Tax return money: How will you spend it?

[Kyreth]

Hello, rent check.

($600 would mostly cover my rent for a month.)

Seriously, the best thing anyone can do with the stuff is pay down any debts you have. If nothing else, you're no longer suffering the double whammy of payback + interest on whatever you kill off that way...which means more you can spend in the long run, later.

[Zigma]

I got a nice refund this year because my sister let me claim her 2 kids

What I will do is,

Give some money to my sister
Pay off my credit card (not that much)
Buy some more stocks
Finish some stuff off with the wife.

After that, I should have about 2k left over, save it I guess... IN CHINA

[Lexa]

I'll bet I can't get the rebate because I'm not a U.S. citizen. ; ; Suckaga.

[Misterjingles]

Brand new fleshlight, these used ones don't feel right.

[Kiro]

Brand new fleshlight, these used ones don't feel right.

blarfharbl

[Kaliden]

A new guitar and a microphone to further the hope that I might ever become a professional musician.

[aurik]

Levy a 23% sales tax, that will sure bring in those tourists to pay our bills for us. I'm sure they'll be happy to know that the extra fees they pay by visiting our "fine" country will go towards supporting a society that the people most enriched by it can't be arsed to.

If tourists aren't happy, they have the choice to not come. I seriously doubt it will stop them though.

Basic economics: raise the price of a good (in this case, the price of tourism), and the demand for the good will go down.

I think it's a bit naive to think that the "extra money" from taxing previously-unreported-income won't be offset either completely or in large part by people using unreported transactions to do an end-run against a sales tax.

Business are currently required to have a registered seller's certificate on file, and must keep complete records of all transactions for six years. Businesses must also record all taxable goods bought for seven years. They are required to report these sales every month.

It's like you're reading off a script or something, because while that's a nice soundbyte, you didn't actually address the issue I raised. Claiming that "seller certificates" will fix dodgy transactions is just about as laughable as saying the current system works because the IRS allows people to declare illegal income confidentially.

As for people moving income out-of-country, right now there is no real incentive to do so for properly reported income, because the tax has essentially already been paid on it. So whether people move that money in or out of the country is based on the merits of the available investment opportunities.

I would consider no capital gains tax a good investment opportunity. I would consider not having to pay tax on your income a good investment opportunity for a business as well, thus bringing business back home.

Except that many countries often tax foreign capital gains anyway (including the US), so if you are from abroad and move money in the states, you're getting doubly taxed. The so-called fairtax sets up a system where people want to earn locally, spend abroad, which means that it encourages money efflux, not money influx.

However, in the case of a flat sales tax, wealth that never enters local circulation is never taxed, and money earned in a foreign location gets doubly-taxed when it is spent locally. So, there's an extra incentive to never put locally-earned income into local circulation and instead invest it in markets where the laws are friendly to foreign investment.

First sentence: Economists think the Fairtax will bring business's back home because the Fairtax is much friendlier to business's than anything found abroad.

Some scientists still think that the earth was created 6000 years ago. Fact is, a system built on purely consumption taxes shifts the burden of paying taxes away from the people who make a lot of money in the system and don't spend it, and onto the people who bring money into the system from outside.

Somebody's got to pay the piper. If you shift the burden of the taxes off of the wealthy--which is exactly what consumption taxes do, mathematically--who pays it?

[SwampdonkeyPLD]

Levy a 23% sales tax, that will sure bring in those tourists to pay our bills for us. I'm sure they'll be happy to know that the extra fees they pay by visiting our "fine" country will go towards supporting a society that the people most enriched by it can't be arsed to.

If tourists aren't happy, they have the choice to not come. I seriously doubt it will stop them though.

Basic economics: raise the price of a good (in this case, the price of tourism), and the demand for the good will go down.

Go down yes, disapear, no.

I think it's a bit naive to think that the "extra money" from taxing previously-unreported-income won't be offset either completely or in large part by people using unreported transactions to do an end-run against a sales tax.

Business are currently required to have a registered seller's certificate on file, and must keep complete records of all transactions for six years. Businesses must also record all taxable goods bought for seven years. They are required to report these sales every month.

It's like you're reading off a script or something, because while that's a nice soundbyte, you didn't actually address the issue I raised. Claiming that "seller certificates" will fix dodgy transactions is just about as laughable as saying the current system works because the IRS allows people to declare illegal income confidentially.

Maybe I misunderstood what you meant. What was the issue you raised? I thought you meant business's doing shady transactions. In order to be a business they must do the above, which would help prevent shady transactions, if thats the issue you raised.

As for people moving income out-of-country, right now there is no real incentive to do so for properly reported income, because the tax has essentially already been paid on it. So whether people move that money in or out of the country is based on the merits of the available investment opportunities.

I would consider no capital gains tax a good investment opportunity. I would consider not having to pay tax on your income a good investment opportunity for a business as well, thus bringing business back home.

Except that many countries often tax foreign capital gains anyway (including the US), so if you are from abroad and move money in the states, you're getting doubly taxed. The so-called fairtax sets up a system where people want to earn locally, spend abroad, which means that it encourages money efflux, not money influx.

The Fairtax eliminates all capital gains taxes, so while the US may do that now, it won't under the Fairtax. Also, I think your saying people have a tendency to want to avoid paying taxes, which is true, but I don't think that will matter under the Fairtax. Goods will be cheaper than abroad because there is no embedded taxes. I don't think people will invest abroad for the sake of avoiding a tax when the goods will be cheaper.

However, in the case of a flat sales tax, wealth that never enters local circulation is never taxed, and money earned in a foreign location gets doubly-taxed when it is spent locally. So, there's an extra incentive to never put locally-earned income into local circulation and instead invest it in markets where the laws are friendly to foreign investment.

First sentence: Economists think the Fairtax will bring business's back home because the Fairtax is much friendlier to business's than anything found abroad.

Some scientists still think that the earth was created 6000 years ago. Fact is, a system built on purely consumption taxes shifts the burden of paying taxes away from the people who make a lot of money in the system and don't spend it, and onto the people who bring money into the system from outside.

Somebody's got to pay the piper. If you shift the burden of the taxes off of the wealthy--which is exactly what consumption taxes do, mathematically--who pays it?

It does make it easier for the wealthy to become even more wealthy, but it also makes it easier for the poor to become more wealthy. I think you have this notion that wealthy people don't or won't spend money. There is no reason for them to stop spending money under the Fairtax because prices will eventually be the same.

The Fairtax isn't perfect, but don't you think it's at least better than what we have now? All our current system does now is make it hard for the non-rich to become rich. There has to be a way for the government to collect taxes without stifling growth, and there is, the Fairtax. I think a lot of the criticisms I could bring against our current system are far worse then anything you've brought against the Fairtax.

I'm also going skiing this weekend so I'll be back to bump the thread on Sunday, assuming you respond to this.

Edit: One more thing, the Fairtax has a stipulation in it, or will in the future, if the 16th amendment isn't repealed in 5 years, the Fairtax will go away and everything we have now will be re-instated. So if everything you say outweighs the benefits of the Fairtax and it completely tanks, we'll go right back to the oppressive system we have now at least. Can't hurt to much to just try it.

[aurik]

[tourism:] Go down yes, disapear, no.

Good, so you admit that moving to a consumption-based tax system will harm the tourism industry. Now weren't you saying that the loss in tax revenues due to 'less taxes under Fairtax' would be made up by tourists paying more tax? Whoops?

Maybe I misunderstood what you meant. What was the issue you raised? I thought you meant business's doing shady transactions. In order to be a business they must do the above, which would help prevent shady transactions, if thats the issue you raised.

I meant exactly this: you claim a consumption-based tax will fix the problem of unreported income not being fully taxed. And I say that the loopholes and end-runs of a consumption-based tax will offset this fix.

Except that many countries often tax foreign capital gains anyway (including the US), so if you are from abroad and move money in the states, you're getting doubly taxed. The so-called fairtax sets up a system where people want to earn locally, spend abroad, which means that it encourages money efflux, not money influx.

The Fairtax eliminates all capital gains taxes, so while the US may do that now, it won't under the Fairtax. Also, I think your saying people have a tendency to want to avoid paying taxes, which is true, but I don't think that will matter under the Fairtax.

Except that the US taxing foreign income isn't a bad thing? In fact, not taxing foreign income and instead levying taxes on local consumption only serves to encourage the efflux that I'm citing as the problem.

Goods will be cheaper than abroad because there is no embedded taxes.

That's a specious claim.

I think you have this notion that wealthy people don't or won't spend money. The Fairtax isn't perfect, but don't you think it's at least better than what we have now? All our current system does now is make it hard for the non-rich to become rich.

It's basic economics that for each extra dollar a person earns, the amount of that dollar they spend decreases monotonically. So while a middle-class worker may spend 80% of his income, and thereby endures an effective consumption tax rate of .23 * .8 = .184, a wealthy worker may spend 40% of his income, and thereby endures an effective consumption tax rate of .23 * .4 = .092. Thus, the middle-class worker spends 98.4% of his income after tax, while the wealthy worker spends 49.2%. Compare this to a bracketed income-tax system, where the middle-class worker would be paying maybe 15% tax, allowing him to save 5%, and the wealthy worker 20%, allowing the wealthy worker to save 40% of his income.

So how then does a flat consumption tax that make it easier for the non-rich become rich than bracketed income tax?

Note that if you give the middle-class example a 50k income and the wealthy example a 150k income, this also results in a net tax revenue decrease of about 33% under the actual-consumption tax. So in addition to unfairly burdening the middle-class worker, there is also much less money available for the government to fund social programs and public services.

Our current potential-consumption-based system does have problems now, in that it heavily rewards people who game the system. That's really the largest benefit of the so-called Fairtax: it eliminates a lot of the loopholes that people use to legally avoid paying a fair burden. But it's not necessary to implement the so-called Fairtax, introducing a whole host of new problems, to fix these problems.

Edit: One more thing, the Fairtax has a stipulation in it, or will in the future, if the 16th amendment isn't repealed in 5 years, the Fairtax will go away and everything we have now will be re-instated. So if everything you say outweighs the benefits of the Fairtax and it completely tanks, we'll go right back to the oppressive system we have now at least. Can't hurt to much to just try it.

I don't understand this unhealthy obsession with the 16th amendment. We already agreed that it doesn't empower the government to collect direct taxes such as income tax.

[evilbau]

The Fairtax isn't perfect, but don't you think it's at least better than what we have now?
I'm also going skiing this weekend so I'll be back to bump the thread on Sunday, assuming you respond to this.

I'll spend a little time responding, I wasn't planning on it because its kind of a busy day at work. But no, I don't think its better than what we have now.

You seem to pick out keywords and respond based on the talking points. I was trying to address why I don't think it will result in lower prices and you responded with what the literature says about how the 'embedded costs' will disappear and will result in lower prices. I was directly responding to their supposed arguments and you go back to repeat them. On top of that I invited you to provide more evidence to convince me because I feel their assumptions and expectations are unrealistic, especially in light of looking at annual GDP growth from the 90's to today, an unprecedented period of growth for the united states. Hell, I looked them up myself:

Year	GDP in billions of current dollars	GDP in billions of chained 2000 dollars	% Growth
1990	5,803.1	7,112.5	1.88%
1991	5,995.9	7,100.5	-0.17%
1992	6,337.7	7,336.6	3.33%
1993	6,657.4	7,532.7	2.67%
1994	7,072.2	7,835.5	4.02%
1995	7,397.7	8,031.7	2.50%
1996	7,816.9	8,328.9	3.70%
1997	8,304.3	8,703.5	4.50%
1998	8,747.0	9,066.9	4.18%
1999	9,268.4	9,470.3	4.45%
2000	9,817.0	9,817.0	3.66%
2001	10,128.0	9,890.7	0.75%
2002	10,469.6	10,048.8	1.60%
2003	10,960.8	10,301.0	2.51%
2004	11,685.9	10,675.8	3.64%
2005	12,433.9	11,003.4	3.07%
2006	13,194.7	11,319.4	2.87%

Does 10% annual growth seem likely to happen? 1.13 trillion dollars in 2007? 1.24 trillion in 2008? When the highest growth in the history of the united states is 400 billion in one year (i am using GDP in year 2000 dollars)? I don't blame them though, it was how they got their numbers to 'work'; to sell their snake oil. Especially in light of the oncoming economic troubles, the fairtax will result in an underfunded federal government.

Source BEA: http://www.bea.gov/national/index.htm or directly to stats released: http://www.bea.gov/national/xls/gdplev.xls

You keep saying 'many economists' but as I pointed out, it is a minority of economists. The number doesn't matter, they are far in the minority and pretty far away from the general consensus. Of course the minority opinion could be right, and the fact its a minority opinion isn't the basis for my stance, but based on what I know, it doesn't seem right to me. And other economists I respect don't think so either. Take all astronomers and I'm sure you will find a group among them that believe Aliens have been visiting us regularly and that the government is covering it up (lolguartz). Does the fact that 'many astronomers' believe this make it inherently credible because it is within their field of expertise? As aurik mentioned: Where is the money going to come from if the rich only get taxed on what they spend rather than what they earned (a smaller amount)? I'm not even touching on cap gains. Currently untaxed income due to tax evaders and blackmarket transactions is unlikely to make up the shortfall. There will also be new ways to evade paying taxes, and its anyone's best guess as to which one is worse.

Here is a 5 minute scenario (watch out, its more complex now ). I discover a new widget and get a patent in the United States. I could:
A) Create the company in the United States and manufacture widgets and sell them here, with the retail tax (at a supposedly lower cost than without the FairTax).
B) Create the company in China, and sell them there, then repatriate the money to the United States, with (yay) no cap gains. If the widgets are success, I could always either create a US company to tap that market, or sell the Chinese widgets in the US and pay the retail tax, with no greater risk or cost than if I had started in the US to begin with.

Of course, there are international tariffs and maybe the corporate climate in China is not the best for the manufacture and selling of widgets, but you can see that you are not creating an incentive to keep this business in the United States. This is in regards to investment. In regards to spending, why wouldn't you spend your ('higher') wages in say, Canada, which doesn't have a hefty retail tax. You buy an American product in Canada. Will the prices be artificially inflated in Canada to make prices comparable to the tax paid in the US? I don't think so. No company will make their product less competitive in other countries to match prices in the U.S. All thanks to the 'embedded tax savings', they are more competitive abroad but have less of an incentive to drive sales in the U.S. Does this all sound a little ridiculous? This is why I don't think the cost to bring products to market will magically drop the same percentage as the retail tax. If it does, people will buy it elsewhere.

Deleted my point about unbalanced tax burden because aurik already said it pretty clearly.

[Blarg]

I'm not going to read all this economic talk but are there any countries that use the fair tax or have tried it? So many times I've seen people argue about how something would work irl when there are real world examples that they don't know about.

[SwampdonkeyPLD]

[tourism:] Go down yes, disapear, no.

Good, so you admit that moving to a consumption-based tax system will harm the tourism industry. Now weren't you saying that the loss in tax revenues due to 'less taxes under Fairtax' would be made up by tourists paying more tax? Whoops?

Not a whoops. I'm sure there are some people who will say "fuck paying U.S. taxes," but prices will essentially be the same and aside from that there is no reason for foreign tourists to stop coming. I also didn't say there would be less taxes under the Fairtax, I merely used tourism as an retort to the "23% isn't enough" argument. I merely pointed this out as another revenue source for the government under the Fairtax. Also, tourism wasn't the only group I stated that would be paying taxes that currently isn't. Illegals and drug dealers will be paying taxes. Some economists estimate that one to three trillion dollars goes untaxed annually due to an underground economy of which both of those groups are included.

I meant exactly this: you claim a consumption-based tax will fix the problem of unreported income not being fully taxed.And I say that the loopholes and end-runs of a consumption-based tax will offset this fix.

47 states currently collect a consumption based tax and don't seem to have problems doing so. The IRS admits to losing $312 billion annually already. The federal government could easily provide incentive to states to make sure they collect all the taxes they are supposed to.

Except that the US taxing foreign income isn't a bad thing? In fact, not taxing foreign income and instead levying taxes on local consumption only serves to encourage the efflux that I'm citing as the problem.

I might be missing what your trying to say here, sorry. But it seems to me if one of the reasons business's are relocating is to escape our taxes and the compliance costs, then how is eliminating the reason to leave, going to encourage it further? Right now US based multinational businesses have about 11 TRILLION dollars parked in overseas businesses and offshore accounts to avoid our taxes, if we eliminate the reason to do that, why leave it there?

Goods will be cheaper than abroad because there is no embedded taxes.

That's a specious claim.

You're right, my bad.

It's basic economics that for each extra dollar a person earns, the amount of that dollar they spend decreases monotonically. So while a middle-class worker may spend 80% of his income, and thereby endures an effective consumption tax rate of .23 * .8 = .184, a wealthy worker may spend 40% of his income, and thereby endures an effective consumption tax rate of .23 * .4 = .092. Thus, the middle-class worker spends 98.4% of his income after tax, while the wealthy worker spends 49.2%. Compare this to a bracketed income-tax system, where the middle-class worker would be paying maybe 15% tax, allowing him to save 5%, and the wealthy worker 20%, allowing the wealthy worker to save 40% of his income.

That's an example of one person from each class. Another wealthy person might spend 80% of his income because he has so much left over. Also, while the middle-class person might be taxed on more of their income, the rich person, because generally the rich spend more, pays more in taxes in an actual dollar amount.

So how then does a flat consumption tax that make it easier for the non-rich become rich than bracketed income tax?

One of the biggest obstacles to becoming rich is all the tax you have to pay on the way to getting there. The Fairtax eliminates taxes on savings, investment, and income, along with others, thus the person trying to become rich has more money to try and become rich.

Note that if you give the middle-class example a 50k income and the wealthy example a 150k income, this also results in a net tax revenue decrease of about 33% under the actual-consumption tax. So in addition to unfairly burdening the middle-class worker, there is also much less money available for the government to fund social programs and public services.

How do you define burden, paying the most in actual dollars, or a percentage of income? Also, the Fairtax is designed to be revenue neutral, 23% is generally agreed on by economists as percent needed to accomplish that.

Edit: One more thing, the Fairtax has a stipulation in it, or will in the future, if the 16th amendment isn't repealed in 5 years, the Fairtax will go away and everything we have now will be re-instated. So if everything you say outweighs the benefits of the Fairtax and it completely tanks, we'll go right back to the oppressive system we have now at least. Can't hurt to much to just try it.

I don't understand this unhealthy obsession with the 16th amendment. We already agreed that it doesn't empower the government to collect direct taxes such as income tax.

No, I thought we agreed that the government could collect income when based on population. None of the taxes the Fairtax would replace are collected that way, thus with the repeal of the 16th amendment they would be repealed. The reason I brought this is up is because if the Fairtax tanks/fails because of the things you listed, it would be re-replaced by what we have now in five years. This is important because if the 16th amendment isn't repealed, then the Fairtax could just be collected on top of what we have now, which is not the idea. So basically, the Fairtax sucks, we go back to what we have now five years afterwards, or sooner, it doesn't suck and people want it, the 16th amendment must be repealed.

Source BEA: http://www.bea.gov/national/index.htm or directly to stats released: http://www.bea.gov/national/xls/gdplev.xls

There were some things wrong with that study, would you like me to point them out? Also, GDP growth is hardly the trick they use, thats not even one of the main talking points.

For Blarg: Before the 16th amendment the government collected a consumption tax, so to answer your question, yes I suppose.

[evilbau]

Source BEA: http://www.bea.gov/national/index.htm or directly to stats released: http://www.bea.gov/national/xls/gdplev.xls

There were some things wrong with that study, would you like me to point them out? Also, GDP growth is hardly the trick they use, thats not even one of the main talking points.

go for it. you got some problems with the Department of Commerce's stats on GDP, go ahead and explain the 'things wrong with that study'. And it really is one of their 'tricks', the reason it isn't one of their main talking points is because its so unrealistic (10% annual GDP growth).

[SwampdonkeyPLD]

Source BEA: http://www.bea.gov/national/index.htm or directly to stats released: http://www.bea.gov/national/xls/gdplev.xls

There were some things wrong with that study, would you like me to point them out? Also, GDP growth is hardly the trick they use, thats not even one of the main talking points.

go for it. you got some problems with the Department of Commerce's stats on GDP, go ahead and explain the 'things wrong with that study'. And it really is one of their 'tricks', the reason it isn't one of their main talking points is because its so unrealistic (10% annual GDP growth).

I'll start with the GDP argument first. Right now our tax system stifles growth and we grow 3% a year? If you get rid of one of the obstacles to growth don't you think we'd get more than 3%? Suppose they're wrong and it's only 4%, is that so bad? I'm not going to pretend I know a lot about GDP growth, but if you get rid of an obstacle to GDP growth, won't GDP growth certainly go up?

Now that study. I thought you were pointing a different study out, but your not. That study just shows GDP growth right? Which there is nothing for me to contest.

In regards to spending, why wouldn't you spend your ('higher') wages in say, Canada, which doesn't have a hefty retail tax. You buy an American product in Canada. Will the prices be artificially inflated in Canada to make prices comparable to the tax paid in the US? I don't think so.

Prices will essentially be the same because of the embedded tax savings. If prices are cheaper in Canada now then people are already buying them there. If prices aren't cheaper in Canada then people will still buy products here.

[oxx2]

read up until fagdonkey mentioned the fairtax shit

u idiots should spend that money on all the debt you've incurred over the last X years of your lives instead of buying PS3's and beer

[Dmitry]

Who the fuck is oxx?

[evilbau]

Well they spin it as an obstacle to GDP growth. Same prices, more money, more purchasing power, more growth. The thing is I think a lot of it is BS, they say the increased purchasing power will result in 10% annual GDP growth. I think this is ambitious. They say the 10% annual GDP growth will allow the tax to remain at 23%. This FairTax optimum scenario is built like a house of cards. Recession? Well, we can raise the retail tax... increase rebates to consumers I guess. The idea is interesting but overall I feel the literature is pushing the idea to the limit which won't hold in the real world. There is no mechanism to increase tax revenue except increase the retail tax rate or hope for an increase in sales (GDP growth). There aren't any mechanisms to promote/dissuade behavior. Politicians love to do that to cater to special interests and also for the benefit of our country so they will somehow fit a square peg in a round hole and it'll look like a mess. The biggest example I can think of is the deductibility of home mortgage's interest. This promotes home ownership, and this would pretty much screw all home owners. Tax advantaged accounts (to promote saving for retirement) get completely jacked which leads to anyone who is retiring to get taxed twice, like our seniors aren't in enough trouble already. I think 1-3 trillion (supposedly) of untaxed income will probably be eclipsed by people selling 'used' goods all over the place to evade taxes (how much internet sales over state lines has occurred to evade state sales tax?, for example.)

In my Canada example you did not address my issue. The 'embedded taxes' includes corporate income tax and presumably everything else that would normally get taxed before it reaches me and my company. All raw materials/intermediate products aren't taxed because it is a POS end-of-the-line tax. It is all rolled into that retail sales tax. So in selling my product in a foreign country from my American based company, I have to pay foreign income tax only to the country I am selling and my suppliers avoided paying taxes on the intermediate products which would normally eventually get rolled into the price. I am getting the best of both worlds, which is why it wouldn't be same. This isn't necessarily a bad thing as it makes American exports extremely attractive, but don't say that the prices would be the same, and that Americans wouldn't try to bypass the tax by buying in a foreign country.

You keep bringing up their rosy scenario, and its not that I don't think their math is right, its that I think its unrealistic and if any of their assumptions are wrong (or off) it will result in recession, underfunded federal government, or capital moving out of the united states, possibly all of the above. I'm simply not convinced.

[aurik]

It's basic economics that for each extra dollar a person earns, the amount of that dollar they spend decreases monotonically. So while a middle-class worker may spend 80% of his income, and thereby endures an effective consumption tax rate of .23 * .8 = .184, a wealthy worker may spend 40% of his income, and thereby endures an effective consumption tax rate of .23 * .4 = .092. Thus, the middle-class worker spends 98.4% of his income after tax, while the wealthy worker spends 49.2%. Compare this to a bracketed income-tax system, where the middle-class worker would be paying maybe 15% tax, allowing him to save 5%, and the wealthy worker 20%, allowing the wealthy worker to save 40% of his income.

That's an example of one person from each class. Another wealthy person might spend 80% of his income because he has so much left over. Also, while the middle-class person might be taxed on more of their income, the rich person, because generally the rich spend more, pays more in taxes in an actual dollar amount.

It's a basic economic fact that the average propensity to spend goes down as income goes up.

So how then does a flat consumption tax that make it easier for the non-rich become rich than bracketed income tax?

One of the biggest obstacles to becoming rich is all the tax you have to pay on the way to getting there. The Fairtax eliminates taxes on savings, investment, and income, along with others, thus the person trying to become rich has more money to try and become rich.

No, the biggest obstacle to becoming rich is that when you're not rich, most of your income goes to pay for necessities, preventing the accumulation of capital. As in the example above, a consumption tax still hinders that to a huge degree for lower- and middle-class workers.

I mean, maybe you didn't read through my example thoroughly, but under a consumption tax, the middle-class person saved less than a third as much as under the income tax example, and the tax system as a whole generated only 66% as much tax revenue. Regardless of the consumption tax rate and "poverty-exemption", you'll find this is the case at some point. Do a mathematical comparison of the two systems and you'll understand why this phenomenon occurs: consumption-based taxes are regressive with respect to income, whereas the current system of income taxes are progressive with respect to income.

[quote:2qtvk3lf]Edit: One more thing, the Fairtax has a stipulation in it, or will in the future, if the 16th amendment isn't repealed in 5 years, the Fairtax will go away and everything we have now will be re-instated. So if everything you say outweighs the benefits of the Fairtax and it completely tanks, we'll go right back to the oppressive system we have now at least. Can't hurt to much to just try it.

I don't understand this unhealthy obsession with the 16th amendment. We already agreed that it doesn't empower the government to collect direct taxes such as income tax.

No, I thought we agreed that the government could collect income when based on population.[/quote:2qtvk3lf]

Which is to say, the 16th amendment doesn't empower the government to collect income taxes. It simply removed the condition that the tax burden with respect to states must be proportional to their population, which is really a silly stipulation.

[SwampdonkeyPLD]

It's a basic economic fact that the average propensity to spend goes down as income goes up.

Why do rich people have bigger houses? Yachts? More cars or more expensive cars?

Which is to say, the 16th amendment doesn't empower the government to collect income taxes. It simply removed the condition that the tax burden with respect to states must be proportional to their population, which is really a silly stipulation.

So basically I just didn't word it right the first time.

No, the biggest obstacle to becoming rich is that when you're not rich, most of your income goes to pay for necessities, preventing the accumulation of capital. As in the example above, a consumption tax still hinders that to a huge degree for lower- and middle-class workers.

I could agree with that statement, maybe taxes aren't the biggest obstacle, but they certainly are an obstacle. So, under the Fairtax, the taxes that hinder getting rich go away, and prices are the same, essentially. Where did the Fairtax interfere?

I mean, maybe you didn't read through my example thoroughly, but under a consumption tax, the middle-class person saved less than a third as much as under the income tax example, and the tax system as a whole generated only 66% as much tax revenue. Regardless of the consumption tax rate and "poverty-exemption", you'll find this is the case at some point. Do a mathematical comparison of the two systems and you'll understand why this phenomenon occurs: consumption-based taxes are regressive with respect to income, whereas the current system of income taxes are progressive with respect to income.

I really can't argue with you about whether or not 23% is high enough, I have yet to look at the data to back that up. I will however try and find it. Also, consumption-based taxes are generally regressive with respect to income yes, thats they the Fairtax gives a rebate. Also, I'm not sure if this is relevant to what you posted in this response, but oh well. Wealthy people tend live off the wealth created by their equities, i.e. the capital gains tax which is 15%. Under the Fairtax, their tax rate goes up to 23%. Warren Buffet pays 15% now, but under the Fairtax he'll be paying 23%.

In my Canada example you did not address my issue. The 'embedded taxes' includes corporate income tax and presumably everything else that would normally get taxed before it reaches me and my company. All raw materials/intermediate products aren't taxed because it is a POS end-of-the-line tax. It is all rolled into that retail sales tax. So in selling my product in a foreign country from my American based company, I have to pay foreign income tax only to the country I am selling and my suppliers avoided paying taxes on the intermediate products which would normally eventually get rolled into the price. I am getting the best of both worlds, which is why it wouldn't be same. This isn't necessarily a bad thing as it makes American exports extremely attractive, but don't say that the prices would be the same, and that Americans wouldn't try to bypass the tax by buying in a foreign country.

Correct me if I'm wrong, not that you need me to tell u that lol, but it looks to me like in this example your saying Americans will start buying products in other countries because they will be cheaper than in the U.S. You say that the only taxes a company will pay will be foreign taxes, wouldn't that just drive prices back up and then not be cheaper?

You keep bringing up their rosy scenario, and its not that I don't think their math is right, its that I think its unrealistic and if any of their assumptions are wrong (or off) it will result in recession, underfunded federal government, or capital moving out of the united states, possibly all of the above. I'm simply not convinced.

I think I need to find the 23% data for you as well, I will try.

(Seniors)get completely jacked which leads to anyone who is retiring to get taxed twice

That's one of the two legitimate arguments I've heard against the Fairtax and I don't believe there is a good answer for it. The only thing I know of is that the tax on their savings (when they pull it out of retirement funds) goes away. But yes, they do get taxed twice and I have no good answer for it. I don't have the Fairtax book in front of me, it did respond to it, but the answer wasn't a good one.

I'm to lazy to quote, but internet sales will be taxed as well. And how does no longer having a tax deduction on mortgages screw home owners? They will have more money overall.

[evilbau]

In my Canada example you did not address my issue. The 'embedded taxes' includes corporate income tax and presumably everything else that would normally get taxed before it reaches me and my company. All raw materials/intermediate products aren't taxed because it is a POS end-of-the-line tax. It is all rolled into that retail sales tax. So in selling my product in a foreign country from my American based company, I have to pay foreign income tax only to the country I am selling and my suppliers avoided paying taxes on the intermediate products which would normally eventually get rolled into the price. I am getting the best of both worlds, which is why it wouldn't be same. This isn't necessarily a bad thing as it makes American exports extremely attractive, but don't say that the prices would be the same, and that Americans wouldn't try to bypass the tax by buying in a foreign country.

Correct me if I'm wrong, not that you need me to tell u that lol, but it looks to me like in this example your saying Americans will start buying products in other countries because they will be cheaper than in the U.S. You say that the only taxes a company will pay will be foreign taxes, wouldn't that just drive prices back up and then not be cheaper?

I don't think I explained it very well. So you are saying there won't be embedded taxes. My product, the widget needs 2 raw products, wid and get. I buy them from whatever companies (the companies are profitable). First of all, since they are intermediate products, and you previously said there are no VATs, they are not getting taxed at all. They sell no retail goods. If you are okay with that, no problem. I buy the wids and gets and produce widgets, at a profit. Normally I would be paying more money for my raw materials because my (profitable) suppliers would be paying coporate income tax. This is part of the 'embedded taxes' and I don't know why I am explaining this to you as you should understand it. The retail tax on the widget, the final product, is supposed to replace all those taxes that would normally be attached to everything along the supply chain.

Well, instead of paying the retail tax, I only pay the income tax to Canada for my Canadian division to sell there. I can assure you that it would not be equal to the US retail tax of 23%. So do i boost prices in Canada to avoid U.S. people from buying there? Why should I? Realistically, I would sell in Canada for maybe more than the U.S. price (without the tax, but still cheaper than final product with the tax) and cheaper than any Canadian domestic widgets or substitute goods, and enjoy the competitive advantage. This is the effect I am talking about.

(Seniors)get completely jacked which leads to anyone who is retiring to get taxed twice

That's one of the two legitimate arguments I've heard against the Fairtax and I don't believe there is a good answer for it. The only thing I know of is that the tax on their savings (when they pull it out of retirement funds) goes away. But yes, they do get taxed twice and I have no good answer for it. I don't have the Fairtax book in front of me, it did respond to it, but the answer wasn't a good one.

I'm to lazy to quote, but internet sales will be taxed as well. And how does no longer having a tax deduction on mortgages screw home owners? They will have more money overall.

My point is that retail sales will be recategorized as 'used' goods by many, many people. And instead of abolishing the IRS like all the libertarians are getting wet over, you will have morphed it into a federal enforcement agency to ensure people who are selling retail goods aren't saying they are intermediate products or used goods.

Having more money has nothing to do with tax deductibility of mortgages. Home ownership is something the government is proud of; they like saying home ownership is on the rise in America. They try to encourage it by giving tax breaks to home owners. They are getting screwed because there is now no incentive to own a home. You are paying interest at full price, and personally I can think of lots of ways to make more money rather than paying interest on a leveraged, huge amount of money. Unless you crowbar something like 'interest payment reimbursements' that act like a rebate as well into this tax system, which dilutes its coveted simplicity. Same goes for student loans (although deductibility phases out with income, its the same principle). Having more money overall is not the solution for everybody, because everybody will get more money. So therefore those who chose spend money in these areas to take advantage of tax breaks all lose, comparatively speaking.