue when it comes to VAT and agricultural products, I'm not so sure your faith that our current system can handle it is warranted. Right now we lose little money from inaccurate values placed on items brought into the country, but given a large effective import tax to keep goods competitive, expect constant efforts at things like forging bills of sales for foreign-purchased goods, on large scales.
And yes, Lyrhawn, there is a tax on rent under the bill:
quote:(14) Taxable property or service-
`(A) GENERAL RULE- The term `taxable property or service' means--
`(i) any property (including leaseholds of any term or rents with respect to such property) but excluding--
`(I) intangible property, and
`(II) used property
Posted by Lyrhawn (Member # 7039) on :
That seems vague. It says rent on any property, except for used property. Does that mean if someone is living in an old apartment complex, rent doesn't count?
Posted by fugu13 (Member # 2859) on :
Tres: unlikely, on the black market thing, at least with this implemented as a sales tax. Its just too easy to circumvent with methods of dubious legality that are hard to catch on the one hand and prone to good ol' boy protection on the other. The EU has some moderately bad problems with black markets in places, and they've got a VAT, so its much harder to circumvent the markup.
Personally, I think the notion that a tax system should be absolutely simple and monolithic an appeal to pretty notions rather than practical application of theory. A mixed system is generally preferable, IMO (as we largely have, its just out mixed system is too complicated).
I could see a combination of a sales or VAT tax with a significantly simplified income tax system, actually, I could see that very easily. It'll never happen, though, because it can't be made into a soundbite.
Posted by fugu13 (Member # 2859) on :
Interesting question; perhaps someone more versed in US Code-ese could translate?
I suspect its not well-specified; the intent seems to be to charge people to lease, though.
Posted by Lyrhawn (Member # 7039) on :
None of tax reform can be made into a soundbyte.
How do you envision it ever happening?
Posted by fugu13 (Member # 2859) on :
The "Flat Tax" and the "Fair Tax" are both excellent examples of sound bites for tax reform plans.
It'll happen when there's enough political gain for someone to make it happen.
Posted by Lyrhawn (Member # 7039) on :
I guess. The second you get past the sound byte though, it evaporates into misunderstandings. People not understanding the plan, people not understanding the current system.
Momentum for political gain alone won't do it. Until people understand even the basics of the current tax system, and then understand what the viable alternatives are, they will have a hard time getting through the disinformation to find a plan they like.
There is enough political gain available in doing it, if the plan is right. But there are so many people out there ready and waiting to discredit their enemies for trying something new that it's hard for anyone to dare take a step out of line without the fear they will be villified and will lose their seat.
I wish the President had chosen tax reform as his championed cause, rather than social security. Personally I think that is what it will take. Congress will never do it by themselves, they need a President looking to do good, or to secure his legacy, either way, no other voice is loud enough to get the ball rolling.
Posted by fugu13 (Member # 2859) on :
The point of a sound bite (in politics nowadays) is to keep people from real understanding.
Posted by Lyrhawn (Member # 7039) on :
I'm not that cynical yet.
Posted by fugu13 (Member # 2859) on :
*shrug*
Unfortunately, the general public is not interested in understanding the complexities of economics, or of any other law, and politicians are not interested in explaining them. When's the last, oh, mailing you got from one of your politicians explaining the nuances of an important bill and the practical reasons he or she had chosen to support of oppose it?
Posted by Lyrhawn (Member # 7039) on :
Last October. I usually get them every year just before the elections. They cover bills they've voted for, things they plan to vote for, and things that should never be voted for.
So when do you give up all together? War has had a shortlived effect on the majority of the country. Terrorists attacks, the same. The people don't care in large numbers about understanding the economy or foreign policy, which are arguably the two most important things when it comes to determining the course of the country's future.
Instead they are fixed on scandal, venom filled rhetoric, where the commandments can be displayed, what we teach in science class, so on and so forth. Important issues? Sure, they deal with the fabric of the nation. But the most important things that determine our future prosperity? No.
And there's no signs that ANYTHING can possibly get the country to care about it.
At what point do you honestly give up?
Posted by fugu13 (Member # 2859) on :
Really? All the ones I get avoid making any serious analysis of a bill and generally lay out positions based on talking points, you must have a much better set of politicians in your area.
I deal with the situation rather easily, myself, I just don't think it necessary for "the country" to care for such things
There's a reason specialization occurs; I'm not arguing for a meritocracy, just that as much as it sometimes irks me, I'm comfortable with a system where most of the people decide on sound bites in blissful ignorance of any but the broadest notions of what the person being voted for will do in office.
Posted by Lyrhawn (Member # 7039) on :
I haven't gotten to that state yet. I'm stuck on insane frustration with the country.
Maybe a couple years out in the "real world" and away from college will beat the idealism out of me.
My problem is that we used to care, as a country, and somewhere between the generation of my grandparents and now, we stopped. I like to believe that as a person, I can still make a difference, but the reality is that I can't. I can only reach so many people, most of whom will ignore me, and of those that do care, they already have their minds made up and will either agree with me or villify my.
I've gotten away from the point of the thread I guess, but the whole thing is just depressing me to the point of a hissy fit on the general state of things in America. Feel free to ignore this part. Posted by fugu13 (Member # 2859) on :
No, I'm not aware of any period where, as a country, the populace in general seriously cared about the nuances of even one bill.
Posted by Lyrhawn (Member # 7039) on :
I can think of a couple dozen. But then, I'm a history major, it's my homework to know that kind of stuff.
Posted by fugu13 (Member # 2859) on :
Would you care to point them out? Remember, nuances.
Posted by cheiros do ender (Member # 8849) on :
Sorry to dig this up (if anyone minds) but I want to see if anyone can convince me how a Retail Sales Tax would be better than a VAT. I read the first three pages of this thread, but I've got to go soon, so I've skipped the rest to ask this.
This is how the GST (our VAT) is explained. As I see it, it makes a very small difference to the price of products and services. The main difference is that GST better focuses on B2B transactions. If you introduced the prebate (poverty lines time 0.1) I could see this being better than the FairTax, and certainly the (every other) tax system it replaced.
Posted by starLisa (Member # 8384) on :
A few things.
1) A VAT hides the actual amount being taxed. Remember, the consumer pays all the tax on what they buy, whether they know it or not. If a company has to pay taxes during the creation of a product, they pass that cost on to the consumer. Every time you see corporations being taxed, you're being taxed; not the corporations.
To repeat, taxes on B2B transactions are paid, ultimately, by the consumer, but without the visibility that a retail sales tax has.
2) The FairTax will not go into effect without a repeal of the income tax. Countries that have implemented VAT have often done so in addition to an income tax.
The savings in eliminating the whole income tax structure are enormous. On the order of a quarter of a billion dollars each year.
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