posted
As President Bush and Fed Chair Bernanke work out how to fix an ailing economy, most of the focus seems to be fixed around some sort of tax break, or stimulus package that puts money directly into the people's hands to spend. Near as I can tell, the thought behind this is that with a consumer driven economy, and with consumer spending down, an influx of cash will spur things moving again.
But how responsible is that really? The deficit is exploding, the debt has doubled since Bush took office, housing values are tanking, the trade deficit at near (or actual?) all time highs. Any sort of stimulus package will basically be a handout from the government to the people or to businesses, and knowing this government, there would not be an equivilant drop in spending to pay for it. So essentially it's borrowing money from China to try and give a kickstart to the economy, or if you want to look at it another way, as I heard one man in an interview say "the government is bribing us with our own money."
I think things will sort themselves out eventually. We're in the midst of a big correction, between the housing market collapse, an economic downturn, a major increase in the price of energy and the private sector's efforts to correct it. Is there any merit in maybe the government just butting out this time? I'd worry about another rate decrease, since so many nations are already dropping the dollar for higher yields in other currencies, but really, at what point does a bit drive to spur spending really just indicate further irresponsibility in spending from the government?
posted
The current economic crisis is, essentially, a cash crisis. No financial institution has much cash, especially cash they are willing to lend. By infusing cash into the economy, the idea is that this would flow to the trouble spots. Another bit of logic is, the next likely problem spot in the economy is credit cards. Default rates are just starting to increase rapidly as people are feeling the pinch in real estate implements.
Of course things will sort themselves out eventually. This is what business cycles are all about. The question is, how do we make the current downturn less painful than looks to be likely.
I'm against the cash infusion, actually, but the reasoning isn't awful.
Posts: 15770 | Registered: Dec 2001
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posted
A lot of the problems would be helped by the President standing up in June or so and saying, "Look-- I encourage everyone in the country to have a humble Christmas. Don't buy that Wii. The manufacturers and retailers are going to flip; I can hear my phone ringing now, but really, pay off some debt this year instead of incurring it."
Posts: 14554 | Registered: Dec 1999
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posted
I'm not sure why you think that would help the problems (assuming that people listen the President). That's exact opposite of what they would be wanting for a tax rebate. It's not an economic stimulus if people don't spend it.
edit: People not spending other money is going to make the cash crunch worse, not better.
posted
Well if we have two problems, debt and a lack of spending, how do you solve it? Give them twice as much money and tell them to buy the Wii AND pay off their debt?
I know it's too late now, but if the government was really going to do something, they should have done it 5 or 10 years ago when people were in the midst of spending way beyond their means, instead of now when the chickens are coming home to roost.
Scott's suggestion might not help the problem currently at hand, bue he's certainly addressing the problem we have on deck.
Posts: 21898 | Registered: Nov 2004
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quote:A lot of the problems would be helped by the President standing up in June or so and saying, "Look-- I encourage everyone in the country to have a humble Christmas. Don't buy that Wii. The manufacturers and retailers are going to flip; I can hear my phone ringing now, but really, pay off some debt this year instead of incurring it."
That would be awesome.
Posts: 16551 | Registered: Feb 2003
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posted
Debt defaults are the symptom. The problem is a lack of cash (and I mean cash literally; most problem-plagued companies have plenty of assets).
Posts: 15770 | Registered: Dec 2001
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posted
The debt is a problem that will develop in the long term. The cash (and credit) crunch and resulting problems are short to medium term ones.
I'm on board with moving away from Americans relying so much on incurring debt, but doing so will exacerbate the problems we are talking about here.
Posts: 10177 | Registered: Apr 2001
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posted
Neither the US national debt nor debt owed by individuals are particularly extreme, on average. The situation could be improved, but there is less of a problem than it is fashionable to complain about.
And even if debt were a problem, that is still not the root problem. The root problems are distorted incentives due to US gov't programs, such as large tax breaks to those owning homes.
Posts: 15770 | Registered: Dec 2001
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quote:A lot of the problems would be helped by the President standing up in June or so and saying, "Look-- I encourage everyone in the country to have a humble Christmas. Don't buy that Wii. The manufacturers and retailers are going to flip; I can hear my phone ringing now, but really, pay off some debt this year instead of incurring it."
That would be awesome.
Maybe a compromise would be, say, don't buy that Wii, instead buy American! Get that Xbox you always wanted, but get the cheaper version, and just one game instead of a half dozen.
posted
Wouldn't this only help if people spend in the right ways? I used all the money I got for Christmas for mortgage and food. I imagine that I would do the same with a larger tax refund. I buy the same stuff, just don't take out as much student loans.
Posts: 1001 | Registered: Mar 2006
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posted
Actually Lyr, you must realize that despite common sense, economics is not a 0 sum game.
In other words, sometimes in order to increase tax revenues, we have to spend tax money. Sometimes, if we don't spend tax money, then our deficit grows.
Here is the basic idea.
Company A makes 100. It pays 20 in taxes. This is during a common year.
When a reception hits, it makes only 70. It then only has to pay 14 in taxes.
The Recession took 6 out of our tax base.
Now if the government gives out 2 they are going to spend it, where they wouldn't before. What is amazing about economics is that same 2 will get spent several times, by the people who receive it and by the companies they buy the products from, and their employees, etc.
That 2 may allow Company A to have an above average year--120. Then they'd pay taxes of 24, and our deficit would shrink.
There are a lot of details, formulas, and discussions (if by discussion you mean screaming yelling tantrums on the MBA level and higher) about the details of what and how exactly this works. It is why the President and Congress are talking to so many economists, trying to find out what would do the most bang for our bucks.
One big question that I am upset about is whether to give $ to the people, or cut taxes to the Corps. The Corp tax cutters say, "Cut taxes and companies will probably not fire as many people, and may give some folks a raise." That will not do much to help the average person or the middle class in the short term--which is where this Recession is sitting, but it will help to make the wealthier even wealthier.
Posts: 11895 | Registered: Apr 2002
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posted
They assume that we'll be irresponsible and use it to take a vacation. And they're probably right.
On average, no, I don't think the debt by the average person is extreme (depending on your definition of extreme), but the average savings, the average safety net Americans have are either small or non-existant. In other words, when people get hit, they have no money to back them up, and debts, no matter how not extreme, that need to be paid.
That wasn't the case with my grandparents' generation. They had money in the bank, and less debt, and I think they were much better off and less vulnerable to swings in the economy. Is it really better to have a populace that depends on the government for regular handouts to stablize their personal finances and the national economy rather than being financially secure to begin with themselves?
Dan, I don't automatically have a problem with that. I guess my bigger concern, that I maybe didn't quite spell out in my op, was that we're always focused on short term fixes, and we never seem to look ahead to see what pitfalls are before us. We'd rather spend $150 billion on cure and nothing on prevention. If I thought this money would spur the economy now (and I think it would) and then we'd spend some effort on fixing the problems that might lead to the NEXT problem, then I'd be in favor of it. But I don't like a purely reactionary stance, in any part of government. It's why our energy prices are so high right now, and our debt, among other problems.
Posts: 21898 | Registered: Nov 2004
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quote:That wasn't the case with my grandparents' generation. They had money in the bank, and less debt, and I think they were much better off and less vulnerable to swings in the economy.
I don't know about you, but my grandparents' time included the 1930s.
Posts: 10177 | Registered: Apr 2001
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posted
Yeah, ditto here. I don't know about less debt, because there wasn't anyone about to lend money to most people, but otherwise that's pretty much dead wrong.
Posts: 15770 | Registered: Dec 2001
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quote: The root problems are distorted incentives due to US gov't programs, such as large tax breaks to those owning homes.
That sounds like an article of faith, not a fact. It definitely isn't a proximate cause of the mortgage crisis and I can't see how the proximate causes can be definitively traced to it. (edit: That came across a somewhat too harsh. I'm open to being convinced otherwise, but I've seen arguments like this advanced many times and the reasoning that I get for it rarely passes the laugh test.)
From what I can see, the root cause is economic decisions made without sufficient rigor and an eye on the short term as a opposed to the long term. People and businesses were stupid and/or greedy.
Lyr, As I said, I'm all on board with the redection of Americans dependence on debt, but the basic problem is that, without some pretty strong impetus, that's not going to happen. We're a financially irresponsible people.
Saying "we'll cut off the support and corrections to counteract people's irresponsibility" isn't going to make a large number of them responsible, unless the problems that people's financial frippery gets us into is really bad. Speaking as someone who'd get seriously screwed by that even though he does a pretty good job of handling his money, I'd prefer different ways of promoting responsibility.
Posts: 10177 | Registered: Apr 2001
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posted
Well, when my grandparents were adults, it was the late 40's onwards, I don't count their teen years because frankly at that point their debt and savings didn't much matter nationally. But the debt to savings ratio was different than it is now. They had a lot more money in the bank, they spent less of their money.
Squick -
What would you suggest?
Posts: 21898 | Registered: Nov 2004
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posted
If they wind up doing a tax rebate or tax cut, I just hope it doesn't turn into another situation where working people get a few hundred bucks, rich people get thousands, and corporations get millions. I understand the "trickle down" arguements, I just don't think they work nearly as well as getting money to people who NEED help first and letting that benefit trickle up to other sectors.
What I'd really like to see, but probably won't, and this is more of a mid- to long-term fix anyway: Increased spending on things that create jobs and provide an end-benefit to the country, like major infrastructure upgrades. Improving and repairing roads, bridges, and public transportation like light rail helps the construction companies involved, creates jobs, and can improve property values in some cases. Improved public transit also can help poorer people find work, by expanding the range they can commute to without a car. We could have a major nationwide project in upgrading our electrical grid too, which would also create jobs and lower energy costs with efficiency improvements.
I'm not in favor of the government just creating busywork jobs or useless pork barrel projects. However, if they're going to be throwing tax money at the solution one way or another, creating jobs building something with a lasting benefit seems better to me than giving out cash. (Though giving out some cash may also be helpful in the short-term, of course.)
posted
I'm not amazingly well versed in the history here, but as I understand it, the late 40s and the 50s were a time of basically uninterrupted economic prosperity for America. There weren't so much market swings and consumer spending was constantly on the rise.
Again, I don't really have enough to say knowligably, but I'd image that the lack of available credit had a deal to do with the difference in the debt to savings ratio.
Of course, I don't actually disagree all that much with the point. To think, all it took to encourage that level of thriftiness was a decade of crushing economic despair.
---
We do have a widespread problem with people making poor economic decisions. The solution of having bad things happen to those people may be satisfying, but then we'd have widespread bad things happening to people, which is a really bad thing for the entire economy.
Posts: 10177 | Registered: Apr 2001
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The only non-push/pull solution I can come up with to people being stupid, greedy, and irresponsible is to get people is to encourage them to be less stupid, greedy, and irresponsible.
Our economy is set up to work in an environment like this. To change the situation without really screwing things up, you need vast transformations in the populace and the economic system and the result will be a significantly different social and economic landscape.
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Of course, I wouldn't being adverse to have no limit hunting seasons on most people who work in advertising.
I think the second is much more likely than the first, however.
Posts: 10177 | Registered: Apr 2001
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posted
The rate of savings after the depression was mostly a reaction to the depression, and happened to coincide with an upswing in the business cycle. People were not particularly better off in that period because they were saving more.
Most systemic problems with economic decisions we've had are traceable to perverse incentives created by the government. For instance, people were pouring too much debt into their houses in large part because the government made it cheaper to put debt in houses ('promoting home ownership', as it is also called). Often these subsidies feel good, but end up screwing the economy over for a good bit. From what I'm reading, many people in this thread and otherwise seem to think the way to fix the problems is by creating new subsidies and incentives (that will of course not create perverse situations that screw the economy over again).
Posts: 15770 | Registered: Dec 2001
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quote:Originally posted by lobo: The good old days weren't always so good and tomorrow ain't as bad as it seems...
This bears repeating. Long-term the US economy, relative to all other countries' economies, has no real structural problems. What we're seeing is simply the business cycle doing its thing, in a similar manner to what happened after the last bubble (dotcom) popped. It'll hurt some, things will clean themselves up, and life will continue.
Also, as always (le sigh), I agree with everything fugu said before I got here.
Posts: 2409 | Registered: Sep 2003
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posted
I have a hard time believing that people today wouldn't be better off if they had substantially more in savings to buffer them from wild swings in the economy.
I'm not sure what I think the best way to tix the problem is, I haven't advocated anything specific because I don't know what the best solution is, I'm just skeptical of the proposed quick fix. We're a society of quick fixes, and not particularly cognizant of long term problems that extend beyond quick fixes.
quote:The good old days weren't always so good and tomorrow ain't as bad as it seems...
In history classes the lesson we often get from profs is that there were no good old days. I don't know if I believe that or not, but the more history books I read, the closer I come to that position.
Posts: 21898 | Registered: Nov 2004
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quote:Well if we have two problems, debt and a lack of spending, how do you solve it?
What we should be doing is borrowing money to spend extra when the economy is doing poorly and paying that debt back during times when the economy is doing well.
Posts: 8120 | Registered: Jul 2000
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posted
I believe that strategy has been invalidated by public choice theory. That is, even if it is preferable, it will never be followed through on consistently enough. I think this makes the new keynesian preference for money supply manipulation more persuasive. Of course, that has serious problems as well.
Lyrhawn: while savings are important, savings are easily wiped out, and if most people save large amounts, the value of those savings go down. It is a combination of judicious savings (which, despite popular belief, many people in this country have. I recall a paper some months back that found that a very high percentage of people are on track to an amount of retirement savings necessary to sustain their standard of living) with the availability of credit to deal with drastic situation changes that protects best against downturns.
Unfortunately, the negligence of derivative creators in creating diversified bond derivatives, of derivative ratings agencies in rating overly-concentrated bond derivatives too highly, and of derivate purchasers in buying derivatives insufficiently diversified has created a major cash crunch as backing assets fail at too high a rate (which would be easily dealt with given sufficiently diversified instruments) and derivative holders attempt to unwind. This cash crunch has dried up credit availability.
Posts: 15770 | Registered: Dec 2001
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posted
I didn't get a rebate check last time because I hadn't paid enough in taxes to get anything. (Because of not making enough money to pay much in taxes.) I'm not holding my breath this time.
Posts: 2034 | Registered: Apr 2004
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quote:For instance, people were pouring too much debt into their houses in large part because the government made it cheaper to put debt in houses ('promoting home ownership', as it is also called).
I'd counter that people were pouring too much debt into their houses because the credit market was offerring what seemed like favorable conditions for everyone but that only worked in the short to short-medium term and only if the current environment didn't change.
Also, many people were using their real estate purchases as short-term investments that again, only works if the housing market continues booming.
Tulipmania occurs but I don't think you can trace its roots to the government.
---
The invisible hand of the market relies on assumptiosn that haven't been true since at least the 50s. It doesn't work on affluent populations (supply of basics always excedes demand), it doesn't work in large, interconnected economies where, because of affluence, most of the people are above subsistence economic players, and it especially doesn't work when there is a mutli-billion dollar industry whose only interest is manufacturing demand.
Posts: 10177 | Registered: Apr 2001
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posted
Fair Tax Plan would seem to be the better option. Mind you, right now I get taxed at the higher personal income level right now. And under the trial balloon they just floated in Congress I could expect to get a $1,800 rebate check, so it would seem that I would suddenly get a sort of belated tax break as a result.
Why don't they switch it to a tax that hits up economic activity as under the fair tax? Those of us who invest, would resultantly pay more. Those of us who save would pay resultantly less. Low income people would pay even less than they do- as well as get rebated to them their purchase taxes. Solves Medicare/Medicaid/Social Security problem. And it would get rid of the idiotic tax code that has lobbyists getting tax law code advantages.
Thing is, I'm kinda insulted by a $1,800 rebate for two reasons. Reason one is that it simply throws money at everyone regardless of need. Second reason, on a personal level, it does nothing to address the fact that of every one dollar I make 42 cents of it goes to taxes.
That is unreal. Keep the money and either make the code taxpayer neutral so that most of us pay the same relative level of our incomes as tax- or replace the code with something that by its very nature would be a huge economic incentive such as te Fair Tax.
But the rebate thing is really smoke and mirrors. Put a few bucks in everyone's hands for a temporary economic boost that would be minimal at best and still not correct the fundamental problem of our tax code being essentially written in Sanskrit so that the "pygmy marmoset lovers" get a write off for building new marmoset cages every year.
Bernanke is turning out to not be so good a replacement for Greenspan.
Posts: 110 | Registered: Jan 2001
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quote:Put a few bucks in everyone's hands for a temporary economic boost that would be minimal at best and still not correct the fundamental problem of our tax code being essentially written in Sanskrit so that the "pygmy marmoset lovers" get a write off for building new marmoset cages every year.
Bernanke is turning out to not be so good a replacement for Greenspan.
What do you think the role of the Fed Chief is? It sounds like you want him to rewrite the tax code (and to a contraversial and heavily opposed one, at that). That's not something he has any control over.
Posts: 10177 | Registered: Apr 2001
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posted
I'm kind of concerned about some of the invisible mousetraps that are out there, like credit card rates that jump to 31% if one fails in their terms which can include due dates that vary by +/- 5 days per cycle. Why do credit card companies want to be so evil? Such tactics seem much more like they are set up to torment people pointlessly rather than bring about cost effective compliance. I only have one credit card with the +/- 5 day thing, and that was a recent change to terms, but it really ticked me off.
Posts: 11017 | Registered: Apr 2003
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I realize what the Fed Chair's role is. The issue is Congress. And as to the FT being "heavily opposed" it has a ton of co-sponsors in Congress. The only thing controversial about it is that a ton of lobbyists in Washington would suddenly be out of jobs. If there is no tax loophole to lobby for what would they then do in Washington?
Bernanke's problem is that he essentially let the Fed Rates get behind the curve. That allowed the "mortgage crisis" to essentially develop. His only options are now to either recommend the Treasury siphon back the circulating currency or pull back the inter-bank rate by half a basis point. Neither are good solutions because neither solves the basic problem that is impossed by Congress. I.E. tax code.
When your tax code law grows beyond 1000 pages, something has gone inherently wrong. The result is the unfair taxation levels we face, a stranglehold effect on the entire economy, and a large group of people whose only activity is either advocating for loopholes or figuring out how to dodge tax payment by accountant tricks.
The IRS, the lobbyists, CPA's, and Tax attorneys like the way it currently is.
Taxpayers and economists continually note the system we have doesn't work well or even fairly.
If not the Fair Tax then what? I for one am sick of how many taxes I do pay. My dislike is one based upon the reality that what we have is about as inefficient and unjust a system as can possibly be put together. If it turns out under a fairer system that I start paying 60% on the dollar in taxes I could live with it. But paying taxes as we do now, while Congress doesn't even own up to its own culpability in the problem seems to be too cheaply bought with what would amount to a bribe of a rebate.
The FedChair essentially lost control of the rates in relation to the economy seven months ago and it isn't likely he is going to catch the tiger now.
Posts: 110 | Registered: Jan 2001
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quote:And as to the FT being "heavily opposed" it has a ton of co-sponsors in Congress. The only thing controversial about it is that a ton of lobbyists in Washington would suddenly be out of jobs.
You have no hope of convincing people to support the fair tax if this is your view of why it's controversial.
Posts: 26071 | Registered: Oct 2003
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posted
It is unlikely housing would have become as large a bubble absent gov't incentives to make housing a cheaper place to put debt and particular gov't interest rate policies. Might it have been a bubble? Sure, but if it were several thousands of dollars less advantageous to put your debt into your house (that is, if gov't subsidies of that sort of debt were repealed), fewer people would have done so. Do you deny this?
Strangely, when mentioning reasons the invisible hand doesn't work, you mention things that the invisible hand is not based on. And, strangely, supply of basics does not exceed demand in the US by any appreciable amount, except in areas with extensive gov't subsidies (certain farm products). This is, unsurprisingly, exactly as predicted by 'invisible hand' theories. Unless you know of any non-subsidized 'basics' of which there is a great surplus that you could point out to me?
Redskull: the FairTax is a bad idea because it is hard to police consumption goods and even harder to police services. Black markets would be a significant problem, and would be breeding grounds for organizing crime. I am not, however, opposed to a VAT, which would be essentially identical from a consumer point of view.
Posts: 15770 | Registered: Dec 2001
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quote:Originally posted by Redskullvw: Why don't they switch it to a tax that hits up economic activity as under the fair tax? Those of us who invest, would resultantly pay more. Those of us who save would pay resultantly less.
I must admit, I have not read up on how the fair tax interacts with investments. But asking out of curiosity, why would there be a big disparity between those that save money (under their mattress?) and those that invest (in stocks, bonds, etc)?
Posts: 7593 | Registered: Sep 2006
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quote:It is unlikely housing would have become as large a bubble absent gov't incentives to make housing a cheaper place to put debt and particular gov't interest rate policies. Might it have been a bubble? Sure, but if it were several thousands of dollars less advantageous to put your debt into your house (that is, if gov't subsidies of that sort of debt were repealed), fewer people would have done so. Do you deny this?
Of course I'm not going to deny that government subsidies played a role and exacerbated the situation. But, as far as I can tell, your claim went much further than that by saying that the government subsidies were the root cause. This situation would have occurred without government subsidies - although, yes, it likely would have been less severe. Take away what I said (and don't replace it with other conditions that would cause it) and I don't see how the government sudsidies would cause this. Do you disagree with that?
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quote:Strangely, when mentioning reasons the invisible hand doesn't work, you mention things that the invisible hand is not based on.
How is externally manufactured demand not a part of the invisible hand? Again, how do you explain Tulipmania and related phenomna as not failures of the invisible hand?
I spoke poorly abotu the supply exceding demand. That isn't even really true for food, because the government pays people not to grow it or destroys surplus food, so it really doesn't reach supply. Rather, what I meant was potential supply. Our capacity for production far outstrips the needs of the populace.
Natural demand can be met many times over, which is one of the major reasons why there is so much money in manufacturing artifical demand which generally aims at creating demand for a product or service that is at best loosely tied to the qualities of that product.
Lastly, a large, inconnected affluent populace tend to magnify the ripple effects caused by economic downturns. This isn't so much a place where the invisible hand breaks so much as the assumption that we can let the market correct itself may very well elad to a situation that is unacceptable to the people living in that economy.
posted
fugu, when you're talking about "putting debt into your house" are you referring to things like home equity loans and second mortgages, or does your initial mortgage to buy the home count as "putting debt into your house" for the purposes of this discussion? I'm just trying to understand what you're saying the problem was there. To me some of your posts sound like they're written with some basic economist assumptions that I'm missing by not being an economist.
I happen to agree about farm subsidies, btw, and think that they need to be seriously reduced and re-evaluated, if not totally eliminated. I don't think that's something that could get done in an economic slowdown or recession though, because everybody would cry foul about cutting subsidies increasing food costs when people are already struggling to make ends meet. (Whether that would actually happen or not, that would be the rallying cry.)
You realize that the FT makes a black market almost completely impossible?
Dagonee
It seems that the best way to get people to support it is to lend them a copy of the book. Until I read it, i was extremely opposed to it.
Mucus
In a nutshell what you save you keep. As long as you don't cash in an investment, you wont be paying taxes. And even if you do cash in an investment, you only pay taxes once you buy something.
All in all the problem is Congress and the tax code. Unfortunately all the presidential candidates who support the FT are people I could never vote for.
So I guess we all like the system we have now.
I look forward to my $1,800 rebate. I'll stick my CPA on to how I can avoid making tax payments, and start stockpiling money in non-taxable investments. Assuming everyone goes out and blows their rebates, it will make mine all the more valuable in the long term.
Posts: 110 | Registered: Jan 2001
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quote: Bernanke is turning out to not be so good a replacement for Greenspan.
Almost every economist I've talked to/read on this topic agrees that by the time Bernanke was in office, there wasn't much he could do. If he had moved quicker on changing interest rates, then perhaps the downturn wouldn't be quite as severe (or long), but that's only a perhaps.
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posted
Redskullvw: I understand what you said. I just can't see how it means that "Those of us who invest, would resultantly pay more"
Posts: 7593 | Registered: Sep 2006
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Because high wage earners wouldn't be eligible for the rebate. You have investments, you don't get the monthl;y/quarterly rebate check sent out to lower income/non-investment citizens.
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posted
I would be for taking some of the tax subisidies involved in home ownership and shifting that money to investment in hard infrastructure (roads, bridges, rail lines, etc.). I'm not sure how exactly you do that and in what amounts/percentages, but I'm worried that as a country, we've placed too high of a priority on living space and too little in the guts that allow those living spaces to be livable.
Posts: 3423 | Registered: Aug 2001
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posted
The fair tax does not make a black market almost impossible. How do you believe it does that?
Enigmatic: both do, but second mortgages and the like were particularly problematic.
Squicky: I don't know if it would have happened without gov't subsidies, but I do know it would have been a good deal better without them, which is all I'm arguing.
You're going to first have to define what you mean by "externally manufactured demand". Of course, it doesn't much matter, because equilibrium economics does not depend on where demand comes from, merely that it exists, and that it be characterized by certain simple characteristics (more is better, more variety is better -- only more specific meanings of these).
Posts: 15770 | Registered: Dec 2001
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posted
Redskullvw: Are you sure high wage earners wouldn't be eligible? I was under the impression that everyone with a valid SIN got those prebate payments. http://www.fairtax.org/site/PageServer?pagename=about_faq_answers The website doesn't make any mention of a high wage cutoff either.
See questions like "Is it fair for rich people to get the exact same FairTax prebate from the federal government as the poorest person in America?"
Posts: 7593 | Registered: Sep 2006
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posted
Maybe I better let someone else answer the questions.
Fugu
My understanding is that blackmarket can't exist in a situation where the tax is based upon consumption. Maybe it can. Maybe it can't. But right now we have a huge blackmarket and grey market. At the very least the fair tax would make the greymarket go away.
Mucus
It was my understanding that the rebate would be income caped. Meaning a rich person can't get the rebate. Its been over a year since I read it so I could be wrong. But from what I remember, if you pass by some threshold the rebate doesn't apply. I think I remember John Linder saying that at his speech in Gwinnett Civic Center about the FT. But again its been years.
As I said, I didn't like the FT at all. But eventually came to the conclusion its not only fair for everyone, but it also would jump-start our economy.
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posted
A blackmarket exists easily when a tax is based upon consumption, and right now our black market and grey market are tiny in comparison to places with real black/grey markets.
For an example of how a black market would exist: a business takes a percentage of their goods and sells them without sales tax, keeping the percentage within reasonable loss due to shoplifting and the like. Ta-da, free money. How does a consumption tax do anything but encourage this behavior, particularly as there is no longer substantial data being collected at a low level on economic activity outside of sales?
Several countries have tried national sales taxes. Most stopped, frequently moving to VAT, in large part because national sales taxes are extremely hard to police.
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