Replacing the Income Tax
Stephen Eldridge has taken a detailed look at the FairTax and written a critical paper of the tax plan. While I do not share Mr. Eldridge’s conclusions or agree with many of his arguments, he has put together a well documented paper worth reading and discussing.
Stephen writes:
After much study and analysis, I believe that the H.R. 25 sales pitch is full of superficial arguments and hidden truths aimed at a public which does not have the interest, time or training to dig under the surface to understand how H.R. 25 really works and how it affects our economy and lives. Upon further research, additional negatives emerged.
and quips
It is a deadly prescription for curing our existing Internal Revenue Code malady. If it is ever enacted, H.R. 25 will surely kill the patient. We must look for a cure that makes us healthy.
While covering a great range of topic points including reviewing other tax plans and suggesting a solution, he focuses on several main points with H.R. 25.
- Wealth Redistribution, Progressivism, Class Warfare is expanded
- The Sales Tax Base is far broader than any tax system in the world
- The Sales Tax Rate may be very high – the “sticker shock” will destroy our economy
- The States are affected negatively
- The “IRS” grows worse than ever
- America’s Home Buyers and Builders will suffer greatly – Banks will not lend on the sales tax
I think by far, Stephen’s best argument is on wealth redistribution, progressivism, and class warfare. I’m not sure if his final solution presented in the paper would ever be viable for the American people, but I respect his effort and applaud his goals.
Here it is for your pleasure and discussion (also added to the research section of the blog). “Replacing the Income Tax“
I have read a few criticisms of the FairTax but, this one takes the cake; 104 pages of nonsense. Right from the beginning Eldridge has misstated the FairTax. He says it replaces income tax, payroll tax, and the estate and gift tax. It also replaces corporate and capital gains taxes which he never mentions. All he does is ramble on and on and on, never once giving any proof of his ramblings. For example he says the consumption tax would need to be 150%. What a crock. If you look at 2010’s GDP and current federal receipts, you will find that the proposed 23% tax would have generated more revenue than what has actually been generated under our current system.
I could go on and on as Eldridge, but I just get more and more upset as I read his ridiculous assumptions.
Mr Wise Old Owl does not understand many things. 1) the Income Tax that would be replaced includes Individual Income Taxes – which includes the Capital Gains Tax- as well as Corporate Income Tax i.e., those are not separate taxes but included in the Income Tax. 2) I have proved all of my statements with 100+ citations – the 150% tax rate is referred to many times over as a combination of the President’s Tax Reform panel plus UVA Law Professor Yin’s law review article.
Mr. Wise Old owl does not understand the difference between the many theoretical assumptions made by HR 25 promoters and the real life financial and tax experience of those of us who have studied these subjects all of our lives.
The truth does seem to upset H.R. 25 Cultists.
Mr. Wise Old Owl, you did not comment on the Illustration of the Prebate and its outrageous expansion of unconstitutional wealth redistribution and class warfare.
Your “truth” is often an opinion. And you know what they say about opinions… Long live the cult!
The truth relies upon facts and realities, which can be obtained only by thoughtful study of the subject, not by a few quick,superficial, misleading arguments.
I am confident that WOO and many H.R. 25 supporters (other than Morphh)have not studied the underlying realities in any depth – my paper will give them that opportunity.
I recently initiated a discussion with a major, well educated, fan of H.R. 25 and began with “Let’s start with the Prebate”. He replied, “The what?”
Most of the people with whom I have shared my Illustration of the Prebate are astounded by it and rteject H.R. 25.
Think about what happens to cult members. Think, study, understand!
Stephen, I’m sorry to bust your bubble but individual income taxes, capital gains taxes, and corporate income taxes are all different taxes and should be listed as such when explaining what taxes would be replaced under the FairTax.
Would you provide one website where the president’s tax reform panel or Professor Yin states the FairTax rate would need to be 150% to be revenue neutral? If you can produce this I will be happy to debate the FairTax.
I have long been interested in the issue of new home ownership and the financing of the Fairtax. Supplement 18 in this paper lays out a real horror story, for which I don’t see any ready solution?
I did a little research on my own, and for openers, I can’t find any information from AFFT on the subject of financing the sales tax. So, I called my banker/ mortgage broker who told me that the BofA would finance either the sales price or the appraised value, WHICHEVER IS LESS! So, my next stop was the leading home appraisal firm in my area who informed me that appraisers operate under the “Uniform Standards of Appraisal Practices”, a document which is overseen by the Appraisal Foundation. Under these guidelines, TAXES, COMMISSIONS, AND THE LIKE CANNOT BE INCLUDED IN AN APPRAISED VALUE!
At this time, a buyer would have to come up with not only the typical 20% down payment, but also the 30% sales tax which the builder added to his costs. New home ownership just got very difficult for everyone but the very wealthy!
To further speculate, as the home ownership market slides down the tube, perhaps the appraisers would try to get their guidelines changed to include taxes? But, due to the three reasons put forth by Mr Eldridge, banks might not go along. Too risky, particularly at this time of trying to recover from the Dodd/Frank fiasco. Congress might try to solve this issue with loan guarantees or whatever, but it isn’t clear to me that there would be any solution that would make everyone whole and allow new home purchases by the rank and file.
Any comments?
Even if real estate appraisal rules would allow condidering the effect of the sales tax, banks would be INSANE to take the tax risk that ANY ONE OF THREE obvious tax risks outlined in SUPPLEMENT 18 could wipe out a significant part of the house’s value and put the mortgage under water.
It’s more than just the H.R. 25 tax of 30% that will have to be paid in cash (in addition to 20% of the pre-sales-tax price). H.R. 25 economists are now saying that the tax rate needs to be 35% and then we must add whatever rate the States add on (when they merge their current sales taxes and likley their income taxes into a new State Sales Tax on the same tax base as H.R. 25).
I love it when everyone who is against the FairTax refers to it as a 30% tax. Here is one thing that everyone cannot disagree on; under the FairTax for every dollar you spend on new goods or services, the government will end up with 23-cents of that dollar. I would like one person to disagree with that. In other words for ever dollar you spend, the government’s cut is 23% of that dollar not 30%.
When I look at my tax rate, I look at what percentage of my income ends up in the governments’ hands. If I earn $100,000 and they end up with $23,000, I consider the rate to be 23%.
Opponents want you to believe that if you earn $1.00 and the government takes 23-cents the rate is 23% but if you spend $1.00 and the government takes 23-cents the rate is 30%.
If banks won’t include the tax in their mortgages, there won’t be too many loans. Once the FairTax goes into effect, the market value of a new home will include the tax just as it includes all other costs and banks will make loans based on the market value.
Now let’s compare a family’s ability to purchase a new home under both the FairTax and our current income tax system. To give a true comparison, we need to look at what their house payment and their available income would be under each plan. Let’s assume we are looking at a family of four with an annual income of $100,000.
Let’s look at the worst case scenario under the FairTax. and the best case scenario under our current system. Let’s assume the cost of the home is $300,000 with a 20% down payment of. Let’s further assume the mortgage has a 30-year fixed rate of 5%. Under the FairTax, even though the before tax price will come down once all current taxes and compliance cost are removed, let’s assume the worst case scenario and the before tax price is $300,000. In this worst case scenario, the after tax mortgage under the FairTax will be $295,200 ($300,000 plus tax of $69,000 less down payment of $73,800). Their monthly interest and principal payment will be $1584.70.
Under our current system their mortgage would be $240,000 and their monthly interest and principal payment payment will be $1288.37 which is $296.33 per month less than under the FairTax.
Now we need to figure their available monthly income under each tax system to determine which payment would be more affordable. Under the FairTax their available income is easy to figure, it would be $100,000 plus their annual prebate of $6702 for a total of $106,702 or $8892 per month. By the way, this amount of available income would be the same for every family of four earning $100,000.
Under our current system each family’s available income will vary depending on their deductions, but let’s look at the best case scenario; one in which they have no income tax liability. Even if they have no income tax liability, their available income will be reduced by 7.65% for deductions made for S.S. and Medicare which would be $7650. This would leave them with annual available income of $92,350 or $7696 per month.
Their monthly payment would be $296.33 per month less under our current tax system, but their monthly income would be $1196 more under the FairTax. After making their higher monthly payment they would have additional spendable income of $900. Remember this is the worst case scenario under the FairTax and the best case scenario under our current tax system. I’ll let you decide which tax system would make this house more affordable.
Also, since they will be saving with before tax dollars under the FairTax, and after tax dollars under our current system, they will be able to accumulate a down payment of $73,800 under the FairTax just as fast as $60,000 under our current system.
Hank’s and Stephen’s comments raise a couple of very interesting points.
If the price of new homes increase under the FairTax, but the price of existing homes do not increase by a corresponding amount, then there’s no way the FairTax could be included in the appraised value of the home because the homeowner would not recover the FairTax when he sells his home. Thus, as Hank and Stephen point out, a lender would not lend on the FairTax component of the purchase price of a new home. This would make it much more difficult to finance the purchase of a new home, which would further suppress sells.
On the other hand, if the price of existing homes were to increase under the FairTax (even though they would not themselves be subject to the FairTax), then the appraised value of a new home would presumably include the FairTax component, because the amount of the FairTax would be recovered when the home was sold.
But, think of the economic implications of that. If the FairTax increases the value of all homes, regardless of whether they are new construction or existing homes, then that has the effect of shifting trillions of dollars of wealth away from the 35% or so of the population that do not currently own homes to the 65% of so that do. In other words, since I already own a home, my net worth would automatically increase if we were to shift to the FairTax. But people who do not own homes would see the price of both new and existing homes increase by 30% (or whatever the rate might be), thus making home ownership even more unaffordable for them.
This isn’t an argument that could fit on a postcard, but if people understood the implications of this that would pretty much kill the FairTax movement once and for all.
Morph — What do you think about that argument?
HAYDEN,
Even if the H.R. 25 sales tax does increase the value of existing home, and even if appraisers initially are able to consider that value, the problem that I am raiusing assumes and goes beyond that.
A banker will STILL be unwilling to lend on the sales tax because that value can disappear overnight if ANY ONE OF MY 3 reasonable scenarios occurs. That is simply too great a risk for then lender whose mortgage would then be under water.
Hayden,
That increase in value that the sales tax would add to existing homes could disappear if any1 of my 3 scenarios occurs.
Sorry Steven, individual income tax does not include capital gains tax and corporate income tax. If you are going to explain what taxes are being replaced by the FairTax it is only fair that you name them all.
Sorry folks.. I’ve been out camping and stuff… and checking the blog for moderated posts got forgotten. Please look over the recent threads, as I just approved half a dozen posts that you may have missed. Also, I haven’t had time to read them all, so if someone is misbehaving (remember no personal attacks), then let me know.
Hayden, I’ve debated in email with Steven long and hard on the home issue and we never got very far with each other. I think the argument is based on rows of unlikely assumptions, static models based on today’s tax code, and unsound economic theory. I’m pretty open to accepting the real negative effects (comparatively) in any particular tax plan, but in the end on this point, we had to agree to disagree. His argument didn’t convince me, but I give him points for his tenacity.
If a new home costs $300,000 after the FairTax has been added on, do you believe a seller of a comparable used home that was purchased prior to the FairTax would be willing to sell that used home for $230,000. I don’t believe so. They may price it for a few thousand less but not by the full amount represented by the consumption tax. Demand will dictate the difference.
woo,
I used to think the way you do, that is, competition would quickly close the price gap between used and new goods. But, Stephen has highlighted some facts that I hadn’t considered. You seem to have missed the clear facts that banks will only finance the appraised value, and appraisers can’t include taxes in that value under current standards and guidelines.
Your new home cost after tax of $300,000 reflects a home value of $230,000 or so. That is what your comparable home cost last year pre Fairtax. So, yes, the owner of that used home should be happy to sell for $230,000, particularly in today’s market of declining values. More to the point, how on earth would an appraiser value that home at more than $230,000. Do you think that a comp of $300,000 which includes taxes would be considered? Appraisers can’t include taxes in value, so if the buyer of the used home tried to sell for a little less than $300,000, the used home buyer is also going to come up with a huge down payment of roughly $130,000, isn’t he? ($70,000 in embedded sales taxes plus $60,000 down).
I believe the housing market would be doomed by the Fairtax, and I haven’t heard any ready solutions. Morphh may disagree with Stephen, but just what fix does he believe is possible? I don’t believe in miracles!
Hank, that argument rests on the phrase “under current standards and guidelines”. What makes you think that the dynamics of that market would not adjust based on the new tax code realities? Will financiers not finance new construction? Will everyone sit back and watch that market collapse because the “current standards and guidelines” do not consider the new changes in the way our tax system works? Or will business rewrite their standards and guidelines based on new tax law?
Tax is part of the cost in the factors of production. They finance the costs of those federal taxes today. It’s beyond reason that when the tax system is changed to make this visible and a transparent part of the good’s value, lenders would not lend on it. The initial tax cost is part of what the good is comparatively worth. It would be like trying to exclude the materials needed to build the house or the labor used to make it. Prices and lending methods will adjust to handle the altered market. Real world evidence proves this – look at the European VAT.
Also remember that new housing is a very small percentage of the overall housing market. One solution may be that builders incur the cost of taxation, as they do today, then sell the home for full value and apply for the tax credit at sale. I can’t begin to come up with all the solutions that a dynamic competitive market will use (or government – FDIC comes to mind) to address this perceived issue, but be assured they will – that’s the way the market works.
Morphh,
I understand that you spent a lot of time discussing this issue with Stephen, to the point where your camping trip might have been put off? I don’t want to drag you back in to this thing, but your response requires an answer.
First of all an alternative to rewriting standards, etc. would be to lobby against a proposed national sales tax that would destroy the housing market. That is certainly an option–just say no!
The Appraisal Foundation can rewrite their standards until the cows come home, but that doesn’t help the banks deal with the issue of risk. The banks are already gun shy due to the Dodd/Frank nonsense, and won’t finance something that has no value, imho.
I agree that taxes are currently a factor of production, but taxes will not be a factor of production under the Fairtax. The national sales tax will be a measurable line item at closing, with no value as collateral to a lending institution. I haven’t thought about it too much, but would you agree that if we were talking about a VAT, then the taxes would be a factor of production?
I can see a difference between the way a VAT and a sales tax are treated at closing, even though you might argue that they are basically the same thing?
I am not terribly reassured by your arguments that the market will solve this real, (not perceived), issue.
Just because the FairTax is a sales tax doesn’t mean it can’t act identically to a VAT. That’s up to the business in the supply chain – they can get a credit for tax paid. Builders can include that cost, or charge it at retail to the customer, that’s up to them and doesn’t change their final cost.
You say destroy the housing market, yet we’re only talking about new homes, which make up a small minority of home sales – we have years of used homes on the market. You say that it has no value as collateral, but where do you come up with that? The value is based on like goods, which includes used homes and other new homes. What would the home sell for as the home is collateral? It sells for what it’s worth, what I paid for it yesterday, which includes taxes – you know this (it’s basic price theory).
Appraisals are based on comparing equal value homes in the area, which include used homes. So regardless of adding any tax to the appraisal, the home is worth what the home is worth (which inherently includes tax costs of production). A 3 bedroom 2,000 sqft used home may go for 200,000. An equal 3 bedroom new home would be appraised at 200,000. We’re not adding tax here – that’s what the home is worth as a sale (new or used). Now, it only cost the builder 154,000 to produce but he’ll sell it for 200,000 and 46,000 of that will be tax. An appraisal is not what it costs to build but what the home is worth in the market.
To Wise Old Owl re: your comment # 5, above:
As a retired 40+ year tax lawyer/CPA, I must correct you (what is your professional background?).
The Income Tax includes both Individual and Corporate Taxes. Capital Gains taxes are included within both Individual and Corporate Income Taxes – they are not separate taxes. If you read my paper, you will see very clearly what taxes H.R. 25 would replace.
Just read the Report of the President’s Panel (available under Research papers on this website) and Professor Yin’s Law Review article that I cited in the paper, you will understand more fully, the basis for their premise of the 150% tax rate needed for a national retail sales tax (Professor Yin said the Treasury’s 89% rate would have to be increased by an additional 2/3 but he chose to express the product of that multiplication as merely “over 100%” – I was not concerned about using the exact result of 150%.
As I stated in my Paper, the principle reasons why this rate exceeds H.R. 25′s rate are:
1) Treasury used a narrower tax base (not H.R. 25′s much broader base),
because it believed that broad base to be unrealistic and
unprecedented.
2) Treasury used used what it believed to be more realistic assumptions
about tax avoidance and evasion.
Professor Yin points out that the Treasury study targeted a narrower revenue figure because it contemplated repeal of only the Income Tax. Because H.R. 25 also repeals the Payroll Taxes and Estate & Gift Taxes, Professor Yin had to add that additional 2/3 to the Treasury’s sales tax rate of 89%.
You may have to contact the FL Law Review to get a copy of Professor Yin’s law review article – I may be able to fax you a couple of pages.
To: Wise Old Owl re your comment # 8, above.
If you you read my exlpanation and SUPPLEMENT # 1 of my paper you will then understand why your thinking is financially confused.
Most of us in this world calculate a sales tax by dividing the dollar amount of tax by the price BEFORE sales – this yield a 30% retail sales tax.
H.R. 25 tries to get us to divide the sleas tax dollars by the totalk INCLUDING the sales tax. My SUPPLEMENT # 1 exposes the financial fallacy of this obvious attempt to make it appear that the tax rate is lower than it is.
Stephen & WiseOldOwl – I’ve added George Yin’s paper to the Research section. Surprised we didn’t already have that one on there.
To Wise Old Owl re your comment # 9 above:
Let’s start with the first error. Using the $300,000 pre-H.R. 25 sales price of $300,000, you must add $90,000 of H.R. 25 sales tax (30% – so that the $90,00 of sales tax is only 23% of the total $390,000 total). This illustration assumes no reduction in price – most “independent” experts believe the overall price reductions may range between 5-10% at best.
Next WOO fails to comprehend that the bank will not lend on the sales tax of $90,000 because of the risk that its collateral will fall in value if ANY 1 of my 3 tax scenarios occurs – See my Paper, SUPPLEMENT 18.
Thus, a major point WOO fails to consider is that one would have to save up not only the 20% of the $300,000 (($60,000) but would also need to save up another $90,000, the full amount of the sales tax. Far fewer people will be able to buy homes. Alao, closing costs will be higher because of the H.R. 25 sales tax on all closing fees – see my Paper, SUPPLEMENT18.
Next, while the mortgage would be the same (maybe a little lower if prices go down a little) they will increase by the additonal monthly H.R. 25 sales tax on the mortgage interest rate in excess of the fedrally publ;ished interest rate – see my Paper, SUPPLEMENT 18.
Thus, while we will have more disposable income because we would not pay Income or Payroill taxes (WOO, I calculate a little less than you do), those additional funds will be needed to pay the H.R. 25 sales tax on ALL of our purchases and will be insufficient to cover all of the additionalH.R. 25 sales taxes. WOO fails to consider this.
Stephen, you stated ‘most “independent” experts believe the overall price reductions may range between 5-10% at best.’ Could you provide some references for this? Outside of Jorgenson and ALM, I don’t believe I’ve seen expert estimates on the overall price reduction.
I’ll note that while closing costs will be higher as you state, it’s relative to wage increases – all prices would be higher in this situation. In addition, based on research, interest rates are said to be reduced by 1/4 after implementation (see Golob, John E in the research section). When we compare current tax paid on interest (payroll taxes) to those above the basic rate with HR25 (which is low on homes – on a typical home mortgage only about .5% of interest would be subject to tax) and the reduction of the rate itself, I believe the FairTax would come out ahead.
Update: Please back off the repetitive “WOO fails to consider” remarks – just argue your case.
To: Wise Old Owl – more on your Comment # 9 above.
In your example, the individual would have $14,322 more to spend each year ($6,702 Prebate and $7,650 Payroll Taxes) – before any further savings of Income Tax he no longer would pay.
Thus, his total avalable cash would be $106,702. If he spent that total, he would incure an H.R. 25 sales tax of $24,541 (23% of $106,702).
Thus, he is now behind by $10,380 ($24,541 – $14,322). This loss goes down if he also paid some Income Tax.
There are other possible refinements to these figures but they will not change the overall picture.
TO Wise Old Owl – re; your comment # 13
I challenge you to show me someting authoritative that explains that the Capital Gains Tax is a seprate and distinct tax from the Income Tax. You need to ask your own CPA who will explain it to you.
More iomportant, throughout my paper I explain the total dollars of tax that H.R. 25 repeals which clearly includes the taxes you mention.
Your point does not address the merits of H.R. 25.
To Wise Old Owl re: your comment # 16.
Perhaps I need to make the point more clearly because I have heard your comment from others.
Solely for the sake of moving forward, I concede that the H.R. 25 sales taxd will be refelcted in the value of existing homes.
Going forward, banks will STILL be unwilling to lend on the sales tax because the value added by the sales tax could disappear overnight (and the mortgage is then under water) if any 1 of my 3 tax scenarios occurs (see SUPPLEMENT 18 of my paper).
I discussed this point with one of the economists who authored the Rice U. Study for the Homebuilders’ Association who agreed with my overall evaluation of the bank’s risk. Of course, I first discussed this with a mortgage banker who came up with the essence of the bank’s concerns.
Morph,
I have seen the 5-10% price reduction figures in several places including my and other informal calculations. I recall seeing that range stated by “non-AFFT” economists and will have to search for it. Recall that Jorgenson states that his 22% price reduction will occur ONLY if employers first reduce their wages by the income tax and payroill tax savings.
I have not read the study that says that interest rates will decline by 1/4 but as I have previously noted, that is just one more economic THEORY. Whether that THEORY ever becomes economic REALITY is far from certain.
The homeowner may ay the same monthly mortgage amount as before, but only because he will have to save up a much bigger down payment because the bank will not lend on the sales tax.
Although an existing home will appraise at a value comparable to a new home (on which a buyer will have to pay the H R 25 sales tax), if that tax is repealed, then the existing home will also drop to reflect the new lower price of a home home (lower because it no longer includes a sales tax). Thus, the fact that the appraiser does not specifically include a sales tax in the valueof the existing home, if the sales tax on the new home disappears, so does the value of the existing home. The same net result occurs with respect to existing homes Congress repeals the exemption for existing homes from the H.R. 25 tax
Stephen,
Please answer these two questions.
1. If the government takes 23-cents of every dollar I earn, is their cut 23% or 30%?
2. If the government takes 23-cents of every dollar I spend, is their cut 23% or 30%?
Stephen, your comment #21
I would trust the opinions of the 90 economists who created HR25 over president Bush’s tax panel or professor Yin opinion. You should read “Taxing Sales under the FairTax – What Rate Works” by Paul Bachman, Jonathan Haughton, Laurence J. Kotlikoff, Alfonso Sanchez-Penalver, and David G. Tuerck. Their conclusion was for the FairTax to be revenue neutral, the inclusive rate would need to be 23.82%.
woo,
I could be wrong, but I do recall that Karen Walby, the AFFT Director of Research, once told me that HR25 was crafted by a group of Houston tax lawyers? Perhaps someone here has better information?
The BHI/Kotlikoff 2006 report on what rate works did arrive at 23.8% as you said. But, they based their results on the idiotic assumption that the federal government would tax it’s own consumption, that the federal government would tax State and Local government consumption which is clearly unconstitutional, and that the legal avoidance/illegal evasion rate would be zero.
Setting aside the argument that federal government taxation of itself does not change the rate(?), and correcting the report by (1) eliminating federal taxation of S/L government consumption; and (2) assuming a 15% evasion/avoidance rate, results in an exclusive tax rate of 46.5%.
There are several other correction to the base that are recommended by the Rice team of Diamond and Zadrow in their housing study. That study goes a long way in settling the rate differences between the BHI/Kotlikoff study and the one done in 2005 by Fairtax opponent William Gale.
Hank, the bill was drafted by The Argus Group’s David Burton and Dan Mastromarco, but that was after it had been researched by a group of economists. I don’t recall the number being 90, perhaps WOO is thinking of the list of economist that have endorsed the FairTax.
As for the BHI/Kotlikoff study, you know government taxing its own consumption doesn’t change the rate just as it doesn’t today when they pay their employees the income used for taxes they hand back to them. I concede that S/L government constitutionality is a valid concern. As for the third point, they did not ignore evasion – they clearly state this. They did not include it in the calculation stating other offsetting factors, dynamic growth, and the inherent evasion in the NIPA figures. Now I’m not going to say this equals 15%; I don’t know what it would equal, but they did not ignore it – they left it out due to offsetting factors.
I agree that we should also look at the Gale & Diamond/Zadrow studies, but we should mention some of off-center assumptions in those studies, like keeping the child tax credit and giving the s/l government a real dollar windfall by excluding 300 billion intended as education related taxable consumption (essentially lowering the tax burden paid at the s/l level and shifting it to the fed). The Treasury wouldn’t even publish their methodology or figures for the Tax Panel study, so who knows how they came up with those figures.
Also keep in mind that we’re talking about revenue neutrality. The rate is the rate – it’s 23%/30%. Now it may create debt and insufficient revenue (it may be a tax cut). But a tax cut can also generate a huge boost in economic growth helping to mitigate the revenue shortfall. It would also seem likely that HR25 would only be passed by a conservative majority, so we could hope for reductions in spending. Point is, personally I don’t really care if it’s not truly revenue neutral – I want a tax cut anyway and smaller government (starve the beast).
Morphh,
Thanks for the info on who really wrote the Fairtax legislation. Is it possible that the tax lawyers Karen Walby was referring to were in fact Dan and the Argus Group under contract to AFFT?
As for the economic “research” leading up to the bill, if the role played by my MIT fellow alumnus Jim Poterba is any indicator, that research wasn’t worth two dead bugs, imho. Here is an explanation of the “expert” input provided by Jim.
“My one page in 1997 has been widely described as an endorsement of the Fairtax, but in fact it was only an arithmetic calculation requested by the Fairtax group. I agreed that IF the base was as broad as they say it could be, THEN a rate along the level they suggest would be feasible.
But I never endorsed the feasibility of such a broad base, nor the absence of evasion, nor the plan in general.”
Morphh,
My mistake, I should have said I trust the opinions of the 90 economists who endorsed the FairTax over Bush’s tax panel or professor Yin opinion.
GDP minus private domestic investments is the base by which the FairTax can be estimated. This figure was $12.627-trillion for fiscal year 2009. 23% of $12.627-trillion is $2.904-trillion. Now you must deduct the prebate which is estimated to be $500-billion. This would leave net revenue under the FairTax at $2.404-trillion. Actual receipts under our current system were $2.105-trillion. At the rate of 23%, the FairTax would have generated an additional $299-billion. In order to evade $299-billion tax dollars there would need to be unreported sales of $1.3-trillion. Under our current system the IRS estimates tax evasion to be $290 billion. I personally do not believe tax evasion will be as high under the FairTax.
OK. Let me jump in here.
Morph — You might recall that the BHI study was discussed at the American Enterprise Institute “debate” a year or so after it was published. At the debate, Kotlikoff acknowledged that the NIPA he had used did not have any tax evasion component in them. They had been factored out. (He didn’t know this at the time the BHI study was done.)
If I recall, Kotlikoff said at the debate that he thought adding back in the actual tax evasion rate would raise the required FairTax rate by a couple of points, i.e., from 31.5% (tax-exclusive) to areound 33.5%, but Jane Gravelle, of the Congressional Research Institute, said the revision would be much higher.
Gravelle also produced charts showing very high tax evasion rates in countries and states with high VAT or sales tax rates. If I recall, countries with a VAT of 20% experienced tax evasion of over 20%. (And, of course, with the FairTax, you would need to add state and local sales taxes. So, even under a best case scenario, the combined tax-exclusive rate for federal, state and local sales taxes under the FairTax would be around 40%.)
Further, the tax evasion figures do not even include the myriad of perfectly legal means that people would use to avoid paying taxes under the FairTax, which we have discussed ad naseum, but would include buying existing home, buying used cars and furniture, taking vacations or even retiring overseas, buying yachts and beach houses in the Bahamas rather than in Florida, buying private jets as business purchases, etc, etc.
Finally, the tax evasion figure does not take into account the old Republican maxim, “When you tax something, you get less of it.” That is, we good, old-fashioned tax-hating Americans will just buy less stuff.
So, with all due respect to my good friend Morph (who blew me off on the last good camping weekend of the year), the livel of tax evasion/tax avoidance/reduced consumption that would obviously occur under the FairTax would make it completely unenforceable.
WOO — A number of years ago, I spoke with several of the 90 economists who signed the letter to the President supporting the FairTax. Although many of them endorsed the concept of a consumption-based tax vis-a-vis an income tax, their actual knowledge of and support for the specific provisions of the FairTax were, in general, lukewarm at best. Also, if you read the (undated) letter, you will see that it does not include an actual tax rate, a matter that was pointed out to me by more than one of the signers.
In any event, the FairTax was much less well know back then. That letter was signed sometime in the early 2000′s, before the Boortz books came out, before the Gale, BHI or Rice studies were done, before Bush’s tax reform panel’s report, and before the Huckabee campaign. Just out of intellectual curiosity, I would be very interested to see what those economists think of the FairTax today. I understand that Stephen has tried to contact several of them, with little or no luck. I suspect that the FairTax has gotten so politicized, that it will be tough to get much objective analysis on it these days, but, still, it would interesting to see what those folks thought about it now, and whether they would sign the same letter today.
Hayden, I do recall that debate (watched it a few times), but I don’t recall Kotlikoff acknowledging or stating that. What I recall in the debate is them discussing that they had received the figure on how much evasion was included in the NIPA used (and if I remember correctly, it was low 2-3% or maybe it was 4-6% as that also sticks in my head). That was one of the offsetting factors, but not the only one. I believe they thought it would be higher – maybe that’s where I’m thinking of the 4-6%. If someone is interested, here is the link (it’s an hour and a half long), and you can let us know which of us (or both) are starting to suffer from Alzheimer’s.
I also remember Jane Gravelle’s thoughts, though I think she stated she had not studied the FairTax. She was familiar with VAT taxes and their evasion. Her opinions did not go unchallenged if I remember right. I think it was someone from BHI that debated the differences in several ways to include the number of collection points. Either way, I’d be fine with a 15% reduction in government revenue (15% tax cut). I’m not sure how you can say that it would be completely unenforceable when much of Europe uses a similar tax, but these are old debates, which I don’t particularly care to drudge back up.
Wise Old Owl Re you questions at Comment # 30
Questions 1. If the government takes 23-cents of every dollar I earn, is their cut 23% or 30%?
Answer: It is 23% of your total earnings. However, H.R. 25 is NOT an INCOME TAX – it is a SALES TAX which most of us all our lives have figured as the dollars of tax divided by the price BEFORE THE TAX (which is the way the sales taxes are stated (e.g., in my State we have a stated 9.75% sales tax – it is not stated as an 8.9% sales tax ($9.95 divided by $109.75).
Question 2. If the government takes 23-cents of every dollar I spend, is their cut 23% or 30%?
Answer: You might say their take is 23% of the total you spend, but it is still 30% of the pre-tax price which is the way we have historically viewed and stated SALES TAX rates.
PLease review SUPPLEMEN T# 1 to my paper, wherein I explain why it is not valid to use the 23% rate. As a financial and tax person, it is my professional opinion, that one can not compare a SALES TAX to an INCOME TAX – it would be like comparing apples to oranges.
H.R. 25 IS a SALES TAX – it is NOT an INCOME TAX.
To Wise Old Owl, Re your comments # 30 above
Are you referring to the purported 80 econoimists who signed a letter supporting H.R. 25 (which letter is used by AFFT as marketing material)?
If so, my preliminary research indicates that many of these 80 economists were either PhD students or people who did not really srtudy HR 25 but were presented with brief sales materials by AFFT (There were 2 noted economists in that group). I presented a series of piercing questions about this letter (including, How many econoimists were asked to sign but refused?) to an AFFT official several months ago, but received no reply.
As to the rate pof 30% Tax exclisive, 23% tax inclusive), I cited a recent paper by BHI, which has been a long term supporter of H.R. 25, which recent paper states that the (tax exclusive) rate needs to be 35.1%.
From my lifetime experience in taxation (including some lobbying efforts), I would trust the US Treasury by a very wide margin over economists paid by a lobbying group (whose answer will always support those paying them).
To: Wise Old Owl, re your comment # 35, above.
The latest target revenue figures are $2.288 T, not the $2.105 shown in comment # 35. Using your $2.4 T this leaves a margin of a little over $100B for “slippage” (I believe there are figures for a modest amount of slippage in one of the NHI studies and recall that BHI believes the H.R. 25 assumes that slippage will be no greater than under the Income Tax).
I disagree strongly is the assumption that tax avoidance will be less under H.R. 25. It is generally assumed that tax avoidance rises as the rate of sales tax exceeds 10%. The Treasury study used several rate of tax avoidance, including one at 30% tax avoidance.
Stephen, in #40, are the additional revenue figures from increased growth and/or inflation? It would seem that the $2.4 T should also grow (since the income base grew), resulting in a larger tax base for calculation.
Evasion may rise and exceed 10% (maybe even by most business), we can even suggest 30%, but not all business will evade equally and it’s unlikely that larger retailers (3% of business) will take or be able to take such a high risk. Even if you calculate 30% evasion on the other 97% of U.S. business, it only reduces overall revenue by about 4% (of which a portion is already accounted for in the reduced NIPA base and other offsets). 20% evasion on that group would result in a 3% loss, and 15% in about a 2% loss.
I’d feel better if the Treasury published what economist(s) did their study and the methodology used. Even with the Freedom of Information Act, we haven’t yet been able to get it for peer review. I rather trust known economists who are commissioned for peer-reviewed work (impacting their reputation), than to an unknown group of economists that hide their work. I’ll go with the capitalism, but that’s just me… trust the secretive “non-agenda” government if you like.
Morphh,
That makes the theoretical assumption that the current large retailers will retain their share of the marketplace.
I believe that a very high in-your-face-sales tax rate of (at the low end, 40-50% combined federal and state sales taxes), will cause a massive migration of sales away from these retailers to the new American Black Market. Recall that in Communist Russia, one could purchase any goods they wanted on the Black market.
Stephen, #42 – I don’t believe that would happen to the point of massive revenue loss (market of any size would be policed), but it’s an excellent counter-point. The combine rate of federal and state may shift some of the market share.
I have to agree with Stephen. Why would people continue buying at WalMart and pay the FairTax when there will be other sources of the same goods who will sell the products without the FairTax.
I’ve lived in third world countries with very high import duties. Black markets immediately devlop for those goods to avoid the import duties. The same thing would happen under a high sales tax rate, whether the FairTax or something similar.
I went back and listened to the AEI debate, and Jane Gravelle made similar points about the legal and illegal ways people would avoid the FairTax. One thing I didn’t even think about was using “friendly” intermediaries to avoid paying the FairTax.
For example, a home builder builds a $500,000 house. In order to sell it new on the open market, he’d need to pay a minimum of $150,000 in FairTax, which would bring the selling price to $650,000. He can’t sell it at that price. So, instead, he sells it to a friendly party for $100,000, and pays $23,000 in the FairTax. Six months later the friendly party sells it in the open market for $550,000. Since it’s a “used” home, there is no FairTax. The builder gets his home sold, makes a larger profit, and the government gets cheated out of the tax.
Now, you might say, that’s cheating. OK. I agree. And I suppose the government could enact new laws and create new enforcement agencies to try to combat that form of abuse. But the point is that there’s going to be a million ways folks will dodge the FairTax (just as they try to dodge the income tax).
Even more importantly, under our current tax system, most income is subject to dual-reporting. That is, your employer reports your wages to the IRS. If your tax returns don’t match up, you get a letter from the IRS. The vast majority of tax evasion comes where there is no dual reporting.
Under the FairTax, there will be no dual reporting, so this notion that there will be less tax evasion under the FairTax than under the income tax system is highly suspect, at best.
Stephen, #40
You state “The Treasury study used several rate of tax avoidance, including one at 30% tax avoidance.” Would you provide the source for the treasury study you are referring to? For 30% avoidance, unreported sales would be near $4-trillion dollars. I find that very hard to believe. I can’t believe unreported sales would be over $1-trillion.
“Why would people continue buying at WalMart and pay the FairTax when there will be other sources of the same goods who will sell the products without the FairTax.”
It’s not a matter of buyers, but sellers. Sure, your local drug dealer could start selling iPads via his trafficking team in Mexico, but where is this public market going to pop up? What market is everyone going to be heading to where the tax agent is not carting the seller away by the time you get there. Particularly with the reward system in place – those who risk it will be minor peddlers of one off goods. Where is the incentive for the seller if they’re offering goods tax free – they’re not making anything off it. They would need to split the gain, which cuts the incentive in half – not to mention the increased cost to provide the illicitly sold good. I don’t think they’re going to be able to create some large duty free supply chain. When the G-team comes kicking in the door, they’ll not only seize all the illicit income, but the goods (you can buy them at the auction at 23 cents on the dollar.. haha), the house they sold it out of, the car they drove it in, and whatever else can be tied to the crime. So revenue that could be lost, can also be regained.
I’ve kicked in a few doors along side IRS agents, they can be brutal.
Morphh, #46
Great post!!!
Morph — While I suppose you are correct to call me on some of my sweeping genera statements, I know you understand my main point, which is that the FairTax proponents (who love to make their own sweeping predictions about economic growth and return of “dollars held overseas” under the FairTax) make no allowances at all for change in consumption behavior under the FairTax.
If only 10% of Wal-Mar shoppers decide to shop at a mom and pop store with less rigorous accounting standards . . .
If only 10% more new car buyers decide to forego buying that new car. . .
If only 10% more homebuyers decide to forego buing that new home . . .
If only 10% more vacationers decide to vacation abroad . . .
If only 10% more retirees decide to retire abroad . . .
Then not only does the required tax rate shoot up but all of the economic growth models under the FairTax fall by the wayside.
At some point, you need to say, “Oops, maybe the tax rate will need to be higher than we thought!”
At which point you’ll need to say, “Oops. Maybe retail sales will decline somewhat.”
At which point you’ll need to say, “Oops. I guess we’ll need to revise our projected growth models.”
At some point, I believe an honest analysis of the FairTax plan is that it was an interesting idea, but is based on so much wishful thinking and optimistic projections that one could not rationally bet the future of the US economy on such an unsound idea. And the fact that so many politicians are getting elected based largely on their support for the FairTax is truly fightening.
But FairTax proponents never get to the first, “Ooops.”
Hayden, true point, such is the nature of a dynamic analysis and the economic distortion of taxes. There are arguments that would counter such effects or reasoning that turns the loss into a gain somewhere else, but it’s certainly a complex and living beast. The current tax system has distorted our economy and changing to a different tax system will distort it in other ways. In general, it’s conventional wisdom that consumption taxes are more economically efficient, causing less distortion than income taxes, but I’d agree that more research needs to be done into the dynamic effects of this tax plan. Turns out that Laurence Kotlikoff is one of the leaders in this type of dynamic research.
Hayden #48
We have been oopsed enough under current tax system. 25,000, 30,000 or who knows how many pages of oopses. We just want a tax plan that is the simplest, fairest possible plan that can be designed and that is one based on consumption not income. I am sure if a consumption tax would ever replace our current mess; it will look somewhat different from the FairTax as it stands, but what an improvement it would be.
When you think about it, Federal and Sate income taxes are the only services we pay for based on income rather than consumption. What if our utilities or the food we consume was based on our income rather than our consumption? If you earn $50,000, a gallon of milk would cost $3.00 and if you earn $200,000, it would costs $10.00.
Morph — I would agree with you that “up to a point” conventional economic wisdom is that consumption taxes are more efficient than income taxes. The question is, at what point is that no longer true. (Acutally, that’s just one point.)
I have all the respect in the world for Kotlikoff (though, I must say, it sure seemed as though Gale and he did not exactly get along), I just disagree with him on the FairTax. I haven’t heard a word from him on it since the AEI debate. (The cynic in me would say that AFFT has probably stopped paying him; but a more equally plausible reason would be that there’s been a lot more important things for him to turn his attention to over the last few years.)
On another note, from time to time I see an editorial somewhere advocating a simplified income tax plan. I think the last one I read was from Senator Kyle. They sure seem to look a lot like “The Kepner Tax Plan” that I read about somewhere. Hope they’re giving proper credit!
Morph — I think I’ve finally figured out a way to explain the problems with the FairTax to the right-wingers out there, all of whom seem to love to throw out the notion of the Laffer Curve whenever income tax rates are discussed.
But if you accept the notion of a Laffer Curve for income tax rates (that is, at some point an increase in tax rates leads to a decline in revenue), then you must accept the notion of a Laffer Curve for consumption tax rates as well.
“Conventional economic wisdom” (to coin a phrase) is that sales tax revenues tend to decline as sales tax rates exceed 10%. This would imply that the Laffer Curve for sales taxes peaks at around that level. Since, under the most optimistic scenario, the combined fed/state/local sales tax rate under the FairTax is around 40%, wouldn’t this imply that tax revenue would decline at that rate? I think that’s precisely why most states use a combination of income, sales and property taxes, so that no one tax gets too high (and therefore leads to a loss of tax revenue, as well as other economic distortions).
WOO — I certainly agree that we need a simpler, fairer tax system. I just disagree that it should be solely based on consumption. You might want to check out the tax plan of Micael Graetz of Yale (author of “100 Million Unnecessary Returns”), which proposes a combination of a consumption tax and a very simplified income tax on high incomes. You might also ask yourself why none of the other countries that have a VAT (which is a more efficient form of consumption tax) have not been able to get rid of their income taxes.
Hayden,
It seems that we have finally rediscovered the conventional wisdom of my grandmother, whose favorite statement was “Don’t put all of your eggs in one basket!”
Fairtax advocates seem to believe that ir is a good thing to replace all other types of taxes, and fund the government with just the sales tax. No other nation has ever succeeded at making such a plan work, and I see no reason to expect a different result here.
If I were able to advise the Fairtax club, I’d tell them to stop turning their nose up at a VAT coupled with a simplified income tax. To me, that is the most likely outcome of tax reform efforts, and I wouldn’t be surprised if the Presidents Commission comes up with just such a plan in December.
Stay tuned!
Hayden, I think that argument certainly has some merit. Alexander Hamilton stated that “It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess.” I guess the question is if the sales rate under this model is much higher than what we’ve seen placed on European sales. What scares me under a hybrid option is that we would follow what we’ve seen in Europe; a small VAT that quickly grows, until you have two large revenue streams. I agree that two sources makes sense from a revenue stand point, but I have no interest in making it easy for the government. I want that built in limit on revenue to help restrict this out of control federal spending. Maybe we’ve already exceeded that limit in a single tax. Oops (time to go on a diet)
Hank, some of our large states are bigger than many nations and have been funded primarily with a sales tax. I’m not sure it’s appropriate to compare the amount of tax bases unless the countries have equal tax burdens. Much of Europe can’t fund with a single tax because their tax burden is much higher on their citizens. I hope we haven’t exceeded that point in the U.S. As a percentage of GDP, we’ve been around 18%, which seems within the limits of observable sales taxes if the base were very broad.
To SWise Old Owl re post # 45
My source for that comment, I recall is in the President’s Panel on Tax Reform cited in my Paper and which Report is included in in the Reasearch Materials seection of this website.
In my paper, I have also cited many others who believe that the rate of tax avoidance rises with the rate of sales tax, including Professor Slemrod. These many others provide additional confirmation to what is common sense to me gained over a 40+ year career in tax practice.
To All:
Morphh: I do not think that people will be afraid to sell goods without charging sales taxes – it happens now at much lower tate sales tax rates.
Drug dealers risk greater penalties.
Morphh:You note the need for research into the dynamic effects of this tax. Unfortunately, we are in unchartered waters and research will not produce an ASSURED RESULT. Such a dramatic change in our tax system might well produce destructive results which can not be predicted for certain (but are easily imaginable).
HVG: What you describe sounds a lot like the GOP Roadmap for America (see my SUPPLEMENT # 27). It sound OK at foirst glance but needs a lot of study. I do not want to give the govt 2 ways to tax us – they will abuse both methods. Also, I would at least like to find a way so that people do not pay both taxes (e.g., a credt against the income tax for VAT paid).
ALL: I would like to ask all of you beloved Progressives (bless your hearts) to think about your concepts of progressive taxation (e.g., the higher earner or the bigger consumer pays more). Does the person who earns more or consumes more receive a greater level of govt “services” – does that person receive more in the way of protection from our military than anyone else.
In your condos ir timeshare, do they hand the bill for the common costs to the richest member? Our Republic is a cooperative and costs should be shared based upon each person’s impact on the total common charges, relative to everyone else’s impact on that cost. See SUPPLEMENT 28 – YOUR SHARE, which I admit will not be politically feasable in this Republic until we undo 100+ years of Progressive indoctrination and elect 535 Benjamin Franklins to Congress.
Stephen, we’re not in uncharted waters. Sales taxes are one of the oldest forms of taxation known and used throughout the world. While no two tax systems are identical, there is plenty of real world and empirical research to review, to include very large VAT taxes. Many countries have dramatically changed their tax polices to fit the times. In a shift to a global economy, we must change as well (we should have done it years ago).
With regard to selling goods on the black market, I didn’t disagree. I said you could have 30% evasion on 97% of the businesses. I think that’s open enough to the possibility that people won’t be afraid to sell goods without charging the sales tax. What I challenged was that this would turn into a massive retail marketplace that subverts large retailers. I’m sure people will sell one off goods tax free, and I’ll be happy to turn in the tax cheats.
Unless by sales taxes, you mean all types including a VAT, then I have to agree with Stephen’s characterization of uncharted waters. No nation has ever successfully funded their central government with a retail sales tax. A few have tried, and failed.
I also don’t believe it is accurate to state that States primary funding source is a sales tax. According to a 2008 report I found, all states combined collected $350 billion in sales taxes, $320 billion in individual and corporate income taxes, and a bunch of other taxes that contributed over $400 billion, for a total of $1.1 trillion in revenue. That is state revenue only, and local governments collected about the same, largely property taxes. When federal revenue is added in, taxes of all kinds raised $4.5 trillion. It occurs to me that governments are expensive things???
Morphh, #55
Another great post!
Since the VAT only applies to goods and not services, it would almost require some sort of income tax to generate enough revenue. In my opinion the greater the number of tax sources, the easier the total tax burden can inflate. Just because no other country has used a single consumption tax to fund their government doesn’t mean it can’t work.
Hank, you also have to consider the retail space and government enforcement of the nations that have attempted it. The only ones that I’ve read about trying a single sales tax didn’t fail because of the rate. They were developing countries that didn’t have the retail or government infrastructure to be successful. There was one nation that did do it successfully in Europe (and had huge growth), but I can’t remember which one or when (they have since added other taxation) – I remember Phil Hinson talking about it. The states usually given as examples are Florida and Texas, but you’re right that they also have additional revenue sources like property taxes and federal redistribution (extortion).
woo,
Where did you get the notion that a VAT can’t apply to services? Most of the 130 countries that use a VAT just find it unproductive to try and tax services. Too much evasion for too little revenue. Is there any reason that your telephone service can’t apply a VAT in the same way that the Fairtax proposes to apply a retail sales tax?
Wow! We haven’t had this much activity on this board since around 2005 when Joshua kept threatening to ban Hank and me for being heretics.
And to think we’re actually having a civil discussion. I guess miracles can happen after all!
WOO — Without trying to be sarcastic, your comment: “Just because no other country has used a single consumption tax to fund their government doesn’t mean it can’t work,” seems to typify much of the pro-FairTax rhetoric. Since the opponents can’t prove it can’t work (though, arguably, many have done just that), the proponents say, “Let’s try it! It can’t be worse than what we’ve got now!” And just to make sure, let’s repeal the 16th Amendment! Then, if it doesn’t work — oops!
Hank – I’m not certain, but I think we had the VAT discussion before and concluded that most countries did apply it to services.
Morph — I think Hinson was referring to Russia, which had adopted a relatively low flat tax on income and saw it’s tax revenue increase. Of course, a lot of that had to do with the fact that the government was so ridden with corruption that the earlier tax system was only selectively enforced.
Similarly, when we had extremely high marginal tax rates in the 70s, there were also a ton of tax loopholes available for high income earners to avoid paying taxes. When people talk about the so-called “Reagan tax cuts,” (which were passed by a Democratic Congress), they always focus on the marginal tax rates, but ignore the fact that those tax cuts also eliminated virtually all tax loopholes, so that more taxpayers were actually paying a the highest rates and more savings went into productive investments rather than non-productive tax shelters.
I’m from Texas. Texas doesn’t just have high sales taxes, but it also hase EXTREMELY high property taxes (3-4% of the assessed value of your home). It also gets revenue from oil and gas taxes (at least it used to, not sure how much it gets now) and, I believe, it has started levying different excise taxes and the like, though I’m not sure since I haven’t lived there for nine years. (OK. Back to the FairTax.)
Hank, #61
Sorry my error; a VAT is usually associated with the sale of goods but it can be applied to services. Applying a consumption tax one time at the point of sale just seems simpler and more efficient than adding it at each stage of production.
woo,
A retail sales tax is simpler because the number of collection points is significantly less than for a VAT. But it isn’t more efficient if by efficient you mean there would be less evasion. It seems clear that the self policing nature of a VAT results in far less evasion even at rates of 25% or higher.
Hank
Would you please explain how the self policing will work under a VAT.
woo, since a VAT includes the tax element at each step in the supply chain, there is little gain at any point in the process for evasion, since they’ve already paid the tax. This however adds more compliance, enforcement, and administration cost, while expanding the number of collection points. So there is give and take, but it is generally assumed that a sales tax has a higher evasion rate than a similar VAT. AFFT has spent a bit of effort demonizing the VAT and has made inaccurate statements with regard to its implementation. Here is a recent post about it: Kill the VAT?.
Morphh,
It just seems to me, the more opportunities for evasion the more evasion there will be; and the more opportunities for evasion the more difficult it becomes to police. It will take far less government police to monitor the system if the only ones being monitored are the ones who collect the entire tax at the cash register. Even if a consumption tax were to have a slightly higher rate of evasion, it probably would be offset by the lower administrative costs. I also believe a VAT will be much easier for our government to manipulate.
Morphh re; post # 57
I agree that a 5-6% sales tax is not unchartered waters, but a shift to a sales tax with such a broad base, way beyond anything used in the world and to such a high beginning rate constitute very dangerous unchartered waters. It is difficult to imagine economic projections that could provide us with a very high degree of certainty of the results of such a massive change.
I agree that the large retailers will not convert to selling without the sales tax. What I expect is that the retail marketplace will dramatically shift away from the current large retailers to a massive Black Market of smaller retailers whose p[rices are competetive with Wal-Mart because theyt will not vharge the 40-50% combined federal and state sales taxes.
By the way, how do you respond to the BHI study which says the tax rate needs to be 35.1% rather than 30%?
To Wise Old Owl re post # 55
The problem that I see with a single retail sales tax, is the daily fury of taxpayers being gouged with a very high in-your-face-retail-sales-tax which would generate the mother of all taxpayer tea party rebellions. This would ruin our retail sales sensitive economy.
Stephen, 35.1% is another estimation for revenue neutrality, which I don’t really care to achieve. If the rate is wrong, then maybe we’ll need to adjust something or tax something else, in the mean time, we’d have a nice tax cut on our economy. The world will keep turning. As for the massive black market, see post #46.
To: Morphh re your post # 60
Florida is also able to transfer much of its tax burden to tourists via its sales tax and hotel/motel taxes, in addition to a substantial business income and property taxes.
Stephen, in one breath you’re saying it will ruin our retail sales sensitive economy and in the other your saying it will shift to tax free purchases and mass evasion, which means a boost to our economy.
To Morphh re post # 70: if the 30% rate no longer achieves revenue neutrality, the AFFT should admit that its proposal requires a greater deficit, etc. I belive our retail sales sensitive economy would collapse.
To Haydenh & ALL: I see this gentlemanly exhange as a continuation of my series of intellectual wexchanges with Morphh and as a credit to him.
To ALL: I am puzzled at the European VAT system which not only taxes at each stage of production, but also operates as a retail sales tax (refundable upon exporty).
I’m not saying that 30% no longer achieves revenue neutrality. It may or may not. I said that I don’t care if it does or not. If it doesn’t, we’ll adjust as needed in any number of ways (reduce spending would be my choice). I guess you could say that AFFT has admitted to it in that paper, since they state the reduction require for 23/30% to achieve neutrality (reduce non-Social Security spending by 3.5 percent).
Thinking in simple terms of a non-accommodation model where people maintain their same net pay and prices stay the same, tell me how this is going to collapse the retail market? Why would I stop buying the things I buy every day?
Stephen #69
Maybe we need an in-your-face-tax. Maybe we need a mother of all taxpayer tea parties. We need something that will inspire more Americans to put pressure on government to reduce spending. Under our current system with taxes being withheld and millions of refunds being issued at the end of the year, people aren’t aware of just how much of their income ends up in the government’s hands. I remember a few years ago asking my son how much tax he paid for the year; his comment was. “I didn’t have to pay anything, I received a refund.”
To Morphh re post # 72
I am saying both.
First, Overall retail sales will decline in total with a disastrous impact upon our rertail-sales-sensitive economy.
Second, those reduced retail sales will migrate from the big retailers to the Black Market.
To Morphh re: post 74
AFFT may admit that HR 25 no longer achieves revenue neutrality in that BHI Paper, but it did not change H.R. 25. That failure to achieve revenue neutrality is not well publicized (I will have to go back to the FT websiter to see if they are still claiming revenue neutrality). I feel that it is less than forthcoming for AFFT to fail to tell the public that the tax rate needs to rise even before it gets enacted (in order to maintain its originalk goal of revenue neutrality). Lowering its target revenues is way too subtle for the public.
People will buy less because they will be outraged at the very high-in-your-face-retail-sales tax. Some may not be outraged but apparently most commentators believe that people will avoid paying the high tax.
woo,
Sorry to be tardy with my response, but I managed to get in a round of golf.
The self policing aspect of a VAT goes like this. One of the ways a VAT is administered is called the “credit -invoice” method. Virtually all countries that have a VAT use this method. Each level of production provides the next stop in the production chain with a certificate of tax paid along with their sales invoice. The next step then calculates the VAT on the total value of the item, takes a credit for tax already paid, and sends in the difference to the State/Federal collection agency. If a supplier fails to pay the tax, (and doesn’t provide a tax paid certificate), then the next step in the chain gets screwed and drops that sub. Cheaters won’t stay in business very long. And, if the supplier fails to pay the tax, yet still provides a certificate of tax paid, an audit can easily uncover the fact that sales and taxes paid don’t match. The slammer awaits?!
In other words, with this paper trail, firms have an incentive to purchase goods from tax-law-abiding suppliers; otherwise they may get no tax credit based on their inputs. Compared to a retail sales tax, which suffers from important administrative and enforcement problems that are greatly magnified as the rate gets higher, a VAT minimizes these problems. According to Slemrod, a retail sales tax large enough to replace our personal and corporate income taxes would be unadministrable, but a VAT of that size can (and has been) run fairly smoothly.
The VAT has been a staple of European tax systems since the 1960′s, and the US stands out starkly by not levying a VAT. Anyone care to speculate as to why? Is NIH a factor?
To Wise Old Owl re post # 75
I do not disagree with you. I too am upset with the level of public ignorance. Incidentally, I believe that Congress intended that instituting tax withholding would produce level of public ignorance.
I agree fully, that the taxes we pay should be transparent and simple. I just think that using a very-high-retail sales tax is the wrong way to accomplish that end.
While not yet politically feasable (because of 100 years of Progressive indoctrination) the proposal I raise for purposes of beginning a national discussion, YOUR SHARE is most transparent. It would generate that very pressure we both agree should be brought upon Congress. If my concept were put into place today (to repace current tax reciepts) it would require a flat tax of $8,000 per person ($ 13,000 per person to match the current budget). I would bet my last dollar on tremendous public pressure on Congress to reduce spending. With proper Constitutional spending, we could get that down to about $2,000 per person.
Such a tax (payable monthly by automatic debit to your checking account) would be viewed by citizens more as our national “rent” and would not aggravate us every time we made a purchase.
Well, we all seem to agree on at least a few things: Our tax system needs to be far more transparent. We all need to know exactly how much we’re paying in taxes (and not have to wait until our accountant tells us on April 15). And we should all bear the pain of taxation so that we will all remain vigilant in reducing wasteful spending.
WOO and Morph believe this should be via a consumption tax. (And, probably, he’d be fine with doing away with the prebate. I would too, by the way, if it came to that.)
Stephen thinks everyone should pay a pro rata share of the governement’s spending obligations.
I think we should have a highly simplified, but progressive income tax system (with no deductions, credits, exemptions, etc.)
Hank believes we should have a combination of (2) and (3).
This sort of reminds me of the current debate on extending the Bush tax cuts to families making under $250,000 per year. Both Republicans and Democrats agree with that, but they can’t agree on what to do on incomes over $250,000. So nothing got done. I suspect that the same inaction will occur with respect to fundamental tax reform. Congress won’t even enact the provisions they all agree on.
Stephen, so you’re saying if I have $5 today and buy a can of soda for $.75 everyday and tomorrow the FairTax goes into effect and I have $5, I won’t by that same soda for the same price because I’m now outraged that the tax is transparent? What evidence do you have for this psychological effect (and please don’t say your 40+ years of professional experience)? High VAT taxes around the world don’t seem to destroy their retail market.
Right on Hayden.. haha
I believe we should pay federal taxes based on a height and weight chart. For every pound you are overweight, you must pay an income tax of one half of one %. On April 15 you will step on the federally provided scale which will be located at all post offices. If you are 20 pounds overweight, you will pay a flat 10% income tax. If you are overweight by 100 pounds or more you will pay 50%. We could probably pay off the National debt in one year. The only problem is all the fast food chains will go out of business leading to a 15% unemployment rate. I though I would add a little humor to the discussion.
It’s great to see some activity again. I enjoy reading the discussions.
In general I tend to follow a philosophy of diversity….meaning in the context of taxation that I normally would be in favor of taxation of income, sales, property, etc. However, the government, especially at the federal level, has an insatiable appetite. I am in agreement with Morph that we are better off to starve the beast (and need to find a way to effective stop the Federal government from borrowing from our children and grandchildrren to feed their habit). If the Federal government had history of restraint in spending money, then I would be more inclined to support an income tax (simplified flat tax or mild progressive tax) and a retail sales tax too.
I recall recently reading (perhaps on this website) that one problem many countries had in going to the VAT is that once it was implemented, their income tax did not go away and the VAT rate went up. So it was sold as a way to eliminate or reduce income taxes with a rate of X%, but ended up doing neither and at a higher tax rate than X%. I will see if I can find the source of that information. I can’t recall if that was the case for all, most, some or just one country, but my impression is was at least a majority.
WOO #83
Thanks for the humor.
Stephen #28
You state “Going forward, banks will STILL be unwilling to lend on the sales tax because the value added by the sales tax could disappear overnight (and the mortgage is then under water) ”
I fail to see how any of these scenarios will cause the value added by the sales tax to disappear. Actually, I think you are viewing it the wrong, way, the value of your home is what the market will bear. If you add a room or pool, there may be value added by that construction, but not necessarily enough for you to recover the initial expense. That’s a gamble every homeowner faces. We don’t know what the market will do. Even in a world without the FairTax, you may see your property value steadily increase over many years and think to yourself that this will continue….then the state decideds to put a new interchange close enough to your home to cause the value to shrink (granted it may have the opposite affect), or the state could get some stimulus money from the Federal government to erect some unsightly wind turbines nearby again reducing the value of your home. In the end, the value you place on your home may not be the value the market (those interested in buying) places on it.
Sorry for that detour, back to my point. I don’t see how the 3 scenarios will cause the value added by the sales tax to disappear.
Scenario 1 – Taxes repealed by congress. Once the sales contract for the house and subsequently the mortgage is finalized, if Congress repeals the law, the value of the house is still subject to market conditions. You will be affected the same as everyone else who purchased a new home, so any change in value of the homes should be relative to the others.
Scenario 2 – Home building industry lobbies and gets exemption from H.R. 25 taxes for new homes because their members are going bankrupt. First of all, I don’t think I would categorize this as very likely – I can see the lobbing happening, but I don’t see their members going bankrupt becaues of H.R.25. But assuming it happens……..this does not change the value of your home. It may make it more difficult for you to resale it for the money you have put into it relative to new homes coming on the market, but that risk exists now with interests rates….if I purchased my home for $100,000 at 10% interests and stayed in it for 5 years, then tried to sell while comparable homes on the market had been purchased for a similar amount at 5%, they could essentially undercut my price…that’s not fair to me!!!! Too bad.
Scenario 3 – Congress repeals te exemption for used property. Once again I don’t see this as a very reasonable scenario. What I see is reasonable is Congress attempting to repeal it, but that would affect a huge number of individuals. Now assuming your 3rd scenario comes to fruition…….all used homes (of which yours would be one) would be subject to the same taxation. How does that erode the the value added by the initial sales tax?
To add to what I mentioned above about values of homes. The value of a home is what the market will bear out. If you purhcase a house (with or without tax) for $100,000 that’s the value that you place on it. If you then put another $20,000 into it you may think your house has a value of $120,000. But due to market forces (primarily supply and demand) it maybe worth $150,000 or $200,000. Then again it may only be worth $80,000. But if you refuse to sell it for $80,000 or $100,000 or anything less than $120,000 it apparently is still worth $120,000 to you. Unfortunately, that may not help your wallet if you need to liquidate.
John,
Glad to see you reengage. It’s been quiet for too long.
I’m not sure you understand the basic housing problem, yet. You talk about the value added of the sales tax, but there isn’t any. The value of a house that is going to be financed is based on the value as determined by a professional appraiser. And, appraisers are guided by industry standards which prohibit including commissions, taxes, and the like in the value. Banks will only finance either the sales price or the appraised value, whichever is less. It appears to me that under current rules, a home buyer would have to come up with the normal down payment, (20% or so), plus the sales tax, (30%). Coming up with 50% of the home cost looks like a potential disaster to me?
Comments? Suggestions?
Hank, see #20. The value is the value – tax does not need to be considered to determine the value of the home in the market because it’s in competition with similar goods, which already have the tax component. If need be, any particular technical loophole in a standard will be adjusted to fit the new tax system – it doesn’t benefit anyone to maintain the old practice. If you were right, which seems a wildly static assumption, this would be at the most a problem that would hurt the new housing market (post FairTax construction for building homes), while boosting the used housing market and commercial real estate.
Morphh,
It benefits banks,imho. There is a reason for standards that exclude taxes, commissions, etc. Contrary to your view, under the Fairtax, taxes are not factors of production. There is no tax associated with construction, only a line item at closing that has absolutely no collateral value. In fact, I estimate that the cost of new homes will fall by 9-10%, and that will be the appraised value, won’t it?
I did a little research and it turns out that in the last 12 months, new home sales represented 6% of the home sale market. So, you are correct that only a small percentage of home sales would be faced with the tax issue. However, I remain to be convinced that by someone waving a magic wand, the issue will go away? My best guess is that the new home market will dry up, the construction industry will fail, and jobs by the millions will be lost. Would you buy a house that had a 30% sales tax attached, which you had no hope of recovering?
The cost of a new home with the tax and the similar used home without the tax will be the same. The value is the same Hank. You would absolutely be able to recover the cost – it becomes embedded into the value as soon as the home is purchased. From then on, it’s a used home with an embedded tax component, just like every home. You’re abandoning basic economics to come up with this scenario.
Morphh,
The price of the new home with the tax is going to be at least 18% higher than that used house. But, that isn’t the issue here. The value of the new home without the tax, a tax which has no home value in the eyes of the bank and the appraiser, will be quite similar to the used home, or even less depending on the market conditions. Why do you continue to claim that the tax will somehow become a part of the house value? The new home owner may wish it was, but, just like a new car, most folks don’t plan on recovering the sales tax. What is different here?
To John (welcome) post # 84 & Morphh post # 90
Assume a new house costs $500,000 pre-sales tax. Ignoring any slight price reduction, H.R. 25 & new State sales taxes add (rounded) 50% or $250,000 sales tax, total cost $750,000.
The next day, that now existing home is still worth $750,000 because the buyer of a new home would have to pay $750,000 in total for that new home and the value of existing homes reflect what a new home would cost (in total).
Next either my scenario 1 or 2 occur. Now a new home costs $500,000. (Morphh, you have argued that the total cost of a new home would not decline to $500,000. This would mean that the seller would simply seek to increase his profit dramatically. Not only would competition prevent this, but this argument also runs 180 degrees opposite to your (AFFT’s) argument that any reduction in a sellers current costs of Income and Payroll taxes would be immediaitely reflected in a price reduction).
Incidentally, John Davidson, the economist who co-authored the Rice U. study on behalf of America’s homebuilders felt that scenarior # 2 was highly likely (my odds-on favorite was scenario # 3). He also acknowledged the high likelihood that ANY 1 of the 3 scenarios would destroy the bank’s collateral.
Now, I assume that the new house costs $500,000 + zero sales tax. Thus,
why would anypone pay you $750,000 for your existing house if they can buy a new house for $500,000?
If Scenario # 3 occurs, you get the same net effect. You will be able to sell the house for $750,000, but Uncle Sam & the States get $250,000 in sales taxes so that there is only $500,000 left to satisfy the mortgage.
I do not believe that the bank will build in assumptions about growth in the value of the house, particularly over the short-term.
To ALL.
You all appear to favor progressive taxation, penalizing those who earn more than others.
Recall my analogy to your cooperative or timeshare. We are trying to allocate costs, based upon each person’s relative impact on that cost. The rich have no greater impact on the cost of the military (the govt’s overwhelmingly dominent expenditure) than any other citizen.
Do any of you fear the dangerous basic problem of 50% or less of Americans paying 100% of the tax while other Americans can vote to confiscate all of the wealth of the taxpaying minority. At the start of this nation, only those who owned property and thus paid property taxes were allowed to vote.
Stephen, #93
The only way I believe a tax should be progressive is one based on consumption; the more you spend the more you pay.
The only thing we pay for based on income is the services of our government. As I mentioned before, what if our utilities or the food we consume was based on our income rather than our consumption? If you earn $50,000, a gallon of milk would cost $3.00 and if you earn $200,000, it would costs $10.00.
Even though a rich man receives no more service from the federal government than a poor man; actually a poor man receives more services, Medicaid, Welfare, Food Stamps, I can live with a rich man paying more tax if he spends more. At least he has a little more control of how much tax he pays.
Stephen, #93 – I wasn’t debating your scenarios here. I was debating Hank’s price theory, which is different. Your scenarios would have different effects. 1 being deflation of all goods and 2 & 3 being an intentional distortion by legislators to effect home value.
Hank,
If a national sales tax is ever applied to a new home, I believe it will be required to be included in the appraised value. This will also result in an increase in the appraisal value of existing homes.
Even though market value and appraised value are two separate values, the market value plays a huge roll in determining the appraised value.
When we built our home in 2002 we paid $165,000. Four years later the same model was selling for almost twice as much. Even though a new home cost twice as much as one that was four years old, the appraisal was the same for both and it was closer to the price of the new home. The market value had increased so the appraised value increased. Since that time the market value has decreased dramatically. I am sure banks feel appraisals should have been kept much lower during this period of time. But that was not the mistake; the mistake was making loans to people who could not afford the increased price.
Adding a consumption tax to the price of a new home as a result of the change in our tax system is much different than seeing the price double for no apparent reason. The big difference is when the consumption tax is added, there will be a proportional increase in spendable income, thus reducing the risk to lending institutions. When home prices doubled during from 2002 to 2006, incomes remained pretty much the same, but banks continued to loan to unqualified borrowers.
Hank, #91 you are absolutely incorrect to think that “The price of the new home with the tax is going to be at least 18% higher than that used house.” To put it nicely, this is invalid price theory and economically unsound. Under this thinking, all new goods would be 18% higher in cost than used goods. You know this is false. The price for a used good (or home) will maintain the same price differential as today (the differential being that the item is not “new”). This is basic price theory and supply/demand economics.
The total price of a new home will be equal to the total price of a similar used home, just as it is today. The value of the new home and the used home will be equal, selling for the same total cost. When the new home is resold, it will maintain that value, which includes the tax cost involved with its production – its value in the competitive market. It doesn’t matter if it cost $200 to build your home in 1850, if the market says it’s worth $200,000 today (tax, no tax, product cost, inflation, whatever) then that’s what it’s worth. A new home (or good) must take the tax out of what it’s worth (its value in the market).
In your car example, sales taxes on cars today are charged on both new and used cars, so it doesn’t make a difference. They have to eat the cost because the tax cascades otherwise, making the used car uncompetitive. The value of the car again is determined by it’s market, not the tax paid. In this case, the buyer has to eat the tax because reselling the car adds additional tax costs, which are uncompetitive.
Morphh/woo,
I now understand why Stephen eventually “agreed to disagree”. I once thought exactly the same way as you are presenting, but I’ve changed my tune. I used to believe that the 30% Fairtax would become embedded in the value of everything. I remember recommending that everyone should buy a dozen used cars because after the “revolution”, their value would increase dramatically. But I’m no longer convinced thanks to Stephen raising the finance issue.
Morphh, I absolutely believe that new (taxed) goods will be 18% more expensive than used (no tax) goods. I’ve spent a lot of time and effort making that case based on the AFFT funded BHI/Kotlikoff study data. What you are suggesting is that the 30% sales tax will somehow be included in the value of an item, and used goods will rapidly close the gap and return to the current new/used price relationship. I don’t buy that anymore.
It seems clear to me that the 30% tax can’t be financed, and won’t be included in any valuation, at least under current rules and regulations. In fact, a more likely scenario is that the value of a new home or car will drop by 10%, and that will actually depress used good prices.
Your rebuttal is that surely someone will do something, sometime, to allow taxes to be included in valuations. Maybe so, but I haven’t heard one single suggestion as to how this could be done and still not put banks at risk. Wishing it will happen doesn’t make it so!
As crazy as this might sound, I don’t have the same reservations about taxes if the tax reform was a VAT. There is no question that under a VAT, taxes are a factor of production. Each level of production pays the VAT, and by the time we get to the final consumer, the VAT is embedded in the price. Some even say it is invisible? The difference that I see is that the Fairtax has nothing to do with factors of production, but is a plainly visible entry on the closing statement, an entry that appraisers won’t include as value, and banks won’t finance.
Will you at least agree that this is an important issue until and unless some sort of solution is found?
Hank, Nothing published supports this conclusion and no economist would subscribe to that price theory. Stephen doesn’t agree with this price theory between new/used. He’s stated such several times and his argument points on this topic are outside of this price relationship. I agree that goods would be 17% more expensive (in that model), but that’s not just new goods, that’s all goods. It’s inflation (both price and income), and if you can explain away the history of prices with regard to inflation, then go for it. Usually we’re debating a matter of opinion and theory, but here your attempting to break the laws of economics. We’ve been debating for years here and I consider you my friend, so please consider this with all the honesty and trust that I can convey (and FairTax opinions aside), that your price theory in these posts is economically invalid.
Again, this doesn’t effect Stephen’s arguments regarding his 3 scenarios and it may not effect the bank’s reaction with regard to appraisal, but not because of the price differential you describe, but because the letter of the standard no longer reflects the intent of the standard (i.e. if they use a sub-total on comparative sales during appraisal).
Morph –
If what you are saying is correct (i.e., that prices for new and used goods will increase), then you’ve exposed one of the fatal flaws of the FairTax.
The FairTax would redistribute wealth in this country to the “haves” (who would isee the value of their assets immediately increase) from the “have nots” (who would see the cost of acquiring assets increase).
The FairTax would also screw savers (particularly retirees) who would see the real value of their savings immediately devalued (by whatever amount the overall price level increased).
Maybe we should rename it to the Marie Antoinette Tax.
Hayden, you’re correct on your second point, which is why David Tuerck stated “The monetary authorities would have to consider how the degree of accommodation, varying from none to full, would affect the overall economy and how it would affect the well-being of various groups such as retirees.” The greater the accommodation, the more it devalues savings and increases the nominal cost of assets. This also goes to Kotlikoff’s point when he described the capital gains that may be realized by the U.S. government if consumer prices were allowed to rise, which would reduce the real value of nominal U.S. government debt by $1 trillion (which I don’t necessary think this is a good thing).
One correction I do have is with regard to the wealth distribution and cost of acquiring assets, your first point – while the asset may increase in nominal price, that increase is relative to an increase in income, so the purchasing power would not change, just the nominal dollar value. So I don’t think it would produce the wealth redistribution you describe, but it does devalue savings and debt, which can have its own distributive effects. While I think it more likely for a partial accommodation, due to employee contracts, I would prefer a non-accommodation model (and locking the dependent claim to 1). I think it would be better to get net pay and keep prices consistent and minimize such effects.
I do think Stephen has one nugget in his scenarios if you strip away all the fluff and housing confusion. Using scenario 1, which is the repeal of the FairTax (not necessarily for the reason described but just in general – consider the sunset provision on the 16th Amendment), it could cause deflation (again depending on the fed). Such a expansion/contraction scenario could be ugly, very ugly.
To: Wise Old Owl re post # 93
We agree that the poor actually recieve more in “services” (actually, it unconstitutional wealth redistribution – “from each according to his means and to each according to his needs” – Karl Marx).
My point is that no matter what basis one uses, be it earnings or spending, the “rich” person should pay no more dollars of the cost of the military than does the “poor” person. They both benefit equally from the cost of the military, but more to the point, neither has a greater dollar impact on the cost of the military than the other. Thus, it is not fair for one to pay more dollars than the other.
Thus, even if I could somewhat control the time that I actually pay it, the consumption tax is still an unmovable burden on me exercising my freedom to enjoy the fruits of my labors. The poor person and the rich person are guaranteed equal opportunity, not equal outcomes.
To wi9se Old Owl re post # 95
I am not sure I understand the point you are making – could you rephrase it?
The point of my illustration, above, is that if a new home costs $500,000 plus $250,000 sales tax (Total $750,000) and if the sales tax is repealed, the new home would now cost only $500,000.
If the existing home’s value refleted the fact that someone would have to pay $750,000 one day, but only $500,000 if the sales taxd is repealed, the existing home’s value would decrease immediately – no-one would pay $750,000 for an existing home if they could buy a new home for only $500,000. Thus, the price of a new home (which would include the H.R. 25 sales tax) has an impact on the value of existing homes – if that sales tax on new homes disappears, so does that impact on existing homes.
To Morphh re post # 97
See my last post.
The value of an existing home is impacted by the total cost (including sales tax) of a new home. So, if the sales tax is repealed, the cost of the new house is derivitavely reduced thereby.
If the cost of the new house is reduced, then so will the existing house decline in value.
Why would anyone buy an existing house for $750,000 when they could buy a new hoouse for only $500,000?
To Morphh re post # 101
My friend, I challenge the remark “fluff and housing confusion”. I am not confused and there was no “fluff” delivered, just some humor. Please explain both.
Scenario # 2 (The new housing industry gets an exemption from H.R. 25 after 3-5 years), was the odds-on favorite of one of the co-authors of the Rice U. study.
Please explain why anyone would pay $750,000 for an existing home if a comparable new home c osts $500,000 (and recall my earlier post to the effect that the price of the new house should absolutely come down from $750,000 to $500,000 if the sales tax is repealed).
With all due respect to our economics PHd’s, economic THEORY is not science. There is no economic equivalent of taking 2 parts Hydrogen and 1 part Oxygen and coming up with water.
I must accept sound rational financial thinking over economic THEORY.
Therefore, my conclusions are not governed by what some economists believe is the correct theory (while other economists disagree with that theory).
We should not risk our entire economy on uninsurable economic THEORIES.
Stephen, my “fluff and housing confusion” comment was intended as to strip away all the particulars, assumptions, and examples you gave. The point was that the general argument I stated had no bearing on housing or assumptions of risk.
As for theories, there are different schools of economic thought and certainly opinions with regard to cause/effect, but there are general economic laws that most economists can agree on and empirical evidence we can draw from.
Stephen, post #103
I agree, existing home values would really take a beating if we went from a consumption tax to an income tax. As you stated, why would anyone pay $750,000 for an existing home if an identical new home would cost $500,000. Under the FairTax, I don’t agree with your before and after price differences, but I do agree with the concept.
Going from an income tax to a consumption tax will have the opposite affect on existing home values. If a new home will cost $750,000 an identical used home will have the same value. My opinion is that if our current tax system was based on consumption, we would never consider replacing it with an income tax, thus we shouldn’t be concerned about the deflated value it would cause on existing home values.
Hank, post #98
Do you actually believe if the cost of a new home suddenly became 18% higher than the cost of an identical existing home, the owner of the used home would be willing to sell their used home for 18% less? When the price of a new home in our development went up 100% in four years time so did the price of used homes. It doesn’t matter what causes the increase, the market value of a used home will mirror that of a new home.
Morphh re post # 108
I am not concerned, in general, about the drop in value of existing homes if the sales tax were repealed. I merely explian that is the reason that bankers will not lend on the sales tax – i.e., that its value can disappear overnight upon the occurence of any 1 of 3 rational tax events.
Are you alluding to the fact that you earlier disagreed that the price will drop from $750,000 to $500,000 if the sales tax were repealed? If so, recall my earluer post that this is directly opposite to the AFFT theory that prices will drop by the amount of embedded Income and Payroll Taxes upon adoption of H.R. 25 and counter to the realities of competition.
I believe you earlier posted that new homes were a very small part of the economy. If so, why not exempt them from the tax and avoid the whole problem (other than openning up the floodgates of industries lobbying for exemption, which could lead back to the Treasury’s much narrower tax base).
To Wise Old Owl re post # 109
I agree with you. The values of existing homes are strongly impacted by the cost of new homes.
That is precisely why the value of existing home would drop if the cost of new homes dropped (by the amount of the sales tax or any other major cost savings).
Stephen, #105 It makes no sense to me that congress would damage the used housing market, which is 94% of home sales, to give the other 6% and unfair advantage in the market. Such a huge tax advantage has never existed for homes (in our country or anywhere else that I know), would favor the rich (class warfare group upset), be environmentally unfriendly (tree hungers upset), be mass social engineering (free market group upset), and would be political suicide as a huge portion of the population would see their used homes decline in value (creating a larger problem for the bank then the one that supposedly reasoned the change).
Stephen, #110, I think if the tax (that used a partial accommodation during enactment) was repealed, used and new home values would likely decrease (though I can’t say how much); a general deflation on all goods. This would of course depend on the transition policy back to an income tax (or hybrid) and the adjustments taken by the Fed.
To Morphh re post # 113
This old tax lawyer/CPA admits to getting a headache when hearing the accomosation:non-accomodation (and real vs nominal dollars) arguments.
If the sales tax oes away, people are very aware of the price without the sales tax and will look for the seller who will give the full benefit to the buyer because the seller’s cost have not otherwise risen.
The issue accomodation has no bearing on this effect (in my opinion).
Stephen, #114 the accommodation has a great deal of bearing. Under a non-accommodation repeal, gross income would be increased (net remaining the same) – the portion that is sales tax revenue for a business would be restored to gross wages. That costs of the income tax is re-added (embedded), which would fully occur under non-accommodation (since the whole of those taxes were used to reduce prices), it would be reflected in the price restoring it to post tax levels (which had remained unchanged). It’s the reverse of what would happen during implementation under that model.
Morphh, that is exactly the sort of economic THEORY that, in my opinion, causes devotees of economics to believe that a given result is certain to obtain.
Just as prices can rise without accommodation (by re-allocation and reduction of consumer spending), I believe accommodation does not directly impact prices., but that printing more dollars does raise prices by cheapening the value of current dollars.
Stephen #93,
Yes and no. I am not in favor of our current progressive system. I think everyone should have to pay something but am willing to give the extremely poor a break.
Based on your arguements of everyone paying an equal share, I think there is a practical aspect which makes it unworkable. According to Wikipedia, the US Department of Defense budget for 2009 was $637 billion. Also according to the IRS in 2009 there were 144 million tax returns and somewhere I saw there were roughly 217 million taxpayers. So divide $637B by 217 M people and you get about $3,000 per person. That’s a pretty hefty expense for a family of 4 earning $20,000 a year. Or divide by 307 billion people (roughly the current US population) and you get about $2,000 per person (or $8,000 for a family of 4). Pretty steep if that family is earning below poverty level.
One of the reasons I favor the FairTax is that it unburdens those in need yet unburdens everyone the same (i.e. every family gets the prebate).
Okay, I’m a bit confused here (don’t look so surprised).
How do we go from a $500,000 home being taxed up to $750,000? Add 30% of $500,0000 (0.3*500,000=150,000) to $500,000 and you get $650,000. If you add state sales tax on top of that (in Florida it’s 6%) would add another $39,000 (0.06*650,000) to end up with $689,000 which is a far cry from $750,000.
Hank, #87
I won’t pretend to fully understand the housing problem. My comment was in response to Stephen making the following statement:
” Going forward, banks will STILL be unwilling to lend on the sales tax because the value added by the sales tax could disappear overnight (and the mortgage is then under water) ”
I was attemptiing to make the argument that there is no added value just because the expense to the buyer went up other than in the buyers mind.
The more I think about it, the more I think the whole issue may be mute. Currently, any federal taxes (including SS/Medicare, Medicaid) buried in the price of a new home on the market will be financed when a buyer takes out mortgage. Why should it be any different under the FairTax? Just like a loaf of bread or any other new product, the cost is what it is. If a loaf of bread is $0.77 without the FairTax, it will be $1.00 with the FairTax. You can’t get it for $0.77. It costs a buck. It just so happens out of the buck, $0.23 is sent off to the the government. The same with a home. Used home buyers will want to recover as much of what they spent on their homes as possible. If they try to undersell new homes, then they loose money, so they will hold out if they can…..surprisingly just like today.
It may very well be that lenders may not want to lend an amount to include federal taxes. If they don’t, they will loose business (revenue). Along will come some lenders who will decide to finances the federal taxes and they will gain more market share. The effect may initially cause a reduction in new home prices or a rise in used home prices. The market will find a new equilibrium. Eventually, all the used homes will be occupied causing the demand for new homes to increase, as demand goes up so should the price if the supply is limited. The situation is not static. It’s very dynamic. In the end I don’t think it matters. The struggle will be in the transition.
Like other aspects of the FairTax (or any other major change) perhaps it’s best to phase it in over 5 or 10 years. I hate the thought of continuing to pay income tax as the FairTax phases in, but doing so may minimize the transition pains. I’m just afraid that in the middle of the transition a new Congress (not so keen on the FairTax) would leave it in place but vote to stop phasing out income taxes.
To John Bailey re post # 117
Using a back-of-the envelope calculation (which may assume some savings from making the military more efficient), I came up with a Constitional budget of about $600B.
This maens about $2,000 for every person in America. Note that to equal current tax collections of $2.4T would require $8,000 for every person and that to equal the current budget of $3.8T would require over $13,000 for every person (i.e., the amount that is actually being spent).
No doubt any of those amounts are overwhelming for the poor. Similarly, the poor would not be able to afford their fair share of the cost of a coop or timeshare. Are they entitled to those and to have you pay their share of the cost? They generate the same amount of cost of the military as any other person.
What you and others are really saying is that , being charitable Judeo-Christians, we sgouild help them – a purely voluntary act.
The Founding Fathers clearly saw the wisdom of keeping charity out of the hands of pandering politicians. Charity was clearly left to the private sector.
Also, at first only landowners (who paid property taxes) were permitted to vote.
To: John Bailey re; your post # 118
First, I am using 35% (the latest BHI estimate, which Morphh says they may not actually use in H.R. 25, but that HR 25 would just collect less revenue, which either puts us into a bigger deficit or hopefully “forces” Congress to spend less) because I was and still go on the premise that the consept is to replace current tax revenues, which would require H.R. 25 to raise the rate – I understand AFFT is loathe to do that.
Next, I add 10% State sales tax – my state (TN) has a 9.75% sales tax rate – of course we do not know what the new sales tax rate would be until we knew what other taxes the State would fold into its new sales tax that matches the HR 25 tax base.
I then round up from 45% to 50% just for simplicity of illustration. By the way, I ignore any other possible HR 25 tax rate increase due to any shortfall in achieving targeted revenues.
The exact amount of the sales tax is not the relevant point. The point is that the sales tax is a big number and its elimniation affects the values of existing home and thus destroys the bank’s collateral (which it can easily foresee and therefore it wont lend on the sales tax).
Incidentally, there is no better pressure on Congress than every taxpayer feeling the effect of Congress’ spending than for his/her tax burden to rise with every new dollar of Congressional spending. Everyone paying the $2,000-$13,000 per person would be screaming for a reduction in Congressional spending – the way it ought to be.
To John Bailey re post # 119
My response to what I think your question/point is.
HR 25 gets enacted. A new house that previously sold for $500,000 (I ignore what I consider will be a very minor price decline due to the elimination of “embedded tax costs”) will now sell for $500,000 plus my 50% sales tax of $250,000 for a total of $750,000.
The bank will be afraid to lend on the $250,000 in sales tax (and thus require the buyer to provide that sum in cash), because that value may disappear, as follows.
The next day that new house is still worth $750,000 because that is the amount someone would have to pay intotal for another new house.
Next day, HR 25 is repealed. Homebuilder now sells a new house for $500,000 plus zero tax.
Now, the 1 day old house is no longer worth $750,000 (its worth only $500,000) because buyers can buy a new house for only $500,000.
Thus, the value on which the banker would have lent, disappears overnight.
Stephen # 121,
No, I don’t think the poor are entitled to a timeshare. But it’s difficult for the country to provide a military for those paying taxes while neglecting those who don’t. As unfair as it may be for those paying taxes, many times life is not fair. Again, this is why I think the FairTax is beneficial. It gives everyone some tax relief unrelated to their financial capability.
You mention Jedeo-Christians…..as a matter of fact, the Bible talks about charity. One things that sticks in my mind is farmers being instructed to not reap the edges of their fields but to leave that for the poor and widows. It did not, however, say to reap from the edges and give the results to the poor. It required the poor to do something (exception being those unable such as blind and crippled).
There is another side to this issue (who benefits and how much from the military). I’m not sure I agree with it, but I do understand it. One can argue that the wealthy benefit more from the military because they have more to loose. If a country were to bomb a US city, a wealthy person may loose a house (let’s say $500,000 or $1,000,000) whereas a poor person (if they owned a moblile home) would only stand to loose $25,000 (or whatever the gonig rate of a mobile home is). Also, it’s doubtful that the poor would own many other assests, but a wealthy person may have several assets tied up in corporations which could be destroyed as well.
So my stance on progressive taxation is to essentially give a break to those truly poor, but the rest of us (low class, middle class, upper class) should be taxed a similar amount. If it’s an income tax, I’m fine with a flat tax, but my preference is a tax on consumption. I realize that either of those will most likely put a larger financial burden those earning more or spending more. But I seriously doubt everyone getting a bill from the governmenet for the same amount (expense divided by the population) would ever make it through congress.
All that being said, I am sickened at how many people in this country essentially don’t pay any federal income taxes.
To John Bailey re post # 120
Those bankers who decide to finance the sales tax will be comparable to the bankers who financed sub-prime borrowers. There is no need to remind us of what happened.
Indeed, those bankers might get rich (if none of my 3 scenarios occurs). The problem is that the risk of any 1 of those 3 occurring is extremely high and sober bankers will not take that risk. I do not think regulators will allow that to happen again, except of course that politics triuphs over intelligence every time.
To John Bailey re post 124
It is not a matter of how much each citizen BENEFITS from the military, but what is each person’s impact on the cost of the military. You do not try to evaluate each member’s benefit from owing the timeshare, but ask what is your impact (fair share of) the cost of the common charges.
While the Bible tells us to be charitable, no one is FORCED to do so. Have you ever seen a pastor come down the aisle with a collection plate in one hand and a gun inthe other? The Founding Fathers wisely left charity to the PRIVATE SECTOR – not to pandering politicians.
I agree that the current Congress would not pass my equal share tax. But, if and when we get a Congres with 535 Benjamin Franklins, that mif=ght well pass.
Stephen #125,
You say those bankers are comparable to those who finaced sub-prime loans. I disagree. A banker should look at the buyer’s ability to pay the loan….that wasn’t the case.
There is always risk in any financial deal. Your 3 scenarios still don’t seem very likely to me. Are they possible? I would not say no.
For a moment, forget those scenarios. Forget the existing tax code. Imagine the country as always having the FairTax. What would the likelyhood be of the legislature throwing out the FairTax and implementing an income tax? What would be the likelyhood of them exempting housing from sales tax? The tax rate would have to go up to make up the loss in revenue. Everyone would scream. What would the likelyhood be of them taxing sales of used housing? The tax rate might go down, but I doubt it, I could see Congress spending the new found revenue….but again the populace would revolt.
So, imho, it would be a better environment (fiscally). The difficulty is in going from where we are to that place. To me, that’s a solvable problem.
Stephen #122,
Just a minor nit pick on my part.
I find it a bit disingenuous for you to edge up all your numbers to show the extreme (i.e using 35% tax rate, rounding up on the state sales tax, using one of the highest sales tax rates in the US and then rounding the entire rate up by 5%).
The basic argument (effects of sales tax on property values) may not change, but when you present $250,000 as the amount of tax someone will have to pay, there is an effect. If the amount was only $2,500 I doubt we would be having the discussion.
By the way, according to this site (http://www.taxadmin.org/fta/rate/sales.pdf) TN only has a state sales tax rate of 7%. If it’s like in FL (where I live) individual counties have additional sales tax so while FL has a 6% rate, some counties are 7%.
Since a lot of what’s being discussed, what I think would be more reasonable would be to split the difference between the 30% and 35% for the FairTax rate (32.5%) use a nominal state in come tax rate 7% to get 39.5% and then round up the final number to 40%. That still gives you a pretty large number to use for your arguement without looking like you are stacking the deck in your favor for shock value. So the $500,000 home would have a $200,000 tax bill.
Stephen #126,
I don’t disagree with you about charity. I would be quite happy if the government stopped all it’s charity and left it up to the private sector.
Stephen #92 and #122,
I forgot to add that you also don’t account for any reduction in the price of the home due to embedded taxes going away. You make it sound negligible (slight is the term you use). But it’s not so slight. Sorry, but I’m going to discuss accomodation…you may want to take some advil.
1) If you assume all employees (laborers and such) keep their gross income then a $500,000 house prior to Fairtax should cost $500,000+FTR (FT=FairTax amount) which will be $680k to $750k depending on other assumptions. That doesn’t look too good, but everyone will have a lot more money in their paychecks as they won’t have income tax taken out and won’t have FICA taken out either. So it’s not as bleak as you make it sound (if I recall Morph had a great series of posts explaining the purchasing power (nominal/real) stuff.
2) If you assume just the other extreme, that the laborer keeps their net and corporations don’t use their portion of FICA for increased profits, then housing prices should drop roughly 22%. The house would then cost $390k + FT or about $530k to $585k. That doesn’t look nearly as troubling as $750k
3) If you assume some sort of middle…one reasonable thing might be the worker retains their gross income but corporations don’t use their portion of FICA for increased profit. I think Hank or Hayden have suggest the increase under such an assumption would be around 17%. This would mean the house would be about $620k to $635k depending on the which state income rate you use (for those numbers I used 7 and 10%). Again, not as troubling as $750k and not as nice as $530k. But the population would also be taking home a significantly larger paycheck.
These are real factors that must be taken into account as is the nominal versus real prices and wages.
To: John Bailey re post #127
Yes, there is a difference in facts but the critical similarity is the STRONG potential of the loss of a major portion of the bank’s security for the loan.
Put another way, would a banker lend $600,000 (80% of $750,000) when there is a very good chance that the collateral will drop in value to $500,000 -I submit that a banker would not take that risk.
As to the risks, having practiced as a tax lawyer/CPA for 40+ years (including some involvement in tax lobbying) I created the 3 scenarios which seem very real to me.
1) Complete repeal of HR25 – if Congress could repeal the Income Tax after 100 years, it could certainly repeal HR 25 after 3-5 years.
2) Exemption of new homes after 3-5 years. While not perfectly analogous, Congress repeal the 10% luxury tax on boats costing over $100,000 after only 3 years because the boatbuilders were going bankrupt. That was only a 10% tax! And note that one of the two economist who wrote the Rice U paper for the Homebuilders thought this was a very likely scenario.
3) taxing existing home sales. If Congress is desperate to raise money (as they are anyway, as they need to fund unfunded entitlements, AND?OR when targeted revenues from HR 25 fall short, ypu bet yopur ;life they will remove the exemption for existing homes rather than raise the HR 25 sales tax rate.
I am sorry that you can not see the realism of these risks – I and othedr tax professionals who have read this do see these as real risks.
I can not make believe that HR 25 has always been in effect (but not the Income Tax). i have to deal with the realities as they exist.
To: John Bailey re post # 128
Each County in TN adds to the State sales tax so that the total sales tax rate in my county is 9.75%.
I used 35% before (and still use it) hearing Morphh’s argument that the 30% will simply not meet the stated HR 25 revenue target. I think it more reasonable to see what rate HR 25 needs to be to meet its original goal of targeted revenue.
Yes, when I add my State’s (County’s) sales tax rate I come up with only 45%. I feel it is reasonable to round up to 50% for ease of illustration.
I (and many others cited) also believe that the HR 25 tax rate will be raised over time in part due to targeted revenue shortfalls caused by tax avoidance. I cited the Treasury Study & Yin Law Review artice which came up with much higher rates (albeit on a narrower tax base but also assuming higher rates of tax avoidance).
I agree with you that if the tax were $2,500 we would not be discussing it.
You say I shopuls used 40% – that would yield a tax of $200,000 rather than the $250,00 I used. I do not consider that enough of a difference to matter.
to John Bailey re: post # 129
Amen, Brother!
That is what the Founding Fathers told us to do!
They knew that once you allow the camel to stick its nose under the tent, Progressives will eat you out of house and home.
Morphh,
Re#99, HELP!!! I don’t understand what economic theory or principle I am violating, a criticism you have made more than once. I thought I was talking about the clear fact that taxes have no collateral value, therefore, the 30% Fairtax cannot be embedded in the value of a house, car, boat, etc. If that is true, then the contractor cost of a house will fall by around 10%, and because the tax has no value, banks will not finance the after tax price under any conditions. A huge down payment will be required.
I’ve reread Stephens posts, and he seems willing to allow the tax into the price, but goes on to show that financing of the tax can’t happen. I simply don’t want to add the tax in the first place. It isn’t collateral and has no place in trying to discuss house values.
Please tell me just what price theory I am violating, because I don’t get your point yet?
To John Bailey re post # 130
John, I feel like Woody Allen in Bananas as he walks down the stairs into the cell under the jungle floor as punishment and he is forced to listen to a life insurance salesman’s pitch.
It is late and I am tired. I must also pack for a short trip leasving early tomorrow AM returning Friday afternoon – I will have to catch up and respond then. I will then reread your post carefully.
For now, recall that AFFT/Jorgenson say that their 22% pricew reduction will occur ONLY if wages are reduced by employee Income/Payroll taxes. That had to be a major part of the 22% price reduction. I understand that no-one now expects that salary reduction.
Also, this accomodation and real vs nominal dollars appears to me to be more economic THEORY and not CERTAIN REALITY.
To John Bailey – that was in re post #131
Also, with no personal insult intended, I know I am not a complete idiot but a lot of this economic theory sounds like mumbo jumbo (voodoo economics) to me.
A PhD econimist at BHI comforted me by saying these concept also confound many PhD economists.
I will give it another go when I return.
Morphh,
I am also comforted by the fact that Hank (an economist) is also confused.
Hank, many components have no particular collateral value, profit being one, but such costs contribute to the market value, and market value is a basis for collateral value. The market determines the value and the market includes the tax component for the total cost in new homes. If the market says this new home is worth $200,000 because comparative homes sell for $200,000, then it doesn’t matter what components make up that home (builder cost, tax cost, profit, inflation, etc). Builder may have spent $100,000 in labor and materials, pockets $54,000 and sends in $46,000 of tax. At least $100,000 of that has no real physical value, but the home competes in a market that sets its price. The bottom line is that the Bank is going to be to sell that home for close to $200,000, because that’s what it’s worth in the market. The economics of supply and demand with equalize used home prices with new home prices (that include the builder profit margin and tax component).
When did Hank become an economist? Hank… you not telling us something?
Morphh re: post # 138
I agree that the value is the value, but if the HR 25 sales tax goes away the price of new homes drops back from $750,000 to $500,000 in my illustration, and then existing home values drop because buyers can pay less (i.e, by the sales tax amount) for a new home. So, the obvious retail sales tax component does have an impact on value where a hidden tax might not be noticeable by the buyer.
Also, I wanted to add to my comments about economic THEORY. At the end
of the day, it is incumbent upon the lobbyists for HR 25 to prove that these economic theories are CERTAIN to play out. It is impossible to prove that. Thus, HR 25 requires an economic leap of faith. I submit that it is reckless to subject our retail-sales-sensitive economy to this drastic change.
To John Bailey
We agree that charity should be a private sector function..
Have you read my illustration of the Prebate, which exacerbates current tax law wealth redistribution? If so, then how can you accept H.R. 25?
Morphh,
I became an economist in February, 1969, when, while returning from a two year tour in Viet Nam, I was chosen to attend the U of Nebraska at Omaha on what was know as Operation Bootstrap. My economics professor was Dr Steele who claimed to be the last of the great economic philosophers. He had no use for economic models such as those used by BHI/Kotlikoff, and, when I watched Alan Greenspan admit that even with 300 of the country’s best economists, he couldn’t predict the recent recession, it occurred to me that maybe Dr Steel was right. What people think is more important than all the computer models ever created?
As for our discussion about value, I guess I now understand that you believe the market sets value, while I believe that an appraiser sets value. And that tax component you so desperately want to include in value isn’t allowed currently. The bank isn’t going to loan money based on a tax component that has no collateral value. I think that bank/appraiser rules and regulations trump an individuals version of value. I guess we will have to see what happens in the very unlikely event that the Fairtax legislation ever becomes law.
The appraiser sets a value based upon recent actual sales of comparable houses.
I agree initially, that existing home values will rise to reflect the total retail price (including sales tax) that a buyer of a new home would have to pay – $750,000 in my illustration.
However, if that tax is repealed, then the new buyer will only have to pay $500,000 and existing home prices will drop in value to reflect that because no on would pay $750,000 for an existing house if he can get a comparable new house for only $500,000. I do not believe the economic theories which say that the $750,000 price would remain unchanged for reasons previously stated.
Stephen,
“The appraiser sets a value based upon recent actual sales of comparable houses”, subject to the “Uniform Standards of Appraisal Practices”. And, as you are aware, those standards do not allow the inclusion of taxes in the valuation process. There is no way your $500,000 house can be valued at $750,000, imho. Stand by for a huge down payment including the tax if you are foolish enough to agree to pay $750,000, and you should plan on living in those four walls forever, because a buyer isn’t going to appear to bail you out, at least not a buyer from our galaxy.
Stephen #131,
How can you say that you can’t imagine a world where HR 25 has always existed and no income tax, that you have to deal in realities? This entire discussion is about a hypothetical situation. Thought experiments can be quite valuable in clarifying, proving, disproving, and explaining hypotheticals.
Assuming HR 25 were to become law, what would you say the probabilities of scenario 1 occuring? Scenario 2? Scenario 3?
I agree congress may desire to pursue scenario 3, but it would affect such a huge number of people, I don’t see it being successful….therefore I see it as a very low probability.
If Congress passes HR 25 the same way Obamacare was passed (against the will of the people, with a constantly changing huge piece of legislation that none of the members had read before voting on it, then I would say a repeal would be likely. But allow the bill to be read and discussed by all, if it passes with support of the people too, then I don’t think it’s likely to be repealed.
Scenario 2 seems more likely than the other two. It would adversely effect a huge number of people across the country (by causing more deficit spending or an increase in the tax rate) I don’t think it all that likely to occur.
So it’s not that I don’t see the realism of your scenarios, I just am not convinced they are very likely.
Stephen #135,
Regarding the 22% reduction in prices, that is what I am referring to when I write about employees keeping their net wages and employers not keeping their FICA contributions as profit.
I am not saying I believe that will happen. I use that as one of the two extremes, I also point out the other extreme as well and what I consider a reasonable possibility between the two. Reality may end up being none of those three, but examing those possibilities allows us to get closer to reality.
As far as real vs. nominal dollars being theory…where have you been living the past 40 years (i’m only 48 so my economic recollection is only about 40 years)? As the FEDs keep pumping money into the system, what has happened? Are we all richer? Of course not. More $s chasing the same number of goods equals higher prices for those goods. Sure salaries have gone up over time, but so has the price of many goods. Oh but look at the price of VCR now compared to 1993. Well, I still have a Hitachi VCR from 1993, it still works. But the one I bought in 2005 is already broken. It was less than half the price of my 1993 Hitachi, but has lasted only a fraction of the time. That’s another form of inflation.
Hank, 142
Appraisers set value, but appraiser’s main toll in setting this value is the market.
Stephen, 143
This is a concern that will never happen if the FairTax legislation ever becomes law. This is like saying if we ever go back to using horses to plow our fields, tractors will loose half their value.
John,
What is meant by “main toll”? Do you really believe that if I contract to build a new home on the first day that the Fairtax becomes law, and the contract shows that I will have to pay a 30% sales tax on top of the contractor costs, that the market will reflect the tax inclusive price, even if the appraiser doesn’t include the tax in his value estimate? Would you want to be the first one to test this new market? All the comps that the appraiser looks at contain no federal tax, so what will he do? For sure, he won’t include the federal tax in his value because he can’t! My estimate is that the contractor costs will fall by 10% or so, and that could well be the new market value if taxes aren’t included.
Please clarify.
The market value for existing homes will automatically increase when the FairTax goes into effect. Why would anyone sell their existing home for 18% less than what a comparable new home will cost. Since appraisal value is mostly based on market value and existing homes market value will increase by 18%; so will apraised value of new homes.
woo,
I agree that only a fool would sell their home for 18% less than a comparable new home would cost. But the cost of a new home is going to fall 10% or so when we get rid if current tax related costs, so the cost of the used home will certainly not increase. Your tortuous logic continues to ignore the fact that taxes can’t be included in value, and until you explain that away, the housing market is in trouble!
Hank, I’m not sure what you just meant there.. what does the builder’s cost of the home dropping by 10% have to do with it? You can’t buy a new house without a tax component. It’s not an imaginary cost – it’s a real cost. That real cost is part of setting the value in the market with competing products. In your example, the total price for the new home will start 18% higher, which will increase the price of used homes to a point of stabilization between the total price for new homes and used homes. We’re talking about an 18% increase in wages and prices, so used homes will inflate to maintain the same level of purchasing power. Used homes and new homes being equal in total cost, the tax component of the new home gets embedded into its market value when sold (it’s part of production cost).
If I look for a house, the new home and used home will both be $200,000 (what was a $170,000 home before the FairTax). If I buy the new home, $46,000 get’s sent to uncle sam (builder gets $154,000 – note the 10% reduction in cost from $170,000 for the builder). If I turn around and sell it, guess what the sale price will be? Not $154,000. It will be sold for $200,000 because that’s the market value for that home, and that is what an appraiser will appraise it at. The value is not set by the tax, it’s set by the market – the appraiser does not need to add any tax to the market value. It’s competing at $200,000 with other identical new and used homes.
Hank #149,
Did I use the term “main toll”? I think that was WOO in #147, so I assume your questions were for him.
I think Morph explains the issue very well (to me anyway) in post #152. The value isn’t set by the appraiser at all.
Maybe another way to look at it is to keep separate Fed and State sales tax. Currently the federal taxes (income and FICA) are embedded into the price of homes, just like they are embedded in a shirt at Walmart. The state then adds it’s sales tax to the sales price. So you can’t walk out the door with a product having a price tag of $10.00 by handing the clerk a ten dollar bill. You have to hand over a ten and some change (unless there is a sales tax holiday). Now you go to buy a house for sale at $100,000, you have to pay $106,000 dollars (ignoring all the other misc fees for the sake of simplicity, not that they insignficant). The appraiser may not add the state sales tax into the equation when coming up with the value of the home and banks may not be willing to lend that amount either (they will but that’s another issue). However, the appraiser hasn’t removed the federal and FICA components from the advertised price in determining the property’s value nor does the bank.
In the FairTax environment, a $10 product at Walmart require you to pay $10 + sales tax and the reciept will show how much gets sent to the Fed goverment as tax which would be $2.30. A new home priced at $100,000 should be just that $100,000 and if a clerk were to ring it up, the reciept would show at $23,000 of it goes to the Fed government. A bank could finance it just like it does today and state sales tax most likely would still be added to that price making it $106,000.
Please understand I’m not saying a new home that sold for $100,000 prior to implementation of the FairTax would sell for $100,000 after implementation.
As to banks not being willing to finance taxes, the banks already finance all sorts of things that have no basis on the value of the home the way you depict it. Banks currently allow you to roll closing costs into the mortgage.
Hank,
Under the FairTax, the market value of a new home will have the same market value of a comparable used home. We agree, the price of a new home will have an after tax increase of approximately 18%. Appraisal value usually ends up being relatively the same as market value. Your logic would say even though the market value of an existing home would be the same as a comparable new home; the appraisal of the existing home would be greater because there would have been no taxes paid on the existing home.
Wow,
I guess we should be grateful to Stephen and our moderator for posting his study which got this lively discussion going. But all the scenarios and claims are a bit much for me. I can’t hear the music over the sound of the tap dancing!
Morphh seems to have a magic wand that he can wave over a used house which raises the value 15-20% overnight. John believes that banks will finance all closing costs. And wiseoldowl seems to think that appraisers main “toll” is the market. (Sorry John, it wasn’t you that used the term “toll”, whatever that is?
Back to basics. Appraisers can’t include taxes in their valuation, and banks won’t finance anything more than the appraised value. The combined down payment as collateral and the tax payment which is not collateral means that most of us could not buy a new home without bringing 50% of the home price to closing. And, then you seem to expect that the next buyer will gladly pay the embedded sales tax as part of the resale. I’m reminded of a spirited debate I had with chiefcook, a great Fairtax supporter, when I suggested that, when reselling a car, the buyer would in effect be paying some or all of the sales tax. His response was to suggest that if I expected to recoup the sales tax, I would be disappointed. Just like State auto sales taxes, no one expects to recoup the tax when the vehicle is sold. The tax is not part of value, and neither is the Fairtax a part of home values. Appraisers won’t include taxes in their valuation and banks won’t view taxes as any kind of collateral. Banks will finance closing costs, typically limited to 3-6%, but only if there is an appraisal supporting what is basically a higher total sales price.
The basic question is whether or not taxes are a part of value. I think not, and all of you disagree. That’s fine, and we will just have to wait and see. Everyone is entitled to an opinion, but don’t overlook the facts surrounding current rules and regulations. Someone still needs to explain what Congress or whoever could do to solve this issue.
“Tool” he meant “Tool”… Geezzz, give the guy a break for a typo. No one needs a magic wand.. there is a tax rebate on inventory to ease that transition, but I expect it will happen quickly when people instantly have 15-20% more income overnight.
Speak for yourself, worker bee. 15-20% more income overnight sounds great, but, as a retiree, I’m not paying any income or payroll tax on basically $50,000 in SS checks and investment income. Our prebate would be 10% increase, but the taxes I would pay on spending would leave me $7,000 worse off in terms of purchasing power. Tell me again why I should support the Fairtax scheme?
Thanks for explaining tool. And, I’ll repeat, the market may be the main tool, but the value outcome is still driven by current rules and regulations for appraisers.
Hank #157,
As I understand it, SS payments are adjusted for cost of living, no? Granted the definition of ‘cost of living’ may be somewhat pliable. Anyway, as prices rise do to the FairTax and salaries rise, so should your SS checks. Am I missing something?
hank,
The “tool” man has a question. Would you please direct me to the written rule that states appraisers may not include sales tax in their appraisals?
Hank, As John stated, your SS income (and pension, since it’s based on the same COLA) will be increased based on price increases, plus you have shifts in purchasing power to calculate (the 10% reduction in cost). The prebate would increase with the prices – so 17-18%, not 10%. I also remember you saying that a portion of your spending was on existing assets (used goods), which would be untaxed purchases. If I remember correctly, we’ve calculated your return and it came out way ahead (probably the most to gain out of anyone here).
If you believe used home prices will not rise, then you must believe that we’ll all get a 15-20% increase in purchasing power, being able to buy larger and nicer used homes that we were unable to afford in the prior year. Is this correct?
John,
You are quite right about the protection afforded Seniors from inflationary price increases. But I was addressing tax burdens, not purchasing power.
From paying zero federal tax currently, we would be forced to pay a net tax after prebate of an estimated $7,000, assuming we spend all our income on taxable goods and services. Would I be correct to say that taxes would be shifted to the middle class who might be in similar economic conditions?
As retail prices rise as expected, my SS checks will also be adjusted upward. But that doesn’t change my net tax burden, does it? How am I better off under the Fairtax?
John,
Since you raised the subject of a COLA for seniors to cover retail price increases, here is a question for you. Where will the money come from to pay that COLA?
Assuming there are 57 million Social Security checks each month averaging $1,000, the annual SS outlays are around $684 billion. If retail prices rise by 18% as expected, the COLA would cost $123 billion. In order to raise that amount, the inclusive tax rate would have to be 1.3% higher than the 23.8% calculated in the 2006 BHI/Kotlikoff rate study. That results in a 2.3% exclusive tax rate increase. Retail merchants would have to add 33.6% instead of the 31.3% in that study.
Is that a significant issue, or do we really care what the darn rate turns out to be?
Hank, I feel like we’re repeating the same discussions over and over and over again. You know where the additional revenue comes from. It comes from the 17% increase in the tax base for the accommodation, giving the government 17% more nominal revenue, allowing them to pay you 17% more COLA. Accommodation does not change the tax rate.
Hank #161,
Tax burden and purchasing power are related aren’t they? If overnight the government increases your annual tax burden by $5,000 but at the same time increases your annual income by $6,000, you have a net increase in your purchasing power of $1,000/year. Would you fight against that because your tax burden increased?
And by the way, while you may not be writing a check each year to pay federal taxes the products you buy do in fact have a built in them the federal taxes of those who created those products, do they not?
For the sake of discussion let’s say you spend $50,000/year on stuff (food, services, clothing, etc.). If one were to compute the amount of taxes that are embedded in those products the price could be represented as the price of product as the sum of two numbers (i.e. non-tax product + Federal tax). So let’s say the Fed tax component ended up being $10,000/year (20%). If you could buy all that same stuff for $40,000/year + $10,000/year in taxes would you complain that your tax burden increased? Isn’t that just a semantics game?
What if you could buy the same stuff for $40,000/year + $10,000/year in taxes and received a check each year for $3,000/year (or whatever the prebate is for your household)?
Or what if you could buy the same stuff for $40,000/year + $13,000/year in taxes and received a check each year for $3,000/year (or whatever the prebate is for your household)? Would you complain your tax burden increased by $3,000/year? You would not be lying, it did indeed increase, but yet the net buying power you have would not have changed. So what is objectionable about that?
Hank,
I get so tired of hearing what the FairTax rate must be to be revenue neutral. All I can say is that taxing consumption is a more consistent tax base than taxing income.
If you take the income that would have been generated under the FairTax which is based on GDP less domestic investments and compare this figure to actual receipts, you will see that between 2007 and 2009 GDP less domestic investments increased but actual receipts decreased.
GDP less domestic investments 2007 $11.8-trillion ~ actual receipts $2.66-trillion
GDP less domestic investments 2008 $12.3-trillion ~ actual receipts $2.5-trillion
GDP less domestic investments 2009 $12.5-trillion ~ actual receipts $2.2-trillion
woo,
I couldn’t agree with you more. Each year provides a different suggested Fairtax rate, but the only year AFFT has professionally studied is 2007. That year produced a 23.8% inclusive tax rate. Judging by your data, after paying for the prebate ($2T), the revenue neutral inclusive rate would decrease by 3% each year. But, I think Hayden would quickly point out that in each of those years, the budget deficit increased dramatically, calling into question the goal of being simply revenue neutral.
John, #164
Of course tax burden and purchasing power are related. But, in my case, the government Fairtax increased my taxes from zero to $12,000, and increased my income from $48,000 to $53,000. Does that sound like a purchasing power wash to you?
Please don’t get me started on the subject of embedded business taxes adding to my individual tax burden. That is simply a crock. Embedded business tax costs impact one thing only, and that is retail prices. Businesses pay rent, and include that cost in their retail prices, but my rent doesn’t change one dime, Same for utilities, insurance, etc. Why then should I believe that my individual tax burden is somehow affected by including business tax costs in retail prices? That lame argument doesn’t wash, and is a gross misuse of the embedded cost concept.
Morphh, If we seem to be repeating prior arguments, we probably are. My old and senile brain can’t remember what I had for breakfast, let alone some detailed economic point of discussion three years ago.
That said, why do you think the tax base is going to increase by 17%? I remember Kotlikoff telling me that taxes are not included in GDP calculations. Therefore, under the Fairtax, the GDP is going to drop around 10% in year one, despite Fairtax advocate’s claims that GDP will rise by 10% in year one? Who is right?
So, where is the $123 billion coming from to increase my SS pension?
Hank, #166 seems you’re suggesting budget neutrality, and not revenue neutrality.
Hank, #168 if GDP does not contain taxes, how would it drop by the removal of taxes? The tax base will increase by 17% because prices are increasing by 17%. If they did a non-accommodation, then the tax base would remain the same. The tax base measured in Kotlikoff’s study was a non-accommodation model. If you increase the prices by 17%, you get increased revenue of 17%. Each economist that has published a study on the tax rate has stated this, to include Gale.
Hank,
I believe many new jobs will be created under the FairTax through the use of the dollars saved from the removal of taxes and compliance cost associated with these taxes. More jobs, more spending, thus increase in GDP.
Hank #167,
Just a few questions to try to clarify where you are coming from.
I’m assuming that you get the annual salary increase from $48,000 to $53,000 by adding the prebate of $4,784 (2008 numbers for two adults) to your $48,000 current income. I do not want to pry into your personal finances, well I do, but not for reasons other than understanding your position, which is why I ask “is the $48,000 solely from SS or is it from some other source. I’m assuming it’s not income derived from wages, etc, or if it is that the amount is small enough to keep you below the income tax threshold. True? What % of your income is from SS? Feel free to tell me this is none of my business.
Are you saying you spend 100% of your $48,000 on new goods and services?
John,
I don’t mind your prying if it helps understand my position. The income for the retired couple in my example is $30,000 from two net SS checks of $1250 each, plus $18,000 from investment income. I pay no income tax on that income, and obviously pay no payroll taxes.
I checked last years budget and could not find a single purchase of a used good. There may be some other untaxed stuff such as gifts, but that would seem to be a very minor correction.
woo,
I don’t agree that more jobs will automatically be created just because businesses save money on taxes. Jobs are created for one reason only and that is a rise in demand. The current jobless rate is stuck at a very high level, and that tends to feed on itself. No jobs, no pay, no spending, no increase in jobs, a vicious cycle. Look what happened when the federal government tried to pump dollars into the system. Nothing!!! Adding money didn’t create demand, and therefore no jobs. I’m not smart enough to know how to jack up demand, and I’m not even sure that would be a good thing. Excessive demand coupled with insufficient savings and investment caused the current debacle, imho.
Hank,
It seems there are two (at least) issues that to me are more a matter of semantics that you seem to debate frequently. One is the embedded tax concept, the other is the prebate being income instead of an advance refund of taxes.
Prebate – Regardless of what you call it, (prebate, rebate, tax refund, etc.), In the end a person earning the poverty level of dollars, call it X, for their family size would be able to buy X dollars worth of stuff (priced to include the FairTax) and still have money (the prebate amount) at the end of the year (if they fight the urge to spend it). No? One way to implement this would be for everyone to submit their family size at the end of the year and then get a check from the Feds for their tax refund or rebate or welfare check (pick your term). Throughout the year if they had spent X dollars on new and used goods they would have paid 0.23*X in taxes and at the end of the year, that’s how much they would get back. As a matter of fact, if they spent more or even less than X on new goods and services they would still get back 0.23*X. This is an effort to offset the tax burden for those with low incomes and yet be fair to those who with higher incomes by treating them the same. But sending a check at the end of the year means that poor family will incure the tax burden throughout the year which could be a hardship difficult to handle…..so the amount could be sent as a lump sum at the beginning of the year. However, that creates a bigger burden on the government, so sending it each month makes a bit of sense (imho).
Another way to implement it might be to not send any checks at all, but to issue somewhat of a pre-paid card that a taxpayer which could be swiped at point of purchase and would reduce price by the tax amount until the ‘prebate’ amount for that year has been used up. Then if someone wasn’t spending enough on new goods and services each year to use up their “prebate”, it could either be rolled over to the next year or they get sent a check.
I guess my point here is that does it really matter what we call it? I am not in favor of welfare, but since everyone is being treated the same (essentially the same welfare/prebate/rebate/debit card based on their family size) I don’t necessarily see that as welfare….but a practical attempt to fairly unburden everyone the same way.
Embedded Taxes – I apologize (since you said don’t get you started on embedded taxes). You say that they affect only one thing – retail sales prices. Well isn’t that what you pay when you go to the store? Do they not also affect the price paid for services at a doctor or hair stylist? How could a barber stay in business if he has to fork over 20-25% of his income to the federal government if he could not charge enough in a hair cut to cover his costs (shop rent, utilities, consumables such as hair tonics, taxes, and some level of excess so he has money to use for food and other personal expenses)? The same goes for products whether it’s bread, peanut butter, cars, or widgets. No? I agree that technically you are paying for a product, not taxes+product. But if the tax cost to the supplier were to be eliminated, do you not agree that the price of the product would come down? Sure the supplier could decide to keep the price the same and increase his profit, but in the vast majority of markets the competition will force him to reduce his price.
Now you may say that there are no embedded taxes only costs (I think that’s the term you’ve used on other threads) then fine….but do you not agree that the price would come down if those costs are removed? You can rightly say your federal tax burden is currently 0 even though what you buy has a certain amount built into the price that is determined by federal taxes paid at some point along the manufacturing/supply cycle.
The other aspect of this is that people’s salaries are what they are because they must be paid enough to give them a certain amount after taxes to satisfy their own supply/demand needs (that doesn’t mean all their needs are met….just that they have made the decision, even if unconsciously, what they need to take home, or are willing to take home based on how much work they do). The discrete change in that arrangement that comes about as a result of the FairTax makes the transition somewhat tumultuous, but the long term result ends up essentially the same.
Sorry for the length of this post…..I got a bit carried away.
John,
Always a pleasure to have you checking in, particularly in your usual cordial, civil style, which is the strength of this blog.
I care what the prebate is called because I’m quite sure it is a cash grant entitlement, costing $600 billion per year, not a tax refund as some Fairtax enthusiasts would like us to believe. How can it be a tax refund if the amount isn’t directly tied to taxes paid? Isn’t it really additional income, whereas a tax refund doesn’t add one dime to your gross income? It’s just a federal cash grant, otherwise known as welfare, that can be saved or spent as your economic conditions allow. Spend it and the 23% tax will be still be applied.
My real complaint is that the prebate creates a group of an estimated 20 million working families that would pay no net federal tax annually. Might they be called “free loaders”? I object to working families that contribute nothing to the cost of the federal government. Compare that 20 million to the less than 1 million working families under current law that pay no income tax and also qualify for refundable tax credits such as the EITC in an amount that totally offsets the 7.65% payroll contribution amount. That is bad enough, although most such working families will grow out of the “free loader” status as the kids grow up. Under the Fairtax, it is possible that some workers, who get only cost of living wage increases, will never contribute to the cost of our federal government. A very bad idea, imho!
As for the embedded tax/cost concept, I certainly agree that if those costs are reduced, then retail prices may also be lower. Depends on the competitive situation. Remember, there are other uses for those cost savings including reducing business debt, raising payrolls, increasing shareholder payments, business expansion, etc. etc. Reducing prices isn’t the only use for those savings, and, as I recall, prices are “sticky downward” according to most economists.
Here is a copy of an email exchange that addresses embedded costs from our #1 economist, Larry Kotlikoff. Draw your own conclusions.
On Mon, Apr 19, 2010 at 6:50 AM, VanLinda wrote:
Good morning, Larry,
Many Fairtax studies claim that GDP will rise by 7-10% in the first year of implementation. You once told me that taxes are not included in GDP. Does that mean that the embedded costs of the income tax and payroll contributions are somehow removed from current GDP calculations? If not, then it seems to me that under the Fairtax, if the sales tax is not included and if producer costs fall by, say 10%, then GDP must also fall by 10%?
Hi Hank, My articles posted at Fairtax.org indicate everything I know on this subject. The entire embedded tax notion is wrong. It has no economic basis. But there will be efficiency gains from moving to the FairTax and they are incorporated in the simulation study that I did with Jokisch.
best,
Larry
To: John Bailey re post # 145
(I am back – I will respond further after Glenn Beck and dinner)
First, I believe that HR 25 will not ever get enacted in the first place – not a prayer.
So, wholly theoretically, if it ever did pass, I think the possiilities of Scenario # 1 would be 50% Scenario # 2 would be 75% and scenario # 3 would be 80%. The possibility of any 1 of these 3 would be 95%.
Theoretically, if it was enacted, I believe the shock and awe of the taxpayer tea party rebellion (and the resultant negative impact on the economy) would be so disastrous that the public would realize its great mistake and scream out for complete repeal – scenario # 1.
Scenario # 2 is to me a no-brainer. Recall, John Davidson, a co-author of the Rice U. study thought this was a strong possibily (and he understood the greater risk that it any 1 of the 3 would destroy the bank’s collateral.
Scenario # 3 to me is a forgone conclusion. I accept your and Morphh’s arguments about additional taxpayer outrage, but believe this would fall on the deaf ears of a Congress that would be desperate to raise tax revenues because taxpayers were engaged in the wholesale avoidance of the HR 25 sales tax.
Your lack of worry is not relevant to the mortgage bankers who should and do worry about such things. Recall that it was a mortgage banker who raised scenario # 1 with me, even before I thought about the other 2 scenarios.
Demand and jobs are kind of like the chicken and egg; which came first? Demand will not increase without an increase in jobs; and jobs will not increase without an increase in demand. I do believe jobs and demand can increase simultaneously as confidence in our system increases. I believe the FairTax would be a huge confidence builder; businesses and consumers will have additional spendable income without a handout from the government. Hank can call the prebate whatever he wishes but, the bottom line, the prebate is meant to reimburse the consumption tax on expenditure up to the poverty level. This is a much simpler way to help offset taxes paid on necessity items. A list of nontaxable items verses the prebate would just open the door for lobbyist. Only those earning poverty level or less will be exempt from tax. I see no problem with this. Currently 141-million Americans pay no income tax; yes they still pay 7.65% of the income for S.S. and Medicare, but many non-taxpayers earn double and triple the poverty level. This is 120-million more non-taxpaying freeloaders than under the FairTax. Earning poverty level income and paying no taxes OK; earning $100,000 or more and paying no income taxes NO WAY!
To: John Bailey re post # 146
John, I am tired from my trip and am having difficulty understanding this post – please explain further.
I thought my reference to the 22% drop in prices originally claimed by AFFT was later explained by Dale Jorgenson as being likley ONLY if employers reduced wages down to the employees’ old net pay (which undermined the AFFT argument that the employee gets a raise to gross pay). Further, I was making this point to respond to Morphh’s challenge to my comment that price reductions might only be in the 5-10% range. My argument was that since it appears to me that AFFT no expects that employers will NOT reduce wages, then price reductions will be much lower than their original claim of a 22% reduction.
I understand full well that printing money causes inflation (but am not sure employees can demand a raise to meet inflation). What I was trying to say is that I do not understand how the inflation & real vs nominal dollars makes everything OK. That is, Morphh used those arguments to respond to several challenges I raised, including, but not limited to inclusing the State & federal pourchases in the tax base, and in other places. To me (with no disrespect to anyone or to economist), this genereic answer to my finacial question just seems to be gibberish,voodooo economics.
Stephen, #179 not sure how or why the common concepts of inflation and purchasing power would be voodoo economic gibberish. In economics, nominal value refers to any price or value expressed in money of the day, as opposed to real value, which adjusts for the effect of inflation. Real values convert the nominal values as if prices were constant in each year. Any differences in real values are then attributed to the differences in the amount of goods that the money could buy in each year. Thus, the real values index the purchasing power of the money for each year.
Example (not compounded for simplicity and brevity):
This is not gibberish or voodoo economics – they’re text book concepts and definitions.
To Wise Old Owl re post #148
You suggest that a repeal of HR 25 would be like going back to the horse and buggy days.
I believe strongly that HR 25 will create economic chaos which will bring a major public vlamor for repeal (and am more confident of an eventual exemption for homebuilders). Under these circ umsatnces Congress may very well repeal HR 25 or exempt new homes.
Congress might repeal it in full after say 3-5 years easily, if they could repeal the Income Tax after 100 years.
Moreover, even full repeal does mean that we revert back to the old Income Tax. We would migrate to something new – who knows, but that time we may get 535 Benjamin Franklins in Congress who would enact YOUR SHARE – see SUPPLEMENT# 28 in my Paper. Another possibility is a migration to a Flat Income Tax – see my comments in SUPPLEMENT # 25 and the outlines of 2 others in SUPPLEMENTS # 26 & 27.
To Wise Old Owl re post # 150
I agree completely that existing homes will rise in value the minute the H.R. 25 sales tax is impose. and by the amiunt of that tax.
Then, existing home values will decrease in value by the amount of that sales tax when HR 25 is repealed, new homes exempted, existing homes become taxed.
To Hank and WOO re post # 151
I think we wind up with the same result but get there by different routes. Hank you are saying that appraisers will not add the sales tax for the NEW house – I say even if they did, lenders will still not lend on it.
I am also saying that an appraiser MIGHT value an existing house noting that actual sales of EXISTING homes refelect the cost of NEW homes (including the sales tax). I go on to say that even if they do, banks will still not lend on the “sales tax element”, because that component may disappear for NEW homes (even for EXISTING homes under scenario # 3)
Morphh re post # 152
I agree fully with your logic, but not with your numbers.
I think the 10% reduction is a generous assumption.
I think the 30% HR 25 rate will be higher.
I submit that the State and Local sales tax must also be added.
With respect to your economic stuff – I still have trouble with that.
To John Bailey re; post # 153
I agree with your logic, until your last paragraph.
The fact that banks have lent stupidly does not mean they will contine to lend stupidly. A lender will not assume the 3 tax risks I note.
The fact that you may be able to add your closing costs onto your mortgage (I do not recall how I handled mine) does not mean the bank is adding that amount to the APPRAISAL (or that it is lending on nothing), it may merely means that they bank is willing to lend more than 80% of the appraised value (by the amount of the closing costs).
To Morphh re post # 156
If you agree to the concept of the POP in value of an existing home upon the enectment of HR 25, then you should see the DROP if either HR 25 is repealed or an exemption later created for new homes.
To John Bailey re post # 158
Yes, there is an increase in SS benefits – Sec 303 of the bill will insure that SS recipients will get a COLA for the HR 25 sales tax.
Roughly, if priced go a a net (i.e.; Sales Tax less price decline) of say 20% and Hank gets $20,000 a year in SS, his COLA would be $4,000
So, SS + INVESTMENT INCOME $50,000
COLA above 4,000
Prebate (rounded) 5,000
subtotal 59,000
Less 23% x $59,000 (13,600)
NET – AFTER 45,400
NET – BEFORE 50,000
NET – Change – LOSS ( 4,600)
Top Hank re post # 162
Right on!
That is exactly the point I make in my paper – this COLA is a hidden cost.
Morphh re post # 163
Aha! that is one more example of the magic potion accomodation/inflation.
You say the tax base increases. The govt is supposed to collect the same total revenue under HR 25 as they do today????????????
John re post # 164
I understand your logic, but the numbers change the results
See my post# 187. Hank does not come out ahead he comes out behind.
I think your price reduction of 20% is way over generous.
To: Wise Old Owl re post # 165
I think you are suggesting that SPENDING provides a more consistent flow of tax revenues to the govt than INCOME. maybe so, but that does not mean it makes sense economically.
There is nothing wrong with consistency but that should not be the soul of any tax system.
The heart and soul of the tax system must be “to fairly allocate the cost of govt to the citizens”.
To Hank re post # 166
I believe that the original goal of revenue neutrality was intended by AFFT so as to avoid greater tax/budgetary policy issues.
I think it is somewhat embarrasing to AFFT to now fail to increase the rate to the 35.1% suggested by the latest BHI study and to abandon their goal of revenue neutrality.
Having said that, I agree that we should not be limited in targeting the revenue goal to current collections, but to spending which must be reduced to constitutional levels.
To Wise Old Owl re post # 171
How does removing Income Taxes and compliance costs create jobs?
Think of all the pitiful tax lawyers and accountants who will be put out of work – they will be panhandling in your neighborhood.
To John Bailey re post # 172
I think you are using an old table. T he 2009 Prebate for a couple is $4,982.
Also, see myh post # 187.
To Hank & JohnAmended figures for my post # 187 based upon Hank’s post # 173.
Roughly, if priced go a a net (i.e.; Sales Tax less price decline) of say 20% and Hank gets $30,000 a year in SS, his COLA would be $6,000
So, SS + INVESTMENT INCOME $48,000
COLA above 6,000
Prebate (rounded) 5,000
subtotal 59,000
Less 23% x $59,000 (13,600)
NET – AFTER 45,400
NET – BEFORE 48,000
NET – Change – LOSS ( 2,600)
To John Bailey re post # 175 (Part 1)
At the end ofthe first section, you state that you do not see the prebate as welfare because everyone gets treated the same.
I say they do not. A large segment of the population gets a net check from the govt every year plus free SS & Medicare while another segment of the population pays for it. That is welfare – Socialist wealth redistribution. Have you read my Iluustration of the Prebate in my Paper?
Stephen #193
Most American’s look forward for their next pay raise so they can go on long awaited vacation or purchase a new car or bedroom suite they could not previously afford. If every American suddenly received a huge pay increase, you will also see a huge increase in consume spending resulting in more jobs.
Many years ago when I worked for an accounting firm, we hated tax season. Our number on job was preparing financial statements for our clients. Tax season always put us behind in doing these preparations. The FairTax will allow accountants to concentrate on their number one job; keeping their clients updated on their financial condition in a timely fashion. Yes, H&R block employees and tax attorneys may be looking for work, but there will be a huge jump in our GDP resulting in a net increase in jobs.
Stephen #191
You state “There is nothing wrong with consistency but that should not be the soul of any tax system.” I agree, but that is not the soul of the FairTax. The soul of the FairTax is that it is overall the simplest and fairest way to tax.
I believe it should not include government spending and some other smaller tweaks here and there, but I would like anyone to come up with a different tax system that will receive a higher approval rate by the American people.
Stephen #148
The repeal of H.R.25 would be like going back to the horse and buggy days!
I would like to know how an increase in jobs, spendable income, foreign investing, and adding millions of illegals to the tax base and will cause economic chaos. If it causes all the illegals to go back to Mexico, you may be right.
woo,
Not to butt in, but if everyone got a “huge pay increase”, then there would also be a huge retail price increase. Real prices would remain about the same for most Americans. Why do you believe there would be any increase in consumption at all?
And, while I haven’t thought through the GDP situation, if Kotlikoff was correct and taxes aren’t included in GDP, it seems to me that GDP will fall by the amount of the producer tax cost savings (10%). Or, stating that differently, does adding a 30% sales tax (17% net) have any positive effect on GDP How can taxes be a product?
Morphh asked a good question on this subject in #170, and I can only speculate that what Kotlikoff was talking about was taxes such as State/Local sales taxes, property taxes, and the like being excluded from GDP. However, producer costs are certainly a part of GDP, and if those costs are reduced by eliminating the embedded income and payroll taxes, why won’t the GDP fall?
By the way, “tax systems” and “approval rate by the American people” has to be the largest oxymoron ever created! Where do you get the opinion that the Fairtax has a high approval rating? I doubt there are more than 10,000 hard core Fairtax supporters, a miniscule fraction of 1% of our population.
Stephen 196
If every family of four receives the same $559 monthly prebate, why would you say this is not receiving the same treatment? Are you saying when it is a poor person receiving the prebate it is welfare because it gives them free SS & Medicare but to a rich person it is just free gas for their Mercedes and has nothing to do with helping to pay for their SS & Medicare?
Hank,
Where have you been, we have over 10,000 hard core FairTax supporters in our county alone; more and more being added each day. Everywhere you go you see FairTax bumper stickers. I live in a small community in Florida; three year ago one of our city commissioners started a FairTax meeting on the first Tuesday of each month. We started out with five people and it has grown to over 100. It has doubled in just the last 6-months.
Stephen,
Of course, we know that such rates are only possible by cutting the tax base (drastically in that case), which ceases to be anything close to what we propose or support. So it’s moot talking about it.
#184 If you believe the rate will be higher (and the reduction in production cost less), then it seems you should also believe that personal income will increase at a rate somewhat equal to the increase in prices (negating the difference). Since they both represent the same thing (the cost of the tax system). At a 150% rate, that’s going to be some increase in take home.
#186 Agree if the fed chooses to contract the money supply at the same level, which I don’t think they would do after inflating it.
#189, Government is suppose to collect the same real revenue as today, which may or may not be the same nominal revenue depending on accommodation. It can collect the same nominal revenue if they do a non-accommodation. That’s something we’re changing based on our expectations and assumptions, but it doesn’t change the tax rate or purchasing power. Many examples use non-accommodation because it can be confusing to consider the changes in real/nominal dollars and adjustments in purchasing power with other accommodation models (such as the partial accommodation model you use), which have to be done if we’re making an honest comparison.
To: Wise Old Owl re post # 197
I am pleased to see that you had some good relevant experience.
First, you talk about the raise people will get and with which they will go out and buy new stuff. i thought we all understood that the raise we will get (from the elimination of the Income Tax, will be entirtely consumed by the new sales tax, so that we will have no net additional spending power with which to power an economic boom.
I was hoping to entertain with a bit of humor. Tax preparers will go out of business and I heartily support ending that wasteful effort. They will have to find other jobs. Where exactly are all the new jobs coming from? People are currently focusing on their finances. I do not see the source of expanded opportunities for the former tax professionals much less the rest pf the population.
To: Wise Old Owl re post # 198
Let me rephrase. CONSISTENCY is a good thing for a revenue source but consistency does not go the underlying fairness or intelligence of the tax system.
I maintain that the main purpose of the tax system should be to fairly allocate the cost of our common charges to the public. It should be simple, easy to administer and facilitate economic growth.
You then raise an argument that I have heard from the AFFT and which I submit is faulty. It says in effect “we must adopt HR 25 because there is no other proposal on which so much time, energy and money has been spent to date that people can generally agree upon”. (I belive that most of the public support is superficial).
This argument employs the bully tactic that we must enact what AFFT has been working on for so long because the long-term grass roots campaign has some number of people signed on and no-one else has done what AFFT has and so AFFT wins by default.
Our choice is not between 1) HR 25 and 2) a bigger grass-roots compaign for a different proposal. Our first choice is between 1) the current Income Tax and 2) something better than the current Income tax. Thus, we must focus on Hr 25 and if it is a very bad idea, it should be rejected and we go on to look at other ideas.
My concept, YOUR SHARE, does not have to be more politically acceptable today than HR 25 in order to reject HR 25. YOUR SHARE meets my requirements of a truly fair allocation of our common charges to each American, it is as simple as possible, it is the easiest system to administer AND by defeinition it will provide the most consistent revenue stream of all. I state up front, as a nation we need to come out from the fog of 100 years of Progressive muddling of our minds and elect 535 Benjamin Franklins before we can adopt this concept. I present it to start the dialogue and ask people to think about these principles. Someday, this concept may well be commonly adopted – although not by the welfare class.
I submit that in the interim, the only rational thing for to do is to simplefy the current Income Tax greatly – see SUPPLENT # 25. We can then consider YOUR SHARE and other alternatives (ones that are not as destructive as HR 25).
To Wise Old Owl re post # 199
I think we previously discussed your comment about repeal of HR 25 would send us back to the horse & buggy days. A repeal would not at all suggest a return to the currejnt Income Tax. It could mean a conversion to YOUR SHARE or to a highly simplefied Income Tax – see SUPPLEMENT # 25.
As to your economics:
1) I see no increase in jobs – from where will they suddenly appear?
2) I thought we all agree that disposable income will decline if anything (HR
25 sales tax will wipe out any pay raise from Income tax repeal),
3) I believe the claim of massive foreign investment is an unpovable myth,
4) You might get some revenue frokm illegals bying stuff but I forsee then buying as much as possible without paying the sales tax (also, remember that most of their earnings are remitted back to Mexico).
To: Wise Old Owl re pst # 201
I call it welfare because the poor family that receive the $559 monthly payment you noted WILL NOT PAY $559 A MONTH IN SALES TAX, while the wealthy family will pay much more than $559 a month.
Thus the wealthy family pays high NET taxes and the poor family RECIVES a NET WELFARE CHECH FROM THE RICH FAMILY.
To Morphh re post # 203 Point 1
I do not necessarily see any increase in personal income. I do not think it represents the cost of the tax system.
Assuming the initial rate is 30-35% and the HR 25 broad tax base, the rate will be higher for many reasons , including first a shortfall in achieving targeted revenues and later, by revenue needs above current levels.
To: Morphh re post # 203 Point 2
I fail to see why the fed needs to contract the money supply. I see that as irrelevant.
If an sales tax (obvious to the buying public) disappears, then the next day a buyer will demand to pay the former pre-tax price and NO SALES TAX.
It has nothing to do with the fed contracting, expanding or anything else.
These fed expansion/contraction and real vs nomimal dollar arguments may be the language of the economist but the unprovable THEORIES which I do not believe contrl real world outcomes.
to: MORPHH re pst # 203 Pint 3
Morphh, you know that I respect you and I don’t condiser myself an idiot.
This accomodation/non accomodation merry go round is confusing me and still fail to understand how this solves the problems that have been raised.
At the end of the day, these are economic THEORIES – not provable science(and I admit that I do not yet understand how the THEORY is supposed to play out and why it supposedly works out in THEORY).
I for one am confident enough to say that it just does not make sense to me (and recall that I was told by a PHd economist that PHd economists also have trouble with this THEORY).
We should not risk ou retail-sales-sensitive economy on mere unporvable THEORIES.
woo, #202
Let’s see, your county has 10,000 hard core Fairtax supporters, and your Commish holds a weekly Fairtax meeting and there may be 100 in attendance. Where are the other 9,900? How do you know you have 10,000? Perhaps we need to define hard core, because signing a petition doesn’t qualify. I estimate the shelf life of a Fairtax supporter as being less than two years. The group I started in Ft Myers many years ago, (when I was a flaming advocate), lasted through two cycles of waving signs at the post office on April 15th, and died. You have ten fewer cosponsors in the 111th Congress than you did in the 110th. That isn’t progress, and it will be interesting to see what the 112th looks like. Any bets on the number???
Hank, #202
How do you know there are only 10,000 hard core FairTax supporters nationwide, did you take a survey? How many hard core supporters do we have for our current tax system? After you eliminate all the tax attorneys, illegal aliens, and IRS employees you may have 3 or 4.
Last year Orlando had a FairTax rally and the estimate was 10,000 attendees. There are those who say this is an exaggerated figure. I was there and this was not an exaggeration. I would call anyone who showed up for this rally a hard core supporter. I guess every hard core supporter in the nation showed up for this rally.
My guess is the 112th congress will have 90 to 100 cosponsors. The FairTax seems to be one of the major issues being debated by those currently running for office. My guess is that the ones supporting the FairTax will win the most seats.
By the way, our meetings are held once per month not weekly.
I have said before I am not 100% in favor of all aspects of the H.R.25. For one, I do not believe government agencies should be taxed. I am 100% in favor of replacing all federal taxes with a single consumption tax.
Stephen, I’m not sure how to better explain the economics. Not being able to understand it does not equal a failure of the FairTax or the presence of some wacky theory. It just means you don’t understand it. The effects are real, whether you accept them or not.
woo, #212,
I have no idea how many hard core Fairtax supporters there are, but I estimated 20,000 or less based on the following data.
(1) Fairtax Nation has 7700 members, but when they put together the 4/15 rally in DC last year, less than 100 signed up. Those that paid for the trip are hard core, the rest aren’t.
(2) The original Tea Party survey produced 2500 votes for the Fairtax, but the Contract from America wording on tax reform indicates very little Tea Party support for HR25.
(3) Smart Girl Politics has a Fairtax sub group of 250 members, some of whom are opponents.
(4) Huck Pac has 100 members on their Fairtax committee.
(5) AFFT, the main site for Fairtax, tried and failed to pay their bills with contributions from the hard core. If there were even 20,000 hard core supporters willing to make a monthly contribution, AFFT could have continued to lead the charge. Instead, AFFT supported the formation of a new volunteer board to continue the grass roots effort, (and Ken Hoagland quit!)
(6) Going back several years, I estimate that there may have been 200 Fairtax supporters on this blog, but the shelf life of the average contributer seems to be around two years. Waving signs at the post office on 4/15 seems to get old quickly.
I don’t consider signing a petition or attending a rally as an indication of hard core support. What counts is putting your money where your mouth is, imho.
I currently have $10 bet with Jim Bennett, a noted NJ hard core supporter, that the number of House cosponsors in the 112th Congress will not exceed the number (72) in the 110th Congress. Care to get in on this easy money?
woo, #212,
Are you kidding me? The Fairtax isn’t even in the top ten of election issues. The only reason it is mentioned comes under the heading of campaign mudslinging. And, I agree that the attack ad is a lie. It should have read that “my opponent wants to add 30% to the cost of everything we buy.” That would be a true, if incomplete, statement. I guess even the DCCC doesn’t understand the Fairtax.
Tell you what, put down that Fairtax Kool-Aide and tell me where you think Fairtax might fit on the following list of election issues.
(1) jobs/unemployment; (2) the Afghan war; (3) Obamacare; (4) Energy independance; (5) Budget deficit/balanced budget; (6) National debt; (7) Illegal immigrants; (8) Term limits; (9) Education; (10) Unfunded mandates.
To Morphh re pst # 213
I did not say that the AFFT economic THEORIES are wacky.
I readily admit that I do not understand the THEORY.
What I am saying is that even if I ever do understand the THEORY, is is still just a THEORY – not provable science. We should not risk our economy on THEORIES.
I differ with you when you state that “the effects are real” – I say they are THEORETICAL – economic THEORY can not predict or govern economic RESULTS with any real accuracy.
To WOO re: post # 211
I do not wish to offend any of you.
I too doubt the numbers of HR 25 supporters nationwide.
More importantly, I doubt that the majority of supporters nationwide understand HR 25 in any depth. I may have noted a recent conversation with a well-educated long-time supporter. When he asked why I did not like HR 25 I said “let’s start with the Prebate’ – he answered “the what?” (he had no clue of the existence of this wealth redistribution feature). When I asked whether he would be upset at paying a 40-50% retail sales tax on all purchases , he replied “that’s not the way it works, its a consumption tax” (he had no clue as to how it really works). At the end, he concluded “I guess HR 25 really is a bad idea”.
From brief research, the “80 economists” who signed the letter in support of HR 25 knew little about how it worked. Basically, they generally favored a consumption tax over an income tax.
From limited research I believe that the 60+ US House co-sponsors have very little understanding about what is in the bill. Steveking wrote an article in whic h he claims that prices will drop by 22% and you will get a raise of 57%??????? Allen Buckley has stated that many politicians have signed on believing it will buy them votes but have no intention of actually ever voting for this.
I have tried to have debates with some of the “passionate” HR 25 supporters, who turn out to be fanatical and close-minded, unwilling to even to hear the facts and debate them (one candidate for Congress read the two Boortz comic books and said that he did not want to hear any arguments because his mind was closed and would never change). I do not believe that these people will carry the day.
In sum, even though one or more of you may not change your minds, I believe that given sufficient civil, open minded discusson and debate, that HR 25 will be see as a very bad idea.
WOO, you suggest that the State & federal govts should not be included in the tax base – I agree fully. Eliminating them will require a higher tax rate – something AFFT seems loathe to do (see its backing off of revenue neutrality as a result of the latest BHI study saying its needs a 35.1% tax rate).
You and some others are now saying that the Prebate should be eliminated (which will reduce the rate) – some have said there is no H.R. 25 without the Prebate.
These two are just signs that HR 25 is a very bad idea.
Stephen, #216 you make economics sound like a bunch guessing crackpots. There is tons of empirical research to make reasonable predictions about economic effects, particularly ones as common as changes in the money supply, and real/nominal value. Other countries that have implemented similar systems have done the same thing. You’re right that you did not say wacky; sorry, you called it voodoo and gibberish. It seems ironic that your reasoning is based on your own economic theories that predict that it would risk our economy. You state them as AFFT theories, but they’re not, William Gale used the same economics as have other economist that have studies the plan. Did they call it Voodoo – No. Did they say it was wrong, No.. they agreed and confirmed.
I’ll add that the Economist that have studied the plan, to include opponents, have stated that it would generate significant overall macroeconomic improvement in both the short and long-term. The FairTax does have flaws, but economics is rarely listed or claimed as one of them. There is greater risk in not doing anything and continuing down this unsustainable path.
#217, keep in mind that if we did not tax state/local government, that while it would increase the FairTax rate, it would lower the taxes at the state/local level. So it would not change the tax burden on the citizens, just shift it from state/local to the fed (a shift that is not present today). I find that critics love to change the equations on one side, without the adjusting the other side.
#208, you said “I do not necessarily see any increase in personal income. I do not think it represents the cost of the tax system.” If the increase in personal income is what is gained by the removal of all existing taxes, how can it not represent the cost of the tax system? If gross income and reduction in production cost = current tax cost (which is the total cost being returned), then we should see an equal cost added to the system, since it’s the same cost of government. If you say that income will increase by 17% and cost decrease by 10% – a 30% exclusive total (this being the cost of the government returned), then we must see an equal cost applied. No fancy theories here – this is common sense and basic math. You can’t place the cost of the current system at 30%, then turn around and suggest that same cost is much higher. This goes back to the basic percentage removed from GDP.
To Morphh Re pst # 218 Point # 1
No, I never claimed nor do I think that economists are all crackpots. I do believe that they are well educated, intelligent people who study highly theoretical material.
I think that economists who are paid to support liberal agendas and justify Socialism are crackpots (I am not referring specifically to AFFT’s economists).
IMHO, the opinion of economists who are paid by a lobby group desreve more scrutiny and less credibilty than economists who are “independent” of those lobbyists. many of such “independent” economists/experts do not agree with AFFT’s economics.
About a year ago, there was an excellent opinion piece in the WSJ by an economist (I should have saved it). In it, he humbly lays out a number of limitations on economic predictions. Primarily, I recall his point that there are so many variables in economics that can not be modelled, that it was impossible to predict any given result.
Yes, they are some general rules that play out over time, but none guaranty any given result. I suggest that the greater the degree of dramatic change to an economy, the greater the potential for unforseeable results.
To Morphh re post # 218 Point # 2
Aha! I think you have now admitted something that you denied to me earlier, my friend.
I believe that you are saying that I have omitted mentioning that if the federal & State govt’s are eliminated from the tax base that OTHER TAXES WILL GO DOWN!
That is, if the States had to pay HR 25 sales tax, the States would have to raise State taxes on its residents (you earlier argued with me that this would not happen because of the real vs nominal dollar effect) and if the federal govt had to pay HR 25 sales tax that it would have to raise federal taxes (or just print more money or borrow) – gain, you earlier argued that this would not federal govt would not happen because of the real vs nominal dollar effect.
Now you are arguing that these higher State & federal taxes (which you earlier claimed would not happen) will now be eliminated by removing the State and federal govt’s from the tax base.
Overall, we the idiot taxpayers will still pay the entire burden either way. Its kjust that with the federal & State govts’ being subject to the HR 25 tax, some of that buren is indirect and hidden. Excluding govt merely makes the HR 25 tax more transparent but also shoves a higher tax in your face.
To Morphh re post # 218 Point # 3
I do not see any NET increase in income because the increase provided by eliminating the income tax is offset by the new sales tax.
I go back to the overview. If HR 25 collects the same tax we are now paying (both directly and indirectly through higer prices), then, there is no NET gain.
Hank, #212
If you feel the FairTax is not even one of the top ten issues, why do you waste so much time on this discussion board?
By the way, I would put tax reform and government spending as co-number 1 issues. These are the issues that control how our government operates. All other issues depend on these two.
Stephen #217
How many have any depth of understanding of our current tax system? I remember reading an article where an individual had six different CPA’s prepare his tax return and he ended up with six different results. Our Secretary of the Treasury can’t even file a correct tax return
TO Wise Old Owl re post # 223
My friend, I agree with you more than you will ever understand.
The Income Tax is so complex that armies of tax lawyer/CPA’s toil is the most minutre areas of tax specialty (and that the public is burdened with deaing with all of that nonsense) that it is beyond absurd and idiotic.
I toiled in one the the most esoteric tax specialties and could tell stories of such absurdity, but you would fall asleep.
In sum, no-one more than me, believes that the Internal Revenue Code should be burned (I will keep a copy of the now several volumes that comprise the Internal Revenue Code and the Treasury Reulations (there is far far more reading material necessary) on my bookshelf as a reminder of the stupidity of man and of what happens when you fail to oversee Congress.
I simply want to migrate to something that is better than the current Income Tax – HR 25 is much worse, IMHO.
I suggest that the practical thing to do is to greatly simplefy the current Income Tax – see SUPPLEMENT # 25 in my Paper, while we search for a better answer. We can discuss YOUR SHARE which could in time be the nation’s favored political answer when we have re-discovered our Constitutional principles and understand that welfare is to be left to the private sector and that we need to be doing is merely allocating common charges, not redistributing wealth.
To Wise Old Owl re post # 222
I agree with you that govt spending (and activities) is the # 1 issue. Their activities and spending are severely limited by the CONSTITUTION. It will be a mjor task over many years to reduce these to Constitutional limts. Depending how you look at it, the federal budget is 3-6 times what it should be.
The tax issue is separate from spending, but is still very important in my mind.
Stephen, #220 No, you’re misunderstanding me. State and local taxes would be lower by shifting the burden to the fed. The mistake is in the assumption of what the current burden is and what it would be under each situation. If they didn’t pay any federal taxes (tax costs they incur today), then their share of the burden would be much much much lower than today. Thus to my point, it would be shifting that cost to the fed. The tax burden we see today at the state/local level would be significantly decreased. If you tax the state/local with the FairTax, then it maintains approximately the same burden (the same real cost), creating little to no shift.
#221, again you’re misunderstanding my point and this goes to your statement. “I do not see any NET increase in income because the increase provided by eliminating the income tax is offset by the new sales tax.” I agree! Why, because the represent the same cost. What you do is suggest that the new sales tax is somehow more than twice the cost of the system it’s replacing. If the gain of the prior systems removal is approximately 30% (represented by a 17% increase in prices and a 10% reduction in cost), then the cost of the new system is that same 30% – it’s the same amount.
If the cost of the new system is much higher, like 50%, then the gain from the prior system’s removal must also equate to the same cost – 50%. The gain must equal the loss – it’s the same government cost being applied. How do you split this up as a windfall in wages and cost reduction? From what I’ve seen, you don’t. You suggest the same 17% increase in wages and even less cost removal 6%, but this in no way is equal to the cost you apply. So your equation is greatly unbalanced – you can’t change one without the other. The cost of government is the same, thus the windfall of removal should be approximately equal to the addition of the new tax.
To Morphh re post # 126 Point # 1 about post # 220
I need help to understand your argument.
In your 3rd sentence you say “They…. ” who is “they” – the States or the people?
I will need to re-read this until I understand your argument – I may need to ask more questions.
To: Morph re post # 128 Point 2 re post # 221
On my first reading, I do not quite understand your argument, but perhaps understand a part of what you are saying.
If the dollars of tax paid (directly and indirectly) both before and adter HR 25 are the same in total, perhaps your argument is that the “savings” to the economy is the cost of compliance.
If so, there are big differences about the dollar amount of such savings (vs the elimination of the pain in the neck). Also, these are offset by hidden costs (I know we do not agree on whether they exist at all – e.g., the additional State & federal taxes to pay their respective shares of HR 25 tax, the additional cost of SS COLA’s).
Stephen, #227 The “they” is the State. Given a certain perspective, the state, as an employer, incurs a costs in the form of higher wages that get paid in federal income taxes. It’s easiest to think of this in a non-accommodation model, since you don’t have to consider the real/nominal discussion. If employees get net pay and the state didn’t have to pay FairTax, then the difference is the cost currently incurred by the state. We actually did a nice cost analysis in e-mail if you recall (you had corrected a couple of errors in my calculation).
#228, That’s not what I was talking about. It may be best we if just skip on this one… it had to do with the prior tax cost equaling the new tax rate.
To Morphh re post # 229
I thought it was generelly agreed that salaries will not go down due to elimination of the Income Tax.
In any event, I accept your offer to drop this issue.
This ties in to my point general about economic theory. I believe that HR 25 supporters must first explain the THEORY so that the average human being understands it and next convince us that the THEORY will INSURE a given result (which I submit is impossible).
woo #222,
Getting at the truth is never a waste of time. With the help of Google alerts, I probably review 10-15 blogs and other articles about the Fairtax daily. Sad to say, there are more lies than ever on those entries. It seems that when anyone takes the advice to “read the damn books”, they immediately pick up on false information and repeat it until called out. For instance:
(1) “22% embedded tax costs will be removed and after adding the 23% sales tax, retail prices will be about the same”. That is a lie for two reasons.
(2) “There is $10-15 trillion in American owned wealth parked offshore to avoid taxes”. That is an absolute lie!
(3) “The prebate is a tax refund paid in advance”. Another lie!
(4) “Everyone will be better off under the Fairtax”. A bald faced lie!
(5) “Investments aren’t taxed”. A lie, just read and understand HR25, Sec 801.
(6) “HR25 abolishes the IRS”. If not an outright lie, this statement is certainly disingenuous.
(7) “You choose when and how much tax to pay”. Unless you don’t care to live, this is another lie!
(8) “The Fairtax will insure that everyone will pay their fair share”. A lie!
There are many other falsehoods, and I realize I may never stamp them all out. But is trying a waste of time? I don’t think so.
Stephen, #230 we do generally agree that gross salaries will not go down due to elimination of the Income tax (due to contracts), but to use that model you have to calculate real/nominal changes since the basis of net wage increases is inflation. Using non-accommodation, while perhaps not as likely, is a lot easier to conceptualize and mathematically figure since purchasing power remains consistent (no change between real and nominal value – no inflation).
To: Morphh re post # 232
My friend, as I close down for the night, let me just say that the economic theory you have laid out leaves my head spinning. (by the way, aren’t wage increases also granted for productivity increases and growth in experience and talents rather than being limited to inflation?)
One economist, merely dismissed me by saying “you don’t understand economics”. While that may or may not be true, I am not at all stupid.
If I don’t understand the economics, then most Americans do not either,
If some people believe in trusting economists – so be it. I do not and I do not believe that most Americans do.
Tomorrow is another day.
Hank, #214 and #222
Post #214 would lead people to believe the FairTax movement is loosing ground. Then in #222 you say you are receiving 10-15 Google alerts per day. I also receive Google alerts on the FairTax. Years ago when I first began receiving alerts, I would receive maybe one or two per week. Now, you are right, we receive 10-15 email alerts per day and within each email there are sometimes four or five alerts. Just like any controversial subject there will be exaggerations both ways. Many alerts point out how Democrats refer to the FairTax as an add-on tax rather than a replacement tax. One of the first ones to use this lie was Alan Grayson when he ran against Rick Keller in 2009. This bold face lie out ways all proponents’ exaggerations combined.
As I said before, there are certain aspects of the FairTax I disagree with such as taxing government spending, and taxing implicit cost associated with debt and savings instruments. I will soon post what my idea of a National Consumption Tax should basically look like.
Stephen, #233 You are correct that wage increases can also be granted for productively increases and growth in experiences and talents, but that’s not what we’re talking about here. The change in net pay and increase in prices we’re estimating is not a result of productivity gains or increased experience.
Stephen post #232
I totally agree with your view on economists. If there are so many great economists, why is our country in such a mess? It doesn’t take a so-called economist to understand Supply and Demand. What we need to figure out is which tax system would create the greatest demand. Which tax system will create the greatest incentive to invest here in the US? Which tax system will encourage not punish productivity? Which system is the closest to being fair to all Americans? Which tax system has the greatest transparency? Which tax system will be the most difficult to lobby against? Which tax system will be the simplest in accomplishing all of the above? With a few changes to the FairTax, this could be the solution we are looking for. Continuing to patch our current system is like trying to patch the bottom of a boat that has completely rotted out.
The NCT
Other than government welfare programs, the services our government provides is the same for everyone living in our country. This being said, the true fair tax plan is to divide the cost of government by our total population and require everyone to pay an equal share. If next years budget is $3-trillion, each person’s share will be around $9700; scary figure isn’t it? Since common sense eliminates this plan, what do we have left? Do well continue taxing income which punishes productivity or do we tax consumption which encourages productivity. My vote is for taxing consumption. Below is what I would call a National Consumption Tax (NCT) not the FairTax. I hate the name FairTax; other than dividing the cost of government equally among everyone, there is no fair tax. There will be winners and losers no matter what system is developed.
As with the FairTax, the NCT would replace all current federal taxes with a single 23% inclusive tax.
It would replace.
(1) individual income tax
(2) payroll taxes
(3) estate and gift taxes
(4) capital gains taxes
(5) the alternative minimum tax
(6) self-employment taxes
(7) corporate income taxes
There would be a $50 per person, monthly prebate for all US Citizens. The basic reason for the prebate is to offset the tax on food. Everyone eligible for the prebate will be given a debit card that will be automaticall loaded with $50.00 at the beginning of each month.
The only exemptions would be
(1) College tuition
(2) Business to Business purchase ~ To cut down on tax evasion, office supplies, furniture, & equipment would not be exempt.
(3) Medical Cost
(4) All implicit costs associated with debt and investments instruments
(5) All used items
(6) Federal and State consumption
Currently, to determine monthly Social Security benefits, reporting of income is required. Under the NCT, income reporting would be eliminated; every legal American would be eligible for benefits beginning at age 62. If you are married and your spouse is also 62, you would both receive the same benefit. This benefit will be adjusted each year based on 20% of the total NCT generated from two years previous, (Example: for 2011 you would use 2009 figures) divided by the total number of recipients. Distributing a percentage of actual receipts would keep Social Security solvent.
The NCT would take affect on January 1st
All fiscal year filers will file their final returns with a closing date as of Dec. 31st
During the first two months under the NCT there will be no consumption tax requirement. This will allow a reduction in inventories that were purchase with after tax dollars.
Before March 1st, every sole proprietor, partnership, and corporation must register their business. They will then be assigned a NCT identification number that must be use on all NCT returns.
To prevent double taxation of saving accumulated with after tax dollars, qualifiers will be entitled to a payment equal to the NCT rate times their total accumulated after tax savings. This will be referred to as After Tax Savings Relief Payment or ATSRP. Individuals will have 60 days to file for ATSRP. They must list the balance of each account as of Jan. 1st of the year the NCT goes into effect. Detailed verification of each account will be required. The total amount due will be divided into 60 equal monthly payments which will be paid to applicant or their designated beneficiary for a period of 60 consecutive months. These payments will also be automatically loaded to your debit card.
The federal budget would be required to be figured the following way. Since GDP figures are not available at year end, you would take the GDP from two years prior (example for 2011, you would use 2009 figures) less private domestic investments, less government consumption and gross investments times 23%. You would then add an additional 5% to this figure. This would be the maximum budget allowance.
Hank,
On Mike Huckabee’s last TV show he invited anyone to debate him on the FairTax. Maybe you should take up his offer? If you receive Google FairTax alerts you have probably already seen a video clip of his challenge. If not go to http://video.foxnews.com/v/4385108/huckabee-fair-tax-challenge/
To Wise Old Owl re post # 236
My p[roposed tax system, YOUR SHARE (which meets the Contract From America’s goal of a tax system of very few words) acccomplishes everything you state as goals of a tax system.
Please read the brief SUPPLENT # 28 in my Paper.
Huckabee invited any democrat candidate to debate him on the FairTax, not anyone. So unless Hank’s running for Congress, he may be out of luck.
To Wise Old owl re post # 237
Before getting into the details of your plan, you dismiss YOUR SHARE’s, equal division of the burden as lacking in common sense (incidentally, to match the current budget requires $13,000 per person).
I submit that common says just the opposite – that is THE right answer. That is how much money the govt is spending for each person in America, but you excuse some from paying their share.
Many people merely jump to the conclusion that poor people can not afford to pay, so that rich people must pay. I disgagree. The Founding Fathers (who had more common sense than is shown by elected officials today) intended for poor people to seek the help they need from their churches and private sector charities – not from the government.
You want to FORCE people to support the poor by paying MORE than their fair share of the COST.
In a cooperative, everyone pays their fair share of the COMMON COSTS.
Common sense tells you (as the Foundiung Farythers understood) that the Republic will not survive if those who do not pay taxes can vote – they understood that would be a formula for disaster.
Stephen,
Let’s say your figure of $13,000 is correct and I am a family of four earning $30,000 per year. Where do you suppose I will come up with my $52,000 share? Maybe the government will give me a loan to pay my taxes.
I am sure your equal payment tax proposal would have no problem getting passed. I may have missed used the term common sense. I should have used the term impossible.
To wise Old Owl re post # 237
I just saw and applaud your recognition that the only true “fair” tax is one that allocates the total burden of govt among all Americans, EQUALLY, i.e.,YOUR SHARE.
We must start with the right answer and then help America clear away the cobwebs of 100+ years of Progressive mind-numbing.
To Wise Old owl re post # 242
I have stated clearly that until we undo the Progressive fog from the nation this will not pass into law – but when we elect 535 Benjamin Franklins to Congress, it will.
The hard truth is that it is your problem to pay your share of the military, etc. It is not anyone else’s burden to pay your bills (think of your condo or timeshare).
The Constitution and the Founding Principles do not give the govt the power to redistribute wealth. The poor must ask their public charities to help support them. They must state their case to those charities who then have the freedom to assist or not. You would have to ASK for help to pay your share. More importantly, at these numbers, you would camp out in your elected officials’ offices until they wound down Congressional spending to Constitutional limits.
Of course an overnight change to YOUR SHARE is impractical, but if we understand the proper goal, we can start to move in that direction.
I would start by ending welfare programs for new people. Then, I would begin to phase out existing welfare programs gradually over a period of years. SS & Medicare would need to be fixed (without further punishing those of us who have paid for these programs all of our lives and on a Progressive basis).
woo,
I would dearly love to debate the Governor. He has no idea how much he doesn’t know about the Fairtax scheme. Just go to this link and count the lies and misunderstandings he produced in his letter.
http://www.huckpac.com/?Fuseaction=Blogs.Comment&Blog_id=3220#
Here is my list.
(1) I happen to know that the “scholarly research” conducted by MIT was in actuality a simple arithmetic calculation done by my fellow MIT alumnus, Jim Poterba in 1997. Jim does not support the Fairtax scheme.
(2) Huck’s claim that the Fairtax eliminates the tax code is false. The Fairtax replaces just four of the eleven titles in the code.
(3) Huck’s $13 trillion in American wealth held offshore to avoid taxes is a Fairtax myth, promulgated by Boortz/Linder in book one. The $13 trillion is more like $700 billion according to the Tax Justice network report from 2005.
(4) Hucks estimate of compliance costs is off by a factor of at least two. The IRS compliance cost model was replaced with a new one in 2006 which drastically (and realistically) lowered all compliance cost estimates. (Re: page 98 in the 2009 1040 Instruction book.)
(5) Hucks claim about eliminating the underground economy flies in the face of our discussions about legal tax avoidance and illegal tax evasion, which I won’t repeat here.
(6) If Huck really believes that the Fairtax will get rid of 22% in embedded tax costs, then he doesn’t understand that two thirds of that 22% belong to the employee and can’t be used to reduce retail prices. Huck is stuck on the “free lunch” Fairtax myth!
(7) Bob Bartlett would not be pleased to know that Huck thinks his name is Bob Bartley. And, Bartlett never attributed the Fairtax to the Scientologists. He simply pointed out that a national consumption tax was offered by that Church well ahead of the Fairtax scheme.
(8) I have no idea just what Huck considers an “average American family”, but if we assume that the family consists of three persons and has a gross income of $50,000, then that family will pay an effective tax rate of 14.4% including income and payroll taxes. That is a long way from Hucks 33%, so let’s see what it takes to pay an average of 33% in taxes. At $100,000 gross, the effective tax rate is 19.4%. At $200,000, the effective rate is 24%. I give up. I don’t care what gross is required to pay an effective tax rate of 33% because I’ll never be in that group. The point is that Huck is probable adding tax brackets to tax rates and could be including embedded taxes to boot. Just plain wrong!!!
(9) I think I understand why Huck doesn’t get it if his sage advice is to just read those two “comic” books written by Boortz and Linder. A better idea would be to join in at Fairtaxblog.com and get a real Fairtax education from the Research library.
Debate Governor Huckabee? Just throw me in that brier patch!!
To Wose Old Owl re post # 238
(I am re-reading your proposed tax system in post # 237 and will come back with comments).
I would love to debate Huckabee. I have tried to get though to him via a state party PAC chairman I met at a meeting, but can not reach him thus far.
I do not seek to embarrass him publicly just educate him privately, but am perfectly willing to debate him or anyone else, publicly.
Huckabee delivered a speech in Kingsport, TN wherein he said “Republicans doe not believe inwealth redistribution”. The next day hel tellls everyone that the Prebate is the best think since sliced bread. I would love to show him my illustration of the Prebate and have him reconcile his statements.
If you can help me get his attention, I would appreciate it.
To Wise Old Owl re post # 237 your NCT
I have a few questions to try to understand your plan.
Is the 23% an add-on sales tax (Tax Exclusive) or Tax inclusive?
I still have the same problem with a high-in-your-face sales tax casuing a Tea Party rebellion.
I would give no Prebate – everyone must pay.
What is your revenue estimate for the NCT?
SS:”
I like the idea of assuring solvency by limiting payouts to a % of collections. However, pensions would vary year to year.
Everyone gets the sames pension but some pay more tax than others = wealth redistribution (Un-constitutional).
I like your credit for Income-Taxed-Earnings (one big deficiency in HR 25).
I would like to see the Budget set at a figure limited by the Constitution – i.e., the military and just a few other tasks and that’s all. GDP should not be used to determine a Constituional budget.
Just a few years ago, if you said that a great Tea Party movement would overtake this country and elect many candidates to Congress and impact many others, people would have written you off as lacking in common sense.
We can make YOUR SHARE a reality someday by clearing up America’s thinking and going back to Constitutional principles (which the Tea Party has begun) and changing the sad realities of the lack of Constitional principles in our Congress.
Some of the posts from those who like a consumption tax have recognized deficiencies in H.R. 25. yet, if anyone asks AFFT to change HR 25, they arrogantly tell you to take it (H.R. 25 as is or leave it and to go form your own grass roots campaing and spend $22+ million for your own proposal.
(incidentally, I understand that originally, AFFT said that they spent $22= million “on research AND MARKETING” but later dropped off the words AND MARKETING. Has AFFT ever released accurate figures on how much wsent into ” friendly research” and how much into “marketing”?)
Remember we need not reush into ANY new tax plan. That is, we can greatly modify the current Income Tax (see SUPPLEMENT # 25 in my Paper) while gradually finding and migrating to a better system.
Stephen, I haven’t heard that part of the $22 million was spent on marketing, unless your talking about the funding of focus groups that went to determine what American citizens would like to see in tax reform. The earliest publications that mention the funding that I have are from 2002 and I don’t think they mention marketing.
To Morphh re post # 250
That comment was all I heard, I have no further details.
I have no idea what AFFT included in the term “marketing” but might think that they did spend a lot of time and money to sell the plan to groups of people.
One of the “80 economists” I spoke to said he attended a brief “presentation” on HR 25. One could argue that trying to sell HR 25 to this group and gain their signatures on the “letter” is marketing as opposed to research.
Have you seen such reported early wording of “research and marketing”?
Stephen, I don’t think that’s part of the $22 million though. Actual marketing and the gathering of the 80 economists was done in the last 5 years. The $22 million was part of the original funding by raised by Jack Trotter, Bob McNair, and Leo Linbeck back in the 90′s. They were claiming $22 million spent in research 10 years ago. Maybe Hank can shed some light, as I think he’s been involved the longest with this tax plan.
Stephen #247
It would be a 23% inclusive tax or 30% exclusive; but I believe it should be
included in the retail price tags. This would ease the shock at the cash register.
I personally do not believe there should be tax on food. If food items are added to the exempt list, then I would also eliminate the prebate.
Let’s assume NST was in place for 2009. GDP for 2009 was 14.1-trillion, when you deduct 1.59-trillion for private domestic investments and 2.9-trillion for government consumption; you end up with a tax base of $9.61-trillion. NST would have been approximately $2.883-trillion.
To Wise Old Owl re post # 253
With a 30% add-on sales tax plus State sales tax, you get a pretty high retail sales tax that I believe will send consuners into orbit.
HR 25 now shows all the relevant figures on the receipt (but forces you to calculate the wrong tax %). I do not belive in hiding the tax fromthe public – full transparency is the most honest (I would like to show every taxpayer the grand total of all taxes paid for the year – that would motivate people to control Congress.
Food: once you exempt food (or give the $50 rebate) and also require some taxpayers to pay more than others for the very same govt “services”, you Progressivize the tax. I think we should move in the direction of an equal distribution of the tax. Not all at once but a gradual move towards that goal.
Could you attempt to reconcile your tax collections of $2.8T with HR 25′s $2.3T target,, while your tax base appears to be lower and your tax rate the same?
Hank #176,
I see your point.
Here’s an exercise i find interesting…let’s say I make $20,000 which happens to be the poverty level for my family size (in my example here). I spend all $20,000 on FairTax taxable stuff, so of that $20,000 $4,600 of it is Federal taxes. I get a check for $4,600 (for the sake of this exercise, I get it at the end of the year). Would you say I’ve paid no taxes….or at least I had my taxes fully refunded?
What about if I spend that $4,600 on taxable goods? I would pay $1,058 in taxes. There are at least two ways to look at this:
1) I spend all my income and rebates $24,600 ($20,000+$4,600) and only paid $1,058 in taxes. The $20,000*0.23=$4,600 is returned to me, so I’ve technically only spent $15,400 and incurred no tax penalty (I did, but it was refunded) and when I spend that $4,600 I pay $1,058 in taxes.
2) This is how I believe you view it. I would have$24,600 ( $20,000+$4,600) in income that I spend completely and pay $5,658 in taxes.
If we add one more component to this mental exercise it gets more interesting….lets say I spent the entire amount on widgets for $100 each (this includes the FairTax). This too can be viewed two different ways.
1) I would initially buy 200 widgets (200 x $100 = $20,000). Each widget includes $23 in tax so that would be $4,600 in taxes…..of which I would get a refund. So I would have 200 widgets tax free and still have $4,600 in my pocket. Since I am addicted to widgets, I would turn around and buy another 46 which would then send $1,058 in taxes to the Feds.
2) I would initially buy 200 widgets (200 x $100 = $20,000). I would then take the $4,600 and buy 46 more widgets for a total of 246 widgets. And as we know each $100 widget will include $23 of tax, so 246 x $23 = $5658 in taxes.
Both scenarios end up with me getting 246 widgets and the government getting only $1,058 in taxes (they get $5,658 but send me back $4,600 so I can buy more widgets).
In either case I have spent all the money that ended up in my hand that year and with it bought widgets. Any widgets I purchase beyond the first 200 will result in me paying taxes (that don’t get returned to me) and an increase in government revenue.
Interesting how that works. It may very well be a cash grant from the government. You say it increases your income which can then be used to buy or save as an argument why it’s not a refund. But doesn’t a refund do exactly the same thing? If you buy a printer for $300 and get a $50 rebate….don’t you then have $50 you didn’t have before which you can spend or save?
To John Bailey re post # 255 Part 1
Using the numbers in your example, I submit that the correct view is that you received a net welfare check from the rest of us of $3,542 ($4,600 Prebate – which was intended to fund tax payments – minus $1,058 tax paid).
See the Illustration of the Prebate and supplements in my Paper.
To John Bailey re post # 255 Part 1
CORRECTION:
You paid 23% of $24,600 or $5,658 and got a Prebate of $4,600 so that you paid a NET tax of $1,058 IF you spent all of your money leally and paid the full tax on all purchases.
Your range of possible outcomes is net tax of $1,058 above and a welfare check of $4,600 is you spent all of your money illegally avoiding paying any tax. Reality will lie somewhere betweeen those two with the prejudice favoring a net welfare check.
To John Bailey re post # 255
After reading the rest of your post, I see nothing that changes my view that the Prebate and the taxes paid should be netted to arrive at a NET tax paid or a NET welfare check received.
Quick clarification/correction. The prebate does include adjustment for taxing itself. The prebate figures are based on a non-accommodation model and indexed to price increases (other models). It’s calculated as 23% of the total price, which would include the tax itself (poverty level staying consistent with no change in retail price). You could think of it as equal to 30% instead of 23% if that helps. It’s similar to the inclusive / exclusive thing.
John,
This issue is kind of a mind teaser. I still submit that the difference between a tax refund and the prebate is that a tax refund does not increase your gross pay one dime, whereas the prebate is additive to your gross income.
A tax refund simply means that you paid less tax and can now buy something else. But your gross didn’t change. You simply reallocated your spending from taxes to goods and services.
The prebate is a monthly check that increases your net income no matter what AFFT wants you to believe. If you don’t believe me, just look in your checkbook and balance it! It is a cash grant entitlement, and it may be that AFFT just didn’t want to book it that way. After all, entitlements are rapidly squeezing out discretionary spending in the federal budget. The Fairtax would immediately increase the percentage of entitlements from around 60% to over 70% and move up the date of the pending budgetary “train wreck”.
I’m no expert, but smarter government economic officials than me state that CBO will score the prebate as an entitlement. I’m also aware that the 2005 Presidents Commission, chapter 9, coined the phrase “cash grant entitlement” and included it as one of several reasons the Commission would not recommend a national sales tax.
Stephen, #254
My mistake on my estimate of revenue the NCT would create. My first mistake was the $9.61-trillion figure. Individual personal consumption for 2009 was slightly over $10-trillion. This is the starting point figure in determining the NCT. With the elimination of all current taxes, I estimate this figure would drop by approximately 10%, bringing the before tax consumption down to $9-trillion. Applying an exclusive tax of 30% to this figure, the total NCT would be $2.7-trillion.
Actually under the FairTax the base would include government consumption which would increase the starting point estimate for 2009 by an additional $2.915-trillion. If the starting point estimate for the FairTax is $12.915 and it would be reduced by 10% with the removal of existing taxes and compliance cost. The before tax base under the FairTax would be $11.623-Trillion. Applying an exclusive tax of 30% to this figure, the revenue generated by the FairTax would be $3.487-trillion.
Actual revenue generated for 2009 was $2.1-trillion. To compare this figure to the NCT or the FairTax, you must deduct the cost of any prebates and at least $250-billions of in tax evasion that you would have under any tax play. Under the NCT you would also need to deduct the ATSRP; and under the FairTax you would also need to deduct the taxes paid by the Federal Government.
Hank #260,
You state that the difference between the prebate and a tax refund is that a tax refund does not increase your gross pay one dime whereas the prebate is
additive to your gross income. I still fail to see how that is true. Calling the prebate income and a refund not income does not make it any different.
Look at the math. You have income, Y, and spend all of it on taxable goods and you will pay 0.23*Y for taxes. if the government turns around and gives that back to you as a refund you end up with 0.23*Y in your hand to do with what you want (spend it or not). If the government sends you a check at the beginning of each month called your prebate which happens to equal 0.23*Y and you spend Y, you will also have 0.23Y left in your hand to do with what you want.
John,
I never said it wasn’t confusing or that I wasn’t confused. How about this. Let’s assume the ridiculous and spend nothing. What is in your left hand and what is in your right hand?
In your left hand you hold your gross pay. In your right hand you hold your gross pay plus the prebate. The prebate is certainly additive to your gross, isn’t it?
Maybe the question is in which case can I purchase more goods and services, if either? If the answer if neither, then I guess I have created a distinction without a difference.
But, rest assured that the prebate is a cash grant entitlement and will be scored as such!
To John Bailey & Hank Van Giesen
The Prebate is an advance payment to assist with the payment of the HR 25 sales tax – it is an advance refund of that tax.
In any event. HR 25 gives you $X as a Prebate and demands back $Y in sales tax.
Why would you copntort yourselves to do anything else but combining them into a NET H.R. 25 TAX or a NET H.R. 25 WELFARE CHECK?
Hank #263,
You said, “then I guess I have created a distinction without a difference. “.
I agree 100% which is the point I was trying to make and the one you made quite elegantly.
In any event, so it’s scored as a cash grant entitlement, I don’t see how that matters. You may have pointed it out in one of the other threads, I don’t recall. I guess where I take issue is that you seem to take the position that the FairTax advocates are lying or misleading when it comes to the prebate/entitlement issue. I don’t see it that way. Just like the tax rate inclusive/exclusive issue. Both are essentially the same thing resulting in the same amount spent. The proponents speak about it (market it) in a positive way, the opponents speak about it (market against it) in a negative way. In the end, the results are the same.
Stephen #264,
I agree. How about if we call it a welfare-rebate check? Oh wait, that has the connotation of refunding the welfare check….talk about confusion.
John,
I believe that it is most honest and direct to call it exactly what it is.
If you pay HR 25 tax of $1,000 and receive a refund of HR 25 tax of $5,000, then the BOTTOM LINE of your HR 25 transactions for the year is a negative $4,000. That net is a welfare check. It upsets me that Congress gets away with the fraud of calling that same result under the current Income Tax, “Refundable Tax Credits” instead of WELFARE.
Converseley, if you pay $6,000 of HR 25 tax and get a refund of $5,000 HR 25 tax, then the bottom line is that you paid a NET of $1,000 HR 25 Tax.
Regarding the pre-bate.
I assume we all agree that a straight consumption tax would be regressive. But FairTax supporters claim that the prebate makes the tax progressive.
But, if you consider the prebate for what it really is, just a welfare check to all Americans, then we’ve still got a regressive tax system. The only difference is that we have to increase the tax rate in order to pay for the welfare checks we send to every one. As Stephen says in post 264, all we’re really doing is having the government take money out of our left pocket and put it back in our right pocket. Net-net, we’re not getting anything
Or, think of it this way. If the government imposed a consumption tax to pay for health insurance for all Americans, we would say (correctly) that we were funding heath insurance through a regressive tax. So, just because the
FairTax proponents say the prebate is to be used to pay the FairTax, why is it not still a regressive tax?
I’m not sure how we got onto this topic, but I think the prebate would fall into the category of a tax credit, similar to the current child tax credit (based on family size) that can result in a payment regardless of tax paid. While the other general definitions may apply, those terms usually don’t have a direct relationship to the tax code. The prebate may not be based on taxes paid, but it is part of the tax code, thus making it a tax credit. Its intended purpose in the tax code is to offset taxes – to restore purchasing power lost to the tax. It does this based on a calculation of exempting a degree of spending (regardless of spending) – an exemption on the tax base. Different tax systems use different methods to reduce regressive effects and these common definitions apply to tax credits and other such schemes.
This is the way I view the prebate. If your tax on spending is at least equal the prebate, I would consider it to be tax refund. If your tax on spending was less than the prebate, the excess portion would be an entitlement. I do not believe there would be too many entitlements.
Hayden #267,
Regressive/Progressive….is there a way to make the neither regressive or progressive? I suspect not. So what do we do? Is a progressive system better? I’m sure those on the low end of the scale think so. I think a regressive system is probably more fair in the sense that it treats everyone the same, whereas a progressive tax may be seen by some as being more fair (reducing the burden for those lower on the economic scale).
Morph #268
Well stated.
Re posts 267-269
WOO, I believe that there would be a great many “entitlements”. When you combine all of the poor large families who will receive large Prebates and who will pay sales tax of much less than the Prebate (including Black market purchases).
I challenge you all to show me where such “entitlements” are granted in the Constitution – just where do you find support in the Constitution for wealth redistribution.
A welfare check is welfare. One person paying no tax while another pays it all (and both vote) is WELFARE. One either believes that the cConstituion provides for wealth redistribution or one does not.
We have wandered off into the political arena which affects only 1 of the 2 major areas (the other is economic aspects) of HR 25. I do not expects Progressives and Constitutionalists will come together on this aspect (although many do agree on HR 25′s very bad economics).
I present a Constitutionalist’s side of this argument briefly in my Paper and a couple of brief SUPPLEMENTS which Morphh suggests are my best arguments (I say they are just SOME of my best arguments).
Hank #263 (again),
I like your ridiculous example.
And agree in the end you have more money to spend. But my point is that mathematically whether you call it additional income or a refund or a welfare check or a tax credit it results in giving the consumer a break (most likely) on their tax liability.
Would you object to something along the lines of a debit card for the consumer to present at point of purchase which reduces the product price by the FairTax amount until that consumer’s tax credit (refund/prebate/welfare/entitilement/whatever) for the year has been used up? And if the consumer doesn’t use it all, the amount is then lost as opposed to being rolled over….or maybe allow the consumer to roll over one year’s worth of FairTax credit?
To John Bailey re post # 270
You raise 2 issues that we must think about more deeply.
1. Progressive and Regressive refere to question “upon which economic group does the burden fall?”. (see my Paper in this point). This is not the correct deciding factor. We should not be evaluating tax systems on this basis. We must get back to the central question, “How do we allocate our common charges to each American based upon each person’s impoct on the cost, relative to every other person. Welfare assistance to those whoi can not afford to pay should be handled by the PRIVATE SECTOR charities – according to our Founding Fathers.
2. You mention tax “fairness”. That term must be defined. If one defines it in terms including welfare and ability to pay, then one confuses two independent concepts and thus goes astray. To me “fairness” means that we should each pay our share of the total common charges based upon our relative impact thereon.
Stephen #273,
I guess that was sort of the point I was trying to make…what is the definition of fairness and how difficult it may be for there to be a consensus on the definition regarding an individual’s responsibilities to supporting the government. If that can not be agreed on, then how can a fair tax code be established? It can’t. The next best thing is what is a close alternative that has a shot at getting implemented?
I don’t disagree with your first point about whether or not who the economic burden falls on being the deciding factor, at least not in a theoretical sense. However, I think getting 535 Benjamin Franklin’s elected is an impossibility (even half that number I believe is impossible). And to just divide the Federal Budget by the number of citizens (or residents) will also never be accepted no matter how constitutional. I guess I’m more in favor of something that has a higher likelyhood of being passed.
Stephen,
One way I can see a poor person being able to afford government is if we cut the cost of government substantially. I am all in favor of that.
To: John Bailey re post # 274
I am not unaware of the political difficulties in getting YOUR SHARE passed into law, today. While we will never get 535 Benjamin Franklin elected, we need only a majority of them. The Tea Party movement has made great strides in that direction.
My call is to the disciplined application of American founding PRINCIPLES.
Each Americans share of the identical “meal” served to all is exactly the same as every other American’s share. To let some Americans get off without paying (when they have the right to vote) or make some pay more than others is WELFARE (Ub-Constitutional). Once you start to cave in on your principles, you are lost. The Founders understood that. America’s great charitable tradition will handle the needs of those who can not afford to pay, but in the PRIVATE SECTOR. They will do so far more efficiently and effectively than the govt ever will. That is what “extremists” like benjamin Franklin envisioned and promised to get America’s votes for the Constitution.
Would you agree to go back to a more sophisticated version of the original rules that only those who owned property (and thus paid proerty taxes) could vote? Perhaps, pnl;y those paying a certain level of tax could vote.
To: John Bailey re post # 275
I agree with you 100%.
Therein lies one great facet of YOUR SHARE. With Congress’ current budget requiring every American to actually pay $13,000, ALL Americans would be besieging Congress to reduce its spending.
I figure a Constitutional budget at about $600B which yields $2,000 person (some credit for adoption of American kids).
Stephen #276,
I disagree, I believe there needs to be more than a simple majority. While in the house a majority may be all that is needed, the smaller the majority the more difficult to get anything past. Over in the Senate, if you don’t have at least 60 votes, then legislation can be filibustered and on something as far reaching as what you are proposing I would expect a lot of resistance. So at a minimum 60 staunch supporters would be needed.
To: John Bailey re post # 278
I would agree with you. The point is that we would need a strong majority, but not all.
After all, the Founding Fathers were able to get all the States to go aling with a very divisive plan that embodies the principles I lay out.
To All,
Well, I too don’t know how we drifted to this subject, but there are a lot of opinions on the prebate, that’s for sure.
Morphh sees it as a tax credit, Woo thinks it is half tax refund and half entitlement, Stephen thinks it is net welfare, John says it is a tax credit, Fred, who hasn’t joined us in some time says it is an entitlement, Hayden thinks it is a welfare check, and I think I think it is an income supplement that can be spent or saved as desired.
What does Wiki think? Here are a couple of definitions to consider:
“An entitlement is a guarantee of access to benefits based on established rights or by legislation. A “right” is itself an entitlement associated with a moral or social principle, such that an “entitlement” is a provision made in accordance with legal framework of a society. Typically, entitlements are laws based on concepts of principle (“rights”) which are themselves based in concepts of social equality or enfranchisement.”
“A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim.”
Seems to me that the answer is clear. The Family Consumption Allowance is an entitlement guaranteed by law, and based on family size, not taxes paid.
Call it what you like, but John asked a key question–”Why do you care?” I care because the FCA would be the largest entitlement ever attempted and comes at a time when entitlements are squeezing out discretionary spending in the federal budget. And, I care because the FCA creates a class of an estimated 20 million workers that would pay no net federal tax annually, yet would still qualify for full retirement and health care benefits. And I care because I can’t find the clay tablets on which are chiseled the odd concept that no one should pay taxes on the necessities of life. Who in the hell thought that one up. In my view, everyone ought to pay something to support our nation!!!
Over and out!
I agree with Hank. I always thought the “prebate” was, at best, a gimmick. I also agree that everyone should pay some net taxes to support the country. (Sorry, Stephen, but being a good liberal, I can’t exactly support the FAIRSHARE tax. But then again, yoiu probably don’t support universal health insurance, so we’re even.
)
I’ve got some quick questions for the mathematically inclined among us. Assuming, for the sake of argument, that the revenue neutral rate for the FairTax really is 30% on a tax-exclusive basis:
1. What would the tax rate need to be if there were no prebate?
2. What would the tax rate need to be without the prebate and excluding government spending?
3. What would the tax rate need to be with the prebate but excluding government spending?
Just curious.
Hank #281,
According to the definition you presented, then the existing child tax credit Morph mentioned in post #268 should also be considered an entitlement.
You never answered my question(s) in post #272. Such an approach would eliminate or reduce the free loading of the poor or anyone else and the debit card is only used to offset taxes (up to a point).
To Hank and John;
Since when is having someone else pay your share of our common burden an “entitlement”? Where are such “entitlements” found in the Constitution.
Juhn, “refundable tax credits” credits are WELFARE – it is irrelevant to me that you also call them an “entitlement” because the tax law “entitltes” them to it.
To John & WOO
Have you read or perused my Paper?
Other there other specific point that we can discuss?
Do you agree with some of the points I make? If so, which ones?
With which do you disagree and what are your counter-arguments?
With the number of non federal income taxpayers approaching the critical mass of 50%, never before in our nation’s history have we needed to enact a fair tax more than now. See http://www.christianretirement.com “Learn to Say No.” America is experiencing problems in many areas. Sometimes, difficult issues must be addressed head on. The Fair Tax would insure that everyone would have the opportunity to step up and pay for the freedoms they so readily and freely enjoy.
John,
We have discussed this question before, and while I can’t find the particular exchange, I remember we concluded that the EITC or Child Credit are not considered entitlements. They are simply a tax burden reduction. Perhaps because they don’t apply to everyone? I’ll search further.
As for your debit card scheme, I like that a lot better than simply giving everyone a check based on family size. At least there would be no net winners using your debit card, that is if the unused portion was lost at years end. I sure wouldn’t want to roll it over.
But, basically I’m opposed to any kind of prebate. Too many down sides for me as I have described.
Hank,
I don’t recall the exchange either, but based on the wiki definitions you provided above, it seems to me the child tax credit would/should be considered an entitlement. Yes, it’s not available to everyone, but it is not based on taxes paid.
melogos,
Unfortunately it isn’t true that everyone would pay their share, or even pay anything to support the federal government.
It sounds good to say that the Fairtax untaxes the poor. But, how many untaxed families are we talking about? AFFT increased the poverty level by 25% for married families, thus increasing the number of families under the poverty line. The Family Consumption Allowance, (prebate) created a group of 20 Million working families that would pay no net tax annually. Yet, all of these folks would still qualify for government pension and health care benefits. You can’t untax the poor and still say that everyone will pay their share. The two statements are in conflict!
John, Good catch, I was wrong. Getting senile, I guess?
After doing a little research, it is clear that the EITC, and presumably the Child Care tax credits are entitlements. Along with civilian and military federal retirees, the VA, etc. etc. plus the big three of SS, Medicare, and Medicaid.
Could this mean that tax refunds are also entitlements?
Hank,
I don’t see how tax refunds under the current income tax system could be considered an entitlement as they are solely based on the difference between taxes paid and taxes owed.
Tom Metagos re post # 284
I agree that we need “A” fair tax system, just not HR 25. “The” fairtax.
If you think everyone pays for their freedom under H.R. 25, please review my brief ILLUSTRATION of the PREBATE. ou will see that is EXPANDS WELFARE – more ppeople will be NET TAX RECEIVERS NOT PAYERS.
To Hank & John,
Does it really matter whether you call “refundable tax credits” an “entitlement”?
It is WELFARE to which one is “entitled” by virtue of working, but WELFARE, nevertheless.
Hank,
14.3% of Americans earn poverty level income or less, but 47% pay no income tax at all. The FairTax will add 101.37-million new taxpayers. How do you figure this is better than the 44.33 million who will pay no tax under the FairTax? I understand that everyone filling under our current system contributes to Medicare and S.S., but 145.7 million pay no income tax at all.
Hank,
It is early. What I meant to say was, how do you figure adding 101.37-million to the tax base is worse than 44.33-million paying no tax at all?
Stephen #284,
I have downloaded your paper and looked at it, but not had a big enough block of time to read it and truely absorb what’s written. It’s on my list of things to do.
woo,
Help me out here. How do you figure the Fairtax will add 101.37 million new taxpayers? Details, please.
Stephen, #291,
Yeah, it matters to me whether or not we call the FCA an entitlement. And, your claim that the FCA is just welfare, makes the case that the prebate is an entitlement. For instance, food stamps and many other welfare programs are also entitlements. Why not the “prebate”?
I don’t want Fairtax advocates to sluff off the entitlement issues by calling the prebate just another tax refund. By failing to admit the prebate is an entitlement, you take away a very significant argument dealing with the growth of entitlements, and the disastrous impact on the federal budget. I’m not willing to let that pass.
Stephen, #283,
I, too, have perused your paper, and have found a small disagreement which I’d like to discuss with the other members of this blog.
In your supplement #18, the nightmare on Elm St, or whatever you called the perils of home buying, your example shows the bank first adding State and Local taxes and then adding the federal tax on top. We have all previously had a number of discussions about just what a sales receipt might look like with regard to cascading taxes, but I don’t ever remember anyone proposing that the Fairtax would tax the State and Local taxes. There was some thought that States might tax the federal tax in order to not have to raise their taxes to pay the added federal tax costs, but never the opposite.
What is the basis for your federal taxation of State taxes?
To Wise Old Owl re post # 292
Some people who pay no income tax will now pay “some” sales tax.
However, this is more than negated by the PREBATE – now more people will pay no net tax and receive more welfare (while you must work to get “Refundable Income Tax Credits” you do not have to work to get a PREBATE check).
JHohn Bailey re post # 294
Thank you. I would enjoy reviewing you thoughts on the specific points.
to Hank re: post # 296
I need to make mydelf clearer.
Its not that I do not call the Prebate an “entitlement” – it (net of any sales tax paid) is an “entitlement” because someone wouldbe “entitled” to it under the law.
“Entitlements” (that are not paid for by ther receipients, like certain minimum SS pensions) constitute WELFARE/WEALTH REDISTRUBUTION.
Let’s not get ourselves entangled by our choice of words.
REDISTRIBUTING WEALTH is un-constitutional and should be removed from the federal govt’s operation, but in a managed gradual process.
To Hank re post # 297
As I (and fellow CPA Hank Adler, Fair Tax Fantasy) read the bill, the HR 25 sales tax comes last and so it “cascades” (it is charged on the cost of the good AND on the State sales tax.
Morphh has made excellent arguments explaining that is not the intent (and that additional revenue was not reflected in AFFT calculations).
My response to Morphh (also in my Paper) is that if that is what AFFT intends, then it is oh so simple to change the verbiage of H.R. 25 to comfort us that the “IRS” will not interpret it the way Hank & I clearly read it.
Stephen,
Thanks for the explanation, but I don’t agree that there should be any confusion. State/Local taxes have to come last and will be applied to cost separately or applied to the price including federal tax, whichever a State chooses to do. (It isn’t specified in HR25 nor should it be. The Federal government has no right to mandate State decisions such as this one.)
HR25, Sec. 101(b)(1) states that “the rate of the tax is 23% of the gross payments for the taxable property or service.”
HR25, Sec.2, Definitions states “The term “gross payments” means payments for taxable property or services, including Federal taxes imposed by this title.” (No mention of State taxes?)
”HR25, Sec. 509 mandates the information to be included on a sales receipt as follows: (1) Property or services price exclusive of tax. (2) Tax. (3) Price inclusive of tax. (4) Rate-inclusive. Note: #4 is supposed to be 23%, but if you included State taxes first, the amount of tax collected would be somewhat higher and the rate would also be higher than 23%. Both results violate the intent of HR25, imho.
I do agree that clarification would be easy in the event anyone else is confused. Perhaps we should discuss this with whoever takes John Linder’s place as the Fairtax sponsor. I doubt there will be any such changes accepted, no matter who takes over, but we could try?
Hank re post # 302
By putting the fedral tax last at 23% of the”gross payments”, definition that is 30% of everything but the federal sales tax.
The federal tax need not mention State sales tax or any other charges. The federal tax is merely 23% of the “gross payments” whatever they include.
The fact that Sec 509 does not mention State sales taxes is irrelevant. Certainly, a retailer would list the State sales tax.
Reading Sec 509, item # 1 on the receipt would be the price + State sales tax + any other charges. Item # 1 is the total BEFORE the federal tax.
I did not write that nonsense, AFFT did. I am just explaining how we tax professionals read a tax statutute.
It would be very simple for AFFT to add words to the Statutes to say “the H.R. 25 tax shall not be added onto any State and Local sales tax”.
Agree with Hank… Here were my thoughts as expressed to Stephen when I reviewed it.
To Morphh re post # 304
This really is not worth exppending a lotof energy (aspecially at my age) on this subject.
Not you Morphh, but if AFFT were acting in good faith and intended no cascading, then why would they refuse to add just a few clarifying words to the statute – there is absolutely no harm in doing so.
Not to be picky, but in your 3rd sentence you say “gross payments do not include taxes”. “Gross” payment include ALL taxes – it even includes the H.R. 25 sales tax.
Again, two of us tax professionals read the statutute the sames way. If AFFT intends no cascading, then they should just make the simpe fix (that’s what i would do if I were them andd if I intended no cascading).
Hank, 295
Currently 47% of our population or approximately 145.7-million Americans do not pay any income tax. 14.3% or approximately 44.3-million earn poverty level income or less. Most people spend at least the poverty level income. If you take the 145.7-million who current pay no income tax and subtract the 44.33 million who will pay no tax under the FairTax, you end up with 101.37 million who will pay taxes under the FairTax who currently pay nothing.
Stephen, #305,
Being the most senior member of this club, I also have limited energy for debating such issues as what a sales receipt must look like. But, I guess CPA’s don’t think like old and not so bold pilots?
Had you and our friend Hank Adler read all of HR25, you would have discovered that AFFT definitely wanted to preclude cascading taxation. Here is an extract that sheds some light on the legislative intent of HR25.
“SEC. 1. PRINCIPLES OF INTERPRETATION.
`(a) In General- Any court, the Secretary, and any sales tax administering authority shall consider the purposes of this subtitle (as set forth in subsection (b)) as the primary aid in statutory construction.
`(b) Purposes- The purposes of this subtitle are as follows:
`(1) To raise revenue needed by the Federal Government in a manner consistent with the other purposes of this subtitle.
`(2) To tax all consumption of goods and services in the United States once, without exception, but only once.
`(3) To prevent double, multiple, or cascading taxation.”
Seems clear enough to me.
Stephen, #305 I can understand the thought of gross being viewed as the entire payment as that’s often how we look at it with our income. But the general definition means, “before taxes”. We can look at this from two ways: The payment before taxes are added (my view) or the payment before taxes are removed (your view). Since we often use the term with regard to income, which is inclusive, your second definition applies (before taxes are removed). However, since we’re talking about sales taxes, which are historically applied exclusively, I think my first definition applies (before taxes are added). The legislation makes a specific addition to have the federal tax included, making it inclusive (before taxes are removed) – just like our income. Under this understanding, state and local taxes would remain under the first definition (before taxes are added). Hope this explains my thoughts. I agree that the wording could probably be clarified, but I think at least the intent is clear.
Hank re post # 307 & Morphh re post # 308
Hank, although I never bothered to read the material you quoted, what you quoted appears logical (we tax profesionals tell our colleagues NEVER to mention the word logic – you must read the statute as written. My best professional advice that I would give to AFFT (if they were paying me to advise) is to make the simple fix to the statute – wisdom tells us to avoid costly unproductive litigation!
Morphh, The statute says “gross payments” which clearly INCLUDES the HR 25 tax – how can you say it means before taxes.
Gentlemen, I have not read beyond your 1st sentences, not because I don’t like and respect you, but because I feel this is a waste of my dwindling brain power. JUST MAKE A SIMPLE FIX TO THE STATUTE – you are expending more enegery avoiding doing that than it takes to fix the statute.
Stephen, # 309 Perhaps you should have read #308 before asking, since I think I answered it clearly in that post. The bill makes an amendment to the common definition to specifically add the HR 25 tax, which would have otherwise been excluded. There are two ways to view it, as I defined in #308. Agree on clarifying it though and removing all doubt.
woo, #306,
OK, I’ve got it. You are saying that of the 310 million Americans, 47% or 145.7 million pay no income tax today. Under the Fairtax the 44.3 million at or below the poverty level will pay no net federal tax due to the prebate, so you conclude that the Fairtax will add 101.37 million new taxpayers. (145.7 – 44.3 = 101.4)
Woo, with all due respect, that is the weirdest analysis I have seen in some time! Just who are those 100 million new taxpayers? For god’s sake, man, they are 100 million children from newborns to teenagers. If you want to consider them tax payers, then after accounting for their $860 prebate, they are all net “takers” as Stephen would say. Even when the teenagers start to baby sit and mow lawns, they contribute nothing to the federal government due to the de minimus provisions of HR25. How can you possibly call them tax payers?
Here is how I think we should look at this issue. Using a recent paper done by Scott Hodge, highly respected tax expert at the Tax Foundation, in 2008 51.6 million filers paid no income tax out of a total of 143.3 million filers. But if you assume that at least half of that 51 million are lower paid workers, not retirees, then I’m comfortable with claiming that of those 25 million working families, less than i million pay no net federal tax due to being eligible for refundable tax credits in an amount that totally offsets their FICA payments. There are, therefore, relatively few “free loaders” under current tax law, and, as their pay status changes and/or their children grow up, they would become net contributers.
Under the Fairtax, of those 25 million workers, most or all would pay no net federal tax annually due to the prebate, and many would never become contributers if they receive just annual cost of living raises. The inflation adjusted prebate continues to offset their inflation adjusted pay.
If you are still with me, we have less than 1 million freeloaders today and would have 20-25 million free loaders under the Fairtax. That is not the kind of nation I think we should want to be!
Gentlemen,
May I move from economics to politics.
Given the fact that AFFT arrogantly tolerates absolutely NO CHANGES to HR 25 (they tell you to go start your own grass roots movement and spend $22+ million), are you wiling to vote for HR 25 with all of its (mailignant,cancerous) warts or would you vote “NO”?
Stephen, John Linder and AFFT have been open to changes, like adding the sunset provision on the 16th Amendment, and have requested suggestions to improve the bill on several occasions that I remember. If I recall, the legislation has been revised a couple times. What type of changes were you requesting that they arrogantly told you to take a hike, start your own movement, and spend $22+ million? Who told you this from AFFT HQ in Houston (grassroots leaders have no authority to accept or deny any change to the bill)?
Morphh re post # 313
I called the Houston tele # – I am sure it was a lower level lawyer I spoke with.
I recall mentioning the Prebate issues. I do not think they woud even consider eliminating that.
I do not think H.R. 25 can be saved – to me, its flaws are fatal.
What I am asking of you is 1) exactly what changes would you make and 2) what would you do (orf how would you vote on H.R. 25 if your changes were not made?
Reference #306 – Food for thought – The Office of Tax Analysis report is a bit misleading when it only reflects somewhere between the 40% and 60% quintile of income earners pay no taxes. In fact, the IRS reported that in the 2005 tax year it received 7,389 tax returns with reportable incomes in excess of $200,000 for which no income taxes were due. This does not reflect the thousands of other income earners (assumed) that made this amount or more; rated in the top quintile of wage earners; and paid considerably less taxes than those of the lower quintiles. This is a problem of the current tax structure that allows for those of any income to potentially pay no income taxes. The other problem is the regressive payroll tax which is a significant impact on the lower quintiles, the worst being the middle quintiles, that give up, individually, 7.65% which the government further interprets to be 14.21%, since the employer share of payroll taxes is actually a deduction of pay from the employee’s potential earnings. Once the earner surpasses the Social Security Cap at $106,800, then his individual and combined payroll tax drops with each increase in pay. As a matter of taxing philosophy, I like how the FairTax helps resolve some of the issues associated with this vertical inequality. The FairTax also helps in the payroll tax matter when it receives the benefit of purchases from non-earned income that is not vulnerable to payroll taxes.
Here’s one more fact about Social Security taxes – you will pay multiple times for the benefit you may or may not receive. (1) You are taxed when you pay the Social Security Tax (2) You are taxed again when you pay income tax on your Social Security Tax because it is not a deductable item (3) You are taxed again when you pay for Social Security taxes embedded in the costs of goods and services as passed along from employers and retailers (4) You are taxed by investment losses since you pay Social Security Taxes on wages before you receive the earnings (5) You will have to be taxed to replenish the Social Security Trust from which the federal government has consumed all that you previously paid into the fund (6) If you receive your benefit before the maximum age, you can lose a portion of the benefit for your productivity (a negative incentive to work), etc, etc.
Thanks for the attention
Kerry
To: Kerry re post # 316
You state that you like the fact the the fair tax “helps resolve some of the issues associated with this [income tax] vertical inequality”.
Not to insult you, but you reflect the Socialist/Progressive view that attempts to achieve equality of OUTCOMES, whereas we who still believe in the Constitution believe it guarantees equality of OPPORTUNITY (which by definition is denied by “progressive” taxation).
Essentially, we are a national cooperative, with the military being our overwhelmingly principal “common cost”. The allocation of that cost to each citizen has NOTHING to do with one’s income (think of your condo or timeshare).
Note: while the SS tax ends at $106,400, the medicare does not – it has no income cap.
Wow. I missed a lot on this thread.
To disagree with Morph (unusual) and Hank (as usual), the term gross payment means whole payment (gross and whole are synonyms). So gross income really means whole income. So once taxes are removed it is no longer gross, it is also no longer gross if you remove the portion you set aside for retirement, but leave in taxes. So, I believe, when the term gross payment is used, they are stating that the amount given to retailer (which includes state sales tax, even gas taxes) needs to be multiplied by 23% and sent to the federal government.
This goes along with another example here of a house valued at $500k. If the house is valued at $500k, then that is what the buyer will pay for it and subsequently ask the bank for an 80% loan of (setting aside any argument about a willingness to pay). There is no need for a $250k fairtax (assuming the 50%) or even $150k (assuming 30%). If this is a new house, the tax will be $115k (23% of $500k), will be remitted by the seller (correct me if I missed some clause when it comes to houses), and will come from the $500k. The $500k is the gross payment.
Some may question why a new house that previously sold for $500k now sells for the same, but has an additional $115K cost. Embedded taxes. I think Morph already explained that though.
As far as the three banking scenarios go, I believe those probabilities are way off. First, the three outcomes are mutually exclusive (2 and 3 are close enough). So even assuming a 99% that one occurs, they’ll need to average to 33% each. And I don’t think there is a 99% chance that one will occur. Second, the first scenario would apply accross the board. Unless the federal tax that replaced the fairtax shifted the taxes off new home construction entirely, the burden of the federal would still exist. Finally, banks would most likely calculate this risk and adjust interest rates and down payments accordingly. I don’t think the risk is so high they’d abandon lending altogether.
As far as for everyone paying the same dollar amount, I’m probably more for a fixed percentage for property taxes (since I view the only legitimate function of government to be protection of property including one’s person and contractual relationships) and a consumption tax (since we basically purchase property and services that are rendered on a contractual basis). In other words, some people require the service of the military to stop foreign entities from taking their mansion and others really just need to keep their Yugo safe.
Pretty simple thought here.
The reason not everyone pays their “fair share” of taxes is becuase they do not have the money to do so. To quote Adam Smith:
“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities…”
When I was young, my mother’s response to a bad report card or grade would inevitably be “the world needs ditchdiggers, too”. I am certain it had a neffect on how hard I worked at school and later on.
But what is missing from that “moral” is the simple fact that the world does need ditchdiggers. And McDonald’s employees. And WalMart greeters. Not a chance you are going to get people to pay taxes instead of eating. Or having a roof over their heads.
And of course it is not fair for anyone not to pay taxes. But you cannot ignore the fact that many cannot pay even though they work. Capitalism gives the benefits of the system to the smartest and the hardest workers. It also relies on the existence of the rest of the workforce.
Pay particular attention to Smith’s “in proportion to their respective abilities” tax plan. MAinly because it is the only one that works.
I did like the effect of the FairTax on new home financing. It also applies to new car financing. Loan to value(LTV) is one of the cornerstones to finance. Increasing loan amounts will obviously inhibit lending.
I understand the thought process that talks about the market on used vehicles and houses moving to take into account the price increases on new houses and cars.
I wonder how long people think that would take? And what would happen to our economy during that time period?
Cuase I can tell you(after spending 25 years in auto financing) that adding 30% to the LTV of a loan will eliminate tons of deals.
And you might as well just end the leasing of vehicles(and equipment of all kinds) for a decade or so.
I have a 30% tax that cannot go anywhere except into the upfront payment by the buyer or be financed and collected on a monthly basis. So if I leased a vehicle that costs $30,000, I would have a choice of paying $9000 up front, or paying that $9000 monthly(plus interest) if a bank would even think about financing it, which I seriously doubt.
Figure out the effects on the economy with the end of leasing.
BTW,
More than 80% of US businesses lease equipment.
Ed,
Adam Smith was talking about basing a tax on the value of a property (“A tax upon house-rents, therefore, would in general fall heaviest upon the rich”). The rich would pay more because they have more lavish properties and the poorest people pay less, owning no property at all. I’m not sure this translates into a progressive income tax – it would probably be considered a proportional tax with a base that could have a progressive effect. As far as what works, there are numerous tariffs, flat taxes, vat taxes, sales taxes, land taxes, etc around the world and throughout history that work just fine – regressive, proportional, and progressive. Each have their own economic and individual effects. Maybe that person could rise above digging the ditch if there where more job opportunities available by a fast growing economy. It’s not as simple as class-warfare.
Research shows the cost of credit would decrease by approximately 1/4. As for having a tax cost of lending, you make it sound like they don’t incur this cost today, but they do. Under the FairTax, they would gain the advantage of paying no tax above the basic interest rate, compared with paying all interest with post taxed dollars under the current system. Such doomsday scenarios like the “end of leasing” are scare tactics that have little economic basis. Little would change – it shifts the cost of taxation from income to consumption, something that is employed all over the world.
I do not see the problem in the “land-income” difference considering the differences between the 21st and the 18th century.
And I am not talking about class warfare, I am talking about what is, and what is not possible. You cannot tax people who have to choose between taxes and basic survival. It cannot work. And those people at the bottom of the income scale are necessary for this society(and any society) to exist. Therefore, taxes have to be progressive for a healthy society. Of course there are other forms of non-progressive taxes. They just make no sense in the long run.
If I just sanpped my fingers and banished all of the lucky duckies who pay no taxes in this country to somewher else, how long would the country last?
I can’t collect taxes from them, but I need them. What is left besides a progressive tax system?
Morphh,
We are talking about a 30% increaseof the product cost) in the “tax cost of lending”. That is not a scare tactic, that is a real problem. In most states the sales tax is about 6% and it does figure into finance deals. MUltiply that by an additional 500% increase in such a “tax cost” and it will have a dramatic effect.
I totally miss the decrease in the cost of credit thing, research or not. You increase LTV by 30% on any product, your cost is not going down. Anyone, or any research, that shows that it will decrease is totally clueless.
Any increase of 30%, as you suggest, would be followed by a similar increase in income. Using this one side of the equation approach is equivalent to the equally incorrect approach advocates imply with doubling the equation (implying you would receive gross income and prices would remain the same). Nominal cost may increase, but real cost is the same – you can’t have your cake and eat it too.
Take a look at Golob, John E. (1995). “How Would Tax Reform Affect Financial Markets?“. Economic Review. Kansas City Federal Reserve. Then come back and tell us how Golob, who has presented to Congress, is totally clueless.
Morphh,
You are going to have to show me such “research” as you mention.
And I am not talking about the consumer here, I am talking about the bank. No bank in the world is going to suddenly just increase their credit matrix LTV’s for any reason without an increase in rate. And that is even if they would do the deal.
BTW,
I did read Golub’s article and it is not relevant to this discussion. It is based on the decrease in credit cost due to increased supply of credit. Econ 101 kind of stuff which largely ignores LTV and its affects on credit cost, which is what I am talking about.
Quite frankly, the results of 30 plus years of supply side economics has left me more than a little skeptical of his views. WHile I think they can work, it I do not think they can work on a national economy open to the word economy. Some benefits roll downhill, but they roll so far downhill they roll out of the US.
I am not interested in any tax system that accomplishes that.
But it does leads me to my biggest problem with the Fair Tax.
Correct me if these assumptions are wrong:
Revenue neutral.
FairTax will increase the amount of credit available.
To me, that means the people(or businesses) who have increased their net after taxes have more income to lend.
But the governemnt has collected the same amount of money. So if there are those that increased their net, then there has to be those whose net has decreased.
I will take a wild guess and say it is those earning between $25,000 and $200,000 a year who will see their tax burdens increased. As in:
“AFT’s Burton agreed that those earning more than $200,000 would see their share of the overall tax burden decrease, admitting that “probably those earning between $40[thousand] and $100,000” would see their percentage of the tax burden rise.”
http://www.factcheck.org/taxes/unspinning_the_fairtax.html
Does anyone think it is really a good idea to raise taxes on that group of Americans?
Ed, income is not wealth. Consumption is a more accurate measure of lifestyle and who is well off. Taxes may rise on some between that income group, but that doesn’t mean it is being raised on the middle class. It’s a tax on consumption, so if taxes are raised on some individuals making that much, it’s because they’re spending more. The data shows that there are many with relatively low-moderate incomes that are, in fact, very wealth and large consumers. So taxes may shift among income groups, but that does not mean the poor or middle class are worse off – it just means a different measure is being used to determine who is or is not worse off (consumption). It also takes a different approach to the time frame used for measuring such taxes. Yearly increments works for income, but is much less accurate when looking at consumption as much can be differed. Such also fails to take into account economic growth factors due to the untaxing of capital investment, which would create more opportunity for upward mobility.
Morph — You say income does not equal wealth.
OK. But if I’m independently wealthy and I’m taxed onlly on my expenditures, why wouldn’t I simly take my wealth and spend it somewhere else where it’s not taxed?
I would have the best of both worlds under the FairTax, my capital gains, dividends, interest and inheritance would all be tax free, as would all my expenditures at my lavish beachhouse in the Bahamas (or wherever). Pretty sweet deal for me!
Just Reason No. 297 why the FairTax wouldn’t work.
True point Hayden – we may have increased emigration of retired individuals, but the other side of that coin would probably be increased immigration of international companies and working class individuals.
Ed (with regard to reply 321):
If you buy a car valued at $30k, the tax is $6900, not $9000. And the buyer isn’t responsible for it, the seller is. Why is that different for the person leasing a car? They don’t pay for other costs that are subtracted from the value do they? Transportation, storage, etc?
Once again, we always seem to pose this as if value doesn’t include the tax. When you purchase a product whose taxless price is $0.99, but give the cashier $1.07, the value of that purchase to you is $1.07. If it wasn’t, you wouldn’t make it.
Hayden,
The answer is simple, there is no place that it isn’t taxed. If there is, you’d already be there (if possible of course).
The relative price of domestic American goods will remain the same, all else being equal.
In fact, if you believe compliance costs go down, we all actually get a free lunch. The real prices of products will be cheaper. Now we are going to shift some tax burden off our exports and onto our imports (which I think is a good thing), but the direct cost of government, i.e. revenue neutrality, is going to be the same. So, again, reduction in the compliance cost of supplying government revenue will make things cheaper.
And, with regards to consumption going down because of a tax on it (I think you brought that up again), that is only true if all else is constant. If you remove the tax on production, then that activity increases. And an increase in production leads to an increase in consumption. So again, this is why the fairtax can (and in my opinion will) lead to an increase in economic activity.
Andrew,
I can’t believe you think that an increase in production would lead to an increase in consumption! Absolute nonsense, imho. Production only increases if demand increases. Period!
Andrew — If you really believe that the prices of goods and services will be cheaper than they are today if we adopt the FairTax, then you have truly drank the Kool-Aid.
And your Post No. 334 brings up still another reason why the FairTax is such a bad idea. The tax is paid by the business. So, all businesses that sell goods or services to consumers in the US will need to pay a tax of (at least)23% of GROSS REVENUE to the federal government (in addition to state and local taxes), regardless of whether they earn a PROFIT or not.
I don’t think you appreciate how much of a “jobs killer” (to adopt the Republican phraseology) will be. For example, I own a vacation rental cabin on which I need to pay a 12.75% gross receipts tax to the state. Unlike an income tax, the gross receipts tax is due regardless of whether I make a profit. So, in years (like 2009) when the economy is slow, or I have a lot of expenses, I go in the hole. Now, I have other sources of income to make up for this, but many other cabin owners did not. If they only had to pay income taxes, they might have been OK, but by having to pay a tax on their gross revenue, many of them could no longer afford their cabins and needed to sell their cabins or give them up for foreclosure. Imagine what will happen if the government adds a 23% federal sales tax on top of this 12.75% state tax. We’d be paying 40% of our REVENUE in taxes (in addition to property taxes.)
To claim that its the consumer who pays the tax just flies in the face of reality. A cabin owner (or a business owner) can only charge so much for a product. If taxes on gross revenue increase, that doesn’t mean that the business owner can pass all (or even any) of it on to the consumer. Again, if it were an income tax, that would much less burdensome because an income tax is only levied against PROFITS, not REVENUE.
Almost all start up businesses run in the red for several years. Imagine what will happen to them during those years when they’re stil taxed on their revenue even while losing money. So much for our “start-up nation.”
“331.Ed, income is not wealth. Consumption is a more accurate measure of lifestyle and who is well off. Taxes may rise on some between that income group, but that doesn’t mean it is being raised on the middle class.”
Morphh, I would think that AFT’s Burton and other economists took current spending into account with their thought that the FairTax would raise taxes on the middle class.
Let’s take an average couple makeing $60,000 a year. Their two biggest expenses are their mortgage and health insurance. Under FairTax, they will pay as much tax on those two things as they do on all of their federal taxes right now. Regardless of their spending habits, their tax burden will increase.
“If you buy a car valued at $30k, the tax is $6900, not $9000. And the buyer isn’t responsible for it, the seller is. Why is that different for the person leasing a car?” Andrew Martin.
I would hope a rational conversation would be above the inclusive, embedded tax thing. Fine, the car costs $39,000 with the 23% inclusive FairTax of $9000.
I understand the seller is going to collect the FairTax, but I also understand the seller is not going to pay the FairTax, the buyer is.
I am a bank. The value of the car to me does not include the tax cost, it is the value of the car on the market. I am not going to lend someone 30% more than the value of the car without increasing my interest rate simply because such a loan is more risky, as higher LTVs make riskier loans.
In terms of leasing, I have a more serious problem. Most states tax the lease payment with a sales tax, as they consider it a service contract, not ownership. FairTax would not be able to do so(unless of course they raised their rates) as they would not be able to collect the 23% inclusive tax on new purchases that were leased with that method.
Problem is I would have to have the lessee pay the FairTax up front(eliminating one of the reasons for leasing), or finance the FairTax during the term of the contract. In the above $39,000 exmaple, that financing would increase the lease payment on a three year lease by $250 plus finance charges. And once again, I run into the problem of the bank financing air.
I understand the market would move to correct(or alleviate) this problem down the road.
I just need someone to tell me what they think happens to the US auto industry in the two, three or four years they have to go without selling any new cars. And then just the effects on other products that are currently leased.
Hayden,
Your example of the cabin is spot on. 66% of US corporations pay no income tax every year. Under FairTax, their tax burden will increase. Rent, mortgage interest, supplies not for resale, travel, entertainment(and on and on) will raise their tax burden.
I wonder if someone could look at Exxon/Mobil’s tax returns for 2009(when they paid no federal income tax) and figure out how much the FairTax would have cost them?
So much for the increase in “headquarters jobs” I hear from FT advocates.
Ed, re 338, Burton did not say that it would raise taxes on the middle class. We’re taking a second hand account from a progressive writer (Yes, I’m familiar Joe Miller and his background) about what Burton said with regard to income groups on a consumption tax. How about we actually look at studies done with regard to tax burden or is that too much?
As far as your comment on home mortgage and health insurance, that’s complete nonsense. You doing a 30 year comparison there along with rebate adjustments and inflationary effects?
Prebate revenues will not have a serious effect on such a couple. And of course their mortgage interest amounts will decrease in time. Want to bet their health insurance costs will increase more than their mortgage interest costs will decrease?
So Miller misquoted Burton?
And, like you with Miller’s background, I am aware of Kotlikoff’s background.” We thank FairTax.org for research support and John Diamond, Jane Gravelle, and Peter Mieszkowski for very helpful discussions and suggestions.”
Slice it any way you want, but when Kotlikoff writes a paper that first talks about keeping the rate at 23% is revenue neutral with a spending cut atached(“3% SS scaleback”) I get a little suspicious. When he writes a paper about tax compliance being the same under FairTax as the current system, I have to laugh out loud. When he writes a paper talking about an increase of real wages of 19 percent being a result of the FairTax’s “supply side” benefits, I shudder.
What proof does he offer that that real wage increase will go to the middle class? How does he ignore the history of the last thirty to forty years in regards to actual real wage increases to the middle class caused by trickle down?
And this paragragh is simply idiotic for too many reasons to mention:
Given the level of their federal marginal tax
bracket, their loss, at the margin, of the Earned Income Tax Credit from earning extra income, and
their exposure to marginal FICA taxation, their current total marginal effective tax on earning an
extra dollar is 47.6 percent!
I didn’t say that Miller misquoted Burton. I said that’s your interpretation of Miller writing on the supposed opinion of Burton (a lawyer), with regard to income levels on a consumption tax for what I guess is a one year period. You bring this up as supposed evidence of distribution. While I look to the economists and university researchers studying the effects and are publishing the actual data in peer review journals.
The prebate over thirty years could pay for a home two times over. With regard to the health insurance industry, who is offsetting that cost of government subsidization? Oh ya, it’s us – for a total savings of zilch.
hehehe
Last time I looked, I quoted Burton, who I thought was a FairTax economist.
“The prebate over thirty years could pay for a home two times over.”
Umm, explain to me how a $6,640 prebate a year for two adults and two children will accomplish that claim?
And I will ignore the simple fact that food, clothing, etc. will see a price increase.
oops, link to prebate amount
http://www.fairtax.org/PDF/FairTaxPrebateExplained2007.pdf
I meant to say the tax.. not the home itself, but that might work as well. Of course, $6,640 over thirty years, would be $119, 200. Adjusting for the full 30% accommodation (price increases that you use) and 3% inflation a year (small considering how they’re printing money today), the amount would be $431,623.12.
True if somehow that family could be placed in animated suspension for 30 years and were able to collect the prebate while not spending one, single cent.
The example was not to be taken literally – it was to prove a point. However, they would not need to be placed in suspended animation if they rolled the tax into the loan as expected. The point is not that this would buy a home or even cover the entire tax. As you stated, it is meant to offset many things like food and so on, but your statement that the tax on the home and health care alone would be more than the current system is nonsensical. We incur all these taxes today. It shifts the base of taxing it before you get it to when you spend it. It’s a shell game, but it all ends up being the same amount – one is just more transparent then the other.
Transparent or opaque, dollars are dollars.
Poverty levels says food costs for a two adult-two children family are around $600 a month, which is absurdly low. That would give you a monthly food cost at three meals a day for 30 days of $1.67 per meal. Good luck with that.
But even at that silly number, there goes 35% of the prebate amount. So now I have $349 left to pay the Fair Tax on all of my other consumption(or spending of around $1100) on all other things before I get to health insurance and mortgage interst payments.
Not a chance their tax burdent does not increase.
And at what level does your income increase? Does this tax increase happen in a vacuum? Again, one side of the equation. This is getting tiresome. If you’re not going to analyze the real cost and purchasing power for a comparison, don’t waste everyone’s time. We’re not your average advocates and critics here – this is probably the most informed and educated group on the plan you’ll find. You’re not going to convince anyone here of anything with some half-baked statements that have little analysis or real logical comparison.
Why don’t we just tax homes and health care at 30% and exempt everything else… This will supposedly raise more revenue than the current system – yes?
We are talking about a family of four making $60,000 a year.
What am I missing in terms of “what level does your income increase?”
If you’re talking about a increase of 30% on prices, then we’re talking about a 30% increase in revenue (business and personal) or more accurately a 17-18% increase in wages and a 10% reduction in cost. So your family of $60,000 is now making $70,000 (plus the rebate – adjusted 17% to $7,768) and prices are increasing 17%. What is the real change in purchasing power – what is the real difference in burden? You’re looking at nominal dollars on one side of the equation. So prices will be 30% above cost, but 17% higher than what they were. You’ll have increased wages due to the removal of income taxes plus the prebate – adjust all these for purchasing power changes and you’ll likely see little to no change (or a gain).
I am missing something.
I believe the price increase is the amount of the FairTax leveled on consumption. That money is not going into the economy, it is going to the government.
Am I wrong?
Take a look at this post: Purchasing Power – The Forgotten Factor
I thought we agreed not to double count in the nature of “take home your whole paycheck” and prices will be reduced?
To me it seems the whole point of that link is moot if prices are not reduced. In other words, what happens to prices if businesses, under the Fair Tax, see an increase in their tax burden instead of the presumed 10% decrease?
Exxon Mobil paid no corporate income tax in 2009. I understand their share of payroll taxes would lower their production costs. But can you assume that would lower thier prices?
Even if I assume that, what proof is there that the FT would not actually raise their current tax burden? There is no question that their current operating costs in the US will increase(not counting salaries).
Do you have a link that puts that into the discussion?
Ed, I’m not double counting. I’m not saying you take home your whole paycheck and prices will be reduced. The example is that cost would be reduced some and prices would increase. What happens to the cost of the current tax system? It seems you maintain it, then levy the FairTax on top of it. As for cost not being reduced due to the removal of business tax costs, price maximization is not profit maximization, otherwise, they’d raise their prices today. While we disagree on many things and some details, even the critics here will tell you that this concept is accurate and not double counting.
Morpph,
I am not counting the currrent system and the Fair Tax at the same time. I am simply comparing the total federal tax costs to a family right now, to what they would be under the Fair Tax.
In your link to purchasing power, it states the current federal tax burden is $6312.
If under the Fair Tax, their taxes are more than $6312 plus the prebate of $6444. their tax burden increases.
Then you need to read the rest of the post, because you missed the entire point of calculating purchasing power. You got to the point where I say “This seems to be where most people stop.” You may be correct to say their nominal tax cost increased (as do wages), but it is not accurate to say their purchasing power decreased or that their tax burden increased, since the burden is relative to purchasing power (or the loss of it to the government). How many widgets can you buy?
I understand. The whole point comes down to this. If the embedded taxes being saved by companies results in a 10% increase in purchasing power, everything works out for that family(of course that is under that scenario, which I have no real problem with.
However, it totally discounts and ignores the “new” embedded taxes that will occur under Fair Tax.
As an example, I send out my delivery truck to deliver my widgets. Driver stops for gas. There will be a Fair Tax placed on that purchase. As there will be a Fair Tax placed on the purchase of the delivery truck. And the maintenance of the delivery truck. As well as almost every single purchase my widget company makes that is not for resale.
Question is, is the new embedded tax more or less than the old embedded tax?
Ed,
I haven’t been following your debate with Morphh too closely, but I have frequently made the case that current business embedded taxes are 9% of sales, and under the Fairtax are 30% of costs. Take out 9% and add 30% and nominal costs rise by 18%. In order to preserve the same profit margin, businesses have to raise their retail prices by 18% on average.
From the consumer’s view point, each family has to determine the price increase impact on purchasing power. Does the pay increase plus the prebate offset the price increase? As an example, a retired couple living comfortably on two SS checks worth $30,000 plus $18,000 in investment income/savings draw down, pay no income tax or payroll tax today. Under the Fairtax, if you assume the worst case and they spend all their income on taxable goods and services, they would pay $11,000 in sales taxes, offset somewhat by their $5,000 prebate. That is a net loss of purchasing power of $6,000 annually. How are we going to enlist any support for the Fairtax from that couple and the millions of other retirees that might be in the same boat?
Ed, taxes on b2b transactions are not taxed or if taxed, they’re credited for it. You’re creating double taxation. You can’t create an embedded tax equal to the current tax system, then levy a new tax again equal to the current tax system – that would produce double the revenue.
Hank, a correct version of your example would apply the adjustments to price changes. $30,000 in benfits would be adjusted to $35,400 and the prebate would be adjusted to $5,879, for a net gain of $279 (about one half of one percent). However, using the widget test, we see the adjustment for purchasing power. 48,000 buys 480 widges @ $100, while the $59,279 under the FairTax buys 502 widgets @ $118. Adjusting for this (the value of 22 widgets), I believe the total gain in purchasing power would be approx $2,200 in today’s dollars (4.5%).
To describe what is happening, the $30,000 is maintaining purchasing power with its adjustment. The $18,000 is losing purchasing power, but the prebate is being added, which increases purchasing power.
Hank (with regard to reply 336):
All else being equal, the only way to increase consumption is to increase production, i.e. you can’t consume what hasn’t been produced.
You seem to be conflating consumption and demand. The former is a physical act and the latter a mental state.
If the two concepts were synonymous your second to last statement could be “Production only increases if consumption increases”. In other words, something has to be consumed before it is produced. Now that goes beyond nonsense. It defies the laws of physics.
Andrew,
Give me a break. Am I supposed to believe that if Ford raises their production by 1,000 units, consumption of Fords will automatically increase? Bull S—! Ford isn’t about to increase their production without an increase in demand. I don’t know conflating from deflating, but I know why US industry isn’t hiring. There is no demand!
“361.Ed, taxes on b2b transactions are not taxed or if taxed, they’re credited for it. You’re creating double taxation. You can’t create an embedded tax equal to the current tax system, then levy a new tax again equal to the current tax system – that would produce double the revenue.”
I am not creating anything. I understand that the current tax system causes embedded taxes in the cost of products. My belief, which you say is not true, is that business expenses under the Fair Tax would be taxed(outisde of goods for resale).
Two different scenarios.
I would appreciate a link to the spot in the Fair Tax bill that states that such expenses would not be taxed or would be credited. Not that I doubt you, but I would like to see it.
On the other hand, if such expenses were not taxed and or credited, there are not enough people currently working for the IRS to force compliance of such a process. And any estimate of theft and fraud in the system should be tripled, or quadrupled.
As in, gee, I need a tank of gas in my car. Let me siphon if from my dleivery truck, Etc., etc., etc.
I found it.
You cannot add up the theft and fraud that would occur. I always thought the black market and just outright non complaince would be a huge(and understated) issue for the FairTax. But that section crediting business expenses take the cake. Makes my concerns incredibly small.
For example, in PA it is estimated that the restaurant industry is responsible for $1 billion a year in sales tax theft and fraud.
http://www.bu.edu/law/faculty/scholarship/workingpapers/documents/AinsworthR092010.pdf
That is with a 6% sales tax(7% in Phila and Pitt). Multiply that by 500% under the Fair Tax. And that is if the unthinkable happens and that theft and fraud does not increase.
Combine that with tax exempt business expenses and you won’t be able to add up the theft and fraud.
Chapter 1, Sec 102
see 366.
Sorry for my ignorance.
Hank,
You are supposed to believe that nobody can utilize those 1000 vehicles, i.e. consume them, until they are produced. Again. Simple physics.
And if you want to know why the US isn’t hiring, it’s not demand. It’s called Return on Investment. Businesses tend to be conservative. The current turmoil (especially the government intervention) doesn’t make calculating ROI very easy. Businesses tend to wait and see if they think they’ll be able to get a better handle on calculating these things.
And you should know that demand and consumption are different entities. I never used the word automatic, but if Ford produces 1000 new vehicles, they will be consumed, one way or another. Demand will have to do with price. If they aren’t selling, their prices will be lowered until they do. Ford makes them based on their estimate of demand and then sells them based on the reality of the demand.
This originally started out with Hayden stating that consumption would go down because “what is taxed there is less of”. I stated that removing a tax, i.e. on production, will create more of something. So the added tax on consumption will reduce it, but removed tax on production will increase it. And, yes, in an absolute sense, increasing production of something increases its consumption (even its consumed by wasting away on a car lot or dying from the end of shelf life. That is why businesses will sell their products for a loss. To minimize the loss).
Andrew,
Come on. You simply cannot believe that demand is not the driver.
Just silly.
Hayden (with regards to reply 337),
First off, if you disagree with the logic I used about why prices would be cheaper, please disputes the points I raised (like compliance costs would be higher, or avoidance/evasion costs would be higher, or anything else I probably don’t agree with, but is at least debatable). But don’t reduce yourself to the level of using the political cop out that I’m just “drinking the Kool-Aid”. How do I defend that? Un-uh?
And to your second point that now rental businesses that currently have no profit will suffer an increased tax burden, I state: un-uh. Or more accurately, only if they currently enjoy a decreased tax burden due to an economic distortion created by the current code. But I believe you were probably referring to the 23% tax they’ll now have to remit to the federal government, that they didn’t previously have to. On average, however, all their previous costs (in real terms) will be reduced, so there will be no change from today. Again, in a revenue neutral sense, if their tax burden is increasing, whose will be decreasing?
It still amazes me that opponents can see an increase in someone else’s tax burden without seeing a corresponding decrease somewhere else. The federal cost of goods (revenue only, e.g. compliance costs may lower it) will remain the same. Just like there is no free lunch (revenue wise) lunch isn’t going to be more expensive either.
Morphh, #362
Over time, your scenario is correct. That is, my Social security payment will increase, and my prebate will increase also. The problem as I see it is the time element.
Section 303 is sufficiently murky, but I believe that cost of living increases can only take place for the year following the inflation. Each year, my purchasing power will decrease each month without any compensating increase in my income.
I hope you agree that my example couple paid significantly more taxes under the Fairtax, and that is easy to explain. Less easy is your argument that somehow my purchasing power will keep pace with inflation. I just can’t agree with that claim for the reason given. I’m always a year in arrears, aren’t I?
Ed,
I understand from a lot of your posts that you must frequent “progressive” leaning websites (I do as well. Mainly to point out the fallacy of their logic.), but there are plenty of information sources out that more than back up what I’m saying. You may not agree with them (as I don’t agree with those you often use), but I don’t pretend the your argument doesn’t exist.
Maybe you haven’t visited those contradictory websites, but I visited many different perspectives. And based on those, one thing is simple: Demand side (Keynesian) economics breaks down in 2 areas: theory and practice. Latest example, the current economic downturn.
To keep it simple: people can’t demand more (in terms of real dollars) until they get more dollars. They can’t get more real dollars until they produce something. Of course, nominal dollars can be produced at will by the government. That is how we get hyperinflation, i.e. people are demanding, but nothing is being created.
Andrew,
Whatever sites I “frequent”, your own post(s) states the actual case in your thread with Hank. You stated “Ford makes them based on their estimate of demand and then sells them based on the reality of the demand.”
Exactly. Demand.
Ed,
You are correct. You might have also read in an earlier post my stating production is also based on return on investment. So, demand is not the driver, but is a component in ROI. Obviously if demand is such that you have to give your product away, ROI will be too low to produce. That is the problem with economic uncertainty. ROI is more difficult to calculate, so businesses wait on the sidelines. The businesses aren’t waiting for this nebulous term called demand to pick up, they are waiting for their more concrete (relatively speaking) ROI to be more, well, concrete.
So, exactly. ROI.
I see.
So the important part of the deal is what happens after people have acted and bought things after the manufacturer has estimated how many people would buy things.
hehe
Ed — In response to your link on 366, you might also be interested in a survey done by Dr. Jane Gravelle of the Congressional Research Service of rates of non-compliance under various sales tax or VAT systems in various jurisdiction. What she found was that the rate of non-compliance quickly jumped to 15-20% at rates that would be much lower than the combined FairTax/state tax rate. They survey was presented during a debate on the FairTax at the American Enterprise Institute in 2007.
http://www.aei.org/docLib/20070302_GravellePresentation.pdf
You’ll need to scroll down towards the end, and the chart is a little difficult to understand, but one thing that sticks out is that the UK estimates a non-compliance rate of 14.6% when their VAT rate (at least on Wikipedia) is only 17.5% (which I assume is tax inclusive.) Now, given that there is less incentive and ability to cheat a VAT than a standard sales tax, that non-copliance rate is quite alarming. And, in addition, even under a best-case scenario, the combined FairTax/sate sales tax rate woud need to be at LEAST 30% (tax inclusive) (that is a 23% FairTax plus a 7% state/local tax), the expected non-compliance rate under the FairTax would be astronomical.
Andrew — I did not mean my “Kool Aid” remark in Post 337 to be rude; I meant it as a tongue-and-cheek shorthand for “we will never agree on this.” Since we’ve debated this for so long, I am sure we could repeat each other’s arguments in our sleep, so we might as well use some shorthand venacular.
Hayden,
I didn’t take your remark as being rude. I thought it just meant that you have no argument (otherwise you would have rebutted). But I’ll accept your implied meaning of the remark and basically agree. Usually that phrase (in political debates at least) implies blindly repeating something because your chosen political representation argues that something. I thought you may have been implying the same thing.
As far as VAT compliance studies go, my biggest issue is no adjustment for the overall burden of government. The UK is well over 50% (I believe), while the US (including state/local) is closer to 37.5%. So while this may be the best comparison we have, it is still lacking. Plus it doesn’t address the fact that even with non-compliance, the revenue is the same.
I check the research area to see if there are any studies to address this aspect, but here a cool joke I found while looking at the web in general:
A man once wrote to the Australian Taxation Office: ‘I have been unable to sleep, knowing that I have cheated on my income tax. I understated my taxable income and now enclose a cheque for $1500. If I still can’t sleep, I will send you the rest’.
If someone could direct me to some sort of detailed explanation of how prices would decline 10% under FairTax, I would appreciate it.
Hayden,
If all business expenses are not subject to the FairTax, I do not think anyone could even add up the theft. The higher the reward, the more people will get involved.
Ed, take a look at “A Macroeconomic Analysis of the FairTax Proposal” (PDF). Arduin, Laffer & Moore Econometrics (February 2006) and Jorgenson, Dale W. (May 18, 1998). “The Economic Impact of the National Retail Sales Tax” (PDF). U.S. House of Representatives.
Thanks
I appreciate the links. I should know better than to read anything Laffer puts his name on. Sorry, but when I read they assume a 25% income tax rate paid by corporations, I have to laugh. It is an absurd assumption used when an assumption is not necessary. Actual real totals are available. I will read the other link tomorrow.
I doubt the 10% price reduction for many reasons(and that Lafferoutloud link doesn’t help). Obviously I am very skeptical of the FairTax program, but I am trying to see the value. Having the FT people screw up on embedded taxes the first time; things like 100% compliance assumptions(please); adding revenue from federal purchases while not adjusting federal revenue needs the first time; and the Laffer assumption linked above makes me think either it is just total garbage being massaged to look like something or being run by a bunch of morons.
One thought on the 10% price deduction that Laffer did not mention. Since the FT does not eliminate import duties on products, and there are no embedded US taxes in a foreign product(or so little it is not even worthwhile to talk about), how do those products get a price decrease?
From bananas to tvs to Mercedes Benz, I see no price decreases.
And last time I looked, Jorgenson told the FT people they took him totally out of context.
“Part of the problem is the way Boortz and Linder are using the idea of embedded taxes. In an eight-year-old study paid for by AFFT, Harvard economist Dale Jorgenson noted that because the taxes paid by everyone in the chain of production are embedded in the cost of goods, prices could decline an average of 20 percent if all those taxes were scrapped. The FairTax Book devotes an entire chapter to this idea.
What The FairTax Book fails to mention is that prices can only fall this sharply if companies cut wages. I asked Jorgenson about this, and he agreed. Say your salary is $100,000 a year today, but you take home $80,000 after taxes.
Your company is still paying that extra $20,000. In a FairTax world, it will save that money, and be able to lower its prices accordingly, only if it can reduce your salary to $80,000. In other words, your take-home pay is the same as before. Sure, you’d get to “keep 100 percent of your paycheck,” as Boortz and Linder repeatedly write, but it would be a smaller paycheck. That’s kind of a big thing to leave out. ”
http://money.cnn.com/2005/09/06/pf/taxes/consumptiontax_0510/
Ed, re Jorgenson, we all know this. No one is suggesting otherwise. It was corrected in Boortz’s paperback version, online, and follow up books. That does not make Jorgenson’s research null and void – he stands by his research, even if it was initially interpreted incorrectly by AFFT. As for the 10%, what do you believe will happen when you remove corporate taxes, employer half of payroll taxes, and reduce compliance costs? Will this fade into nothing in your mind, not reducing cost at all? It’s 40% of government revenue! Does this cost reduction do nothing to price and is standard economics meaningless? Is there no incidence and their removal moot? The point of Jorgenson is to say that if you removal all tax costs, it would reduce product cost by 22% on average. We’re not suggesting the removal of all costs here, we’re removing 40% of the tax cost (corporate taxes and employer half of payroll). 40% of the average 22% is 8.8%, plus a little bit for a reduction in compliance costs which is estimated around $250 billion.
To answer your other question, yes – imports might not see the same cost reduction as domestic goods. It returns them to a level playing field if imbalanced. But even imports have these costs as they become part of and sold in the US market (percentages don’t cascade – they average). Some products and markets have a lower tax costs and some have a higher tax cost. Jorgenson outlines some of these.
As for evasion, your focusing on the average but not what it does to the bottom line. I could concede that we will have high evasion. We can even agree that on average, it could be as high as 30%. However, there is a bell curve effect here for the average evasion and what businesses would evade. Let’s say that on average we have 50% evasion on the current income tax system. Would that cut revenue in half? Depends on who is doing the evasion – right? If it’s the lower 50% of Americans, then it does little to nothing to the bottom line. If it’s the top half, then it does cut it in half. If it’s the top quarter, then it’s a major reduction. It all depends on who the average applies too for evading the tax. You could have 100% average evasion with a bell curve peaking on the lower 50% and it would be meaningless from a revenue stand point, because they don’t pay much.
The sales tax administration would cover approximately 14 million businesses, which is down from the current 100 million individual fillers. Of those 14 million businesses, 85.7% of all retail sales are made by 92,334 businesses, which is 3.6% of American companies. 48.5% of merchandise sales are made by just 688 businesses. In the service sector, approximately 80% of sales are made by 1.2% of businesses. Like the income example above, you have a much smaller group that contributes to the majority of revenue. Not all business will evade equally and it’s unlikely that larger retailers (3% of business) will take or be able to take such a high risk. Even if you calculate 30% evasion on the other 97% of U.S. business, it only reduces overall revenue by about 4% (of which a portion is already accounted for in the reduced NIPA base and other offsets). 20% evasion on that group would result in a 3% loss, and 15% in about a 2% loss. To Gravel’s view of the VAT, there may be a high rate of evasion, but they’re also looking at an equivalent 14million businesses (not just retail, and not focusing on the ones that actually produce revenue).
Morphh,
I agree the prces will decline. I just do not see 10% as a reasonable number. I do not see how the things mentioned(employer share of payroll, corporate income tax and compliance) could possibly total 10%. Particularly when imports are taken into consideration.
All I have seen is Laffer’s approach, which is not real at all and obviously takes assumptions(like the 25% corporate income tax rate) that are, to be kind, most beneficial to his case. Why not take the real tax rate on corporations, which is far, far below 25%? From what I have seen, the only products that would see a serious price decrease would be those that were labor intensive, and US labor intensive at that.
Do you have a link to 40% of Federal revenue being those items you mentioned?
If I figure a gallon of gas costs $2.80 and we consume 140 billion gallons a year, a price reduction of 10% just in the price of gas would account for $39 billion a year. Are you telling me that US oil companies spend that much on payroll taxes, corporate income taxes and compliance? Just on their retail gasoline business?
Not a chance in the world.
Ed, I was actually incorrect there (I was trying to do it from memory and it failed me). It’s about 32% of Federal revenue. See Table 3 of “Taxing Sales under the FairTax ‘What Rate Works?’” (PDF).
I understand about the cost of evasion depending on who is doing the evasion. But the “big box store” thing is totally overstated.
Geez, I wonder how many contractors would sell materials bought legally at Home Depot to consumers? How many business trips would not be business trips? How many businesss meals would not be business meals?
In the link above there is proof that in one industry, in one state, FT fraud would amount to $5 billion a year(best case scenario). I have a hard time understanding why people think it will be easier to track the sales of billions upon billions of items and services than the income of 140 million people. Particularly with no IRS.
Morphh,
Thanks. Despite our different opinions, it is nice to talk to someone trying to be accurate.
Ed,
One thing you have to remember (and I always like to bring up) is that these assumptions on cost going up or down are on nominal costs, not real costs. All else being the same, i.e. compliance costs, a revenue neutral scheme means costs on average will be the same. There is no way around this. Maybe costs will be shifted from income class to income class, from product category to product category, or from labor to management. Those are arguable. What is 100% unarguable is that costs on average (real not nominal) will remain the same. They only way that can change is for government collected revenue to go up or down. The nominal cost changes are inflation.
And speaking of cost shifting, the biggest shift will be from our exports to our imports. This means that items from China will be more expensive, but items going to China will be cheaper. I’m a free trader, so I’m for the free flow of goods, but there is no reason we should handicap ourselves the way the embedded taxes do.
And the federal government has been extracting about 18.5% of GDP out of the economy annually since WWII. To me, that is the embedded cost of federal revenue in every product we have (on average). So the fairtax just needs to replace that. That is why basically the 23% rate assumes a tax base is 80% of GDP, or .23125 = .185/.80. So I always thought the best argument for a higher rate was to show that the base of GDP would be smaller than 80% (like through evasion). Because if 80% is correct 23.125% is unarguably the rate needed get 18.5% of GDP.
To add on to Andrew’s point, and mine below. Whatever you determine that cost reduction to be, it is about 1/3rd of the total revenue. So if you say that it’s 7%, then about 14% is being return to us as higher wages and the total cost is about 21%. It’s all the same pie as it’s all the same revenue, so what ever you determine is the amount extracted from our paychecks and our businesses, it should also be applied in proportion to the new system and its approximate cost. We’ll have changes in compliance and aspects of evasion, but it should equal out and be about the same.
Andrew,
Are you implying that there are no embedded taxes in imported goods?
Morphh,
The chances of any serious dollars of tax evasion from a couple making $80,000 a year who receive W-2s is almost nil under the current system. ANd that is true for may American taxpayers. Under Fair Tax, we will have every single buyer with a vested interest, and ability, to evade 23%(inclusive) taxes on every purchase.
I do not think any belief that evasion would be equal under the two tax systems is founded in an basis of facts and/or reality. QUite frankly, I think fraud in just the prebate program would probably come close to the current level of evasion.
Ed, the seller is responsible for remitting the tax and the sales tax authority will have documentation of wholesale exchanges. Where is this market going to pop up that would have a significant impact where the sales tax authorities would not see it. Again, mom and pop stores will be able to hide things here and there, but for the vast majority of purchases, I don’t see it. Particularly with the possibility that when you report tax cheats, you gain a reward. There is also the possibility of undercover tax agents. You going to risk your business and jail time for a stranger? Will Walmart? What does the business gain, except risk and cooking the books, if they’re giving the consumer the tax windfall? The risk is not in the consumer, but the business itself retaining the tax and not reporting the sale, which greatly reduces the overall risk of revenue loss as I described below.
Ed,
I’m stating that there are no embedded US federal taxes in the imported components of goods.
Morphh,
I think you underestimate the amount of people doing such evasion right now for 1/5 of the financial benefit the FT will bring. I will give you an example of just how easy it is.
I used to own a sportsbar. Happy Hour reduced prices like anywhere else in the country. So an item I would sell at Happy Hour for $1.30 with the Fair Tax(say a bottle of beer), I would sell at $3.90 during normal times.
It is a simple matter to program my register to take a regular hour sale and “register” that as a Happy Hour sale. Geez, I could even have it move those sales in a % tied to the amount of cash transactions per day(and play God Bless America while doing it).
So what’s my benefit? I make .60 per item I moved directly from FairTax theft. Do it 400 times a day and I steal $240 from the FairTax. Seven days a week. And I just made $80,000. With no chance of getting caught.
BTW, I know people that did this and paid for such programs that did this for 6 cents on the dollar.
In terms of the big box stores? Get your friendly local businessman(see black market) to buy your large purchases tax free. And I am sure there will be many, many more mehtods devised in a very short period of time.
In terms of the fraud 800 number: Who is going to answer the phone? Who is going to do the investigation? Prosecution?
Andrew,
Exactly, there is no embedded US taxes in imports. Which means no price discounts on any imported item.
Ed,
Others on the blog have probably seen my price increase data, but let me repeat it for your consideration.
There are several studies that estimate what business tax related costs might be, but none take the next step to estimate the impact on retail prices under the Fairtax.
I used the 2007 federal revenue data that is found in the BHI/Kotlikoff Fairtax rate study which is in our research section. Table 3 on page 9 shows revenue from the taxes which the Fairtax would replace. I also looked up 2007 retail sales for durables, non-durables and services. I also used Tax Foundation data to determine business compliance costs. With this data in hand, it is possible to estimate business tax related costs as a percent of retail sales.
In 2007, businesses paid $290 billion in income taxes against retail sales of $9.5 trillion, or 3% of sales. Businesses paid $435 billion in payroll contributions or 4.5% of sales. And, business paid $147 billion in compliance costs or 1.5% of sales. Add them up and the average tax related costs for businesses was 9% of sales. Remove 9% and add the 30% sales tax and retail prices will rise by 18% on average under the Fairtax. (1.00 x .91 x 1.30 = 1.18)
I would certainly agree that my analysis is only a rough estimate at best. It is an average, because that is all we have to work with. Certain industry segments may have less tax costs, some more, but the average is what I have shown. I would also point out that splitting the total FICA revenue in half contains an error to the extent certain businesses pay both halves. And if you were to use a different years data, the answer would certainly be different.
I use this data to rebut frequent Fairtax advocate claims that 22% in tax costs will be removed and 23% added for a net reduction in retail prices of 4%. (1.00 x .78 x 1.23 = .959) This claim is wrong on two counts. First, 22% can’t come out unless we all take a huge gross pay cut. There are some here that believe that businesses will be able to use our income tax and payroll contributions to achieve the highest cost reduction. I don’t believe that claim due to legal, contractual and fairness reasons. Most economists now believe that we will get our gross pay and business costs may be reduced by around 10%. There are other uses for those tax savings such as debt reduction, business expansion, increased payroll, and price reductions, so claiming a 9% cost reduction may be optimistic. Competition will determine just how those cost savings will be used.
BTW,
About 37% of manufactured items sold in the US are imports. And that does not include imported parts of US manufactured items that are imported.
How does that add up in the 10% price reduction?
Hank,
Best explanation I have seen. I also really appreciate the last line, “Competition will determine just how those cost savings will be used.” Nice to have reality added.
But how do imported items figure in?
Nicely done Hank.
Morphh/Ed,
Don’t you have something else to do, like work so you can help pay my SS? (lol). You must be sitting on this blog full time, because your responses to my #399 came before I could make some corrections/additions.
I should have pointed out that my retail price increases are nominal increases, and the “real” impact on consumers depends on many things. I’m still waiting for Morphh to comment on my question about the fact that inflation increases in both the prebate and Social Security payments are always a year late. In other words, I have to pay the inflated prices as they occur, but my income doesn’t adjust until next year. I therefore believe that retirees aren’t really protected from inflation. We are always a year behind. Read Sec 303 and tell me if inflation adjustments are to be made quarterly? I don’t think so!
No question retirees will be negatively affected by the Fair Tax.
As for me, ankle surgery has me rehabbing and off the golf course. Cannot answer for Morphh.
Hank, you’re already a year behind inflation – the FairTax doesn’t change that. I believe there is an initial adjustment, which would probably have to be done based on estimates (like you have calculated). Honestly, I don’t have the time to be on the blog. I just happen to have it up and sometimes I find it difficult not to respond, even though I have more important things to do.
I agree about low income retirees. There are others, like Hank’s example above.
Perhaps my biggest problem with the Fair Tax is which groups will benefit and which will suffer. I am not real excited about benefiting the poor and the rich while penalizing the majority of the people in between.
Ed,
You have asked three times about imported goods. My take on that issue is as follows. HR25, Sec 101 (c) reads:
“(c) Coordination With Import Duties- The tax imposed by this section is in addition to any import duties imposed by chapter 4 of title 19, United States Code. The Secretary shall provide by regulation that, to the maximum extent practicable, the tax imposed by this section on imported taxable property and services is collected and administered in conjunction with any applicable import duties imposed by the United States.”
So, Customs now becomes a major tax collector it would seem. If it slips by Customs, then in another section of the legislation, it is the responsibility of the buyer of the imported good or service to pay the tax. Good luck with all that!
You also need to remember that it doesn’t matter if there is one level of production or ten, the percentage cost savings remains the same. So, once that cheap foreign good hits the shore, the cost savings as it it moved forward to the retailer still apply, and the percentage cost savings is still an average of 9%. It’s just that the savings start after the product hits our shore. But, percentage wise, it doesn’t matter. Clear as mud??
Ed, sorry, I deleted my last post before I saw your reply. I thought I was being too aggressive and I didn’t want it to hinder the thoughtful discussion.
Just about.
I just do not see how the cost savings is 9% as the product is “moved forward to the retailer”. And I am sure it is my limitation. I see the cost savings once it hits the shore and finally being sold, but I do not see that being your 9%.
Let’s take a $50,000 Mercedes. You think there can be $4500 of embedded taxes in transporting it from Ga to the dealer to the consumer?
Or am I just totally lost here?
But I like your “responsibility of the buyer of the imported good or service to pay the tax. Good luck with all that!” comment.
Another big hole with no answer.
I am a hedge fund manager. I decide I need to upgrade my Rolex from the four year old to a new $200,000 model I just saw. I fly to Toronto and buy it there to escape a $60,000 FairTax.
Unless customs(think they would outnumber the IRS under FairTax?) has the ability to track every single item leaving and entering the country, not to mention a Rolex expert, how in the world do I stop that?
I guess you would have a better chance with a watch than with a facelift.
Ed,
Yes. We finally agree on something. Imports will be more expensive. Exports will be cheaper. I definitely believe in this cost shift. And I think it is a good thing. Why do want to try to get the rest of the world (which is relatively poorer) to pay for our government? Since they can’t afford it, they just end up not buying our products. Plus we allow their products to compete without any government cost. Basically a reverse tariff. Nations with VATs already realize this. That is why they remove the tax from exports and place it on imports.
“. Why do want to try to get the rest of the world (which is relatively poorer) to pay for our government?”–Andrew Martin
“In addition, 40 million foreign tourists a year will become American taxpayers as consumers here.”
http://www.fairtax.org/site/PageServer?pagename=about_fairtax_four
Andrew,
Of course we could just take our current embedded taxes and take it away on exports and level it on imports.
Ed, I think this would be a violation of the WTO agreement. The best thing I’ve seen with regard the current system to address this issue is the Border Tax Equity Act.
While pulling that quote from the FT site, I came across this:
“the current system which costs $265 billion a year in compliance costs and still comes up $350 billion a year short of what is owed.”
So I have $615 in compliance and evasion. Now let’s just forget about compliance costs under FairTax, I doubt anyone has any kind of real figure.
But I have proof of $5 billion of evasion of the FairTax in one state, in one single industry. Means I need $610 billion in evasion in every other industry in PA and every industry in the other 49 states.
Want to bet this is, at best, a wash?
Morphh,
JUst playing with that.
The way I see it, compliance costs is a loss of productivity; a waste of energy creating economic damage. Evasion is most often a boost of productivity; essentially a tax cut, which creates economic growth. So I’d trade compliance loss for evasion loss any day.
Dollars are dollars. Would you rather have gains go to responsible, law abiding people or thieves?
Ed(with regards to reply 411),
Those probably are the wealthier among the foreign, but they are already paying for our embedded taxes (except for the imports they buy here). This also goes for labor currently evading income taxes.
The fact is that many more foreign consumers are already US tax payers. That is my point.
Ed (with regards to 417),
A thief is someone that takes another person’s resources without their permission, not someone that keeps their own resources despite someone else’s insistance that they surrender them.
One has a contractual obligation to surrender certain resources based on funding the federal government’s limited powers (under the US Constitution). All other taking of resources is theft.
So if I spend a night in a sports bar and spend $130(paying my $30 Fairtax) and when the owner puts it in his pocket that is not theft?
All kidding aside, and all thoughts like “Evasion is most often a boost of productivity; essentially a tax cut, which creates economic growth” taken with a large grain of salt, the fact of the matter in terms of FairTax is that $600 billion of such “growth” would result in a shortage in tax collections by 29%, and therefore requiring making the tax rate much higher, which would also require the prebate be raised.
And I do not think $600 billion is an exaggeration. PA’s population is about 4% of the population of the US. It has been shown that FairTax theft in the restaurant industry alone would be about $5 billion a year. Multiply that by 25 (unless you can convince me PA residents are more dishonest than the rest of the country) and we have a FairTax evasion of $125 billion from one industry.
ehh, maybe the $600 billion is too low.
To: Andrew Martin re; post # 318 – I missed a lot and now have to catch up
I am missing something. A house that previously sold for $500,000 (ignoring any small reduction due to the illimination nof embedded taxes) will now rise in price by the amount of the sales tax (I used 50% to illustrate). The retailer will still need to recover $500,000 and so will have to add the sales tax on top of the $500,000. I must have missed where someone explained to you that the retailer will absorb this tax somehow. I think there is general agreement on both sides that prices will rise (the only dispute being the amount of any offsetting price decline due to embedded taxes). The fact that HR 25 lobbyists have used this 23% of the “gross” mechanism (to deceive the public into thinking it is a smaller tax than it really is) does not change the underlying economics.
You discussed my 3 scenarios which would cause a bank not to lend on the sales tax element. While they are probably mutually exclusive, the mathematical risk is very great that ANY 1 of the 3 will reduce the value of the bank’s security. That is, there may be a 99% probability that 1 of the 3 will occur. They will not stop lending ALTOGETHER – they will not lend on the sales tax element and the buyer will need a lot more cash.
While the Constitution does protect our property, it is far more important that it protects our rights to life, liberty and the persuit of happiness. Are you suggesting that our miltary protects ONLY our property and not our lives.
To Ed Michael re post # 319
With all due respect to Adam Smith (who I am sure was a lot smarter than I am) once you start down that slippery slope, there is no saving oue Republic.
I believe that the Founding Fathers intended for EVERYONE to pay his fair share of our common burden. Then we each work hard enough to earn however much else we need to enjoy what we desire to have.
This demands that everyone produce enough to pay his share of the common burden.
Look at how far we have slipped down the slippery slope. Half of the public pays no income tax. We have an entitlement mentality where people have no incentive to work – it is easier to live off the dole.
Ben Franklin said “The poor must be made uncomfortable in their poverty so that they will pull themselves out of it”.
Reward people making little or no money by paying their share of the common charges (and more) and the result is that you will get more people doing that.
To Ed Michael re post # 320
Are you suggesting that the terrible impact of HR 25 on new home sales would aplly equally to new car sales?
I think you are absolutely correct. Remember, Congress repealed the (only) 10% Luxury Tax on cars costing over $50,000 after only 3 years because retailers complained bitterly of falling sales.
To: Ed Michael re posts 321-322
I think you are correct. You will not be able to spread the sales tax over the life of the lease because of the LTV.
TO: Morphh re post # 323
How does your condo or timeshare allocate the common costs. They do so based upon RELATIVE IMPACT ON TOTAL COSTS – not upon how rich you are nor on the size of your asset base.
America is a giant cooperative undertaking.
Charity is a private sector function.
To: Morphh re post # 324
You say “Research shows the cost of credit would decrease by approximately 1/4.” While I might read that research, I am sure that it is a THEORY i.e., hoped-for result. It certainly is not “guaranteed” to occur.
You say “As for having a tax cost of lending, you make it sound like they don’t incur this cost today, but they do.” Please explain this further.
You say “Under the FairTax, they would gain the advantage of paying no tax above the basic interest rate,” (do you mean to say that they wouldpay fair tax only on the interest rate exceeding the “base rate”?)
You say ” Such doomsday scenarios like the “end of leasing” are scare tactics that have little economic basis.” You do not explain why the lessor will risk having a higher LTV ratio.
You say “Little would change – it shifts the cost of taxation from income to consumption, something that is employed all over the world.” The rest of the world does not suffer such a broad tax base and the high sales tax rates that HR 25 would require.
Stephen,
I am all for everyone paying their fair share.
However, there is reality. Not all of us are the best and the brightest. And some of us are the worst and the dimmest.
To paraphrase Mr. Franklin, as uncomfortable as poverty is(and I have seen it and what it is), some of them will never even try to pull themselves out. I am not concerned about them. I am concerned about the poor and particularly their children, who are trying to pull themselves out. In my opinion, anyone who works at least forty hours a week should be able to earn three hots and a cot. And nothing more. And their children should have the same, but also a chance for an education and a chance to better their parents.
This economy could not exist without the working poor. And to think in reality those working poor can pay their equal and fair share of taxes is to ignore reality. Cannot happen. What are you going to do? Class genocide? Exile? Two weeks later and we would be importing them back into the country.
I believe in what Adam Smith said. Your portion is according to your ability to pay.
Now, if I could build a tax system it would be simply be a flat tax. All forms of income included. Only deduction would be for individuals and dependents(and I would have the EITC continued to keep the children of the working poor at a minimum standard of living). After those deductions, a flat tax for the remainder of income. Five line tax form.
Ed,#409,
Sorry this response is a little late, but this blog is moving with the speed of light and it’s hard to keep up.
You wondered how an imported good could have 9% in cost savings just moving from the port to the consumer. Your question indicates that you may not fully understand that it doesn’t matter if there is one level of production or 10. The percentage cost savings are the same. That is true because cost savings at any particular level apply only to the value added at that level. Here is a chart Morphh invented years ago to make the case that although dollar savings cascade or accumulate up through the levels of production, percentage cost savings do not. If the average cost savings for all producers is 9% as I have estimated, then the imported good price paid at the port will be reduced by 9% by the retailer prior to adding the 30% sales tax. Imported goods will have not only a customs fee tacked on to the price the importer paid, but also will be treated just like any other good in that the retailer will apply the 9% cost savings and add the 30% sales tax.
“Example from Morphh in response to query about cascading effect with six levels of production and a 10% average cost savings. (Any value added may be used–it doesn’t matter.)
1. $10 initial cost – 10% – $9
2. $1 value add – 10% – $.90
3. $1 value add – 10% – $.90
4. $1 value add – 10% – $.90
5. $1 value add – 10% – $.90
6. $1 value add – 10% – $.90
Total – $15 normal cost, $13.5 after cost savings.
Total cost reduced 10%, not 60% as suggested by many.”
Hope this helps?
To: Ed Michal re post # 325
You are trying to rationalize the welfare state. Baloney. Everyone has to pay is fair share of the common costs. If a condo owner does not pay his pro-rata share of the maintenence costs, the associiation sells his unit to someone who will.
There are enough people in the world who will work hard to pay their dhare and try to succeed.
Progressivism ALWAYS ends badly. Get over it.
To Ed Michael re post # 326
Bless you. I have been trying to explain that to Morphh (for whom I have great respect and admiration) without success.
Yes. Well, maybe not.
But I am not sure the wording of the Fair TAx bill actually states that “Imported goods will have not only a customs fee tacked on to the price the importer paid, but also will be treated just like any other good in that the retailer will apply the 9% cost savings and add the 30% sales tax.”
Course, my one martini while making dinner may have kicked in to compound my ignorance of import-export.
But when the retailer pays $1 for an imported item on receipt, he then pays the import duty, then the product is “reduced by 9% by the retailer prior to adding the 30% sales tax”?
Where in the Fair Tax bill is that cost reduction mentioned?
And where does the buyer apply his markup? Has to be before the tax is applied, doesn’t it?
To: Ed Michael re post # 330
Your assumptions:
H.R. 25 is Revenue Neutral – WRONG – according to MORPHH,BHI’s latest economic research says the rate needs to be 35.1% and MORPHH tells me that HR 24 will not be changed and so Congress will simply be “forced” to spend less because tax recevnue will DECLINE (i.e., HR 25 will NOT be revenue neutral).
FairTax will increase the amount of credit available. MAYBE YES MAYBE NO – WHO CAN SAY FOR SURE?
To me, that means the people(or businesses) who have increased their net after taxes have more income to lend. HOW CAN THAT BE IF HR 25 WAS ORIGINALLY SUPPOSED TO BE REVENUE NEUTRAL (I.E., IF WE PAY THE SAME TAXES HOW CAN WE HAVE MORE TO SPEND? WE WILL HAVE MORE IF IT TAKES 35.3% TO BE REVENUE NEUTRAL (ACTUALLY MANY OF US BELIEVE THAT THE TAX RATE WILL BE A LOT HIGHER.
But the governemnt has collected the same amount of money. So if there are those that increased their net, then there has to be those whose net has decreased. CORRECT!
I will take a wild guess and say it is those earning between $25,000 and $200,000 a year who will see their tax burdens increased. As in:
“AFT’s Burton agreed that those earning more than $200,000 would see their share of the overall tax burden decrease, admitting that “probably those earning between $40[thousand] and $100,000” would see their percentage of the tax burden rise.”
http://www.factcheck.org/taxes/unspinning_the_fairtax.html
Does anyone think it is really a good idea to raise taxes on that group of Americans?
“You are trying to rationalize the welfare state. Baloney. Everyone has to pay is fair share of the common costs”–Stephen–
I am not trying to rationalize anything. I am just doing math. You cannot collect $15000 in taxes for a couple and two kids that make $25,000. They cannot and will not pay.
I agree that in a perfect world your point makes sense. This ain’t the right country or world for that. Let me know when you find either one.
So tell me, what do you do with them, Mr. Limbkins? Enact the Poor Laws of 18th century England? Hey, maybe you can sell off the young and cute kids, and then indenture the rest to some factory owner.
That’ll learn’em.
And then let me know how much your next Big Mac is when it is served by someone who “can pay his fair share of the common costs.”
RE: POST # 332 HAYDEN & MORPHH ET AL
ONE WOULD NOT NEED A TAX LAWYER/CPA TO FIGURE OUT THAT ONE EAY WAY TO BEAT THE HR 25 SYSTEM IS TO SPEND ONE’S MONEY OVERSEAS (WHILE HAVING THE SAFETY OF INVESTMENTS IN THE US).
Stephen, What are you saying to me in 432?
TO: Morphh re post # 333
You might have some inbound migration of foreign companies,but their imported workers would send their money home to be spent in FOREIGN countries ala our many guest Mexican workers.
TO: Andrew Martin re: post # 334
If you buy a car valued at $30k, the tax is $6900, not $9000. (IF THE CAR COST $30,000 BEFORE
HR 25, IT WILL COST $39,000 AFTER HR 25 – IGNORING ANY DECLINE DUE TO EMBEDDED TAXES.)
And the buyer isn’t responsible for it, the seller is. THE SELLER HAS TO ADD IT TO THE SALES PRICE SO AS TO GET THE SAME NET AS BEFORE HR 25. Why is that different for the person leasing a car? They don’t pay for other costs that are subtracted from the value do they? Transportation, storage, etc?
Once again, we always seem to pose this as if value doesn’t include the tax. When you purchase a product whose taxless price is $0.99, but give the cashier $1.07, the value of that purchase to you is $1.07. If it wasn’t, you wouldn’t make it. YOU CAN NOT TURN AROUND AND SELL IT FOR $1.07.
TO: ANDREW MARTIN RE POST # 335
” there is no place that it isn’t taxed” – YES, BUT THE US WILL HAVE THE VERY HIGHEST SALES TAX IN TGHE WORLD.
The relative price of domestic American goods will remain the same, all else being equal. WRONG – THEY WILL GO UP BY THE AMOUNT OF THE SALES TAX (LESS SOME MINBOR REDUCTION FOR EMBEDDED OLD TAXES).
In fact, if you believe compliance costs go down, we all actually get a free lunch. REMEMBER, THERE IS NO SUCH THING. The real prices of products will be cheaper. MAYBE JUST A LITTLE, BUT THEN THEY GO HIGHER BY THE SALES TAX. Now we are going to shift some tax burden off our exports and onto our imports (which I think is a good thing), but the direct cost of government, i.e. revenue neutrality, is going to be the same. So, again, reduction in the compliance cost of supplying government revenue will make things cheaper. MAYBE JUST A LITTLE.
Stephen,
I appreciate your comments.
Could you calm down a little?
Mr. Eldridge,
I should inform you that I have now read your paper. Well, not the whole thing, mainly just the beginning of your tax plan.
I think you should reread both Article 1, Section 8 and Article 5 of the U.S. Constitution and thank your lucky stars that those men had such insight more than two centuries ago. I know I am.
I will be happy to discuss the FairTax with you, but other than that I cannot see any reason for discourse or possibility of any positive agreement on the subject of the U.S. government.
Stephen (with regards to reply 421):
I believe your missing something quite important actually. The difference between real and nominal cost (in dollars). I think most frequent posters here, at least agree there is a concept of nominal versus real. Since the fairtax is revenue neutral (or at least designed that way or will take in less revenue as opponents like to predict), the real cost of a house can only go up if the real cost of something else goes down, all else being equal (like compliance costs). If the real costs of things on average went up, then some entity, namely the government, would have to reap those benefits, but they are receiving the same revenue. Cost in nominal dollars, on the other hand, is anyone’s guess. Why? Because dollars in the economy are controlled by a group of men. Acting together, at any time, they can increase the amount of dollars in circulation (and attempt to do things to change velocity). So when you say the price will rise by the amount of the sales tax, but there will be a small reduction due to elimination of embedded taxes, you are just saying you believe the Fed is going to allow a lot of inflation. That opinion isn’t without justification. The Fed is mandated to keep prices stable, but based on the actions of the last decade, it’s fair to say they might not see this coming.
So returning to the example in real terms, the cost of the house (including taxes) will remain the same, assuming the sellers profit desire remains the same, the price, i.e. value, of the house will remain the same.
If you believe in revenue neutrality (or even less revenue under the fairtax), doesn’t the cost of the federal government in all our products have to remain the same on average?
OK. So you do see that the sum of your 3 scenarios can’t exceed 100%. I still think the first doesn’t decrease the value of house (for the same reason moving to the fairtax doesn’t). I believe I see why the second one would (by putting a distortion in the housing market). I don’t see why the third one would because it seems like the opposite of scenario two, but give me a while to try and reason it out. I just haven’t had any success yet.
I was using property in a broader sense I once saw described by James Madison that not only includes our person (life), but our ideas, opinions, etc.
Stephen (with regard to reply 422):
Why do you think the founding fathers wanted everyone to pay the same amount? Property taxes were around at the time right? And I thought they were based on value, i.e. not a set fee. Although I thought I might have read somewhere there were different debates on whether or not they should based on value or based on acreage.
And I guess different founders had different ideas. Thomas Jefferson thought eduction should be paid for through property taxes, so the wealthy would be responsible for educating the public.
Stephen (with regard to reply 434):
Hayden has brought this up often, but I, not surprisingly, always disagree. And it again, boils down, to real versus nominal costs. On average, real costs of products will stay the same (with, in my opinion, the main difference being the export to import shift). I’ll concede that cross border purchases of American exports (which will now be relatively cheaper) or Canadian/Mexican imports (which will now be relatively more expensive) may increase, but nothing else will.
Stephen (with regard to reply 437):
Again, real costs.
And why can’t I sell my product for $1.07?
Stephen (with regard to reply 438):
We may have the highest sales tax in the world, but we’d have the lowest income tax (or at least we’d be tied, at the federal level that is). But our relative cost of government (revenue wise) would be the same.
And there is such thing as a free lunch (or at least a more efficiently produced lunch that cost less).
Take your plan for instance. You must see that compliance costs would go down dramatically. If you separate enforcement costs from compliance costs (I am also assuming compliance includes avoidance), compliance would go down to almost nothing. Every person would just have to know one number. The same number. Maybe they’d need a receipt.
While I agree the fairtax wouldn’t reduce compliance costs as dramatically as your one number approach, I do believe it would greatly reduce them relative to the current income tax. Yes. A flat tax would as well. If we really wanted to do what the founders intended, federal taxes would be paid by the states based on congressional representation. That is actually what I prefer. Then we could have 50 debates on the tax system and see 50 different solutions. Some would be better than others and hopefully we move towards the best. But even then I’m not convinced one system would be the best. Maybe Massachusetts could be perfectly happy with a single highly progressive income tax and New Hampshire could continue with its property taxes (and toll roads). All I know is the federal system forces 300 million of us to pay in a way we may feel is inefficient.
Wow, FairTaxBlog is going to have to buy a bigger server.
I can’t keep up with all the posts.
To Ed Michael re: post 439
Ed, you know, that the subject of taxation is overstimulating.
To: Ed Michael re post # 440
I will re-read the sections of the Constitution that you note after I catch up on all of the posts here that I missed (as well as my timely work on the current terrible tax extension-unemployment deal pending in Congress) and will then respond to you.
Perhaps them we can explore what you consider to be our basic political differences just to see if we really are that far apart.
To: Andrew Amartin re post # 441
I am not a trained economist, but I am not exactly an idiot. I have a law degree – JD, an LLM in taxation and a Bachelor of Business Administration and was a CPA.
I understand the THEORY of real versus nominal dollars – I just have a lot of trouble swallowing that somehow that THEORY makes everything turn out OK under H.R. 25.
For your convenience, I put ypour words in ” ” and then respond.
“……the real cost of a house can only go up if the real cost of something else goes down” I do not belive this. Prices on some goods go up more than prices on other goods and the cost of some goods goes down. There is cash sitting in baks and investments that can either be spent or not spent. I do not subscribe to the simplistic THEORY that your rule works theoretically, assuming a fixed money supply that is all spent.
“If the real costs of things on average went up, then some entity, namely the government, would have to reap those benefits, but they are receiving the same revenue.” I do not at all understand what you are saying here. Why does the govt have to reap any benefit? What is the benefit?
“Cost in nominal dollars, on the other hand, is anyone’s guess. Why? Because dollars in the economy are controlled by a group of men. Acting together, at any time, they can increase the amount of dollars in circulation (and attempt to do things to change velocity). So when you say the price will rise by the amount of the sales tax, but there will be a small reduction due to elimination of embedded taxes, you are just saying you believe the Fed is going to allow a lot of inflation. That opinion isn’t without justification. The Fed is mandated to keep prices stable, but based on the actions of the last decade, it’s fair to say they might not see this coming.” I think I had a conversation somewhat like this with Morphh. Prices can rise without fed accomodation. Avaliable funds in savings and investment can be utilized to pay such higher prices. Also, consumers will switch out of discretionery spending in order to pay any higher prices for necessities.
“So returning to the example in real terms, the cost of the house (including taxes) will remain the same, assuming the sellers profit desire remains the same, the price, i.e. value, of the house will remain the same.
If you believe in revenue neutrality (or even less revenue under the fairtax), doesn’t the cost of the federal government in all our products have to remain the same on average?” NO! Because I do not agree with your economics, I still belive that the price of the house will rise NET by almost 100% of the H.R. 25 sales tax. In general, the economists that I read and cited in my paper believe that (I am merely humbly agreeing with them).
“OK. So you do see that the sum of your 3 scenarios can’t exceed 100%” I am not sure what you are saying here. There is an extremely high probability that 1 of those 3 will occur – if it does, that large portion of the bank’s security (on which it lent), disappears.
” I still think the first doesn’t decrease the value of house (for the same reason moving to the fairtax doesn’t). I believe I see why the second one would (by putting a distortion in the housing market). I don’t see why the third one would because it seems like the opposite of scenario two, but give me a while to try and reason it out. I just haven’t had any success yet.” If you don’t think the price goes up when HR 25 comes in, then you won’t see the problem I raise here. The economist for the homebuilders assn agrees with me.
To: Andrew martin re post # 442
No, I do not think the Founding Fathers had the idea of equal taxation (it jst did not occur to them).
In fact, to be perfectrly honest, some very computer research (I am not) literate constitutional afficionado sent me some quotes quotes speaking out against equal taxation.
I belive that they used property taxes as simply a handy tool that they were familiar with.
I simply put forth my suggestion of equal taxation for discussion as the best answer in principle. The same principle folloed by your condo or timeshare.
Why shold I payt any more dollars in tax than you do. The Constitution grants us equal freedom of opportinuty (not freedom of result) and we have no greater impact on the cost of the military.
If you enjoy greater succcess than I do it is due to your superior intelligence, luck, whatever – it was not handed to you by the govt.
To: Ed Michael re post # 427
Your comments in “” >
” I am concerned about the poor and particularly their children, who are trying to pull themselves out. In my opinion, anyone who works at least forty hours a week should be able to earn three hots and a cot. And nothing more.” Then in your own business you can insure that you pay wages that will accomplish that – but what will you do if you can’t make a profit paying such wages ? ” And their children should have the same, but also a chance for an education and a chance to better their parents.” American taxpayers provide free education through high school and some free and low-cost colleges.
“This economy could not exist without the working poor. And to think in reality those working poor can pay their equal and fair share of taxes is to ignore reality. Cannot happen. What are you going to do? Class genocide? Exile? Two weeks later and we would be importing them back into the country.” The govt should keep its inefficient, ineffective hands out of the private economy, which will provide opportunities for alll to move ahread economically. Once govt gets involved, things get screwed up – look at where we are today.
“I believe in what Adam Smith said. Your portion is according to your ability to pay. ” I thought that was the brilliant Karl Marx.
“Now, if I could build a tax system it would be simply be a flat tax. All forms of income included. Only deduction would be for individuals and dependents(and I would have the EITC continued to keep the children of the working poor at a minimum standard of living). After those deductions, a flat tax for the remainder of income. Five line tax form.” You still engage in social engineering by the govt – big mistake. It is not your right to force anyone to pay income taxes on behalf of the pooir and to give the poor a welfare check (the EITC and the other “refundable tax credits”). You are still redistributing wealth.
To: Ed Michael re post # 433
I just can not fall into this trap of paying welfare just so my Big Mac (do they make them with Truffles) won’t cost a fortune.
I do not belive that the Constituion forces us to maintain a class of American poor people. I am not sure what we will have to do with the poor who refuse to work and refuse to feed themselves. I do know that if I am weak and goive in to their hunger strike or violence, then I have lost my soul and will eventually be overrun by their greed. (I think we should transport all of America’s poor to Nancy Pelosi’s Congressional District).
To: Ed Michael re post # 435
Help me understand Which point is unclear. I have reworder soime of my reply to try to make it clearer. Pleaseet me know exactly what is still unclear.
You said you assumed that HR 25 is Revenue Neutral. That was its original intent (even though others belive that its revenues will fall very short of expectations). Also, BHI’s latest economic research says the rate needs to be 35.1% and MORPHH tells me that HR 25 will NOT be changed and so Congress will simply be “forced” to spend less because tax recevnue will DECLINE (i.e., HR 25 will NOT be revenue neutral – it will collect less than the current tax collections).
You assume H.R. 25 will increase the amount of credit available. MAYBE IT WILL or MAYBE IT WONT. Its a THEORY – WHO CAN SAY FOR SURE?
To me, that means the people (or businesses) who have increased their net-after-taxes have more income to lend. HOW CAN THAT BE IF HR 25 WAS ORIGINALLY SUPPOSED TO BE REVENUE NEUTRAL (I.E., IF WE PAY THE SAME TAXES HOW CAN WE HAVE MORE TO SPEND? WE WILL HAVE MORE IF IT TAKES 35.1% TO BE REVENUE NEUTRAL (ACTUALLY MANY OF US BELIEVE THAT THE TAX RATE WILL BE A LOT HIGHER.
But the governemnt has collected the same amount of money. So if there are those that increased their net, then there has to be those whose net has decreased. CORRECT!
I will take a wild guess and say it is those earning between $25,000 and $200,000 a year who will see their tax burdens increased. As in:
“AFT’s Burton agreed that those earning more than $200,000 would see their share of the overall tax burden decrease, admitting that “probably those earning between $40[thousand] and $100,000” would see their percentage of the tax burden rise.”
http://www.factcheck.org/taxes/unspinning_the_fairtax.html
Does anyone think it is really a good idea to raise taxes on that group of Americans?
Stephen re: post 450
You state “No, I do not think the Founding Fathers had the idea of equal taxation (it jst did not occur to them). In fact, to be perfectrly honest, some very computer research (I am not) literate constitutional afficionado sent me some quotes quotes speaking out against equal taxation.”
Not meanting to nit pick here, but your first sentence in the above quote is where you state you don’t think the Founding Fathers had the idea of equal taxation as it did not occur to them. Your second sentence is a little unclear to me, but seems to indicate you (or someone else whom you ran across) found quotes of the Founding Fathers speaking out against equal taxation.
If the Founding Fathers were speaking out against equal taxation then it certainly DID occur to them. It may not have occured to them that it was a desirable, but that’s another matter. While I wasn’t there and am certainly no historian either, the more I read about or Founding Fathers , the more impressed I am by them and their wisdom. It would surprise me if there is any aspect they neglected to consider (exceptions being issues regarding technologies that had not yet been thought of).
Stephen,
I f you read Adam Smith, it is clear that he advocates a progressive tax system. Common sense. If people do not have the money(by choosing to have a place to live and food to eat first), then a progressive tax system is the only alternative.
And in terms of truffles, take away the low income class and let me know the price of any food and/or service without their existence.
To: John Bailey & Ed Michael
John I am sure some early Americans spoke out against equal taxation as the quotes the fellow sent suggest. What I am saying is that the Founders did not spend a whole lot of time on SYSTEMS OF TAXATION to bhe included in the founding principles of the Constitutuion which is a relatively very short document.
With all due respect to Adam Smith’s advocacy of Progressive taxation, I respectfully disagree. Warren Buffet and Bill Gates think the rich should pay much higher taxes and they both believe in the Estate & Gift tax. I believe their logic to be irrational (as compared to their investing and software skills, respectively.
No American generates higher common costs than any other American. Thus their shares of that common cost should be identical. Any variance from that is wealth redistribution. Let me try to frame the debate.
1) Do you believe that those who pay no income taxes should have the right to vote (recall that at the founding of America, those who paid no property tax could not vote)?
2) Do you belive in INVOLUNTARY wealth redistribution via WELFARE including “REFUNDABLE INCOME TAX CREDITS” (which have nothing to do with the income tax one pays)?
Allow me to restate.
Do you believe the Republic can survive with any where near thye current 50% of the people paying no income tax, but having the power to vote your money to themselves?
Ben Franklin said, “If you allow a citizen to put his gand into the pocket of another – he will”.
re: #457
To answer your question, yes, i do believe the Republic can survive as evidenced by the US when the income tax was first implemented (early 1900s). In my opinion whether the non-income tax paying public will vote themselves a larger share of the income earner’s wealth has more to do with the moral and personal character of the nation (it’s general population) than anything else.
There was a time when the average person could vote, didn’t pay income tax and also didn’t expect the government to take care of that. That time is rapidly ending.
All of that being said, I do not think this is a desireable state for the US to be in and would much prefer to eliminate the “welfare through tax credits” that exists in the current tax code as well as eliminate the other societal interventions that exist in the tax code.
Re: #456
1) The short answer is yes. I am inclined to support requiring the voter to demonstrate some basic knowledge of the candidates or issues on the ballot as a way to weed out the uninformed voter. Unfortunately, I don’t see away to implement that without there being extreme abuse on both sides (i.e. asking ridiculously difficult questions of those you want to exclude or if a standard set of questions are asked, then an uniformed voter could be told the answers in advance and therefore fool the questioner while not really knowing enough to place an informed and meaningful vote).
2) No.
I believe that everyone paying an equal amount of taxes is fair.
Doesn’t change the simple fact that it cannot happen.
To: John Bailey re post # 458
You say ” In my opinion whether the non-income tax paying public will vote themselves a larger share of the income earner’s wealth has more to do with the moral and personal character of the nation (it’s general population) than anything else.”. John, I believe that politicians egomania to secure public office (and buy votes to achieve that end) overwhelms any morailty and character they might have posessed. The Founding Fathers understood human frailties and sought to avoid them with disciplined prinlciples, such as 1) Charity is not to be left to pandering politicians but in the PRIVATE SECTOR. 2) Those who do NOT pay (property) taxes
shall not have a voice ion ihow the proceeds are spent.
I see we agree on eliminating welfare via the tax code (refundable tax credits) but on the broader issue of welfare (wealth redistribution), I go back to basic constitutionalk principles – that wealth redistribution is NOT a power given the the federal government and it should be handles by VOLUNTARY redistribution conducted in the PRIVATE SECTOR. Do you realize that about 1/4 of our $3.8T budget is spent on welfare – why have we not heard one single suggesteion from all of the olitician’s and pundits that unconstitutional welfare (we we can not afford any longer) shouyld be eliminated over time. I use this guiding prinicple as just ONE set of arguments against H.R. 25 – I also belive HR 25′s economics are grossly irrational.
I agree with you about requiring some voter test of political/economic intelligence but that it is a little difficult to administer (but we should try).
To: Ed Michael re post # 459
I realize fully that it would take a long time and major imporvements in the quality of the people we send to Congress but it is important that we bear in mind the ideal goal and move in that direction.We may never reach ther perfect goal, but we can get a whole lot closer to it. My problem Ed is that who is going to decide which citizen is deserving of our aid, pandering politicians or each one one of us individually – I submit that it should be the latter. Everyone pays their fair share of the common burden and if you need help paying your share and feeding your family, the ASK your fellow citizens to help you and if your circumstances are truly needy, the great American Judeo Christian charity will open its heart to you.
We must operate with principles in mind. What are our operating principles by which we write laws. I submit the proper principles are those underlying the Constitution. I believe that we clearly rejected principles that we know of today as Marxist wealth redistribution.
Let me know when the “great American Judeo Christian charity” is capable of handling 100 million people.
We do not disagree that much with the exception of the reality of the industrialized world versus a dream from the 18th century world.
BTW,
I totally agree about moving towards that goal, but when I look at the stagnation of wages for the vast majority of Americans the last three decades, we are not getting closer, we are getting farther away.
I grew up in a very poor family. Single mother, five kids. When we had a phone(after the kids started wroking part time jobs), bill collectors would call wondering why my mother only paid half of her electric bill, or rent, etc.
“I pay for food. Then I put all of my other bills in a hat, draw them out one at a time and pay them. When I run out of money I stop paying them. Now, if you want to keep calling me to complain about my payment plan, I won’t even put your name in the hat.”
You cannot get blood out of a stone.
To: Ed Michael re post # 440
Ed, my idea of proper taxation YOUR SHARE, SUPPLEMENT # 28 is only 3 pages long. You said you read only the beginning of it – please read the rest of it (feel free to skip the Constitutionality issue which I addressed because of one objection raised).
You said you read most of my paper (but only the beginning of YOUR SHARE). That leave another 100+ plus pages, most all of which discusses H.R. 25. Only a smaller portion of that covers my wealth redistribution issues with HR 25 which you may agree with, but most of which covers the economic faults of HR 25. My paper was reviewed by financial/tax people with very liberal politics (and who are not as upset as I am over HR 25′s wealth redistribution), but who agree with me that HR 25′s economics are fatally flawed.
Stephen
The Founders and Framers gave Congress has the power to redistribute all the wealth it may choose to redistribute. But, the Constitution, even with the 16th amendment, does not permit Congress to do it as it is now doing.
To directly tax a person’s wealth constitutionally, they put in the provision that these direct taxes must be apportioned according to population of the states.
There are many false declarations that no one knows what a direct tax is, or that the 16ht amendment eliminated the direct tax apportionment restriction. These declarations come from corrupt and ignorant Supreme Courts, Congresses, and administrations, and are utterly false.
A direct tax is one that government collects directly from a person, one which cannot be lawfully avoided without loss of property or liberty. Indirect taxes are those that businesses add into the price of their product and give to the government, and the individual person can lawfully avoid them by not buying the product.
If Congress wants to constitutionally directly tax wealth, it can do so, so long as the amount of tax is divided according to representation. For example, California, with 55 representatives, would pay 55/435 ths, or 12.6% of the tax. This would obviate the benefit from them trying to rob wealth from better off states, and was the compromise that made the Constitution possible, by checking the southern states from looting the northern states of their wealth. California ranks only about 10th in per capita wealth, where Delaware, Connecticut, Massachusetts, and other tiny states rank much higher. These wealthier states would pay peanuts compared to California in a direct wealth tax constitutionally applied.
It was the desire of the relatively poorer southern states that they could rob the wealthier northern states by ganging up through padding their populations with slaves and voting themselves cash. That’s why they wanted full representation for their slaves. The northern states caved and gave the southern states 3/5 representation for their slaves, which illegitimately boosted southern state’s representation. Without this, though, the Constitution would never have happened. So it was the apportionment clause that discouraged phony padding of population by states desiring to rob the others through direct taxation of wealth
It is the perversion of the 16th amendment that now lets the government redistribute wealth. Only the income DERIVED FROM receipts, not the receipts themselves, are directly taxable under the 16th amendment. Through the logical fallacious argument where government equivocates receipts (wages, etc) with income derived from these receipts, the government steals their money.
So, government can tax wealth directly constitutionally, but doesn’t do it because apportionment makes it a no win for them. It chooses to defraud us through the trickery and the perversion of the income tax as unconstitutionally and unlawfully now administered.
Finally, concentration of wealth can be a bad thing if the rich get richer at the expense of the poor becoming poorer (as it is now here in the US). But the real test of an economic system must be judged by whether or not the wealth of the least well off can advance their place in life. That was the norm before the fraud of the income tax.
Thanks,
Phelbers
Here is an excellent article by a noted Libertarian, Tim Nerenz, which I think makes a lot of sense.
A bright young man noticed my Libertarian Party lapel pin and posed this gotcha question to impress his friends: “so what is your answer to current suffering?” My response: “quit suffering”. His friend’s analysis of the exchange: “schooled”.
“Schooled” may be a bit harsh, but “quit suffering” was certainly not the answer that the first fellow expected. The modern-day debate about poverty has always revolved around what the government should do about it. Government spending on poverty programs is the liberal’s unit of measure for public morality. But the truth of the matter is that there is very little the government can do about poverty, except create more of the stuff with bone-headed monetary and fiscal policies.
Fortunately we live in America, where most poverty is avoidable. If we graduate from high school, don’t do drugs, don’t do crime, get married and stay married, have children (after we are married), and get a job, 99.4% of us will avoid chronic poverty on our own, without any government assistance. That is what the Census Bureau’s poverty statistics tell us.
However, if we drop out of high school, we are 3 times as likely to be poor than if we graduate. If we are unmarried with kids, we are 4 times as likely to be poor than if we are married with kids. If we are unemployed, we are 10 times as likely to be poor than if we work. The unemployment rate for felons is over 70%, and it is 100% for burned-out drug zombies.
Which is not to say that you don’t have an absolute right to quit school, have kids out of wedlock, get divorced, quit your job, blow your mind, or commit a victimless “crime”. You do, you do, you most certainly do. You just have no right to pass the consequences of your own actions off to your neighbors. And we are not obligated to pick up your tab. Freedom is a Dutch Treat lifestyle.
People don’t do all those things because they are poor; people are poor because they do all those things. In the main, poverty is a choice. Ok, rich liberals, feel free to go berserk now if it will make you feel better about yourselves. But this isn’t about you; it is about helping people actually get out of poverty. There is no reason for able people to be “trapped” in perpetual poverty, as some basic math will illustrate:
According to the Labor Department, the poverty threshold for a family of four (two adults, two children) is $21,756. If mom and dad work even minimum wage jobs, household income will be $30,160 or 138% of the poverty threshold. And dad can work another part time job (I’m old fashioned that way), raising the family income to $37,700 at minimum wage. Get OJT, take continuing education courses, get promoted, and wages will increase in proportion to the value added – at just $10/hr family income is $52,000 when both parents work a combined 2.5 jobs.
Don’t tell me it can’t be done. I did it. And I did it because it sucked to be poor, not because a liberal cared about me. Millions of Americans fall down and get back up again each year without waiting for the government to fix our problems at someone else’s expense. Poverty statistics show that up until 2008, most poverty was episodic – i.e. lasting a couple months – typically caused by a job loss, domestic breakup, catastrophic medical event, or similar visitation of bad times.
Yes, it is hard work to quit suffering; and so what – life is hard for everybody. Two income families are the norm nowadays. Millions of small business owners would love to only work 60 hours. Most people have worked two or three jobs when we had to, and went back to school so we would not have to do that forever. Many of us work at jobs we don’t like. Staying married is hard work, too, and so is taking a pass on the bong so we can pass our drug tests. Intemperance is a lot easier and a whole lot more fun than restraint, but restraint is what keeps us out of jail, on the job, and out of poverty.
The young man should have asked himself: what is the government’s answer to current suffering? Answer: more suffering. Five decades and a few trillion dollars into the war on poverty, poverty is winning; the current poverty rate is higher than when we gave the socialists their head in 1965. As long as there are government poverty programs, there will be sufficient numbers of poor people to justify them; recipients are a necessary ingredient of the welfare state.
This week’s tax compromise extends “temporary” unemployment insurance benefits out to three years. Three years! In any of the five previous recessions going back to 1970, the median length of unemployment did not reach three months. When State unemployment insurance premiums go through the roof next year, it will be fun to watch the President try to figure out whose butt to kick.
Government does not own the franchise on morality. Politicians do not help poor people when they blame their plight on others. Government schools create poverty by leaving students unprepared for the world of work and unacquainted with free markets. Welfare encourages chronic poverty, except for the government workers it overpays to fill out useless forms for each other to file. Our drug laws create legions of felons unnecessarily. A century of collectivist social engineering has decimated the nuclear family and desecrated the ideal of self-reliance. The government’s track record is deplorable – the more it spends, the more it harms.
It doesn’t take a village to raise a child; it takes a mom and a dad and a church of your choice. The anecdote for poverty is liberty, not government; liberty is the absence of government in choice. Poverty is not overcome by social consciousness; it is only defeated by individual responsibility. Our young people need to learn that poverty is avoidable and need to be taught how to avoid it: graduate, get a job, get married and stay married, have kids, don’t do drugs, don’t do crimes, and don’t look to government to solve your problems.
Quit suffering. It is a choice, not a life sentence.
TO; Ed Michael re post # 462
The “great American Judeo Christian charity” is NOT COMPELLED to handle 100 million people. The 100 million people are not ENTITLED to DEMANF that anyone else pay their bills plus give them cash as gifts. America is supposed to be a society in which we are all FREE to pursue our own destiny – not be FORCED support each others’ failures or lack of success (and not to have pandering politicians decide who is worthy of our help).
You say, “We do not disagree that much with the exception of the reality of the industrialized world versus a dream from the 18th century world.” What does this mean? You are somehow trying to rationalize the Socialist agenda of taking from some to raise up the status of others.
You say, “when I look at the stagnation of wages for the vast majority of Americans the last three decades, we are not getting closer, we are getting farther away.” The fact that some are getting richer while others are not does not justify taking away from those who succeed. Equality of RESULT is not the American guiding principle – equality of OPPORTUNITY is! Judeo-Christian beliefs do not COMPEL charity – our govt should not do so either.
I will bet that I grew up poorer than you did. Please do not misunderstand or take offense. Charity (which I received as a child) should come from the PRIVATE SECTOR – it must be kept out of the hands of pandering politicians.
While I can empathize with the plight of people who can not pay their bills, those people have no right to DEMAND that someone else pay their bills, including their fair share of the bill for maintaining our military (a proxy for all of our common costs). The Constitution grants them no such right.
TO; Phelbers re: post # 464
Thank you for your post. I was having a lot of trouble finding a better explanation of “Direct Taxation” and specifically the the precise meaning of “Apportioned among the states”, which was the only way any direct tax could be imposed before the 16th Amendment.
Some materials suggested that it meant “divided equally among the 13 states” because I saw one comment that said “thus, residents of one state may pay $500 dollars per person and residents of another state may pay $700 per person”.
I think yor interpretation sounds correct in that it is based upon population (as is the number of Representatives). Thus, in effect, the Founders were approving of a DIRECT tax of an EQUAL AMOUNT placed on every citizen (i.e., my idea, YOUR SHARE, SUPPLEMENT # 28).
The 16th Amendment was apparently needed to insure that there was no constitutional problem with that Direct tax.
Thus, I do not believe that the Constitution grants the federal govt the right to redistribute wealth as it sees fit. The Direct tax that it permitted, was in fact an equal head tax which prevents wealth redistribution.
I do not get your final point. The Income Tax has not at all hurt the ability of the poor to improve their financial circumstances (it has done so only in the sense that it robs them of the incentive to rise up with the narcotic of handouts in the form of waiving their tax obligations and giving them welfare checks via “refundable tax credits”).
TO: HVG re post # 465
Well said!
Ben Franklin said “The poor must be made uncomfortable in their poverty so that THEY WILL RAISE THEMSELVES up out of it”.
Look at how far we have fallen as a nation – we are in grave danger of losing our Republic – because Progressives see the opportunity to enslave the poor with the narcotic of dependency and thereby obtain their votes.
To: Ed Michael re post #325 (I am trying to catch up)
It is not a question of taxing people who are just getting by. I submit that you are looking at this from the wrong perspective. That family must pay its share of our common costs – it is not “entitled” to demand that some else maintain their saftey by paying for all of the military.
If they do not have enough to pay their bills after paying their fair share of common costs, then they alone must decide what to eliminate or how they will earn enough to pay for the things they want. Giving the poor entitlements to the money of others simply leads to eventual destruction of the Republic.
Our Republic would survive much better if all of the poor were incentivized to work – the incentive being “don’t work, don’t eat”. Progressivism is not a solution – it exacerbates the problem.
To: Ed Michael re post # 366
Amen! In my Paper, I cite samples of the seemingly endless list of people who believe that fraud and tax avoidance will skyrocket (except for HR 25 advocates).
It is plain common sense that HR 25 advocates simply refuse to accept because it reduces tax collections and thus demands a higher sales tax rate.
The very high in-your-face sales tax rate of a MINIMUM 40-50% (combined federal and state) will result in the mother of all Taxpayer Tea Party Tax sticker shock rebellions (even if you believe the economic THEORY that “real” prices remai9n the same because net wages go up, by repealed income/payroll taxes).
To ALL re Morphh’s post # 387
I have otherwise responded to (my friend whom I respect) Morphh’s analysis of, IMHO, his static view of the world of retail sales.
That is, Morphh’s view ASSUMES that the retail world remains as is. I envision a real world scenario of sales migrating away from Wal-Mart (which would demand the full sales tax) to small (and black market) retailers whose prices (without sales tax) would be lower than Wal-Mart’s.
That is reality!
To: All
I like to sit back ans watch all of the economic THEORY float back and forth, but at the end of the day it remains just ECONOMIC THEORY.
It would be beyond reckless to risk our entire retail-sales-sensitive economy by inflicting upon it an in your-face retail sales tax of MINIMUM 40-50% (Fed + State) sales tax and take the giant risk of THE TAX REBELLION OF ALL TIME.
To: Ed Michael re post # 440
As you suggested, I have reread Article I Section 8 (the specific powers given to Congress – including the power to levy a uniform tax to pay for the costs it will incur in performing its duties) and Article V (Amendments to the Constitution).
Please be more specific about the provisions and the point you are trying to make.
TO: Andrew Martin Re: post 444
You can’t sell it for $1.07 (under HR 25) because there is no sales tax on used goods and no-one would pay more than the pre-sales-tax price ($.99 in that illustration).
However, by analogy to the the sale of houses, used goods may reflect some added value to reflect the fact that one would have to pay a very high sales tax to get a new goods. That is, witha very high sales tax, the seller may be able to recoup some of that tax.
Stephen (with regards to reply 474),
I certainly can sell my good for $1.07 and (based on my economic theory rather yours) someone will buy it. How do I know someone would be willing to part with $1.07 to obtain it? Because they do all the time. And why some may value something more if the government is getting a direct cut (like they’d normally only part with $0.99 for a candy bar, but are more than willing to expend an additional $0.08 since the ever benevolent government will be the recipient), I for one do not.
On a side note: the fairtaxblog is moving quite fast these days. I missed a couple of days and feel like I’ve gone for a year.
Stephen (re 467)
No, direct taxation was to be apportioned – divided up – according the population, or representation. This is in no way an equal distribution pre capita. More populous poorer states pay a higher per capita rate than richer per capita small states – thus the built in check on them.
In the 1790s there were actually a few direct taxes passed by Congress. I’ll dig them up and post them – don’t have them at my fingertips – but they are interesting historical readings. They worked this way: First, a total tax amount was decided upon. Then, each state paid a percentage based upon their number of representatives divided by the total number of representatives. It was up to the states as to how they extracted the money from their respective citizenry. These taxes proved so unpopular and difficult to administers that there were none until the present income tax.
The Framers feared direct taxes so much that it is the only issue twice mentioned in the Constitution.
There is no constitutional limitation on direct taxes, except that they be apportioned. So, through direct taxation, Congress can do what it will, be it redistribution, or whatever – but the next Congress could undo it.
A note on the present income tax: only income derived FROM sources, (wages, etc., not the wages themselves), are constitutionally taxable. Gross income has always beed defined in the tax code statutes as “gains derived from wages . . .”, never just “Wages, salaries, compensation for services . . . . It is the regulations that define gross income as the mere receipt of wages, not income derived from them, in effect adding the whole of wage receipts to the gains derived from them – precisely what the Supreme Court specifically ruled unconstitutional in M.E. Blatt Co. v. US in 1938, case 305 US 267, bottom of page 270, “Treasury Regulations can add nothing to income as defined by Congress.”
[http://supreme.justia.com/us/305/267/case.html]
I appreciate your having read the post.
I’m reading your paper, but just starting.
One early warning point you make is the danger of the ‘prebate’. I fully agree if it is given in cash or spendable equivalent.
This danger is easily eliminated by simply making the prebate good for the tax only. If it is in that form, the recipient will still have to come up with the cash to buy things, and the prebate will cover the tax portion only, up to the ‘poverty’ level of expenditure. I have made this suggestion to my Congressman, AFFT , this website and others many times without so much as an acknowledgement that I even made it. I’m not saying it fixes HR 25, but it certainly corrects one of its major flaws.
Thanks,
Phelbers
“If Congress wants to constitutionally directly tax wealth, it can do so, so long as the amount of tax is divided according to representation. For example, California, with 55 representatives, would pay 55/435 ths, or 12.6% of the tax.”
Strangely enough, California pays more than 12.6% of all federal taxes.
BTW,
Whoever thinks the poverty line is close to the number provided above(tow mini wage wrokers can be well over the line), you need to change your medications. In some states it is just very low, in other states it is absurdly low.
My favorite is the fact that you are not living in poverty if you can spend more than $1.70 per meal for food.
And in terms of raising yourself out of poverty, I agree it can happen. JUst two, three four times as hard now as it has ever been in my lifetime.
Minimum wage is about 30% lower now than it was in the 60′s and the 70s. Strange, it started to decline right around 1980 and has been moving downhill since. Though the last two years have seen an improvement, but I cannot find the real value of 08 and 09.
“It is not a question of taxing people who are just getting by. I submit that you are looking at this from the wrong perspective. That family must pay its share of our common costs – it is not “entitled” to demand that some else maintain their saftey by paying for all of the military.
If they do not have enough to pay their bills after paying their fair share of common costs, then they alone must decide what to .”–Stephen_
And those things they may have to ” eliminate or how they will earn enough to pay for the things they want” might include three meals a day?
In what world do you think that will happen? What would you think of a mother telling her children, “hey, one meal a day is all we can pay for, we first have to pay our “fair share of common costs”?
Stephen, re 473.
Your definiton of “general welfare” in Article 1, Section 8 is far different from mine, though probably not as great as the Madison-Hamilton difference.
In terms of admenments, obviously the FFs knew they were not perfect and the the world would change. Trying to go backward to some dream world people invision existed in the 18th century in terms of federal power is counterproductive. And also ingores common practices allowed by the Constitution that would(and did) rip this country apart that existed in the original.
I wonder if Stephen’s view of “general welfare” was used if Stephen would, even today, be able to power up his PC in Tennessee?
Stephen (with regards to post 449),
You don’t have to be a trained economist to understand real versus nominal (nor do I believe they all understand). It’s also not required to be a genius (and I’m pretty sure they don’t all understand). All it really takes is time to consider what the differences are. And it’s not really a theory that there is a difference between the two (they are concepts created by human beings. The difference is by definition.) The only theory probably comes from the best way to measure their difference.
And by everything turn out ok because of real versus nominal dollars, I don’t think I ever said any such thing. What I said was that the real cost of goods can’t go up because of federal revenue (if revenue neutrality) is maintained. It’s not theory. It’s an impossibility. I’ll try to respond to respond to your rebuttal to my post:
“There is cash sitting in baks and investments that can either be spent or not spent.” So what? This has nothing to do with the real cost of goods. As a share of GDP, on average, goods and services have an 18.5% federal revenue cost associated with them. Revenue neutrality doesn’t change that (apparently most opponents think the federal revenue cost will be even less).
“I do not at all understand what you are saying here. Why does the govt have to reap any benefit? What is the benefit?” The government has to reap the benefit because they are getting the higher revenue. The benefit is the ability to buy more goods and services (while everyone else will be able to buy less).
“I think I had a conversation somewhat like this with Morphh. Prices can rise without fed accomodation. Avaliable funds in savings and investment can be utilized to pay such higher prices. Also, consumers will switch out of discretionery spending in order to pay any higher prices for necessities.” Prices can rise without the Fed taking any action. Absolutely. But in that scenario, accommodation would be to do nothing, or to accommodate by letting prices rise, i.e. inflation. If prices start rising, non-accommodation would be to tighten the money supply. This will keep prices in line.
“NO! Because I do not agree with your economics, I still belive that the price of the house will rise NET by almost 100% of the H.R. 25 sales tax. In general, the economists that I read and cited in my paper believe that (I am merely humbly agreeing with them).” So you are stating there are economists out there that believe the cost of federal revenue will go up (which is the cost distributed through our products and services on average) even though the federal government will collect no more revenue. I don’t think so (unless they lie on the extreme edges of economics. I think even Paul Krugman would agree with this scenario). What I am saying is quite simple. I’ll just assume I’m not explaining it very well. Again. I’m not stating that the real cost of houses can’t go up. I’m just stating that if they do, it is because they were receiving the benefit of an economic distortion previously. That means products/services on the negative side of that distortion will now be cheaper.
” I am not sure what you are saying here. There is an extremely high probability that 1 of those 3 will occur – if it does, that large portion of the bank’s security (on which it lent), disappears.” I was just confirming you agreed with the underlying mathematics. I believe you stated the probabilities as 70%, 80%, and 50%. Since you agree the events are mutually exclusive, those estimates are necessarily incorrect (the sum of mutually exclusive events can’t exceed 100%). I was just confirming your agreement.
“If you don’t think the price goes up when HR 25 comes in, then you won’t see the problem I raise here. The economist for the homebuilders assn agrees with me.” Again. I’m not saying the price of a house won’t go up under the fairtax. It’s possible (but only if something else goes down). But that’s just economic theory I’m not trying to debate, since it is so debatable and its answer isn’t particularly relevant to me, i.e. I believe a retail sales tax will move us closer to the true cost regardless of whether is goes up or down for specific products.
And as a final thought on everything will be ok. I’m only making absolute statements about the cost of federal revenue (even disregarding compliance/avoidance/etc). You might believe that certain groups of income earners are going to better or worse off under the fairtax. That’s debatable. I believe it’s going to be much less significant than most believe (since most of the cost is transferred to products as embedded taxes). But again, that is just your (or someone else you trust) economic theory. Like with other things, I believe in the end the retail sales will be the more appropriate distribution of the tax burden.
Because your “more appropriate distribution” is less progressive than even the current system. I have not seen one single economist, including the FT’s own economist, who does not agree that the middle class(about $50k a year to $150K a year income) will see their tax burden increase while everyone else will see thier tax burden decrease.
So 60% of the population will see their tax burden rise; 38% will see their tax burden decreae due to subisidies; and 2% will see their tax burden decrease because they cannot figure out enough ways to spend their money.
And by far the worst effect(and our current tax system is almost as bad), is what we do and the effects on lowering taxes on the superich.
As Warren Buffett said:
”Would anyone say the best way to pick a championship Olympic team is to select the sons and daughters of those who won 20 years ago? Giving someone a favored position just because his old man accomplished something is a crazy way for a society to compete.”
I do not know about you, but I do not want the futre business and financial leaders to be the Paris Hilton’s of the world.
To: Andrew martin Re: post 475
I need to restate the issue because I am confused abour our points.
I think you started out saying that if some costs $.99 + $.08 sales tax – total cost to me of $1.07 that it is worth $1.07 to me or else I would not pay $1.07 (I agree).
Next, you say that you can turn around and sell it for $1.07. I do NOT agree. Why would I pay you $1.07 when I can get a brand new one for $1.07 and peform what some (not me) consider to be a patriotic duty of feeding the govt’s insatiable appetite for money.
I would offer you something less than $1.07. If the item was brand new, I might bhe willing to pay between $1.00 & $1.07 so that you might recover some of the sales tax you paid.
To: Phelbers re post # 476
Thank you so much. I enjoyed your post and look forward to those examples you mentioned.
DIRECT TAX: Your explanation was most helpful. Yes, the tax was apportioned to each State based upon the number of citizens of that State relative to the number of citizens of other States. Thus, the determining factor in a State’s total burden was the number of citizens it had. I merely took the next logical step of saying that State X’s total tax was $60MM and it had 6MM citizens, then each citizen’s fair share was $10, because that is exactly the methopd used to derive that State’s total share. That is the logical way to spread the tax WITHIN the State because that was the method of spreading the tax TO that State.
The current Income Tax: While I have read those statutes and Regulations many times over during the course of my 40+ year career, I never looked at them in this context. Before so reareading thim in this context, I will offer that I think the DIRECT tax is a tax on the individual. He is taxed on his “income from all sources” (IRC Sec 61). I think the references to wages or gains from wages do not tax the wages directly but tax the individual ON ALL OF HIS INCOME GAINS (including wages). I( will reread that material in this light.
HR 25 & the Prebate: It would be very difficult to administer the Prebate to repay to the poor the amount of HR 25 tax they pay on expenditures up to the poverty level. Even then, I would still object that some people pay NOTHING towards our common costs – yet they have the right to vote a greater share of our money to them (very dangerous to the continued existence of the REPUBLIC).
I look forward to your next post.
TO: Ed Micael re post # 477
I think you may be right. As Phelbers points out, the next step is hopw to apportion that tax to each of the citizens of California.Theoretically, that tax could be apportioned by the relative wealth of all California citizens.
I guess that my overall objection is that I do not believe that it was the Founders intent to allow Congress to tax qwealth or tax Progressively (i.e., that other writings are clear that America was not to be a Socialist wealth redistibution system).
To Ed Michael re post # 479
I would think it is just as easy to climb out of poverty now as it ever was, if not being easier today.
Ed, I remeber starving but working at odd jobs and going to school full time. I think anyone can get themselves educated easier today than ever before (especially on-line). Also, welfare programs today are far more liberal than they were when I was young (but I still overcame poverty).
The educated quickly rise above issues of minimum wage levels.
To: Ed Miuchael re post # 480
That mother needs to seek out her help of her church and other private sector charities. They will help her in all likelihood (even if she does not do anything to help her own circumstances, people will feel compelled by charity to help feed the children).
That mother then needs to find a way to support her family (education, training, etc.). I understand that is not easy. In any event, that mother is nor ENTITLED to have someone else pay her bills. Her problems are not by law, someone else’s problems.That is not a harsh statement but a statement of simple rules of a free society.
To: Ed Michael re posts 481-482
I did not comment on the “General Welfare” words specifically, but will do so now.
You apparently read those words in the expansive sense that those words create a separate and distinct power granted to the federal government. Using that sense, America is the same as the old Soviet Union.
A very well read local Patriot responded to an argument similar to yours, with a reference to James Madison, who wrote that those words do not create a distinct power granted to the fedral govt but are a LIMITATION on the powers granted.
That is, each of the powers granted by the Constitution must be exercised solely TO PROMOTE THE GENERAL WELFARE and for no other purpose.
There is no doubt that some of the Un-constitutional acts of Congress have helped some of us, but that is irrelevant to wether those acts were constitutional.
As I said, you are on Madison side and I lean mor towrds Hamilton.
AS I look back on the most important things ever done in this country(including giving you the electricity to use your PC,
, they were done by the government. Not to say they are the smartest and/or the best people to do those things, but that those things were absolutely necesssary for the general welfard of the country and could not/would not be done by private individuals.
And in terms of the church/ charity thing. Let me know when there are such that can handle a 100 million people.
BTW,
I always love people that say things like “when I went to school I supported myself with odd jobs and made ends meet>” Ranks right up there with “when I was a kid I walked uphill three miles through four feet of snow to get to school. Both ways.”
Key words, “you went to school”. Are you telling me that when you went to school every single one of your classmates was qualified to go to college? Able to succeed at that level? There were no ditch diggers in your class?
Notice that minimum wage(at which you survived going through school), was much higher in real dollars thirty years ago?
I understand the “your own bootstraps” thing. In theory I totally agree. In reality I think people that think everyone can do it has no knowkledge of the history of civilization and lives in a dream world(sort of like Star Trek in economic terms).
To: Ed Michael re post # 493
I did not say that everything the govt ever did was bad (they were just mostly bad) I said they were Un-Constitutional because they were OUTSIDE the scope of the powers granted by the Constitution to the federal govt.
Your view of the govts ability to do anything it wants as long as it is in for the general welfare, would give the federal govt unlimited powers to do ANYTHING it wants to do as long as a lot of people are benefitted (with ther govt deciding which ones will benefit). I submit this is nothing more than a tyrannical govt with the power to take from anyone and give to anyone. This violates the Constitution’s ban on taking from any citizen without just compoeust compensation.
I submit that your view is antagonistic to the entire concept of personal liberty and freedom. You favor the Nanny State – I do not belive that the FF envisioned that. If that is Hamilton’s view, then I reject it.
You continue to try to FORCE the proiblems of the poor onto the Stte because you don’t think that the Church or Charity can be FORCED to handle the problem. The issue is not who can (be FORCED to) handle the problem, but whose responsibility is it to handle the problem of the poor. I refusae nto cave in to your trying to bully and threaten me into being FORCED to handle the problem – to paraphrase Ben Franklin, it is the responsibility of the poor to handle their own problems by working their way up into society (Charity will help).
geez.
Whose “tyrannical government” is it?
HEre are some numbers re church charity. Just do the math.
Churches receive about $90 billion a year in donations. “U.S. churches devote more than 85 percent of their spending on “congregational finances” such as salaries, utility bills and brick-and-mortar maintenance.” http://www.huffingtonpost.com/2010/10/27/us-is-feeling-charitable-_n_774922.html
Now, if they spent all of the entire amount left on charity(which is beyond belief), churches would spend $13.5 billion to help the poor. That $135 per person in the US that need the help.
Feel free to find your own numbers(I just did a quick search), but saying the church can do it is as asinine and unrelaistic as saying the single mother of five should rely on the church and go back to school.
C’mon, man!
Stephen (re 488 reply)
You mentioned section 61, which defines gross income in the ’54/’86 IRC.
It is written amphibolously, which is logical fallacy-speak for ‘ambiguous by construction’, similar to ambiguous by definition where two meanings for a word or phrase are deceitfully used interchangeably.
Section 61 a) says, “Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;” . . . and 14 other items.
If, by how the commas are choses to affect meaning, ‘including’ is read to mean ‘sources’, [if read this way: Gross income means all income DERIVED FROM sources including (but not limited to) the following items:] then the statute is written in it constitutional sense of the word income, that is a GAIN DERIVED FROM the items in the list.
But, if the commas are interpreted to mean that the list of items are in and of themselves gains [reading it this way: Gross income includes (but is not limited to) the following items:], then the definition of income is in the unconstitutional sense, and the tax is placed upon the sources themselves, which the 16th amendment does not authorize without apportionment. This is of course how the IRS unlawfully and unconstitutionally chooses to mis-interpret the ambiguity.
There is a sizable amount of legislative history at the time of the writing of 61 a) that conclusively shows that the list is a list of sources, from which only the gains derived are gross income. One Senator asked specifically on the Senate floor if income was still intended in it’s constitutional sense, and was affirmatively assured that it was, and that it was not being change to the everyday receipts sense of the word. This is a case of ambiguity through multiple word meanings.
Of course, the ambiguity is seized upon by the IRS to unlawfully and unconstitutionally add the sources themselves to the gains.
The proof that falsehood has overtaken the income tax comes form the word ‘sources’. why is this word even there at all?
If it was the intent of Congress to define gross income as the items in the list, it would have said, “Gross income includes (but is not limited to) the following items:” and then the list.
The fact that ‘source’ appears in both the 16th amendment and the definition is not accidental, and the argumentative history in Congress and in the Supreme Court (solidly reiterated in Blatt) is the absolute proof.
Here are the references to the direct tax acts.
The first direct Federal tax was laid in the 5th Congress on July 14th 1798 in anticipation of war with France. It states:
“Be it enacted by theSenate and House of Representatives of the United States of America in Congress assembled that a DIRECT TAX of of 2 million dollars shall be, and is hereby laid upon the United States and APPORTIONED to the states respectively in the manner following:
To the state of New Hampshire, seventy-seven thousand seven hundered and five dollars, thirty-six cents and two mills . . . .”
The list goes on with an entry for each state, right down the 1/10 of a cent!
After the list of each state’s amount, it says: “The said tax shall be . . . assessed upon dwelling-houses, lands and slaves according to the valuations and enumerations to be made pursuant to the act . . . .”
The complete text can be seen in Chapter 77 of the Statutes-at-Large for the 5th Congress, second session, 1798 (sorry, haven’t found a direct link).
The second Direct Tax was laid in 1813, at the time of the War of 1812 with England. It’s worded differently to allow varying and continuing amounts of tax, but still apportioned it according to population / representation, even divided it down to each county’s share!. This was in the 13th Congress, second session – don’t have the exact statute number.
The last was in 1861, which was a constitutional DIRECT TAX on income, again apportioned.
Thanks,
Phelbers
To: Ed ichael re post # 494
I will get by your insult to my mighty personal struggle to rise up.
Ed, you slip by a lot just to get to those people who fail in life – whether they have very limited mental or physical abilities or make terribly bad choices in life or merely suffer bad luck.
I believe that class of people to be a whole lot smaller than the number of people currently living off the INVOLUNTARY generosity of the public (via govt welfare programs). That is, that group of receiving govt welfare is far larger than those who truly can not support themselves.
That occurs when politicians get involved in determining whose vote they want to buy (er, who really needes the help, that is. The Republic is on the edge of extinction because we have lost sight of the FF’s wisdom and discipline – charity belongs in the private sector because as soon as it gets intoi the govt’s hands it becomes a political football and a tool of vote buyers.
You are basically saying “accept the reality that there are a lot of poor people and the govt MUST handle it through welfare programs”.
I say, Stick with the wisdom and discipline of the FF and the poor will be a smaller class and will be handled by the private sector as well as it choses to do so within the exercise of its freedom (the poor are not ENTITLED to take from others just because they are poor – and they need to pay their fair share of the cost of the military, etc.).
To: Andrew martin re post # 483
I did not mean to assign the argument (i.e., that verything turns out ok because of real versus nominal dollars) to you alone. It is just that Ikeep hearing this and accomodation-non-accomodation as the answers which make all of the HR 25 arguments work out in the end. In my paper, I have explained that sevral times with respect tp such answers and try to explain why (to me) they sound like such voodoo economics.
You say, “the real cost of goods can’t go up because of H.R. 25′s (purported) revenue neutrality.”
I do not understand your next argument. In response to my comment about cash sitting in banks and investments, you say “This has nothing to do with the real cost of goods. As a share of GDP, on average, goods and services have an 18.5% federal revenue cost associated with them. Revenue neutrality doesn’t change that (apparently most opponents think the federal revenue cost will be even less).” I do not understand the relevance of your statement. What I was trying to say is that the existence of those funds makes cash available to pay the higher prices (you were saying that prices could not go up enless some prices went down – on the theory that otherwise there woulkd be no other cash to pay for the increases other than from offsetting decreases). Thus, my stash of cash in banks and in investments IS available to pay for the price increases that will occur even without some price decreases. I do not see what this has to do with the revenues to the govt, which is your approach.
You say “The government has to reap the benefit because they are getting the higher revenue. The benefit is the ability to buy more goods and services (while everyone else will be able to buy less).” Supposed the govt rtevenues are the same (revenue neutrality).
ME: “I think I had a conversation somewhat like this with Morphh. Prices can rise without fed accomodation. Avaliable funds in savings and investment can be utilized to pay such higher prices. Also, consumers will switch out of discretionery spending in order to pay any higher prices for necessities.” Prices can rise without the Fed taking any action. YOU “Absolutely. But in that scenario, accommodation would be to do nothing, or to accommodate by letting prices rise, i.e. inflation. If prices start rising, non-accommodation would be to tighten the money supply. This will keep prices in line.” ME AGAIN:You guys confuse the heck out of me. I don’t think the fed has to accomodate for prices to rise (see my cash in banks and investments and consumer purchase reallocation arguments). I do not belive that accomodation or non- acxcomodation CONTROL or DIRECT the results – see my illustrations in the Paper especially those on taxing fed & state spending. To me this is just voodoo economics. One economics Ph. D told me that these consepts are also extremely difficult for economics Ph. D.’s to comprehend. In the en, to me they are merely THEORIES, which economists swear by as gospel, but to me they are nothing more than potentially helpful theories, not laws of science.
ME: “NO! Because I do not agree with your economics, I still belive that the price of the house will rise NET by almost 100% of the H.R. 25 sales tax. In general, the economists that I read and cited in my paper believe that (I am merely humbly agreeing with them).” YOU: So you are stating there are economists out there that believe the cost of federal revenue will go up (which is the cost distributed through our products and services on average) even though the federal government will collect no more revenue. I don’t think so (unless they lie on the extreme edges of economics. I think even Paul Krugman would agree with this scenario). What I am saying is quite simple. I’ll just assume I’m not explaining it very well. Again. I’m not stating that the real cost of houses can’t go up. I’m just stating that if they do, it is because they were receiving the benefit of an economic distortion previously. That means products/services on the neg0000000000ative side of that distortion will now be cheaper. ME AGAIN: I just don’t get it. The federal tax revenues do not go up – they supposedly stay tyhe same (in total , we pay more sales tax but pay no income or p/r taxes).
ME: ” I am not sure what you are saying here. There is an extremely high probability that 1 of those 3 will occur – if it does, that large portion of the bank’s security (on which it lent), disappears.” YOU: I was just confirming you agreed with the underlying mathematics. I believe you stated the probabilities as 70%, 80%, and 50%. Since you agree the events are mutually exclusive, those estimates are necessarily incorrect (the sum of mutually exclusive events can’t exceed 100%). I was just confirming your agreement. ME AGAIN: I am not sure what you just saiu just sad. What I am trying, inartfully, to say is that the risk that ANY ONE OF THE THGREE SCENARIOS OCCURING is MUCH GREATER THAN THE RISK OF ANY ONE OF THEM OCCURRING. I think that risk gets closer to 100% than any of the 3 risks INDIVIDUALLY.
ME: “If you don’t think the price goes up when HR 25 comes in, then you won’t see the problem I raise here. The economist for the homebuilders assn agrees with me.” YOU: Again. I’m not saying the price of a house won’t go up under the fairtax. It’s possible (but only if something else goes down). But that’s just economic theory I’m not trying to debate, since it is so debatable and its answer isn’t particularly relevant to me, i.e. I believe a retail sales tax will move us closer to the true cost regardless of whether is goes up or down for specific products. ME AGAIN: I don’t think that other prices must decline in order for house prices to rise (I think ALL prices will rise by the sales tax-less any reductioin for embedded income & p/r taxes). The sales tax has nothing to do with the “true cost” of goods – it has to do with govt’s need for revenues to pay for America’s common costs.
YOU: A final thought on everything will be ok. I’m only making absolute statements about the cost of federal revenue (even disregarding compliance/avoidance/etc). You might believe that certain groups of income earners are going to better or worse off under the fairtax. That’s debatable. I believe it’s going to be much less significant than most believe (since most of the cost is transferred to products as embedded taxes). But again, that is just your (or someone else you trust) economic theory. Like with other things, I believe in the end the retail sales will be the more appropriate distribution of the tax ME: I do not for one moment belive HR 25 to be a rational economically viable idea. Solely on the very limited issue of its being an “appropriate way to distribute the tax”, while it may be better than the income tax, it still does not appropriately distribute the tax IMHO. Some taxpayers still pay the bills of other taxpayers, for the irrelevant reason that they spend more of their hard earned wealth (and are also forced to redistribute their wealth via the Prebate). Also, you say that you are offering economic theories. I subit that it is beyond reckless to risk the US economy to a bunch of ECONOMIC THEORIES of such a massive and dramatic change to our tax system. The risks of an economic collapse is too great.
Stephen,
So if the wisdom of the FFs was so great, why did they put in place the ability for lesser men than themselves to change it?
Further, it would logically follow that if their system first put in place was so perfect, than the late 18th century US should have been a paradise, with not uncared for poor, and a smaller number of poor.
Pull the other one.
I know at least 8% of the residents of the US at that time were beyond poverty, they were slaves. A good number were indentured servants. A good number were glorifed sharecroppers. This is an ongoing problem, and the thought process that thinks churches can fill the void is baffling to me.
Hey, lets use your defense only budget(btw, $600 billion is way low. You forget defense spending in other departements, like DOE, Homeland Security, etc) and figure out the effects. No, better yet, let’s say the federal government hit the lottery and had no expenses at all.
So people would have theri entire gross income. Let’s say it is a 40% increase. Church donations go up 40%. MOney to the poor goes up 40%. So, instead of each poor person getting $135 a year, we could have them receivng $189 a year. Or $3.63 a week.
Let me know when you want to do it, and I will give you my guess on when the revolution starts. Cause when at least 100 million people get pushed to the brink, bad things happen. And with SS and Medicare disappearing, that number will be more than 200 miillion. Btw, the vast majority of our military will be the sons and the daughters leading the riots.
TO: Ed Michael re post # 500
To me, your arguments keep comiong back to something like this.
1) The Constituion is not perfect so that America is to blame for the existence of all poor poeple (th poor are not at all to blame).
2) The fact that there are so many poor who need help means that unless the rest of us submit and support them that they will riot?
Ed, I have never given in to threats. Once you submit to such threats you are toast. Your ability to riot does not create a righteous claim to someone else’s money.
Stephen (re 488 reply)
A good-for tax-only prebate would not be a check sent out to cover the tax. It would be in the form of a credit card (not unlike present food ‘stamps’ process) that is charged up each month. The buyer would go shopping, pick out their goods, take them to the register, pay 77% of the cost in cash, check, credit card, or food ‘stamps’ if groceries, and the remaining 23% with the prebate card. He’d do this until the prebate tax-only amount was used up. Then he’d have to come up with the total goods + sales tax amount.
It would be much less difficult to administer than the sending of cash or its equivalent.
The balance could roll over to the next month, or not, depending upon the whims or the STB and Congress.
But the real advantage would be that there would be no spendable cash or equivalent to entice ‘having extra children’ as with other welfare programs. The cards would be useless without the actual hard cash to buy non-tax portion of the items in the first place.
There would be no cash outflow from the treasury – only a reduced inflow, compared to no prebate.
Thanks,
Phelbers
To: Phelbers re post # 502
What you say sounds reasonable to me. However, being a sly old dog of a tax planner, I would like some time to think about how taxpayers would get around this and beat the system.
For one, how would you insure that a poerson could not “sell” his unused credits to someone else (unless the card were biometric, etc)?
You still have the problems that I reviewed in my Paper about possible cheating on the dollar amount of the Prebate one is entitled to.
I will have to have a drink and let my devilish old creative tax avoidance mind a chance to imagine stuff.
Still, at the end of the day, even if you found the perfect system to assure a rebate-of-tax-only plan, it would still leave us in the same (roughly) situation where a major portion of the portion of the population makes absolutely no contribution to our common charges (i.e., the rest of us are forced to pay their share) and yet those people can still vote to take even more of our money for themselves.
Stephen: (re 503)
I wasn’t intending to address all or even any of the possible scams, cheats, or dodges possible in the system.There will always be these with any system.
Your suggestion that biometrics be used may be a start.
As far a voting non-contributors go, we already have the ‘vote yourself largesse’ system de Tocqueville warned against 200 years ago. The only solution is to disallow the vote to anyone on the dole (medicare, social security, or other welfare recipients welfare), or those who work for government at any level.
But the present income tax (never enacted as law in the statutes-at- large, or as a title of the US Code, by either language or intent of Congress) is so anti-Constitutional and antithetical to the United States as framed and founded that it is an embarrassment to rational thought. It is a dark-age system in that the falsehoods of it are enforced as truth through threat of loss of liberty and property. Just look at what Senator Reid says about our system being ‘voluntary” (a position held in all the US courts, even when allowing prosecutions for willful failure to file). This is really madness, and not acceptable in a truly enlightened society.
Here’s the Senator: [ http://www.youtube.com/watch?v=H6q0slMhDw8 ]
The questioner doesn’t ask how he defines ‘voluntary, but to any rational, honest person, it means ‘without legal obligation’. Does the Senator really believe there is no legal obligation to file a return and pay taxes? If so, why does he let the IRS collect them and the courts try non-filers? This is nonsense, and the Senator is either a simpleton or fool or both to make such a statement. But we are so in fear of the IRS and government that we dare not question this impossible contradiction.
That’s why I prefer the more indirect excise-like sales tax to one requiring compelled testimony of a witness that can be used against him in any criminal case (the tax return).
Thanks,
Phelbers
To: Phelbers re post # 504
I was just trying to think of ideas mthat might undermine your intelligent concept of the credit card limiting the Prebate to tax actually paid.
I realize how difficult it would be to take away the vote from those who pay no income tax, but the present circumstance is intolerable – a clear and present danger to the survival of the Republic. Also, that was the system set up by the FF who felt that those who paid no property tax should have no say in how the money was spent.
I have seen that Harry Reid interview. It blows my mind. The man’s brain truly resides on the planetoid Uranus. We must have a basic test for sanity in addition to a test for basic knowledge of the Constitution required of all officeholders.
Stephen
One principal objection you raise about HR 25 (HR 25 is not the Fair Tax simply because the bill is so titled – remember, titles and descriptive text are not part of the law) is that houses will be unaffordable because the buyer will have to come up with the 30% tax and the 20% down payment, and the banks will not mortgage the tax
I fully and wholeheartedly agree that this is an absolute show stopper, but this need not be the case.
HR 25 makes the BUYER liable for the tax (Section 101) without a receipt. Lose the receipt, and the new IRS
the STB – will re-asses the tax. In this respect the HR 25 sales tax is a direct tax on the buyer, and unconstitutional from lack of apportionment.
The correct way to asses the tax is to make the SELLER liable, just as with all other excise taxes. It that way the tax will be blended in with the price, but still listed separately so the buyer can see it listed as the tax. (Just as all gas pumps list the excise tax amount on a sticker somewhere on the faceplate).
I have advocated this essential change form day one until blue in the face, again without even an acknowledgment that the suggestion was even made.
HR 25′s buyer liability is a stark deviation from the US 230 year excise tax norm, yet there in not so much as a peep about it from anyone on any website.
Then, the banks would be lending against the tax-inclusive price, which would simply be the market price.
If the tax was not paid, the bank is not out, nor the buyer ‘upside down’. The seller is on the hook, as he should be.
HR 25 as what I call a ‘dirty dozen’ fatal flaws as compared to the Fair Tax as envisioned by AFFT before the current leadership and the Linder / Boortz conspiracy has hijacked it.
Thanks,
Phelbers
Both of you are wrong about the Reid statements. It turns out the income tax is purely voluntary. All of the information placed on your annual return is strictly up to you. No federal agency is looking over your shoulder when you complete the forms. To that extent, it is a voluntary tax collection system. Of course, if you get audited, you better have volunteered the correct information, or penalties await.
Harry Reid isn’t as stupid as you might think.
To: Phelbers re: post # 506
I think the very same result happens (I.e., loos of the value of the bank’s security) no matter upon which party the tax is levied.
If the tax is levied upon the seller and the tax is later repealed, the price of a new (or an existing) house drops by the amount of the tax and thus the bank’s security for the loan has declined.
It is late and my brain is dying. If this does not respond to your point, just let me know and I will do better after a good night’s sleep.
To: Hank re: post # 508
I think harry is as dumb as we think. He answered it was voluntary because you can reduce your tax by voluntarily generating certain tax dedeuctions (e.g., charitable contributions).
He truly is a scatterbrain, but he is the DEM Senate Majority Leader (frightening). Can you imagine the disgust if the FF were able to see this?
Until tomorrow.
Stephen
The meaning Harry Reid choses to give ‘voluntary’ aside, the courts permit trials of non-filers where the government charges them for not making returns. The government stands before the court and says filing is required by statute.
Tax returns are written testimony of a witness (anything signed under penalty of perjury is testimony). The courts always hold two opposing positions simultaneously, saying that returns are voluntary by law so they can use them against us in any criminal case, even one where a non-filer is on trial because the filing is compelled by law,
The courts instructs the juries that filing is required by law.
Any claim that filing a tax return is not at least treated by government as mandatory – not voluntary – regardless of any statute or absence thereof – is insanity and has no place in any discussion.
People are fined and jailed for not filing. Filing is mandatory, required, perhaps with no more legitimate legal authority that a street thug ‘requires’ your wallet or a bank robber ‘requires’ the teller to hand over the money, but it is nevertheless not voluntary. PERIOD.
Again, to any honest, rational, intelligent, person, ‘voluntary’ means ‘without legal requirement’, which includes government not trying and jailing non-filers. In the USA, filing is mandatory, not voluntary. Harry Reid is a joke, a buffoon, but in good company with virtually the entire legal profession, all of the law professors, and all of government, including the entire court system and the Supreme Court.
If this is not a Dark Age, there never was one.
The 5th amendment clause which says, “Nor shall [any person] be compelled [by government] to be a witness against himself needs no interpretation. It is the clearest clause in the Constitution. It is an absolute bar on government from forcing us to swear out statements that it can then use against us in any criminal case. It is a dead letter with respect to income taxation.
The income tax MUST go. Lets fix HR 25′s fatal flaws, and get a system that is as painless as the gas tax. Have you ever been audited for failure to pay your gasoline tax when you fill up?
That’s the system I want. A True Fair Tax can give it to us – but not HR 25. We are wasting time discussing HR 25 except to agree how to correct its flaws.
A true Fair Tax will still be lousy, but the income tax is the absolute worst system, except of course to those who benefit from it.
Thanks, Phelbers
Stephen / 508
It may be a stretch to base the analysis upon both the enactment and repeal of the tax at the same time.
If enacted, it is very unlikely there will be a repeal. It is a very, very rare event for a tax to be repealed. Even a reduction in tax rates is unusual, and they are almost always reinstated, as is now the pending case with estate tax, for example.
It is more likely there will be an increase in the sales tax, particularly if the unfunded welfare programs are not made actuarially real, with legitimate trust funds as opposed to the present bankrupt artificial accounting scheme.
A sales tax increase would increase the banks position by your analysis.
If the seller is made liable, which is essential for any hope of a sales tax plan, the tax will be paid outside and separately from the mortgage transaction just as present invisible embedded taxes are, or
God forbid, a VAT would be, included in the sales price.
Thanks,
Phelbers
Stephen, Re your comment
“1) The Constituion is not perfect so that America is to blame for the existence of all poor poeple (th poor are not at all to blame).”
Never said the poor are not to blame. But if you take a common sense approach to capitalism, there is one thing that is true. There are winners and there have to be losers. The bggest problem is insuring the sytem gives people a solid chance to move, from their own efforts, from the bottom towards the top. This country has lost that battle the last three decades and counting.
And in terms of threats, it is just simple math. I am certainly not advocating violence in any way. I am just doing addition.
BTW,
If all things were equal, minimum wage should be $9.75 an hour to match the mid 60s rate. So one full time worker ar that number would be above poverty. Figure out why that has not happened, and you will find the answer to our biggest problem.
And if you are going to give me the standard spiel(raising the minimum wage causes unemployment to rise among low income groups) please include a cost analysis of the products produced by such workers including the labor cost per dollar of sales.
As in here:
http://walmartwatch.com/research/documents/uc_berkeley_center_for_labor_research_living_wage_policies_and_wal_mart/
Where raising all WalMart workers to a minimum of $10 an hour(if all costs went to the consumer) would increase prices by .9 percent. And if you think such a price increase would hav any effect whatsoever on volume, don’t bother responding.
TO” Phelbers re post # 510
I agree that the current Income Tax is a horror which should be junked. However, that does not mean that we should jump to the ‘fairtax”.
You ber able to ‘fix” the “fairtax” by eliminating the Prebate, but that does not address it econimic problems.
What “independent” economists, the US TREASURY, Congress’ Joint Committeee on Taxation and others are saying is that a national retail sales tax (with a more normal tax base and a reasonable estimate for tax avoidance) which would replace the current revenues from the Income, Payroll & Estate & Gift Taxes would have to be about 150%. You see, it just would not work. I have explained more fully in my Paper.
To: Phelbers re: post # 511
I am not suggesting a simujltaneous enactment and repeal. I suggest that after a few years of being in place, either the full sales tax is repealed or just the sales tax on new homes (or my scenario # 3). This is similar to the 10% Luxury Tax on cars over $50,000 and boats over $100,000 that was passed in 1990 and repealed just 3 years later when loads of boat manufacturers went out of business.
YOU: “If enacted, it is very unlikely there will be a repeal. It is a very, very rare event for a tax to be repealed.” ME: How can you szy this when you envision the repeal of the Income Tax which has been in the law for 100 years. You ” Even a reduction in tax rates is unusual, and they are almost always reinstated, as is now the pending case with estate tax, for example.” ME: Rates go up and down all the time – they are a political footbal. I have seen many many rate changes over my career.
YOU: It is more likely there will be an increase in the sales tax, particularly if the unfunded welfare programs are not made actuarially real, with legitimate trust funds as opposed to the present bankrupt artificial accounting scheme. ME: I agree with your conclusion of higher sales tax rates but for other reasons – primarily the shortfall in tax revenues due to massive tax avoidance which the “fairtax” tries desperately to argue away.
YOU: “A sales tax increase would increase the banks position by your analysis.” ME: Not if new home later get exempted.
YOU: “If the seller is made liable, which is essential for any hope of a sales tax plan, the tax will be paid outside and separately from the mortgage transaction just as present invisible embedded taxes are, or God forbid, a VAT would be, included in the sales price.” ME” I juszt don’t yet understand your argument and think that it does not matter upon which party the tax is imposed. If it imposed on the seller, he just raises his price to cover the tax and if it is repealed he lowers his price – this is the same result, effectively, as if the tax is imposed on the buyer.
Phelbers
Ed –
I haven’t followed all of this thread, but the minimum wage is a pet peeve of mine. I’ve owned small businesses on and off for thirty years, often in economically depressed areas where it is difficult to make a profit and there is a lot of unemployment.
Now, if I’m required by law to pay a particular wage (in addition to payroll taxed, unemployment insurance, and workers’ comp insurance), at some point I’m better off just closing down my business, at least until the economy recovers. But if I were permitted to offer a lower wage, which was accepted by a worker who needs a job, then we’re both better off (as is the economy in general.)
If the wage I offer is too low, the employee will leave as soon as a better opportunity presents itself (and will probably do a crappy job in the interim), so there’s no real encentive for me to make a lowball offer. Now some will say that a family can’t live on a minumum wage. That might be true, but (a) it might be a teenager living at home, (b) it might be the spouse of someone who has a job, or (c) it might be a temporary arragement until the worker can find a better job. Finally, in some areas, such as rural Alabama, the cost of living is very cheap. So, the bottom line is that I’ve concluded that a national minimum wage is probably more harmful than helpful. (And that’s coming from a good Democrat!)
To: Ed Michael re post # 512
OK. I just don’t yet see that Capitalism has failed 100 million people (I think politicians who have seduced people into a safety net welfare mentality HAVE failed many people).
Also, I just do not make the leap that because many people have failed (whether because of our politicians, their own bad choices or misfortune or other reasons) that somehow we MUST be FORCED into supporting them and the level of that support will be deteremined by a bunch of politicians pandering for votes. That is not my reading of the Constituion and the the federalist papers – I read those as promising a very limited federal govt and charity to be provided in the private sector.
TO: Ed Michael re posts 513 & 514
I have not done that research and do not dispute your figures.
The impact of minimum wages is irrelevant to the cethe central point IMHO. That is that I do not believe that the federal govt has any business setting minimum wages – it is engaging in an unconstitutional welfare safety net program and monkeying with the economy (always a formula for disaster (do you recall wage & price controls)?
Stephen, 516
I didn’t mean you were saying enactment and repeal at the same instant, just pointing out that it is not necessarily sound to reject a sales tax on the basis that it might be repealed. Your basis for this thought line is that there will likely be a repeal. I wasn’t saying taxes never get repealed, only that is rare for a tax to be repealed.
Without doubt now, home prices are higher due to some level of embedded taxes the builder must roll into the price. These will offset to some extent the sales tax – the exact amount estimates vary, but they are very real and quite significant, certainly in the 20%+ range. So, the scenario you outline may be exaggerated. These two taxes will tend to offset – how quickly is an open question. But if a builder’s costs go down 20%, he can reduce his price by that amount, and supply-demand market forces will govern price. A builder’s new unsold houses will be exempt even under HR 25.
If the seller is liable for the tax, the buyer won’t have to raise 30% of the sales price to pay the tax. This is the main difference. The buyer will need only the 20% for the down payment. The tax will be in the price, as are present embedded taxes.
On avoidance / evasion, the late Senator Roth, on page 28 of his book “The Power to Destroy”, cites 1996 IRS ‘avoidance’ rate of 17%. A recent study in Canada showed a sales tax 16% evasion rate, page 11
[http://www.bu.edu/law/faculty/scholarship/workingpapers/documents/AinsworthR092010.pdf] .
The thought seems to be that evasion will skyrocket with a sales tax. I disagree – most Americans are honest and law abiding. If the businesses – not the buyer – is liable there will only be 1/10th as many entities to audit as now. This 16 – 17% is accounted for through revenue neutrality. We can’t reject a sales tax on the possibility of higher evasion numbers which may occur.
On exemptions, one of the original FairTax principles is no exemptions. If there is a house exemption, the FairTax will of course be over. But here again, you appear to be basing the objection and rejection of a sales tax on an exemption being a near certainty.
I haven’t completed your paper yet, so these observations are based only upon first impressions, and points I have not seen you raise.
Thanks, Phelbers
To: Phelbers re: post # 520
Generally, things do not get repealed. However, such a dramatic tax that will destroy the major new home iondustry (a consequence that the promoters refuse to recognize, naturally) is most susceptible to repeal as was trhe 10% Luxury Tax I mentioned.
I have no idea about the size of the embedded tax burden home builders currently suffer (do you have any direct evidence to support your 20+% estimate). Generally, many people have estimated a 5-10% embedded tax burden overall which is the maximum POTENTIAL price reduction (sellers are not at all certain to pass along their savings – it is only a theoretical price reduction).
You seem to be in a very mall minority of people who do not foreseee massive tax avoidance resulting from a very high sales tax rate (not a mere 16% tax rate). It is also a matter of taxpayers not spending in protest to the high rate (again recall what happened to the US 10% Luxury Tax).
No, my raising th mortgage problem because of a virtual certainty of a later exemption of new homes, is onely ONE major interesting secondary ec onomic problem I have with the “fairtax”. My major economic problems with it revolve around the dramatic negative impact it will have on our retail sensitive economy, and the spiraling economic disaster that will evolve as revenues fall short and the tax rate must be raised.
Hayden,
I understand. However, if everyone has to pay the same minimum wage rate, there is no competitive advantage lost. Only possible loss is if the amount of the wage adds to the cost of a product enough that it slows demand.
One of the big problems we have in this country is that people who do work, at the bottom level, do not earn enough income to stay above teh poverty level. And then we are forced to compensate. Sad part is all I am suggesting is that we return to the minimum level 40 years ago. Which, coincidentally(or maybe not), was a time when the US was the world leader by just about any measure you can name. As opposed to now when we are closer to becoming a third world nation than regaining the top spot.
From everything I have seen in this area, the cost(all put on the consumer) would result in a 1 or two percent price increase. I don’t know about you, bt my buying patterns would not change if my value meal collection cost $1.02 instead of $1.00.
With the exception of ‘Your Share”, your paper is a refutation of HR 25. I concur in every issue you raise in opposition to HR 25.
All your objections are readily fixable, and a sales tax to replace all the income taxes is quite possible.
A sales tax, put together without HR 25′s fatal flaws, implemented as an excise with the seller liable rather than a direct tax upon the buyer, has the advantage of simplicity. It also removes of the onus of being compelled to give testimony that can be used against us in any criminal case, and having the feared IRS over the individual buyer. I prefer a retail sales tax system like the gasoline tax.
Do you oppose any form of a national sales tax to replace the income taxes?
Thanks
Stephen,
How can the minimum wage be irrelevant?
If if was raised, working americans would not need to “taken care of” anywhere near to the extent they are now.
TO: Phelbers re post # 523
I fail to see how ANY of my objections to HR 25 are “fixable” (except that the relatively minor-but-important mortgage problem could be “fixed” by exempting new homes – still HR 25 would be a disaster).
Are you suggesting a sales tax which is “hidden” from the consumer? If so, I would not like the lack of transparency, but it might avoid the sticker-shock rebellion (but not entirely). There would still be a significant disruption of our consumer-based economy.
I really do not like any sales tax approach, because the rate would have to be very high in order to achieve the revenue goals. I don’t like giving the govt 2 taxes (Income & Sales) because they will abuse BOTH.
I believe the simplest, fairest, least administratively burdensome tax is YOUR SHARE – the head tax!
To: Ed Michael re post # 524
I said it is irrelevan “to the central issue” i.e., to the fact that the federal govt has no business dictating wages nor mandating charity.
I do not think that raising the minimum wage reduces the “demands” of the poor. It seems to me that those people who want to raise their economic status usually find a way to do so no matter how low the minimum wage..
Stephen
Remember, I support virtually no part of HR 25, and agree with you on its unacceptability.
The prebate problem is readily and completely fixed by issuing credit GOOD FOR THE TAX ONLY as I have described. There would be no cash given whatever.
The home mortgage problem you describe is readily fixed by making the SELLER, not the buyer liable. I do not advocate a hidden tax at all, in any way whatever. The tax portion of the mortgage will be known and fully visible. Your objection here is only valid if there is a repeal of the tax.
The ‘double taxation’ issue is easily fixed by issuing a credit GOOD FOR THE TAX ONLY for savings held at the time of transition.
Make the sales tax effective only upon repeal of the 16th amendment. I have never advocated having BOTH of them.
Eliminate the income tax from HR 25.
Make the sales tax an excise by making the seller liable, not an unapportioned direct tax with the buyer liable.
Your capitation tax would have to be apportioned among the states according to population / representation.
As I read Your Share, the 2000°° is contingent upon a reduction of the federal budget to $600 billion. What would it be with a 3 Trillion budget – 10,000°°? It can’t immediately replace the income taxes until the budget is fractionalized.
Your figure that 150% added sales tax is the minimum needed (a 1.00 item would cost 2.50) if based upon treasury estimates id doubtful. The Treasury Department IS the IRS, so their figures are doubtful since their jobs are eliminated, at least in part, or at least by the rhetoric – the fear is there for them at least by a sales tax. If levied constitutionally as an excise with the Seller liable, the taxable entities are reduced tenfold or so.
Thanks, Phelbers
Hayden re post #517,
I am impressed with your position on minimum wage. I take the same position and have never heard a democrat take such a stance. My faith in humanity has been partially restored.
To me the issue boils down to the freedom two individuals have (or should have) to enter into a mutually beneficial agreement regarding compensation in exchange for services provided.
If employer A can’t hire worker B (get it….worker Bee…sorry, i couldn’t resist) because of minimum wage laws, then even though the wage employer A would like to offer would be insufficient to meet worker B’s needs, it doesn’t keep worker B from taking a second job. Furthermore, if employer A does not hire worker B, then worker B has zero income…how does that help worker B?
I think people are under the misguided assumption that some set in stone economic practices, unaffected by government, are in place. And that whenever the government gets involved, it is always to help the poor and therefore are socialistic in nature.
Of course, that totally ignores the simple fact that some laws obviously are put in place to help the rich. And not just the rich, but the superrich. Look no farther than the estate tax(and not the largest example at all). Basically this is a transfer tax levied on income which, in the vast majority of cases has never been taxed. And allows people to control their children(in most cases) until their deaths. And sometimes even beyond that.
I would suggest reading “Unequal Democracy” by Larry Bartels. Tells, without taking sides, a frightening story.
And while I understand all of the thoughts about the minimum wage, I would suggest that if paying a wage sufficient to keep a worker barely above poverty could ruin your business, you have a big probem with your business plan. Or you just subscribe to the “let them eat cake” business model.
To: Phelbers re: post # 527
First, I appreciate that your intelligence and good judgment that leads you to agree with my objections to H.R. 25.
The Prebate problem MAY be somewhat fixed by issuing credit GOOD FOR THE TAX ONLY as you have described. There is still the issue of insuring the integrity of those credit cards. Also, for me, I still object strongly to a major portion of the population paying no tax but voting.
YOU: The home mortgage problem you describe is readily fixed by making the SELLER, not the buyer liable. I do not advocate a hidden tax at all, in any way whatever. The tax portion of the mortgage will be known and fully visible. Your objection here is only valid if there is a repeal of the tax. ME: Yes, and if the tax is repealed the bank’s security loses its value – thus the bank will still not lend on the “sales tax component” of the total price of the home..
YOU: The ‘double taxation’ issue is easily fixed by issuing a credit GOOD FOR THE TAX ONLY for savings held at the time of transition. ME: I do not understandf the point you are making here – please explain further.
YOU: Make the sales tax effective only upon repeal of the 16th amendment. I have never advocated having BOTH of them. ME: I AGREE – that was not my issue – I was just saying that in general (because any sales tax would need a very high rate to collect all the neeeded taxes) that I do not want to give the govt 2 weapons to kill me with.
YOU: Eliminate the income tax from HR 25. ME: I do not understand this.
YOU: Make the sales tax an excise by making the seller liable, not an unapportioned direct tax with the buyer liable. ME: Then it is “hidden” which I don’t like, but it is still there as a component of the total sales price and so you are stiull bacjk to my mortgage problem and only some large element of my sticker shock tax rebellion propblem.
YOU: Your capitation tax would have to be apportioned among the states according to population / representation. ME: By definition, a head tax is apportioned by population.
As I read Your Share, the 2000°° is contingent upon a reduction of the federal budget to $600 billion. What would it be with a 3 Trillion budget – 10,000°°? It can’t immediately replace the income taxes until the budget is fractionalized.
Your figure that 150% added sales tax is the minimum needed (a 1.00 item would cost 2.50) if based upon treasury estimates id doubtful. The Treasury Department IS the IRS, so their figures are doubtful since their jobs are eliminated, at least in part, or at least by the rhetoric – the fear is there for them at least by a sales tax. If levied constitutionally as an excise with the Seller liable, the taxable entities are reduced tenfold or so.
Thanks, Phelbers
RE posts 517 & 528
Hayden illustrates the wisdom of the FF who believed that the federal govt MUST keep its nose out of the private sector economy and denied it that power in the CONSTITUTION.
“To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”
Guess where that is from?
TO; Ed Michael re: post # 529
It is not clear to me what you are saying. Are you suggesting that the EState & Gift Tax is a law to HELP the rich???????
You say that the income “in the vast majority of cases has never been taxed”. That was the class warfare ranting at the time this tax was enacted 100 years ago (and it was true that the great “robber barons” made their money before the income tax of 1913, but so what?) – that is largely not the case today. True, some gains have not been taxed but most of people’s incomes have been subjected to income tax.
You suggest that the Esatate & Gift Tax “allows people to control their children(in most cases) until their deaths. And sometimes even beyond that.”
It is other laws (not this tax) that allows people to control their assets.It is I guess you think that people have NO RIGHT to control their assets and that somehow their assets should be taken away by their children. I must strongly object to your attitude – I believe in FREEDOM.
YOU: I would suggest reading “Unequal Democracy” by Larry Bartels. Tells, without taking sides, a frightening story. –ME: Can you give us a sysnopsis?
YOU: And while I understand all of the thoughts about the minimum wage, I would suggest that if paying a wage sufficient to keep a worker barely above poverty could ruin your business, you have a big probem with your business plan. Or you just subscribe to the “let them eat cake” business model. ME: A business person must focus on what is good for his business (bearing in mind that he needs to attract and keep good workers) – his focus ishould not be on the Socialist “what is best for the workers”.
Maybe you guys need to listen to a little John Wayne:
Devlin Warren: I don’t know what to say. Never begged before. Turned my stomach. I suppose I should have been grateful that you gave me the job.
George Washington McLintock: Gave? Boy, you’ve got it all wrong. I don’t give jobs I hire men.
Drago: You intend to give this man a full day’s work, don’tcha boy?
Devlin Warren: You mean you’re still hirin’ me? Well, yes, sir, I certainly deliver a fair day’s work.
George Washington McLintock: And for that I’ll pay you a fair day’s wage. You won’t give me anything and I won’t give you anything. We both hold up our heads.
“That was the class warfare ranting at the time this tax was enacted 100 years ago (and it was true that the great “robber barons” made their money before the income tax of 1913, but so what?) – that is largely not the case today. True, some gains have not been taxed but most of people’s incomes have been subjected to income tax.” –Stephen–
What planet do you spend most of your time on?
When is a capital gain realized and subject to taxation?
Stephen
I object to non-paticipating citizens as well, but we have them now. All the sales tas is intended to do is transform the income tax system to a sales tax – not correct the flaws and errors of the welfare state. The credit card FOOD FOR TAX ONLY has no cash or barter value so there is no benefit in fraud. Each use requires the hard cash to cover the base price.
Again, you reject this based upon the repeal of the tax, as though it is an absolute and irrevocable certainty which will without question soon follow any implementation of a sales tax. My point is based upon the tax being imposed and remaining on the books. Banks now loan on the embedded taxes on all the materials and labor that went into the building of the house. let’s use the low side figure of 10% of HR 25 opponents – the banks do not refuse to loan this significant amount on the fear that these taxes will be repealed.
‘Double’ (actually a second) taxation of savings retained before transition to a sales tax occurs because these moneys were what was left after income taxes were taken. The saver already paid income tax on the gross amount – the savings are the left-overs. But when spent under the sales tax, their buying power will again be diminished on the money from the same wage effort. This is one of the major fatal flaws of HR 25, and an utter show stopper. I assumed you covered it – still haven’t read every word – it’s one item in Hank van Gleason list of 14 you cite. Non-Roth IRA’s escape this second taxation, since these moneys were pre-income tax. This is fixed with the FOOD FOR TAX ONLY credit for savings (but not for traditional IRSs.
Section 905 a) retains the income tax and withholding system, ostensibly for only foreign resident aliens. It is a an unapportioned direct tax, and unconstitutional. It will serve as the seed got the return to an income tax. It must go.
A head, or capitation tax is not apportioned AMONG THE STATES by population. Remember, apportionment assigns EACH STATE a percentage of the total tax. A 2000°° per head tax is unconstitutional, because it directly taxes individuals. Apportionment first requires a total amount of tax to be determined and enacted. For your tax to be constitutional, Congress would have to pass a total tax, say for example $3 trillion. Wyoming would pay 1/435th. California 55/435ths, and so on. The actual per-person tax would vary in each state, not be 2000°° pee head, and in no way be relative to the per-capita wealth of the individual taxed. A small state with high per capita wealth, such as Delaware, would probably pay far less that a populous poorer Texas. Read Pollack – this case is still holding in full force and effect Supreme Court precedent wise, although the law schools and present courts erroneously believe otherwise.
[ http://www.law.cornell.edu/supct/html/historics/USSC_CR_0157_0429_ZS.html ]
The Founders requirement that direct and capitation taxes be apportioned was one of the wisest and most brilliant safeguards of liberty in the Constitution. Until the unlawful and unconstitutional implementation of the 16th Amendment, is prevented the Marxist redistribution of wealth, and the present welfare state we now have. The violation of this essential principal has directly resulted in the absolute bankruptcy of the US.
Social Security and Medicare are the evidence of the failure of the abandonment of the bulwark of apportionment of wealth redistributing direct taxes. These destructive taxing schemes were well known to the Framers, and they made it extremely difficult for them to be implemented without great pain to those trying to benefit over others by sapping acquired wealth. Remember, the Framers were all the billionaires of their time, and knew their estates were targets of nobility and socialists. They knew all too well the destructive impact of taxation (they ofter referred to direct taxes as just taxes, and indirect taxes as just excises, not taxes), and feared direct taxes most of all because they are what destroys liberty and free enterprise.
If a 2000°° per head tax is allowed as a standing tax, without apportionment, so is a 2,000,000°° or any amount of tax. The Constitutional direct taxing restrictions are all we really need to return to – by lawfully applying the present income tax – or establishing a uniform excise sales tax.
There are two classes of constitutional taxation: Direct and excise. The Constitution requires that direct taxes be apportioned among the states according to each states’ representation. Excise taxes must be the same everywhere. Direct taxes cannot be avoided without the loss of property or liberty. Excise taxes can lawfully be avoided by selective purchasing, and are in a way self limiting.
Although many claim that the 16th Amendment repealed the two direct tax apportionment clauses of the Constitution, reading of Pollack and Brushaber disprove this. The 16th only allowed non-apportioned taxation of income in the constitutional sense, that is, only the gain derived from a source such as wages, not the wages themselves as is now unlawfully and unconstitutionally done.
Thanks, Phelbers
I have to agree with Ed on this on. We live in the most unequal society in our history. The top one percent own more than the bottom 90% put together, and life for that bottom 90% is becoming tougher by the year.
I have always believed that one of the great things about America was that, to a large extent, each generation was responsible for creating its own wealth. The estate tax played a large role in that.
If not for the estate tax, it’s easy to imagine that American would be a place where the top 1% owned 99% of the wealth (as in many third world countries). In societies where that level of inequality exists, the rich spend their resources in preserving their wealth (often through use of private security forces; buying politicians; preserving monopolies) rather than investing it into the economy and growing it.)
In any event, I’m all for keeping an estate tax. I would prefer the Democrats proposal ($3.5 million exemption and the 45% rate), but I suppose the current compromise ($5 million exemption and 35% rate) is probably the best that can be achieved politically.
Amazes me that people belive their thoughts on the definition of the Constitution is the truth. Even worse are the presumtuos people who believe their interpretation of the thought processes of the FFs are the truth.
Particularly in light of the fact that the FFs themselves gave their definition of the Constitution. Oddly enough, in the Constitution:
“The judicial power shall extend to all cases, in law and equity, arising under this Constitution..”
Fortunately for us, the FFs were very smart people, and knew they were not perfect and that times change.
Wish more people realized that.
TO; Ed Michael re post # 532
Yes, of course the federal govt is given the power to regulate interstate commerce. However, that power was to be exercised to write laws that would FACILITATE trade among the statesand provide uniform American laws so that commerce could be easily done throughout the USA.
The Supreme Court has bastardized that intent to rules that a farmer who sells his crops SOLELY intra-state is engaged in interstate commerce because what he does AFFECTS interstate commerce.
That Constitutional power DOES NOT extend to the federal govt interfereing in every aspect of our private lives on the very thin grounds that very thin grounds thnat virtually everything we do AFFECTS interstate commerce.
Again, as with the case of the word “welfae”, you seek to drive a convoy of semis through the slightest possible opening.
HAyden,
We do agree. Aristocracy(financial or genetic) is an evil way to run a country. The idea of someone’s financial standing determining their ability to vote should be poisonous to any real American.
Ed re post #529,
If your business requires a body to accomplish something that requires no real skill or intellect or hard labor, then you look for the most cost effective body to fill that slot. If a guy or gal or teen is willing to do that job for what you are offering (assuming it is 40 hours per week and would result in below poverty income for that individual) then how is that a problem with the business plan? It sounds like a good business plan to me. Why would you over pay someone to do the same thing? On the employee side, if the income is not enough, get a second job to make up the difference or go get another job that pays more. If you can’t because you don’t have the skill set that’s where hard work comes in….work hard and obtain the skill set.
Many jobs are not meant to even provide full time employment. How many workers at McDonalds are full time? How many want to be? Many don’t want to work full time or are not able to because they are in school and McDonalds as well as other retailers can offer them flexible schedules.
To: Ed Michael re post # 535
You say “What planet do you spend most of your time on?” Sadly, I have spent my entire adult life in the practice of taxation.
You say “When is a capital gain realized and subject to taxation?”
First, capital gains are subject to taxation in the year they are “realized”. That means, in the year in which I sell the asset – over the course of our lives we sell many assets – you seem to think that everyone holds all of their assets until death (this is otherworldly).
Moreoverr, over the last 100 years, people have paid income tax on their salaries, business profit, interest , dividens, pensions, etc.
Thus, the ONLY Income Tax that people have avoided is the tax on REALIZED (i.e. sold) capital gains.
To: Ed Michael re post # 534
While everyone likes John Wayne, Emplyers and employees are free tro negotiate their deal without the interference of pandering politicians or Liberal do-gooders. That’s what we call it – THE FREE MARKET.
Ed re post #534,
In the John Wayne exchange you reference, there is no definition of what constitutes a fair wage. If the person wanting to get paid did not think the wage was acceptable then in my book that is not a fair wage (to him). And guess what, no one says he has to do the work at that point.
To: Phelbers re: post # 536
f we are going to make a major change in our tax system, there is no reason not to correct certain basic political flaws at the same time (e.g., no-tax-paid = no vote). Also, much work will have to be done to insure non-transferability of those credit cards (if that is even possible).
As to the mortgage problem: While you assume the tax will remain in place, bankers can not take the VERY LIKELY RISK that ANY 1 of my 3 scenarios will result in a drop in value of their security for the loan and they will NOT LEND ON THE SALES TAX.
Yes, I separately cover this double tax (which Neal Boortz just shovels loads of manure over, as he does with most objections) – I just did not understand it in the context of what youe were saying at that point.
I need to rerread and study your comments on Direct taxation and Apportioned taxes. But for now, If we know that we need $2,000 from every American, and that California has 40 million citizens, then taxing California $80B and California taxing its citizens $2,000 each gets you there. To me, a head tax is by definition apportioned to the Sates because it is based upon the number of citizens. To Restate: if we tax Californians $2,000 haven’t we appooportioned $80B to all Californians.
To Hayden re Post # 537
My friend, I know we disagree on politics. The Estate & Gift Tax is a Socialist abomination.
If a person accumulates wealth LEGALLY, it is not for anyone to deprive him of that wealth just because it may be harder for a poor person to become wealthy (in your opinion) or because you think it is unfair that that persons decendants do not have to earn it themselves.
At the end of the day, you want to DEPRIVE a citizen of the FREEDOM to enjoy and dispose of their wealth as they see fit – using your personal rationalizations.
I submit that there is no overriding danger to our Republic caused by the exercise of that wealthy person’s personal liberties and thus no meaningful justification for the Estate & Gift Tax (I can see the possibility of an Income Tax on UN-realized gains imposed at death).
To: Ed Michael re post # 538
What was the specific issue you were adddressing?
To: Ed Michael re post # 540
Aristocracy is no way to run a country, but that does not mean that it should be legal or necessary to deprive the wealthy of their freedom via an Estate & Gift Tax.
Also, the Republic will not survive if a large group of people pay no tax but have the power to vote to themselves the wealth of others (as was the case in America originally).
Stephen — Re: Post No. 546
Yes, my friend, we are too far apart philosophically to agree on much (except that the FairTax is a joke.) However, without being argumentative, what is different conceptually between the Your Share Plan and the Estate Tax.
Under the Your Share plan, the government takes an equal amount from every citizen, regardless of their income, savings or ability to pay. So the government will seize 100% of the wealth of poorer Americans (and, if they don’t have that much, presumably get a judgment against them for the difference.)
Now, you might believe that is “fair”, but I don’t see how that is conceptually different (or less fair) from the government seizing 45% of an estate above a $3.5 million exemption.
You might say under the Your Share plan, everyone is treated equally. But not everyone has the same financial resources, so I would say that forcing a minimum wage single mother (who has no savings) to pay the same amount of tax as you or me (each of whom presumably have relatively high incomes and/or savings) is imposing a financial burden on her that far, far exceeds the burden placed upon us.
On the other hand, I would argue that the Estate Tax does treat everyone equally. If you’ve accumulated an estate of a certain size at death, it is subject to taxation. If you don’t want your state to pay the tax, you can give away the money and engage in estate planning to keep your taxable estate under the threshhold amount.
I am not asking you to agree with me philosophically (because I know you never will), but if its the will of the people to impose a Your Share tax, a FairTax, and Estate Tax or anything else, then I don’t see any conceptual difference between the various tax systems as long as they are enforced uniformly.
To: Hayden re poist #549
Once you allow in the concept of people’s individual circumstances, you start down the slippery slope that ends with “from each according to his means to each according to his needs”. Once you surrender the PRINCIPLE – you devolve into subjective hell. The Constitution stands that equal OPPORTUNITY be given to all – not equal RESULTS and not Un-equal opportunity (e.g. the reverse discrimination of affirmative action).
I remind you of your condo or timeshare, does the Board look to individuals’ ability to pay when allocating common costs? America is our cooperative undertaking and every American must pay their share (an equal share is likely the fairest financial method of allocatinmg that cost).
The govt would be siezing the samed dollars from every citizen. Whether that person has no more money or lots of money is not relevant to the exercise of allocating our common charges. Forgiving the poor person’s contribution is akin to Affirmative Action. You are denying someone else the liberty of enjoying all of their earnings by FORCING them to pay the pro-rata fair share of the poor person and thereby redistributing wealth.
Charging a person a tax based upon their ability to pay, is another aspect of Marx’s means-need principles. In any event giving those who pay no tax the right to vote themselves more of your money is a formua for disaster.
Those who pay the Estate tax are NOT treated equally. These select citizens are either FORCED to give their money to charity or are FORCED to pay the Estate Tax. How does stealing their wealth (after they have already paid Income Tax on some portion of that wealth) constitute EQUALITY?
Stephen
How do you propose to collect the fair share, however many thousands of dollars that is, from someone earning less than poverty level? Or from someone who is not earning anything at all, such as a 90 year old woman being cared for by her children?
To: John Bailey re: post # 551
I admit that is a practical problem – I won’t bother you with that old joke about the old lady who ran out of money and had to become a prostitute.
In general, the poor would have seek the help of private charities.
We need to find some effective way to insure that everyone pays their fair share – that definition is driven by their relative impact on the total cost – that has nothing to do with their ability to pay.
Noiw that we (I) have the correct concerptual approach, it is a separate matter to figure out how to apply and enforce it. (Once you begin with people’s ability to pay, you lose sight of the right answer and your principles and practices go awry).
ps: Unrelated: do you believe that people who pay no tax should not be able to vote?
Stephen re: post 552,
I thin kthere is a point where prinicple and implementation have to meet. I do not see any way for the federal government to collect a tax from someone who has no assets. Soliciting the assistance of charitable organizations and friends is a nice idea I am infavor of them, but at the end of the day (I really dislike that phrase) if the citizen in question does not seek assistance, what will the government do….cart them off to the dungeon? And as a few of us have argued your definition of fair is not universally accepted. Some see fairness more as some fixed percentage of one’s income or perhaps net worth, some may see fairness as a percentage (progressively or regressively) of one’s income and some see may see it as a percentage of on’es consumption, some many see it as being related to what you get from the government (i.e. in welfare or protection).
Just because it seems fair in your mind to charge everyone the same dollar amount, that does not make it correct or even fair. I see all of those as being fair in one aspects or another. Which is more benifical to society? I think we can make the poor sufficiently uncomfortable in their poverty without making them indentured servants.
In answer to your last question, as tempting as it is to apply this restriction, I do not think people who pay no taxes should be barred from voting. My parents do not pay any income taxes and I think they are very wise and welcome their vote on all issues. I suspect there are a great many non-tax-paying citizens out there today who have a lot to contribute to our society.
Stephen,
While I actually agree with a lot of what you say (though your opposition to the fairtax and your general view of economics aren’t among them), I have to disagree with your general view of people paying for what is common. I used to live in a condo and we didn’t all pay the same for what was common. We had a common recreation room. Use of it required the extra expenditure of funds.
I personally, think the government should be funded the same way. Therefore, those enjoying the benefit will be responsible for the costs. Take toll roads for example. Users of the roads pay the tolls. If no one uses the road (say like a bridge to nowhere), funding stops.
I’ll admit use of the military (as in the federal example) isn’t as clear cut, but since their main function is protection of property (broadly defined as including one’s person), both a combo of your fairshare and some sort of real estate tax seems reasonable. After all, if they are protecting your multi-million dollar mansion versus my car, shouldn’t you have to pay a little more. That is probably a fairly cost effective tax on wealth.
Doesn’t it seem a little “unfair” to have a child incure the same burden as Bill Gates to protect his wealth? I’ve thought about it this equal share for quite a while (my father posed the same question to me over 20 years ago) and in my opinion, equal percentage for the truly common costs, e.g. not roads, but military, diplomatic services, is the “fairest” (and I prefer a combo of property and consumption (short term property) taxes). For everything else, I prefer fees, tolls, etc.
Stephen,
“ps: Unrelated: do you believe that people who pay no tax should not be able to vote?”
I can’t believe you even asked the question! Whomever dreamed that thought up is nuts! Surely no one would approve of disenfranchising millions of retirees, with incomes up to $50,000, who pay no federal tax under current law. That isn’t even worth thinking about!
Over and out!
JOhn re 541,
Because a minimum wage is just that. A minimum. It is the least an employer should do, regardless of te fact that it is a position that “that requires no real skill or intellect”.
Bottom is the bottom. And if your competition has to do the same, it has no effect on a decent business plan.
“First, capital gains are subject to taxation in the year they are “realized”. ”
DING! DING! DING! WE HAVE A WINNER!
Now , try an figure out what the vast majority of estate taxes are levied on in this country. ANd then do the math and put the lie on your double taxation thing.
“In the John Wayne exchange you reference, there is no definition of what constitutes a fair wage. If the person wanting to get paid did not think the wage was acceptable then in my book that is not a fair wage (to him). And guess what, no one says he has to do the work at that point.”
You are correct. But i think it would be unamerican of anyone to think John Wayne’s idea of a fair wage would be one that would not put his worker in poverty.
547.To: Ed Michael re post # 538
What was the specific issue you were adddressing?
Stephen Eldridge
People who think their opinions are backed by the founding fathers and the Constitution.
Hank,
We agree on the financial ability to vote thing.
In my whole life, I have never heard anything so unamerican or undemocratic.
Perhaps some people should look up the etymology of the word democracy. THen they should take a look at the history of the civilization that gave meaning to the word. Then they should take a look at that civilizations’ history and achievements. Ane realize that when they had a “Fair Share” tax system(sorry to disillusion any who thought this was something new) the civilization sufferred. And when they employed a progressive tax system, the civlization was a shining star whose acheivements are still relevant today in many, many fields.
But some people think bank accounts should be checked before a person is allowed to vote. As if we did not have enough problems with money controlling our elections.
I don’t know about you, but I think our democracy is sick when Hugo Chavez has more impact than I do. Or George Soros. Or either one of the Koch brothers.
And I consider myself no more than 1 out of 300 million.
Stephen
In the US under the Constitution, you simply can’t start with ‘we need 2000°° from each person’. Direct taxes must start with the federal government saying ‘we need $3 trillion’. A direct head / capitation tax cannot be set at a per-head level.
Then the $3T is divided among the states according to % population – roughly that same as representation, but remember that 1 representative is the minimum – some states may have fewer than 1/435th of the population, so it has to be figured and divided accordingly on a State by State basis.
Read the first direct tax statute – it’s in the statutes-at-large, and very interesting. You will see how direct taxes must be levied. The 5th Congress could figure out how to do it, but today’s lawmakers have no clue about direct taxation or the critical importance of its regulating and preventative effect over wealth redistribution and free enterprise destructive effects.
Our abandonment of it through the unlawful and unconstitutional implementation of the 16th Amendment tax is the very means by which the country has become bankrupt.
Thanks, Phelbers
They figur the income tax on a state by state basis and you might as well elimiinate all of the red states from the US in financial terms. They are parasites(in most cases) to the US economy.
BTW,
It is past time for this $600 billion defense and $2000 per person to be put to rest. It is not the right number. It is not close to the right number.
It is as deceiving as the inclusive-declusive Fair Tax thing, and just as deceiving as the actual Fair Tax amounts(whichever you choose to use).
Sorry, but when people come at me with “great ideas”, I get more than a little skeptical when their first claims are outright lies, let alone deceptions.
Our goverment(in terms of spending) is basically an insurance company with an army.
And btw, that is almost exactly what the founding fathers saw as the duty of the federal government. In thoughts, and in the Constitution.
Are we on post no. 564? When has that ever happened on this board? Of course, we may need to change the title from The FairTax Blog to The Ed and Stephen Debate Socieity.
Anyway, in response to Ed’s idea that only people who pay taxes should be allowed to vote, I’m generally sympathetic with that idea. To take an extreme example, if we lived in a democracy where, say, 80% of the people didn’t pay any taxes at all, I think we’d all agree that it would be unfair for them to decide the tax burden on the 20% who did. And, I think its safe to say that folks who pay taxes are far more concerned with how the government spends its revenue than those who don’t (particularly if those who don’t pay taxes are receiving government benefits.)
But my solution would be to require every citizen who receives any income at all (whether from work, Social Security, welfare, capital gains, dividends, inheritances, unemployment benefits or anything else) to pay at least some taxes on that income. That way we’d all be contributing to the goverrnment to some extent and therefore all have the right to vote (unless one chose to completely drop out of soceity altogether). I also suspect in such a scenario the government would be much more frugal with our tax money.
John Bailey re post # 553
I fully realize that I am laying out an ideal circumstance, one that me might work towards but never quite reach full compliance.
First, I think we must accept that there is an intellectually correct fair share allocation of the cost, determined wholly without regard to ability to pay because that issue is irrelevant in determining what is the correct fair share. If you and I went out to dinner to discuss politics, the only fair way for us to divide up the bill is for us to get separate checks (that is our true fair share because that is the impact we each had on the total bill).
The fact that you can not afford to pay for the meal you ordered, does not mean that a seprate bill for you based upon what you ordered is not fair. What makes it fair for me to have to pay for all or part of your meal, just because I might be able to afford to.
You define fairness in terms of what a person can afford to pay. However, fairness has noithing to do with that. Fairness means what part of the bill is attributable to you BEFORE you ever reach the issue of affordability. Affordability has nothing to do with allocating costs.
If you use affordability, then you are leaving the matter in the hands of pandering politicians – a very dangerous situation.
I do not believe the FF envisioned politicians determining which people could not afford to pay taxes.
Also, while your parents may have been wonderful people, it is an essentially and critically flawed arrangement to have people who pay no tax have the right to vote themselves your money. This is a clear and present danger to the continued existence of the Republic. The FF agreed with that.
To: Andrew Martin re: post 554
In any condo/timeshare that I have owned, there are no seprate charges. Even for the condo you noted, the overwhelming majority of the common costs, labor, repairs insurance etc. were allocated to all members (based upon their relative impact on that total (as roughly estimated by the size of each unit – i.e., larger units require more maintenence).
Toll roads are a bastardization. Why aren’t we each billed for our indicvidual use of the military, etc?
If you could save your life OR your assets, which would you chose? Its an easy choice because all of your assets pale in comparison to your life and liberty. I submit that the overwhelmingling primary thing the military protects is your life and liberty (while they also protect your property, but that is incidental).
One might take the view that child’s life is more precious than Bill gates’ life – the child has longer to live and grow, while Gates has already lived a long and fruitful life.
Under your preferred allocation/tax methods, some people enjoy all the benfits of freedom, but pay nothing for it – and they can vote to take away the rest of your money. I can not see the fairness in that.
As to the “fairtax” I guess you believe A) that not only should some citizens pay for the nation’s entire common costs but they should also be forced to give those poor people extra cash to live on, and B) That all of the economists that I cited, Treasury, Joint Tax Committee etc are all just dead wrong and that the economists paid by AFFT are all correct.
To my friend Hank van Giesen re post # post # 555
It was the FF who first utilized that principle.
I do not suggest that we suddenly disenfranchise people who have paid a lot of tax over the course of their lives. Under the current tax system I would apply that tax-paid test over a rolling several year period.
Even under my version of a Flat Income Tax (twhich I suggest is the only practical short term answer) i.e. one with a single tax rate – no deductions -no exemptions, everyone with income will be paying income tax and thus entitled to vote.
There has to be some answer that protects the Republic from that extremely dangerous human circumstance that would allow the mob to loot the wealthy few.
To: Ed Michael re post # 556
From where do you get “its the least an employer SHOULD do”?
Why SHOULD he – what is the determinant?
Who determines what any of us SHOULD do?
To: Ed Michael re post # 557
To: Ed Michael re post # 557
Ed, you are getting so excited – I told to taxes can be over-stimulating.
Let me explain something to you (remember that I have spent my life as a tax practitioner – while I am not an expert on the Estate & Gift tax, I know more than enough for this purpose).
In general, the Estate Tax is levied upon the value of ALL ASSETS HELD AT THE DATE of DEATH. It is NOT levied ONLY upon assets upon which the decedent has NOT paid income tax (as you appear to believe) , but it is also levied upon asssets upon which the decedent HAS paid income tax. Neither you nor I will have access to Estate Tax returns filed to calculate how much of the tax is levied on unrealized gains versus realized gains.
To Ed Michael re post # 558
Then feel free to go work for John Wayne.
To: Ed Michael re post # 560
We do not live in a DEMOCRACY. The FF studied the Greek model and determined that a DEmocracy equalled MOB RUle – they elected to go with a Republic where the mob should not be able to rape and pillage the wealthy.
I am amazed that you guys do not see the danger (that the FF saw) in having some people pay no tax but be able to vote themselves yopur money. You are calling the FF Un-American
To; ALL
I am thrilled to be discussing YOUR SHARE and these other philosophical points, because these principles are critical to setting policies.
Also, I hope this also means that you guys have seen the light and are now over the “fairtax” and are moving on to find better ideas.
I am tired and will pick up at post #560 tomorrow.
Stephen,
I understand what the estate tax is. My comment was that the vast majority of the estate tax is collected on assets that have never been taxed.
You can look it up.
Stephen re post #566
You say “You define fairness in terms of what a person can afford to pay. ”
I said nothing of the kind. I gave several examples of what I think various individuals may think of as being fair.
As for my parents, they do not vote for other people’s money, nor do they even ask their own children to help them out despite their low wealth and income. My 77 year old mother mows their lawn (as my father’s health is failing). While they would stand to benefit greatly from increased public programs they consistently vote against them or vote for candidates who stand against socialists governments.
Hayden,
I do not agree with only people that pay taxes should vote. I totally disagree. I even disagree despite the fact that you would have a hard time finding a working person that does not payany federal taxes.
Stephen,
Where can I find the writing of the founding fathers on Greek democracy(I understand the representative thing) calling it “mob rule.”?
Ed re post #558
you state “But i think it would be unamerican of anyone to think John Wayne’s idea of a fair wage would be one that would not put his worker in poverty”. First of all, I am a John Wayne fan not just because I like his movies, but I like the persona he portrayed. Secondly, John Wayne did not write his lines…he was an actor playing a part. Though he may not have disagreed with his character’s positions that does not mean those ideas were fully supported by him. So claiming I or anyone else is un-American for imagining what a fictious character would or would not pay for work done by another fictious character in a movie is absurd.
Ed re post # 556
It’s only a minimum because enough politician voted it that way. Besides, there is something less…it’s called zero income. The government creates a number and tells employers they can pay less for wages thus distoring the labor market. Is it a coincidence that the rise in unemployment began when the minimum wage started to rise? The supply and demand for labor is really no different than that of other products (cars, houses, soup, etc.). When price floors or ceilings are put in place it distorts the market. Individuals know best what trade offs they are willing to make and able to make for to meet their own needs. I submit that most would be willing to work two below minimum wage jobs to make ends meet than zero minimum wage jobs….or one minimum wage job that brings in less money than the combined income of two below minimum wage jobs.
So based on your position, the employer SHOULD be obligated to only provide above poverty employement regardless of whether or not he can stay in business or not? If he can’t stay in business that way, he should not have been in business to begin with. Right? I suppose if the World went to a minimum wage then I might go along with you. But many Americans are trying to feed their families and are having to compete with companies over seas (S. Korea, China, India to name a few) whose wages are far below those in America.
To: Ed Michael re: post # 574
Since I have not ever been sufficiently interested in that precise question, I have never attempted to research it.
You must have some handy source of info which gives you the basis for your conclusion – will you share that source with me?
It is somewhat likely that some wealth has not been subjected to Income tax (unrealized gains, pension savings) but it is also very likely that that the Estate Tax will reach assets/income that have indeeed been subjected to the income tax.
Before the lkast round of nonsense, I believe the Estate Tax was as high as 55%. How do you justify that rate when the top Income Tax bracket has been about 35%?
Stephen #568,
Glad to read that you aren’t going to disenfranchise me because I pay no net federal tax.
My recollection is that paying taxes was only one of three criteria for getting to vote way back then. Property ownership was probably the most important, followed by “manhood suffrage” in several states, and of course paying taxes in several others. The manhood suffrage thing evolved over the years with negro’s added to the roles , Indians, and finally women.
And, I can’t find anything specific in the Constitution or the Bill of rights that requires paying taxes in order to vote? By the way, if you want to pursue that idea, be prepared to repeal the 24th Amendment which, while addressing poll taxes, does say that failure to pay any tax is not grounds for losing one’s voting rights.
I kind of like property ownership as a criteria. Easier to enforce than payment of taxes? There is no question that we are headed down a slippery slope where the poor are looting the wealthy as predicted by many.
To: John Bailey re post # 575
I used that shorthand because you definiotions of fairness (i.e., a % of income/spending) all relate esentially to what a person can “afford” to pay – others have talked about the poor not having the means to pay.
“Fair” share has to relate to something. I submit that is “fair” share of the COMMON COSTS we share has everyting to do with our relative impact on that COMMON COST – I fail to see what is the impact of your earnings or total consumption. Go back to our joint dinner – what determines your “fair share” of the check is what you ordered i.e., your impact on the total bill.
While your parents are obviously good people (and there are others), I am amazed that you folks fail to apprediate the grave damage done to our Republic by politicians who are using your money to buy votes from the “poor”. I Believe the FF understood the human frailty of people (especially politicians) and saw the wisdom of denying the vote to those who paid no (property) taxes.
To: Ed Michael re post # 576
So you believe that it is OK for politicians to use our money to buy the votes of poor people.? Obama agrees.
To: Ed Michael re post # 577
“Mob rule” is my shorthand. I think “The 5,0000 Year Leap” was my base text.
To: hank van Giesen re post # 580
YOU:”My recollection is that paying taxes was only one of three criteria for getting to vote way back then.” – ME: I did not realize you were that old.
Besides that Amendment, there are likely several things more that need cleaniing up.
You recognize, “There is no question that we are headed down a slippery slope where the poor are looting the wealthy as predicted by many”. I am just looking for some long-term protection from such looting. By that I mean that people who pay taxes over a period of time should be the ones who decide where that money is spent (as the FF believed) and that system prevents the looting as well.’
Stephen — I started reading “The 5000 Year Leap” after that nut Glen Beck kept talking about it on his radio show, but I quickly got bored and stopped reading. Is it any good?
To: Phelbers re post # 561
I do starty where you suggest. I get down to a proper Constitutional budget of $600B (it could be more). Then Im divide that number by 300MM American to get to $2,000 per person.
You say that $600B should be ” divided among the states according to % population”. By definition, if I assign a $2,000 tax to every American it has indeed been allocated based upon % population, EVEN MORE precisely than by number of US Representatives. The tax is imposed upon the citizens not upon the States and each state’s total population pays its properly apportioned total tax.
Can you direct me easily to that first Direct Tax?
In any evnt, if the Constitution could be amended to bring us the abomination of the Income Tax, and IF there is an issue with my YOUR SHARE, then the Constitution should be clarified to allow YOUR SHARE.
Stephen re post #566
As like many things in life, fairness is not black and white nor universally accepted by all. While I am in favor of fairness (withing limitations of various definitions) I am also in favor of practicality. I am not in favor of welfare in it’s present state, but am in favor of some form of temporary support to assist in getting someone back on their feet during rough times (not 3 years of unemployment benifits).
So how about a tax based partially on all the various forms of fairness? Bare with me as i haven’t thought the details completely through.
Fairness defined as:
1) Everyone should pay the same amount – so every be require to pay some base dollar amount ($100)
2) Everyone should pay the same percentage of their income – in addition to the $100, everyone should also be required to pay 10% of their income
3) People who use government services should pay – so charge a fee for government services (i.e. when/if we are attacked by a foreign power, pull out your checkbook when the US troops set up in your city to defend you….or they may leave).
4) IF you make more you should pay more – on top of the flat amount and contant percentag, for each $100,000 you make you have to pay an extra 1% of your income in taxes.
5) Only those who pay taxes should vote – if you want to vote….pay an additional tax equal to 0.5% of your income.
I realize there are some bugs that need to be worked out….like conflicting definitions (i.e. everyone pay the same amount vs. the more you make the more you pay).
To: Ed Michael re post # 562.
YOU: “THEY figure the income tax on a state by state basis” ME; Who is “THEY”?
You: “and you might as well elimiinate all of the red states from the US in financial terms. They are parasites(in most cases) to the US economy.
ME: Those of us living in red states have heard your downtrodden-poor-workers-are-being-oppressed-by-the-wealthy nonsense many times before. When will you ever learn that does not work for you.
YOU: “$600B …is not the right number. It is not close to the right number.” ME: I use a somewhat reduced military budget (some say $800-900B)and add just a little (based upon Alexander Hamiliton’s explanation in Federalist Paper # 34). What figures do you use? In any event, the correct per person tax is simply a function of dividing the total number of citizens by the proper Constituiional budget.
Thus, I make no attempt to deceive anyone as to the final numbers. In fact, I belive that I have said before that currently we are paying taxes of an average of $8,000 per person and Congress is SPENDING an average of over $13,000 per person.
You need to READ my Paper.
To: Ed Michael re post # 563
The federal govt was not supposed to be an insurance company.
It was supposed to be our defender (the military) and the unobtrusive facilitator or our enterprise and liberty.
To Hayden re: Post # 565
That fits in well with my proposal that (in the interim until we get to YOUR SHARE) that a greatly simplefied Flat Income Tax is the least impractical solution.
The Flat Income TaxI suggested has only 1 tax rate and no exemptions or decuctions – everyone pays from dollar 1 of income. See SUPPLEMENT # 25.
To ALL:
Is anyone else experiencing this problem? When I type a sentence, nothing appears for several seconds and then the entire sentence is printed out.
To: ALL
To get back to the “fairtax” for a moment, at some point we discussed Tax Avoidance.
A friend just sent me the link below – this trend will go viral if we ever had the high retail sales tax rate of the “fairtax”
http://www.usatoday.com/travel/destinations/2010-12-09-san-miguel-mexico-retirement-homes_N.htm?csp=Travel
Stephen
Apportionment is not simply the division of the total by the population, of the multiplication of a per head amount by the population as in your case.
In your bio, it looks a though you may be once may have been an attorney. If so, you can probably find a law library (and be allowed into it – it’s difficult for the average joe to get access to the county law library – which we pay for – if we aren’t lawyer. I have to travel 50 miles to a federal depository library to find the law books). If not, you will have to find one of the regional federal depository libraries – often at a college or university. These are open to the public. Some big city libraries still have the S-a-L.
Go to the Statutes-at-Large, printed by Little, Brown & Co. or the Government Printing Office- not the US Code. The S-a-L is the official edition of the laws of the US as enacted, and has every single act of congress since the First Congress in 1789. Look for the Fifth Congress, Second Session, Chapter LXXV (75), July 14, 1798, Statute II. That’s as close as I can direct you – it is not on line as far as I have been able to find.
It is rather lengthy, but has much marginal info that helps you through it.
The framers saw the danger of such direct taxation and knew well the destructive nature of it. In the debates, they even considered disallowing any direct taxation whatever, but realized that in the case of total war, it might have to be resorted as a last ditch effort to raise money. They knew that the printing of money, as they had done in the Revolutionary War was disastrous. I remember my grandparents saying “that’s not worth a continental”, confused, thinking the meant a Lincoln Continental which was a pretty good car at the time, but big and heavy and a gas guzzler. We kids used the term to signify junky stuff, thinking we were pretty smart to have such a cool saying. Only later did I realize they meant a Continental Congress issued ‘continental’ script money bills, utterly worthless to the extent that the saying survived nearly 200 years.
So the FFs left the door open for direct taxation, but were so afraid of it that they TWICE entered into the Constitution that they must be levied with the burden of apportionment among the states.
The impossibly high levels of federal government meddling into American life is the real problem – sustainable only by ever higher direct taxation. Your return to a rational $600 B is the real need – the taxation system, if constitutional, won’t matter too much, although direct taxation is the very least acceptable form of it.
We talk of replacing the present taxation system, but it is really only necessary to replace the present astronomically high level of taxation – your $600B is probably a good level to shoot for.
One way is to put in place a sales tax as an excise with the SELLER liable, where buyers can choose to not buy, thus reducing the tax the government gets. The people will have the choice to not buy. Such a tax would eventually arrive at level tolerable to the people, just as the luxury tax you correctly mentioned above. It was easily made moot by the refusal of people to buy big boats. When the tax level is too high, people will not pay it. The income tax cannot be avoided under the present unlawful administration of it, but the sales tax can lawfully avoided simply by not buying. (Obama care is trying to make the forced buying of stuff part of their power expansion, so maybe this will change, but there is some hope now with the recent unconstitutionality ruling.)
The other is to start following the present income tax in a lawful manner, that is paying tax on only the gains DERIVED FROM wages, not wages themselves. But, we, and business, are simpering cowards, and give in to the police-state pressures of illegal IRS enforcement of the tax. We are simply too weak kneed and spineless to risk our fortunes or honor to follow the letter and intent of the income tax laws. A seller-liable sales excise tax would shift the IRS burden immediately off individual buyers. HR 25 was written by greedy selfish businessmen to shift liability from them to us. It is thus an unconstitutional direct tax from lack of apportionment.
The income tax laws would be little more than a de minimus amount for us, and a minor nuisance to file and pay if we obeyed the letter and intent of Congress rather than the unlawful IRS regulatory version now applied. Any interest earned form saving what’s left of your wages after you paid all your bills is the gain derived from wages – nothing else. And that is the only thing lawfully taxable under the 16th Amendment or the clear text of the tax laws on the books. Regulations unlawfully add the whole of wages to the gains derived from them – outlawed by Blatt but of course ignored by the IRS.
With reference to your last sentence, the income tax is unlawfully administered. It’s lawful, statutory implementation would make it a minor matter. If you go to a law library, there are a couple other items you must see which will conclusively prove this.
The last thing we want to do is to amend away the direct taxation restrictions. That would utterly destroy it, and any hope for the future of our once great competitive free enterprise system.
Thanks, Phelbers
Stephen
I remember an old book that has the first direct tax statute in an appendix. I found some used copies still available cheaply here:
[http://www.abebooks.com/servlet/SearchResults?an=schiff&sts=t&tn=the+great+income+tax+hoax&x=52&y=6]
It is ‘The Great Income Tax Hoax” by Schiff and Hall. Although they advocated simply ignoring the income tax, and missed the actual facts about the present tax code not being enacted in the statutes (only the 1939 tax code is enacted), it is a good and accurate description of direct taxation and the history of it. I remember it as a good reference.
Thanks, Phelbers
To: John Bailey re post # 587
YOU: “…am in favor of some form of temporary support to assist in getting someone back on their feet during rough times (not 3 years of unemployment benifits).”ME: Whether you feel charitable or not is a matter solely between you and your god – the Constitution did not give this power to Congress, with good reason, wisdom and discipline. Why not let the private sector insurance companies sell unem,ployment insurance, disability insurance (which they already do), and even temporary help insurance (AFLAC sells a policy to help you pay living expenses if you get sick).
YOU:
So how about a tax based partially on all the various forms of fairness? Bare with me as i haven’t thought the details completely through.
Fairness defined as:
1) Everyone should pay the same amount – so every be require to pay some base dollar amount ($100)
2) Everyone should pay the same percentage of their income – in addition to the $100, everyone should also be required to pay 10% of their income
3) People who use government services should pay – so charge a fee for government services (i.e. when/if we are attacked by a foreign power, pull out your checkbook when the US troops set up in your city to defend you….or they may leave).
4) IF you make more you should pay more – on top of the flat amount and contant percentag, for each $100,000 you make you have to pay an extra 1% of your income in taxes.
5) Only those who pay taxes should vote – if you want to vote….pay an additional tax equal to 0.5% of your income.
I realize there are some bugs that need to be worked out….like conflicting definitions (i.e. everyone pay the same amount vs. the more you make the more you pay).
Me: First, I have read many of your expressions of what you think is FAIR but you have not explained WhAT makes that FAIR. In contrast, I have explained WHY an equal dollar tax is FAIR because no individual has a greater impact on the total cost of the military than anyone else (the fact that you can not afford to pay your fair share is irrelevant in determining the AMOUNT of your fair share).
Your points 1 & 2 above can be used to form a INTERIM solution that I have considered as a stepping stone on the road to YOUR SHARE. A single rate income tax (NO DEDUCTIONS, NO EXEMPTIONS) plus an ADD-On flat dollar tax of $X per person in the family unit.
Actually, your point 3 was sort of considered by the FF – originally, the US was not to maintain a standing army.
I completely disagree with 4 (no cost justification only Socialism)
I like 5 but it should be a HIGH flat $ fee – then those who care enough to vote will pay attention.
Stephen
I found a website that has scanned images of the statutes:
[http://www.constitution.org/uslaw/sal/sal.htm]
Try the Vol. 1 link from 1789 – 99 – you will find the direct tax statute.
Thanks, Phelbers
To; Phelbers re post # 594
Thank you. I will take a look at that.
However, I still feel that my head tax (YOUR SHARE) should be made Constitutioinal even if there is some technical problem with the ban obn DIRECT Taxtaion.
Also, right now I am trying to get back to criticizing the Tax Cut+ Unemployment Insurance Extensions which are pending as well as Paul Ryan’s Roadmap.
To: Pjelbers re post # 596
Thanks again. I wioll save those notes.
Stephen re post #595
I did not accurately state my position on welfare. The welfare I was writing about should not be from the federal government, but should be from local (state, county, city) governments. Thus no need to involve the constitution.
As far as my example of taxation….I thought it would have been obvious by the end of it that it was mostly tongue in cheek as there is no way to please everyone. Just because one of the approaches is socialism in your mind does not mean hundreds of thousands of citizens think that way. The arguement is not so much your ability to pay as it is percentage of minimal needs. For instance, a person needs some minimal level of food to exist. If an individual is able to earn enough to just meet those needs (lets use real numbers…say $10,000/year) then he has nothing left to pay taxes with. If he makes a tiny bit more ($12,000) and is taxed 10% ($1,200), that $1,200 is a bigger burden on his life than the $120,000 a guy earning $1,200,000 would pay in taxes. The poor person could use that $1,200 to buy a car, or pay for classes to in an effort to get out of poverty, the rich guy could do those things several times over. I’m not saying that is MY position, I’m saying that’s one arguement for progressive taxation. It does make a compelling argument for some level of income exemption to keep the poor from being overly burdened relative to those who are not poor.
I’m not sure I can explain further why what I’ve mentioned makes them fair…..seems obvious to me even if I don’t agree with them.
Flat Tax – Fair because all people pay the same %. – not fair because wealthy pay a huge amount of actual dollars compared to others.
Progressive Tax – Fair because it attempts to equally burden citizens (see above) – not fair because wealthy carry a huge dollar burden
Pay for your use – Fair because it taxes citizens based on how much of a burden they are to the government (similar to your dinner example) – not fair because it’s too difficult to quantify what your true burden to the government is (roads are used to deliver goods to local shops which benefit everyone to some degree or another and hurt everyone to some degree or another).
I’m just posting here for the chance at getting post number 600.
Fairness
Only excise taxes approach any level of fairness. These are always ‘fair’, as fair as any tax can be because the individual can or cannot pay as they choose. No IRS officer is going to come at us at gunpoint to demand that we go buy 10 gallons of gas, a bottle of whisky, etc. so that we will pay some more tax (except and unless the courts rule that Obama can come at gunpoint and force us to buy ObamaCare policies).
Direct taxes (income, capital gains, gift, estate, capitation / head, poll, etc.) can NEVER, EVER be ‘fair’, as the Framers knew from extensive study of these taxes throughout the known world at the time. These taxes were ALWAYS destructive, and only to be resorted to to save the nation from foreign invaders. They knew this, and knew well that direct taxes are incompatible with freedom – PERIOD.
Excise taxes are paid by someone other than the final buyer (the seller, the refiner, the distributor, who merely passes them on to the feds), so he has the option of not buying (until ObamaCare).
Roads were traditionally and most legitimately paid for mostly by the excise taxes on tires, gasoline, etc., with the direct tax of license plates adding some. But the buyer could determine his tax by how much he chose to drive. When we deviated form this mode, and directly tax people for there things, unfairness is unavoidable.
The legitimate functions of the federal government (the military, Dept. of State, the Treasury, and maybe Commerce) can be fully funded with excise taxes – duty on shipping tonnage, whisky taxes, and other subtitle D excises, imposts, and duties). It’s probably easy to check a government website to see how much we collect this way – I just haven’t done it lately.
Stephen in on the right track with the size of the budget at constitutional levels, but the direct capitation tax is not a ‘fair’ viable option as proposed.
Thanks, Phelbers
Phelbers re post #601,
I tend to agree with what you say about excise taxes, but would like to point out a few things. While the excise tax maybe submitted by the seller, and such tax may be included in the final price of the product, in the end, the customer is the one paying the tax. So I don’t think it’s accurate to say that excise taxes are paid by someone other than the final buyer. I suppose for the purpose of financing a house or car it’s a subtle and important distinction and may be necessary to state it the way you did.
I was hoping you were going to give an example of how much revenue could be collected via excise tax alone. What items would and would not have excise taxes on them? What determines the amount of tax on a given item (same percentage of value? assigned by congrees?)?
To: John Bailey re post # 599
I believe that Constitutional PRINCIPLES should not be violated by the States.
You continue to justify Progressivism based upon easing the burdens on those who are less able to bear the burden. That is, you continue to ignore thje underlying facts an econopmics and jump right to a political solution. Think back to your condo or our dinner – what is your allocable share of the bill – determined ONLY with regards to the underlying causal facts.
We have a common need for the military to protect us. Every American has a duty to pay some part of that cost – the only rational way to allocate that cost is equally and once we start to change that we get into politics and away from rational thinking. Socialists easily rationalize one citizen paying for another – I can not. If one can not afford to pay, then one should stay home and not incur a cost for someone else to pay. The argument essentially says that I must pay for your meal because I have discretionary funds and you do not. I do not buy this Socialist rhetoric – it does not replace rational thinking.
We have a military that we need to pay for. No one should be able to avoid paying his share by (e.g.) not spenfding money (so as to avoid paying the H.R. 25 sales tax. The bill must be paid.
You explain that you see the compelling appeal of Progressivism’s “income exemption to keep the poor from being overly burdened relative to those who are not poor.” By definition, the Constitution does not give any citizen the entitlement not to be burdened with poverty and it does not burden American citizens with the obligation of guaranteeing freeedom from the burdens of poverty. The Preamble does not include a phrase “in order to lessen the relative burdens of poverty”. The FF wisely left these tasks to the Judeo-Christian charity of the private sector and not in the hands of pandering politicians. Once you start down that slippery slope, there is no saving the Republic.
To: Phelbers re post # 601
I do not agree that a tax is FAIR because you do not have to pay it. We have a military that must be paid for and everyone must pay. The only relevant issue is how to fairly apportion that bill to everyone. My paying your share of the bill is CHARITY – a clearly private sector function.
Thus, excise taxes are not necessarily fair at all – there is no causal relationship between each person’s excise tax paid and their relative impacts on the total cost of the military.
You say it but I do not consider a head tax to be inconsistent with freedom – to me that is the essence of freedon. You are not feee to force me to pay your bills.
RESTATEMENT:
Divvying up the cost of the military, our dinner, your condo maintenence all involve mundane economic principles of boring old cost accounting.
Changing those rational results based upon ability to pay moves over into the realm of charity which the FF said wisely belongs in the private sector not in the govt. What you are sugggesting are Socialist principles of forced wealth redistribution which, while well meaning, start us down the very slippoery and dangerous slope to Socialism/Communism.
To; John Bailey re post # 602
Remember, these taxes would be hidden (not good) but will still have to raise retail prices high enough to replace the $2.3T of current revenue which results in outrageously higher retail prices – an economic disaster.
You are correct, John, the buyer pays the tax, but indirectly, and is not legally liable for it. No liability means no IRS auditing, levying, garnishing, seizing, jailing or harassing and eating out our substance.
The distributor, seller, distiller, refiner, or other entity is the one legally and lawfully liable for paying it – whether or not they actually collect it from us, the final consumer. The tax is added into the price, and we indirectly pay it, BUT ONLY IF WE CHOOSE TO BUY THE PRODUCT.
We see the embedded tax listed on our sales receipts – as an excise – or on the gas pump front panel. We even pay a state sales tax on the bottom line total, which often includes the federal excise tax (in the case of tires) so we are paying a tax on the tax in this case! But, we still ahve the option, and control our own destiny to a much greater extent.
The main point I’m making is that excise taxes, where someone else pays and is liable for – but can recover the tax in the sales price – are avoidable by us for simply not buying the product.
These taxes are self regulating in this respect. Just as was the boat luxury tax Stephen illustrated. No one – not even billionaires – bought boats with the tax so high. A modest tax of a few percent would fly, but not the high level put on by a Congress ignorant of history and the thinking of the Framers.
One indication is the federal budget,
[ http://www.gpoaccess.gov/usbudget/fy11/pdf/summary.pdf ]
page 149, Table S-3, which shows that excise taxes and ‘other’ taxes comprise about 7% of the budget, or about $130B.
Remember that the US became the world leader economically WITHOUT an income tax, won its wars, and gave the worlds highest standard of living with just excises, imposts, and duties for 160 years.
All the unlawful unenacted income tax has done is allow the welfare programs, social security, medicare, and so on, by no stretch of the imagination constitutional, to bankrupt us.
It might be easier to not have excises on a legitimate ‘poverty’ level (the term ‘poverty’ is absurd and arbitrary in the US, and just a Democrat party red herring – poor here is wealthy beyond imagination in Bangladesh or the Sudan) of food, clothing, shelter, medical, and transportation) rather than the proposed ‘prebate’.
But I’d just increase the excise tax levels to cover the constitutional powers of government. With the repeal of the unlawfully collected (unenacted by Congress, and unlawfully enforced by the IRS) income tax, we would have lots more money, and could tolerate higher excise taxes, or a national sales tax imposed as a legitimate excise (but not HR 25) to easily get to the $600B or more Stephen has calculated.
Thanks, Phelbers
Stephen,
You and I disagree on so many levels it is a waste of time to converse with each other. I said that earlier after perusing your paper(which quite frankly I believe would cause a holocaust in the US if weven part of it implemented), I apologize for not following through on that thought.
I am going to Europe for the holidays, so I will not be on this board until the New Year. So Happy Holidays to all.
I will address just two things:
“Is it a coincidence that the rise in unemployment began when the minimum wage started to rise?”
Yes, it is a coincidence. One thing has nothing to do with the other. An imbecile should know that a recession caused by a $15 trillion fraud overwhelms everything else. Especially the increase in the minimum wage that brought that wage to 23% less than it was when the US was the world leader in everything.
“The federal govt was not supposed to be an insurance company. It was supposed to be our defender (the military) and the unobtrusive facilitator or our enterprise and liberty.”
According to you. I love the constant addition of adjectives and/or adverbs(“unobtrusive” for example) in which you seeem to think you are channeling the founding fathers.
Our governemnt determines what is constitutional. They have followed the process for change outlined bythe founding fathers.
You are misquoting; taking out of context; channeling; and fictionalizing their work.
Please stop.
To: Phelbers re post # 606
I never considered that. Even if the Constitutional budget were a few hundred billion higher than my WAG of $600B, an excise tax to collect that figure might not do too much damage.
Still, that does not allocate our COMMON COST on any appropraite financial basis.
Also, recall that this manageable Constitutiuonal budget is do-able ONLY after we put in place a plan to deal with recorded and unrecorded financial obligations of the Country.
Stephen – 604
I used ‘fair’ in quotes. The fairest tax is never fair, no tax will ever be. But the founders realized that excises were the fairest of all, and self regulating. And, a tax that can be paid or avoided legally by choosing how much to pay is far fairer that an arbitrary fixed unavoidable tax. The likelihood that more than the 2000°° on average will be paid through acceptable excises is high.
These taxes covered all of the military and legitimate government affairs for 160 years, and can again.
You’ve given careful consideration to the head tax, but further reading will convince you to agree with the Framers on the impossibility of a head tax as you propose. The framers knew such taxes were a non-starter, and impossible to implement except at the revenuer’s gunpoint, debtor’s prison, and total ruination of the citizen – just as with the present income taxes.
Capitation taxes always appealed to ruling aristocracies, but always ended in riot and ruin. Just like Marxism, they have intellectual appeal, but have never worked due to basic human nature.
Get the book I referenced – it reviews with references the head taxes studied by – and rejected by – the Framers.
I in no way suggest socialism, but the very opposite – precisely what the Framers designed the Constitution around.
I on no way suggest that there must be freeloaders. Everyone will pay for the military through excise taxes at a level they can afford, and they decide they can afford – not at an arbitrary level of the head tax divorced form any capability to pay.
The capitation tax is in direct opposition to the basic American principles by which the Framers established this country. They opposed head taxes as vehemently as they did raw democracy, based upon the abject failure of both system whenever tried.
You are right on the button with a return to Constitutional budget. But you are off base with a non-Constitutional (unapportioned) head tax.
A little study of history will convince you – read the Schiff- Hall book
[http://www.abebooks.com/servlet/SearchResults?an=schiff&sts=t&tn=the+great+income+tax+hoax&x=52&y=6]
and then shoot down the points I’m making – if you can.
Thanks, Phelbers
TO: Ed Michael re post # 607
What can I say?
I think that people who disagree on many levels should still attempt to understand each other’s thinking and rationale for believing as they do. That is, not merely what they think, but why, what are the underlying principles and reasoining?
I assume that you refer to my concept, YOUR SHARE, that would cause a holocaust even if adopted only in part. Does that mean you agree with my political mand economic arguments AGAINST the “fairtax”?
The minimum wage point I think was made by someone else. Forgive my ignorance but what $15T fraud are you referring to?
I am sorry, but I will resist your attempts to convert America into a Socialist paradise for the poor. The FF clearly intended for the federalk govt to be as small and unobtrusive as possible. The prior attempt at a constitution, the Articles of Confederation failed because Americana were very leery of a central power (the King). The FF had to write the Federalist Papers to convince a reluctant public to give the federal some very limited set of powers in order for the new nation to function and survive. Everything I have read screams out the the FF intent of giving very limited powers toour federal govt.
Yes, there have been amendments to the constitution, like the 16th amendment which heavily sold the Income Tax as a major class warfare program to enact a tax that would be paid ONLY by the very rich (and the Estate & Gift Tax to punish the robber barons of the late 1800′s who accumulated their wealth BEFORE the Income Tax).
Thus, I submit that it is YOU who rewrites American history in the Socialist image.
Recall the Nikita Kruschev comment that America will convert to Socialism/Communism willingly, from within. I submit that the Progessive movement has been attempting to distort and convert the original intent of our FF (sadly with some success).
Enjoy Europe – I think even they are beginning to wake up to Socialism’s evils.
Stephen – 608
Sent 609 before I saw 608.
The unfunded liabilities are $107T, and the regular ‘debt’ of $16T- as if the unfunded liabilities aren’t ‘debt’ – are unpayable.
We can only print the money, or renege upon these amounts.
Even a full liquidation of the country could no begin to pay it.
We have to simply suffer from it, take the hit, the sooner the better, and actually declare bankruptcy. And we are bankrupt, since liabilities exceed assets and the ability to pay them – the definition of bankruptcy. We just haven’t declared it.
The deficit, debt, and unfunded liabilities increase daily on a geometric, galactic scale. A hundred years of unprecedented economic growth can only reduce the rate at which they multiply. Such is the nature of Madoff, Ponzi pyramid chain letter schemes like Social Security that take more out than is put in. These programs cannot be ‘saved’ – they were conceived in fraud and guaranteed failure.
How much do we want to steal from out children via government?
Thanks, Phelbers
To: Phelbers re post # 611
The unfunded liabilities are our nation’s major problem (aside from the presence of so many Progressives).
We can “FREEZE” these programs to prevent further hemmoraging. E.G., new workers are on their own for SS & Medicare – no tax & no coverage.
We can NOT say “screw you” to all of us seniors who have paid for SS & Medicare all of our lives (AND ON A VERY PROGRESSIVE BASIS) – even those who “afford” to get screwed (my apologies to the Socialists). Ther must be some way to rationalize these systems without bankrupting our grandchildren. One small idea, gradually raising seniors’annual Medicare premium (currently $100/mo., denoted as Part B) by say $25/mo per year, until until it reaches maybe $500 per month – no means-testing of any such premiums.
WELFARE (appx $1T of our budget) – which is un-constitutional anyway -must be eliminated over time. No new customers. Existing customers are phased out over 10 years (or the number of years they been on the welfare program, if less than 10 years).
BTW; the $107T of future unrecorded liabilities could be higher – it all depends upon what financial assumptions one makes.
To: Phelbers re post # 609
I still think my analogy of our national cooperative allocating the cost of the military (rather than taxing) is appropriate.
I will respond more fully after reading all of the material you suggest.
Ps: re post # 612 We must also eliminate all federal spending that is outside of the original very limited scope of the federal govt. If we get the federal budget down to about my $600B (or even $1T) and if we continue to collect $2.3T in taxes, we can pay down some debt.
Stephen
No one is talking about throwing the old and infirm ones on the street.
We will fulfill the obligations to the extent possible, whatever the cost to the treasury, and convert to actuarially sound non-governmental SS and health care, but to continue as we are will without question be impossible.
Children might have to start taking care of their own parents, and so forth, where feasible.
Thanks, Phelbers
Ed re post # 607
Thank you and happy holidays to you also. I hope you have a safe and enjoyable trip to Europe.
“Is it a coincidence that the rise in unemployment began when the minimum wage started to rise?” Was actually my question, not Stephen’s. So I’m the idiot. I was not implying the current financial meltdown was due to minimum wage increases. However, I do think that the minimum wage going from $5.15 in 2007 (where it had been since 1998) to $5.85 in 2008 to $6.55 in 2009 and finally $7.25 in 2010 has been a contributing factor (not the sole cause) to the currently level of unemployment. As a matter of fact, as the country’s financial situation depressed non-minimum wage employee’s saw a reduction, stagnation or very little increase in their wages. But minimum wage employees either ended up without a job or saw a pay increase of more than 13.5% the first year, 11.97% the second year and 10.6% the third year for a total of 40.78% increase in just 3 years!!! How can companies afford to pay that much more for labor when less people are buying to begin with?
To: Phelbers re post # 614
We are in agreement.
To: John & Ed re post # 615
It is the interference by govt do-gooders that artificially force employers to pay uneconomically viable minimum wages , just because workers “need” that sum to make ends meet, that destroys freee market economics (remember wage & price controls andhow about the Community Reinvestment Act – I could go on forever).
When will you social engineers ever wake up and realize that you can not artifically manipulate a free economy with disastrous concequences.
Stephen,
I’ll agree that “fairness” is hard to define, but everyone paying the same for the military isn’t fair, its socialist. Capitialism’s, or a free market as I like to describe it, main advantage over socialism/communism/progressivism/collectectivism/(or whatever you want to call it) is a better allocation of cost to benefit (from a moral standpoint it’s freedom). That advantage is derived from those receiving the benefit being those that pay the cost.
Your single pay idea fails to see the different level of benefit derived from the military. Everyone paying the same for a different benefit is at its core what socialism is (which is why everyone tries to minimize what they pay under it). Toll roads are the perfect example. Why should I pay the same amount for a road you use 10 times as much? Because the government provides it? So what. You are recieving the benefit from its use. You should pay the cost.
It’s the same with the military, although use is much harder to discern. Since their main job is to protect your property (including your life) there is nothing wrong with trying to pay proportionally. In fact, it’s socialist if you don’t.
As far as states following constitutional principles, they should. Their own constitutions that is (after all states in the union before 1789 already had constitutions). The US constitution is mainly a limit on our federal government (though a few state things are mentioned and the amendments, even if some believed not originally intended to be, are applied to the states because of the 14th amendment).
Please don’t give the federal government any more say over what states do. That is what progressives want you to do. Our states are soveriegn entities and the federal government exists because of a contract they are the parties to called the US Constitution.
To: Andrew Martin re post # 618
“FAIR” can be defined on more than one level. One’s “FAIR” share must first be determined by attempting to determine what that indiviual’s im pact on the total cost, relative to the impact of others on that total cost. I hope that you would agree that if we went to dinner togther, that your “FAIR” share of the total bill is determined by what you ordered (i.e., that is your relative impact on the total bill). That is the scientific or economic analysis that I submit must be undertaken first.
Next, comes the socio/political definition which depends on each of our attitudes. I say you pay for your relative impact and the Socialist says , “No, the guy who can better afford to pay should pay”.
Exactly how do you get to “equal payments for the military is Socialism”? Every citizen benefits and pays the same because no one has a greater impact on the total cost. Please explain your rationale.
I am having trouble seeing how one citizen benefits more than any other citzen. I reject earlier arguments that we benefit based upon our relative amounts of property because the overwhelmingly primarily important issue is the protection of life.
My only point about the States is that if the federal govt is not permitted to redistribute our wealth, then States should not be allowed to do so.
Stephen re post #619,
I think your analogy of who pays for dinner is slightly flawed. In your example, you say each party should pay for what they individually ordered. Sounds good to me. However, in our society, I alone do not get to determine what gets ordered for me. Using the dinner analogy I think a more accurate comparison would be we go to dinner and elect someone to order our dinner and they decide how much each of us are to pay (ignoring our begging as they listen to the lobbyist and charge us $100 for a happy meal).
To: John Bailey re post # 620
The analogy is more accurately state as, you and I are served identical meals at our “group dinner”. Why should my bill be any higher than yours?
Stephen re post #621
I disagree that we are served identical meals. For instance, under our current government expenditures there are educational benefits that flow down to the citizens. Should we I have more children than you, then I would be getting a larger educational benefit. Now one may argue that educated citizens benefit everyone thus the benefit is evenly spread. Likewise with transportation expenses. While I believe our respective benefits are different I think it would be quite difficult to determine what an accurate benefit allocation would be.
Now if we are able to eliminate the vast majority of social progams the Federal government funds (education, medicare, obamacare, etc.) then there is a lot less to quibble about…..basically do I benenfit more or less than you do from having the military defend me.
To: John Bailey re post # 622
My analogy of our being served identical meals is most analagous to the military (which Alexander Hamilton wrote should comprise 15/16ths of the federal govt’s total spending). We are all served equally by the military.
The subject you chose, EDUCATION is NOT one of the powers granted tp the federal govt by the Constitution – it should be eliminated.
If you believe that EDUCATION is s State function, then why should people not pay a SCHOOL TAX based upon the number of children that a family has in school in any given year (its as good an indicator of relative-impact-on-the-total-cost as any other factor).
Also, another good general analogy is a condo in which we have the same sized unit (analogous to our identical freedoms).
I thoroughly agree that we should eliminate most social programs.
Again, we benefit from the military equally – both of our lives are protected (the propery issue is relevant but immaterial in relation to our life and liberty.
ps: I appreciate our working through the logic.
We should not throw out the National Retail Sales Tax with the HR 25 dirty bathwater. HR 25 is so badly formulated that it has all but destroyed this very viable option.
The original ‘FairTax’, before AFFT was hijacked by self-serving opportunists and the Linder/Boortz conspiracy, comes much closer to a workable NRST than HR 25, a dishonest business driven scheme, possibly can.
Objections by Stephen, including the Hank van Gleason list of 14 items, are easily correctable in a legitimate NRST, given a little thought.
The SS/Medicare welfare programs pose the only difficulty, but this is only a perceived issue, not a real one. Seniors, and most others, have been so brainwashed from day one to actually believe they ‘paid in’ to a secure, lock-box separate trust fund from which they receive their payments that almost no fact or reasoning can dissuade them from this utter falsehood – not even the SSA’s statements nor the Supreme Court decisions. But because SS ‘contributions’ are nothing other than an income tax and enacted as such (SubTitle C of the ’54/’86 tax code) it will take some time to deprogram individuals into understanding that like any other welfare program, SS is a ‘pay as you go’ tax and spend transfer scheme (SSA’a words – not mine), not a retirement or insurance system whatever. SS recipients are ‘tax free’ on other earnings now only because Congress had to maintain the illusion that seniors are ‘paid up’ and ought to be exempt. We simply have the IRS rob from our children the money we receive, just as we were stolen from by the IRS to pay our parents. It is only intergenerational theft, nothing else.
The income tax system is so utterly un-American, unenacted, unlawfully implemented, compelling testimony that can be used against us in any criminal case (and then having Federal Judges tell us the testimony was NOT compelled) that it is unacceptable in any enlightened just society. The income tax had destroyed the USA.
A NRST, imposed as an excise with the seller liable, crediting held savings with good-for-tax-only vouchers at transition, and a ‘poverty’ level necesssities-only prebate also good-for-tax-only, will remove the evils of the income taxes without the worse evils of HR 25. A capitation tax, as Stephen recommends, or a flat income tax will not get the fear of harassing tax agents and officers out of our daily lives.
Thanks, Phelbers
Phelbers — I can appreciate the fact that you’d like to see the income tax replaced, but your claim in post 624 that “the income tax had destroyed the USA” is a bit off base.
We’ve had an income tax for almost 100 years. Since that time we grew from a semi-rural, agricultural based economy to the largest, most productive, richest nation in history, which the largest, most successful, and wealthiest middle class. And this all occured under the so-called “oppressive” income tax that you so rail against, even though our tax burden is among the least in the industrialized world. Heck, most of our nation’s growth occurred when marginal tax rates were 91% (as they were in the ’50s).
So, again, I can understand that you don’t like it, and I certainly want to reform it, but the income tax is hardly the ogre you make it out to be.
TO: Phelbers re: post # 624
The Treasury, Joint Tax Committee, etc studies that I cite in my Paper say thjat ANY NRST will not succeeed in replacing the $2.3T current tax revenues because the rate would have to be enormously high (150%) – such a tax is simply not feasable, alone. The features of a NRSTyou note at the end of your post will not save it – even if imposed on thew seller, prices will rise very high and the poor will still pay no tax but have the power to vote themselves more of your money..
I do not understand what the relationship of SS & Medicare is to the tax system, other than the need to raise funds to pay for them.
I for one would lead the tax rebellion if the government ever reneged on its MORAL promise to pay us SS & Medicare after we have paid for them in good faith all of our working lives and on a very “progressive” basis.
I fully agree, the Income Tax should have been burned, years ago.
You have missed something. While the IRS still lives under a Flat Income Tax and also under the “fairtax” (see my Paper), it is virtually gone under my head tax, YOUR SHARE. In fact no other proposal eliminates the IRS more thoroughly and completely than my head tax, YOUR SHARE.
To: Phelbers & Hayden re: posts 624-625
I agree with Hayden that it has not destroyed us – YET! At this point I believe that it is counter-productive.
I be;lieve that we have prospered IN SPITE of the Income Tax, not because of it.
I suggest that my head tax, YOUR SHARE, would have directly been responsible for an even more robust economy.
Phelbers,
(1) “The original ‘FairTax’, before AFFT was hijacked by self-serving opportunists and the Linder/Boortz conspiracy, comes much closer to a workable NRST than HR 25, a dishonest business driven scheme, possibly can.” Phelbers, please tell me what the “original Fairtax” was? What are you talking about? In eleven years I have seen only one version of HR25 other than a small change last year.
(2) If you believe my list of 14 criticisms can be easily corrected, please tell me how? And more importantly, will you join me in corresponding with the new Congressman Rob Woodall to try and get the changes made?
(3) I am certainly not brain washed about SS, and don’t know a single retiree that believes their FICA payments went into a lock box. I agree that it is a pay as you go system that developed huge surpluses based on future needs. Those surpluses are very real despite your contrary claims. If you reject the notion that future SS payments have the backing of the full faith and credit of our federal government, then I can only recommend Costa Rica or some other sunny port.
(4) “The income tax system is so utterly un-American, unenacted, unlawfully implemented,” etc. etc.. Garbage. Your frivilous claims remind me of the Aaron Russo movie he made some time ago, where he roamed around DC asking people to “show me the law?”
I have had a copy of the original income tax law on my desk for some time. On October 13th, 1913, President Woodrow Wilson signed the Underwood Tariff Act into law. Section two of the Act created the modern income tax. I might add that Section 2B says “the net income of a taxable person shall include gains, profits, and income from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid.” You may disagree all you like, but that language seems to clearly mean that wages are income and should be taxed.
(5) Your last para. sounds like you would prefer a VAT?
Hello Hayden
We had become the wealthiest nation without the income tax, a tax which was not expanded to its repressive levels until the post WWII times. We have progressed since then in spite of the tax, not as a result of it and the welfare state programs, virtually unrepayable debt and unfunded liabilities it has permitted.
The freedom we were allowed by the FF has great momentum, and it takes a continued effort by our government to stop it – but it is working as hard as it possibly can to achieve an end of competition and free enterprise.
The US has slipped to 6th in per-capita wealth, and will sink further.
You seem to suggest that it is because of the income tax that we have achieved greatness, but I disagree.
Actually, the tax has been as high as 94%. There is not a lawmaker or power bureaucrat that does not see every dollar we keep as a “tax expenditure,” implying that 100% of any money is by right the property of the state, and only by their grace can we have any of it to use as we please.
But, what I was really getting at as ‘destruction’ was where I said, ‘The income tax system is so utterly un-American, unenacted, unlawfully implemented, compelling testimony that can be used against us in any criminal case (and then having Federal Judges and Harry Reid tell us the testimony was NOT compelled) that it is unacceptable in any enlightened just society.’
For example, the Fifth Amendment blanket prohibition against government compelling testimony (in the form of a tax return or in any other way) that can be used against us in any criminal case is utterly ignored by government. If we are a murderer, we” have the right to remain silent. Anything we say can and will be used against us in any criminal case”. But with the income tax, “We are told by the same government that “we DO NOT have the right to remain silent. Any thing we put on our tax return is mandatory and can and will be used against us in any criminal case.”
The income tax, unlawfully levied upon the whole of wages, rather than on the 16th Amendment limit of the gains derived from wages, also violates the direct tax apportionment requirement. The income tax undermines basic freedom.
It has put us in a dark age, where truth is falsehood, black is white, unlawful is lawful, no trust fund is trust fund, all by the dictates of an oppressive government. It is in this respect that it is a very terrible ogre indeed. Only those who benefit from it through its administration, implementation, or preparation see it a anything other than an ogre.
Reforming the income tax is not possible, except to repeal and forever prevent its return. It is not the system I want to leave for my children to suffer under.
A NRST fashioned as I suggest is the least oppressive tax we can have.
Thanks, Phelbers
To: Phelbers re; post # 629
I find it hard to believe that anyone can simpy reject the work of the US Treasury, Congress’ Joint Committee on Taxation and a host of economists who explain that (in order to replace the $2.3T annual tax collections) an NRST will have to be so high (150%) as to be unfeasable.
A similar VAT would be hidden (which I oppose) but would still drive prices through the roof and thereby destroy our economy.
My head tax is the very least oppressive for all – except initially for the poor who would eventually and permanently be freed by their success after striving to overcome their monthly burden of the head tax.
Stephen re post #630
I find it hard to believe that anyone believes 1/3 of what comes out of the US Treasury or Congress let alone a joint committee. They have too much in the game to be objective.
Stephrn
I don’t simply reject any analysis without studying them. I’ve looked at a couple of the anti-FairTax analyses, and find errors. Bartlett for example assumes prices cannot fall unless wages fall correspondingly. He neglects to consider that wages, at least in a manufacturing operation are only about 5% of cost (from my own experience in manufacturing).
I would like to be able to look at why the IRS says the rate must be 150%. Just offhand, though, I would tend to reject the IRS estimate on the basis that they believe they will lose their jobs with a NRST. In fact, all the groups giving high estimates are pro-income tax, or working for pro-income tax groups.
There is a lot if name calling in many of these reports, and many worst case probabilities used as the basis for calculations.
We need simple point by point neutral considerations of each assumption in these reports.
Even the early FairTax rate estimates use figures now quietly and unexplainably omitted by the current AFFT / Linder / Boortz cabal.
I believe the real rate is above the 23/30% AFFT but well below the 60/150% IRS rate – still closer to the 23/30 rate.
And a head tax is the most oppressive of any tax ever devised by mankind – you will see this once you read the history of them (the Schiff-Hall book is a good start, with the actual references used by the FFs).
Thanks, Phelbers
To: John Bailey re post # 631
I’ve heard that and worse (some believe nothing that comes from those sources because “they would lose their jobs if the Income Tax died”).
While one should always be skeptical, it is hard for me to imagine Treasury or JT Comm (with whom I have personal work experience) putting out a position paper that was not professionally supportable (remember, these are not the lying dogs in Congress, but a group of professionals to whom professional pride is important).
These people will always have a job (as will the IRS), no matter what tax system we have.
It is strange to me that “fairtax” afficianados seem to place 100% faith in the “research” produced by economists who were paid by AFFT to produce it — HMMMMMM??????
Phelbers,
Bartlett was absolutely correct, and if you understood the 1997 Jorgenson study on embedded taxes you would realize why Bartlett was correct.
In 1997, Dale Jorgenson of Harvard did a study for AFFT which concluded that there was an average of 22% in embedded tax related costs across 35 industry segments. But Jorgenson included employee tax costs in his study. In other words, he assumed that we all would accept our current net pay as our future gross under the Fairtax. Our gross pay would be reduced by the amount of our income tax and payroll contributions. Payroll costs would be reduced by that amount, an when combined with the business tax related costs, producer costs would go down by 22% on average.
That isn’t going to happen for legal, contractual, and fairness reasons which I have discussed before. If we all get our gross pay, then business costs can only be reduced by 9% on average, and nominal retail prices will have to rise by 18%. Bartlett was correct!
To; Phelbers re post 632
I am sure than any economist can make an incorrect statement. However, from my old and limited experience in manufacturing, labor is a much larger percentage of total costs. In any even Jorgenson and the internal AFFT economist admitted that prices will not drop the promised 22% unless employers reduce Individual Income and Payroll Taxes that are eliminated.
That’s what I said in post #633 – It is incorrect – It was not the IRS (which would still not lose its jobs) but the TREASURY which will also always have its jobs (and would not risk looking stupid by saying ridiculous things – as oppposed to Congress). In my Paper, I cite and explain the Treasury study which was part of President Bush’s Tax Reform Panel and a FL Law Review article by Prof. Geo. Yin of UVA – both Papers are available in the Fair Tax Related Research link on this website.
BHI (paid by AFFT) now estimates that HR 25′s 30% “tax-exclusive” rate now needs to be raised to 35.1% (I do not care about the “Tax-inclusive” rate because I believe that it is silly, as more fully explained in my Paper).
As I fully explain in my paper, the other rates are fully explained and one set differs primarily from AFFT’s rates in that they assume what they consider to be far more realistic estimates of tax avoidance which would require a higher rate to produce the same targeted revenue. Another set attempts to review NRST’s in general and produce what they consider would be a more realistic tax base (eliminating taxation of governments and reducing substantially the number of items subject to tax) as well as their more reasonable estimates of tax avoidance. I find these sources to be far more reasonable than AFFT.
A head tax will be a burden on the poor, but it will not be oppressive long-term as they rise up out of poverty. That is their fair share – their poverty is oppressive, not the fact that they have incurred an expense for their share of the cost of the military. Progressivism is oppressive to those who are denied their liberty in that they are FORCED to pay someone else’s bills.
to: phelbers more on post # 632
Oppression would result if we enslaved the poor with no hope of their alleviating that slavery. We are simply giving the poor their bill for their fair share of the commmon costs – its up to them to improve their economic lots just like everyone else.
I will read the material you suggest.
I believe, on this point Bartlett is incorrect. I wasn’t defending AFFT, just observing irregularities. Bartlett implies that for product costs to go down 22%, wage reductions must occur by that same 22% amount. But wages do not account for enough of costs to achieve this. At the last manufacturer I worked for, wages were 4% of their product cost.
Specifically, he said in his paper on this website (page 1247):
“Wages Must Fall
This being the case, let us examine further the FairTax argument that prices will automatically and instantaneously fall by 22 percent if all federal income taxes are abolished. The only way this can happen is if workers agree to immediately cut their nominal wages by 22 percent.”
If labor costs go down by 22% (payroll taxes are 15.3%, and I assume the rest is other corporate income taxes). Labor costs would drop only 15.3%. Prices cannot go down by 22% through a 22% wage reduction. Reducing labor costs 22% would not reduce product cost 22% unless 100% of product cost is labor.
That was my only point in my comment. It detracts from his credibility. His other points may be OK, but unless I can verify them, I take them with a grain of salt, the same as AFFT’s claims.
Bartlett’s error actually makes AFFT look much better. I’m not defending AFFT. If Bartlett used an accurate calculation, prices would be affected much less, boosting his position.
I fully understand the deceptive AFFT/ Jorgenson study which did not mention that that he based his research without the AFFT promised ‘pay raise’.
Thanks, Phelbers
And, let’s talk factually. Not payroll ‘contributions’ Hank – income taxes put into the general treasury the same as any other taxes – not earmarked (see subchapter C of the ’54/’86 code). The law may be titled ‘contributions’, but the title has no legal effect – only the text of the law. To call these payments ‘contributions’ to a ‘trust fund’ is not reasonable.
To: Phelbers re post # 637
I never read Bartlett as saying what you say he said. I took his argument to be that employers would need to reduce wages by the amount of workers’ savings due to the elimination of their Income/Payroll taxes (i.e., that the elimination of taxes on workers would be captured by the employers via salary reductions). Also, that Jorgenson and the internal AFFT economist were saying that same thing .
Hi Stephen
The Bartlett quote is directly from page 1247 of his paper in the research paper section on this website:
http://taxprof.typepad.com/taxprof_blog/files/bartlett_fair_tax.pdf
It can’t be read any other way.
This particular statement ignores the cost of materials, utilities and fixed costs in the price of a product. A 22% reduction in federal tax cannot be offset by a 22% wage reduction to achieve a 22% retail sales price reduction.
I don’t think this is the Jorgenson argument. Bartlett is specifically referring to the retail price of goods in the quote.
Thanks, Phelbers
By the way this shows another AFFT falsehood: Only the worker’s share of the 15.3% goes to the worker. The ‘employer’s’ share will be kept by business – a windfall. The original fairtax had the employer giving the full 15.3% to the worker, with the ‘employer’s’ share being given to his employees rather than to the IRS. AFFT, after compromised by the present deceitful leadership, quietly changed the “Thumbnail” description page from” So, instead of workers having 15.3% taken,” to “So, instead of workers having 7.65% taken . . . .”
Note that self-employed workers would get the full 15.3%. There is a lot of AFFT fraud in the present scheme.
To: Phelbers re post # 639
Even if Bartlett mis-states one point, I do not reject his entire paper. What he said makes a lot of sense to me, including pointing me in the direction of the Treasury + FL Law Review papers that say a NRST would require a 150% SALES TAX RATE.
I agree that AFFT has been deceptive in very many respects all along. I can see an economic argument that says that if the employer no longer has to pay his own share of SS tax, that he has more money avaialble to pay to the employee and would merely re-direct this former “cost of labor” from the IRS to the employees. However, that is theory – reality might well cause the employer to pocket that saviing or competition may cause him to pass some of those savings on to customers. This is but one fallacy of AFFT’s arguments. They generally assume that all employer/seller tax savings will inure to the benefit of the emp[loyee/customer and that none w2ill be pocketed by the employer/seller.
In any event, AFFT now admits (Morphh objects to the word “admits”) that prices will not drop as much as they had been saying unless workers’ pay is reduced by their Income/ + Payroll taxes.
To John Bailey
I can not find your response to my post # 623.
Stephen – 640
Neither did I reject all of Bartlett. I just pointed out an error. The rest of his paper requires similar scrutiny before I buy it though. Are there other errors? I have the same doubts about the AFFT claims.
The FairTax was founded upon the employee getting the full 15.3%. Mastremarco in his paper on this website bases his economic impact calculations using the 15.3% figure. Present AFFT ‘leadership’ has, without comment, simply abandoned this principle, and adopted only 7.65% to the worker, while still using the Mastremarco 15.3% figures as justification. They hold two self-contradictory positions at the same time. They are not honest people.
Having the full 15.3% go to the employee, a true FairTax original purpose, is readily done WITHOUT ADDING TO BUSINESS COST of labor in a coupe ways. One, have a section of the law that forces employers to give it to the employee rather than the IRS. Or, two, make it part of the prebate, but in a form GOOD FOR THE TAX ONLY. That way, the illusion that the worker will be getting his full paycheck with his 7.65% is maintained, and the cost of the prebate is lowered, with no added employer cost, but still some employee benefit.
The AFFT abandonment of this core principle is no accident, but a deliberate money grab by the cabal.
Only the Linder/ Boortz/ AFFT cabal tries to fool us into believing there will be a full 22% instant retail price reduction with the removal of all income taxes.
The ability of businesses to lower prices will be real, probably less than 22% of the cabal, and probably more than the 9% of the opponents.
Once businesses costs go down, competition will take it’s course, and after one business lowers its price as costs are reduced, others will follow.
I think we have to face facts: The degree of congressional support for HR 25 is very real, and very strong. We are very likely to have it before any other tax reform, particularly with all the Tea Party support – uninformed as it may be.
I’d like to see a separate ‘board’ to suggest corrections to HR 25 to make it constitutional (indirect with seller liability, no earmarking of SS/Medicare, no Senate bill, etc.). There simply is no constructive corrective discussion – only bad-mouthing, and rejection of HR 25. If we are to have HR 25, now is the time to correct it correctable flaws.
I also reject the earlier statement that Boortz/ Linder are open to comment or suggestion. I heard Rep. Linder on the Boortz show reject out of hand any discussion of the ‘double taxation” issue. He simply said, too bad. Buy traditional IRAs, dump Roths, lose more money. End of discussion.
Thanks, Phelbers
Phelbers,
For a change, I agree completely with your last two para.’s. There is a heated discussion about the same idea on Fairtax Nation, but I doubt it will lead to anything.
I don’t know if or how a “board” could operate, but I’m certainly ready to participate, and the sooner the better! We have less than three weeks to agree on a set of improvements and send them to Rob Woodall before he drops HR25 in the 112th Congressional hopper.
For the sake of discussion, here is a short list of possible changes to HR25 that might improve the chances of success.
(1) Remove the proposed federal taxation of State/Local government consumption.
(2) Institute a simple two tier sales tax rate, 23% for workers and 14% for retirees, or simply drop payroll taxes from the list of taxes to be replaced.
(3) Describe the sales tax rate in exclusive terms only.
(4) Target the prebate and implement a sales tax credit card that can’t be treated as income.
(5) Eliminate Section 801-806.
(6) Drop the inventory tax credits.
(7) Phase in the program over five years.
(8) Add an IRS amnesty provision to help repatriate offshore wealth.
To: Phelbers and HVG re posts 642 & 643
I had some wine with dinner and am a bit fuzzy and having trouble understanding what you guys are suggesting.
Big picture: Treasury, JT Comm & economists are saying NO NRST will work – a sales tax of 150% is a non-starter.
Phelbers – I am confused. I assume you propose that the emplyee’s 7.65% P/R tax is to be paid to him in full and that you are addressing the Employers 7.65% P/R tax savinbs. You want to force him to give it to the employee “rather than to the IRS” – the employer share is waived by HR 25 so it is not going to IRS. ??? Please clarify before I address your comments further.
To: Phelbers re post 642
THEORETICALLY, competition will force prices down. I have heard anecdotal evidence that sellers will try to pocket as much as posssible and will thus resist educing prices.
To Phelbers re post # 642
I submit that you grossly overstate the support for HR 25 in Congress and in the Tea Party.
I say the 65 House co-sponsors have very little true support for HR 25 AS WRITTEN (AFFT wants to fool everyone into thinking they do).
I would say there are a couple who really think it is a good idea – even though they really don’t know how it works.
I’d say there are several more who realize it is a very bad idea but they are simply messaging voters who think they like it.
I think the majority have no clue what’s in the bill, but they like the beginning of the idea of a consumption tax (just like the famous “80 economists” who “signed on to H.R. 25″) but know full well that they can change any bill as much as they want to at will.
To: Phelbers re post # 642
The Tea Party does not support it as much as you think. Remember, the Tea Party REJECTED HR 25, as written in its CONTRACT FROM AMERICA.
To: Phelbers re: post # 642
You say: “I’d like to see a separate ‘board’ to suggest corrections to HR 25 to make it constitutional (indirect with seller liability, no earmarking of SS/Medicare, no Senate bill, etc.). There simply is no constructive corrective discussion – only bad-mouthing, and rejection of HR 25. If we are to have HR 25, now is the time to correct it correctable flaws.”
An independant Board could not hurt but it is still like giving chicken soup to the dead guy – it may not hurt him but it won’t do him any good either.
Treasury, JT Comm and economists are saying that NO NRST can replace all that revenue because it would require a sales tax of 150% – thus HR 25′s flaws (or those of ANY NRST) are not correctable – as long as it needs to replace the $2.3T revenue stream.
I can not bring a corpse back to life.
You can not make this turkey Constituional as long as you insist on redistributing wealth via a Prebate AND I believe through absolving the poor from paying any tax thus shifting that burden to other Americans.
To Phelbers re post 642 re Boortz & Linder
As an amateur psychologist, I find that people who have supported HR 25 for a very long time, are heavily “invested” and simply must save face. They find it intolerable and embarrassing that they might have been wrong. They can not tolerate even think they might be wrong and fight arguments agggresively and passionately.
To: Hank van Giesen (AND PHELBERS) re post # 643
Subject to m y comments about the futility of giving chocken soup to the dead guy, here are my comments on your suggestions:
(1) Remove the proposed federal taxation of State/Local government consumption. AGREE-WHAT IS THE NEW TAX RATNEED TO BE?
(2) Institute a simple two tier sales tax rate, 23% for workers and 14% for retirees, or simply drop payroll taxes from the list of taxes to be replaced. INTERESTING – ARE THOSE RATES “TAX-EXCLUSIVE”?
(3) Describe the sales tax rate in exclusive terms only. AGREE
(4) Target the prebate and implement a sales tax credit card that can’t be treated as income. DO YOU MEAN NO PROFIT – IT CAN ONLY BE USED TO PAY TAX – IF SO, THATS OK
(5) Eliminate Section 801-806. GOOD
(6) Drop the inventory tax credits. WHY
(7) Phase in the program over five years. 25 YEARS
(8) Add an IRS amnesty provision to help repatriate offshore wealth. ???INDIVIDUAL OR CORPORATE – THEREA WAS A DRASTIC RATE REDUCTION TO ENCOURAGE CORPORATIONS TO REPATRIATE. ARE YOU TALKNG ABOUT FRAUD OR PROPERLY RETAINED FOREIGN FUNDS?
I AM SURE THERE ARE MORE THINGS TO FIX BUT I WOULD HAVE TO DO THAT TOMORROW WHEN I AM FRESH.
BEFORE I DO THAT, PLEASE REFIGURE WHAT THE NECESSARY SALES TAX RATE NEEDS TO BE TO REPLACE CURRENT TAX REVENUES – IT IS LIKELY TO BE ASTRONOMICAL ALREADY.
REMEMBER TREASURY ELIMINATED THE PREBATE AND EXEMPTED ITEMS BOUGHT BY THE POOR – THIS CONTRIBUTED TO THEIR HIGH RATE – AND DONT FORGET TAX AVOIDANCE.
Stephen,
Roger on the chicken soup, but if the chore is to try and improve the current legislation, the chicken soup approach doesn’t work.
Thanks for thinking about my suggested changes. Here are the answers to your questions:
(1) I didn’t calculate just removing government consumption, but if we remove government consumption ($2009B), target the prebate ($59B), drop FICA($870B) in lieu of the two tier sales tax (easier to calculate) and remove Sec. 801 ($288B), then the inclusive rate would be 15.8% and exclusive 18.8% compared to the 23.8%/30.27 rates in the 2006 BHI/Kotlikoff rate study. ( I don’t know how to find similar 2009 revenue and consumption data, but I think revenue is down due to the recession, and I guess consumption/GDP is also pretty flat???). Rates might be a little lower for 2009?
(4) Yes, the tax credit card given to the poor can’t be used as cash, only pays the tax element.
(6) Eliminating the inventory tax credit does not change the sales tax rate, but it adds $350 billion to the national debt with no offsets which I object to. In addition, phasing in the plan over a period of years would make the inventory credit difficult to figure, and we should just drop it.
(8) I’m talking about the funds that are offshore to supposedly avoid income taxes. According to the Tax Justice Network, it probably amounts to $700B+. In 2004, a similar amnesty program was offered by the IRS and some $2-300B came home. Without amnesty, none will, imho! (Remember, the IRS will be around for another three years, and Treasury has a long memory?)
Any other suggestions for simplification would be appreciated after you get your morning coffee.
Cheers!
Stephen
RE 644: THE 150% DOUBTFUL NRST TAX LEVEL
As with Bartlett, and AFFt projections, in which we see have errors, without seeing the IRS and JTC studies, we have to reserve judgement on their veracity and correctness. IRS and JTC are government entities supported by the income tax, the IRS in particular has been threatened, at least in theory, to be abolished by HR 25. These studies are suspect for that reason. I can find no reference to these 150% studies, yet they are cited as irrefutable fact, superior to any other study regardless of references and documentation. Let’s see them and look them over before declaring them final and pure truth.
RE 644: THE SO-CALLED “EMPLOYER’S” SAHRE
The so called ‘employer’s share’ of 7.65% in payroll taxes is now a cost of employment no different than wages. It’s money that the productive effort of the worker must generate for the employer to be able to hire and keep the employee. It wouldn’t matter if wages were 1% and other ‘benefits’, taxes, workers comp, unemployment comp, insurance, etc were 99% of wages – the worker has to produce enough through his labor to make it worthwhile for the business to keep him on. So, the 7.65% is now paid by the employer to the IRS, and the worker ‘s labor and productivity make this acceptable to the business, unpleasant as it may seem. THERE WILL BE NO CHANGE IN employment costs if this 7.65% remained on the businesses books as a cost of keeping his worker – whether it continued to go to the IRS, or to the worker who justifies his boss paying it. Take home wages could be increased by that 7.65% AT NO ADDED COST TO THE EMPLOYER.
HR 25 was written by a greedy, self-serving business cabal specifically to allow them to confiscate ‘their’ 7.65% from the worker whose productive effort generated it. The so called ‘employer’s’ share belongs to the worker – PERIOD!
Keep in mind that business bear no cost of any taxation whatever. The pass those cost along in their product or service price, or as reduced wages or stock dividends and so on, to us the ultimate consumer, just as they pass on the cost of materials, labor, facilities, utilities, etc. If they did not, they would go broke.
I most strongly advocate that the full 15.3% – that is, both the employee’s 7.65%, and the so-called ‘employer’s 7.65% – go to the worker who produces the effort that justifies the business having them as workers in the first place, regardless of any other economic or tax consideration.
Remember also that this is one of the fundamental founding principles of the original ‘FairTax’, sadly one that has been hijacked away by the corrupt AFFT / Boortz/ Linder cabal.
Wages fell over time to allow businesses to pay ‘their share’. That amount sent to the IRS came directly out of the pocketbooks of their workers. If there is a repeal of payroll taxes, they should go to the workers who have been paying for them all along, just as the “FairTax” once proposed and is still disingenuously economically self-justifying itself (see Mastremarco, who bases his calculations for home buying on the worker getting the full 15.3%).
Certainly a true AFFT “FairTax”, or any NRST that repeals payroll taxes, must include a provision to give the full 15.3% to the worker. Remember that self-employed persons WILL get the full 15.3% boost – so should other workers.
RE 645: COMPETITION AND PRICE REDUCTION
Businesses can keep their prices as high as they wish, but their competition will lower their to gain market share. Those not reducing prices will go out of business, or see their market share fall. This is the unchallengeable, un questionable reality of a free market. Businesses can collude to fix prices, or to engage in artificial cutthroat competition, but that is the proper function of government to regulate and prosecute against. The free market is what this country is – or should be – all about. If we don’t believe in competitive market forces, then we are not the US, but a Cuba, or an old Soviet Union state driven command economy that is doomed. I have faith in American competitive free enterprise, and know with certainty that prices will fall if costs fall. How rapidly is an open question, but fall they will. THIS IS NOT IN ANY WAY THEORETICAL!
RE 646: HR 25 SUPPORT
HR 25 has the highest level of co-sponsor support of any tax bill ever in history. There is no central Tea Party authority, so it’s hard to gauge an accurate level of support. You yourself refer to that support – it’s one of the driving reasons that you put together your paper. There are no other similarly co-sponsored tax reform plans, so sadly, we have to prepare ourselves for the likelihood that a HR 25-based NRST will become a reality. Let’s do as Hank suggests, and put our heads together and get rid of the fatal flaws.
Hank, RE: 643 “Board”
By ‘board’, I meant a separate discussion topic page like this one – once called discussion internet ‘boards’ – guess I’m old and out of touch. This particular webpage/topic/site/discussion sheet/ is a discussion of the rejectability of HR 25, not a discussion of the ways to correct the rejectable points of HR 25. IF we are to have ‘prebates’, IF we are to establish liability for the sales tax, IF we are to have sales tax for SS, and so on, what is the best or at least the constitutional way to do it? Maybe a separate topic page or pages would appeal to the owners / moderators.
Thanks, Phelbers
Stephen
I say IRS study where you say ‘treasury’ study for a reason: of the 116,000 Treasury employees. 106,000, or 91% are IRS. They write all the tax regulations, and even the ObamaCare bill. And guess what? 17,000 new IRS agents and officers will perform audits, impose fines, and garnish wages to force us to buy health insurance. This will bring the percentage to 93% IRS.
There are a few non-IRS agents in Treasury, but with minor exceptions, Treasury IS the IRS.
It may be a little cheeky to do this, but it’s satisfying psychologically to me, and probably closer to the truth than not. Also, it takes less typing to use ‘IRS’ (a little humor here).
We could probably check to see who the actual people making the report were to see what division they were in – there is a 9% chance – 1 in 11 – that I’m wrong. The odds are in my favor, but I will of course accept that the study could possibly have been non-IRS generated.
And, who paid professor Yin?
Thanks, Phelbers
Rather than try to address all the bad HR 25 issues at once, I’d like to start with three of the biggest ones.
1) Make the seller, not the buyer – lawfully liable for the tax. This would get the IRS, or its certain replacement, the STB (Sales Tax Bureau), off our backs. They could concentrate on the 16 million tax skimming businesses using zappers, rather than the 200 million poor saps who just fill their gas tank (the “no receipt, no tax was paid”buyer liability trap). Now, with the buyer liable under HR 25, it makes the sales tax a Direct tax, and unconstitutional because it is not apportioned. Making the seller liable makes the tax an Excise, Indirect, and constitutionally legitimate.
2) Make the prebate good-for-tax only, and good only to the person to whom issued, not a squanderable cash handout good for crack cocaine, Iowa gambling casinos, whisky, Pepsi, and lottery tickets thaat can be sold, swapped and stolen. The purpose of the prebate is to not tax poverty level survival consumption. A good-for-tax-only prebate, issued in a food ‘stamp’ credit-card manner, would be more akin to a regular paper coupon than cash, good for a 23% discount on the tax inclusive price at the register. The prebate would have no stand-alone cash value. The buyer would have to come up with the cash to buy the items to use the prebate on. The coupon style prebate could also be limited to legitimate poverty level survival goods and services: milk, yes; Pepsi, no; potatoes, yes; restaurant food, no (the poor would have to make their own french fries); clothing, yes; prom dresses, no; Yogurt, yes; ice cream, no; medicine, yes; ‘medical’ marijuana, no; rent and mortgage payments, yes; hotel vacation stays, no, telephone, yes; cable and satellite TV and high speed internet, no, and so on. I make no attempt to give a complete list, just to illustrate how it should probably be divided. This would make the prebate legitimate and much more acceptable than the proposed cash payments. With limited applicability, the poor would pay some tax on relative ‘luxury’ goods. Also, there would be no actual physical cash flow from the treasury.
3) Withdraw the Senate equivalent of HR 25. Article I, Section &, Clause 1 of the The Constitution requires, “All bills for raising revenue shall originate in the House of Representatives, . . . .”
Thanks, Phelbers
Phelbers,
#1. Assuming the seller provides a sales receipt as mandated in HR25, isn’t the buyer off the hook? If that means keeping a shoe box full of receipts, so be it. I agree that making the seller liable is better, but that must not lead to eliminating the receipt requirement. Otherwise, the whole “keep the tax amount in their face” idea goes away, doesn’t it?
#2 Love it, and would hope that you would agree to limit or target the prebate to the really poor?
#3. Tilting with windmills here. Yes, revenue bills have to originate in the House, but it matter not if the Senate throws the same bill in their hopper. What’s the problem? Surely there are more important concerns?
To: HVG re post # 651
Item 1 : IT IS NOT CLEAR TO ME IN YOUR FIRST LINE -what is the $59B FIGURE. Also what are you saying about the PREBATE – it appears from item 4 that you leave it in entirely. if you drop govt spending of $2009B that’s $460B not collected, then you eliminate from the goal, the P/R TAXES OF $870B, and eliminate $288B of tax collections .(Sec 800,etc) , then you are just about back to square 1 – that is the tax collections will now meet a lowered goal but will thus have to be the same rate. Please clarify.
Also, further clarification is still needed on the offshore money. Are you referring mostly to corporations who do not want to repatriate money because they will incure a US Tax? If so, I don’t know how much of that there is, but that was the target of the appx 5% tax holiday granted for that purpose as few years ago. Elimination (or reduction) of the corporate tax will take care of that.
.
To: Phelbers re post #652
It was not an IRS study, but a TREASURY STUDY which is available through this website.
I find it ludicrous to think that the US TREASURY is makling public statements that are false, because they are concerned about being put out of business – the TREASURY will NEVER be put out of WORK – NO MATTER WHAT TAX SYSTEM WE HAVE.
My paper leads you though both the Treasury study (cited in the President’s Tax Reform Panel and which was supplemented by Prof. Geo. Yin’s FL Law review article – all such papers are available on this cite (see my Paper).
You make the assumption (thanks for the clarification) that the employer’s share of FICA will be redirected from the IRS to the worker. Not necessarily: It may also be redirected to the pocket of the employer or into lower prices, instead f going to the employees I agreee that the emplyer savings should go to the workers, but good luck with that.
Competition/pricing is theory. Sometimes it works other times it wont. It is likely to work more often than not.
You are overly optimistic about the legislative prospects of HR 25 or even an NRST (please re-read my comments). Tea Party organizations got together on the CONTRACT FROM AMERICA which rejected HR 25.
To: Phelbers re post # 653
The people at Treasury are a distinctly different unit (and building) than the IRS (notwithstanding that IRS is a part of Treasury).Treasury people write the INCOME TAX REGULATIONS not the IRS.
I am certain that Prof. Yin would tell you that NO-ONE paid him to wwrite his FL Law Review article. You should read it.
To Phelbers re post # 654
1) There is no way that IRS can check only sellers. Also, They would have to be able to audit buyers so as to be able to cross-check to see where the buyers are spending their money and then verify that all those sellers are reporting the tax.
2) matter what you do, someone can make a legal purchase in trade for an illegal purchase. Also the Prebate still provides a WELFARE CHECK to an expanded group of recipients and therefore flunks my Constitutionality test. Please don’t misunderstand, I think that you are improving things but the whole idea is so fatally flawed that it is beyond saving.
3) You are right about the Senate, but that happens a lot.
TO: HVG re post # 655 which I presume responds to Phelbers’ post 654
1. The receipt does NOT get the buyer off the hook under the “fairtax” – both are responsible to pay, I believe.
2 Are you now giving a PREBATE ONLY to the poor – thereby making it even more “progressive”, Comrade?
3. Agree.
Stephen, #660,
(1) On the contrary, my friend. Sec. 101(d)(2) in HR25 clearly states that if a buyer gets a receipt in accordance with Sec 509, then the seller only is liable for the tax. The buyer is off the hook! To be clear, the buyer pays the tax, but is not liable in the event of an audit provided a valid receipt can be shown.
(2) Yes, I propose a targeted prebate for just the poor as defined by HHS, (not the AFFT wickered definition), which would cost around $59 billion annually rather than the all up Fairtax prebate which is now estimated to cost $600 billion. I don’t understand your comment about progressive? The Fairtax is clearly regressive by any business definition. The point of regressivity is simply moved from zero to the poverty level due to the prebate.
Unlike the present income tax (the ’54/’86 unenacted code), legitimate tax bills first impose a tax, and then assign liability for payment of that tax.
Under HR 25, the buyer is liable for the tax.
Apart from any other consideration, the person liable for the tax is the only one the IRS or STB can legally levy, fine, seize from, or haul into court on criminal penalties. Any STB officer can and will come to your house and ‘inventory’ any and all items, just as county tax agents now regularly reassess your home and property, and determine which items are in his opinion ‘newly purchased after HR 25 to audit for tax not paid. No receipt, no proof of tax paid, and there will be reassessments, fines, levies, seizures, and jail terms. The STB would be the IRS on steroids.
Also, making the buyer liable makes the HR 25 tax a direct tax, and unconstitutional for lack of apportionment.
I’m not opposed to limiting the prebate to the ‘poor’, but do not object to it being a good-for-tax-only discount for survival expenses for everyone. Many states do not sales tax food at all – even for multi-billionaires.
Either we have a Constitution, or we don’t. If provisions of it, such as the origination of tax bills, are obsolete and worthless, let’s amend them out according to the Constitution. The FF’s are considered to be stodgy old fools who handcuffed the efficiency of government by the majority of the US government, particularly the Congress and the Courts. They view individual rights are the greatest impediment to swift and efficient government.
A few unmistakably clear constitutional provisions, never amended, but violated are: printed fiat currency rather than coined lawful money (the Treasury engages in naked and unabashed counterfeiting – another reason I disagree with Stephen on their credibility, and what ‘treasury’ agent would not want to look out for their IRS brethren, who produce their salaries for them?); compelled testimony that can and is routinely used against us in any criminal case; tax bills originating in the Senate (Benjamin Franklin himself wisely pushed hard to prevent the Senate from having the power to even propose amendments to tax bills, let alone originate them, but was overruled); denial of jury trials in disputes over $20 ($1350 equivalent in today’s federal reserve notes); ex post facto laws (Clinton’s retroactive tax bill of 1993) – the list is almost endless. Any new tax bill ought to at least be constitutional, and actually enacted by Congress – we’ve had all the phony unconstitutional unenacted bills we can tolerate.
Thanks, Phelbers
To: HVG re post # 661
1)The buyer may not be liable to PAY the tax if he can show a receipt for the tax , but the buyer is still liable to PROVE THAT HE PAID THE TAX. Sure, if he has a receipt that’s fine, but the IRS” will be able to audit the buyer to see if he has receipts. Read my illustration in my Paper – the ORS could easily review ALL of your expenditures and THEN SAY, “Mr. HVG, let’s see ALL of your receipts regarding ALL of your expenditures.”
(2) I know the “fairtax” is progressive (i.e., Socialist, wealth-redistributing) – It is unconstitutional and wrong. Have you resumarized you numbers to see how you arrive at your new rates? Also, you must leave the Payroll Taxes in place.
To: Phelbers re post # 662
THE STB will also be able to examine all of your financial records to determine your sepnding..
If you want to give aq Prebate to the poor, feel free to use YOUR OWN MONEY – the Constitution gives you no right/entitlement to FORCE ME to give someone a Prebate (nor does any religion FORCE a person to give charity).
You say: “The FF’s are considered to be stodgy old fools who handcuffed the efficiency of government by the majority of the US government, particularly the Congress and the Courts.” Considered so by exactly whom???? “They view individual rights are the greatest impediment to swift and efficient government.” I have never heard that criticism of the FF and think the opposite.
You seem upset by tax bills originating in the Senate as a big Constitutional violation. But, where is your outrage over much more fundamental violations such as wealth redistribution and a conversion to the Nanny state which seeks to prove “safety nets” for all of its citizens.
Stephen (661, 660)
I posted 662 before I saw 661.
Stephen, Hank is absolutely correct on HR 25 liability. He correctly reads and understands this as printed and intended (wish I could get him to read SS stuff with equally open eyes and mind).
Only one entity can be liable – there is no shared liability, which would be utterly impossible to assess, distribute, or base collection upon.
Hank is correct also in that ONLY the receipt removes liability from the buyer. The receipt alone is what constitutes evidence acceptable to the STB that the tax was paid. Without a receipt, liability remains upon the buyer (the one who possesses the item), and to think for a moment that the STB would not audit is silly.
I don’t know about you, but my Wal-Mart receipts fade in a few month and are unreadable. I would have to pay the tax twice on every item I ever bought from Wal-Mart when I would be given an STB audit. And STB regulations would authorize home inspections at any time for these audits.
But the most important error of buyer liability is that it is a DIRECT TAX and IT IS UNCONSTITUTIONAL. The AFFT / Boortz / Linder cabal do not care about the constitutionality of the HR 25 tax, and are closed minded to any discussion of any aspect of HR 25, especially constitutionality.
Thanks, Phelbers
To: Phelbers re post 665
You say “Only one entity can be liable – there is no shared liability, which would be utterly impossible to assess, distribute, or base collection upon.” Sorry to disagree but that’s just not so. Are you aware , for example, the both the employer AND any responsible officer are BOTH liable for withheld payroll taxes not remitted to the IRS AND that they employee will likely not get income tax credit for that withholding until collected by IRS.
I believe that you now see (and hope HVG does as well) is that the “IRS” will still be able to determine if you have sufficient receipts for all of your purchases (for which the “IRS” must be able to audit all of your financial records to uncover).
It is interesting that you say Boortz/Linder do not want to discuss Constitutionality. One fairtax-ubber-alles official could not answer my Constitutional challenge against its “wealth redistribution” – while adamant that YOUR SHARE was un-constitutional (The thrust of his defense was that because YOUR SHARE was unconstitutional, that we simply had to adopt the “fairtax” because that was the most popular plan in America today.
To: phelbers re; post 666
I was not sufficiently sarcastic in my last post – i.e., “the fairtax as the most popular plan in America”.
They are bullying us with the fact that they have spent 10+ years and millions of dollars developing grass roots support for this plan (and the low level of superficial nsupport is revealing) and there is no-one else who has spent that amount of time and energy on any other single plan . Thus, their arrogance derives from false appearances.
Stephen
Under HR 25, all the STB can do to the liable buyer is ASSES THE TAX. The STB won’t give two hoots to what you spend. They have no authority other than to ASSES THE TAX on the one who has the product or evidence of service received. The STB under HR 25 will have to be many times larger than the IRS, and have far greater authority to harass that the IRS ever had.
The prebate AS I PROPOSE IT gives no money to anyone, just a 23/30% discount to everyone for survival expenditures up to the ‘poverty’ level. HR 25 gives a handout – a good-for-tax-only prebate does not.
I am only saying how government treats the Constitution. I was not saying the FFs asserted this. Our government does, however. Of course the Constitution is the only thing that has slowed or moderated the federal government’s steady and unrelenting usurpation of rights and freedom. But it is little more than a dead letter that government has to give lip service to make us believe it has any real remaining relevance.
Elena Kagan and Barrack Obama are two who believe with all their hearts that the Constitution is an unwarranted and outdated restriction on them in properly bringing about Marxist egalitarianism through total wealth confiscation and redistribution, due to its negative restrictive and declaratory articles and clauses (often called the ‘bill of rights’) against government. Most democrats, and many, many republicans believe similarly.
My outrage against the nanny state goes without saying. The only way to wean ourselves from it is to restore competition and free enterprise through lawful taxation. All a new tax scheme will do is change how the present nanny state is funded. A new tax system will not in any way instantaneously eliminate the nanny state and return us to a $600B budget. Only lawful taxation can do that.
An unconstitutional (unapportioned) direct head tax is not the way. An unconstitutional unapportioned direct buyer-liable HR 25 sales tax is not the way.
The present direct tax upon receipts (as opposed to income in the constitutional sense) is not the way.
A constitutional seller liable excise tax is one way to do it – everyone will pay tax on the items they consume, to the level they are able or feel capable of consuming. Such a tax would be self regulating. Too high, no one can afford things or will be willing to buy (just as the luxury yacht tax showed).
The answer does not lie in jumping from one unconstitutionally applied tax to another unconstitutional one. I have greater respect for the FFs wisdom and careful thought that formulated the Constitution.
We need a constitutional tax, and that, in time, will tend to restore the country.
Thanks, Phelbers
Stephen, #663,
You can call the Fairtax progressive, regressive, or just a bad idea, but according to any business dictionary, sales taxes are regressive. Period! “Regressive” is an economic term with a precise definition – when a tax is regressive, the higher one’s income, the lower the proportion of that income that actually goes to paying the tax – and vice versa. Either a tax is “regressive” or it isn’t. The FairTax is regressive. Low income workers will pay a larger percentage of their income in taxes than middle class workers, and middle class workers will pay a larger percentage of their income than high income earners. The Fairtax “prebate” simply moves the point of “regressivity” from zero to the AFFT adjusted poverty level amount.
I have found some 2009 data that will allow me to calculate the revised tax rates, but am unclear just what you want. Do you want the rate for 2009 with everything in HR25 remaining the same? Or do you want to see the rates if we make the changes I suggested? (I will add 15% evasion also, no matter which way we go.) Please clarify.
To: Phelbers re post 668
You Say: “The STB won’t give two hoots to what you spend.” WRONG! They need to know how much money you spent and on what in order to know IF SALES TA SHOULD HAVE BEEN PAID.
You Say: “The STB under HR 25 will have to be many times larger than the IRS, and have far greater authority to harass that the IRS ever had.” –That is very likely.
You Say: The Prebate AS I PROPOSE IT gives no money to anyone, just a 23/30% discount to everyone for survival expenditures up to the ‘poverty’ level. HR 25 gives a handout – a good-for-tax-only prebate does not.” – Even if your proposal gives that discount to everyone (including those evil rich people) it still has the effect of shifting the tax burden to only those who can afford to pay it (much like current sales taxes that exempt those items most frequently purchase by the poor) and thus violates my sense of un-constitutional wealth redistribution via having those with means pay for all of America’s common costs, thereby making an indirect transfer to the poor (who, insanely, are allowed to vote).
Sadly, I must agree with your assessment of Obama/Kagan and many GOP & DEMS. However, that is the essence of my complaint and I and the Tea Party movement are trying to get the battle back to defeating such Progressive/Socialism by returning to the Constitution and its limited govt functions. many
I agree with you. The Nanny State will eliminated ONLY when we eliminate all of those extra-Constitutional programs that the Constitution would not permit. But, it’s the SPENDING programs that come first – the new and fairer tax system does not achieve a reduction/elimination of spending programs.
I still believe (at this point) that a head tax is perfectly “apportioned”, but even if I am wrong, since we have already amended the Constitution to allow the Income Tax, we amend it to all the head tax (after repealing the Income .
I submit that any consumption tax allocates an excessive portion of our common charges to certain citizens based solely upon the amount of their consumption and not upon any criteria which is relevant to the underlying common cost. That is, the individual who consumes more many have nothing to do with that person’s actual relative impact on that common cost. That is, what the heck does a person’s spending have to do with his relative impact on the total common costs (I submit that it has none)?
To: HVG re post # 669
1. I define regressive/progressive the way you do (although Morphh did chastise me and I had to write a longer explanation in my Paper). Regressive is just a description of the impact. The cost of EVERYTHING a poor person buys is REGRESSIVE. Why is that someone else legal problem? Consideration of regressivity is wrong in the current system and should be eliminated.
2. was just trying to estimate what the new HR 25 sales tax rate would have to be if you made the adjustments you were suggesting. Whatever analysis you provide will be helpful.
Stephen
The ‘employer’ is liable for payment of taxes withheld in Subtitle C of the unenacted ’54/’86 tax title. But, the IRS uses the term to mean the owners, separately and collectively of the business where the employee works. They go after any and all of them as they see fit, whether or not the individual they seize from had anything to do with the failure to pay over to the IRS. If the accountant at the Hawaii branch of ABC partnership steals some of the Hawaiian employees’ withheld tax, the IRS will go after the Maine partner’s money, even though the Maine partner had nothing to do with the theft. From whom they take the money makes no difference to them, so long as they take it from the ‘employer’, not the employee from whom the money was not paid. The employer is a collective term as defined by the unenacted code / IRS / regulations. Only in this respect is there more than one physical human being liable. But there is only one legal entity liable. They don’t go after the employee for the employer’s share.
HR 25 does not assign joint liability to both seller and buyer simultaneously.
HR 25 assigns lawful liability to the BUYER, and buyer alone UNLESS he has a receipt. The seller has no liability for any part of the tax UNLESS the buyer has a receipt that shows he paid it. IF, and ONLY if, the buyer has a receipt will the STB lay off the buyer and then go after the seller.
This is without question an unabashed AFFT / Linder / Boortz business cabal device to shed fundamental liability away from them.
That’s what I meant by no dual, double, shared liability under HR 25. Either the buyer, or the seller, not both.
Thanks, Phelbers
Stephen
Once you read the history I suggested and learn why the Framers so feared direct taxes (the underpinning of wealth redistribution) you will understand apportionment, and that a direct head tax is in no way whatsoever apportioned in any sense of the term as the Framers intended.
Thanks, Phelbers
Hank: You are right on progressive / regressive taxation. But, ultraliberalism / Marxism / has for so long infected and poisoned all thinking so that we believe there MUST be progressivity first and foremost in any taxation, and that regressivity is an ultimate evil, even to constitutional supporters,.
The two terms only have relevance when taxes balloon to extreme proportions as they have now with the all-consuming welfare programs such as SS, Medicare, and so on. In a legitimate America, with constitutional, indirect excise taxation, the terms are essentially irrelevant.
Thanks, Phelbers
[...] new to add, but the discussion thread for Replacing the Income Tax has reached close to 700. So I thought I would start a new thread of discussion where you can [...]
TO Phelbers re post # 6722
While I have never had to delve into these questions in my practice, I believe that the IRS can NOT seek these funds from any and all corporate shareholders – only from the corporation and any person “responsible for the collec tion and remittance of these funds”.
If the employer is a partnership or individual proprietorship, then all of the individual partners’ assets are available for collection of unpaid payroll taxes because that is general commercial law.
I don’t know for sure, but it may be difficult for the employee to claim credit on his tax return for the unremitted payroll taxes (hard to prove).
Generally, I think that State sales taxes are the responsibility of BOTH buyer and seller.
In any event the “IRS” would examine buyers to determine which sellers are not collecting and remitting. It would be insane for Congress to exuse buyers from responsibility to pay the tax.
To Phelbers & HVG re post # 673
Phelbers, Thanks, I will read that material, but even if that is not “apportioned”, a Constitutional amendment is in order.
The right answer is to begin to FIGHT BACK and blow away the 100+ YEAR FOG LAID DOWN BY THE PROGRESSIVES THAT PROGRESSIVE IS GOOD AND REGRESSIVE IS BAD.
Stephen
I didn’t mean to even imply in the least to include shareholders. Just the actual owners, in the case of partnerships or privately held companies, or the officers of a corporation.
The states and local governments are not restricted to apportionment of direct taxes.
You are right about buyers and sellers being liable at the state level, but never BOTH SIMULTANEOUSLY for the same tax form a single sale. EITHER ONE OR THE OTHER is liable depending upon the circumstances of just who committed failure to pay, not both, and the tax commissioner decides who. Generally, the vendor is liable, not the buyer, except for out of state or taxable internet sales where the buyer defrauds the state of the tax, wherein the vendor has no liability.
I would oppose an amendment to repeal apportionment as much as I oppose HR 25 – to my dying breath.
Repeal of apportionment is a repeal of the Constitution itself, and a repudiation of the Founders and Framers.
You will see this art once when you see the history, and understand how we became the nanny state we are. If you can’t get the book, let me know through the moderators, and I’ll get one to you.
Thanks, Phelbers
Progressive/regressive — No offense to my friends on this board, but we’ve had progressive tax policies for almost 100 years. It worked so well that the rest of the industrialized world adopted progressive tax policies as well.
Everything can be taken to extremes, of course, as England went too far down the socialist path a few decades ago, but reasonably progressive taxation combined with a sound social safety net leads to a fairer, more homogenous, more prosperous socieity.
I think you’d be hard pressed to find an example of a society that prospered for any meaningful period WITHOUT a progressive tax system.
Hayden
The best example is the US, which progressed in an unprecedented way for 160 years without one. Of course there were problems, but the lowest levels of society advanced farther and faster than with any other society in history. Progressivity in the tax system was not the reason – we advanced in spite of it.
There is not a single ‘progressive taxation’ society in the world today that is not deeply in debt and/or bankrupt (using the ‘liabilities exceed assets’ definition of bankruptcy, which is THE definition of the term).
I would not say that the extreme progressive tax system has worked well at all.
Thanks, Phelbers
(I’m unable to post to the new page)
To: Phelbers re post # 679
I copiued your post to the new page – write Morphh for help.
In this blog, people are discussing an area of the FT that I call tax collection, compliance and auditing. My backgound is systems designs and taxes. In any system you design, the auditing and accuracy of the data is a very important item. In order to audit, you must understand how and where the data is collected. The purpose of the FT is to reduce the cost of collection, increase compliance and reduce the cost of auditing.
If FT can audit individuals purchases, then this system is worst than the current one. Now, if you choose the standard deduction and work for an employer, your auditability is fairly low as there is nothing that you generate can get audited. It the FT is to be successful, individuals cannot be auditted. The FT tax collection should be the sole responsibility of the business that should collect and report. This reduces the number of tax returns by 90%.
In general, would you rather audit the sales of 5K shoes to a shoe retailer or audit 5K retail shoe transactions? Which would be more likely to be correct and which would be easier to audit. Ironically, even though FT taxes at the retail level, it is far easier to audit at the B2B level. The transactions are fewer and larger.
So lets look at a FT tax return:
A. Gross Deposits
B. Change in Cash on Hand
C. Net Gross Deposits (A+B)
D. Less B2B Deposits and other nontaxable Deposits
E. Tax Deposits (C-D)
F. Tax Rate (.23)
G. Fairtax Amount (E*F)
What do we audit on this form?
A. Gross deposits
B. Change in Cash
D. B2B Deposits
If you are GM, who makes no sales to consumers, then their tax return would be simple. They would claim that their Gross Deposits and B2B deposits are the same. If you are WalMart, then their tax return would be simple as they would claim that they have no B2B deposits and thus everything is taxable. The auditor would then ensure that in fact all the deposits are accounted for. Currently if you are audited, this is done and we have a lot of experience doing this. Why? because business owners want to make sure that their employees are not skimming the cash regisiter.
Thus, to understand compliance, we have to understand how to audit. Auditing individuals makes no sense, while auditing business deposits are done today.
The net result of a simplified auditing, is increased compliance. If Hank is correct, there is 15% tax leakage, that amounts to $300B annually in lost revenues. Doesn’t it make a lot of sense in putting together a tax collection, compliance and auditing system that will reduce that amount?
If through proper systems design, you reduce this 15% tax leakage by 67%, you save $200B annually. To put this in perspective. the recent tax cuts to the top 2% was only worth $70B annually or about 1/3 of this amount.
Why should a new tax system piggyback on old paper based systems? To me, the FT should have a 21st century tax collection, compliance and auditing system as a key component of its proposal.