posted
"It cleary does under either tax code. I have said that whether the corporate entity or you personally PAY THE TAXES, your net worth will be exactly the same. You keep trying to make the switch Tom and it isn't working. Besides I don't even care about the corporate exemption."
Ten bucks says that if you contact the holders of the plan and ask them to eliminate that exemption, they'll demur. I strongly suspect that the exemption is in fact one of the fundamental reasons for the plan in the first place.
And, no, your net worth will NOT be the same under this plan if your corporation buys your goods.
Posts: 37449 | Registered: May 1999
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quote: And, no, your net worth will NOT be the same under this plan if your corporation buys your goods.
AGAIN. You made the switch AGAIN. I suspect that you see the difference perfectly but are trying to confuse people who aren't paying close attention. You keep coming back to people cheating by making false corporate purchases. Yes that is possible and would have to be dealt with but is unrelated to the networth statement you are referring to. I was talking about corporate/individual taxes under the current system not purchases under the Fair Tax and I think you know that. Please stop using debate tricks to try and win the argument. It is (or should be) beneath you.
Posts: 127 | Registered: Feb 2005
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posted
I think the problem with this discussion is that in an ideal world, this would be nice. If we could assume all or even most people would pony up the money in the correct way, report their income in the correct way and so on maybe it would work. Maybe (still not convinced even on the idealism level).
But the proof is in the pudding. Most people are looking for loopholes. Corportations, doubly so. Owners of those corporations, more than that. Just the fact that we are only now catching on to the bigger ones doesn't mean it hasn't and isn't happening as we speak. Any tax plan should be made with the knowledge that if there is a loophole, it will exploited early and often.
Also, regarding paperwork, I don't see it being any less, really. People will still need to report their income (as we do now). What is income? How much is earned at work? Sure, someone in poverty will have little or nothing to report. But so would the owners of Google, who just reduced their annual salaries to $1. Would they get a refund check every month just like the family that brings in $10,000 a year of income? Why or why not?
How is this plan better/different/easier than a flat tax plan? I assume some of the same issues apply...in a flat tax plan, Google CEO would owe taxes only on his $1.00 salary, not necessarily the bajillion dollars in value of his shares.
Why can't they come up with a plan that would annually tax a person's net worth regardless of where the money is coming in? That would be fair and equitable, I would think.
Posts: 896 | Registered: Apr 2003
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quote:People will still need to report their income (as we do now). What is income? How much is earned at work?
No Fil, there is no income to report. As mentioned in the thread previously EVERYONE receives the poverty level rebate it does not matter what your income level is. Income levels are completely irrelevant under this plan which is one of the primary differences between the Fair Tax and a flat tax plan. Only retail stores would file a tax return at all. You would file nothiing and keep track of nothing for tax purposes. fairtax.org is the website by the way if you have any interest in understanding the proposal.
Tom, I just realized something that changes the whole conversation. You are concerned that you could form a corporation and use it to buy (in your example) a chair for personal use and pay no tax. Actually that wouldn't be a problem because the corporation would pay the tax also. Under "What would be taxed?" the Fair Tax website says:
quote:Business-to-business purchases for the production of goods and services are not taxed.
In other words, final goods and services are taxed no matter what entity makes the purchase. This is exactly like our state retail sales tax. If a corporation buys a chair, it pays sales tax like anyone else. If it buys raw goods to make a chair it does not. As this is not a VAT plan it makes sense that taxes would apply only to the final product. So I think your concern is no longer a valid one. Does this change your thinking at all?
Posts: 127 | Registered: Feb 2005
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It helps, yes. Quite a lot, in fact. Although I'm still concerned by the investment and B2B exemptions. Frankly, I think it'd reduce paperwork even more to eliminate them -- and would bring down the 23% retail tax, while we're at it.
Posts: 37449 | Registered: May 1999
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posted
Seems like the burden of this tax would fall massively on the middle class. Unlike the poor, they will not be exempt from the tax. Unlike the rich, they spend a large portion of their income on goods and services rather than saving or re-investing.
Posts: 4600 | Registered: Mar 2000
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quote:Why can't they come up with a plan that would annually tax a person's net worth regardless of where the money is coming in?
Probably because it's fairly difficult to assess someone's net worth. I have no idea what mine is. Also, such a tax would discourage saving (which is all too rare in America anyway).
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quote:and would bring down the 23% retail tax, while we're at it.
You're right, the numerical rate charged on retail purchases could be lower if we taxed at every stage of production but those taxes would be figured into the sales price of final products so we would pay the same amount anyway. Under such a plan part of the tax burden would be hidden. I prefer to know exactly what I am paying.
As to taxing investment purchases, we don't do so now, so what is your concern?
Posts: 127 | Registered: Feb 2005
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quote: Seems like the burden of this tax would fall massively on the middle class.
I agree. But the middle class has been getting socked harder every year with the income tax. I wonder if the middle class would fare better or worse in the present income tax system or a national retail tax?
Holden pointed out, investment income that's currently exempt from taxes would be taxed when spent.
And he also pointed out criminals would pay more taxes.
This includes the estimated 8-12 million illegal aliens--presumably, they would pay the sales tax but wouldn't get a rebate check. Although, some of thme pay FICA now, not sure if they get tax refunds or what the net difference would be between the two systems.
What about social security taxes, Holden?
Posts: 6316 | Registered: Jun 2003
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posted
Man I hate it when that happens. I had a whole long explanation and my computer locked up and I lost the whole thing and now I have to go.
Here is the short version Morbo: Social Security and Medicare taxes would be eliminated . The 23% revenue neutral rate includes revenue from payroll taxes.
The middle class spend a higher proportion of their income than the rich. This is a fact. However I believe they would still be better off under the Fair Tax. middle class scenario The line item about cost of hidden taxes and compliance (the amount retail prices would fall based on no corporate income taxes or compliance costs) is up for debate. However even if you assume they are wrong by 50% the family would still be much better off. How can this be considering no free lunch?
1. No more tax avoidance by the rich (or anyone else). Some people in the "very rich" category would pay significantly more in dollar terms than they now pay.
2. Everyone who buys anything on U.S. retail market would pay. Criminals, non citizens, everyone so tax base would be larger.
3. Economic growth. However this is not a necessary assumption to make the idea attractive.
Posts: 127 | Registered: Feb 2005
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posted
Has anyone read "The FairTax Book" by Neal Boortz and Congressman John Linder?
It's entirely about the Fair Tax debate. I just picked it up at Costco today and started reading it. I'm hooked on the idea, but reading the debate on this thread has produced doubts.
One recurring argument is that coporations will not reduce prices when their taxes are lifted. I think that's silly. OF COURSE one of them will, maybe just one, a little bit in the beginning. That one guy starts outselling everyone else because his product is cheaper, then everyone else lowers theirs below his, then he lowers his again. Eventually it'll balance out, but at the correct amount of savings to the consumer.
A good example of this is the employee pricing plans on cars right now. One company says "you pay what we pay" and pretty soon all the big three are on top of it with the same deal, plus cash back!
Also, if you're worried about a corporation committing fraud, keep in mind that by eliminating the vast majority of filers, you free up auditors to be far far more scrutinizing of those that remain, making it very hard for them to get away with anything.
I'll write more when I finish the book.
Posts: 21898 | Registered: Nov 2004
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quote: It sounds too naive. Rather like "trickle-down" economics. The rich get richer, and then they hoard.
Forbes did a study and found out of the top 100 richest people in the USA, they paid about and 8% tax share on their income.
This wouldn't be as bad as trickle down economics. Trickle-Down economics is what you get under a Monarchy with a bad king.
Posts: 2752 | Registered: Feb 2001
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posted
holden, is there a mechanism to deal with purchases from other countries? Someone used the example of the rich person buying their car in Canada and their jewlery in Mexico, and thus avoiding a lot of "Fair Tax" taxes. This could potentialy be a very big problem under such a sysrem unless the Fair Tax has provisions dealing with importing untaxed goods for personal use.
Posts: 43 | Registered: Oct 2001
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quote: How has cable and landline telephone deregulation worked out for you?
Is one example really statistically significant? We're talking about the entire US economy, not just the telecommunications industry. Price wars are a landmark of American economy. They break out all the time, in all industries. The airline industry has been warring over pricing for the past decade. Cheaper, smaller airlines have been taking over large amounts of what was previously only the large airlines' domain, and they are reaping the benefits (though, in the airline industry these days, no one is really reaping HUGE benefits, I know that).
I think the argument for "you underestimate the power of greed" works both ways. Hoarding it will keep you at the same level all the time. Undercutting someone else's prices will raise your overall income and make you richer. Thus the greedier person will lower his prices to boost sales, and others will follow.
Also, if you want to look at telecommunications. Cell phone companies have been in a price skirmish that I'm sure will erupt into all out war soon.
Posts: 21898 | Registered: Nov 2004
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Tom -- cable and telephones are natural (local) monopolies, operating under a special set of circumstances.
Which doesn't mean minimal regulation isn't the way to go, it merely affects what minimal regulation is appropriate.
And oddly enough, cable and phone companies have all gotten into price wars resulting in lower prices, which is exactly the argument that was made
However, the viewpoint you were arguing against is still naive. Yes, companies will lower prices some, but that's largely irrelevant. The question is, will the lower prices make up for the decreased value a middle class family is bringing home due to higher taxes? Also, remember that every dollar a company lowers prices due to tax breaks is one dollar they're not paying to employees instead, which is sort of the whole trickle down argument, and one reason its flawed -- it ignores the demand side, the need of consumers to purchase the goods produced by the company. And no, one choice is not equivalent to the other -- dollars given to workers are taxed, whereas dollars used to lower the prices would not be, and more importantly in some ways, dollars given to workers generally result in a smaller direct impact on worker pockets because they entail higher overhead on the part of the company.
Posts: 15770 | Registered: Dec 2001
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quote: cable and phone companies have all gotten into price wars resulting in lower prices
Except in my area, where deregulation immediately created a number of gentlemens' agreements that have resulted in higher prices. Not that you'll get them to admit to it. And the less expensive cell phone plan to which I subscribed has actually vanished, replaced by a plan that would -- were I not grandfathered in -- give me a hundred extraneous minutes for $10 more a month.
I'm not saying that competition isn't a good thing, but I'm saying that collusion is a more likely scenario. Posts: 37449 | Registered: May 1999
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posted
Tom -- cell phone plans have increased in price largely because of phenomenal expenditures on networks by the providers. Compare cell phone plans with comparable features to home calling plans if you want a demonstration of what a deal they still are.
Posts: 15770 | Registered: Dec 2001
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posted
If I actually used any phone features besides voice mail, Caller ID, and call waiting, I'd probably care more.
What I want on a cell phone: unlimited, unbounded data transfer at semi-presentable speeds (both incoming and outgoing), fully-functional Bluetooth (for both modem and accessory functions), and no roaming fees. The cell phone providers which offered this kind of functionality are now running in terror from it; to get this kind of service legitimately from a U.S. provider, as opposed to just taking advantage of a technical loophole which they'll intend to close, runs at least $60 a month -- and more if you dare to actually use a Blackberry or Windows Mobile device, since the data plans for PDAs are considerably more expensive than the cell-phone equivalents.
Cell-phone companies have been preying on the ignorance of American consumers who have apparently never traveled to Europe and consequently think that being able to take a picture or view a music video is something nifty that is worth paying extra money for. *wry laugh*
Posts: 37449 | Registered: May 1999
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I'll admit I'm not wholly convinced, a lot of it just seems too good to be true, but I can't poke any substantive holes in the argument. It looks like it would be a boon to lower class and middle income workers. At the very least I think it deserves serious, VERY serious consideration from the Congress, the President, and the newsmedia. I just finished writing both my senators and my representative about the issue.
The benefits of this Act seem almost endless. US workers finally being competitive in foriegn markets, an end to companies taking their money overseas to sink into tax shelters, and end to corporate lobbying (to a large degree) in Washington to get special favors, an end to an overly complicated tax system that bogs down our economy in a tax code that costs billions every year just to try and figure out. And the list goes on.
The loudest argument I've seen so far on here is the concern that businesses won't pass on the tax savings to the consumer. I find it hard to believe they wouldn't, as I've stated before, it only takes one small business to cut prices before they all jump on board. And either way, the cut is stated at 23% cut in the price of goods, meaning the price would fall 23%, but that entire amount isn't totally derived from the seller of the item, it's an imbedded cost that comes from the entire line of people involved in producing the item. Suppliers would lower prices to be more competitive in the new market, businesses would force them too.
It's either that, or when the new national sales tax was implemented, costs on goods and services would skyrocket and EVERYONE would see their sales plummet as consumers can no longer afford their prices. Could they really survive that scenario? Why risk it, when they can lower their prices and make the issue revenue neutral, while increasing their own productivity and lowering their costs from a less complicated tax system?
The decreased cost of product is only one piece of the larger benefits the Act would provide.
I'm interested to see if anyone can poke a serious hole in the FairTax Act.
Posts: 21898 | Registered: Nov 2004
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quote: The question is, will the lower prices make up for the decreased value a middle class family is bringing home due to higher taxes?
What do you mean by this? What higher taxes? The amount of money a middle class family brings home can only increase under the FairTax Act, as they are now bringing home ALL of their money.
Posts: 21898 | Registered: Nov 2004
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quote: The amount of money a middle class family brings home can only increase under the FairTax Act, as they are now bringing home ALL of their money.
Until, of course, they have to buy things. Posts: 37449 | Registered: May 1999
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posted
Bleh, sorry, thinking flat tax; I was sleepy and busy working on an essay.
Similar principle applies, though, as a sales tax will more adversely affect middle-class consumers, plain and simple.
Also, there's one very big potential issue: during economic troubles, consumption of luxuries (those things most commonly sales taxed) drops dramatically. This dramatically decreases government revenues, just when social support programs are most needed.
Oh, and the implementation of a large sales tax can't help but create a gigantic black market.
Posts: 15770 | Registered: Dec 2001
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quote:The benefits of this Act seem almost endless. US workers finally being competitive in foriegn markets,
As US workers are arguably the most competitive workers in any decent sized nation in the world, I'd be fascinated to hear how this works.
quote:an end to companies taking their money overseas to sink into tax shelters,
Well, yes, but only because tax shelters won't exist. "An end to companies taking their money overseas" full stop won't happen -- and honestly, the use of tax shelters isn't particularly troublesome except insofar as it disrupts government income. Plus, this isn't a particular benefit of the "fair tax"; its easy enough to take care of it even with income taxes, if we so cared.
quote:and end to corporate lobbying (to a large degree) in Washington to get special favors,
Ahahahahahahahahahaha! This one's just a riot. Government lobbying is a gigantic industry designed to get laws and regulations instituted and removed as benefits the lobbying parties. Tax laws are only a small piece of that pie, corporations are more concerned about the laws which govern the conduct of their business.
quote:an end to an overly complicated tax system that bogs down our economy in a tax code that costs billions every year just to try and figure out.
Yes, we do rather pay a lot of accountants, but its not like that money is lost to the economy. It actually increases our (monetary) productivity, as countries from overseas need to bring in foreign capital in order to get the best help to comply with american tax code. This isn't an argument for the system, but against the notion that it bogs down our economy all that much due to its cost of understanding (if at all). It bogs down the economy due to the complexity of complying with the rules, not understanding them. There are lots of simple taxation systems, this is just one of them.
Okay, so as far as real, substantial benefits we've got one benefit that could be provided under near any system of taxation if we just chose to do it, and one benefit that could also be had by near any system of taxation, and will almost certainly be had by any substantial reform of the current system.
Where are these particular benefits of the "Fair Tax" you're supposedly advocating?
Posts: 15770 | Registered: Dec 2001
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At which point they will purchase things for slightly more than they were to begin with. A reduction in the tax on the suppliers/producers will reduce the price for the consumer, I've yet to hear a good argument against what I said earlier about that. The sales tax will bring the cost back up to slightly more than what it was to begin with.
Fugu -
quote: Oh, and the implementation of a large sales tax can't help but create a gigantic black market.
Compared to what? The black market economy already functioning in the country? Costs to businesses will go down, as the sales tax brings them back up again, there'd be no need for any kind of illegal market. Even so, if there were one, people still have to buy regular things from places. How is the average person going to participate in this black market?
I have to go now, I'll cover other stuff more in depth later.
Posts: 21898 | Registered: Nov 2004
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posted
Couldn't customs handle that easily enough? I mean, sure, there could be smuggling, but we already have mechanisms in place to go after that.
Now, moving luxery purchases overseas and keeping them there would be a problem. I could see a lot of vacation homes popping up in other countries because of this.
Posts: 26071 | Registered: Oct 2003
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posted
C'mon, Lyrhawn, its a basic application of market principles:
The decreased price (due to no sales tax, largely) from participating in a black market is offset by a increased risk of punishment, which may be approximately calculated by multiplying the chance of being caught by the "negative value" created by being caught.
(In this case I'm mainly referring to a black market as a place where legal goods are sold illegally, rather than a place where illegal goods (such as stolen ones) are sold illegally; it may be better to call the former a "grey market" in order to distinguish)
Where the sales tax is below that risk factor, black markets of this sort are minimal. When the sales tax comes near or surpasses that risk factor, black markets sprought up like flies. Take a look at what happened during prohibition for a roughly similar situation, or at how pirated movies and software are treated in much of southeast asia.
As for "how the average person is going to participate in the black market", just like every other average person has participated in every other large consumer black market that exists -- easily. And regarding the "no need for any kind of illegal market", that's silly on the face of it.
Posts: 15770 | Registered: Dec 2001
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Did get wikipedia up. As usual, *seems* to be very fair in its treatment of the subject.
A couple interesting points from the wikipedia article:
quote: Black markets Opponents of FairTax argue that imposing a national sales tax will drive transactions underground, creating a vast black market. This effect can occur for two primary reasons:
The first arises from the use of a sales tax rather than a value added tax (VAT). A VAT imposes a tax at every intermediate step of production, so the goods reach the final consumer with much of the tax already implicit in the price. Thus the retail seller has little incentive to conceal retail sales, since he has already paid much of the good's tax. Retailers are unlikely to subsidize the consumer's tax evasion by concealing sales. In contrast, a retailer has paid no tax on goods under a sales tax system. This provides an incentive for retailers to conceal sales and engage in "tax arbitrage" by sharing some of the illicit tax savings with the final consumer. Under a sales tax system, the purchase of intermediate goods is not taxed, since those goods are supposed to be used to produce a final, retail good that will be fully taxed. Individuals and businesses may be able to manipulate the tax system by claiming that purchases are for intermediate goods, when in fact they are final purchases that should be taxed. At present, however, some business owners overstate business expenses or claim that expenses that are largely or solely personal are business expenses. No income tax would mean no business expense deduction. It is important to note that a VAT and a sales tax have no impact on who bears the tax burden. Rather, a VAT conceals most of that burden by distributing it along the value chain. In contrast, a sales tax explicitly identifies the entire tax amount on the consumer's receipt. Both tax structures distribute the tax burden between the consumer and producer depending on a specific product's supply and demand characteristics.
Opponents also argue that the increase in sales tax (needed to replace the loss of revenue from other taxes) would produce such a high rate that there would be a much higher incentive to trade on the black market, and much of the economy would be driven underground.
[edit] Implementation hazard If the FairTax bill is passed, elimination of the all other forms of taxation is not guaranteed, and passage of this measure may in fact simply add a new tax. The income tax is especially problematic, as it requires a repeal of the 16th Amendment to the Constitution of the United States to eliminate definitively [16]. Since passing this new tax plan would only require a simple majority in each house of Congress and the signature of the President, and repeal of a Constitutional Amendment must be approved by two thirds of each house of Congress, and three quarters of the individual states, it is very possible that passage of the FairTax bill will simply add another tax burden rather than replace an existing tax system.
[edit] Transition effects on savers Because the FairTax proposal replaces various taxes with a single sales tax, individuals who live through the transition will experience unique effects.
In this case, individuals under the current system who accumulated savings from ordinary income (by choosing not to spend their money when the income was earned) paid taxes on that income before it was placed in savings. When individuals spend their money saved under the current system, that spending would be subject to new federal taxes. People living through the transition find both their earning and their spending taxed.
The FairTax proposal does not address the transition effect on taxpayers who have accumulated significant savings from after-tax dollars, especially retirees who have finished their careers and switched to spending down their life savings. Under the FairTax proposal, this money would be fully taxed again as it is spent. Critics have spoken out against the FairTax proposal, claiming that it would result in double taxation. [17] [18] [19]
FairTax supporters claim that the current system is no different; due to "hidden taxes" embedded in the current prices of goods and services, savings are being taxed a second time already when spent.
In contrast to ordinary savings, money in tax-deferred savings plans such as IRA, 401k, etc. would be withdrawn tax free. There is currently $11 trillion in such accounts. This represents a future tax revenue owed to the Federal government under the income tax system which has been estimated at $3 trillion. [20]
I didn't even think about the whole black market bit, but that does present a really huge problem, doesn't it?
Note that I am not opposed to this idea on its face. As I already mentioned, the sources promoting this idea wouldn't promote it unless it helped to fulfill their long time ambition to reduce taxes on the wealthy and business and dismantle social welfare programs.
Posts: 13123 | Registered: Feb 2002
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Total consumer expenditure in 1998 in 1992 dollars was $5.2 trillion ( http://cber.cba.ua.edu/rbriefs/ab0899.html ). Based on Bureau of Labor Statistics statistics, roughly 12% of that goes to food, 5% to healthcare, 30% to housing, and 10% to insurance and pensions. Even neglecting other things that wouldn't be subject to the "Fair Tax", that's 43% of that eligible to be taxed. Even if we put food into the taxable category, the below calculation doesn't change drastically.
Since people can't spend more than they have, we know that expenditures x plus the rate of the fair tax times expenditures will equal 43% of $5.2 trillion, allowing us to calculate how much in revenues the fair tax might bring in for any given rate (well, in 1998, and I'll try to use cotemporal numbers for the rest of my analysis). So (x + x*.23)=.43 * 5.2 trillion, or 1.23x=2.236 trillion, or x = 1.818 trillion. Therefore the revenue for the tax would be around .418 trillion (in 1992 dollars), which is 488.52 billion in 1998 dollars (that would be about 625.26 billion if food is taxed).
Individual income tax in 1998 was 928 billion, though granted that includes certain taxes that might not go away under the plan, such as unemployment tax. So we're not at the break even point at a 23% tax by any means.
But wait, lets see how much of a discount businesses in 1998 could have given consumers due to no longer having to pay corporate income tax (which again, is not a particular advantage of the "Fair Tax", just of having no corporate income tax). Corporate income taxes in 1998 were 213 billion. 213 billion into 5.2 trillion (since discounts would be across all sorts of corporations, not just ones making goods subject to the fair tax) is .041, or a bit above 4 %. Since that 4% would be an approximate straight discount on untaxed items, consumers would have an approximate 121.5 billion dollar discount on those items (assuming food is untaxed; less if it is) which could then be spent on taxes, making the effective tax increase on consumers 448.52 billion - 121.5 billion or about 327 billion, which is an effective tax increase on taxed items of . . . about 17%.
That is not a small rise.
Posts: 15770 | Registered: Dec 2001
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Corporate income taxes have been cut significantly since 1998, so the discount from their elimination would be less.
And this is assuming every bit of the cut in corporate income tax goes to price decreases, and every tax the corporation currently pays on behalf of the employee goes to employee salaries. Both are naive assumptions.
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posted
Plus I ignore the loss in government revenue due to elimination of corporate taxes, that's a giant increase in the gap between revenues at a 23% tax and those under the current tax system.
Posts: 15770 | Registered: Dec 2001
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posted
Explain the 43% thing again, why is only 43% of that 5 trillion dollar figure taxable under the FairTax bill?
Also, why would there be a large amount of luxury purchases made overseas if the price of products in America isn't meant to rise? If they DID rise, I could understand that, but they aren't supposed to.
Posts: 21898 | Registered: Nov 2004
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posted
Rather than a rebate check, why not give people under the poverty line a card that gives the company permission to waive their sales tax? Then the only paperwork is proving you're below the poverty line for the year and that you deserve the card.
Posts: 1903 | Registered: Sep 2003
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posted
First, the notion that prices on products wouldn't rise is ridiculous. Far more tax is paid by consumers than by corporations, meaning that the decrease in price of goods (due to decreased corporate taxes) cannot offset the increased tax necessary on consumers to achieve revenue replacement.
Don't engage in pipe dreams when trying to discuss tax law.
The 43% is very straightforward (or 55% if food is included). I removed healthcare expenditure, housing expenditure, insurance and pension expenditure, and possibly food expenditure. The tax bill as written would appear to only apply to the initial sale of a piece of property (including a house or the like), so that's why the 30%, and the pension/retirement and cash gifts constitute things which are neither goods nor services, and thus not taxed.
I am surprised the bill seems to include all healthcare in taxed items; I shall do a quick estimate of the calculations for an updated percentage, with all but 30% (say, 20% for housing (non-new houses) and 10% for pension/retirement/cash gifts). So we have 70% of expenditure taxed, meaning a much increased revenue, about 795 billion 1998 dollars. Still short of even individual income taxes, much less individual income taxes plus corporate income taxes plus social security tax plus the various other taxes removed by the bill.
However, this increases the tax increase for consumers, as fewer goods have the discount from a lack of corporate income tax absent the new sales tax, meaning the effective tax increase on goods is around 18.5%.
And that's assuming no real (in the economic sense of real) salary increase, since all corporate savings not already paid on behalf of the consumer are assumed to go straight into price decreases, which is as before noted, extremely naive.
Posts: 15770 | Registered: Dec 2001
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Brinestone -- because that would result in massive fraud. Think how easy it is to forge a driver's license.
Posts: 15770 | Registered: Dec 2001
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According to the FairTax Book, eliminating income and corporate taxes will reduce the price of products. According to you, it will dramatically increase it, and will then increase it even more after the sales tax is put on top of that.
Does the your report, labor statistics about how 5 trillion dollars worth of consumer products were purchased. Does that count purchases made by the government? Does that count purchases made by other corporations? Does that count American products purchased by foriegn customers? Does that count products purchased by foriegn tourists in America?
Posts: 21898 | Registered: Nov 2004
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posted
No, no, eliminating the income tax (including corporate income taxes) will minorly decrease the cost of products, but the tax will make the price to consumers much greater. That's explicitly stated several times and appears in the math as well.
Why this is so should be quite obvious, and I don't really care if a propaganda site or book says otherwise. Currently X amount of money passes through the hands of the government, most of that being from individuals and a significantly smaller part being from corporations.
Since now all that government revenue must be replaced by consumers, the consumer is now paying this large sales tax on each item, 23% (which I think is a lowball number, but its what I'm using for purposes of this comparison).
On to the business discount: since the biggest discount a business can give to the consumers is all the money they now have that they're no longer paying in taxes, we can figure the maximal percentage of discount by dividing the total taxes into the total consumer expenditure -- actually, I just remembered we should chop off about 30% of this that isn't on expenditures channeled through businesses, but that only makes the result 6% intead of 4%. Doing so results in an approximate 4% (now considered 6%) discount on goods and services. Even if we imagine a magnifying effect bumping that up as high as 10% (which is absurd), that's still matching a 10% discount on original prices up against a 23% increase on original prices, resulting in a net 13% increase on original prices (from the consumer's perspective).
The exact calculations require a small bit of thought, but here's what the obvious part boils down to: right now goods and services have an effective cost to consumers of X. If the tax increases the original price by an amount Y, then in order for prices to stay effectively the same businesses must also be decreasing the price by the amount Y. Thing is, the amount Y (aggregate) is exactly the amount of government revenue under the tax.
So lets review: government currently makes A (corporate taxes) + B (personal taxes; this is just an extremely high level look, of course). For a sales tax to be revenue neutral, it must thus bring in about A + B, which we shall set equal to Y. For prices to remain effectively neutral, corporations must receive back at least Y, and give Y back to the consumers. However, corporations only receive back A, which happens to be considerably less than Y (take a look at the IRS website sometime; individuals pay much more total taxes). So the max corporations can reduce prices by is A, which is much less than Y, leaving the difference, B, to be paid by individuals as an increase in effective cost of goods.
Now, this does ignore some possibly increased efficiencies and the like, but the vast difference between A and Y is not going to be overcome.
And I told you where I got the information, and its consumer spending, not consumer goods purchased. That means money spent by individual consumers on goods, services, and other things. The BLS website has tons of PDFs on the breakdown by year, socioeconomic level et cetera. I recommend taking a look at the multi-year summary.
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Well in that case, you haven't included all the possible revenue from the FairTax. I'll look at the website later and see what the additional figures are, if they are even all on there.
However, if goods rise in price by 15% even, let's say, and I'm getting back an extra 20% of my paycheck from not paying income, social security, and medicare taxes, aren't I still coming out on top? I'm paying 15% more, but I hav 20% more money, that's still a net increase of 5% in my cash flow.
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Another thing, if large corporations store their funds in off shore accounts, that makes all that money untaxable anyway. Isn't that the very point of a tax shelter?
If America were made virtually tax free, minus the consumption tax, corporations would no longer move their large gains overseas to tax shelters. Otherwise, if there is no benefit at all to moving to the Cayman Islands, why are so many doing it?
Also, the FairTax would make the tax code insanely less complicated, meaning foreign investors would no longer have to spend millions trying to figure out our tax code before investing here. That would certainly spur investments in America.
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I was speaking against the notion that effective prices on goods would not rise, which is separate from if income increases rise enough to offset the definitely increased price of goods.
As for how that would play out, that's not the sort of calculation that can be done seat of the pants, it would require extremely detailed calculations. On any accurate seat of the pants calculation, the rise in prices would be pretty much exactly offset by the decrease in taxes, for obvious reasons (see what the difference between what corporations can give back and what the increase in price of goods is? B, which is how much consumers paid in income tax that they're now getting back in paychecks, theoretically -- though the behavior of supply and demand indicates that the amount paid on a person's behalf by his employer will not be fully added to his paycheck by the employer when those expenses no longer exist).
Given that, the question of the true effect of using a sales tax to replace the income tax needs complex and close analysis, using various models, many of which will be inadequate for the simple reason that its such a drastic change.
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Also, explain to me in more detail how this huge black market is going to erupt out of nowhere. First of all, billions of dollars in taxes go unpaid every year anyway by individuals and small businesses, so I don't take extremely seriously the argument that this will get even the slightest bit worse.
Second, how am I, the average consumer, going to buy something on the black market. Am I going to eat at the black market McDonalds? or buy a tv from the back of some guy's trunk to avoid Best Buy? You make is sound so incredibly obvious, not to mention easy as pie. Show me the study that says a huge black market would appear if a national sales tax were introduced. For that matter, why isn't it already in operation?
I'm sure there IS already an illegal black market at work out there, but you make it sound as if it'll be as easy as walking to the corner store and beinga able to buy illegal goods, or legal goods illegally. I seriously doubt it would happen in such numbers as to adversely affect a majority of the population.
Either way, such fraud and scandal already happens on a large scale, that's why we have law enforcement officials to look into it, and that is what they do. I don't know what fantasy land you live in to think that any other system, including the current one, wouldn't have the exact same problem, therefore I don't count it as a substantive argument against this specific plan.
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"Given that, the question of the true effect of using a sales tax to replace the income tax needs complex and close analysis, using various models, many of which will be inadequate for the simple reason that its such a drastic change."
So you'd agree that at the very least it requires more study, rather than simply being dismissed by "seat of the pants" calculations?
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And an earlier point on lobbying. Half the reason the tax code is so stupid now is that lobbyists keep getting little tax breaks here and there inserted for the corporations they work for. Will all lobbying cease? No, perhaps I was being very overzealous when I said a majority of it would, but certainly a sizeable portion of it will be. With no taxes, they can no longer by vying for tax breaks, tax incentives, tax giveaways, and all that other crap for their people.
To a certain degree this would decrease lobbyists hold over Washington, though probably not in an extremely substantial way. It will however stop the "I gave you a million dollars for your campaign, so cut my industry a break on taxes" thing. Which is offset by the "I gave you a million dollars, so cut my industry a break on regulations" but it's still better than what we have now.
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Have you read the accounts of people on hatrack about the software black markets in SE Asia? It is a matter of just walking to the corner store, there.
And the economic analysis for their appearance is obvious.
Their exact nature would depend on complex social dynamics.
For instance, you wouldn't necessarily walk to the corner store, but the owner of a local TV store might have a "yard sale" -- maybe even at his actual yard -- which has a good number of new TVs oddly available, that he bought from the store himself with his significant employee discount yet have not been opened.
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I strongly suspect that the exemption is in fact one of the fundamental reasons for the plan in the first place.
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