Soak-the-rich schemes, version 317
This conversation seems to warrant a new thread.
The free enterprise system has created more economic mobility than any other political system in the history of mankind, so these complaints about the “skewed distribution of wealth” and the “rich getting richer” are exactly backwards: The United States leads the world in the poor getting richer through their own effort.
Hayden, where do you get off on forcing parents (with the blunt instrument of government coercion) into spending money only in ways you approve of — i.e., not giving it to their children as a gift? Isn’t that just a tad arrogant?
If you don’t want to give money to your children, then don’t. But when I finish making my money, and am deciding where to spend it or to whom I should give it, shouldn’t you damn well mind your own business?
Regarding your “choose better parents” argument — it’s not the children I want to learn from; it’s the parents.
Fundamentally speaking, there are two ways to get money in this world: deal with people by means of consent and persuasion, or by means of coercion and theft.
What you are advocating is a dressed-up form of theft, of taking money from people who would not give it to you willingly; and I want no part of it, thank you very much. I think your wishes to confiscate wealth from those who create it, even under the guise of “supporting the poor,” are deplorable.
If you want to give money to the poor, then give money to the poor. And if you want to convince other people to do the same, then you should come around hat-in-hand and ask them to do so.
But when you instead reach for a gun — or a legislator — to do your “charity” for you, then you’ll get no sympathy or support from me.
I seem to have struck a nerve! That’s probably just as well, since all the discussion over numbers and tax rates was starting to get a little boring.
Joshua, I think the generaly gist of your post is that people should be able to voluntarily choose what they pay to the federal government in taxes. But nobody voluntarily pays taxes and they never will. There is always going to be coercion involved, one way or the other.
You say it is theft for the government to force an heir to a multi-million dollar estate to have to pay a portion of that inheritance (over and above the exemption amount, which will be $7 million for a couple in 2009) in taxes. Somebody could inherit $10 million and pay less than $1.2 million in taxes. Frankly, I don’t lose much sleep over that.
What I would lose sleep over is if a middle class widowed mother with no health insurance (due to a pre-existing condition) contracted cancer, had to spend her family’s savings on chemotherapy and then found she had to sell the house to pay the FairTax on top of the cost of her treatment. In that case, I would consider the FairTax to be theft as well. If her treatment cost $200,000, and assuming Gale’s analysis is correct, her taxes on that treatment would be around $110,000. That I would definitely consider theft, and the “prebate” ain’t gonna do her a whole lot of good.
So if we assume that taxes are a necessary evil (even though we each agree that government spending is too high), there is going to be some form of coercion in whatever tax system is in place.
And I agree that our system has created a great deal of economic mobility, but we did it WITH an estate tax and WITH an income tax, wach of which were enacted by the will of the people (as misguided as they often are). The poor might have benefitted from our system, but the super-wealthy have REALLY benefitted from our system. So I don’t see any compelling reason to change the basis of our tax system on the grounds that a consumption-based tax MIGHT be better than what we’ve currently got.
If anything, I would argue that our tax system should be more like Europe’s, which relies on a combination of consumption taxes (VAT), income taxes and, depending on the country, inheritance taxes. If anything, that would spread the tax burden more evenly among the three various economic groups of society than relying on, say, consumption alone. You might argue that Europe is less efficient than the United States, but I don’t see a whole lot of Europeans clammaring to immigrate to the US anymore like they did in the 19th and early parts of 20th century before they raised taxes and enacted their social safty nets.
And, by the way, very little of our tax money is spent on “the poor.” The vast majority is spent on defense, homeland security, Social Security and Medicare. A smaller portion is spent on Medicaid, and only a tiny, tiny bit is spent on AFDC, or welfare. You and I would probably agree that we would have been better of without Social Security, we’d probably disagree on Medicare, but the fact is that we are stuck with those programs no matter what we think and we’ve got to have a way to pay for them.
Finally, I enjoy our ability to debate things on this board, but I realize that some topics can get too heated and comments can get a little personal. So, if you ever think some of my comments are over-the-top or inappropriate for this board, please accept my apologies in advance and feel free to delete them.
Thanks.
Hayden
Hayden,
Thanks for your response. In this case, I think it’s me casting the heat, so I’ll try to stay focused on the light part.
Your argument above seem to boil down to “All taxation involves force, so let’s not worry about taking the money from parents when they die.”
While it’s true that most (if not all) forms of taxation involve force, it’s also true that some forms of taxation are much more voluntary than others.
Examples include contract taxes (in which a tax is levied when parties sign a contract they want the government to enforce), tolls (for roads and the like, enabling the service to be privatized rather than supported through traditional taxes), and consumption taxes on new goods (which enable “conscientious objectors” to buy only used goods, for example).
So it just doesn’t work morally to throw up your hands and say “Ah, well, all taxes are done by force, so let’s not worry about that part.”
Taxes can be more or less voluntary, and you’re picking a form of taxation — stealing wealth from families when the parents die — that seems particularly odious to me, because it boils down to a gargantuan strategy for redistributing wealth away from the people (and families) who have created it. Since there’s no way to avoid dying, it’s about as involuntary as a tax can get.
Regarding your widowed mother example above, I agree that taxing her medical expenses is a particularly unsavory role for government to be playing.
On the other hand, your 55% taxation figure sounds pretty far-fetched, certainly not what FairTax proponents are advocating. Also, short of full-bore socialism, there is simply no way to avoid situations where some people will need to rely on charity assistance.
My sense is that, once you factor in the absence of a federal income tax for this woman, and any reduction in prices that results from the elimination of taxes in existing prices, the FairTax will — here as elsewhere — be more in the range of 10% than 55%.
Joshua
rmforbes:
It’s true that the FairTax spreads the burden over more people by taxing foreign tourists. But it doesn’t necessarily follow that means everyone will be paying less.
The reason is simple. The FairTax would relieve the rich of a GREAT DEAL of their current burden by eliminating the 35 percent top income tax bracket, the estate tax, the 15 percent capital gains tax and their share of Medicare and Social Security taxes. You’re also eliminating the 35 percent corporate income tax - that’s 35 percent of billions of dollars of profit earned. All those taxes being lifted on what the rich EARN would then be replaced by a 23 percent tax on what they SPEND, and, as I’ve said before, and before, and before, the rich spend a smaller percentage of their income than the middle class, and a far smaller percentage of their income than the poor.
It’s true that SOME of that burden being lifted on the rich and corporate profits will be shifted onto foreign tourists who currently don’t pay federal taxes, and a very small percentage will be shifted onto the “underground economy” (I say a very small percentage because I think those currently making money in the underground economy will find ways to get around the FairTax, either by offshoring their purchases or creating shell corporations to buy new goods - remember, corporations are exempt from paying the tax on their purchases - and reselling them to the underground buyer as used).
But MOST of that burden will be shifted onto other U.S. taxpayers. That is, the middle class and poor, who spend a higher percentage of their income than do the rich.
And really, isn’t that THE POINT of the FairTax? Read on.
Joshua:
Listen to yourself:
“What you are advocating is a dressed-up form of theft, of taking money from people who would not give it to you willingly; I want no part of it, thank you very much. I think your wishes to confiscate wealth from those who create it, even under the guise of ’supporting the poor,’ are deplorable... when you... reach for a gun - or a legislator - to do your ‘charity’ for you, then you’ll get no sympathy or support from me.”
This is the crux of the pro-FairTax argument - that the current income tax system is an unfair re-distribution of wealth from the rich to the poor, which FairTaxers find “deplorable.” Let those lazy, shiftless, no-account poor people get a decent job and take some responsibility for their own lives, gosh-darnit!!!!!
In other words, the FairTax is DESIGNED to stop the “confiscation” of wealth from rich people and its “re-distribution” to lazy poor people. Which kind of proves my point that the poor, under the FairTax, will be required to pay a larger share than they do now to run the government.
The only problem is, they can’t afford to. THEY’RE POOR!!!!!!!!! That means they don’t have any money. So they can’t afford to pay more.
And MOST of them are not lazy, shiftless and no-account. MOST of them WANT to work. MOST of them DO work. Many of them work two or three jobs. I personally know people who work 10-12 hours a day, seven days a week, just to make ends meet. That means NO leisure time, NO time to spend with their families (if they can even afford to HAVE families), and living one step away from financial disaster if the car breaks down, the roof springs a leak, or they suffer a catastrophic illness. Is that REALLY the American dream? Is that REALLY the best the richest country in the world can offer them?
I find Joshua’s comment - “there are two ways to get money in this world: deal with people by means of consent and persuasion, or by means of coercion and theft” - interesting. Under which category would you put Ken Lay’s fortune? I vote for coercion and theft. Why, then, does his fortune deserve a special break from taxation? Does the mere fact that someone’s rich automatically make them smarter, more creative, more innovative, more deserving, BETTER, than a hard-working poor person? If you really believe that, how do you explain Paris Hilton?
Sorry... I can’t buy into the notion that the rich, simply by virtue of their wealth, deserve any special consideration. And I don’t think 35 percent of their income and 15 percent of their capital gains is too much to ask of them.
And by the way... taxes don’t go JUST to support the poor. In fact, social programs make up a tiny portion of the federal budget. The bulk of the budget goes to Social Security and Medicare, which benefits ALL seniors, rich and poor. The second largest chunk goes to defense. Are you saying, then, that the rich also bear no responsibility for providing for the defense of our country?
Joshua/Hayden,
How quickly your informative philosophy and morality discussions revert right back to those boring numbers that Hayden has no love for? In this case, Hayden’s 55% is certainly not as far-fetched as one might think. I’ve already shown you that there was a fundamental error in the 2005 BHI base/rate study that, when corrected, will result in a 36% exclusive rate. (That’s the tax that all retailers will have to add to their costs plus profit in order to arrive at the price at the cash register.)
It is also not far-fetched to believe that the federal taxation of state and local purchases will be found to be unconstitutional. When all taxation of governments is removed, the exclusive rate climbs to 43.5%. And that assumes no evasion/avoidance and no exemptions other than education costs.
Adding a very modest 10% evasion/avoidance factor raises the exclusive rate to 51%. The subject of exemptions is more difficult to deal with, but, as you might recall, I polled all 50 state Treasurers to try to get a feel for their reaction to the Fairtax. Here is a quote from an important northern tier state treasurer which is quite representative of the many responses I received:
“As you mention in your message, the FairTax envisions taxing all consumption, including consumption by government entities, at the FairTax rate. This would result in a significant increase in the cost of purchases of many items by state and local governments, including school lunches, prescription medication for Medicaid patients, and emergency vehicles for first responders. Even if the FairTax proposal is enacted at the national level, I believe taxing government purchases would not be included. It is difficult to envision Congress and the President subjecting public safety equipment or public health care services to such a tax. In addition, the sometimes tenuous cooperation that exists in our government structure between federal, state, and local governments would be difficult to maintain if the federal government were collecting taxes on state and local government purchases.”
So, Morphh. If I was a betting man, I think I’d bet on 55%, not 10%, although I admit I do not understand what you meant when you said it “would be more in the range of 10% than 55%”. What would be? the Fairtax rate or the increase in retail prices. Can you clarify?
Hayden’s comment regarding what is fair or unfair seems to remind me of what Milton Friedman described as equality of outcome, rather than equality of opportunity (what our founders desired).
I have to say that I’m not sure how the widowed mother example would be saved by our current system of taxation. Absent of insurance, she would pay income taxes on whatever means she had to pay her medical bills. Any burden likely place on her before is likely placed on her after - it is just more transparent. A tax system should not be used as a method of social justice or social engineering. If we want to give this lady a hand out through taxation, do it on the expenditure side of the books.
Hank, that was Joshua that stated 10%.
Assuming at least some taxation is neccesary, It would seem that taxes levied to directly bill the user are the most effective and least resisted. A gas tax that supports the road your driving on or toll. Property tax to support fire departments etc. I have a real problem using gas taxes to support bike paths and alternative energy, light rail , they should pay there own way just like I did when I filled my tank. In regards to Haydens comment about the rich benefitting from the system. I believe you couldn’t have it more backwards, the rich benefit from hard work, smart risk, and satisfying market demands and the best system is one that recognizes that——-the Capitalist System
Well, this link is starting to expose us all.
On the left, we’ve got the bleeding-heart liberal socialists — Hayden and Bill.
On the right, we’ve got the free-market libertarians — Joshua and Morph.
In the middle, we’ve got the I-believe-in-free-markets-but-don’t-touch-my-Social-Security-check — Hank.
It’s a shame we all live so far apart. We really need to get together for some brewskies. It would be a hell of a lot of fun.
Morphh,
Oops! My mistake. You have been on my mind as I was waiting for you to convince me that Kotlikoff and BHI did not make an error in their base/rate study.
Joshua, what did you mean by your 10% statement? Can you clarify?
Hayden,
Well isn’t that the truth.
Joshua
In response to post 3,
There is so much wrong with the response, I don’t know where to begin. But since this is the fair tax blog, I guess the best place to start is on the complete misrepresentation of the “crux of the pro-FairTax argument.” “[T]he current income tax system is an unfair re-distribution of wealth from the rich to the poor.” This shows more of a political bend of the author of this statement than it does to the actual knowledge of the main driving force behind the fair tax. The crux of the fair tax is that it will help the American economy by taxing consumption rather production. Since the “crux” is subjective, one could also say that it makes tax system fairer by removing 65K pages of tax code that benefit certain individuals and activities. But to say that the main point of the FairTax is to take more from the poor, so the rich don’t pay so much, is more based on what the anti-FairTax people want you to believe, than what the pro-FairTax people believe.
As far as paying taxes goes, American citizens do have an obligation, but ONLY BASED ON THE CONSTITUTION OF THE UNITED STATES. Any taxes the federal government requires for national defense, foreign affairs, regulation of interstate commerce, and some more enumerated responsibilities, the citizens of the United States are responsible for paying. While you can say people are “coerced”, I think of it as living up to a voluntary contract. If you freely choose to be a citizen, you must pledge your support to the constitution. However, any tax Americans are forced to pay that is not constitutional, e.g. social security, medicare, any taxes used for the department of agriculture or education or the FDA, is done so through coercion, or by theft. Take the department of agriculture for instance, if instead they were a charity that used their funds to make food in the US more expensive for the poor, so that agribusiness makes more money, I would choose not to support them. You may want to support them and you would be free to, but as it stands, I am forced to support this despicable activity.
With regards to our current wealth redistribution program, I don’t see it as from rich to poor. I see it as from rich and poor producers to only rich thieves, i.e. Congress. While I don’t see the fair tax directly affecting this redistribution, I can only hope that as people see the totality of the government’s thievery that someday we can restore the constitution’s limit on our government.
Hayden,
I’ll come to Atlanta if you’re buying. But I’m not coming without the other half of the Fairtax truth squad known as “HanknFred”
Hank, I figured that if BHI themselves couldn’t explain it (since you were e-mailing them), then I doubt I’ll be able to do any better. As I see it, any increase in prices is followed by an increase in revenue (due to the expanded base) that pays for the additional government expenditure on price increases. The tax itself is a wash as the revenue equals the expenditure. But.. I’m not sure I want to get into it again.. makes my head hurt.
Particularly not on this thread... different topic.
Hank,
“Joshua, what did you mean by your 10% statement? Can you clarify?”
I meant that if you’re talking about a 55% tax, you’re no longer discussing the FairTax Act; you’re discussing something else.
In previous threads, you’ve asked me how much I think the real increase in prices would be at the end of the day. As i said there, I think it’s closer to 10%.
But I’m not an economist and I don’t want to get in the weeds with you or anyone else about that figure.
Joshua
Josh/Morphh,
O.K., I’ll get off this subject. But, you both might be interested to know that Gale and Kotlikoff have advised me that taxes are not included in the GDP. So, morphh, the fact is that the base will likely shrink, not grow under the Fairtax.
Hayden:
I’ll come to Atlanta, too (if you’re buying - and make mine Captain and Coke). It’s only about a six-hour drive up I-75 from here. You’re right, it would be fun!
Andrew:
You are free to disagree with my characterization of the purpose of the FairTax. But it does seem to me that a lot of FairTaxers I’ve spoken with personally, along with several on this blog, and chief FairTax proponent Neal Boortz himself, do all seem to share the view that the income tax is a vehicle for “confiscating” wealth from the rich and giving it to the poor. And there’s no question in my mind that whatever the INTENT of the FairTax, the CONSEQUENCE of it will be a shifting of tax burden from the rich and corporations onto the middle class and poor.
As for getting rid of 65K pages of federal tax code that only benefit certain individuals and activities, I’m for that, too. We talk about high compliance costs and the complexity of the code, but the income tax structure itself is simple and straightforward. It’s only been made complex by the never-ending addition of more and more exceptions, deductions and loopholes. Lower the rates across the board by 5 percent, eliminate all but a few standard personal and business deductions, and the income tax would be simple, fair and user-friendly again. We don’t have to throw out the baby with the bathwater.
IMHO, the problem with your Constitutional argument is that it assumes the Constitution to be a static document. That’s not what the founders intended, which is why they created a legislative process to make new laws BASED on the Constitution, and an amendment process to expand the Constitution beyond its original meaning.
They had the foresight, I believe, to know that the world of the future would be far more complex than the world they lived in. For example, there was no real need for anything like Social Security or Medicare in their day. There is in ours. The airplane was a century and a half away from being invented when the first draft of the Constitution was written. Does that make the FAA unconstitutional?
Trying to set 21st Century spending priorities based on an 18th Century model seems to me somewhat misguided.
Here, here!
Bill is another independent thinker who says — wait a minute! — if the income tax is so damn complicated (which it is), the first thing we need to do is simplify the income tax. Rates could come down and it would be less burdensome to boot. That would be a lot simpler, easier and less risky than a wholesale replacement of our durrent system of taxing our citizens, which, after all, has produced the greatest economic machine in human history.
Sounds like a convert to the Kepner Tax Plan (which Morph so kindly put up on Wikipedia). Now all we need is our own talk radio show!
In all of these comments, little mention is made of the greatest benefit of the FAIR TAX, the economic benefit for everyone in the United States. (1) The elimination of income tax necessarily a part of the sales price of all produce of our country would make our product much more attractively priced internationally. (2) The millions of people presently employed in the totally non-productive enterprise of tax legislation and tax avoidance would become productive. These millions of lobbyists, lawyers, accountants (I used to be one) and all their service staffs are, of course, the most vocal of the anti-FAIR TAX chorus, but they will find productive employment elsewhere. (3) The cessation of absurd business transactions adopted purely for tax purposes. Don’t believe for a minute domestic corporations move much of their operations to offshore banking islands for any purpose other than income tax avoidance. (4) Bring to the harsh light of reality the financial support of social programs supported by income tax slight of hand. The Salvation Army will survive because people believe in it and will continue to give funds even when there is no tax benefit. The Michael Vick Charitable Foundation may fold. (5) Warren Buffet will pay the same sales tax rate, whatever it may be, that I will pay. He no longer can lament that he pays a lower tax rate than his secretary. How absurd is it that a man of such wealth pays millions of dollars each year to experts who tell him how not to pay millions of dollars of income tax that middle class people pay?
Howard
Uh, oh! Looks like we’d better raise our tax rates to keep up with these guys!
Britain is world’s 7th most stable and prosperous nation
Michael Evans, Defence Editor
Top 50: read the full list
The United Kingdom has been ranked as one of the most stable and prosperous countries in the world, beating the United States, France and even Switzerland in a global assessment of every nation’s achievements and standards.
A one-year investigation and analysis of 235 countries and dependent territories has put the UK joint seventh in the premier league of nations. The top ten comprise also the Vatican, Sweden, Luxembourg, Monaco, Gibraltar, San Marino, Liechtenstein, the Netherlands and the Irish Republic.
The US lies 22nd and Switzerland, normally associated with wealth and untouchable stability, is rated 17th, losing points in the assessment of its social achievements.
The UK received high marks despite the deployment of combat troops in Iraq and Afghanistan, the suicide bombings in London on July 7, 2005, the continuing threat from home-grown terrorists and the collapse of the Northern Rock bank.
The global check on every country recognised as an individual state or territory by the United Nations was carried out by Jane’s Information Group and is published today.
Christian Le Mière, managing editor of Jane’s Country Risk, which compiled the ratings, said: “The UK is a very stable country. But the top 20 or 30 countries are all stable. There are terrorist groups in the UK but there are effective security forces to deal with them. We took the July 7 bombings into account but the UK still came out very well.”
He acknowledged that it was a little unfair to put the Vatican at the top because it did not face the sort of threats and economic pressures of other countries. But under the rating system, which took into account each nation’s political structures, social and economic trends, military and security risks and external relations, the Vatican state scored an average of 99 out of 100. Sweden and Luxembourg were also rated 99, with the UK not far off, with an average of 97, but scoring 100 for its politics, economics and external relations.
Mr Le Mière said that the US had fallen down the scale, although it still scored an average of 93 out of 100, partly because of the proliferation of small arms owned by Americans and the threat to the population posed by the flow of drugs from across the Mexican border.
Most stable:
Every country has been given a risk rating out of 100 for all-round stablilty
1. Vatican 99
2. Sweden 99
3. Luxembourg 99
4. Monaco 98
5. Gibraltar 98
6. San Marino 98
7. Liechtenstein 97
8. United Kingdom 97
9. The Netherlands 97
10. Irish Republic 97
US: 22nd equal 93
Bill, you would do well to educate yourself about the current income tax system. The 16th amendment came into to being under very shady circumstance. It actually fell three states short of ratification, recounts were ordered but before they could be done the Secretary of State certified it in a political end around. Read it for yourself, it’s available in the US Congressional Record. The income tax idea itself came directly out of the Communist Manifesto and was introduce here by the Progressive Party in a time that socialism was still considered a utopian ideal. This is why income tax must punish achievement and reward failure. This is not an American ideal.
rmforbes,
Absolute, utter balderdash! You are simply repeating 25 year old tax protestor arguments which have been found by the courts to have no merit. You must have watched Aaron Russo’s infamous flick one too many times. And, a lot of people have spent a lot of money on fines and have spent a lot of time in jail for believing this nonsense. Shame on you for spreading such misinformation.
As for the Progressives being responsible for the income tax, you may well be correct, but the income tax legislation passed the Congress during the Taft Republican administration and was ratified at the start of the Wilson Democratic administration, during which times the Progressive party was getting less than 3% of the popular vote. Blaming it on the Progressives hardly seems to make any sense.
Bill,
I don’t disagree with your assertion that many people, especially fair tax supporters, believe our current tax system is a transfer of wealth from rich to poor. My disagreement is with the statement that the crux of the fair tax argument is the deplorable nature of this transfer. Again, that is how opponents want to present the tax because it’s a good way to get people to have a visceral reaction to the fair tax in a negative way. Like I said earlier, I think the government takes from rich and poor alike (embedded taxes), they just give a fraction of what they take from the poor back to them.
I am glad that you agree that the 65K is a bad thing. I am assuming that most people think about 64.9K of it is bad. It’s just that everyone has a different 100 pages they think are good. But I’d be happier if we had a simpler income tax than we have today. Of course, I’d be even happier if we had the fair tax.
Our founders intended the Constitution to be a limiting document. It’s not static in the sense that there is an amending process, but the laws created by our federal government need to fit under its framework, which is supposed to limit the power of the federal government. I’m not sure what you mean by “which is why they created a legislative process to make new laws BASED on the Constitution.” As opposed to codifying the entire federal government in 1787? Our founders were fighting for freedom, especially freedom from a tyrannical government. That’s why they created three branches of government. So no branch could get too powerful. That’s why both houses of congress have to agree on a law, the president has to accept it, and the Supreme Court can overturn it if deemed unconstitutional. They were very weary of this power getting abused. They would not be very pleased by what they see today.
As far as social security and medicare goes, I don’t think our country “needs” to pay rich people for retirement and medical care. If the FAA does not fit within our constitutional framework, then yes, it is unconstitutional.
Fair enough, but it is one thing if somebody inherits something and has to pay taxes on that nd quite a different thing if you have to pay taxes off your hard earned income - which happens to be above average.
Hank,
First of all I am not one of those tax protester nuts. I believe that paying taxes is a responsibility of citizenship. But I do not believe in class warfare that was very much in vogue in the early 1900’s. I also believe that income tax is Un-American, it rewards failure and penalizes achievement. It actually is a anchor to upward mobility making it harder for especially the poor to succeed. Income tax actually is hurting the ones it was designed to favor the most.
mforbes –
I think I understand some of your concerns, and certainly share many of your frustrations with the income tax system, but I respectfully disagree with some of your statements/conclusions.
1. The country’s first income tax was enacted during the Civil War. I can’t recall when Marx published the Communist Manifesto, be even if it had existed then I hardly think either Lincoln or Congress in the 1860’s were very much influenced by radical marxists in Europe.
2. It’s true that the income tax was not authorized by the Constitution as written, but think about it for a minute. During the time the Constitution was written, probably 90 percent of the population lived on farms. Those that lived in cities worked primarily for cash wages and/or room and board. There was no way to track, let alone tax, income. Thus, though I’m sure the concept was discussed, it was impossible to implement.
3. That’s why most states would get their tax revenue from property taxes (which was essentially a wealth tax, since back then almost all wealth was in real property) and from sales taxes on certain items. If I recall, the federal government mainly relied on import duties (which was one of the causes of the Civil War, since the North wanted high duties to protect its industries and the South wanted lower duties so it could import finished goods cheaper).
4. Although the federal government tried two or three times to enact a federal income tax in the 1800s, the Supreme Court kept striking it down. So, finally, the Constitution had to be amended in 1913 or so to permit the income tax.
5. Now, stop and think for a minute. You know how incredibly difficult it is to amend the Constitution. I’m sure someone will correct me, but it takes something like 2/3 of Congress and 3/4 of the states (or vice versa). So the fact that amending the Constitution to allow for an income tax could generate such overwhelming support across the nation indicates the depth of the people’s frustration that people from all walks of life all across the country must have felt with the then-existing system.
6. Yes, I realize the original income tax tate was very low and only was supposed to affect just a few people, but I think that today we fail to realize just how many problems our pre-income tax system must have caused in order for the people to get so riled up they would demand that the government have the ability to tax income.
7. You might think the income tax system (and the estate tax) was the result of a bunch of wild-eyed socialists, but you might want to go back and re-read The Jungle or some of Dickens’ books to remind yourself of just what life was really like back then.
8. I don’t believe the income tax hinders upward mobility to the extent you seem to believe it does. For the majority of taxpayers, the effective tax rate of the federal income tax is under 10%. You would need an income well into the hundreds of thousands of dollars before your effective income tax rate will reach the 20% level. (Social Security taxes are another story; I’d probably agree with you that they hinder upward mobility.)
9. In my opinion, the FairTax would hinder upward mobility far more than the income tax does, because the FairTax would, by design, shift most of the tax burden to the middle class. I realize this has been endlessly debated on this blog, but there’s really no getting around it. We all know that rightly or wrongly the vast majority of the country’s tax revenue currently comes from a relatively small percentage of high-earners. You might think this is unfair, but unless you can show how the FairTax will generate the same amount of tax revenue from upper income folks that our current tax system does, then in order for the FairTax to be revenue neutral it would necessarily increase the tax burden on the middle class. That’s just a mathematical fact.
10. I agree with you that we don’t want class warfare in this country. But, as Warren Buffet would probably say, the FairTax IS class warfare — a war on the middle class.
Hayden, your “mathematical fact” that the FAIR TAX will adversely affect the middle class is mathematical conjecture, and, I think, totally wrong. Until the super rich give up their Rolls and their million dollar engagement rings and multi million dollar Aspen “cottages,” the FAIR TAX will hit the rich much more than the middle class. As a sailor, I see announcements every month in sailing magazines of 100’ to 200’ yachts being built for the super rich. When buying a $100 million toy, they surely don’t consider cost. Consider your financial world with only a sales tax on new merchandise and services. You can escape the sales tax by purchasing used items if you wish.
I fantasize about how my life would have been lived paying a federal sales tax rather than income tax. It would have been incredibly different. That difference would include not becoming involved in financial transactions that make no sense other than avoidance of paying income taxes. One of the most financially rewarding schemes of my past was the sale of limited partnerships in public housing offered by Paine Webber to high income professionals. I could show a doctor in Houston how he could pay $20,000 for a piece of an apartment in Boston and by decreasing his income taxes, come out with a cash profit in 3 years. The builder of the apartment and Paine Webber and I made tons of money, not by producing anything of real value, but by “beating” the income tax system. The plan was incredibly stupid as a realistic financial investment. That stupidity is alive and well today.
Just think of the money that will not be spent stupidly under the FAIR TAX. That saved money will go to increase wealth of all of us in investments in job producing manufacturing or medical research or a basic increase in living standards. Rather than one pair of shoes, I can afford two pairs. I could afford a 50” plasma TV rather than a 36”, etc.
In a free society as we enjoy in the United States, accumulated wealth spills out to all of us. The history of our economy surely demonstrates that to you. We have become the dynamic economic force of the world in spite of the income tax, not because of it.
Howard
Hayden,
You are right the first income tax was right after the civil war, but it was repealed when it expired. However, it was far different than our current system which was pasted by congress in 1909 and the 16th amendment was ratified in 1913. The second plank of the Communist Manifesto is a graduated income tax as our current system. The Russian revolution ended in 1917. Make you own conclusion.
You must not be in the same income bracket as I (lower middle), every time I work overtime most if not all the extra money I earned, go to taxes. When I get raises, again most is not available to me, it goes to taxes. In the past I did some free-lance work on the side but I stopped doing it because I would actually loose money by the time I worked in my expenses and TAXES. Don’t tell me that our current system helps you get ahead.
Again your characterization of the Fair Tax is just plain wrong. Everybody pays less with the Fair Tax because the same amount is spread evenly over a much larger group. Also, we are already paying the taxes of business owners in the form of higher prices, any attempt to tax the rich ends up costing us all more—not less.
I’m going to post tonight on all three threads, because there are statements being made on all three which I think merit a response.
On this thread, to Howard and rmforbes, regarding your last posts here:
Howard said “in a free society such as ours, accumulated wealth spills out to all of us.” This is known as “Trickle-Down Theory,” which was the centerpiece of Reaganomics. In other words, we’ve been operating under Howard’s assumption since the 1980s. The result is not just the greatest income inequality since the Gilded Age (which spawned the first permanent income tax), but a situation in which the accumulated wealth of the few has NOT spilled out to the rest of us.
Thus, real incomes for the low and lower-middle class has remained stagnant or fallen when adjusted for inflation, and for the first time since World War II, a generation of Americans will likely NOT achieve the same standard of living as their parents.
rmforbes, you repeat the canard that “we are already paying the taxes of business owners in the form of higher prices, any attempt to tax the rich ends up costing us more, not less.” This would be true IF the prices we pay for goods and services at the retail level were directly related to the cost to produce those goods or provide those services. But, increasingly, that relationship does not exist. Yes, when fuel costs rise, prices go up. But generally speaking, they don’t come back down when fuel prices moderate. And I would point out that if your assumption were true, then the cost of goods in the 1970s, when the corporate tax rate was 48 percent (and fewer corporations dodged the tax by offshoring their profits), prices for goods would have been higher then than they are now, and inflation-adjusted income would have been lower. Instead, just the opposite is true. Now, on to the next thread.
Bill, you have your eye on the wrong ball. Why should you be concerned with the success of someone else? Where have you gone during these years of “trickle down” Reaganomics? Does someone else’s success make your’s less attractive?
Charlie Rose recently interviewed Dr. Lawrence Summers who was fired as Harvard’s President for God only knows. His credentials as an economist are outstanding. He said a 100% improvement in the standard of living of a society historically takes generations. China has improved its standard of living hundreds of a percent in the last 10 years. If you wish to bemoan the good fortune of others, jump on the Chinese.
In the last 20 years a person at a fixed level in our society has dramatically improved his station in life. He lives in a larger, better house. He drives a better automobile. He dines away from home much more frequently. He vacations more and more expensively. Unfortunately, he still hasn’t learned to save.
The FAIR TAX would encourage saving rather than penalize it. Those savings would become a part of the investment world that has produced this marvelous economy we enjoy. Just consider the benefits of capital for new plants and new businesses. We would all reap the rewards of the FAIR TAX.
Howard
Bill,
I never said or even implied that there is a one to one relationship between business taxes and prices. What I was pointing out was that any business-person that wants to remain in business and to support their family will as a matter of good business sense simply treat any increase in taxes or cost to comply as they would any other increase in the cost of doing business. Cost increase will increase price or the business-person settles for less profit and a decrease in standard of living. Is this business-person in reality paying any taxes? I don’t think so, they are collecting taxes and passing them on but the customers are really paying all his taxes.
Bill,
You stated, “Yes, when fuel costs rise, prices go up. But generally speaking, they don’t come back down when fuel prices moderate.” I’m not sure where you get the basis for this statement, but I’ve seen fuel go up and down many times in life.
Furthermore, prices charged at retail are directly related to the costs to produce goods or provide services. It’s part of the supply curve. If you raise the cost to produce a good (say by raising a tax) and prices remain the same, the profit margin will decrease. While this might be acceptable for most units being supplied, at some cost fewer units will be produced. With demand staying constant, this will produce a shortage and the price will go up until equilibrium is reached. This is how the tax gets embedded.
I’ve asked this before, but since I never got a response, I’ll ask again. If you don’t believe prices will go down under the fair tax, can I assume that you believe the prices corporations set today are based on their altruism?