Irrefutable Proof the FairTax Cannot Work?
FairTax critic Hayden Kepner actually submitted this a couple weeks ago but it got lost in all our technical difficulties. I just approved several other messages that had been stuck in the queue as well. Sorry for the delays, guys.
Without further ado:
I just saw a report from the U.S. Census Bureau that provided irrefutable proof that the FairTax does not and cannot work.
Post my analysis below and be prepared for much weeping and gnashing of teeth:
1. Under the FairTax, government spending would be approximately $3.29 trillion. (See Kotlikoff/Beacon Hill study of 2006, Table 6.)
2. According to the census bureau, there are approximately 100 million families in America.
3. Hence, under the FairTax, the average family will need to pay approximately $32,000 in federal taxes.
4. At a 23% tax rate, that means each family will need to spend, on average, about $140,000 per year in TAXABLE expenditures. (As you know, many expenditures will be tax-free used cars, existing homes, purchases abroad, educational expenses, business purchases, etc.)
5. According to the census burea, the mean family income was around $60,000. (The median family income was less.)
6. Thus, it is mathematically impossible for Americans to spend enough to make the FairTax work.
Now, I realize I’m just a lawyer, and not a quant guy, so I am willing to be proved wrong. But here are a few observations:
a. If one claims that the missing tax revenue will come from state and federal government spending, my response is that the state and federal governments can only get their revenue from taxing their citizens in the first place. So if increased revenue comes from state spending, then that means that state governments will need to increase the tax burdens on their citizens to come up with the revenue.
b. If one claims that the missing tax revenue will come from foreign tourists, illegal aliens and the underground economy. Show me the numbers! They don’t add up.
c. If one claims that we’ll get the revenue from super-rich Americans spending million of dollars a year, I’ll point out that most (but, not all) super-rich Americans didn’t get that way by being stupid (or by willinglyly paying taxes). There will be plenty of ways for them to spend money tax-free under the FairTax, even if they have to go abroad to do so.) If we rely on them to jack up their spending of TAXABLE goods and services in order to do their patriotic duty of funding the government, I think we will be woefully disappointed.
If I’ve missed something, feel free to point out the falacy of my analysis. I’m sure somebody will.
Best regards,
Hayden
Thoughts, anyone?
Well, maybe we can cut a bunch of government programs... maybe start with the census. If FairTax was set up correctly, we could integrate the Census Bureau into the new tax system. Since we have to send out checks based on family size, we can set up a web site where people log in to update their address (to let the gov’t know where to mail the checks) and post information about their families (so the gov’t knows how much to money to send their way), at the same time they can ask more questions that the census normally tries to collect - it’d all be in a database ready to use... no more hiring thousands of people every 10 years to collect census surveys.
You overlooked payroll taxes and benefits in your assessment of mean income, neither of which would be included in the Census Bureau’s report, but both of which represent an equivalent to income.
Hayden also left out tourists to the United States and illegal immigrants in the equation. Neither of these groups will receive the prebate, but both will pay the tax on their purchases, whether it’s a hotel at Disney World or a gallon of milk.
Here are some quick observations on several of your points.
There are some major holes in your numbers, Hayden - not the least of which is the bottomline: if individuals ultimately pay for all taxes now, how can it be that they will not be able to pay for all taxes under a different collection system assuming the amount raised in both systems is the same?
This is roughly equivalent to coming up with a physics proof to show that the earth will revolve differently if we use daylight savings time. No, scratch that - it is exactly equivalent.
1. Under the FairTax, government spending would be approximately $3.29 trillion.
Spending is irrelevant.
The FairTax proposes to be revenue neutral. It makes no attempt to satisfy spending. You are comparing revenue (apples) in the current system with spending (oranges) in the future system.
So, to get back to apples to apples - your target to raise needs to drop by about $1 trillion, or about 30%. If I am not mistaken, revenue now is $2.2 trillionish.
2. According to the census bureau, there are approximately 100 million families in America.
Families are irrelevant.
Your proof implies the use of taxpayers - so lets use taxpayers. In 2006 there were about 135 million individual tax returns - 35% more than the number of families figure you use.
3. Hence, under the FairTax, the average family will need to pay approximately $32,000 in federal taxes.
Now lets do the division with the right fundamentals:
$2.2 trillion revenue / 135 million taxpayers = $16,300 per taxpayer.
So at this point we have cut the numbers in half with only the obvious items. I’ll let those better armed with statistics handle the less obvious and bring it the rest of the way home. Given the current personal rate of savings, I would say we are within spitting distance at this point.
I was about to make several points about Hayden’s analysis, but Mark beat me to them except for two possible changes/corrections. My starting point from table 6 was $2.586T in revenue, but I subtracted $462 billion to account for the government “contribution” ($2.009T x .23% = $462B), leaving $2.124T as the taxpayers burden. Using the 135 million filers in 2006, the average tax cost would be $15,700, and that would mean that on average, the 135 million filers would have to spend $68,260 on taxable consumption annually. Still a big number, so those tourists better spend like crazy?!
No matter what numbers you use, Hayden’s exercise should remind us that (1) the Fairtax doesn’t directly address the budget deficit or our huge national debt; (2) it’s also clear that taxation of governments makes a large difference in the revenue neutral rate. State and local taxes will have to rise in order to pay the added federal tax costs or, should the Supreme Court rule that it would be unconstitutional for the federal government to tax state and local government operations, the revenue neutral rate will rise by 6%; and (3) if we want to balance the budget, then look for another 5% rise. How high is too high???
Joshua — Thanks for posting my back-of-the-envelope analysis. (By the way, I emailed a similar question to Dr. Kotlikoff in order to get his take on this, but have not received a response yet. If I do, I will post his response.)
Also, I have seen different reports for the number of American families. I searched around the Census Burea’s website today and the latest figures I found was that the US poplulation as of December 2007 is approximately 303 million, and the number of families is estimated at 115 million (or 15 million more than my analysis above).
So, using the 115 million number, the results come out slightly lower. The average taxes per family would be roughly $28,700 and the required average annual taxable expenditures per family would be approximately $125,000. This amount is still roughly twice the mean family income.
(I don’t know where Mark got the 135 million indvidual income tax returns, but I suppose since some married couples file separate returns, this would probably make up the difference. Also, there might be different methodologies for calculating “families” versus “households.” If anybody else has more accurate numbers, I am certainly willing to be corrected.)
Somebody linked to this post on fairtaxgroups.com and I read a couple of replies that I’ll respond to.
1. Foreign Tourists. FairTaxers claim that we’ll receive all this tax revenue from the “50 million” foreign tourists. Now, I don’t know how many tourists visit America, but I’m pretty sure that American tourists spend more money traveling abroad than foreign tourists spend here. So for every tax dollar we get from foreign tourists, we will lose the same amount (or more) when Americans spend money abroad (which, of course, would not be subject to the FairTax).
2. Illegal Aliens. FairTaxers love to claim that the FairTax will tax illegal aliens. Well, there’s two problems with this position.
First, we’re not going to raise much revenue from taxing illegal aliens. Let assume that there are 12 million illegal aliens in this country. Let’s further assume that half are adults and half are children, so about 6 million adults. Let’s further assume that each adult earns, on average, $20,000 per year. So, in total, the illegals earn approximately $120 billion per year.
If they spent that ENTIRE $120 billion on TAXABLE goods and services under the FairTax, at a 23% tax-inclusive rate, they would generate $27 billion in tax revenue. Now, $27 billion is nothing to sneeze at, but it’s less than 1% of the total $3.29 trillion that would be required to pay for government spending under the FairTax.
And, let’s be real here. Illegals do not spend all of their earnings. They send a substantially portion of their incomes back to their families in their home countries. And of the amounts they do spend in this country, most would be tax-free. That is, they aren’t going to buy brand new homes, new cars or new furniture. If they buy a house, it will most likely be an older, existing home that would would not be subject to the FairTax. Same with used cars and furniture.
Moreover, I doubt that a large percentage of illegal immigrants are suddenly going to sign up for (taxable) health insurance or pay for their own health care. To the extent that they continue to use the emergency room or county hospitals for free medical care, the cost of their treatment (plus the FairTax associated with that treatment) will still be borne by the rest of us.
But the second problem with assuming that taxing illegals under the FairTax will generate more tax revenue is that MOST illegal aliens already pay federal taxes under our current system, because most have legitimate jobs with US companies. They obviously use fake social security numbers, but they still have payroll taxes withheld from their paychecks. (Otherwise, their employers could not deduct their wages from the employers’ profits.)
Of course, the guy standing on the street corner working for cash is not going to have any money withheld, but the majority that work for legitimate companies do. So, in the whole, they probably pay as much in federal taxes under our current income tax system as they would under the FairTax.
I’ll discuss the “underground economy” in a later post. This one is long enough as it is. Thanks again for posting this and any discussion that follows.
Hayden
Hayden, just wondering why you keep saying things like “...$3.29 trillion that would be required to pay for government spending under the FairTax...”?
The FairTax does not pay for spending. Neither does the current system.
Does this mean that you missed the distinction I pointed out between revenue and spending or that you disagree with the distinction and hold that the FairTax actually does propose to pay for spending?
I don’t know where Mark got the 135 million indvidual income tax returns...
http://www.irs.gov/pub/irs-soi/06ifss12.xls
Again, using census “families” or “households” as the number of taxpaying entities is frought with problems.
The number of individual tax returns is the number you are looking for and you don’t get it from the census - you get it from the IRS.
Hi, Mark –
Thanks for replying to my post. I’ll try to respond to your points below.
1. Any tax plan must ultimately be able to pay for government spending. If not, we will end up like Thailand in the ‘90, Argentina in the 2000’s, and every other country that had an unsustainable deficit. It’s not a pretty site.
2. FairTax advocates get around point no. 1 by claiming that the FairTax will be “revenue neutral.” But “revenune neutral” depends on what year you are talking about. In 2000, “revenue neutral” would have meant that any proposed tax plan would have fully funded the government (since we had a surpuls in that year). In 2004 or 2005, “revenue neutral” would have meant that the deficit exceeded $400 billion.
The latest and greatest AFFT study on the FairTax (which is the one I refer to above, and available on the fairtax.org website) ASSUMED that the deficit for 2007 would be $476 billion dollars (see Table 6 of the Beacon Hill study), which I’m sure we can both agree would be unsustainable. (In fact, it is about triple the actual deficit.) Yet this is the deficit they use when they claim the FairTax would be “revenue neutral.”
3. Let’s assume that the numbers you use above are correct. That revenue is $2.2 trillion, but government spending under the FairTax would be $3.3 trillion, that would amount to an annual deficit of $1.1 trillion. Again, I doubt if anyone would consider this to be acceptable.
4. Assume that government spending is currently around $2.8 trillion. Spending would need to substantially INCREASE under the FairTax because the government would need to account for the pre-bates to be spent to each family. Estimates for the cost of the pre-bates range fron $486 billion (from the Beacon Hill study) to $600 billion.
You need to add the cost of the pre-bate ($486 billion) to current government spending ($2.8 trillion) to get required government spending under the FairTax. Thus, in order to be “revenue neutral” (that is, to maintain the current deficit), you would need to increase tax revenue by $486 billion.
All I am saying from this, is that required spending per family (even if you assume a deficit of, say, $200 billion) is going to need to be imposibly high in order for the FairTax to work at a 23% “tax-inclusive” rate.
5. I think “number of families” is more relevant that “number of tax returns” because, as I pointed out above, many married couple’s file separate tax returns. The point I am trying to make is that the FairTax would require impossible levels of spending. Whether you break down that spending on a per-person basis, per-family basis, or per-taxpayer basis really doesn’t matter.
P.S. As you probably know, virtually every independent study of the FairTax has concluded that the required tax-rate would need to be betwwen 50%-70% (on a tax-exclusive basis). FairTax proponents belittle those studies, claiming that the studies “changed the FairTax” (which isn’t really true, by the way). So, I’m simply trying to figure out how much each family would need to spend (in taxable goods and services) in order for the FairTax to work at at the proposed 23% rate.
1. Any tax plan must ultimately be able to pay for government spending. If not, we will end up like Thailand in the ‘90, Argentina in the 2000’s, and every other country that had an unsustainable deficit. It’s not a pretty site.
That’s great that you think that any tax plan should cover spending. Then you should criticize the FairTax for not doing so. Instead, you are claiming that your criticism proves that the FairTax cannot do what it proposes to do. And that is not the case. It does not propose to cover spending. Period. So when creating a formula to determine if it is capable of doing what it proposes, you are left only with using revenue.
2. FairTax advocates get around point no. 1 by claiming that the FairTax will be “revenue neutral.” But “revenune neutral” depends on what year you are talking about. In 2000, “revenue neutral” would have meant that any proposed tax plan would have fully funded the government (since we had a surpuls in that year). In 2004 or 2005, “revenue neutral” would have meant that the deficit exceeded $400 billion.
Nobody is trying to get around anything. The FairTax proposes to raise the same amount that the existing system raises. That’s it. There is no hidden agenda. That is the best and only thing a tax reform proposal can do.
If you want to raise more to cover spending, you can do it with any tax system - just raise the rate. Want to cover the gap between revenue and spending with income tax? Raise the rate. Want to cover the gap with the FairTax? Raise the rate.
It doesn’t matter - it’s a wash and it is irrelevant.
If you are under the impression that the value added by the FairTax is that it will raise more money to eliminate deficits, you are sorely mistaken. That is not the point.
3. Let’s assume that the numbers you use above are correct. That revenue is $2.2 trillion, but government spending under the FairTax would be $3.3 trillion, that would amount to an annual deficit of $1.1 trillion. Again, I doubt if anyone would consider this to be acceptable.
Great, raise the rate. Deficits are not a function of the tax system - they are a function of democracy. If the democracy continues to set spending at levels greater than it sets the tax rate, then you have deficits. There is nothing the tax collection system can do about it.
4. Assume that government spending is currently around $2.8 trillion. Spending would need to substantially INCREASE under the FairTax because the government would need to account for the pre-bates to be spent to each family.
What you are saying is that, as the FairTax proposed now, the amount of prebates is booked as additional spending instead of a cost that reduces the net revenue? I would have to defer to a FairTax technician, but I find that highly improbable.
5. I think “number of families” is more relevant that “number of tax returns” because, as I pointed out above, many married couple’s file separate tax returns. The point I am trying to make is that the FairTax would require impossible levels of spending. Whether you break down that spending on a per-person basis, per-family basis, or per-taxpayer basis really doesn’t matter.
From the perspective of having variables that align well, why not use numbers that we know are exact? In other words, we know very accurately how many individual entities pay taxes now: 135 million. And we know very accurately how much they paid: $2.2 trillion (assuming that individuals ultimately pay for all IRS revenue).
So, if these numbers are so well supported statistically, why do you want to go off and try to extrapolate into numbers that are far less stable?
Those 135 million entities (regardless of whether they are families or households or individuals or whatever) are the same entities that would supply the revenue for the FairTax. So if you have perfect apples to apples variables.
Again, the bottomline cannot be argued:
Current revenue: $2.2 trillion
FairTax revenue: $2.2 trillion
Current individual tax paying entities: 135 million
FairTax individual tax paying entities: 135 million
OK, guys -
How does the FairTax obtain the $2.2 trillion in “revenues”? A large part (according to HR 25) comes from the federal government paying itself a 23% “tax” on everything it purchases AND paying itself a 23% “tax” on the salaries of all government employees, as well as a 23% “tax” on the purchase of services from all government contractors.
Please explain to me how actual revenue is generated by the government paying a “tax” back to itself.
If the government cannot derive revenue from itself, will Americans for Fair Taxation publish a study of what percentage would be required of a consumption tax in order to remain “revenue neutral”, exclusive of “payments” made by the federal government?
I’d still like to see Hayden address the lack of, er, addressing benefits and payroll taxes in his original post. Some companies (GM, Ford) spend as much on benefits as they do cash-in-hand income, so it’s reasonable to believe that a significant part of consumer spending is actually paid for by benefits, perhaps enough to make up for the difference between his calculated national gross income statistic and the GDP numbers used in the Beacon Hill study.
Hey, Joshua — Good to have some back-and-forth on this blog after it having been dormant for so long due to “technical problems” (i.e., you were probably too cheap to renew your blogger’s subscription).(Just kidding — don’t ban me!)
Hank — Thank’s for pointing out the “government contribution,” though I’m not sure I agree with you. Where does the government get the $2.009 trillion to spend for it’s “contribution” if not from us the taxpayers? I realize you are far more quantitatively-capable than I, but it seems like you are double-counting tax-revenue somehow. (Or, to put in another way, I don’t think you can really count the taxation government spending at the federal level as “revenue.”) But, I am willing to be proven wrong.
Mark — I’m fairly certain that you and I will never agree on this, but I’ll give it a try anyway.
Let’s assume that you are correct. As Dick Cheney would say, “Deficits don’t matter.”
Now, let’s assume that the Beacon Hill/Kotlikoff numbers are correct. (Since they are on fairtax.org’s own website as “proof” that the FairTax works, I assume you would want to use those numbers.)
From Table 6 of that study, the FairTax REVENUE for the year 2007 would be $2.58 triillion. (Based on their calculations, that would leave us with a deficit of $550 billion - i.e. $476 billion projected 2007 defict plus $76 billion projected shortfall from the FairTax).
OK. We’re going to assume that deficits don’t matter, and that we only need to raise $2.58 trillion from the FairTax.
Let’s say you are correct that there are 135 million individual filers under our current system. John Linder likes to say that there will be 300 million taxpayers under the FairTax. (He apparently believes children will pay taxes.) Let’s use his numbers.
That means every man, woman and child in this country will need to pay, on average, $8,600 in taxes. That means, on aveage, every man, woman and chile will need to spend $37,390 per year on TAXABLE goods and services.
For a family of four, that translates to about $150,000 per year. This is mathematically impossible.
And, as I pointed out in my original post, it would be a fool’s errand to rely on the “rich” to spend enough to bail us out. In the first place, spending as a percentage of income DECLINES as incomes rise. Secondly, and even more important, not all spending is taxed under the FairTax. Used cars, existing homes, foreign travel and foreign purchases, raw land, farms and ranches, education expenditures, business and investment expenses are all exempt from the FairTax. Ted Turner can buy a billion dollar ranch tax free. Paris Hilton could live for a year in Paris and not pay a dime in US taxes. Etc., etc.
Again, I am willing to be proven wrong, but — I’m telling you — the numbers just don’t add up.
Regards,
Hayden
A little off topic, but Hayden in June you stated “Also, if you are really interested, you might want to check with some of the 80 or so economists who signed the Letter to the President that fairtax.org used to prominently display on their website. I did. You might be surprised at what you learn.”
What did you mean? What did you learn?
Hayden,
Sorry if my post wasn’t clearer, but I’m in violent agreement with you regarding the concept of governments taxing themselves into prosperity! It can’t be done.
With regard to the federal government taxing itself, that creates no new revenue and is nothing but an accounting gimmick to lower the Fairtax rate a few percentage points.
As for the feds taxing state and local governments, if found to be constitutional, then state and local taxes will have to be increased by 30% to pay the tax tab — (The net cost to state and local govs being around $300 billion). And that cost impact on state governments is what forms the basis for my opinion that the Supreme Court will throw out that portion of HR25, and the rate will go up. I’m supported in this view by some Yale constitutional scholars, not being a big scholar myself! You aren’t wrong about this one, Hayden!
The reason deficits don’t matter is because the budget deficit is a problem not unique to the FairTax. Any taxation system, whether it’s a pure flat income tax or a consumption tax or a property tax, would have to deal with the budget deficit. The FairTax isn’t intended to fix this problem - in fact, the best way to fix the budget deficit is to bring government spending in check. (As George Foreman might say, knock out the fat!)
Anyway, why is it that you don’t like the Beacon Hill’s assessment of the personal consumption component of GDP? That number comes from the Bureau of Economic Analysis, a division within the US Department of Commerce. Why are we to trust your cobbled-together numbers that ignore huge portions of consumer income and spending, when the US DoC, reputed experts in the field, are already figuring this stuff out for us?
You can look up all this data yourself: http://www.bea.gov/national/index.htm
And if you don’t understand it, they even have a guide that can help: http://www.bea.gov/national/pdf/nipa_primer.pdf
John Warr,
Almost forgot your question about rates without government consumption considerations. You won’t need a new study, just adjust the data in the Kotlikoff/BHI base and rate study from September 2006.
It turns out if you remove just federal consumption ($916B), the inclusive rate would be 26.4% and the exclusive rate 35.8%
If you remove all government consumption from the Fairtax ($2.009T), then the inclusive rate would be 30.3% and the exclusive rate would be 43.5%.
As you can see, due to the parabolic relationship of inclusive to exclusive, the tax exclusive rate used to determine retail prices goes up very sharply. (To clarify, my exclusive Florida sales tax is 6% and in inclusive terms it’s about 5.8%, a .2% difference. The 23% Fairtax inclusive rate is 30% exclusive, a 7% difference, and a 50 % inclusive rate would be 100% in exclusive terms, a 50% difference. That’s a parabolic relationship, and it’s one reason why there is so much pressure to keep the rate low?)
Barry –
I haven’t been intentionally ignoring your comments, I just don’t know the answer.
I have no idea whether benefits and payroll tax are included in the census bureau’s definition of family income.
I’m not sure I understand the point about payroll taxes. But regarding benefits, we all know that the auto companies face a crushing burden of employee benefits (primarily, healtcare), but for better or worse very few companies today offer much in terms of benefits.
Even those that offer health and dental benefits generally require the employee to pick up at least half of the cost of insurance.
Also, I will point out once again that health benefits will be TAXABLE to the EMPLOYEE under the FairTax. That might contribute to lowering the required FairTax rate, but I doubt that’s something most employees will be particularly thrilled to find out.
– Hayden
Hank -
Thank you so much for the info. I have posed this question to the FairTax.org folks and to Boortz, with no reply, or no suitable reply. Your answer makes sense and it is the first answer I have ever received to this question.
Additionally, it is reasonable to presume that the Supreme Court would rule a tax on the states as unconstitutional, thereby bumping the rates even higher!
Does anyone think a majority of the American public would support a 30% inclusive/43-44% exclusive consumption tax? It’s difficult enough to get wide spread support when Boortz tries to sell it as a net 1% sales tax (23% minus the 22% embedded taxes, dropping retail prices that amount), alleging that it would raise the same amount as income tax, payroll taxes and the death tax, combined.
Come on folks, read the bill and think a little bit! Don’t just take someone else’s word about it.
- John
Hayden,
Not to be any more argumentative than usual, it turns out that even though the purchase of health insurance by a business for the employees would appear to be a business to business transaction, and therefore not taxed, HR25 says that businesses must pay the tax on such insurance purchases/premiums in order to eliminate any tax avoidance potential. (See Sec 206 in the AFFT Plain English Summary, and/or Section 901(e) of HR25, Proxy buying.)
So, not only do businesses lose their current income tax deduction, the cost of the insurance premiums may go up at least 17%, or whatever. My guess is that passage of the Fairtax legislation will hasten the end of all employer provided health coverage. There better be an agreed upon national health care alternative at that time, which I don’t see emerging at the moment?
Any comments?
Barry — Thanks for the links! And I certainly agree with you that government spending is out of control. One would have thought that 6 years of Republican rule would have helped things on the spending side. NOT!
But I’m not sure what you mean when you say I “don’t like the Beacon Hill’s assessement of the personal consumption component of GDP.” I used their own numbers for (a) the estimated required government expenditures under the FairTax, and (b) the estimated revenue under the FairTax for 2007.
My “cobbled together numbers” are (or at least are intended to be) simple arithmatic. Revenue (or spending) divided by households (or individuals). The BEA is not going to access the FairTax revenues and expenditures, which is why Beacon Hill needed to massage the numbers. Maybe I’m missing something, but I tried to use the numbers from the Beacon Hill Study.
Fred — I was very puzzled at why so many economists signed a letter supporting the FairTax. So about two years ago I randomly emailed about a dozen of them and asked them why they supported the FairTax and where they came up with the 23% rate. (Since I used to be an adjunct professor in law school, I figured some would reply just out of professional courtesy.)
Well, about half of them did reply, and it turned out none of them were aware of any studies that would support the 23% rate. (This was way before the Beacon Hill study of last year.) They also made it clear that the letter they signed did NOT include a proposed tax rate. Moreove, none of them had any particular views as to what rate would work, nor were any of them familiar with any specifics of H.R. 25. They just thought that a consumption tax was more efficient than an income tax (or, at least, our current income tax system.)
Well, I agree with them that (at a low rate, at least) a consumption based tax is more efficient than an income tax, but that’s a far cry from agreeing with the various claims that were being bandied about by Boortz and Linder. NONE of them believed that the “embedded taxes” would go away (because workers wouldn’t accept the required pay-cuts) and the ALL believed that consumption taxes were regressive. When I asked them why they would support a regressive tax, their general answer was that as economists, their job was to promote economic efficiency, it was up to the government to establish policies to distribute the economic output among its citizens.
Anyway, that was a long time ago, but that was the general gist of that correspondence. I since had a number of discussions with Drs. Jorgenson, Poterba and Kotlikoff, each of whom has actually studied the FairTax, and although most of those conversations were confidential, I think I can say that I came out convinced that the FairTax is seriously over-hyped, to put it mildly.
John — If you ever get a reply from Boortz (good luck!), please send it to Joshua to post on the board.
Neat, this blog is active again.
Barry - I agree with you about fixing the government spending problem. In fact, I think this problem should be fixed first, before we even look at revenue collection. Once the deficit is gone, we can come back and look at revenue collection.
Hayden - I too have had problems reconciling the numbers from the fairtax study that seem to add up when you go through them, but then some back of the envelope math about tax paid per tax payer doesn’t work. Accounting tricks like taxing governments seem to distort the figures. And I don’t see illegals and the underground economy filling in the gap.
And about the economists replies, wow, that is more dishonesty from the fairtax camp. I thought it was bad enough trying to use the inclusive instead of exclusive rates. But trying to stretch “consumption taxes are more efficient than income taxes” to support Boortzisms like “its a net 1% sales tax, backed by 80 economists!” is just wrong.
...In fact, I think this problem should be fixed first, before we even look at revenue collection...
I see the FairTax as the only real hope to fix spending. The shock at the reality of the individual tax burden is what this thread is all about. While there is nothing mathmetically “irrefutable”, it certainly is scary and, if you don’t look closely, can seem impossible. But that’s what our current tax burden is: very nearly impossible.
As long as we are hiding most of burden in embedded taxes (the cost of goods) and offering up personal income information and granting the force to seize it to politcal whim, spending will never stop. Using democracy to fight over which income class should pay for what is endless and ultimately self destructive.
Of the $2.x trillion in IRS revenue, barely $1 trillion comes from individual returns. As a result, individuals directly see only half to a third of the real burden - even though they are really paying for it all.
My hope is that when it is concentrated into a single, easily visible amount AND when taxpayers have control over how much they want to pay - spending will come in line and possibly even reverse.
Some asked about illegals and tourist income altering the outcome. I thought I’d expand on Hyaden’s figures to include this. We will start out with 2.58 trillion as our revenue neutral figure. Foreign tourists spent 107.4 billion here last year. That would be about 24 billion in tax revenue. Foreigners spent 7.3 billion more here than Americans spent abroad, so technically we should be using 23% of that figure(1.69 billion), but lets go ahead and use the larger figure to benefit fairtax. Also, there is an estimated 12 million illegal immigrants living here. With an average income of 15,634 for a family of four, that adds up to about 47 billion in income. Assuming 100% of that is spent on taxable goods(not likely), that gives about 11 billion in additional revenue. So subtract out 11 billion for illegal aliens, and 24 billion for tourists, gives us 2.55 trillion of revenue fairtax still needs to replace. Divide that by 135 million tax payers, gives a tax burden of $18,888 per tax payer. Or taxable purchases of $82,121. I don’t see how the average household is suppose to spend that much in taxable purchases each year when the mean family income is only $60,000.
Tourist link.
Illegal alien links one and two.
Mark -
As a former avid supporter (I have three signed Boortz/Linder books - participated in all the local meetings & rallies), until I actually studied HR 25, I agree that our current tax system is broken.
What made my decision to oppose the “FairTax” is the dishonesty of the proposal. I do not believe most of the proponents are dishonest, they are just not fully informed. In fact, they are well intentioned, honest people. I also would love to change the system and to me, a consumption tax is preferable to an income tax.
When the 23% “bait and switch” and the government paying “taxes” back to itself scheme becomes well known, combined with the resistance of politicians and others invested in the system, there is no way this change can come about. I would rather get behind a workable proposal which is honestly presented (I just don’t know what that would be).
I cannot buy into the argument that just because the current system is bad, we should blindly adopt another system with its glaring flaws. Any change is not necessarily better than no change.
As difficult as it is to imagine, we could end up in a worse mess!
John
Kublikhan, you are using the same numbers as me, which is about half of the original “irrefutable” calculation that was trying to translate “households” or “families” into people that pay taxes.
I would offer one clarification on your use of the word “tax payer” as in, “a tax burden of $18,888 per tax payer.” In 2005, of the 134 million returns, here is how they broke down by filing status (in millions):
59 single
52 married filing jointly
20 head of household
2.5 married filing separately
I think (though I am not sure) if you literally want to know the number of tax payers, you would add another 52 million to the 134 total. This assumes that the married filing jointly represent 2 persons each and every other status represents 1 person.
That would make 186 million individual “tax payers” or 134 million individual “tax returns”.
In either case, you also need to take into account the fact that of the 134 million tax returns in 2005, only 90 million of them resulted in actually paying any taxes.
So, instead of $2.58 / 134 million, the real current burden for those returns that actually have a burden is $2.58 trillion / 90 million which is $29,000.
In this light, with the FairTax, this statement would appear to be true:
Currently, individuals that make money and pay taxes pay an average of $29,000 each.
With the FairTax, individuals that make money and pay taxes will pay an average of $19,000 each.
Source.
Mark, you are doing and apples to oranges thing there with the 135 million tax payers and 90 million tax payers. Ok, so only 90 million tax payers actually payed tax. The other 45 million were too poor to pay. But you have to figure these same 45 million households are still going to be poor under fairtax and will pay little to no tax post prebate. So only 90 of the 135 million households are going to be paying into fairtax as well. That means an average burden of $29,000 per fairtax household. That would require $126,000 in taxable spending per household. That is even more inplausible than $82,000.
Kublihan –
Thanks for jumping in the fray. That info on the incomes on illegal aliens was very helpful. If accurate, their incomes are much lower than I would has estimated, and thus their tax contributions under the FairTax would be virtually non-existant.
Regarding the “underground economy,” below is a link I saw on the fairtaxgroups site stating that the underground economy is about $1 trillion. Even assuming, for the sake of argument, that the entire $1 trillion would suddenly be taxed under the FairTax, that would yield tax revenue of $230 billion. Certainly nothing to sneeze at, though still less than 10% of FairTax revenue (and less than 7% of required revenues for a balanced budget).
Now, the problem with claiming that the FairTax will suddenly tax the “underground economy” is that we ALREADY tax the underground economy.
Heres the analogy using a drug dealer and the purchase of a Cadillac:
Under the FairTax, the drug dealer is SUPPOSED to collect and remit 23% of his revenue to the federal goverment. We know he won’t do that. But when he buys a shiney new Cadillac, the Cadillac dealer will remit 23% of the purchase price to the federal government as the FairTax on that purchase. Viola! The drug dealer pays taxes. Truth, Justice and the American Way prevail!
What about under the income tax system? The drug dealer is SUPPOSED report his ill-gotten income to the federal government and pay income taxes. We all know he won’t do that. But when he goes to buy his shiney new Cadillac, what happens? The Cadillac dealer must report and pay taxes on it’s income from the sale. The salesperson must report and pay taxes on his commission. The manufacturer, must report and pay taxes on the sale. On down the line. That’s what the EMBEDDED TAXES are!
Thus, under both the FairTax and the current income tax system, the transactions are taxed in exactly the same way. When the drug dealer sells his drugs, no taxes are paid. When the drug dealer buys his Cadillac, taxes get paid.
According to Boortz, et al., the embedded taxes the drug dealer currently pay equals 22% of the price of the Cadillac, but under the FairTax the tax rate will be 23% of the price. Big whoopie!
The net result of this analysis is that anyone who thinks the FairTax will generate a boat-load of new revenue from taxing the “underground economy” is living in fantasyland.
Source.
I didn’t read all the posts here but I believe the FairTax hopes to address deficits through economic growth. During the 90’s, economic growth drove us to surpluses. Even with Bush tax cuts, we would have had surplus if the economy stayed on course. Most economist believe a consumption tax would boost the economy. Some claim the economy would double in 15 years.
With regard to income, we’re looking at the wrong thing. We’re trying to look at income and figure out consumption. We’re trying to chase the earned buck.. but there is no need. We know what consumption is - income seems somewhat irrelevant. I don’t care what you make, I know what you spend (as a country). I know that I need XX% of that spending to have xx trillion in revenue.
The deficit projected in the BHI study was the deficit predicted at the time they did the study. If the deficit has decrease, it is due to economic growth. Since the FairTax base gains more from economic growth then the Income base, such a reduction in today’s deficit is only positive for the FairTax if recalculated.
Morphh - good points and a fresh perspective as always.
Hayden and Kublikhan - you guys are off in so many directions at this point it is hard to keep track of them all. Wherever you end up, it appears that, if anything, it will only serve to change the proposed rate of the FairTax - not prove it to be fundamentally unworkable. I may have been mistaken, but I thought that the latter was the original premise of the post. Perhaps what you meant was “Irrefutable Proof That the FairTax Cannot Work [at this rate]”?
The rate is not something I’ve ever been too concerned about. If anything, the higher the better - the more to shock people to their senses!
The fundamentals are simple. We are paying it all know - we have to be able to pay it all later. The same amount is getting paid - it is just in a different way and, more importantly, it is all in one place and it is voluntary.
It can be argued all day that the distribution of the burden is a problem - but I am not convinced that it is that much different than what we have now. No one’s back is going to break - if anything, all of our backs are breaking now. And the only way to get around that is to stop having multiple economic classes and interest groups trying to pile more on the other classes’ and groups’ backs - and the only way to do that is to eliminate income and economic interest groups from the equation and from the politics.
That’s what the FairTax does and that is the most important thing to me. When you guys get the details worked out, let me know
John Warr,
You wrote that you would like to see a workable proposal that’s honestly presented, but you don’t have one. Let me offer you mine, a three page study on an alternative to the Fairtax and HR25. Like you, I happen to believe that a consumption tax is a good idea, but the plan called the Fairtax isn’t. I wrote about an alternative based on the supposition that consumption taxes are good, the Fairtax as written has too many moving parts, and I must have learned something from the mistakes I believe that AFFT made.
If you (or anyone) are interested, just email me at vanlinda@comcast.net and I’ll forward the paper to you.
Morphh, the economy has more than doubled over the past 15 years.
Mark –
You are correct, the point of my original post was that the FairTax could not work at a 23% tax-inclusive rate.
I agree with you that regardless of the rate there are several potential benefits of a consumption based tax vis-a-vis an income tax (and, certainly vis-a-vis the monstrosity we have now).
Making it less easy for politicians to game the system by reducing rates here while raising rates there in such a confusing fashion that nobody can possilby understand is one of the primary benefits of the FairTax. As Cong. Bill Archer (probably the original proponent of the FairTax) used to say, “We need to tear the Tax Code out by it’s roots so that it never grows back!”)
Obviously, there will be problems with the FairTax, just as there will be with any tax system, and those problems — to the extent they can be identified — should be discussed and debated prior to it’s enactment. Basically, what I would want to see happen is that a number of tax reform proposals get debated simultaneously, so that citizens can weigh the pros and cons of each. (Morph has actually taken a huge step in that direction by posting summaries of various tax reform proposals in Wikipedia.)
My main beef with the FairTax is not with it’s concept, but — as John points out — the deceptive way that some (not all) behind the FairTax push it. You say you aren’t too concerned about what the tax rate will end up being, and seem open to the possibility that it might be much higher than the 23% tax-inclusive rate. That’s an honest answer. And that means that we could move on from “what rate works” to “what are the pros and cons of a consumption-based tax with a pre-bate?”
Unfortunately, many of the most vocal proponents of the FairTax, including Linder and Boortz, are absolutely wedded to the 23% rate and refuse to even consider the possibility that they are wrong. They will attack, ridicule and condemn anyone who tries to make the argument that it just ain’t so.
Why are they are so wedded to this rate? I think it’s primarily because they have been trying to sell this notion of “prices won’t rise” when the embedded taxes are eliminated and the FairTax added. But, to be brutally honest, it’s also because the focus groups that the FairTax.org people originally paid for told the proponents that the public would not support a consumption tax higher than 25% or so. (And that, of course, is why they fight to the death to defend the “tax-inclusive” way to express the FairTax — because it sounds lower.)
So, any arguments that folks might make as to problems with the FairTax — e.g., tax evasion, the effect on the Middle Class — are immediately attacked because if after-tax prices won’t rise, then there’s no incentive for tax avoidance and the middle class doesn’t take a hit. If the FairTaxers admit that prices WILL rise, and that the tax rate might be 50% or higher, then suddenly the FairTax is not such an easy sell.
You (and many others) might still support a relatively high consumption tax in exchange for the economic benefits you believe it would yield, but — then again — you actually seem to think for yourself. Sadly, most folks — on both sides of the argument — don’t bother to do that.
Regards,
Hayden
John Warr -
We definitely have different perspectives.
On the 23% / 30% - These are matmatical mechanisms. As such, I have a hard time assigning human traits to them like “bait and switch” or “dishonesty”.
Aside from the intentions of what any person or group of people may have when choosing which one to use, they are both mathmatically correct and are acceptable to me - so it is a non-issue from where I stand. My interest is in implementing the math into tax policy - not the people that are selling it or the ethics of their intentions.
Regarding the switching of systems - I think that the gains from eliminating income as the index for the tax rate and making the system voluntary would be so great that it would be extremely hard for the the flaws in any new system to cause a net negative.
Again - very different perspectives.
With regard to having tax reform proposals debated. One place were you could submit your tax plans for discussion and discuss the merits of other proposals might be http://www.americansolutions.com/ Let us know when the Kepner Tax and the Van Gieson Tax are uploaded.
Hayden -
Yes I would say that we are ultimately on the same page. If it happens, there will no doubt be alot of evolution on the way there and, how and when ever the trigger gets pulled, things will probably happen that no one completely predicted.
Hayden -
I agree with your latest post. A consumption tax is certainly a more appropriate way to fund the government than are the income, payroll, and variety of other taxes now in place.
Mark -
I did not intend to imply that all, or most of the FairTax proponents are dishonest. My guess is that more than 99% are actually honest citizens, very frustrated with the current system (as am I) and believe what they have been told about the FairTax on the website and in the books. I am also convinced that the vast majority have not gone to thomas and actually read HR25.
I am not convinced that Neal Boortz and Rep. Linder are dishonest. I prefer to believe that they are not, and I still am a fan of Boortz. But, they are both so wedded to the FairTax as presented that they continue to ignore the basic fact that government cannot obtain revenue by taxing itself.
What I do emphatically say is that someone at the top level of the FairTax organization, and those who drafted that portion of the bill, are dishonest. They insist on counting the “tax” paid by the government as revenue when calculating the “revenue neutral” tax percentage. Then, they juice it up by requiring only the government and “households employing domestic servants” to pay the tax on wages, as a “purchase of services”. I can think of no reason for these provisions except to disguise what the real consumption tax would have to be in order to be revenue neutral. Someone went to a great deal of trouble including these provisions in the bill, and until I found this forum, I could find no one who was willing to talk about it.
All I ask is that FairTax.org comes clean about what this proposal will actually cost us in consumption tax. It is painfully obvious that a 23% consumption tax will not produce the revenue claimed. That is what is meant by “bait and switch”. When the truth is known, let’s see how strong the support is.
Regards,
John
Did you include the 12 million illegal aliens? did you remove the cost of the IRS? The “won’t work” idea seems to be based on static or short run analysis. A dynamic analysis proves different.
A study on marginal and average tax rates by Kotlikoff concluded that the FairTax would reduce most households’ average lifetime tax rates.
Economists from Boston University and the Centre for European Economic Research concluded that the long term effects of the FairTax would reward low-income households with 26.3% more purchasing power, middle-income households with 12.4% more purchasing power, and high-income households with 5% more purchasing power
Kotlikoff, Laurence; Rapson, David (December 2005). Would the FairTax Raise or Lower Marginal and Average Tax Rates (PDF). National Bureau of Economic Research. Retrieved on 2006-10-10.
Arnold — I realize I should not be sarcastic here, but gee whiz, didn’t you bother to read the comments before you added your?
Illegal aliens? See comments 6 and 23.
Cost of the IRS? According to the Beacon Hill/Kotlikoff study, the cost of tax compliance will be reduced by about $8 billion per year. Even assuming they are correct, that’s only about, oh, 0.25% of the Federal Budget under the FairTax. But I’m sure that will really help a lot.
Static vs. Dynamic? I used their OWN NUMBERS, for goodness sake.
I like and respect Kotlikoff, but I think he’s way off base on the FairTax. His studies tend to use “generational accounting” in which is the ultimate long range study. Or, to quote Keynes, in the long run, we’re all dead. That’s particularly true under generational accounting, because by definition it is making estimates over multiple lifespans.
I’ll admit that I haven’t read all of Kotlikoff’s studies in great detail, but it is my general understanding that in the studies you are alluding to he assumes (a) that the FairTax rate will be 23% (which, as this thread argues, is mathematically impossible); (b) that the rate will stay the same forever, regardless of the deficit, politics, etc.; (c) that wealthy folks and their heirs will eventually spend ALL of their wealth (including all interest, dividends, capital gains, ets.) on TAXABLE goods and services.
I think those assumptions are unlikely to hold up. And apparently, given the recent scrutiney the FairTax has FINALLY been given by other skeptics, I’m not the only one.
Thanks, Hayden -
I thought it was just my limited ability to follow Ashfords “logic”.
Merry Christmas to All!
John
Will the FairTax really work??????
First, let’s realize that the FairTax was not just thrown together haphazardly by a bunch of uninformed amateurs. It was carefully crafted over an extended period by persons recognized as having the expertise to do just that. I am certainly not qualified to have done so, and am therefore not qualified to critique what they came up with. I am thus satisfied to assume that they knew what they were doing, and I am willing to give it a try.
Now, they say that the FairTax is revenue neutral, which we all know means that it will produce the same amount of revenue that the present system produces, and I am willing to assume that it will do so, and when it does, then it is up to Congress to learn to run this country on that amount of tax money. That is something that they don’t presently do, so the FairTax will not leave us in the hole any more than the current system does.
The really important thing, then, for the salvation of this country is that Congress must learn to run this country on the amount of money coming in, and, in my opinion, there is enough money coming in now to run this country as it should be run, and there will be enough coming in under the FairTax to do that.
Therefore, if this Country goes under, as some seem to suggest it might, it will not be the fault of the FairTax, but will be the fault of Congress.
Does this make sense???
Papa -
Thanks for weighing in. I agree. HR 25 was not cobbled together by a bunch of amateurs. Each provision was carefully crafted for a reason. Including the provisions for the federal government taxing itself, as well as each state and all political subdivisions of each state.
By the way, have you read HR 25? Just go to thomas.loc.gov and query HR 25 - a little light reading for the holidays. I admit I am not the brightest bulb on the tree this year, but even I was able to figure a few things out.
Maybe it’s just my independent streak, but I am not willing to just throw up my hands and say “Those people are so much smarter than me, I’m just going to go along with whatever they say.” Common sense is a great thing. We should all use it when we get the chance.
Where did you get the idea that after the FairTax passes, the amount of revenue raised would be frozen and Congress will have to learn to live within those means? If the FairTax passes, Congress can set whatever tax rate it pleases, and can adjust it anytime it wants. How does a 50% sales tax rate sound to you?
Also, you might find the “On Taxing Government Expenditures” discussion ongoing on the blog interesting.
Regards,
John
The Fair Tax double-taxes every dollar every American has saved in any after-tax accounts such as a savings, checking, brokerage, CDs, Roth IRA, or money under the mattress. Not only does it double-tax income, but it also double-taxes Social Security and Medicare. Not even 401k and Traditional IRAs will escape double-taxation of Social Security and Medicare.
John
Folks -
That was a different John, in case you didn’t figure that out already. I don’t believe I agree with him. I’m all for a consumption tax to replace, at least the income tax. I just want the plan to be presented honestly, so we will know what it’s going to cost us going in. No surprises!
Regards,
The other John
John, this is the other John – or are you the other John – anyway…
I’m not sure what you disagree with. Let’s take it one step at time.
Can you agree that, under today’s tax code, every dollar of earned income that is deposited in a taxable account has already had Income, Social Security and Medicare taxes paid on it? This would include dollars deposited in any savings, checking, brokerage, CD, or any other account that does not receive favorable tax consideration at the time of deposit under today’s code, including a Roth IRA.
As I understand it, under the Fair Tax, each of those dollars mentioned above will be taxed once again for Income and both employee and employer Social Security and Medicare when they are spent. Can you agree with that?
Further, can you agree that under today’s tax code, every dollar of earned income that is deposited in a 401k or Traditional IRA has already had Social Security and Medicare taxes paid on it?
Again, as I understand it under the Fair Tax, those earned income dollars deposited in 401k and Traditional IRA accounts will be taxed for both employer and employee parts of Social Security and Medicare when spent. Can you agree with that?
I realize that people making certain amounts of income will not pay Social Security on all of it when earned. If you can generally agree with the elements above, you must also agree that the vast majority of Americans that have saved anything in any kind of account will pay, if not double taxes certainly a lot of extra tax, upon implementation of the Fair Tax as it is written today.
John H
That is a very long discussion John H. - possibly worth it’s own thread. Such an analysis should not be made in a vacuum. Other offsetting aspects of a tax plan should be looked at and a comparison with the effects of the current system. What is the overall impact and the effect to future generations? Any tax reform plan you look at will have changes, winners and losers. You could also make a generational pyramid scheme argument that baby-boomers (which is the likely group by this) should pay more in taxes if they consume significantly (since most of the income will go to their social programs). At any rate.. I don’t think it is that simple. Several studies have been done in regard to such effects and their real impact.
1. According to the Bureau of Economic Analysis the US GDP was $11,319.4 billion dollars in 2006.
2. According to the census bureau, there are approximately 100 million families in America. (taken from Hayden)
3. Therefore the GDP per median household would need to be $113,194
4. According to the census burea, the mean family income was around $60,000. (The median family income was less.) (taken from Hayden)
5. Thus it is mathematically impossible for the GDP to be $11,319.4 billion dollars.
Before you go picking apart the really obvious errors in the above reasoning... please note this is a parody... it’s just as good an analysis as the one offered by Hayden above...
Please note, I can use the same game with Hayden’s numbers to disprove the aggregate amount of AGI for American’s in 2005 (as reported by the IRS), or even that the current tax system can fund the US government).
John H -
This is the other John. You must be a great guy with such a name!
I am a former FT supporter, and as yet I am not convinced to come back into the fold. That does not mean I am in love with the current train wreck of a federal tax system. In fact, the SS and Medicare funding scheme is headed for a complete melt-down. I do believe that a consumption tax in our consumption-based economy is probably the best way to go. My hang-up with the FT is still the government taxing government thing.
While you may be technically correct that whatever we have left over from this mess of a tax system we have now, has already been taxed, and maybe even double and triple taxed, and will be taxed again when you spend any of if under a consumption tax system.
This will be the case under the FairTax or any other consumption/sales tax. But what is the alternative? Do we want to stay with the current ill-conceived, corrupted federal tax system and watch what we have managed to save diminish in value and be taxed and taxed again. Or bite the bullet one time and overhaul the entire system?
Regards,
John W.
John W,
May I assume that you now agree with my comments above? It is hard for me to understand how you would not.
I don’t like the current system either but I have planned my entire financial retirement on it and I cannot support a system that effectively wipes out nearly 30% of it overnight.
I think my problem with the Fair Tax is with how it is implemented, accepting that all the assumptions are truthful and correct, which I have not studied. There is never much discussion about implementation. If it is an overnight switch from old to new, as most people assume, it is terribly unfair to those who have saved and planned. Besides, I think that once the public becomes aware of the effect the Fair Tax has on their savings, reference the 30% wipeout, it will be politically impossible to pass in the first place.
John H
John H -
Can’t argue with you in regard to savings. Of course, the FT would only apply when and if you spend those savings. I think Boortz spends a good portion of his book explaining how that would not harm those of us in that position. Depends if you want to buy into his assertions. It’s been awhile since I read the much touted “Book”.
Unfortunately, when we design our lives around one system, playing by those rules, it’s a real bummer when the rules change.
Just to throw some more red meat out there - Boortz and the FT folks are stuck on the 23% sales/consumption tax figure. Boortz and others claim that the 22% embedded taxes on all we buy will go away, so miraculously, for a mere 1% increase in the price we pay for everything, we can raise the same revenue now being raised by income taxes (pick a percentage), payroll taxes (15%, I think), death tax, etc.
I find it very difficult to wrap my mind around that concept, unless you count as revenue, taxes “paid’ by the federal government back to itself - certainly this cannot be real revenue - , and taxes collected from state and local governments on all they purchase, PLUS the salaries of all their employees and contractors. Then, you might make the numbers work, I’m not sure.
You can see the “Government Taxing Government” discussion for a more complete discussion on those matters.
Regards,
John W.
Well John H, I think your missing a lot with thinking it is a 30% wipeout. Like I stated, there is much more to it. For example, you’re talking about a marginal rate, which no one could actually achieve with the rebate taken into account. You don’t pay any tax up to the poverty level (currently $20,000 a year for a family of 2). Effective rates of spending are around 2x (11%), 3x (15%), 4x (17%). Social security benefits are index to any price increases. You’d receive tax free savings & investment after FairTax at any and all levels, see tax free capital gains after FairTax, see income tax removed from all social security and pension benefits, see penalties and rules surrounding “pre-taxed” savings removed, see tax free estate and gift giving of their cash and property. You then have to compare this to whatever continued tax burden you have under the current system, paying taxes on benefits, capital gains, hidden taxes in prices from corporate taxes, etc. Then consider the overall effect to the country and future generations - your grandchildren. Like I said, it is a long discussion and it is not that simple in my view.
I also believe that the “cold turkey” implementation plan would be a serious mistake. Congress much prefers evolutionary change to overnight revolutions. The idea that the Congress would agree to an overnight switch, based on computer models or whatever, is preposterous. The law of unintended consequences has not been repealed, and, with all due respect to Professor Kotlikoff and other economic experts, Congress won’t bet the nations economic fortunes on an economic model. For heavens sake, we don’t even know what the stock market is going to do tomorrow, let alone what our economy would do in the years ahead under the Fairtax.
I have long advocated a five year phase in of a consumption tax. We’ve lived under the income tax for 95 years, would taking 5 years to get rid of it be so unacceptable? I wrote Congressman Linder some time ago about a phased introduction, and here was his reply.”With regard to your suggestion for a gradual implementation of the Fairtax over a number of years, I disagree. Doing this means the Fairtax benefits are slowly felt by 285 million citizens. Due to its many benefits, the Fairtax should be enacted and implemented with no such delay or transition.” Clearly, the Congressman is a gambler with nerves of steel?
As I understand the latest plan for next years version of HR25, a new clause will be inserted which will sunset the Fairtax unless the 16th Amendment is repealed within five years. That is, the Fairtax will not be actually implemented until the 16th is gone. I wonder if that five year time frame couldn’t be used more productively to try out the Fairtax a little each year? Any corrections or solutions to problems could be made early on, and the odds of repealing the 16th might improve. Just a thought?
Have been away from this great site for quite awhile due to a new commitment that has used up all of may available time. I appreciate the contributions of both those who are for and against the Fair Tax. I haven’t had time to study each of the comments in this thread in detail although I did scan them. Forgive ime if I duplicate comments already made. Some truths to recognize when talking about Fair Tax:
1. Governments, just like business or people, can not create a positive cash flow by taxing themselves. There are valid reasons for taxing government expenditures as others have addressed. We can all debate whether there is a better or simpler way.
2. Under the Fair Tax, governments will not pay 30% more than they are paying today for the same products. Prices that the government pays for goods and services will be reduced from 15-25% depending on who is doing the estimating. Governments will not pay payroll taxes on their employees salaries like they do today. The 30% Fair Tax rate is based on the reduced price. Therefore if before tax prices are reduced 23% and a 30% Fair Tax is added, the cost of the product is exactly the same.
3. It is very misleading to say that government deficits aren’t accounted for under the Fair Tax. Those exact same deficits exist today. If you don’t want deficits, lower spending or increase taxes. The same principle applies today as it will under the Fair Tax.
4. Confusing the issue by talking about number of tax returns filed, number of families, mean-median-average income, etc is misleading.
The issue is what is total consumption today and what will it be in the future. Fair Tax proponents assume it will be the same for calculating the tax rate. But, they also make some very compelling arguements that the economy will expand significantly under the new tax structure.
5. Prices before tax will definitely drop under the Fair Tax because costs to producers will be lower. The amount will vary by industry. Some business wont pass on the cost savings unless competition forces them to cut prices. But, if Wal Mart passes their savings on in the form of lower prices, don’t you think Kroger and Target will do the same?
6. Revenue neutral means that the same amount of total tax will be collected under the Fair tax as is collected under the current system. Deficits under the current system will be deficits under the Fair Tax. Simple logic says that will leave exactly the same amount of money in the hands of all consumers collectively; not necessarily exactly the same amount for every individual. We know that prices will drop substantially from today’s levels. We also know that individuals will get their entire pay check without deductions for income and payroll taxes. Thus individuals will have substantially more money in their pocket than today and don’t forget the prebate that everyone will receive. You can argue about the impact on different individuals but from a macro perspective, there is no change. There will still be exactly the same amount of dollars chasing the same goods.
There are so many topics that should be covered but this is getting long. Please use simple arithmetic instead of introducing differential calculus to determine how to add 2 + 2.
The fact remains that all Americans will have to pay tax on their savings when they spend it or when the heirs spend it. These are taxes that they have already paid when they earned the funds. Regardless of the rate, it is 100% more than they would have had to pay without the Fair Tax and that painfully wipes out a substantial portion of their savings. Like I have said before, this applies to any kind of savings, checking, brokerage, CD, Roth, even Traditional and 401k will pay SS and Medicare taxes twice. All the price and tax offsets theorists can conjure will not change this.
John H
Marvin,
Welcome back! I wondered where you were.
Regarding your #2 and #5, there is absolutely no data that shows pretax prices could fall 23%. On another thread, I think Morphh and I have pretty well agreed that pretax prices will fall 10% to 12% max, and after tax prices will therefore rise by 14% to 17%, take your pick. Simple math. And, I’m not aware of any other “official” price studies. Why do you think prices might be a wash?
I would also point out that those price increases will be offset by individual income increases from withholding recovery and the prebate. “Real” prices will therefore remain about the same. But, real price increases for all governments won’t be a wash. The only offset to the price increase for governments is the payroll tax sharing cost. I look for significant increases in state and local taxes in order to pay the federal sales tax. And that, in turn, will lend support to the concern that the states will haul the federal government into court in an attempt to have parts of HR25 declared unconstitutional. Bottom line? The 23% Fairtax rate may no longer be revenue neutral. Stay tuned!
John H, where in the world do you get that it takes 100% more. I don’t think I’m going to reply to this anymore - see Josh’s post on Maintaining High Quality Discussion.
To Hanks point, the 10%-12% we were discussing is for domestic goods. The price of foreign goods would increase more since they don’t have as much U.S. tax cost to remove. So this goes to the argument that U.S. products will more effectively compete with foreign goods.
I’d also agree with Hank that the FairTax does generate revenue from taxation of local and state governments. If this was challenged and won on constitutional grounds, then the Fairtax rate would need to be higher.
Morphh
Maybe there is something I don’t understand.
Under todays tax code, I will pay no further Income, SS or Medicare Tax on those earned dollars in my savings when I spend them. That is zero additional tax. Under the Fair Tax, I will pay all Income, SS and Medicare tax once again on those dollars when I spend them. What ever amount of tax that is, isn’t that a 100% more than zero?
John H
An update on income from tourists, I went back and checked and tourist income is already included in the rate study. I believe this applies to illegal aliens as well. So actually you can not add this into the tax base since it is already added.
I agree that US goods will become more competitive.
Even if the state and local government constitutional challenge fails, the rate is still higher than 30% because of this “stealth tax” we are applying to state and local governments.
Hank already mentioned the flaw in Marvin’s point 2.
About Marvin’s points 4 and 6, I went back and checked what the revenue would be from personal consumption, ignoring fed/local government spending. Under the current system the personal expenditures is 9,189B. Divide that by 135 million tax payers, and the average is $68,000 in spending per household. Multiply that by .30 and that gives $20,420 in revenue per household. Adjust the base for the prebate gives 7077B. Divide that by 135 million tax payers gives an average of $52,422 in above poverty level spending per household. Multiplied by .30 gives $15,727 in after prebate revenue per household. Multiply that by 135 million tax payers gives 2.1 trillion in revenue. If we have to match 2.6 trillion in revenue then this would come up about half a trillion short. If you multiply our prebate adjusted base of 7077B * 1.05, to account for some expected economic growth, that only increases the revenue to 2.2 trillion. Not enough to cover the revenue shortfall.
Kublikan — You’re giving me a headache.
One thing I would like to see, and maybe Joshua could start a new thread, is an estimate (or, even better, some sort of evidence) of how much consumer spending would actually be taxable spending under the FairTax.
For example, we all know that used cars and goods, existing homes, ranches, farms and undeveloped land, education expenses, and foreign travel are all exempt from the FairTax (not to mention business and inestment spending).
I’d be curious to know what percentage of existing spending goes to such untaxed stuff, and whether it varies much among income levels. For example, a wealthy family is probably more inclined to travel abroad and send their children to private schools, but is also probably more likely to buy a new car.
A further goal would be to try to estimate how big of a shirt into non-taxable purchases would result under the FairTax, and how this would affect tax revenue (and certain industries).
I doubt if there is much out there on this, but it would be interesting to see.
Happy Holidays everybody.
John H, the points just above your post discuss the 10-12% embedded cost that you’re paying in prices from business taxes under the current system. Under the FairTax, you would not pay tax until you hit the poverty level. So if you spend at poverty level, you’ve just gained 10-12% over the current system. If you collect SS, you’d gain more since that income is no longer taxed and benefits are indexed to prices. A 2006 study from Boston University shows that low-income retires actually make out the best under the FairTax. I don’t know what your level of wealth is but there is discussion and impact at each level. I only use the above as an example. Consider reviewing “Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation” by Kotlikoff and Rapson. I’m not saying this study is the be all, and how much salt you give it is up to you. Just consider that there are many factors when switching from one tax system to another. Your statements do not represent an accurate picture of continued tax incidence under the current system or a complete picture under the a FairTax system.
Hayden, you should check out table 2 of “What Rate Works”. The 9189B figure I quoted is an adjusted figure. It takes into account housing, rent, education, financial services, travel, farm consumption, etc.
Morphh,
1) Under today’s tax rules, let’s say I earn enough to net $1000 after Income, SS and Medicare taxes and then I deposit the $1000 in an ordinary taxable investment account. I will owe Income, but not SS or Medicare taxes, on any gains, dividends or interest as they are generated by that investment but never again on the $1000, even when I spend it.
2) Now, let’s assume that before I spend any money from this account, the government changes the tax rules to the Fair Tax. My status at the moment of the changeover is that I have already paid Income, SS and Medicare Tax on the initial $1000 and that I have also paid Income Tax on all the gains, dividends and interest earned. I think that makes every dollar in this account an ‘after-tax dollar’ on which all Income, SS, and Medicare taxes have been paid, and those dollars could have been spent without further tax under the old system.
3) As time continues, and as I spend the principle and accumulated returns later in life, I will now pay a consumption tax that equates to the old Income, SS and Medicare taxes. Isn’t this the essence of the Fair Tax? I hasten to point out that this is the second time I have paid taxes on the same dollars for the same purpose to the same government.
4) There are other things to consider about this in terms of rates, pre-bates, price offsets and all that, but I am trying to raise the issue that, regardless of tax rate, we have to pay tax twice on everything we have saved. It is very doubtful in my mind that all the mitigating offsets offered by proponents will fully compensate for having paid taxes in full under the old system. This is my objection to the Fair Tax.
5) Special accounts, like 401k, Roth and Traditional IRAs, have a somewhat different set of circumstances, but it should be noted that even the 401k and Traditional IRAs are not exempt from paying SS and Medicare taxes twice as the funds are spent.
6) This situation only happens to those who have saved under the old system and spend under the new, but I expect that is pretty much the entire population. The offsets that proponents mention all the time are not in the proposed tax code as I understand it. The Fair Tax does not remove the government’s right to levy income tax. The only thing in there is a guarantee that we are going to pay the consumption tax.
7) I don’t trust the government to make this happen as advertised, and I don’t trust big business either. Look at the oil companies and Enron and others and feel the pain. The little guy is going to get shafted in this deal. We will pay the tax because it is the law, but we will not see compensating offsets because it is only logical, not the law.
Please examine this note carefully, especially paragraph 1-3, and tell me where I am going wrong in my understanding of this issue.
John H
John H. - Assumption 2 is incorrect - you’ll at least pay 10-12% in embedded taxes. That is much of the problem with the current code, you don’t know what your really paying - it is not transparent. Assumption 3 depends on how much you spend - you may actually have a negative tax rate and gain money. Point 4 seems to ignore everything else and focus on one small area - if you pay $1 more.. it’s double tax.. regardless of rates, rebates, offsets, future generations, economic growth, funding future programs (the solvency of SS & Medicare), what you would have paid, etc. If that’s your thing then fine.. your not interested in having a discussion or assessing any realistic impact. It’s a meaningless sound bite.
#6, this situation has been studied and would negatively impact a very small amount of the population. All the “offsets” that I describe are in the legislation. I’m not taking about a made up tax plan. It would never ever pass without them. The FairTax bill would repeal much of the existing tax code (all income taxation). It then calls for the repeal of the 16th amendment. Linder plans to add a sunset provision, meaning that either the Sixteenth Amendment is repealed within five years after the implementation of the FairTax or the FairTax goes away. A new tax code does not alleviate your job as a citizen. If you’re willing to be taxed to death, then they will do it. It is our job to vote them out if need be. #7, so the laws of supply and demand / capitalism break down. Ok.. thanks for playing. What exactly don’t you trust - how about the current system that is actually build to benefit the government and big business and the rich - those in power. What the heck do you think we have?
Morphh,
In your response to #2 by John H, you seem to have resumed calling the “embedded costs” embedded taxes, which I thought we agreed they weren’t. There is no such thing as an embedded business tax. There is an embedded business cost due to the income tax, and it takes the form of higher prices. Yes, we are reimbursing the employer for the taxes he paid, but we are not paying any added taxes. Our individual effective tax rates should remain unchanged. That is my major concern about the way the new Fairtax calculator is structured.
It’s easy to shorthand “embedded costs of the income tax system” to “embedded taxes”, but it’s not correct and it does make a difference.
I’d also like to point out that, while I agree that the real cost to run the federal government is somewhat obscured due to the embedded business costs, under the Fairtax, over 20% of the cost to run the federal government is concealed in higher state and local taxes, to say nothing about that strange business of the feds taxing themselves. Simple and transparent? I don’t think so.
Hayden/Kublikhan,
I’ve been struggling with the issue Hayden raised about the percentage of untaxed stuff that is in the Fairtax. Kubli’s post noted that you can go into Kotlikoff’s study and learn that the Fairtax base is 81% of total consumption. So, OK, 20% isn’t taxed. But that isn’t what Hayden (or I) want to learn. The question here is what untaxed amounts are included at various income levels. You can’t calculate your effective Fairtax rate without first removing any amounts that are saved, or spent on untaxed things. Untaxed spending includes education tuition, charities, savings/investment, mortgage payments, gifts, installment payments, and state and local property and sales taxes, according to AFFT.
My effective tax rate and purchasing power comparative studies used a sliding scale depending on gross income to estimate untaxed spending, based on the idea that the greater one’s income, the more untaxed spending will be included in the family budget. (I used 5% for $10K gross income, 10% for $20K, 15% for $40K, 20% for $60K, etc. But I don’t have one bit of published data to help me feel at all confidant about those assumptions. Any input would be welcome.
Hank, you’re right to call it embedded cots - I was writing quick as my wife was giving me a look since we had family over.. and I was a bit frustrated as I wrote it so it came out fast and loose. I was trying to make a quick point. If we had the ability to edit, I would have went back later and cleaned it up. To your other point, I do think it should be considered a burden of taxation that is passed to the individual. You may not see any change in individual effective tax rates - that’s the point. You see it (or don’t see it) in the prices. It is a hidden burden of taxation. It being hidden doesn’t really make it any less of a tax than a visible one as far as my wallet is concerned. If you replaced it with an individual income tax, it wouldn’t make any difference. Even someone that pays zero income taxes is paying an indirect tax burden. As far as state/local, that’s another discussion.
Thanks, Morphh, I’m trying to get some useful numbers out of Kotlikoff’s study. But, I’m a history major, and economics seems to have it’s own language?
How about switching over to the “taxing governments thread”. I’m ready to have that discussion, and believe it may be one of the more important discussions we have had.
Hayden/Hank, heres how personal consumption breaks down. Not sure about used cars/vs new cars but it covers educational expenses, travel, farm income, housing, etc:
Table 2 Computation of the FairTax Base, 2007 ($ billions)
Line Taxable Consumption Categories 2007
Private Consumption Spending
1 Personal Consumption Expenditures 9,772
2 Housing 2 Purchase of New Homes 394
3 Purchases of New Mobile Homes 9
4 Improvements to Single-Family Homes 176
5 Brokers Commissions on Housing 121
6 Less: Imputed Rent on Housing -1,067
7 Less: Imputed Rent on Farm Dwellings -15
8 Less: Education Expenditure -221
9 Plus: Taxable Home Mortgage Interest 128
10 Plus: Taxable Nonprofit Interest 5
11 Plus: Taxable Personal Interest 155
12 Plus: Expenditure in U.S. by Nonresidents 115
13 Less: Expenditure Abroad by U.S. Residents (non-durables) -8
14 Less: Foreign Travel by U.S. Residents (services) -54
15 Less: Food Produced and Consumed on Farms -0.6
16 Less: State Sales Taxes -263
17 Less: Salaries and Wages of Non-Profits -68
18 Plus: Capital Spending by Non-Profits (net of capital)i)58
19 Subtotal, Private Consumption Base 9,235
Morphh,
Reference my post #62 and your response #63. Thanks for the continued input. It is helpful.
Comment 2) I understand what you are talking about regarding the corporate embedded expenses (taxes) and I know it is there but it is hard to see, or remember. Is there anything in the Fair Tax proposal that forces corporations to reduce prices by the amount of imbedded tax relief they would see?
Comment 3) It sounds like you agree that we will be paying Income, SS, and Medicare taxes twice on our taxable savings. I don’t live at the poverty level but I certainly am not on the wealthy end either. Most of my budget will come from savings.
Comment 4) Yes, while I would not bicker about $1.00, I am concerned about double paying many dollars.
Comment 6) I think we are just going to have to disagree on this one unless the premise of the study is that nobody has saved anything. Certainly the savings rate is very low in this country and so that may be the case but it is not my case. Where can I see this study?
Comment 7) My general feeling of the Fair Tax is that is too good to be true and you know what most parents teach their kids about that kind of proposal. Even if the designers have accurately considered everything (and that is a big if), I doubt that Congress can resist meddling with it so it becomes a crap shoot. I know I am very skeptical but at least I understand the current tax mess.
Merry Christmas and Happy New Year.
John H
John H. - Merry Christmas and Happy New Year as well.
In regard to comment 2, there is nothing that forces businesses to lower prices except for a capitalistic economy. Ask yourself why they don’t raise prices today. Price maximization is not profit maximization. You don’t have to trust anyone here - the invisible hand at work - their own self interest will make this happen.
In regard to comment 3, I don’t agree that you’ll be paying twice. This implies some equal burden of taxation. I would agree that with certain savings and under certain spending levels, you may pay additional tax. But I also argue that you may already be paying a hidden burden of embedded tax costs. You also have to consider increased SS benefits written into the plan.
In regard to comment 4, I don’t know what additional burden you would have if any. However, looking at it requires that you understand the current burdens placed (hidden and direct) and what type of burden is placed under the new system. I do know several people that know they will pay more in taxes, but still support the plan. Each person has areas that they like or dislike but a tax plan should be looked at as a whole. Tax effects are vast and significant. Changes can have positive and negative effects. Each person must weigh the positives and negatives. Perhaps for you, this negative overwhelms any positive, which is perfectly fine. I just want you to understand that negative as best as possible as for some, that negative turns out to be a non-issue or small negative once they fully understand it. On the other coin, there is much to understand regarding any “positive” aspects and what effect they really have.
In regard to comment 6, the study is referenced above and titled “Comparing Average and Marginal Tax Rates under the FairTax and the Current System”. Josh created an entire thread on it where the beginning of the summary can be read.
In regard to comment 7, the FairTax may very well be too good to be true. Certainly many here will argue such, as will I when I think advocates have stretched the research or “truth”. I would not consider the FairTax to be my ideal plan but it is out there and has some level of support and thus the enemy of my enemy is my friend. Perhaps you may understand the current tax mess but 65,000 pages of tax code has most in a daze - not even the IRS understands it.
The current tax system is unsustainable for future funding in a global economy and a baby boomer spending overload. The government is going to collapse under fiscal irresponsibility unless something major changes. Read Kotlikoff’s book “The Generational Storm” - very enlightening. Switching to taxing consumption can help. I’m open to other forms of consumption taxes, even income based ones. I see it as inevitable for survival, while we only wait to see how much damage we do before we do something. [Morphh grabs at the sky in futility]
Hey, what do you know? Morph and I agree on something!
I too am a fan of The Coming Generational Storm by Kotlikoff and Scott Burns. In it, Kotlikoff makes the most (in my opnion, not Hank’s) compelling argument in favor of a consumption-based tax.
Essentially, he argues that the future tax requirements on working folks under our current tax system to fund retiree health-care (and, to a lesser extent, social security) will be unsustainable, not to mention unfair.
Thus, he proposes we shift at least some of that cost back on retired folks through a consumption tax. That is, unlike payroll taxes, which by definition are only paid by working folks, a consumption-based tax would be paid by both working and retired folks. The pre-bate would (at leaset theoretically) help out the poor retirees.
(I sent Kotlikoff an email to compliment him on that analysis a couple of years ago, and he called me five minutes later and we since had several long and enjoyable talks and email exchanges about the FairTax. I think he’s nuts to support it, but I still admire the guy.)
Morphh,
I finally got around to reading ‘Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation’ that you referenced in one of your posts.
At the beginning of the fifth paragraph of the summary, the author states the following:
‘Households finance their current and future expenditures on consumption based on their current wealth and their current and future labor earnings. Hence, taxing consumption expenditures is effectively equivalent to taxing existing wealth and labor income.’
Surely the term ‘existing wealth’ does not just apply to those people we might consider wealthy. To me, it is any money that anyone has accumulated and saved that exists at the time the Fair Tax is implemented. This seems to recognize that those accumulations are going to get taxed when spent and we already know that every dollar in any after-tax account, including dividends interest, and gains, has already been taxed.
About half way through the summary, the author comes back to this point and states the following:
‘The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.’
How fair is that? It seems to say that in order to reduce taxes on the younger, we are going increase taxes on the elder. It makes the point that we have been discussing at length in this thread.
First of all, the expanded tax base will not only affect the rich and middle-class elderly. Once again, we must define ‘existing wealth’ but I don’t think it applies to just the wealthy. I think it means anything anyone has saved out of their income before the FT implementation. The only way anyone will remain unaffected by this is if they never saved anything or if they never paid taxes in the first place.
Regardless, it is clear from this quote that those who have paid taxes and have saved will pay a new tax so that others can be taxed at a lower effective rate on labor income and thus yield a lower average lifetime rate to working-age Americans. I am all for helping the kids, but I don’t need the government to do that for me.
John H
John H, I agree with the points you’ve brought up. At purchases above the poverty level, you will pay tax on savings previously taxed. Comparatively you would have been indirect taxed on that savings to some degree on all consumption, but your point remains. I would argue that a considerable amount of savings and retirement has not yet been taxed under the current system for many people (IRA, 401k, capital investments, pensions, SS, etc), although your situation is different (Roth IRA, CDs, mattress, etc). In a tax burden comparison, at one point in consumption the burden is less, grows to the same, and then is higher. I was trying to describe this comparative analysis to see where you fit in with regard to your savings choices.
Don’t take this as a personal attack - I’m just going to lay it out and it may sound direct even though I’m speaking broadly. For what is “fair” - Have you considered that you should pay more in taxes? It is easily argued that your generation is shifting your tax burdens to your children and grandchildren. You are not paying for a fraction of the services that you have voted into policy. Your children and grandchildren will be drowning in the taxation of the $60 trillion in unfunded social programs that you’re claiming to have already paid for (or shouldn’t pay more for). It is a pyramid scheme - generation robbery that sentences us to tax slavery. I can understand you not wanting to pay more taxes but read Kotlikoff’s book “The Coming Generational Storm” and then come talk to me about fair. http://books.google.com/books?id=GRSpr8TOWegC&pg=PA4&dq=distribution+economics&sig=UJ9N12EznI6mIQ1V_I9Ofrm0RaE#PPR11,M1
Morphh,
Thank you for your comments. I will look at the link, although I am somewhat familiar with the book. And then some of presidential candidates continue to talk about even broader healthcare and more and more spending.
Somewhere, I read where someone said that a democracy finally destroys itself in bankruptcy when the population realizes that they can vote themselves the treasury. We may be closer that we think.
I just cannot resist one more little response though. I know you realize that even 401k and Traditional IRA deposits have already been taxed for SS and Medicare. But remember, any investment in any after-tax account has already been taxed. I think this is important because there are so many people with so much money in after-tax accounts.
Once again, I appreciate your comments and views. I know we do not agree on everything but I feel certain we are in the same ball park.
John H
I agree with all your points there John. Likewise, it was a good discussion.