The FairTax

[Charla]

I understand that the system is designed to be simple and that it could be implemented in a way that is easy to understand and has little possibility for graft. I'm saying that politics itself will prevent it from being implemented in such a way. When one interest or another spends enough money to convince politicians to tack on another little additional rule, they will start tacking on more and more rules. The basis of the current tax system isn't that hard to understand at all, it's the 200 years of slowly piling additional rules onto it that created a complex mess. Fair tax might be a great option if politicians weren't politicians, but so would a few other options.

[evilbau]

I mentioned in the other thread that it was unfair to the poor and ignorant but since no one brought up any points there, I didn't elaborate. Here are some reasons its a poor idea.

Already mentioned, it will cause major upheaval to the IRS and the tax preparation industry. You may view it as 'waste' but I guarantee that the accountants don't think so.

There are many ways this will be advantageous for the rich which the poor will not take advantage of. The elimination of cap gains taxes? Abolishment of estate taxes, and removing the alternative minimum tax: these all benefit the rich. There are some far reaching effects which make it not so 'simple to implement'. How will contributing to an IRA affect your adjusted gross income after this change? What benefits will Roth IRAs provide? You contribute with after tax dollars so that you won't be taxed when you take the money out; instituting a sales tax will defeat the whole purpose of these accounts and basically screw everyone who took advantage of this type of retirement account.

How will deductions now work? People have very carefully planned their budgets with the tax deductibility of interest payments in mind. It will unfairly punish people whose business involves lots of buying and selling of goods/services. It can cause lots of these types of businesses to go under due to the costs of doing business. The ones which will truly benefit will be large companies who are now exempt from capital gains taxes. They will quickly see through this tax scheme and decide, 'hey lets expand to other markets' because the heavy sales tax in the US, and the money that comes back will be free from cap gains. People will come up w/schemes to sell imported goods to avoid paying tax and it'll be a huge problem (it'll be like avoiding state taxes by purchasing out of state goods over the internet but on a much wider scale).

It will make our goods and services less competitive globally which will depress tourism. The rich will buy good overseas while the poor will be taxed on their local goods which they need (necessities and utilities). Your idea of 'fairness' involves the people with the means and intelligence to avoid paying it and it falling upon the people with the lowest ability to game the system to their benefit.

So many parts of this is ridiculous. Seriously, elimination of the estate tax? You want create a tax break for dead multi-millionaires? Like I said before, the idea of the law may appeal to people's sense of 'fairness' but the reality of it won't be fair at all.

This are the first things that come to mind, (lol my 20 minute analysis) and while there are some benefits, I can see a whole lot of negatives too.

[aurik]

The main problem with consumption taxes is that they hurt the poor much harder than the rich.

Someone who earns $10,000 a year and spends $10,000 a year. will be taxed at effectively 23%.
Someone who earns $100,000 a year and spends $50,000 a year will be taxed at 11.5%
Someone who earns $1,000,000 a year and spends $100,000 a year will be taxed at 2.3%

Essentially this distributes the load unevenly onto the people who can least afford it, and letting the people who have tons of money basically skate.

Furthermore, if you want to talk about macroeconomics...if you give the poor person a $100 tax break, they will spend $100 in the local economy. If you give the rich person a $100 tax hike, they will only spend $10 less in the local economy. By shifting $100 in tax burden from the poor to the rich, you have essentially generated $90 in economic activity. It is much more beneficial for the economy to give tax breaks to the people who need it most rather than the people who need it least.

From a utilitarian point of view, who in the above example has the most to gain from giving the government money? Well, the government reduces anarchy and maintains the status quo, both things much more attractive to the bourgeois and aristrocracy than the proletariat. Mr. Rich has the most invested in keeping the current state of affairs current.

[evilbau]

The main problem with consumption taxes is that they hurt the poor much harder than the rich.

Someone who earns $10,000 a year and spends $10,000 a year. will be taxed at effectively 23%.
Someone who earns $100,000 a year and spends $50,000 a year will be taxed at 11.5%
Someone who earns $1,000,000 a year and spends $100,000 a year will be taxed at 2.3%

Essentially this distributes the load unevenly onto the people who can least afford it, and letting the people who have tons of money basically skate.

Furthermore, if you want to talk about macroeconomics...if you give the poor person a $100 tax break, they will spend $100 in the local economy. If you give the rich person a $100 tax hike, they will only spend $10 less in the local economy. By shifting $100 in tax burden from the poor to the rich, you have essentially generated $90 in economic activity. It is much more beneficial for the economy to give tax breaks to the people who need it most rather than the people who need it least.

From a utilitarian point of view, who in the above example has the most to gain from giving the government money? Well, the government reduces anarchy and maintains the status quo, both things much more attractive to the bourgeois and aristrocracy than the proletariat. Mr. Rich has the most invested in keeping the current state of affairs current.

while I agree with you, the point of the 'pre-bate' is supposed to offset this. I personally believe in practice this won't be the case, but you should at least acknowledge it. I didn't address issues that would be affected by the so called pre-bate because at least in theory it will take the regressiveness out of the tax. (it really won't though)

i focused instead on the many other ways this is a bad idea.

[simozene]

I mentioned in the other thread that it was unfair to the poor and ignorant but since no one brought up any points there, I didn't elaborate. Here are some reasons its a poor idea.

Already mentioned, it will cause major upheaval to the IRS and the tax preparation industry. You may view it as 'waste' but I guarantee that the accountants don't think so.

There are many ways this will be advantageous for the rich which the poor will not take advantage of. The elimination of cap gains taxes? Abolishment of estate taxes, and removing the alternative minimum tax: these all benefit the rich. There are some far reaching effects which make it not so 'simple to implement'. How will contributing to an IRA affect your adjusted gross income after this change? What benefits will Roth IRAs provide? You contribute with after tax dollars so that you won't be taxed when you take the money out; instituting a sales tax will defeat the whole purpose of these accounts and basically screw everyone who took advantage of this type of retirement account.

How will deductions now work? People have very carefully planned their budgets with the tax deductibility of interest payments in mind. It will unfairly punish people whose business involves lots of buying and selling of goods/services. It can cause lots of these types of businesses to go under due to the costs of doing business. The ones which will truly benefit will be large companies who are now exempt from capital gains taxes. They will quickly see through this tax scheme and decide, 'hey lets expand to other markets' because the heavy sales tax in the US, and the money that comes back will be free from cap gains. People will come up w/schemes to sell imported goods to avoid paying tax and it'll be a huge problem (it'll be like avoiding state taxes by purchasing out of state goods over the internet but on a much wider scale).

It will make our goods and services less competitive globally which will depress tourism. The rich will buy good overseas while the poor will be taxed on their local goods which they need (necessities and utilities). Your idea of 'fairness' involves the people with the means and intelligence to avoid paying it and it falling upon the people with the lowest ability to game the system to their benefit.

So many parts of this is ridiculous. Seriously, elimination of the estate tax? You want create a tax break for dead multi-millionaires? Like I said before, the idea of the law may appeal to people's sense of 'fairness' but the reality of it won't be fair at all.

This are the first things that come to mind, (lol my 20 minute analysis) and while there are some benefits, I can see a whole lot of negatives too.

You make a lot of good points. Even I have a Roth IRA myself which would become useless if the FairTax is implemented. Even though my IRA is essentially turned into a savings account, the benefits of the FairTax outweigh the annoyances like that it causes. Would you rather take a tax deduction for a traditional IRA or simply have nothing to deduct from?

As for your explanation of why our goods and services will be less competitive globally, I suggest you go and read the book or study the FairTax farther. All of our goods and services are already intrinsically taxed at around 20%-30%. This tax is completely hidden from the consumer so 99% of the population is completely unaware of it. The government likes placing taxes where people won't see it. If the FairTax was implemented, the cost to produce these products will be reduced almost by the same amount as the FairTax will increase them. The net change is that products will remain about the same price they are now once the FairTax is passed. In lowering the cost of production it actually makes our products more competitive on a global scale.

I'm sure my explanation of this is rather poor compared to the way The Fair Tax book states it. But I can assure you that you are misinterpreting it in your 20 minute analysis.

[Charla]

Youre presenting this as getting something for nothing, but that just isn't possible. Even without getting into the details of anything I can tell that the biggest problem with both government and taxation is corruption. A new system will not do much about that. Until people stop throwing money at politicians to get them to do what they want, tax reform isn't going to get significantly better without sacrificing something. Sacrificing the idea of progressive taxation to eliminate the incentive for international tax havens is not what I call a good idea.

[Correction]

Hey guys I came up with a taxation system that's way better than what you guys hate now, but I can't explain it in a convincing manner until you pay for my 20 dollar book.


Snake.

Oil.

[simozene]

Hey guys I came up with a taxation system that's way better than what you guys hate now, but I can't explain it in a convincing manner until you pay for my 20 dollar book.


Snake.

Oil.

Sorry... I didn't realize everyone here was so intelligent that they could understand what's explained in detail in a 200 page book in just a few paragraphs.

If you think the FairTax is interesting, I suggest you read the book. Whether or not you're for or against it. I never thought I would read a book about taxes, but it held me interested from start to finish.

[SwampdonkeyPLD]

I mentioned in the other thread that it was unfair to the poor and ignorant but since no one brought up any points there, I didn't elaborate. Here are some reasons its a poor idea.

Already mentioned, it will cause major upheaval to the IRS and the tax preparation industry. You may view it as 'waste' but I guarantee that the accountants don't think so.

There are many ways this will be advantageous for the rich which the poor will not take advantage of. The elimination of cap gains taxes? Abolishment of estate taxes, and removing the alternative minimum tax: these all benefit the rich. There are some far reaching effects which make it not so 'simple to implement'. How will contributing to an IRA affect your adjusted gross income after this change? What benefits will Roth IRAs provide? You contribute with after tax dollars so that you won't be taxed when you take the money out; instituting a sales tax will defeat the whole purpose of these accounts and basically screw everyone who took advantage of this type of retirement account.

How will deductions now work? People have very carefully planned their budgets with the tax deductibility of interest payments in mind. It will unfairly punish people whose business involves lots of buying and selling of goods/services. It can cause lots of these types of businesses to go under due to the costs of doing business. The ones which will truly benefit will be large companies who are now exempt from capital gains taxes. They will quickly see through this tax scheme and decide, 'hey lets expand to other markets' because the heavy sales tax in the US, and the money that comes back will be free from cap gains. People will come up w/schemes to sell imported goods to avoid paying tax and it'll be a huge problem (it'll be like avoiding state taxes by purchasing out of state goods over the internet but on a much wider scale).

It will make our goods and services less competitive globally which will depress tourism. The rich will buy good overseas while the poor will be taxed on their local goods which they need (necessities and utilities). Your idea of 'fairness' involves the people with the means and intelligence to avoid paying it and it falling upon the people with the lowest ability to game the system to their benefit.

So many parts of this is ridiculous. Seriously, elimination of the estate tax? You want create a tax break for dead multi-millionaires? Like I said before, the idea of the law may appeal to people's sense of 'fairness' but the reality of it won't be fair at all.

This are the first things that come to mind, (lol my 20 minute analysis) and while there are some benefits, I can see a whole lot of negatives too.

That first bold part. Income taxes and capital gains taxes do NOT hurt the rich. If I have to pay 30% on 10 mill big deal, I still have 7 mill left over. Income and capital gains taxes only hurt the people on their way to becoming rich. Sure not having to pay those will help the rich but it will help the people on their way to becoming rich as well.

The second bold part. I think all new goods and services includes imports but I'm not sure.

Now I know the Fairtax isn't perfect and there are problems with it, no tax we ever implement will be. But I certainly think its better than what we have now.

And @ Aurik, the poor will not be taxed on the "necessities of life," so unless they spent that 10 grand you mentioned on bullshit, the fairtax will not hurt them.

[evilbau]

stuff i wrote

You make a lot of good points. Even I have a Roth IRA myself which would become useless if the FairTax is implemented. Even though my IRA is essentially turned into a savings account, the benefits of the FairTax outweigh the annoyances like that it causes. Would you rather take a tax deduction for a traditional IRA or simply have nothing to deduct from?

As for your explanation of why our goods and services will be less competitive globally, I suggest you go and read the book or study the FairTax farther. All of our goods and services are already intrinsically taxed at around 20%-30%. This tax is completely hidden from the consumer so 99% of the population is completely unaware of it. The government likes placing taxes where people won't see it. If the FairTax was implemented, the cost to produce these products will be reduced almost by the same amount as the FairTax will increase them. The net change is that products will remain about the same price they are now once the FairTax is passed. In lowering the cost of production it actually makes our products more competitive on a global scale.

I'm sure my explanation of this is rather poor compared to the way The Fair Tax book states it. But I can assure you that you are misinterpreting it in your 20 minute analysis.

I'm all about progressive income tax, I think it is the most effective way to get revenue. AMT should be re-adjusted and estate taxes more severe. You are absolutely right in that taxes have already been priced into the costs of goods and services. I understand a lot about tax rules. When the employee pays medicare/social security, the employer matches that (7.odd%). Income taxes, however, come out of the employees paychecks, and don't affect the economic costs of running the business. There still is the tax liability of the company, and essentially, on the corporate level, those are where the savings will come from. Tax Liability and Benefits. It isn't the cost of producing the products being reduced, its the tax on the profit. I don't believe it will lower the cost at all since all the goods (raw materials, machinery, equipment, etc.) and services (workers, consultants, caterers, etc.) to create the product will have this tax attached to it too.

Imo, this is an idea which is appealing to a lot of people because they don't like income taxes. Its populist rhetoric meant to attract the rich/wannabe rich and have the appearance of government getting off your back. Sure I would like to have more money and not pay income taxes, cap gains taxes, or fill out 1099-INTs for every bank account I have but it has a lot of negatives in my mind.

[Khamsin]

Ron Paul is the man.

Indeed, Ron Paul also supports the FairTax.

You're suggesting that because he likes Ron Paul, and Ron Paul supports Fair Tax, that he should too?

Congratulations, your logic is disgusting.

Ordinarily, I'd agree. Although, in the context of an elected representative of the people, it would make sense for the people to share the same opinions as their representative. But instead of him supporting FairTax because Ron Paul does, it'd be the other way around. However, in terms of "logic", it makes no difference which way around you go.

[SwampdonkeyPLD]

stuff i wrote

You make a lot of good points. Even I have a Roth IRA myself which would become useless if the FairTax is implemented. Even though my IRA is essentially turned into a savings account, the benefits of the FairTax outweigh the annoyances like that it causes. Would you rather take a tax deduction for a traditional IRA or simply have nothing to deduct from?

As for your explanation of why our goods and services will be less competitive globally, I suggest you go and read the book or study the FairTax farther. All of our goods and services are already intrinsically taxed at around 20%-30%. This tax is completely hidden from the consumer so 99% of the population is completely unaware of it. The government likes placing taxes where people won't see it. If the FairTax was implemented, the cost to produce these products will be reduced almost by the same amount as the FairTax will increase them. The net change is that products will remain about the same price they are now once the FairTax is passed. In lowering the cost of production it actually makes our products more competitive on a global scale.

I'm sure my explanation of this is rather poor compared to the way The Fair Tax book states it. But I can assure you that you are misinterpreting it in your 20 minute analysis.

I'm all about progressive income tax, I think it is the most effective way to get revenue. AMT should be re-adjusted and estate taxes more severe. You are absolutely right in that taxes have already been priced into the costs of goods and services. I understand a lot about tax rules. When the employee pays medicare/social security, the employer matches that (7.odd%). Income taxes, however, come out of the employees paychecks, and don't affect the economic costs of running the business. There still is the tax liability of the company, and essentially, on the corporate level, those are where the savings will come from. Tax Liability and Benefits. It isn't the cost of producing the products being reduced, its the tax on the profit. I don't believe it will lower the cost at all since all the goods (raw materials, machinery, equipment, etc.) and services (workers, consultants, caterers, etc.) to create the product will have this tax attached to it too.

Imo, this is an idea which is appealing to a lot of people because they don't like income taxes. Its populist rhetoric meant to attract the rich/wannabe rich and have the appearance of government getting off your back. Sure I would like to have more money and not pay income taxes, cap gains taxes, or fill out 1099-INTs for every bank account I have but it has a lot of negatives in my mind.

The cost of goods being produced is being reduced! Companies do NOT pay income taxes! A business's #1 goal is to turn a profit. If the government wants to raise corporate income tax what company is just going to hand the government a share of its profits. Paying the income tax is an expense. If a company does nothing then the income tax is messing with its bottom line and the company looks worse. That means they can raise the prices, lay off employee, or give out less dividends. Dr. Dale Jorgenson, who at the time of his study was chairmen of the Harvard Economic Department, found that on average 22% of the price paid for a consumer product represents the embedded costs of the income tax.

How does eliminating nearly every tax "have the appearance" of getting the government of our backs lol? Mike Huckabee in a recent GOP debate cited a survey that found more people were afraid of a visit from the IRS than being mugged in the street. How does getting rid of the IRS (or at least its control) "have the appearance" of getting the government off our backs?

Edit: The only real downside I see is people being taxed twice on their money. But I would think thats not as bad as sticking with what we have.

[Khamsin]

the US spends more money on preparing tax returns and making tax related decisions that the amount of tax it generates

I almost forgot, but where's the source for this statement? I never knew that the US spends more money in the effort to collect tax than the tax revenue it generates.

[SwampdonkeyPLD]

The Fairtax book if i'm not mistaken. Here are some other numbers.

In 2002 194 Billion was spent complying with the tax code. 2.77 Million people, more than work in the auto industry, computer manufacturing industry, aircraft manufacturing industry, talk raidio, and steel industry in the US combined, worked on complying with the tax code. 100,000 people also work for the IRS with a budget of 10 billion a year. 56% of compliance costs are paid for by businesses (which is passed on to consumers,) 2.5% by non-profit organizations, and 42% by normal people.

[Khamsin]

So if the US Government spends more money in the effort of collecting taxes than the revenue generated from that effort, how are things being funded?

[SwampdonkeyPLD]

So if the US Government spends more money in the effort of collecting taxes than the revenue generated from that effort, how are things being funded?

I don't think he meant the government, I think he meant the US in general. Wouldn't be hard to find out if its true or not though. In 2002 it was what I just listed so in 2007 you know its at leas that. Just need to know how much the government brought in this year.

[evilbau]

stuff i wrote

stuff saying CORPORATE INCOME TAX represents 20%-30% of final price of products.

Me talking about how individual income tax does not factor into the equation and that the only real benefit is on corporate income tax (profit) and benefits. And that the other costs will rise in line with 'savings' due to the same sales tax

The cost of goods being produced is being reduced! Companies do NOT pay income taxes! A business's #1 goal is to turn a profit. If the government wants to raise corporate income tax what company is just going to hand the government a share of its profits. Paying the income tax is an expense. If a company does nothing then the income tax is messing with its bottom line and the company looks worse. That means they can raise the prices, lay off employee, or give out less dividends. Dr. Dale Jorgenson, who at the time of his study was chairmen of the Harvard Economic Department, found that on average 22% of the price paid for a consumer product represents the embedded costs of the income tax.

You have missed my point. And you aren't making much sense. 'if the company does nothing then the income tax is messing with its bottom line and the company looks worse.' Do you mean opposing an increase in corporate income tax? Did anyone say anything related to that? You seem to be just talking about the relationship between costs and profits which anyone who has taken any economics knows. Do you actually have an position to speak about or are you just going to spout random economic definitions and out-of-context study conclusions?

How does eliminating nearly every tax "have the appearance" of getting the government of our backs lol? Mike Huckabee in a recent GOP debate cited a survey that found more people were afraid of a visit from the IRS than being mugged in the street. How does getting rid of the IRS (or at least its control) "have the appearance" of getting the government off our backs?

Do you honestly think its going to magically get the government off our backs? What about enterprise zones that get tax breaks? They will lobby to have that benefit extended in some form. Tax Credits for Hybrid/Electric Vehicles? People will want to be able to deduct medical expenses which this system doesn't easily allow for. The public outcry will necessitate that the government create something for them. Given another 20 years we'll just have another complicated tax code and we'll have the IRS to enforce it. Thats why its merely 'giving the appearance' of getting government off of our backs... in the meantime the benefactors being the rich.

[SwampdonkeyPLD]

stuff i wrote

stuff saying CORPORATE INCOME TAX represents 20%-30% of final price of products.

Me talking about how individual income tax does not factor into the equation and that the only real benefit is on corporate income tax (profit) and benefits. And that the other costs will rise in line with 'savings' due to the same sales tax

The cost of goods being produced is being reduced! Companies do NOT pay income taxes! A business's #1 goal is to turn a profit. If the government wants to raise corporate income tax what company is just going to hand the government a share of its profits. Paying the income tax is an expense. If a company does nothing then the income tax is messing with its bottom line and the company looks worse. That means they can raise the prices, lay off employee, or give out less dividends. Dr. Dale Jorgenson, who at the time of his study was chairmen of the Harvard Economic Department, found that on average 22% of the price paid for a consumer product represents the embedded costs of the income tax.

You have missed my point. And you aren't making much sense. 'if the company does nothing then the income tax is messing with its bottom line and the company looks worse.' Do you mean opposing an increase in corporate income tax? Did anyone say anything related to that? You seem to be just talking about the relationship between costs and profits which anyone who has taken any economics knows. Do you actually have an position to speak about or are you just going to spout random economic definitions and out-of-context study conclusions?

How does eliminating nearly every tax "have the appearance" of getting the government of our backs lol? Mike Huckabee in a recent GOP debate cited a survey that found more people were afraid of a visit from the IRS than being mugged in the street. How does getting rid of the IRS (or at least its control) "have the appearance" of getting the government off our backs?

Do you honestly think its going to magically get the government off our backs? What about enterprise zones that get tax breaks? They will lobby to have that benefit extended in some form. Tax Credits for Hybrid/Electric Vehicles? People will want to be able to deduct medical expenses which this system doesn't easily allow for. The public outcry will necessitate that the government create something for them. Given another 20 years we'll just have another complicated tax code and we'll have the IRS to enforce it. Thats why its merely 'giving the appearance' of getting government off of our backs... in the meantime the benefactors being the rich.

I thought your point was that the cost of goods is NOT being reduced, only the tax on the profit, which I disagree with. If that was your point then that study is not out of context because it proves the cost of goods will most likely be reduced. If that wasn't your point, what was it?

And yes I think it will magically get the government off our backs as far as taxes go. I have no clue what enterprise zones are, but I think their tax break is they no longer have to pay income taxes. Surely thats not worse than their tax breaks already. As far as tax credits for hybrid/electric vehicles go, there won't be any along with other tax breaks. I will admit there are downsides to the fairtax, but I think the benefits outweigh them.

Edit: And I still don't understand why you think the benefactors of the Fairtax are the rich, please explain.

[evilbau]

So if the US Government spends more money in the effort of collecting taxes than the revenue generated from that effort, how are things being funded?

Its very unlikely that the revenue generated is more than the amount spent to collect it since we took in 1.1 trillion dollars in individual income tax in 2007. To answer your question, the budget frequently exceeds our revenue for the entire federal budget and the difference is made up through bonds and whatnot. This is what people refer to when they talk about the budget deficit and the fact foreign nations hold so much US Dollars/Debt.

edit: added that it pertained to 'individual' income tax. We also took in another 250ish billion in corporate income taxes.

[aurik]

And I still don't understand why you think the benefactors of the Fairtax are the rich, please explain.

See my post earlier in the thread about effective tax rates compared to income. People who spend less of their income (locally) pay much less in taxes percentage-wise.