Purple Tax Plan

October 20, 2011  ·  Filed under: Education

Read this today:

Laurence J. Kotlikoff, a Boston University economist who is a columnist for Bloomberg View and previously endorsed the FairTax, now proposes what he calls the Purple Tax (a blend of red and blue), a consumption levy that he says cleans up some problems with the FairTax. It taxes the benefits that homeowners get from living in their own homes. That catches people who would shelter income by buying big houses. It also attempts to tax Americans’ consumption abroad. And it would tax inheritances and feature a payroll tax that, in a nod to liberals, exempts the first $40,000 of income and has no ceiling.

From the Purple Tax Plan:

The Purple Tax Plan replaces the federal personal and corporate income taxes as well as the estate and gift tax with a broad-based, low-rate, progressive consumption tax and a low-rate, progressive inheritance tax. It also makes the highly regressive FICA payroll tax highly progressive. The plan eliminates the need for households to file tax returns and enormously simplifies business tax compliance.

In considering the Purple Tax Plan, please bear in mind that we can have a highly progressive tax system without high marginal tax rates. The Purple Tax Plan features lower marginal tax rates than the current system, yet achieves a much more progressive distribution of tax burdens. It should also generate substantially more revenue. This is due not to “trickle down” or the Purple Tax Plan’s very likely strongly positive growth effects, but simply the fact that consumption is a very broad tax base.

We certainly need more revenue. Based on the Congressional Budget Office’s long-term forecast of June 22, 2011, our nation’s fiscal gap – the difference measured in the present (the present value) of all future projected spending, including servicing the existing debt, and all future taxes is $211 trillion! The fiscal gap represents, in effect, the nation’s credit card bill. Unfortunately, we’re not even paying interest on this liability, which helps explain its $6 trillion growth over the past year. The Purple Tax Plan would shave roughly $36 trillion off our fiscal gap.

Many people view consumption taxation, imposed as a fixed-rate retail sales tax, as regressive and the taxation of wealth, in addition to wages, at a fixed rate as progressive. Since doing one is mathematically and functionally equivalent to doing the other, both views can’t be correct. In fact, both are wrong.

Taxing consumption or, equivalently, the resources used to pay for consumption at a fixed rate is neither progressive nor regressive, but proportional. I.e., if you double economic resources (current wealth plus current and future wages), you double the consumption that those resources will finance, when both quantities are properly measured as present values. Hence, with a fixed consumption tax rate, doubling economic resources will double consumption and double the associated taxes. This is why economist say a consumption tax is proportional.

To make the Purple Tax Plan’s consumption tax truly progressive, the plan includes a monthly payment (demogrant), which ensures that those living at or below the poverty line pay no tax, on net, on their consumption.

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31 Responses to “Purple Tax Plan”
  1. When I first read Larry’s Purple plan, I sent him the following comments, but never heard back. Perhaps I’m too irritating?

    (1) Do not tax services, just all goods. Taxing all services has never been successful, anywhere in the world.

    (2) Do not tax governments at any level. Only people pay taxes! You might add some language in your legislation that would cover Government Enterprises which might compete unfairly with the private sector.

    (3) How would you propose to enforce your overseas spending tax?

    (4) Your upfront tax on wages and wealth is confusing me. Is that an annual tax, one time, or what?

    (5) Your demogrant suffers from the same problem as the Fairtax prebate. It is an entitlement, coming at a time when entitlements are squeezing out discretionary spending.

    (6) If you propose a demogrant, then you should not exempt the first $40,000 in FICA earnings. The result would be millions of workers that would pay no net federal tax annually, a situation to be avoided. Shouldn’t everyone pay something to support the federal government?

    (7) Taxing business capital gains seems counter productive. Don’t tax business consumption or business capital gains.

    (8) I wonder if you would support proposals to go to a chained CPI?

    In closing, I think you need to also high lite your phase in plans. I believe any such plan should be phased in over five years or so, not overnight or “cold turkey”.

    Hank Van Gieson  ·  Oct 20, 2011 at 4:59 pm  ·  Permalink
  2. Hank,

    I agree with number 6, and 7 and also like your phase in plan. That doesn’t mean I disagree with the others….but particularly like those indicated.

    Can you explain number 8?

    John Bailey  ·  Oct 21, 2011 at 6:36 am  ·  Permalink
  3. John,

    Sure, a chained CPI recognizes the fact that purchasing habits change with inflation. That is, as prices rise, many families buy hamburger rather than steak. So the basket of goods that is used to measure inflation isn’t really a good measure of the cost of living. It is highly likely that COLA’s have been too high for many years, and a chained CPI is one of the suggestions to get Social Security back on track. The others being talked about include (1) bringing all government workers into the federal system, (probably unconstitutional?), increasing eligibility age, lifting the cap, or increasing the 6.2% rate. Any one of which would make the system stable for another 75 years or so. Stay tuned!

    Hank Van Gieson  ·  Oct 21, 2011 at 7:20 am  ·  Permalink
  4. To all of you Socialists:

    You all (and Bush #43) are just in love with Progressivism (and Morphh, just because our c urrent system is progressive, does not mean that progressivism is a good thing – progressivism is a stage 4 cancer).

    Progressive is not limited to an increasing rate. I use progressivism in its broader sense, i.e., that the burden is shifted to those who can afford to pay, based upon their means and then goiven to those based upon their needs – sound familiar to you. Its just like Willie Sutton robbing banks because they had money, not poor people.

    If those in Congress had any political courage (and were dseeper thinkers), they would eliminate progressivism.

    Larry’s Purple Tax is so off the wall Socialist, that its speficis do not deserve
    the time and effort of Conservative Americans.

    Stephen C. Eldridge  ·  Oct 21, 2011 at 8:46 am  ·  Permalink
  5. Hank,

    Thanks.

    I’d rather see the sysetm self-supportive, not just stable for another 75 years. As I recall, back in the 70s Senator Dole (and some others) patched it up for 75 years and here we are far short of that. The problem with patching it is that the taxes get higher or more people get taxed or benefits go down or it becomes harder to get those benefits (later retirement).

    Fix it so workers know what to expect when they retire.

    John Bailey  ·  Oct 21, 2011 at 8:59 am  ·  Permalink
  6. My take on the Purple Plan is that Kotlikoff made a good faith effort to resolve some of the obvious (and less obvious) problems with the FairTax that, I believe, have bothered him for some time. I won’t pretend to have analyzed the economics of it, but I will assume that the plan is, in fact, revenue neutral and moderately progressive.

    However, in terms of being able to go anywhere politically, it’s got three insurmountable flaws (which are the same flaws that every well thought out tax plans face):

    1. It’s not simple enought to fit on a postcard.
    2. It can’t be explained in a pithy slogan or catch-phrase.
    3. No talk radio host or Fox News commentator is going to champion it day-in and day-out over the airways. (They only do that for regressive tax plans.)

    Therefore, it’s got about the same chance of being enacted into law as does the Simpson-Bowles tax proposal (which is my personal favorite.) That is: zero.

    Hayden Kepner  ·  Oct 21, 2011 at 12:56 pm  ·  Permalink
  7. John,

    If Dole, Greenspan, et al patched SS up for 75 years in the 1970’s, then it worked, more or less. SS doesn’t completely draw down their $2.5 trillion in (bogus?) assets until around 2040, so it is no surprise that it is time to do another patch job. And, I don’t see how there can be any certainty because no one can accurately predict future demographics, imho. What is pretty clear is that when the baby boomer bow wave dies off, SS will be running huge surpluses again at the current rates. I don’t thing adjustments every 30-40 years is such a bad thing. Of course, I won’t be around for the next “adjustment”?

    Hank Van Gieson  ·  Oct 21, 2011 at 3:27 pm  ·  Permalink
  8. Hank,
    Firstly, I think it was mid 70’s and 75 years later would be 2050, not 2040. So they missed their mark. Make it self sustaining and then that doesn’t happen.

    Secondly, I guess I don’t have as much faith in the current estimate (2040) as you do. Those in DC have too much at stake to give an accurate picture of bad news.

    Regarding lack of certainty about the future, I agree it’s difficult to do……all the more reason to make it self sustaining.

    I would prefer that the “plan” gets set up with rules put in place such that it doesn’t have to be tinkered with as that becomes a political football. If SS was originally set up so that benefits kicked in as a function of life expectancy and benefits were a function of how much revenue was coming in, then politicians wouldn’t be using the carrot of future benefit increases to buy votes.

    Of course they would use some other carrot to buy votes regarding income tax…..but that’s another story.

    I suggest we have a bare bones SS system funded with small payroll tax % and where benefits are basic and kick in later (somewhat of a true safety net). But in parallel with offer somewhat of a voluntary program or even if it’s not voluntary where you pay in a given percent and it goes into an ccount just for the individual which he can pass on to his heirs (tax free).

    John Bailey  ·  Oct 21, 2011 at 3:58 pm  ·  Permalink
  9. Hank,
    To pick one more nit (nit-picking), I just looked it up and Dole’s fix was apparently in 1983 so they missed the 75 year target by 18 years (assuming the 2040 date is accurate). That’s a 24% error. Given how government’s operate I suppose that’s not horrible, but we aren’t to 2040 yet either. If I was a betting man I would say the true date will be more like 2030.
    Why just last year the government reduced SS tax, but did nothing about the benefits….and the likelyhood of that temporary reduction being allowed to expire is pretty slim (imho).

    John Bailey  ·  Oct 21, 2011 at 4:03 pm  ·  Permalink
  10. John, re#8

    I usually agree with your comments, but your ideas about self sustaining are a little over the top for me to understand. Social Security is already self sustaining, but requires periodic adjustments to account for demographics and other factors. There simply isn’t an accurate 45 year crystal ball, imho. And there is no way to know how long someone may work and at what wages, all part of the calculation about your benefits. You seem to suggest that we tell an entering job employee that he will receive his SS benefits when his age equals the average life expectancy at the time of retirement. Different for men and women, and constantly changing. There is nothing certain about all that, is there?

    You also seem to suggest that the amount of benefits be tied to the governments cash on hand at the time, rather than as a function of what was paid in over 45 years. That makes no sense, so what did you mean?

    As for confidence in the status of the Trust Funds, I have read many Trustee annual reports, and believe them to be accurate, again subject to their assumptions used to project the future. If you can’t trust a Trustee, who can you trust?

    I also disagree that SS is a political football. The plan is what it is, and the benefits are clearly defined relative to wages and length of service. I have never heard of anyone running for office on a plank that would somehow increase benefits. Have you?

    Your private account suggestion ran aground under Bush. The transition proved to be too difficult and expensive. I agree that the concept is good, but getting there is the problem.

    I think that raiding the SS Trust Funds by lowering the current rate was a lousy way to jack up the economy. I’m surprised the Trustees didn’t all resign in protest. I guess the only real impact is that the surplus will run out sooner than last projected, which I believe was 2037. All those Special Treasury Bonds are going to get eaten up quicker. But, so what? There is plenty of time to make some of those adjustments we talked about.

    Hank Van Gieson  ·  Oct 22, 2011 at 8:02 am  ·  Permalink
  11. Hank #10,

    Sorry, I may not have been very clear. I’ll try to explain myself better.

    I am not sure how you can say that SS is self-sustaining? It is a system that requires benefit payouts from the current working citizens. That may be fine when there is one benefit recipient for 20 workers or even 10 workers….but when it gets to a ratio of 1:3 or 1:2 (where we are headed now) it’s unsustainable. By that I mean the taxes needed to provide existing benefits will have to be too high for it to not adversely burden our society.

    I agree there is no crystal ball. But it doesn’t take a rocket surgeon to see the trend over the history of SS (tax rates increase and benefits increase). In his book, “The Coming Generational Storm” Kotlikoff mentions the deception that goes on regarding budgeting for SS. One aspect (I don’t have the book with me to check the exact details) is how the forecasting is done. In projection for the future, they use a factor (inflation rate or some other parameter) of 2 %. When in fact it has never been as low as 2% and the average for recent history (multiple decades) has been 3.5%. Again, I don’t have his book with me, so I’m not certain if it’s inflation rate or even if the numbers are 2% and 3.5%, but the point is that they use an unrealistic number for the basis of their forecasts.

    I also agree there is no way to know to know what the average life expectancy is 40 years in advance. However, I think it’s better to have a system that

    A) is affordable, sustainable, benefit limited and tells a person entering the work force that they will get a given benefit “X” number of years prior to the average life expectancy. The individual can follow life expectancy and see the direction it’s going as they go through their life.

    Than

    B) to give them a hard number (i.e. 65 or 67 or 70) and then have to change it as they approach that age because the system is running out of money.

    In system ‘A’ the individual would not be expecting a huge amount of support and would (or should) make provisions during their career. With system ‘B’ too many expect it (and the government) to take complete care of them upon retirement, thus do not concern themselves with the details.

    I did not say that the benefits be tied to cash on hand. But the system should put money collected from workers away (to where the assets can be turned to cash without raising taxes). I see nothing wrong with benefits being tied to what a person contributed over their working life. But if there is not enough money to pay them, then the benefits should be reduced.

    If you can’t trust a Trustee…..I’m not all that trusting. Sorry. Between Medicare and SS I am afraid we have set up obligations and entitlements that may cripple this country. That may not be the trustee’s fault, but I am not sure how much faith I have in politicians to choose Trustees. Or am I wrong in thinking they are chosen by politicians.

    My statement about SS being a political football is about when a politician talks about reforming the system, they get lambasted for trying to kill grandma. Paul Ryan’s recent plan comes to mind. His plan said nothing about changing benefits for current and near term future retirees. The attacks were not against the workability of this plan….his plan was mischaracterized as taking benefits away from seniors and leaving them to die. His plan did nothing of the kind.

    Regardless of the privatization running aground under Bush does not mean it’s a bad idea or even unworkable. I believe Chile did this years ago. Agree that the transition may be the most difficult part…not just coming up with a transition plan that’s acceptable enough to politicians to pass, but also to endure long enough to work out.

    Your last paragraph kind of goes back to why I don’t trust the trustees so much. You ask who can you trust if you don’t trust the trustees. I trust myself. And this is the crux of the issue. I would rather individuals be responsible for their own retirement not the government. Bring back policies that strengthen the family unit and local communities and most likely the ‘looking after the eldery’ issue will get resolved.

    John Bailey  ·  Oct 25, 2011 at 2:26 pm  ·  Permalink
  12. John,

    Thanks for your excellent response. I think we are on the same sheet of music, particularly with regard to your final para. Whatever happened between my fathers generation and mine? My parents took care of her mother at the end, with never a thought of federal government intervention or assistance. Things just aren’t the same.

    I have to take back my comment about “Who can you trust if not the Trustees”. I now know that the six Trustees are (1) Tim Geitner, Sec of Treasury, (and a man who didn’t pay his taxes;) (2) Secretary Solis, Labor Sec.; (3) Sec. Sebelius, HHS Sec.; (4/5) Commissioner Astrue and Trustee Blahaus, about whom I know nothing; and Robert Reischauer, a Trustee whose name is certainly familiar. Talk about the fox being in the hen house? And, the three last Trustees weren’t named by Pres. Obama until almost two years into his term. Smells bad to me!

    Hank Van Gieson  ·  Oct 27, 2011 at 7:18 am  ·  Permalink
  13. Hank,

    No, things certainly aren’t the same anymore…..I do hold out hope that they can swing back in that direction though. My grand father dutifully took care of his mother-in-law (whom he didn’t particularly get along with) for about 10 years after my grand mother passed away. Despite their differences, he provided her a home and care until he died and even made a way for her to be looked after even after he passed away.

    You sort of hit the nail on the head – fox being in charge of the hen house. It’s one of the reasons I am in favor of a smaller Federal government. Too many lobbyist, too many guys (and gals) with their something to gain and little to loose. I am even appalled at the compensation and benefits senators and congressmen collect and how they are able to insulate themselves from enormously bad legislation (pawning off the debt limit and budget issue pawned off on this deficit reduction group as a recent example).

    John Bailey  ·  Oct 27, 2011 at 1:42 pm  ·  Permalink
  14. Hi Hank,

    Here are my responses in CAPS to make it clear what’s my text and what’s yours.

    When I first read Larry’s Purple plan, I sent him the following comments, but never heard back. Perhaps I’m too irritating?

    NOT IN THE LEAST IRRITATING.

    (1) Do not tax services, just all goods. Taxing all services has never been successful, anywhere in the world.

    SORRY, THE PURPLE TAX TAXES ALL SERVICES. JOHN EDWARD’S HAIRCUTS AT HIGH PRICED BEAUTY SALONS WON’T GO UNTAXED. AND I HAVE SOME MODERN WAYS IN MIND TO HELP ENFORCE COLLECTING TAXES ON SERVICES.

    (2) Do not tax governments at any level. Only people pay taxes! You might add some language in your legislation that would cover Government Enterprises which might compete unfairly with the private sector.

    GOVERNMENTS WOULD PAY LIKE ANYONE ELSE, BUT THEY’D COLLECT THIS REVENUE AS WELL. SO THEY WON’T BE HURT FROM THAT ANGLE.

    (3) How would you propose to enforce your overseas spending tax?

    PUT ON VERY HIGH PENALTIES, INCLUDING JAIL TIME, AND MAKE SOME VERY PUBLIC EXAMPLES.

    (4) Your upfront tax on wages and wealth is confusing me. Is that an annual tax, one time, or what?

    A SALES TAX IS, IN EFFECT, A ONE TIME TAX ON CURRENT WEALTH. BUT THE ACTUAL TAX PAYMENTS ASSOCIATED WITH THE ONE TIME TAX CAN BE HANDLED TO THE GOVERNMENT OVER TIME WITHOUT CHANGING THE NATURE OF THE TAX.

    (5) Your demogrant suffers from the same problem as the Fairtax prebate. It is an entitlement, coming at a time when entitlements are squeezing out discretionary spending.

    THE PURPLE PLANS ARE DESIGNED TO ACHIEVE A ZERO FISCAL GAP. SO THE DEMOGRANTS ARE AFFORDABLE.

    (6) If you propose a demogrant, then you should not exempt the first $40,000 in FICA earnings. The result would be millions of workers that would pay no net federal tax annually, a situation to be avoided. Shouldn’t everyone pay something to support the federal government?

    OUR SYSTEM IS VERY PROGRESSIVE AT THE BOTTOM OF THE EARNINGS DISTRIBUTION. I’M TRYING TO MATCH THAT DEGREE OF PROGRESSIVITY.

    (7) Taxing business capital gains seems counter productive. Don’t tax business consumption or business capital gains.

    THE PLAN DOESN’T TAX BUSINESS CAPITAL GAINS OR BUSINESS CONSUMPTION. WHY DO YOU THINK THAT?

    (8) I wonder if you would support proposals to go to a chained CPI?

    YES. CHAINED PRICE INDICIES SEEM MUCH MORE ACCURATE.

    In closing, I think you need to also high lite your phase in plans. I believe any such plan should be phased in over five years or so, not overnight or “cold turkey”.

    Laurence Kotlikoff  ·  Nov 6, 2011 at 1:39 pm  ·  Permalink
  15. Larry,

    Thanks for your response. I’ll comment both here and in an email to you in the event you are an infrequent visitor.

    (1) Good luck on taxing services. It’s been tried and failed in several countries, but I’d sure be interested in any modern enforcement methods you might envision.

    (2) Who is a State government going to collect from? Please explain how a State government pays the tax and somehow still comes out whole.

    (3) Do you expect France to tell you how much I paid for that bottle of wine?

    (5) Yes, the demogrant is paid for, but my concern is that it would be another huge entitlement, and we don’t need any more entitlements in the federal budget.

    (6) All workers pay FICA under current law. Under the Purple Plan, if you exempt the first $40,000, then the demogrant will create a huge group of workers that would pay no net federal tax. It is that “nanny state” that I’m objecting to. Again, shouldn’t everyone pay something?

    (7) Your transition section states that businesses and individuals will pay the Purple tax on unrealized capital gains.

    I still wonder if you might consider a phased introduction, say over five years or so?

    Hank Van Gieson  ·  Nov 6, 2011 at 3:07 pm  ·  Permalink
  16. Taxing services would go over fairly poorly with the majority of the population. There won’t be many people willing to go get a haircut, oil change, or carpet cleaning if they have to pay a tax on it. And I suspect a judge somewhere would toss the services tax out as unconstitutional. But the thought of a ceiling-less income tax is fairly appealing. But if I had to choose, I’d take the FairTax.

    FairTax Guy 10  ·  Nov 10, 2011 at 9:11 am  ·  Permalink
  17. I agree that this cannot be an overnight switch. I like the idea of a phased introduction. A sudden change causes confusion, which can lead to fear and panic. Overall the plan makes sense, but it seems like there are several important questions that don’t have a good answer (solution).

    FairTax Guy8  ·  Nov 10, 2011 at 9:14 am  ·  Permalink
  18. I am a college student at Ivy Tech looking for additional information and thoughts of others concerning the Fair Tax program.
    I was wondering what a phase introduction may look like to you. What programs do you think we start with to get this going on the right track.

    Fairtax Guy 21  ·  Nov 10, 2011 at 10:27 am  ·  Permalink
  19. I am a student at Ivy Tech Community College in Sellersburg IN. One of my classes is discussing Fair Tax pros and cons. Part of the class is reaching and writing on the benefits of a Fair Tax while the other part is focusing on the disadvantages of the Fair Tax.
    How would you distribute the monthly payment (demogrant)?
    I also wonder how you would implement a phased startup over five years.

    FairTax Guy25  ·  Nov 10, 2011 at 10:27 am  ·  Permalink
  20. FairTax Guy 10, you’re already taxed on your haircut, oil change, or carpet cleaning, since the income you use to pay those services today is taxed.

    FAirTax Guy 25, the monthly payment is issued via direct deposit, check, or a smartcard depending on the preference of the citizen. Most will choose direct deposit as via evidence from other programs like SS.

    Morphh  ·  Nov 16, 2011 at 9:22 am  ·  Permalink
  21. Morphh,

    Come on, give the student a break. We do not currently pay a tax on haircuts, at least in North Carolina. Doesn’t your logic at least require you to say “indirectly taxed”? You bring to mind the Fairtax myth regarding embedded taxes. Fairtax advocates always claim we are paying embedded taxes as though our individual tax burden is affected. Embedded taxes impact only one thing and that is retail prices. Period! My individual tax burden is unaffected. Even Larry Kotlikoff agrees with my position. To claim otherwise is a gross misuse of those embedded taxes. Again, add the word indirect and I think we might agree.

    Hank Van Gieson  ·  Nov 16, 2011 at 10:25 am  ·  Permalink
  22. FairTax Guy 10,

    I doubt that college students are very likely to view the Fairtax scheme through the eyes of a retiree? So, here are a few comments for your consideration.

    (1) How is it fair to force retirees, who have paid into the Trust Funds for 45 years or so, to resume paying for their benefits with their sales tax dollars? HR25 mandates that 14.91% of the sales tax goes to the General Fund, and the other (roughly) 8% goes to the Trust Funds. Wouldn’t it be more fair to have retirees pay a 15% sales tax, while everyone else pays 23%? A two tier tax system such as that would be very easy to implement, and would certainly solve a very knotty and unfair transition issue.

    (2) How is it fair to double tax after tax savings when spent? The Fairtax taxes both income and wealth. Retirees probably own the bulk of the wealth, and much of that wealth was previously taxed. Another transition issue for which I can’t find an easy solution.

    (3) Despite repeated claims by Fairtaxers that investments won’t be taxed, Section 801-804 of HR25 lays on a large implicit service charge (tax?) on both interest bearing investments such as CD’s, and debt instruments such as mortgages and credit cards. Calling this implicit tax a service charge does not change the resulting increase in loan costs or the reduction in investment income.

    (4) One of the most egregious Fairtax claims is that we all will get 100% of our pay/pensions, and retail prices will remain about the same. This is the long discredited “free lunch” Fairtax myth, probably started by Neal Boortz when he co-authored the first Fairtax book in 2005. Many advocates are fond of saying that 22% in embedded taxes will be removed and the 23% sales tax added for a net decrease in retail prices. Wrong on two counts. First, if we get all our pay, then the strictly business related tax costs that can be removed average 10%. Remove the 10% and add the 30% sales tax, (not 23%), and retail prices rise by 17% on average. There is no free lunch!

    (5) Taxing governments as proposed in HR25 is very likely unconstitutional under our republican form of government. The reason given by Fairtaxers for federal taxation of State and Local government operations is that we need to prevent unfair government competition with the private sector. But that problem was already addressed by Section 704 of HR25. Any government agency that sell more than $2500 per quarter would be considered a government enterprise, and would be required to collect and remit the sales tax. The playing field was already level. Taxing governments as proposed increased the Fairtax base by around 18% and lowered the sales tax rate by 7%. Perhaps 23% looked better than 30%??

    Good luck with your discussions!

    Hank Van Gieson  ·  Nov 16, 2011 at 10:55 am  ·  Permalink
  23. Hank, indirect taxation is implied in my answer since I’m talking about income taxation. However, be it taxed before you spend it or after you spend it – doesn’t seem to make one bit of difference. If I tax your income $2 and then you spend $8 on a haircut, or if you spend $10 of which $2 is taxed, seems to be half dozen of one or six of the other. A haircut is made with post tax dollars, thus that service has already been taxed. That’s the point, but of course, it’s indirect.

    Morphh  ·  Nov 16, 2011 at 3:20 pm  ·  Permalink
  24. Morphh,

    Thanks, because I can’t find any mention of a tax on my haircut receipt. Would you agree that indirect taxes do not affect my individual tax burden at all? And if you don’t agree, tell me how you would measure the amount of those indirect taxes?

    Hank Van Gieson  ·  Nov 16, 2011 at 3:27 pm  ·  Permalink
  25. Hank I agree with that. Let me ask you, why do they call some flat taxes a consumption tax (income – savings)? These ideas are not new to you. To call out specific goods for a consumption tax.. “they’re going to tax haircuts, food, tp,.. oh my”. It’s a stupid argument and pandering. Today this spending is pre-taxed before you get to the register.

    Morphh  ·  Nov 16, 2011 at 9:05 pm  ·  Permalink
  26. Is the Fair Tax Act really fair? Is the current tax process the true cause of the problem? There is no doubt that there are flaws with our current tax system, but from the info that I have gathered, there are just as many flaws with the Fair Tax Act. Maybe there are some root factors that caused the current system to come into question. I think the government’s wild spending should be the first factor to be evaluated. Then we should look at our own spending. How many of us buy houses, cars… you name it, that we truely cannot afford? These are just a couple off the top of my head.

    FairTax Guy8  ·  Nov 27, 2011 at 9:42 pm  ·  Permalink
  27. Our country’s economic and tax structure is very complex. It needs to be simplified but the Fair Tax Act will not do so.

    Kenneth Gibbons  ·  Dec 9, 2011 at 9:58 pm  ·  Permalink
  28. Ken,

    You may be right, but could you tell us why you believe the Fairtax won’t simplify tax collections?

    Hank Van Gieson  ·  Dec 11, 2011 at 3:08 pm  ·  Permalink
  29. Not sure if anyone has mentioned it yet, but Kotlikoff is running for President of the United States in the 2012 election. He is seeking the nomination of the advocacy group Americans Elect. Will an Economist Make a Difference as the next American President?

    Morphh  ·  Jan 19, 2012 at 9:37 am  ·  Permalink
  30. Dick Morris told his fans about Americans Elect – perjoratively. Dick, a former advisor to Bill Clinton, thinks this movement will help get Obama elected.

    I like Kotlikoff, but fortunately Kotlikoff isn’t going anywhere. His Purple Tax retains the institution of the IRS and increases the likelihood of a 5th-column incremental re-introduction of the income tax. The FairTax keeps the return of the IRS and the likelihood of a concurrent income and consumption tax at bay.

    ~Jim

    Jim Bennett  ·  Jan 19, 2012 at 2:12 pm  ·  Permalink
  31. I think Kotlikoff is correct in raising the exemption from payroll taxation. However, what he’s fundamentally missing here is the increasing role of enormously entrenched wealth in the US economic system. There are _all_ kinds of ways for the truly wealthy to escape payroll/sales taxes.

    Randall Burns  ·  Sep 29, 2012 at 5:39 pm  ·  Permalink