I thought I'd bring up a topic that may be controversial, but is still something that we all might be able to agree on.
There's a proposal called the FairTax. The thing has been around for 10 years, and it's been worked on and over by tons of experts and lay people.
Essentially, it gets rid of income taxes, estate taxes, payroll deduction stuff, etc., and replaces all of it with a single national retail sales tax.
It's not a VAT, because it only gets paid at one point. And anything that's had tax paid on it once is forever exempt from being taxed again. So buy used stuff, and you pay no tax at all.
It's not a flat tax, because it's a tax on consumption, rather than income. In other words, rather than penalizing people for productivity, the tax is essentially voluntary. Don't buy things; don't pay tax.
And before anyone screams about how a lot of things we buy aren't voluntary at all, the bill has a provision in it for what they're calling a rebate. Basically, you get rebated, in advance, at the beginning of every month, for the amount of FairTax payable in the coming month, up to the poverty level.
So... buy milk and bread and breakfast cereal and whatever else is really necessary, and you get a check in the mail at the beginning of the month to cover the tax on it. Buy a yacht, or a full wall, flat screen, HDTV set, and you'll pay a lot of tax. But it becomes your choice.
Criminals pay no income tax on their incomes (obviously), but under the FairTax, everyone who buys anything at a retailer will pay the tax. It doesn't matter how they came by the money.
This is a revenue-neutral plan. In other words, it's designed to keep the amount of money the government gets at the exact level it's at now. It's not a tax cut and it's not a tax hike. That fight can come later.
The collection of income tax costs the US -- every year -- over two and a quarter billion dollars. That's "billion", with a "b". That's like three Iraq wars every single year. The FairTax saves most of that, exempts the poor from most taxes, and only taxes the wealthy on what they choose to buy.
April 15th becomes just another day.
I'm not spamming here. I actually post here and on the other side. But I thought I'd throw this out and see what people have to say.
The first thing I do when I see anything new is search it for flaws. If they exist, I can almost always find them, and quickly. I have been beating against this thing for weeks, and every time I think I've found a flaw, it turns out to be something I missed in the bill. It is solid.
Check out the FairTax site, and see what you think. If there's a problem that I've missed, I want to know about it before I start hammering on my family.
Posted by Dagonee (Member # 5818) on :
There's a big thread somewhere in the last week about it. You may want to check it out for a lot of discussion of the pros and cons.
Posted by Miriya (Member # 7822) on :
Here's the existing thread. Posted by starLisa (Member # 8384) on :
quote:Originally posted by Miriya: Here's the existing thread.
Thanks.
Posted by TomDavidson (Member # 124) on :
quote: The collection of income tax costs the US -- every year -- over two and a quarter billion dollars. That's "billion", with a "b". That's like three Iraq wars every single year.
Um. No. As far as I'm aware, the war in Iraq has so far cost us something like $180 billion dollars. Really, $2.25b is -- while a nice sum -- a drop in the bucket. There are in fact individual pieces of military hardware that cost that much alone.
Posted by Lyrhawn (Member # 7039) on :
She's wrong on that first number too. The price on America of the collection of taxes is more than just the budget of the IRS, or the amount paid by individuals to their accountants. It includes time spent doing their own taxes, and the literally hundreds of billions spent by corporations every year to comply with the tax code and file their taxes. Not to mention the billions spent in consultation on how business decisions will be affected by the tax code.
The result is several hundred billion (billion with a b) is spent overall between individuals and corporations in compliance and collection of taxes.
Posted by Lyrhawn (Member # 7039) on :
Which individual pieces of hardware cost more than 2 billion dollars? Tanks and Fighter jets, even the ultra pricey F-22 and JSF don't cost that much, nor do Humvees, Stykers, or Bradleys.
Do aircraft carriers even cost that much? (Edit to add, yes they cost more than 4 billion dollars, but still, does that even count as ONE piece of hardware?)
Posted by TomDavidson (Member # 124) on :
quote: The result is several hundred billion (billion with a b) is spent overall between individuals and corporations in compliance and collection of taxes.
And yet THAT expenditure is presumably good for the economy, as it keeps money circulating. Right? Posted by Bob_Scopatz (Member # 1227) on :
People pay tax on the money they collect in helping others with their taxes.
I'm in favor of a system that just gives the government 1% every time a dollar moves. Get paid a dollar, US government gets 1 cent. Spend a dollar at the store; US government gets one cent.
It would simplify everything. On most transactions the 1% would be taken electronically. On some things, you'd have to cut a check on some cyclic basis.
But it'd be so much better than the system now. We wouldn't have to worry about it every April. If people find ways of cheating, you just make them do all their transactions at a government office for a year, with auditors watching. That'll learn 'em.
Posted by Lyrhawn (Member # 7039) on :
"And yet THAT expenditure is presumably good for the economy, as it keeps money circulating. Right?"
That presupposes that every dollar spent is being circulated through OUR economy, and not some other nation's. You (and I) don't know where the money goes. Off shore accounts, foriegn investments, whereever, but it for sure isn't being used to strengthen the economy, create new jobs, and for R&D.
Posted by fugu13 (Member # 2859) on :
Oh, a lot of how corporations "avoid" taxes is by things like, oh, charity, which certainly goes into our economy.
Posted by starLisa (Member # 8384) on :
quote:Originally posted by Bob_Scopatz: People pay tax on the money they collect in helping others with their taxes.
I'm in favor of a system that just gives the government 1% every time a dollar moves. Get paid a dollar, US government gets 1 cent. Spend a dollar at the store; US government gets one cent.
Give your kid a dollar, US government gets one cent. Put your wallet on your dresser top, US government gets one cent.
Getting the government more involved in our day to day lives isn't the goal. They already do everything but wipe our bums for us.
Posted by fugu13 (Member # 2859) on :
*rolls eyes*
Absurd hyperbole only demonstrates a disconnect from reality and/or an interest in inciting support without appeal to reason.
Posted by Lyrhawn (Member # 7039) on :
Part of the point of the FairTax though is to reduce government interference in the way we spend our money.
Posted by TomDavidson (Member # 124) on :
quote: Part of the point of the FairTax though is to reduce government interference in the way we spend our money.
Except that this will only work if no deductions of any sort are allowed.
Posted by fugu13 (Member # 2859) on :
Personally, I rather like the government making it easier for needy people to afford the basic necessities of life, even if that interferes with other peoples' spending habits.
Posted by Enigmatic (Member # 7785) on :
quote:Originally posted by Lyrhawn: Which individual pieces of hardware cost more than 2 billion dollars? Tanks and Fighter jets, even the ultra pricey F-22 and JSF don't cost that much, nor do Humvees, Stykers, or Bradleys.
Do aircraft carriers even cost that much? (Edit to add, yes they cost more than 4 billion dollars, but still, does that even count as ONE piece of hardware?)
I think the stealth bomber was 2 billion each when it first came out. I could be wrong, and it may have gone down since then if production got improved.
And yes, 1 aircraft carrier is 1 piece of hardware. Unless that $4 billion price tag includes all of the planes stationed on it, and I doubt it does.
--Enigmatic
Posted by Lyrhawn (Member # 7039) on :
Deductions from what? There's no income taxes to deduct from, and I can't imagine how hard it would be to keep track of and deduct from every purchase people have made over the course of a year. It'd take more time than we spend now.
The only "deductions" are that the tax on the basic necesities of life, which I take to be food and rent, or something similar to that, will be refunded to everyone up to the poverty line.
Posted by Lyrhawn (Member # 7039) on :
No, the planes don't count as part of the price, and a typical carrier has four squadrons, something like 100 planes on it, each of which costs 70 million dollars.
The last of the big flat tops is being built right now though, CVN-77. After it's built, the Navy will begin work on smaller, cheaper carriers that have a longer lifespan. The cost to build and operate a carrier is enormous, especially considering we have 12 of them, though only 8 are at sea at any given time.
Carriers in a way are becoming obsolete. No navy in the world would ever challenge the US Navy in the open sea, it'd be suicide. And cheap missiles such as the French Exocet anti ship missile can take out a 4 billion dollar piece of hardware. The way of the future is smaller, faster, stealthier carriers, like the baby flat tops that were built en masse during World War two.
Not really relevent to the topic of the thread I know, but hey, random knowledge can be fun.
Posted by Lisa (Member # 8384) on :
quote:He might also be aware of the significant problems presented by the Fair Tax.
Rather than continue to derail that thread, I thought I'd ask if he could elaborate here.
Posted by Lyrhawn (Member # 7039) on :
quote:I think the two biggest attacks I've ever heard on the FairTax before are that 1. It's regressive, not progressive. Since the poor already by and large don't pay taxes, adding taxes onto the things they buy would effectively raise their taxes and lower taxes for the wealthy. 2. The actual level of taxation would have to be exceedingly higher than they claim it is.
I don't actually know the details, but those are what I hear the most. I know that the governent looked at a FairTax and a VAT (Eurostyle) and a special commission to try and revise the tax code rejected both of them, though said that a VAT may have some merit. I'll try and find the report later.
That's what I posted and then edited out of the other thread, but I bet fugu knows better than I the criticisms.
Posted by Lisa (Member # 8384) on :
I hear you. But it would only tax them on what are essentially luxury items. Non-necessities.
I know there's a big issue of progressive/regressive, because an income tax requires us to put it in those terms. When you're taking money from people, the question is, do you take the same amount from everyone, do you take the same percentage from everyone, or do you have a graded percentage.
But with the FairTax, that categorization doesn't really make sense any more. If the argument for a graded percentage ("progressive") tax is that people who use more resources should pay more, well, that wouldn't apply to the FairTax, because every penny that anyone spends above the poverty level, regardless of their income, would be taxed.
Think about it. A rich guy buys a yacht right now, he pays, say, a million dollars. He probably finds a way to deduct it as an expense. But with the FairTax, he pays about $300,000 in taxes on that. A poor guy buys a used car for $8000. With the FairTax, he pays $0.00 in taxes on it.
See, nothing gets taxed twice under the FairTax, so anything you buy used doesn't get taxed at all. Who buys used stuff more, the poor or the rich?
Posted by Xavier (Member # 405) on :
The FairTax sounds great in a lot of ways.
Bottom line, however, is that it's a reduction of the tax burden on the rich paid for by increasing the tax burden on the poor and middle classes.
That might be more fair, by certain definitions of "fair", but it certainly isn't something we can all agree on.
Posted by Lyrhawn (Member # 7039) on :
What specifically is covered under the FairTax for the poor? Just food and shelter?
That leaves a wide array of things for them to get taxed on that previously they wouldn't have been. For me personally, I work part time to pay for school and make less than $15,000 a year, and because of my situation I pay very little in the way of taxes. But under the FairTax, I'd have to pay more for everything I do. It'd essentially be a tax hike for me personally.
The idea put forth by some of it the proponents is that if you eliminate all those taxes, then the actual price of the commodoties we buy would naturally fall. For example if we cut the corporate tax rate to zero, that'd be that much less money passed on to consumers with higher prices, so they could afford to cut the price of their wares, which would help make up for the fact that everything now costs a quarter more than it did before. And I think there's some merit to that, but I also think there's a hell of a lot of sticker shock.
I wouldn't mind seeing it done on an almost trial basis, and I'd want to see a lot more studies of it done, but I'm very skeptical as to how it'd effect the nation's poor and lower middle class.
Posted by King of Men (Member # 6684) on :
I do not think this is obvious, Xavier. You would have to run the number, and it depends on how you define the poverty level where the rebate kicks in, but it must be possible to adjust the level so that people pay more or less what they are doing now.
There is the problem that the tax penalises those who are too poor to invest; but it does seem to me that the US could be doing with a bit of an incentive to slow down its consumption and increase its spending.
Posted by Dan_raven (Member # 3383) on :
Lisa, this is the first time that I've heard there will be no taxes on used products.
How does that work?
Could Wal-Mart buy "Used" toys in China, and sell them untaxed to everyone?
You mention the wealthy guy who spends a million dollars on his yacht. Suddenly that Yacht is going to cost him 1.3 mil. if he buys it in the US. Instead he'll buy it from Canada and sail it down to the US without paying the taxes.
Or if Canada's taxes are too high, he'll buy it from a dealer in Bermuda, or anywhere else.
The poor folks, however, can't travel out of the country to buy their stuff tax free, so they have to pay the taxes.
Do we charge taxes on all items imported into the country?
Do companies pay taxes on things they buy? If not then people will incorporate themselves to avoid the taxes.
That rich guy who buys his million dollar yacht rarely gives up medicine or food to be able to afford the yacht. The poor guy with the used car often does.
They get their tax money back when the government sends out checks every month to cover poverty costs. This will be the biggest government expense, the largest beaurocracy ever created.
Finally, the used versus the new cultures: Edwards talk often about the Two Americas. This would lock in the Two Americas--those with new homes, new cars, new TV's, and those living on hand me downs.
Posted by Xavier (Member # 405) on :
quote:I do not think this is obvious, Xavier. You would have to run the number, and it depends on how you define the poverty level where the rebate kicks in, but it must be possible to adjust the level so that people pay more or less what they are doing now.
Perhaps we can reason this out then. I haven't put a whole lot of research into this, so perhaps my chain of reasoning breaks down.
Assumption 1: The wealthy currently pay a higher percentage of their income as tax than the middle class. Assumption 2: Under the FairTax, purchases are taxed evenly by a fixed percentage. Assumption 3: The middle class and the rich spend approximately the same percentage of their income on purchases. Assumption 4: Under the FairTax, total government collected funds would be the same.
I don't see how all 4 of these assumptions can all be true, unless the rich get big tax cuts, while the middle class gets a big tax hike.
Perhaps your contention is with assumption 3. I think that if this assumption is not correct, then it is actually weighted MORE in favor of the rich. The rich invest a large portion of their money, while the middle class largely spends almost everything they make. If the middle class spends 75% of their money on goods and services, while the rich spend 30%, then it's a GIGANTIC tax hike for the middle class.
Posted by Lyrhawn (Member # 7039) on :
Corporations would pay the same tax on things they buy. I actually have The FairTax Book somewhere in my bookshelves, I just haven't read it in ages. Maybe I'll pull it back out if Huckabee wins anything.
And Dan is certainly right about the massive beauracracy created with the sending out of those checks. It'd be lambasted as a massive increase in welfare.
I imagine this would be the end of tax free internet purchases too, which would probably lead to increased revenue considering sales that take place online that aren't taxes now number in the billions of dollars.
I think you'll see a lot more money come here from added investment, from people not sending their money overseas to hide it in shelters, but I think you'll see a lot of what Dan is talking about too, in that the rich can afford to detour around the law, and I imagine corporations will start to seek imports from other countries rather than pay a massive fee. I'm wondering if there'd be a two tiered system to tax companies outright who avoid the FairTax by buying foreign equipment, or if a new Tariff would be introduced.
Posted by ElJay (Member # 6358) on :
Here's the thing that gets me about the Fair Tax proposal.
I am single with no dependants. I make as much money as many "family of four" households with two adults and two kids.
It costs a lot less for me to feed and clothe myself than it does to feed and clothe a family of four. If we went to an exclusively sales tax system, that family of four would be paying probably three times as much in taxes as I would, on the same amount of income. You can say "don't consume and you won't pay taxes," but a family of four simply has to spend more of their income on necessities than I do. Why should they be taxed so much more on it? Why should I pay so much less?
Posted by mr_porteiro_head (Member # 4644) on :
ElJay -- under the proposal, that family would be exempt from taxes that are required to feed and clothe themselves, and you would be exempt from the taxes required to feed yourself.
Of course, if they chose to feed and clothe themselves extravagantly and so did you, they would pay more taxes, but that doesn't strike me as that big a deal.
Posted by ElJay (Member # 6358) on :
I thought that was just up to the poverty line? I believe that family will spend significantly more than I will on necessities over the poverty line, even without extravagance.
Posted by mr_porteiro_head (Member # 4644) on :
If it's considerably over the poverty line, I don't think it's really necessities. I think it is extravagance.
Whatever we call it, I don't think it's unfair to tax it.
Posted by Jon Boy (Member # 4284) on :
But as others have said, it would put more of the tax burden on the middle class, particularly families with children. That could be a rather large disincentive to have kids. Also, you can call anything above the poverty line extravagance, but I don't think that's a standard of living that most people would be happy with.
And what about owning a home? Right now home owners get a tax break, while renters do not. If only purchases are taxed, it seems it would be the reverse, unless there are details I'm missing.
Posted by ElJay (Member # 6358) on :
In the US currently the poverty threshold for a single person is $10,210 and for a family of 4 is $20,650. From wikipedia, for reference.
Posted by The Pixiest (Member # 1863) on :
Family of four = 4 poverty line checks. Family of one = 1 poverty line check.
Let's say the poverty line is 10,000 (for ease of math. Don't use 10,000 as the number the fair tax will use) and the "Fair Tax" is 10%.
A family of one will receive $1000 (once again, FOR EASE OF MATH) and a family of four will receive 4 checks of $1000.
--
Presumably, a million dollar yacht will be taxed upon entry into the country.
--
I've been mulling the Fair Tax for a while and as far as I can see, the biggest problem would be in the discouraging of expenditure. I'm not sure how well our economy can function if everyone is suddenly buying Used everything. Most people's paychecks come from consumers consuming, not buying used.
Of course, right now we have a tax system that discourages earning.
Posted by mr_porteiro_head (Member # 4644) on :
quote:I've been mulling the Fair Tax for a while and as far as I can see, the biggest problem would be in the discouraging of expenditure.
As far as I'm concerned, that's one of its best virtues.
Posted by Jon Boy (Member # 4284) on :
Here's a stupid and probably terribly broad question: could some combination of income tax and sales tax be used to achieve a good balance?
Posted by Xavier (Member # 405) on :
quote:Here's a stupid and probably terribly broad question: could some combination of income tax and sales tax be used to achieve a good balance?
Income taxes are coded to be progressive. Unless you put someones income on their driver's license or something, sales taxes are always a fixed rate tax.
So long as the total amount collected remains the same, it's always going to involve taking money from the middle class (or poor) and giving it to the rich. The money has to come from somewhere.
You can drastically reduce the total amount collected and not raise taxes for the middle class, of course. You'd have to cut programs and departments which were funded by the difference in government income, but I suspect that's a big bonus for most of those who are FairTax proponents.
Posted by mr_porteiro_head (Member # 4644) on :
quote:So long as the total amount collected remains the same, it's always going to involve taking money from the middle class (or poor) and giving it to the rich.
Not taking money away from the rich is not the same as giving them money.
Posted by MightyCow (Member # 9253) on :
If expenditure on new US products goes down 10%, wouldn't that necessarily decrease jobs by somewhere around 10% as well?
Personally, I think the best solution to most of our tax problems is spend less. When an individual keeps living beyond their means, we don't suggest that the best solution is to make more, but to spend less.
We should be demanding that the government balance the dang budget, get rid of as much waste as possible, stop funding pet projects, and generally spend more intelligently. I know it's a stretch, and isn't an easy fix, but we should elect people smart enough to figure it out, or they should hire advisers who can do it for them.
Posted by Threads (Member # 10863) on :
quote:Originally posted by Lisa: If the argument for a graded percentage ("progressive") tax is that people who use more resources should pay more, well, that wouldn't apply to the FairTax, because every penny that anyone spends above the poverty level, regardless of their income, would be taxed.
I think the main argument for a progressive income tax is that, percentage-wise, a rich person puts less money back into the economy than a poor person (ex: A poor person may spend 95% of their income whereas a rich person may only spend 25% [made up numbers]).
Posted by mr_porteiro_head (Member # 4644) on :
quote:Also, you can call anything above the poverty line extravagance, but I don't think that's a standard of living that most people would be happy with.
The idea is to not tax people on what they need to spend, not to subsidize everything below some "acceptable" level of affluence and consumption.
Posted by PSI Teleport (Member # 5545) on :
But what constitutes need? If I have to buy crayons for my child because they are on her school supplies list, is that "need"? What if she just wants a box to color with? I would also suggest that Lucky Charms are never needed, but who's going to go down the list and check everything off?
Posted by Samprimary (Member # 8561) on :
Funny fact.
Fairtax threads, elsewhere on the internet, became a scourge. A literal bane. A pox on the front pages. It doesn't apply here because this forum has had the good fortune to have only like two ever (really, a miracle) but elsewhere they were so old-hat that they resulted in placement on great forum rules like this:
quote:We allow about every type of subject to be brought up and discussed seriously. There are however some exceptions we have been forced to make for the sake of our sanity as mods because they have been made a million times by the same fixated personalities, so this is the list of threads which which we will ban you for making, NO JOKES, because it at least means that you didn't read the rules like you were supposed to and maybe are also an idiot.
1. LADDER THEORY. Did you post this 'amazing' document that finally explains the science of 'romance' that you found on 'the internet'? We get it. You don't understand women and never will and that's the only way you could have ever thought that repopulating the front page with this total garbage was even remotely a good idea. We have lost count of how many times this one's been recycled. If you post it you will die.
2. CIRCUMCISION. Did you want to tell people that circumcision is a 'barbaric' practice and tell other people that their peens are 'mutilated' that's cool now never come back.
3. YOUR GAMING SYSTEM SUCKS. No jokes. Permaban. Do not do this.
4. LOOK AT THIS CAT, IT HAS A CAPTION ON IT. Did you make a thread to show us a picture of an animal with a "hi-larious" caption? We get it. You don't understand humor and never will and that is why you don't understand why your ban is comedy gold.
5. FAIRTAX. Did you make a thread to show us this REVOLUTIONARY and TOTALLY FAIR SYSTEM which is TOTALLY FAIR because it has FAIR in the name? We get it. You hate taxes and eminent domain and want to pursue your economic and political pipe dreams unfettered by being able to spend time on our forum thank you drive through!
6. I THINK IT WOULD BE COOL IF WE COULD B [rest of list censored for sake of the prudish :>]
Posted by steven (Member # 8099) on :
They ban LOLcats?
shizzle. I like LOLcats. LOLcogs are cool too.
they r teh suk.
my ban is comedy gold? THEIR ban is comedy gold. Posted by Samprimary (Member # 8561) on :
There comes a point at which a moderating team has to put their foot down and in this case it came after an admin counted 7 threads made specifically for pimping one lolcat poster (and one more for a walrus with a bucket picture) and you have to say oh my god stop Posted by Lisa (Member # 8384) on :
quote:Originally posted by Lyrhawn: Corporations would pay the same tax on things they buy. I actually have The FairTax Book somewhere in my bookshelves, I just haven't read it in ages. Maybe I'll pull it back out if Huckabee wins anything.
Actually, no. This isn't a VAT. Only individuals would pay taxes. But then again, corporations don't really pay taxes nowadays. Pretending that they do is a way for the government to tax us even more without it being transparent. Because taxes are costs like any other, and they get passed down to the consumer like any other costs.
The amount we're actually taxed by the government is a whole lot higher than most people realize. The FairTax would make it very visible. Surely you realize that one of the reasons for employers having to withhold taxes is so that the tax burden becomes even less transparent.
Posted by Lisa (Member # 8384) on :
quote:Originally posted by mr_porteiro_head: ElJay -- under the proposal, that family would be exempt from taxes that are required to feed and clothe themselves, and you would be exempt from the taxes required to feed yourself.
Not really. The prebate would be the same for every household, regardless of income.
Posted by Kwea (Member # 2199) on :
quote:Originally posted by Lisa: [ But then again, corporations don't really pay taxes nowadays. Pretending that they do is a way for the government to tax us even more without it being transparent. Because taxes are costs like any other, and they get passed down to the consumer like any other costs.
The amount we're actually taxed by the government is a whole lot higher than most people realize. The FairTax would make it very visible. Surely you realize that one of the reasons for employers having to withhold taxes is so that the tax burden becomes even less transparent.
Bull. If companies don't pay taxes with their profits.....which come from their customers (it's the point of being in business)...how are they suppose to pay them?
At my job it is amazing how much we pay in taxes on almost everything. You obviously have no idea about that, do you?
Posted by TomDavidson (Member # 124) on :
quote:The prebate would be the same for every household, regardless of income.
FairTax: rewarding childless singles and importers of foreign goods!
Posted by Shigosei (Member # 3831) on :
What would the potential for a black market be with fairtax? It seems that every new good is a potential black market item given the high level of sales tax.
It appears that the prebate system doesn't take location into account when calculating poverty level. $10000 for an individual might be fine if the individual is living in Phoenix, Arizona but won't even cover rent in Silicon Valley.
It looks like there's going to be some pretty intrusive oversight for anyone claiming exemption for items purchased for business use. How does this compare to the intrusiveness of the current system for those who are self-employed? Would it be better or worse?
Is there a limit on what the government will tax? Will teenagers have to file returns if they make a couple hundred per year babysitting?
Posted by PSI Teleport (Member # 5545) on :
Hey, Arizona is the next California.
You mean Tennessee.
Posted by fugu13 (Member # 2859) on :
Saying corporations pay no tax is no more correct than saying individuals pay no tax, because they require higher salaries for the same skills due to the amount of taxation.
The reality is, both individuals and companies transmit part of taxation costs and absorb part of taxation costs as deadweight loss (except in the case of a lump sum tax, which is impractical for many reasons).
As noted, the Fairtax is less progressive than the current income tax structure. Whatever the arguments about fairness, the middle class would be paying more taxes, and that would very likely be felt in the short term (at least) as a fairly significant shock.
Indeed, the fairtax is mostly regressive, even with the 'prebate'. People who earn a lot more would pay significantly less in tax, as a percentage of income, than people who are middle class, in large part because they consume substantially less as a percentage of their income. It is hard to come up with a reason why those who earn more should pay less by percentage in taxes than most others.
The fair tax would create a giant black market. Every government policy that creates a large impediment to free exchange creates a black market (or equivalent), but some black markets are easier to police than most. The employment market, for instance, is much, much easier to police than the goods market. This has been repeatedly observed in many countries. The VAT has this problem, but considerably less, as the payment is collected during the stages of production, and each successive stage has an incentive to police previous stages.
If you think a large number of IRS agents are employed now, the number of agents that would be required to police the black market would be staggering.
Many of the benefits for savings/investment are overblown. After all, the costs aren't going away, they're just being shifted around. Doing that will mean the value of a dollar of investment to a firm being invested in will be different (and less) under the fairtax even as they are receiving more dollars of investment. However, it should provide some benefit.
Even without the black market, those who could consume outside the country would have a great incentive to do so. Domestic tourism revenues would drop, and foreign tourism revenues would rise. Similarly, consumable luxuries would often be consumed elsewhere (expensive food, for instance).
The optimistic value of advocates for a fairtax is a 30% sales tax. Several projections put it as approaching 40%. This would be exacerbate the regressive problem.
All major benefits of the fair tax are from simplification (and, as remarked wrt the black market, that is deceptive: several countries that have tried high sales taxes have fallen back to VATs after black markets threatened tax revenues). There is no denying that a simpler system would be much preferable to the current system, but the benefits of simplification could be had in several alternate plans with fewer downsides. Notably, a flat or two-tier income tax with just a standard exemption (and no others). Flat taxes have been extremely successful in numerous countries, while high sales taxes have not.
Posted by fugu13 (Member # 2859) on :
Kwea: you misunderstand. Her argument is that if a company is taxed $5 in making an item, they will set the price of the item $5 higher than if they paid no taxes on making the item.
However, as I mention above, both models and experimental results have shown that in most cases, a tax of $5 on making an item results in the item being some part of $5 more expensive, and with some part of $5 being absorbed by the corporation as a deadweight loss.
Nearly everything will be taxed under the plan, including many services that are not currently taxed (mmm, healthcare).
Posted by King of Men (Member # 6684) on :
Information of possible relevance to this debate: Norway has a 'federal' (that is, it's imposed by the national government; our lower-level governments don't have that power) sales tax of 25% (12.5% on food). Oddly enough, this is not widely reviled, perhaps on the principle of the frog being boiled slowly; it's been creeping up by half-points for forty years or so.
Posted by fugu13 (Member # 2859) on :
KoM: the tax you are talking about is a VAT, not a sales tax. While it looks similar to the consumer, there are extreme differences.
[ December 20, 2007, 11:01 PM: Message edited by: fugu13 ]
Posted by King of Men (Member # 6684) on :
Really? How so?
Posted by mr_porteiro_head (Member # 4644) on :
quote:But what constitutes need? If I have to buy crayons for my child because they are on her school supplies list, is that "need"? What if she just wants a box to color with? I would also suggest that Lucky Charms are never needed, but who's going to go down the list and check everything off?
What I understood from the explanation earlier in this thread is that there'd be a certain arbitrary amount at which it is determined that people should be able to meet their needs (the poverty level), and you'd be refunded that amount each month. You'd then go ahead and pay taxes on everything, including the things you need. Nobody would be deciding the things you need, they'd be deciding how much you need.
Posted by ClaudiaTherese (Member # 923) on :
I think WIC might be a pretty good model of effectively distinguishing appropriate and needed foodstuffs (e.g., they cover many healthy cereals but not the oversugared and overprocessed stuff).
But I'm not pro-FT, for reasons mentioned above by others, and far better than I could.
Posted by Lyrhawn (Member # 7039) on :
From the FairTax Book (Chapter 9: The FairTax Prebate: The Key to Fairness):
quote:Second, remember that 22 percent is already inflating the retail prices we all pay in the form of embedded taxes buried in the cost of all consumer goods. As soon as the competitive forces of the free market work their magic, as they always do, consumers of all incomes will be payong at least 20 percent less for virtually everything they buy, including the basics of food, clothing, shelter and transportation. Yes, they'll have to pay the new national sales tax-but when you factor in the lower prices caused by the disappearence of embedded taxes, you'll see that the total price paid for consimer goods will remain very nearly the same.
....
To get a handle on how this would play out, pull out your calculator. Let's say that a single mother with two children spends $45 a week on groceries. The removal of the 22 percent embedded tax would bring the price of those groceries down to $35.10. Add the FairTax and the groceries would cost $45.58- just a few pennies more. But remember under the FairTax Plan, this single mother with two children now gets to take home 100 percent of her paycheck. The removal of all income taxes and payroll taxes gives her a 25 to 30 percent incrase in her take-home pay...and in exchange she she's paying fifty-eight pennies more for her groceries than she was paying under the old income tax system. Does that sound like such a rotten deal to you?
Same chapter explaining prebate checks:
quote:Let's say that your household consists of a married couple with two children. The FairTax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. Under the FairTax Act, in 2005 your household would be granted an annual consumption allowance of $25,660. This is the amount the government estimates you would spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,902. The government would rebate this amount to you in twelve equal monthly installments of just under $492.
I have a hard time imagining there's THAT much waste in the current tax code, even if all that did work out right. There's a list in the book, at 2005 levels, of what size family you could have and what your expected spending would be and what your prebate would be.
They cover the possibility of black markets, but mostly wave it away as being more difficult than it is now. $350 billion goes uncollected every year, and they say that even if there is a black market, it'll be no worse than the status quo.
Anyway, I'm ambivilant towards the FairTax. I wouldn't mind seeing it tested, but I have serious concerns about it, but I won't dismiss it outright. But there's some info straight form the horse's mouth.
Posted by Eaquae Legit (Member # 3063) on :
Where does this leave people who like to buy with cash? How do you track the 10 small purchases I made on my way home through the market, all in cash?
Posted by Lyrhawn (Member # 7039) on :
I don't get what you mean? It'd be charged the same way a state tax is. Well, sort of, it'd be right on your receipt, but if you saw something that cost $100, it would have the FairTax already included, whereas a sales tax would be added on top of that. But either way it'd be right on your receipt, so I don't see how paying with cash would be an issue.
Posted by Eaquae Legit (Member # 3063) on :
Ah, okay. I misunderstood how the tax would be collected.
Posted by Kettricken (Member # 8436) on :
quote: I don't see how paying with cash would be an issue.
It wouldn't be an issue with honest businesses, but I bet there would be plenty who would take “cash in hand” and not put everything through the books and therefore undercut the honest competition.
I bet there are plenty of consumers who would turn a blind eye as well.
Posted by Lyrhawn (Member # 7039) on :
I don't see how that would be any different than it is now.
Posted by TomDavidson (Member # 124) on :
quote:Second, remember that 22 percent is already inflating the retail prices we all pay in the form of embedded taxes buried in the cost of all consumer goods. As soon as the competitive forces of the free market work their magic, as they always do, consumers of all incomes will be payong at least 20 percent less for virtually everything they buy....
Man, those ten to twenty years in the middle, while you're waiting for prices to fall throughout the supply chain so that overall finished unit costs drop 22 percent, would be a killer.
Posted by fugu13 (Member # 2859) on :
Btw,
quote:Second, remember that 22 percent is already inflating the retail prices we all pay in the form of embedded taxes buried in the cost of all consumer goods. As soon as the competitive forces of the free market work their magic, as they always do, consumers of all incomes will be payong at least 20 percent less for virtually everything they buy....
While it is far from clear exactly how things would shake out, this is most likely not true. One reason that has been discovered empirically: prices are sticky downwards; they tend not to be lowered, even if the economic incentives change so it makes sense to lower them.
Also, this is based on the previous presumption that businesses pass on all or almost all of the tax they pay to consumers. This has been shown not to be true (in the case of tax increases, prioes do not go up anywhere near the amount of the tax increase).
And of course, it is predicated on salary levels going down (pre-tax, not post-tax). If someone makes 100k now, but 20k of that goes in taxes, they aren't suddenly going to get 100k and yet have effective prices not increase significantly. If companies maintain salary levels, effective prices must increase significantly. If effective price levels have any chance of not increasing too much, salaries will be cut so that they remain approximately the same, post-tax.
They are right in one thing. People on the whole are not going to become significantly worse off by the mere fact the tax code is restructured to use sales tax. Of course, middle class people will be bearing a higher percentage of the same approximate tax revenue, so they will be worse off.
Lyrhawn: it doesn't matter much, now. Sales taxes are low. Exchanging goods legally is not, in most cases, significantly more expensive than exchanging goods illegally, and the penalties are moderately effective. Make exchanging goods legally much, much more expensive and the incentive structure is very, very different. The area where there's a big incentive for black market activity, employment, is much easier to police than the goods market.
Tom: I suspect the real course of events would more likely be, that initially people's salaries had a large effective increase, but that prices also jumped by a large amount, but that for quite some period there would be few salary increases and few increases in effective prices, eventually bringing things approximately into what they would if the prices had only gone up a little, effectively.
KoM: a VAT is different in that it is collected on value-added, not sales price. That is, at each stage of the production chain (depending on the good) the VAT is taken care of based on the difference between the price of the inputs to the product and the price of the product as sold to the other party. This requires significantly more bookkeeping, but it also is better at insulating it from black market activities and such. If you want more details, I can go into them.
Posted by rivka (Member # 4859) on :
Israel's consumer tax is also a VAT, right? I know tourists get to claim it back (up to some cap) on the way out of the country.
Posted by fugu13 (Member # 2859) on :
I wasn't specifically familiar with Israel, but a quick google says you're right.
Posted by King of Men (Member # 6684) on :
It just occurred to me that all the analyses on this seem to assume that current buying patterns would continue. But a sales tax can be avoided with some of the same creative book-keeping that was used back in the day to avoid usury bans. For example, you don't buy a plasma TV, you lease it for five years, payment up-front; at the end of five years it's not worth anything, so you buy it from the dealer for one dollar. Plus tax. The car dealer doesn't get X cars from the manufacturer; rather he purchases the right to sell cars of that brand for some large sum, and then he buys the cars at 1 dollar each ("and other good and valuable considerations") plus tax. Then when he sells them to you for several thousand, they are used cars that tax has already been paid on. And so forth. What's more, this approach lends itself best to big-ticket items that you buy rarely; you can't very well lease your breakfast cereal. So in effect it would not be a tax on consumption, it would be a tax on consuming groceries.
Of course you can pass laws against this sort of thing, but then all you've accomplished is to move the regulatory and enforcement burden around.
Posted by fugu13 (Member # 2859) on :
While there are many ways the tax might distort behavior, the examples you give are the flimsiest sorts of things that there is little problem dealing with through well-worded rules and straightforward enforcement strategies.
Posted by King of Men (Member # 6684) on :
Could you give an example?
Posted by fugu13 (Member # 2859) on :
The straightforward black market. Skim off an amount of product from your store that can be reasonably ascribed to loss by theft and sell it on the black market. Over report breakages during production and sell them on the black market. There is no need for complicated strategies that leave paperwork trails screaming of tax circumvention (you're a gov't auditor, and see a receipt for a new car for $1; you arrest the dealer), such as the ones you list.
Btw, leasing would be taxed at the same rate. Many sorts of used sales would probably also be taxed to make attempts at such schemes less likely.
Posted by fugu13 (Member # 2859) on :
Oh, I forgot something. If the adjustment does occur by keeping effective prices the same and lowering nominal wages, that will be have effects including the equivalent of a huge tariff on imports. This will harm both the US consumer and foreign producers, especially in countries less well off. Our tariffs are already one of the leading contributors to world poverty (and deadweight loss to US consumers), so I see no reason to increase them.
Of course, I think that scenario for the adjustment is wrong, so I don't think that's a reason to oppose the fair tax. There are plenty of others, though.
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