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Fairtax plan debate

IndiConservative

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Iriemon said:
The current tax on corporations is on profit, which is (roughly) revenues (from sales) less expenses. A company can have billions of revenues, but if it has billions in costs and no profit, it pays no tax. You are replacing the tax on profit with a what is essentially a tax on revenues. Huge difference. Last year taxes on corporations raised $189 billion. The fair tax plan will have to raise roughly $2,400 billion with the sales tax. Huge difference. For someone to argue that it will not effect prices is hogwash. Go to Europe and buy something and then tell me a sales tax makes no difference.

Now, it may not have a major effect on the pre-tax price of goods, in fact in may (as some have argued in the fair tax thread) have a deflationary effect as the overall increase in price lowers demand. But the total price of everything that is taxed will go up by roughly the amount of tax.



It would be nice if things actually worked this way, but unfortunately businesses that are not honest are often not run out of business unless the are so bad they get caught with a really big scandal like Enron.

If you are talking about a huge Govt bureaucracy to enforce the law to prevent cheating, that kind of cuts against the argument for a VAT on the grounds that it simplifies everything and reduces bureacracy.


I like it because it lets you choose your taxes by your spending.
It will take another smaller bureaucracy to enfore it no doubt.
I realise businesses are not that honest but if you notice the price rise on something 25%. I think you would notice they were ripping you off.

Its really a situation that no one can predict until it happens unfortunately.
Personally it would help me (if it worked well) because I don't spend a lot as it is. So I suppose I'm a bit biased.
 

Iriemon

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IndiConservative said:
I like it because it lets you choose your taxes by your spending.
It will take another smaller bureaucracy to enfore it no doubt.

Its really a situation that no one can predict until it happens unfortunately.
Personally it would help me (if it worked well) because I don't spend a lot as it is. So I suppose I'm a bit biased.

It would benefit me as well, I am an ardent saver, and lucky enough to have an income that allows me to do that by living below my means.

I realise businesses are not that honest but if you notice the price rise on something 25%. I think you would notice they were ripping you off.

In a competitive business, where profit margins are already close to the bone, the price will have to rise by roughly the amount of the sales tax. A business cannot sell a product below its cost and stay in business for long. It may be that those businesses with fatter profit margins have a little more room.

The underlying concept here, that there is a "hidden" tax of 25-30% as the fairtax website proclaims, is something I don't understand. There is no "hidden tax" in the nature of a corporate tax, which we have already discussed. The website doesn't explain this "hidden" tax or how that estimate was made. My presumption is that the "hidden" tax is based upon the income tax that employees pay. If that is what is meant, then the author is presuming that by elimination of the income tax, salaries can be cut 25-30% accordingly to make up the difference.

I also question the website's claim that a 23% tax on retail sales would be sufficient. A VAT can be lower, because it is taxed on each step of the transaction. But a retail tax is (in theory) a one shot deal.

According to the Dept Commerce Bureau of Econ Analysis, gross national personal income is a little over 10 trillion. So IF salaries do not decline (and the the 25% "hidden" tax is not eliminate in the cost of goods calculation), and if every person spends every dollar of their income, that would generate 2.3 trillion in revenues. The Govt spent $2.3 trillion last year (not counting the cost of the wars) so that it pretty close.

Except if people like you and I save (and with a 25% increase in the price of goods, my guess is more will) that cuts into revenues.

And there is the rebate: Roughly 1500 per person or 4000 per family, which will take another $400 billion or so out of revenues.

So I doubt that a 23% (internal) sales tax would be sufficient. Probably more like 27-28% (40% external) rate will be necessary. Of course then you need bigger rebates, etc.

My biggest gripe with the "fair tax" is that it is an unfair regressive tax, as others have pointed out. Even with rebates, the wealthier can save more and pay a smaller percentage of their income.
 
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Iriemon

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Iriemon said:
The underlying concept here, that there is a "hidden" tax of 25-30% as the fairtax website proclaims, is something I don't understand. ...

Edit to above: The cited "fair tax" website, http://www.fairtax.org/, estimates the "hidden" tax in the price of goods is 22% for goods and 25% for services.
 

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If it costs 4 trillion dollars a year to run the government of the USA, it will cost that much no matter how the money is extracted from the people. *The difference caused by administrative costs for collection is not a significant issue.

The most significant thing that different tax schemes are capable of doing is dividing up who has to pay what portion of the total bill. In other words, how the tax burden is divided.

With that in mind, some consumption is required of everyone. You have to eat, be sheltered, be warm and be clothed. Assuming that everyone only did these things, and they all did these things as cheaply as possible, how would the tax burden be divided? This is how the tax burden would be divided if the consumption tax became completely involuntary. (One can't unvolunteer for this portion of one's tax burden, unless living in some form of squalor is considered)

How is the tax burden divided if people go on with the same spending habits they currently engage in?

How is the tax burden divided if everyone spends all of their income (essentially making this tax a flat income tax)?

In every case, except those at the poverty level, the tax burden is shifted by this tax proposal to the middle class. The voluntary nature of this tax is the very thing that makes it most regressive. Consider: The shift of the tax burden is the most pronounced the closer everyone gets to living as cheaply as possible (that is to say, the more people unvolunteer for paying, the more the amount everyone pays is equal, regardless of income).
 
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gdalton

Ok so I see some of the arguments here revolve around a few particular things, the most common being where does this current imbedded tax of 22-25% come from and will the prices of products really be reduced when it is removed. Another argument is this actually being a regressive tax structure shifting the burden of tax to the middle class. Let’s see if I can shed a little light on this.

Current imbedded taxes is made up of corporate tax, corporate portion of employee tax and cost of complying with these taxes. According to a Harvard study this equals 22-25% of the cost of every product. If the current tax system is abolished all of these costs are gone there by giving the company the ability to lower the retail price of goods and services by 22-25% while maintaining their current profit margins. Add in the new consumption tax of 23% and at most you would pay 1% higher for the same products and at best 2% lower.

As for the Fairtax being revenue neutral, as in it brings in the same amount as the current tax structure does, the only thing I can point to is a quote from the FAQ at the fairtax.org web site
Does the FairTax rate need to be much higher to be revenue neutral? The proper tax rate has been carefully worked out; 23 percent does the job of: (1) raising the same amount of federal funds as are raised by the current system, (2) paying the universal rebate, and (3) paying the collection fees to retailers and state governments. Unlike some other proposals, this rate has been independently confirmed by several different, non-partisan institutions across the country. Detailed calculations are available from FairTax.org.

Now as for this regressive tax argument, I would argue that with the Fairtax you basically volunteer to pay taxes, if you do not want to pay the tax then resist buying a new car and instead buy a used one. That same argument can be put to just about everything you buy except for the necessities in life which the taxes on them, up to the poverty level calculated for the size of your family, will be pre-bated to you at the beginning of the month. Now do you think the rich guy is going to think twice about ordering his new Ferrari or yacht when he sees the price to be the same as before and he wouldn’t consider purchasing a used car or yacht for fear of being seen as poor. I have noticed that a lot of rich folks will fork over a large some of money for things just because they feel they are rich and there for their possessions need to reflect their wealth. This is why they buy over priced cars, houses, jewelry, dinners, hell you name it they will pay more for it just to show they can.
 

Iriemon

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gdalton said:
Ok so I see some of the arguments here revolve around a few particular things, the most common being where does this current imbedded tax of 22-25% come from and will the prices of products really be reduced when it is removed. Another argument is this actually being a regressive tax structure shifting the burden of tax to the middle class. Let’s see if I can shed a little light on this. ...

The proponents of the so-called "fair" tax claim that they can add a 23% retail level sales tax, and it won't affect prices because of the elimination of "hidden" taxes. So we all get our salaries, tax free, and no change in prices. Sounds great, eh? Sounds more like smoke and mirrors to me.

Hidden tax recoupment depends on salaries being slashed

The centerpiece of the proposal [http://fairtax.org/] is the concept that currently, the price of goods and services in this country contain a 22-25% “hidden” tax. The proponents suggest that with a sales tax, the hidden tax will disappear, and -- ja la! – no significant change in prices.

What exactly is this “hidden” tax? How will it disappear with the institution of a sales tax? I tried to find the source of this "hidden" tax that the proponents say adds 22-25% to the price of goods. All references to this proposition seem to come from one source: a study Dale Jorgenson, Ph.D., former chairman of the Harvard University Economics Department. I searched in vain to find a copy of this study, to determine how Dr. Jorgenson came up with this conclusion. If you have a source to it, I'd love to take a look at it.

However, I think it is fair to make certain conclusions about this “hidden” tax. According to the fairtax proponents, with a 23% sales tax, there will be no meaningful change in prices; therefore, it is fair to estimate that the total value of the hidden tax now existing is roughly the same as the sales tax. The fair tax sales tax of 23% will generate 1.67 trillion based on 2003 figures (more on that in a moment) [http://www.fairtax.org/pdfs/Statement_to_Tax_Panel.pdf at p. 4] so the value of the “hidden” tax must be roughly that same size.

So what is the “hidden” tax comprised of? You say: “Corporate tax, corporate portion of employee tax, and the cost of complying with current tax code” (more on that in a moment too).

In 2003, corporate tax revenue was 131 billion. [CBO.gov]. The cost of complying with the income tax structure, according to the fair tax proposal, is $250 billion. I have a hard time believing that, but I'll go with it for purposes of argument. That represents about $380 billion of the roughly $1.6 trillion in hidden taxes that will be eliminated. Where does the other $1.2 trillion come from?

It must be cost “corporate portion of employee tax.” I am not sure exactly what that means. But we know employers pay half of payroll (SS and medicare taxes). In 2003, total revenue from SS/Medicare was $713B; half of that would be $355B. That puts at roughly $735 billion. Which leaves us another $900 billion of “hidden” tax to account for.

The only way I can see to account for the extra $900 billion is the proposition that the income and payroll taxes that employees pay make up a big chunk of the “hidden” tax, in terms of extra salaries. Therefore, to recoup this hidden tax, the presumption is that salaries will decrease by the level that the employee’s income/payroll tax will decrease.

Thus, when their fairtax folks tell you that “you can take home your whole paycheck!” [http://www.fairtaxvolunteer.org/smart/sketch.html] what they don’t tell you is that the presumption is our paychecks will be cut by about 20% (on average) to make up that “hidden” tax.

Is this likely to happen? I kind of doubt it. If employee’s pay is not cut, there is no significant decrease in prices due to “hidden” taxes, and prices shoot up as a result of the new sales tax. Of course, if this happens, it blows out a lot of other features the proponents’ claim.

The fair tax relies on continued deficit budgets and massive borrowing.

The 23% tax rate was based on replacement of $1.67 trillion in revenue, in 2003. http://www.fairtax.org/pdfs/Statement_to_Tax_Panel.pdf at 4. However, in 2003, the government ran a deficit in excess of $500 billion, and the US Govt went another $550 billion in debt. Thus, the “fair tax” does not attempt to resolve the massive deficit/debt problem we have.

Also, as others have pointed out, this level of tax depends upon everyone spending every dime they have on taxable items. A big if. If not, revenues go down, and the tax rate will have to be even higher.

Others have estimated the sales tax will have to be up to 40%.

Fair tax enforcement will be just as burdensome as current IRS enforcement.

The fair tax proponents claim that the fair tax is a greatly simplified system, that can be collected by using current state sales tax mechanisms. Hmmmmm.

I live in Florida. It has a 6% sales tax. At 6%, its not worth it to try to avoid it when I buy day to day items. Sometimes, when I buy something like a computer, I’ll buy it from an out of state provider to avoid the tax.

I guarantee you, with a 30% add-on sales tax (or more, if we are going to balance the budget), people will try to find away around it, big time.

Enforcement, compliance and bureaucracy savings?

I have previously posted about the problems of defining the final end user. How do you determine what is a “final retail transaction”? What if I buy from a “wholesaler”? The proponents say business to business transactions will not be taxed. Can you say Iriemon, Inc? Also, component manufacturers are not taxed. Instead of buying a new computer and paying 30%+ tax, I’m buying the parts. Used sales aren’t taxed. What does that do to the used car market compared to the new car market? Why pay a 30%+ premium to buy a new car?

How about overseas purchase? No tax on exports, the proponents say. So goods can be sold to a retailer in Canada, and that retailer can turn around and offer it to Americans thru the internet at 30% less than the American retailer. So we need an entire enforcement system to make sure people who buy foreign goods pay a tax as well. How is the Govt going to collect the sales tax from the Canadian seller?

How is the government going to check to see whether that component manufacturer, for example, is selling to a retailer or someone who is an end-user? Or whether Iriemon Inc is buying a product for business use or personal use? Every single transaction will have to be recorded as to whom the purchaser is to ensure it is a proper tax-exempt transaction. This will create a huge amount of paperwork and an enforcement bureaucracy rivaling the size of the IRS. Business and individuals will still higher lawyers and accountants to figure out how to cheat the system.

In theory, an income tax is incredibly simple too. Write your income down. Pay x% tax. But we know what the IRS code looks like, right? Do you think a sales tax will be any different? Within no time, Congress will pass an equivalent mind boggling array of exemptions, deductions, and classifications, and the sales tax will be just as complicated as the income tax.

Fair tax is not fair.

Finally, the point is made that in the end, this is a regressive tax because the wealthy can afford to save and the poor cannot. Let’s look at a family of 4 with a family income of $50,000. They spend everything they make. $11,500 for a 23% (which will really have to be a lot higher) tax. They get a $4000 rebate; net $7500 tax. Their effective tax rate is 15%.

Now a family of 4 making $150,000. They spend $100,000, twice as much as the first family, and save $50,000. They pay $23,000 for sales tax, after rebate, $19,000. Their effective tax rate is only 12.7%. The wealthy pay less tax as a percentage of their incomes. At a more realistic 40-50% sales tax, the discrepancy is even more pronounced. If you are wealthy, and think regressive taxes are the cat's meow, this sounds like a great deal. If you are in the $50k category and spend more of your income, it’s not so great.
 
G

gdalton

Iriemon said:
of the roughly $1.6 trillion in hidden taxes that will be eliminated

The $1.6 trillion represents total revenue generated by taxes that includes income tax along with the embedded taxes or hidden taxes. In other words the “hidden taxes are only a part of the $1.6 trillion.

Iriemon said:
Also, as others have pointed out, this level of tax depends upon everyone spending every dime they have on taxable items. A big if. If not, revenues go down, and the tax rate will have to be even higher.

No actually they do the calculations on the amount we actually spent in 2003, I don’t believe everyone spent every dime they earned in 2003.

http://www.fairtax.org/pdfs/Statement_to_Tax_Panel.pdf

A2. The FairTax rate is revenue neutral at a rate of 23 percent on new goods and services.
As the starting point for this rate calculation, consider that fiscal year 2003, the total taxes the FairTax repeals (this means corporate and income tax) accounted for about $1.67 trillion. The economy in 2003 produced goods and services valued at $11 trillion. Of this, 7/8ths or 9.6 trillion was consumed. (so we don’t have to spend every dime we earn just keep the spending habits wee already exhibit which will be very easy if you have more money to spend) Once various technical adjustments are made, the FairTax base is $8.7 trillion. (So they even lowered the total base by $900 billion before doing their calculations) To raise the taxes it repealed in that year ($1.67 trillion), the rate on this base (again that is $8.7 trillion that was spent that year on goods and services) without any exemptions would be 19.2%, derived by dividing the taxes replaced by the total consumption in the U.S. The basic rate must be increased to %23 to accommodate the FairTax prebate.

Iriemon said:
I guarantee you, with a 30% add-on sales tax (or more, if we are going to balance the budget), people will try to find away around it, big time.

Are you assuming that people do not already commit tax fraud?

Iriemon said:
In theory, an income tax is incredibly simple too. Write your income down. Pay x% tax. But we know what the IRS code looks like, right? Do you think a sales tax will be any different? Within no time, Congress will pass an equivalent mind boggling array of exemptions, deductions, and classifications, and the sales tax will be just as complicated as the income tax.

Now this is a valid point. The only thing we can do is try to control our representatives with our votes. I know it may sound naïve but this is how our system works.

Iriemon said:
Now a family of 4 making $150,000. They spend $100,000, twice as much as the first family, and save $50,000. They pay $23,000 for sales tax, after rebate, $19,000. Their effective tax rate is only 12.7%. The wealthy pay less tax as a percentage of their incomes. At a more realistic 40-50% sales tax, the discrepancy is even more pronounced. If you are wealthy, and think regressive taxes are the cat's meow, this sounds like a great deal. If you are in the $50k category and spend more of your income, it’s not so great.


They still paid $11,500 more in taxes then the other family. Because it represents a smaller percentage of their income is not a convincing argument to me when they still pay more then twice as much as the other family. And again the rate was based on the amount of purchases people are currently making, so in actuality the lower income family who is now bringing home their entire check could still spend the same and save money.
 

Iriemon

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gdalton said:
The $1.6 trillion represents total revenue generated by taxes that includes income tax along with the embedded taxes or hidden taxes. In other words the “hidden taxes are only a part of the $1.6 trillion.

No, the $1.67 trillion is the actual revenue raised in 2003 by income tax, payroll tax, corporate tax, and estate tax -- the taxes that the sales tax is designed to replace. No part of those taxes or that sum is hidden. You can see the breakdown of revenues in 2003 and add up the numbers yourself at: http://cbo.gov/showdoc.cfm?index=1821&sequence=0

There is no "hidden" tax in the sense that there is a hidden, secret tax on the sales of goods and services that the government secretly levies and obtains. What they are calling a "hidden tax" is more accurately described as a hidden cost that is embedded in the cost labor (principally) because of the income tax, which adds to the price of the goods or service. No one contends that the government is actually receiving 22-25% tax revenue from this hidden "tax."

To recoup this hidden cost, therefore the cost of labor must be slashed. Any company working close to the bone cannot just cut prices 22-25%, even if the income tax were eliminated. Anybody here who runs a business will probably tell you that.

Do you think the airlines, for example, which are bleeding red, will be able to just cut costs 25% just because the income tax is replaced with a sales tax?

If prices could be cut like that, businesses would do it now to retain a competitive edge. The only way they can cut prices 22-25% is by cutting the cost of producing the goods or services. That will primarily be slashing labor costs.

The fairtax.org website did not specifically discuss what will happen to salaries and incomes under their plan, interestingly enough.

The proposition that the "fair" tax proponents make, that the income taxes will be eliminated, plus we get a rebate, so we will all have more money to spend, and a 30% sales tax added on wihtout a change in prices, sounds too good to be true, doesn't it? It is. It's a fair tale, made up by smoke and mirrors.

No actually they do the calculations on the amount we actually spent in 2003, I don’t believe everyone spent every dime they earned in 2003

http://www.fairtax.org/pdfs/Statement_to_Tax_Panel.pdf

OK fair enough, they did base it on consumption. If people are not taxed on income and prices go up 25+% and the cost of investments remain the same, logically more people will save, which will decrease the taxable base, which will require a higher tax rate.

Plus we will need a higher tax rate whichever way we go if our Republican governemnt keeps spending like drunken sailors.

Are you assuming that people do not already commit tax fraud?

Of course they do. That is a major component of the cost of compliance, because the Govt tries to dissuade this and enforce the law. IMO, it is fantasy to think this factor will just go away because of a sales tax. Especially one where the hefty 30-50% (external) tax is applied only at the retail level. Everyone will try to avoid paying "retail."

Now this is a valid point. The only thing we can do is try to control our representatives with our votes. I know it may sound naïve but this is how our system works.

I think we will have about the same success with a sales tax that we do with an income tax. I see no reason to think that just because there is a sales tax Congress will change its ways.

But if that is the issue, lets just have Congress simplify the income tax system -- do away with mortgage deductions and medical deductions and investment exemptions and 401s and Roths and on and on and on. Then compliance costs will be cheaper with the income tax system too.

They still paid $11,500 more in taxes then the other family. Because it represents a smaller percentage of their income is not a convincing argument to me when they still pay more then twice as much as the other family. And again the rate was based on the amount of purchases people are currently making, so in actuality the lower income family who is now bringing home their entire check could still spend the same and save money.


Most people, I think, would agree that in terms of tax fairness issues, it makes more sense to look at percentages and not absolute dollars. You may say that if a guy making minimum wage pays $3000 in tax, and if Bill Gates pays $6000, he's paying more and so that is fair. But IMO, most folks would disgree with you. The guy making minimum wage is paying 30% of his income in taxes and Bill is paying .0000000003%.

That, in exaggerated form, is why the "fair tax" is the unfair tax. A family of four making $50k is living pretty close to the bone -- they don't have a lot of excess money to save. A family living on $30k even less so. A family with a $200k income, however, can much more readily save a significant portion of their income, and spend it on tax-free investments (I notice the fair tax doesn't tax spending on investments) and so their tax rate, as a % of their income, is lower than the middle class families.

Thanks only to the rebate system, the family near poverty level does OK, but it is the middle class, where the rebate is porportionally a smaller portion of the sales tax they pay, that gets screwed by the "fair" tax.

But I can see why well-to-do folks would support this program.
 

Morris Minor

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It's not an add on tax; it's inclusive. Unlike state sales taxes, you will not see it added to your shopping bills as a line item.

Remember also that only individuals pay taxes - even under our present sorry system. For example, you could tax Microsoft at a rate of 95% on its profits. Microsoft will not, in fact cannot pay that tax. You pay it.

If you work for Microsoft, you pay the tax
If you have a 401k with a holding in Microsoft, you pay the tax
If you buy a PC with Windows XP installed, you pay the tax
If you are an 85 year old widow, living on Social Security and don't own a PC, you pay the tax when you buy groceries from your store that uses Microsoft products...

This is why the Fairtax is such a great idea: it's completely transparent, its cost of collection is very low and it will also fix the Social Security funding fiasco (which is whey the left will eventually have to buy into it). By the way, the book is # 1 on the NY Times best seller list.
 
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Iriemon

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Morris Minor said:
It's not an add on tax; it's inclusive. Unlike state sales taxes, you will not see it added to your shopping bills as a line item.

In terms of the economic effect, it doesn't matter whether it is transparent or not. Being "inclusive" just means when you pay $1.75 instead of $1.25 for your Coke, the receipt doesn't say "$.50 US sales tax" on it.

Remember also that only individuals pay taxes - even under our present sorry system. For example, you could tax Microsoft at a rate of 95% on its profits. Microsoft will not, in fact cannot pay that tax. You pay it.

I completely agree. A tax on corporations makes little sense. A tax on corporate profit in a sense is like a sales tax, in that the cost of the tax (or a portion of it) is passed on to consumers in the form of higher prices and employees in the form or lower wages. It also makes the corporation less able to compete in the world market. It doesn't make sense, IMO, to put a big tax on Microsoft (which will just make Windows cost more) and then not tax Bill. Microsoft should not be taxed; Bill should be taxed. Microsoft is a fictional entity, the beneficiaries (Bill and the management, employees and shareholders of Microsoft) should pay tax on the in-come.

This is why the Fairtax is such a great idea: it's completely transparent, its cost of collection is very low and it will also fix the Social Security funding fiasco (which is whey the left will eventually have to buy into it). By the way, the book is # 1 on the NY Times best seller list.

The corporate tax is not an inherent part of the income tax. You could easily do away with a corporate tax and still have an income tax. Likewise, you could have a sales tax and still have a corporate tax.

The corporate tax typically brings in only about 10% of government tax revenues. Income tax brings in a little more than 40%, SS tax brings in a little less than 40%, and the rest is miscellaneous sources.

The fair tax will not fix the SS fiasco any more than the income tax. The SS fiasco is in large part because the Govt has stolen 1.5 trillion from our SS trust fund to fund deficits cause by tax cuts, wars, and other spending.

In fact, if you examine the fairtax proposal, you will see that the 23% level is based on replacing the income and corporate tax portions of the income tax in 2003 and is revenue neutral -- meaning it is not designed to collect more or less tax. The 2003 revenue numbers used to calculate the 23% (internal, 30% external) rate was a year where the deficit exceeded $500 billion dollars.

Thus, the fair tax, as proposed, continues the recent trend of 1/2 trillion dollar deficits - which are what are creating a "crisis" the in SS situation.
 
G

gdalton

Ok, here we go again. I can see that Irieman has actually put some thought into his arguments and does have some valid points however I have done a little math of my own and found a few interesting things.
1st About this deficit problem, we have actually cut the deficit by about $150 billion in the last two years alone with out raising taxes. But even if you still don’t believe the FairTax can help us out on this issue take a look at the past 18 quarters, or 4.5 years. If we had been using the FairTax plan the federal revenue would have been higher in every quarter except one. That’s right the FairTax would have brought in more money then our current system did, but even with our current system we have managed to reduce the deficit. So that covers the deficit and the idea that the FairTax rate would actually have to be higher for it to be revenue neutral.
2nd You can check and re-check the math, after the imbedded taxes are removed from all products and goods those products and goods can be sold for less, after you add the FairTax the price is basically the same. The companies will not need to reduce the pay of their employees to make these price breaks, the removal of tax burden will accomplish these reductions and the addition of the consumption tax will bring prices back to present levels. So you’re not going to pay anymore then a 1% difference for your goods and services.
3rd The idea that even though the government will make enough money to run on, the poor will be relieved of all tax burden including SS and Medicare and the middleclass will have a few extra bucks a month to put away in savings, some how non of this matters because we are not taking enough from the rich. Sure they may pay the same taxes and actually pay twice as much or more than the average family this doesn’t matter because the percentage compared to their overall income is lower. This is crazy thinking here, basically your saying you don’t care that everyone else is coming out ahead, we need to screw the rich as much as possible. Why? Because someone works hard and achieves something they should be punished? Sorry I don’t see how that makes any since unless you admit it is out of jealousy for what some one else has.

Ok now after all of that fun stuff let’s take a look at how much the FairTax will help our economy. How many businesses around the world would be willing to relocate there manufacturing plants and head quarters to a country that basically removes their corporate tax burdens? How many jobs do you believe this will create? More jobs means more spending, so how long do you think it will take us to make up that deficit of ours? Did you know we ship off about $10 trillion worth of business to other countries that have less severe tax structures(yes I realize that they also get cheaper labor), how many of those jobs do you think will come back to the U.S. if we had the FairTax?

:2wave:
 

da Silva

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Dezaad said:
We leave the part now of fairly well established economic theory to less well established. Concentration of wealth toward the top tends to cause overproduction.

He who quotes Bertrand Russell must be someone worth listening to. I'm sorry I joined the thread this late, but I see an incongruence in your thought. You said that if there is deflation going on, then we'll get those lazy dollars, not extra investment and overproduction.

I buy the overproduction concept via Karl Marx, though. In fact the amount of credit that keeps the world going these days is a sign that there's overproduction right now.
 

Iriemon

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gdalton said:
Ok, here we go again. I can see that Irieman has actually put some thought into his arguments and does have some valid points however I have done a little math of my own and found a few interesting things.
1st About this deficit problem, we have actually cut the deficit by about $150 billion in the last two years alone with out raising taxes.

Not according to the Treasury department. Here's what the Govt actually borrowed:

2001 5,807 133
2002 6,228 421
2003 6,783 555
2004 7,379 596

These are total US Govt debt figures for those fiscal years, and the increase from the previous year.

For fiscal year 2005, the debt has grown from $7,379 (9/30/04) to $7,932 (8/23/05) a $553 billion increase, with a little more than a month to go.


But even if you still don’t believe the FairTax can help us out on this issue take a look at the past 18 quarters, or 4.5 years. If we had been using the FairTax plan the federal revenue would have been higher in every quarter except one. That’s right the FairTax would have brought in more money then our current system did, but even with our current system we have managed to reduce the deficit. So that covers the deficit and the idea that the FairTax rate would actually have to be higher for it to be revenue neutral.

How did you determine that? The fairtax is supposed to be revenue neutral, you are arguing it creates more revenues. Upon what basis?

2nd You can check and re-check the math, after the imbedded taxes are removed from all products and goods those products and goods can be sold for less, after you add the FairTax the price is basically the same.

That is true if you assume that prices are going to go down by the same amount the prices will be increased because of the fair tax. The math isn't hard that way, the "hidden cost" of 22-25% disappears, replaced by a 23% (internal) retail sales tax.

The fallacy isn't in the math, but in the proposal that the price of everything will decrease by 22-25% without cutting salaries drastically.

The companies will not need to reduce the pay of their employees to make these price breaks, the removal of tax burden will accomplish these reductions and the addition of the consumption tax will bring prices back to present levels.

If not salaries, exactly what costs will employers' save to be able to cut costs 22-25%? Of the taxes eliminated, businesses pay 1/2 FICA, which is 7.65% of labor costs. And they pay corporate tax, which is maybe a couple % of prices. Where does the other 15% or so cost reduction come from?

So you’re not going to pay anymore then a 1% difference for your goods and services.

Only if labor costs -- salaries -- are slashed. Otherwise, expect prices to go up 20+%.

3rd The idea that even though the government will make enough money to run on, the poor will be relieved of all tax burden including SS and Medicare and the middleclass will have a few extra bucks a month to put away in savings, some how non of this matters because we are not taking enough from the rich.

Sure they may pay the same taxes and actually pay twice as much or more than the average family this doesn’t matter because the percentage compared to their overall income is lower. This is crazy thinking here, basically your saying you don’t care that everyone else is coming out ahead, we need to screw the rich as much as possible. Why? Because someone works hard and achieves something they should be punished? Sorry I don’t see how that makes any since unless you admit it is out of jealousy for what some one else has.

The problem is not that the rich will pay less tax -- the problem is the middle class will end up paying more tax as a percentage of their income than they do now to make up for the tax savings the wealthier folks get.

You may think its fair to look at total taxes paid, and say if a guy making minimum wage pays $3000 in taxes it is fair if Bill Gates pays $6000 because he is paying twice as much. Most folks, however, agree that to make realistic comparisons of the tax burden you look at percentages.

Ok now after all of that fun stuff let’s take a look at how much the FairTax will help our economy. How many businesses around the world would be willing to relocate there manufacturing plants and head quarters to a country that basically removes their corporate tax burdens? How many jobs do you believe this will create? More jobs means more spending, so how long do you think it will take us to make up that deficit of ours? Did you know we ship off about $10 trillion worth of business to other countries that have less severe tax structures(yes I realize that they also get cheaper labor), how many of those jobs do you think will come back to the U.S. if we had the FairTax?

Given the fact prices will go up about 20-40%, the cost of everything except labor will have a negative effect on the economy.

Empirically, if a sales tax was so much better for an economy, you would think those countries with a sales tax (i.e. Europe) would be doing a lot better than us.

]
 
G

gdalton

Iriemon, I appreciate the debate and respect your views and arguments but now we are just going around in circles aren't we. All of your new points are the same as your old points and we have both made are arguments so I will leave it for anyone to look back through the posts and see what has been said.
I am still concerned about the inflationary response the new plan might cause. So can anyone give me any arguments for or against this problem?
 

Iriemon

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gdalton said:
Iriemon, I appreciate the debate and respect your views and arguments but now we are just going around in circles aren't we. All of your new points are the same as your old points and we have both made are arguments so I will leave it for anyone to look back through the posts and see what has been said.
I am still concerned about the inflationary response the new plan might cause. So can anyone give me any arguments for or against this problem?

I didn't think we were going around in circles, you said you had done some calculations which showed the viability of the fair tax proposal, which I asked you to share. I'm still interested in how you determined the fair tax would raise more revenue; and no one yet has explained how prices will fall 22-25% as a result of elimination of the current tax system.

I agree your point that my views on the fairtax are motivated by the "crazy thinking" that the poorer should not pay a higher percentage of their income than the wealthier had already been made, so we don't need to go over that.

I think the effects of the fairtax on inflation will be pronounced but temporary. The day after the tax goes into law, the price of final, retail goods and services will go up about 20-30%, which is inflation by definition. The decrease in demand from the higher price will be somewhat offset by the increase in money available to spend as taxes are no longer withheld. After this initial jolt, however, I would not expect the fair tax to have a significant inflation one way or the other. Except when they later have to increase the sales tax because the 30% sales tax rate they use is probably about 10-20% too low.
 
G

gdalton

First I would like to thank Irie for setting me straight, I should have posted my math, and after re-checking all of my research and math I see that I have made a mistake. I got too caught up in trying to win an argument that I did not double check myself, so Irie I apologize for my mistake and I thank you again for setting me straight.
So now here is the math I did find. All of the numbers are in $billions and have been truncated to 1/10th for easy viewing.

This info is from the congressional budget office
http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0#table3
Tax Revenues
2001 1,991.2
2002 1,853.2
2003 1,782.3
2004 1,880.1

GDP info from here
http://www.bea.gov/bea/dn/gdplev.xls
2001 10,128.0
2002 10,469.6
2003 10,971.2
2004 11,734.3

According to the math on fairtax.org (http://www.fairtax.org/pdfs/Statement_to_Tax_Panel.pdf pg 4) it seems that after their various adjustments they calculate consumption as roughly 80% of GDP and then calculate 19.2% to be taxed for the fed revenue (the other 3.8% covers the pre-bates) so the numbers would look like this.
Year- Tax base - Revenue
2001- 8,102.4- 1,555.6
2002- 8,375.6- 1,608.1
2003- 8,776.9- 1,685.1
2004- 9,387.4- 1,802.3

Now I am not an economist, but I am an engineer so numbers are no stranger to me. As you can see from the numbers above the FairTax plan would have came close but would not have covered the revenue that our current tax plan has. I would suggest that after the FairTax was enacted the GDP would rise substantially and it would probably make up the difference, but after this research I see some ones numbers are off.

I am going to have to follow this up and do some more number crunching before I am satisfied with this plan.

Iriemon, again I apologize for my earlier mistake and I thank you for hammering me until I figured it out. I know this post did not answer all of your questions but give me some time and I will see what I can come up with. I still think this plan may have some legs but I will be a harder sale now until I get the math right. So, I guess this means to be continued.
 

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gdalton said:
First I would like to thank Irie for setting me straight, I should have posted my math, and after re-checking all of my research and math I see that I have made a mistake. I got too caught up in trying to win an argument that I did not double check myself, so Irie I apologize for my mistake and I thank you again for setting me straight.

Don't worry about it, we are here, hopefully, to share our thoughts and views and what we have learned, and hopefully we all learn some truth along the way.
 
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