Value Added Tax; (i.e. VAT sales tax method)

[jking948]

VAT is a fiasco - it's a hidden tax of middle men. The UK started at something like 5% now it's 17.5% with some things at 5% and some exempt. The answer isn't additional tax, it's fiscal conservatism --- so CUTS to additional spending and entitlements, and the institution of a flat tax where ALL have to pay their share - not just 50% of the population.

Taxing the wealthy, additional VAT and more entitlements... if you want that go to Europe. They have that already.

Yeh well taxing more percent of the poor's overall income than the wealthy isn't fair either. And being fiscally conservative isn't just saying "no more spending, and less taxes" that is called being a tea-party'r. Fiscal conservatism is about being smart for the economy and doing what it takes to maintain a balanced budget. If that means raising interest rates or raising taxes then that is fiscal conservatism as well. The only concrete rule of fiscal conservatism during all times is that government spending is to be carefully managed and preferably as low as possible. But true fiscal conservatives realize that government spending every once in awhile is probably a good thing.

 

[imagep]

We shouldn't tax capital gains at all.QUOTE]

Phattonez, I’m opposed to special strokes for special folks. I’m an advocate of free enterprise. Entrepreneurs should determine their investments by considering the open market’s rewards and penalties.

I have little patience with those who describe themselves as “conservatives” and only seek special tax consideration for THEIR particular source of income.

Refer to my topic thread “the capital gains tax discount is unjustified”.

Respectfully, Supposn

Exactly!!!

 

[imagep]

Phattonez, you don’t seem to understand or ignore the difference between “transfers of wealth” and investments.
Refer to message #12 of this topic thread.

Only a small portion of incomes described as capital gains are due to "investments" as that word is used by economists. The majority of what the IRS considers as capital gain profits are due to transfers of wealth that do nothing to increase our nations GDP.

Respectfully, Supposn

EXACTLY (again)!

 

[Ockham]

Yeh well taxing more percent of the poor's overall income than the wealthy isn't fair either.

Actually, I think it's more than fair and would actually advocate taxing the poor more if a flat tax wasn't working. It gives them more incentive to lower their tax bracket by improving their skills and getting a better job - advancing. Providing the poor handouts gives no incentive same as excluding them from a tax. Everyone lives here, everyone gets the benefits if they so choose them, so everyone has to pull their own weight. Sounds fair to me.

And being fiscally conservative isn't just saying "no more spending, and less taxes" that is called being a tea-party'r. Fiscal conservatism is about being smart for the economy and doing what it takes to maintain a balanced budget.

And balance means cutting entitlements where needed, not spending on new entitlements which is being done now. Obama was just on today identifying a raise in taxes. So how much more do we have to pay to keep spending? When was the last time the Federal Government had a balanced budget? Do you know?

If that means raising interest rates or raising taxes then that is fiscal conservatism as well.

Why raise taxes when you can simply increase the pool of tax payers and lower the % rate?

The only concrete rule of fiscal conservatism during all times is that government spending is to be carefully managed and preferably as low as possible. But true fiscal conservatives realize that government spending every once in awhile is probably a good thing.

True fiscal conservatives do not spend beyond their means. Managing a deficit is fine - but our country is currently running about 75% debt to GDP with an expectation of close to 90% by 2015. Raising taxes to 100% on every man woman and child including corporations will not get us out unless cuts are made. We do not have the right person in the White House to manage anything -- not to mention "carefully". The current plan is to increase corporate tax, increase the tax on the wealthy and continue to spend. A recipe for disaster.

 

[imagep]

A value-added tax will:

Lower our massive deficit
Tax consumption rather than taxing even more of people's income
Will help cover giant increases in government spending
Encourages savings and investing which leads to a natural job growth, rather than one which is forced by government bills
Incentive for individuals to work harder
Hurts people who make money "illegally" because they will still be taxed when they spend.

Sounds like a great idea to me

I agree that their are a lot of positive things about some type of tax on trade. But I really dont think that a VAT tax is the answer - just way too unnessasarally complicated and it may have a tendancy to become more of a tax on business than on consumption. You did a great job of pointing out some of the positive things about a VAT - but please explain why you think that a VAT is superior to a simple sales tax.

 

[imagep]

let me also just say as well. In order for us to shrink our deficit we will need a higher income tax on the wealthy(in my mind) at least for a little bit of time. After the deficit is reduced both the VAT and the income tax can be lowered but set to maintain a balanced budget.

I agree with that as well. We may indeed need to have a temporary tax on the wealthy to shrink the national debt. As far as shrinking our deficit, that can only be done with some financial conservativism, and that actually has to come first (you cant shrink the debt until you can eleminate the deficit).

I do have some concern with your line of thought though. Adding a VAT will really not tax the wealthy nearly as much as it taxes the consumer class (everyone over the poverty level but not yet in the top 1 percentile). The extremely rich spend a very small percent of their income (most of it goes into the stock market and real estate investments). If you want to tax the rich, then you have to do it by raising the top income tax bracket percentage and by taxing capital gains just the same way you would earned income (income from a job). Thus my objection to the discounted rate of capital gains tax.

 

[imagep]

Yeh well taxing more percent of the poor's overall income than the wealthy isn't fair either. And being fiscally conservative isn't just saying "no more spending, and less taxes" that is called being a tea-party'r. Fiscal conservatism is about being smart for the economy and doing what it takes to maintain a balanced budget. If that means raising interest rates or raising taxes then that is fiscal conservatism as well. The only concrete rule of fiscal conservatism during all times is that government spending is to be carefully managed and preferably as low as possible. But true fiscal conservatives realize that government spending every once in awhile is probably a good thing.

AMEN!!!

I have to admit it, you guys are truely enlightened (even if not always completely in agree-ance).

 

[jking948]

Actually, I think it's more than fair and would actually advocate taxing the poor more if a flat tax wasn't working. It gives them more incentive to lower their tax bracket by improving their skills and getting a better job - advancing. Providing the poor handouts gives no incentive same as excluding them from a tax. Everyone lives here, everyone gets the benefits if they so choose them, so everyone has to pull their own weight. Sounds fair to me.

And balance means cutting entitlements where needed, not spending on new entitlements which is being done now. Obama was just on today identifying a raise in taxes. So how much more do we have to pay to keep spending? When was the last time the Federal Government had a balanced budget? Do you know?

Why raise taxes when you can simply increase the pool of tax payers and lower the % rate?

True fiscal conservatives do not spend beyond their means. Managing a deficit is fine - but our country is currently running about 75% debt to GDP with an expectation of close to 90% by 2015. Raising taxes to 100% on every man woman and child including corporations will not get us out unless cuts are made. We do not have the right person in the White House to manage anything -- not to mention "carefully". The current plan is to increase corporate tax, increase the tax on the wealthy and continue to spend. A recipe for disaster.

First off, I re-read my post and I believe I came off as a jerk so I would like to apologize for that. Now on to the arguments...

Argument #1 about the fair tax: I agree with you, welfare and entitlements don't give the poor any motivation to improve. However, if they are grown adults then it is hard to go back to college, especially if you are dirt poor. Same for the children, how are they supposed to get an education that will earn them a high paying job if they and their parents cannot afford college. Now this leads into my views onto argument #2...

Argument #2 cut the spending! I completely agree! And I also agree Obama has done a ***** job of this while in office. But in my mind we need to pay some money to support our poor. I know there are a lot of conservatives who are in complete disagreement with me here, and this weekend I am planning to show a thread why I believe this. Long story short, I believe we need a much better looking GINI coefficient, but I also believe people should be as wealthy as they can be. Its hard to explain quickly, but basically studies have shown that for everyone in a society to prosper to their max potential, the poor has to be able to survive.

Argument #3: I am not exactly sure what you are asking, would you please explain? If I am correct though you mean having the poor pay taxes as well and a VAT does that. This is why I am confused.

ARgument #3 why more taxes: I read an csmoniter article that cited an IMF report saying if a VAT or another type of consumer tax was added. By doing just this we could move our debt down to 60% of GDP which is a big jump. Of course reduction in spending is needed. And this is why I also believe a hgiher income tax on the wealthy for the time being is needed. ANother option that Robert Samuelson supports and I seem to enjoy is raising the overall national income tax, but lowering the rate for the wealthy. So lets say the wealthy(top 1%) pay 35% in income tax, that would be lowered to 30%. However, the wealthy would no longer be allowed to sign things off of their taxes.

 

[jking948]

I agree that their are a lot of positive things about some type of tax on trade. But I really dont think that a VAT tax is the answer - just way too unnessasarally complicated and it may have a tendancy to become more of a tax on business than on consumption. You did a great job of pointing out some of the positive things about a VAT - but please explain why you think that a VAT is superior to a simple sales tax.

I believe in the economic conditions we are in RIGHT NOW a VAT is superior to a simple sales tax. I just wrote to Ockham about the Csmoniter report from the IMF showing that it alone could reduce our debt to GDP ratio by 15%.

I agree with that as well. We may indeed need to have a temporary tax on the wealthy to shrink the national debt. As far as shrinking our deficit, that can only be done with some financial conservativism, and that actually has to come first (you cant shrink the debt until you can eleminate the deficit).

I do have some concern with your line of thought though. Adding a VAT will really not tax the wealthy nearly as much as it taxes the consumer class (everyone over the poverty level but not yet in the top 1 percentile). The extremely rich spend a very small percent of their income (most of it goes into the stock market and real estate investments). If you want to tax the rich, then you have to do it by raising the top income tax bracket percentage and by taxing capital gains just the same way you would earned income (income from a job). Thus my objection to the discounted rate of capital gains tax.

I am aware that a VAT will not really tax the wealthy all that much. But I believe to get out of this economic crisis we all will have to suffer a little bit. However unfortunate that may be. Obama and Bush screwed us over big time, and now we will have to pay.

I have to say as someone who favored the health care bill(I don't think you can estimate people's lives based on cost-benefit analysis), I do wish these administrations would do a better job of managing spending. If Obama wanted to pay for a heatlhcare bill, great! But then he has to cut back in other areas. The issue is that we needed to before the healthcare bill and the bill just put us in a really giant hole.

 

[drz-400]

I would support a VAT, but I think something we should consider first or along with it is a higher sales tax on gasoline.

 

[I'm Supposn]

- ....... but please explain why you think that a VAT is superior to a simple sales tax.

Commercial entities deduct the VAT they have paid in the course of conducting their enterprises, from the Vat they have collected from their customers. They get their money back before they send the difference on to the government. VAT paper work is very similar to that of conventional sales taxes. Cash flow (that is among small businesses’ major problems), is superior within a VAT rather than a conventional sales tax method.

Commercial customers don’t often offer venders cash and ask that recording the sale and collecting the additional tax be “forgotten”. Because commercial buyers will eventually receive 100% refund of the VAT they paid, it’s foolish to do anything so illegal. There’s much less motivation to commit tax evasion. Because the net tax paid by each individual vender within a chain of transactions is smaller, the amounts that any individual may attempt to steal are much less. The scale and motivation to evade VAT are much less than that of conventional sales taxes.

There are absolutely no imbedded VAT concealed within any transaction. The explicitly itemized VAT within ant link of a transaction chain represents the entire government revenue that has been thus far collected up to that point within the transaction chain.

The prices of everything we now purchase have both some explicitly itemized taxes and unknown but significant amounts of all other imbedded taxes. Those other taxes are concealed within the prices. We can’t entirely replace income tax revenue with VAT revenue because the voters would revolt against such a great explicitly itemized rate of VAT.

Respectfully, Supposn

 

[imagep]

I believe in the economic conditions we are in RIGHT NOW a VAT is superior to a simple sales tax. I just wrote to Ockham about the Csmoniter report from the IMF showing that it alone could reduce our debt to GDP ratio by 15%.



I am aware that a VAT will not really tax the wealthy all that much. But I believe to get out of this economic crisis we all will have to suffer a little bit. However unfortunate that may be. Obama and Bush screwed us over big time, and now we will have to pay.

I have to say as someone who favored the health care bill(I don't think you can estimate people's lives based on cost-benefit analysis), I do wish these administrations would do a better job of managing spending. If Obama wanted to pay for a heatlhcare bill, great! But then he has to cut back in other areas. The issue is that we needed to before the healthcare bill and the bill just put us in a really giant hole.

I believe in the economic conditions we are in RIGHT NOW a VAT is superior to a simple sales tax. I just wrote to Ockham about the Csmoniter report from the IMF showing that it alone could reduce our debt to GDP ratio by 15%.



I am aware that a VAT will not really tax the wealthy all that much. But I believe to get out of this economic crisis we all will have to suffer a little bit. However unfortunate that may be. Obama and Bush screwed us over big time, and now we will have to pay.

I have to say as someone who favored the health care bill(I don't think you can estimate people's lives based on cost-benefit analysis), I do wish these administrations would do a better job of managing spending. If Obama wanted to pay for a heatlhcare bill, great! But then he has to cut back in other areas. The issue is that we needed to before the healthcare bill and the bill just put us in a really giant hole.

Here is the thing, if you tax the rich more they are still rich. If you tax the middle class more they become poor. If you increase taxes on a middle class they may default on their mortgages, car loans, and credit card debt. The rich typically dont have to worry about making their morgage payments or car payments. Now in an already weak economy, with an ongoing banking crises, do we really need another wave of defaults on credit?

Also, the rich consume a fairly small amount of their income. If we tax the rich a little more they will continue their consumption (spending) at the same rate that they did before their tax increase - and likewize, if we cut the tax rate of the rich they will consume no more. But if we increase taxes on the middle class they will have no choice other than to reduce their consumption because they have very little "extra" money which does not get spent (in other words they have no "cushion" of savings or investments) - again, likewize, if we reduce taxes on the middle class the middle class will significantly increase their consumption because unlike the rich, the middle class does not nessasarally have all the "stuff" that they would like to have and does not nessasarally have as high a standard of living as they would desire to have.

If Bill Gates or Warren Buffet were to fine a $10 bill on the street they would not increase their spending what-so-ever because they already have enough money to purchase whatever they desire. But if some poor or middle class dude like myself was to find a $10 bill you can bet that at least $9.50 of that $10 would go towards a new pair or shoes or an upgrade from a Mcdonalds meal to a meal at Outback Steakhouse.

So tax increases or decreases on the rich have almost no effect on the demand for products, whereas tax increases or decreases on the middleclass makes a huge difference on the demand for products.

I happen to own a small manufacturing company. When demand for my products is strong I use my profits to expand. When demand for my products is weak, I will not spend 1¢ additional in expanding my shop and I will likely lay off employees. Today demand is weak - If the government was to offer to loan my business money with the requirement that I use the money to expand, I would refuse the money. But if the government was to offer to give me a personal loan (at 0% interest) I would be highly likely to take the money and I would use it to increase my consumption. Thats the perfect example of why our economy is "demand side" driven and not "supply side" driven. Without demand for products we would have zero economic activity - our economy is driven by demand and consumerism not by investments or the wealthy's capital.

In a nutshell - much of what we think of as "Reagonomics" is wrong. Maybe we should be asking ourselves "what would Reagan do" so that we can make sure that we do the opposit.

 

[jking948]

1. Here is the thing, if you tax the rich more they are still rich. If you tax the middle class more they become poor. If you increase taxes on a middle class they may default on their mortgages, car loans, and credit card debt. The rich typically dont have to worry about making their morgage payments or car payments. Now in an already weak economy, with an ongoing banking crises, do we really need another wave of defaults on credit?

2. Also, the rich consume a fairly small amount of their income. If we tax the rich a little more they will continue their consumption (spending) at the same rate that they did before their tax increase - and likewize, if we cut the tax rate of the rich they will consume no more. But if we increase taxes on the middle class they will have no choice other than to reduce their consumption because they have very little "extra" money which does not get spent (in other words they have no "cushion" of savings or investments) - again, likewize, if we reduce taxes on the middle class the middle class will significantly increase their consumption because unlike the rich, the middle class does not nessasarally have all the "stuff" that they would like to have and does not nessasarally have as high a standard of living as they would desire to have.

3. If Bill Gates or Warren Buffet were to fine a $10 bill on the street they would not increase their spending what-so-ever because they already have enough money to purchase whatever they desire. But if some poor or middle class dude like myself was to find a $10 bill you can bet that at least $9.50 of that $10 would go towards a new pair or shoes or an upgrade from a Mcdonalds meal to a meal at Outback Steakhouse.
So tax increases or decreases on the rich have almost no effect on the demand for products, whereas tax increases or decreases on the middleclass makes a huge difference on the demand for products.

I happen to own a small manufacturing company. When demand for my products is strong I use my profits to expand. When demand for my products is weak, I will not spend 1¢ additional in expanding my shop and I will likely lay off employees. Today demand is weak - If the government was to offer to loan my business money with the requirement that I use the money to expand, I would refuse the money. But if the government was to offer to give me a personal loan (at 0% interest) I would be highly likely to take the money and I would use it to increase my consumption. Thats the perfect example of why our economy is "demand side" driven and not "supply side" driven. Without demand for products we would have zero economic activity - our economy is driven by demand and consumerism not by investments or the wealthy's capital.

4. In a nutshell - much of what we think of as "Reagonomics" is wrong. Maybe we should be asking ourselves "what would Reagan do" so that we can make sure that we do the opposit.

Great post, and although we disagree I have to say there are some points where I do agree with you.
So I am gonna just break your post down bit by bit(paragraphs) and argue it that way...

1) Tax rich more, still rich, etc. I agree. It is more "desirable" to tax the rich moreso than the poor. But I have two issues, 1. We have a massive deficit, everyone has to suffer. 2. A VAT is a tax based on how much someone spends, and it is the most fair way to tax the middle-class poor. Rather than being taxed based on how much they make it will be taxed on how much they spend. Again, we all have to suffer, this includes a higher income tax for wealthy if a VAT is enacted I am afraid(even if it is a small increase).

2) Again I agree. On paper it is more "favorable" to tax the rich. But that isn't fair and isn't feasible. I believe EVERYONE will need to suffer and pay higher taxes, and I believe for the middle-class poor a VAT is the most fair way.

3) It isn't "fair" to say that because the rich are rich we need to even the playing field and have them be the only people who pay money.

4) Reagonomics. There are two different theories that people get confused: One is the trickle down which I oppose and the other is what Reagan and Paul Volcker enacted in order to lower inflation. I believe the former is what is considered "Reaganomics" and I disagree with that. However by decreasing spending and increasing interest rates Reagan and Volcker were able to remove double-digit inflation which was hugely successful. TO call Reagan wrong about economics is flawed, I do believe his tax policies are slightly flawed however.

 

[imagep]

Cash flow (that is among small businesses’ major problems), is superior within a VAT rather than a conventional sales tax method.
Respectfully, Supposn

But only if the cumulitive VAT tax is higher that the sales tax. So why not simply have a sales tax.

You are wrong about the part that the paperwork involved with a VAT is similar to a Sales Tax. Sales tax is only paid by retailers and final consumer services. Wholesalers, manufactures, miners, farmers do not have to deal with sales tax and have no sales tax paperwork. Thus if nothing else, instead of just retailers having to deal with the paperwork, the VAT forces ALL businesses to have to deal with the paperwork. I own a business that purchases materials and services from at least 100 different suppliers, I cant imagine trying to keep up with how much VAT I have paid each of those suppliers (for my deduction). I would litterally have to hire a full time accountant to deal with all of that. A VAT would add mounds of paperwork to my business - and the expense of dealing with additonal paperwork and rules and laws would likely drive me out of business.

With the current sales tax that I currently pay on our retail sales (we do both retail and wholesale sales), I spend less than a hour each month dealing with it because all I have to do is track my retail sales and I dont have to worry about what I pay my suppliers.

A VAT tax is absolutely wrong and very much inferior to a simple sales tax and will have the exact same effect as far as end consumer prices and as far as the amount of tax revenue generated.

Look at it like this (for both of these examples I doubled the wholesale cost of each product in each step just to be consistant):

VAT Tax of 5% per production level

So the farmer grows $1,000 worth of cotton and sells it to the mill that makes thread for $1,000 + $50 (VAT) so the total price is $1,050
The thread mill then turns that cotton into $2,100 worth of thread which they invoice for $2,100 + $105 (VAT) so the total price is $2,205
The shirt making company turns that $2,205 worth of thread into 1000 shirts valued at $4,410 + $220.50 (VAT) so the total price is $4,630.50
The shirt retailer then retails those 1000 shirts for $9,621 + $463.05 (VAT) so the consumer pays a grand total of $10,084.05 for shirts ($10.08 per shirt)
The Government would have collected a total of $463.05 -$220.50 -$105 - $50 = $84.55 in taxes.

Simple 5% Sales Tax

So the farmer grows $1,000 worth of cotton and sells it to the mill that makes thread for $1,000 so the total price is $1,000
The thread mill then turns that cotton into $2,100 worth of thread which they invoice for $2,000 so the total price is $2,000
The shirt making company turns that $2,000 worth of thread into 1000 shirts valued at $4,000 so the total price is $4,000
The shirt retailer then retails those 1000 shirts for $8,000 PLUS $400 (5% SALES TAX) so the consumer pays a grand total of $8,400 for shirts (an average of $8.40 per shirt)
The Government would have collected a total of $400 in taxes.



So as you can see, the simple sales tax not only generates more revenue for the government than the VAT tax, it also results in a lower cost product to the consumer and less paperwork expense for the manufacturers.

And have you ever thought about just how complex this VAT thing would be? My example only included raw goods, but each manufacturer also has a certain cost in equipment, buildings, office suplies, maintance, labor, etc. Would the manufacturer get credit for VAT paid on all of that? Would we have to pay VAT on electricity and if so, could the manufacturer take the cost of the VAT electricity off of the VAT that he has to pay? All of this would result in a nightmare of accounting issues. Want to know why the VAT model ended up resulting in less tax revenue and at the same time drove up the retail cost of goods by nearly 25%? It's because of the administrative cost of having to deal with VAT regulations and paperwork!

 

[jking948]

Good article about the VAT and why we need one:

Value-Added Tax: What You Need to Know - Business - The Atlantic

I read it awhile ago adn saved it in my bookmarks, just found it.

 

[imagep]

Great post, and although we disagree I have to say there are some points where I do agree with you.
So I am gonna just break your post down bit by bit(paragraphs) and argue it that way...

1) Tax rich more, still rich, etc. I agree. It is more "desirable" to tax the rich moreso than the poor. But I have two issues, 1. We have a massive deficit, everyone has to suffer. 2. A VAT is a tax based on how much someone spends, and it is the most fair way to tax the middle-class poor. Rather than being taxed based on how much they make it will be taxed on how much they spend. Again, we all have to suffer, this includes a higher income tax for wealthy if a VAT is enacted I am afraid(even if it is a small increase).

I really dont know that anyone needs to actually suffer. Someone recently posted somewhere on this site that maybe we should be trying to "cure" the deficit by bringing more people into our tax base. If we somehow had a method of creating more consumer demand, such as LOWER taxes on the middle class - and thus higher spending by the middle class, then we would create jobs which in-turn would create more revenue. I am not a big fan of the "Laffer Curve" because most people mis-interpret it, but it is correct to the point that if we reduce taxes on the consumer class we will create demand and thus jobs and thus more revenue. If we raise taxes on the middle class, then you are right, people will suffer. But if we cut taxes on the middle class and raise taxes ONLY on the rich, the rich will not actually suffer - they won't have to skip any meals, they wont loose their car or their house or have to go shoeless.

2) Again I agree. On paper it is more "favorable" to tax the rich. But that isn't fair and isn't feasible. I believe EVERYONE will need to suffer and pay higher taxes, and I believe for the middle-class poor a VAT is the most fair way.

What is not "fair or feasible" about higher taxes for the rich and lower taxes for the middleclass? If you want to bring "fair" into it, the ownly "fair" way to tax would be to have each american regardless of income to pay an equal "fee". Unfortunately, to have a balanced budget based on what we are currently spending, that equal "fee" would be in excess of the average income. You cant get blood out of a turnup. Our highest tax bracket used to be 90%, over the past 90 or so years we have gradually reduced it to less than 40%. Since much higer taxes have been paid in the past, I have to assume that there is nothing unfeasable about the rich paying higher taxes again. Most of rich (super-rich) only pay about 15% (because most of their income is derived from Capital Gains revenue which is only taxed at 15%). So the super rich actually currently pay a smaller percent of their income in income taxes than do the middleclass. There is nothing un-fair about asking the rich to pay the same percent as the middle class.

3) It isn't "fair" to say that because the rich are rich we need to even the playing field and have them be the only people who pay money.

Why not? The rich own a disporportiant amount of American wealth. They recieve a disporpotionant amount of income. The rich recieve more of the benefits of our society, whats unfair about asking them to pay taxes that are porportionate to the benefits that they recieve? Sounds very fair to me. And if we can reduce the tax burdon of the middleclass (by increasing the tax burdon of the rich) then consumption will increase, companies will sell more products, they will hire more workers who will then spend more money which in turn makes companies more money, dividend payouts of those companies will increase, stock prices will increase -and the rich will still be rich, maybe even richer BECAUSE they pay higher taxes - so they may actually have a net GAIN in wealth! I'm not interested in beating down the rich, I am interested in improving our economy, and naturally EVERYONE benefits from an improved economy (a rising tide lifts all boats). If the rich have to pay more but get to make more because of paying more - they they arnt being treated unfairly. Think of higher taxes on the rich as an investment for the rich (and it is). The rich wouldn't be rich if it were not for the middleclass - so if our middle class is allowed to prosper then the rich will prosper likewise.

4) Reagonomics. There are two different theories that people get confused: One is the trickle down which I oppose and the other is what Reagan and Paul Volcker enacted in order to lower inflation. I believe the former is what is considered "Reaganomics" and I disagree with that. However by decreasing spending and increasing interest rates Reagan and Volcker were able to remove double-digit inflation which was hugely successful. TO call Reagan wrong about economics is flawed, I do believe his tax policies are slightly flawed however.

Believe it or not, I agree with you 100% on this. I probably mischariterized Reagonomics when I said that is it flawed, it is really most peoples (mis)understanding of Reagonomics that is wrong. You hit the nail on the head though, trickle down (or supply side economics) is flawed, but not the steps that he took to fix our inflation problem.

Awsome debate!

 

[imagep]

I would support a VAT, but I think something we should consider first or along with it is a higher sales tax on gasoline.

I would support a modest sales tax (but not a VAT for the reasons I have been ranting about). I actually agree that we should really consider a higher tax on gasoline. I am even willing to one-up ya and suggest we do the same with all fossel fuels and tobacco and alcohol and that we legalize weed and tax the heck out it also.

No matter how small we shrink our government, the government will always have to collect taxes. Anytime we tax somthing we are essentially discouraging it - even if that is not the intent or purpose of the tax. So why not use that situation to create less polution and better health? And regardless as to ones opinion of "global warming" (personally I think that it is bullpoo), we should all want a cleaner enviroment and better health. Plus, these "sin" taxes become optional. If you dont want to pay the tax, then dont buy the products. If you desire these products enough, then you will much prefer to have to pay a higher price for them rather than to have them outlawed. Any way you look at it, we all win.

Of course I would only be for increased sin taxes if it was in-leu of other taxes. If we increase these taxes, in theory we could reduce the tax (penalty) on work. So even though it may cost a little more to drive to work, we would have a little more in our paychecks - so our overall lifestyle and standard of living would be just the same (making sin taxes pretty much wealth neutral).

By the way, who was the moron who thunk up the idea of taxing people for working anyhow?

 

[imagep]

It is an interesting article, and totally proves why we should not have a VAT tax. Paperwork paperwork paperwork. The article suggests that all that paperwork would help keep people from cheating on the tax, in reality though it would be easyier to cheat because who the heck is going to keep up with all that paperwork? The only way it would reduce cheating is if every single wholesale and retail sale in America was reported individually to the governement along with the details about both parties in the trade. It would be an absolute nightmare. We would probably have to increase the IRS staffing by 100 or even 1000 fold.

And in the end, it actually generates less revenue than a simple sales tax.

Think about this: with a 10% VAT the retailer may sell a refridgerator for $1,000 and collect an additional $100 in VAT taxes, but the retailer may only have to submit to the government maybe $10 of the VAT collected because the retailer would get a credit for the $90 in VAT taxes that it paid to the refridgerator wholesaler, the refridgerator wholesaler then gets a credit against the $90 that it collected in VAT taxes for the $80 that it paid in VAT taxes to the refridgerator manufacturer, who then gets a credit of $70 against that $80 for the VAT it paid to the parts suppliers, etc. In the end the gov would actually only get the $100 (after all the people in the process paid up), but the gov would spend $90 of that $100 on dealing with all that paperwork so only $10 would actually exist.

Just a simple Sales tax would collect more money and would save a huge amount of adminstration costs (which is ultimately paid for by the consumer).

 

[jking948]

I agree, this is an awesome and fun debate. You definitely know what you are talking about!

I really dont know that anyone needs to actually suffer. Someone recently posted somewhere on this site that maybe we should be trying to "cure" the deficit by bringing more people into our tax base. If we somehow had a method of creating more consumer demand, such as LOWER taxes on the middle class - and thus higher spending by the middle class, then we would create jobs which in-turn would create more revenue. I am not a big fan of the "Laffer Curve" because most people mis-interpret it, but it is correct to the point that if we reduce taxes on the consumer class we will create demand and thus jobs and thus more revenue. If we raise taxes on the middle class, then you are right, people will suffer. But if we cut taxes on the middle class and raise taxes ONLY on the rich, the rich will not actually suffer - they won't have to skip any meals, they wont loose their car or their house or have to go shoeless.

I just am not sure with the deficit being what it is if that would fix it as much as a VAT + higher income tax on the rich. I believe the value of jobs is misinterpreted. full employment is somewhere around 4%. However when people aren't willing to take jobs that are lower than their "standard"(which is a problem, believe me I see it every day) then you can't judge unemployment.

What is not "fair or feasible" about higher taxes for the rich and lower taxes for the middleclass? If you want to bring "fair" into it, the ownly "fair" way to tax would be to have each american regardless of income to pay an equal "fee". Unfortunately, to have a balanced budget based on what we are currently spending, that equal "fee" would be in excess of the average income. You cant get blood out of a turnup. Our highest tax bracket used to be 90%, over the past 90 or so years we have gradually reduced it to less than 40%. Since much higer taxes have been paid in the past, I have to assume that there is nothing unfeasable about the rich paying higher taxes again. Most of rich (super-rich) only pay about 15% (because most of their income is derived from Capital Gains revenue which is only taxed at 15%). So the super rich actually currently pay a smaller percent of their income in income taxes than do the middleclass. There is nothing un-fair about asking the rich to pay the same percent as the middle class.

Why not? The rich own a disporportiant amount of American wealth. They recieve a disporpotionant amount of income. The rich recieve more of the benefits of our society, whats unfair about asking them to pay taxes that are porportionate to the benefits that they recieve? Sounds very fair to me. And if we can reduce the tax burdon of the middleclass (by increasing the tax burdon of the rich) then consumption will increase, companies will sell more products, they will hire more workers who will then spend more money which in turn makes companies more money, dividend payouts of those companies will increase, stock prices will increase -and the rich will still be rich, maybe even richer BECAUSE they pay higher taxes - so they may actually have a net GAIN in wealth! I'm not interested in beating down the rich, I am interested in improving our economy, and naturally EVERYONE benefits from an improved economy (a rising tide lifts all boats). If the rich have to pay more but get to make more because of paying more - they they arnt being treated unfairly. Think of higher taxes on the rich as an investment for the rich (and it is). The rich wouldn't be rich if it were not for the middleclass - so if our middle class is allowed to prosper then the rich will prosper likewise.

You can't just tax the rich because they are wealthy. THey have earned more wealth(in MOST cases, I realize there are some exceptions) than have the middle class. Do I believe in a fair tax, absolutely not. Do I believe in taxing the poor more than the wealthy, no way. But I do believe in fair taxing, and in a time of dire economic crisis, if one tax bracket is going to have a tax increase, so should all the others.

 

[imagep]

You can't just tax the rich because they are wealthy. THey have earned more wealth(in MOST cases, I realize there are some exceptions) than have the middle class. Do I believe in a fair tax, absolutely not. Do I believe in taxing the poor more than the wealthy, no way. But I do believe in fair taxing, and in a time of dire economic crisis, if one tax bracket is going to have a tax increase, so should all the others.

I agree that we shouldnt tax the rich "just because" they are rich. But then again we arn't talking about putting a tax on wealth. Wealthy people who "earned" their wealth wouldn't be taxed any extra at all. Like if someone worked hard all their life and scrimpted and saved and invested and retired with $10 million bucks in the bank - an increase in the tax rate of the top income tax bracket would not nessasarally increase the tax that they pay at all.

We truely arnt talking about taxing the "rich" per say, just taxing people who happen to have HUGE incomes at a higher rate. Lots of "rich" people dont have huge incomes. And of course there are people who have huge incomes who piss away all that money and are not rich at all.

I think that it is very odd that a lot of people are OK with someone paying 20% or 30% income tax when they are earning it by working, but then think that once someone has "made it" and is just living off of investments they should pay less than when they contributed to society. Seems to me that it should be the other way around. That when someone is working they shouldn't have to pay income tax at all, and then once they become rich and are able to live off of their investments alone and they quite working maybe they should start paying taxes then. Why do we tax "work" at all? Isn't working and being productive a good thing? I am not nessasarally suggesting that living off the profits of ones investements is bad, just that it is not as beneficial to our society as working.

We would actually have a wealthier society if we eleminated work tax. Without that tax the poor would have incentive to become middle class, and the middle class would have extra cash to spend and save and invest. And with the middle class actually investing, they will eventually become the wealthy class. And with the poor actually working, the poor will eventually become the new middle class. It's not impossible that we could have just two classes, the middle class, and the group of people who worked their way up from the middle class to the wealthy class. Esentially, everone would start out in their adult life as middle class and eventually become wealthy.

Sometimes I get accused of hating the rich - it's just the opposit, I wish that everyone with some effort and hard work and savings and investment could eventually become rich as they became older and wiser. No, not everyone can be rich at the same time, but we would always have plenty of middle class to keep things running because we are always replenishing our supply of young people - every year we have a new class of high school and college graduates.

What if all of a sudden every one in the world became rich simultaniously and retired to live off of their investment income? Everything would go to hell right? There would be no one farming, no one making cloths, no one running our power plants, no one doing anything.

What if the opposit happened. Lets say that all rich people made some bad investments and lost their wealth. What would happen then? Now I have to assume that the average rich person is probably smarter and more capable and more motivated than the average middle class or poor person. Thus, I can only assume that those formerly rich people would go out and get jobs and be very productive and work very hard and save up some money and start businesses and create new products which would better our world. Many of the formerly rich would eventually become rich again!

Since the strongest and smartist of us will always end up being rich, why do we feel that we need to subsidise the rich with the discounted income tax rate of capital gains? It is incredibly stupid that we financially subsidise the rich while we penilize those of us who work (and thus retard our ability to ever become rich).

The point is that we NEED workers, we don't nessasarally NEED rich people. Again, I aint against rich people, but their value to our society and the operation of our economy tends to be way over-rated. Over and over again I hear people say stuff like "we need rich people because they create jobs - you aint never worked for a poor person have ya?". Well honestly, small business owners create most jobs, and the typical small business owner is no where near rich. Poor people might not create jobs, but the reality is that the middle class creates far more jobs than the rich.

In no way am I out to "get" rich people, but if rich people shouldered a little more of the tax burdon and if the consumer class shouldered a little less our economy would greatly improve. Once again, "a rising tide lifts all boats". The middle class and the rich would both benefit by a middle class tax cut and a high income earner tax increase because the economy would benefit. Whats good for the middle class is also good for the rich.

 

[jking948]

THank you for putting as much time as you have into these posts and this debate. You definitely know what your talking about and I am having fun debating the issue with you

Also I don't want you to think I accused you of hating the rich, looking back at my post it kinda seems that way. I didn't mean that. So if you felt that way, I am sorry.

Onto the arguments now:

1) You know I agree with you that the wealthy do need to be taxed more. I agree with all the points you have made regarding this issue. I almost feel as if this argument between us is whether or not it is just to tax the poor/middle class more rather than a strict VAT argument. I will address both.

2) Rich v. Poor in relation to VAT argument. I realize how bad our GINI coefficient looks, and that is a big deal. If we weren't in the deficit we are in now I wouldn't support higher taxes on the poor or middle class. There is a large wealth gap. It is not good for our country to make this wealth gap any larger. However if the Fed can balance the taxation, interest rates, and spending right a VAT may end up lowering the wealth gap. IF the poor save more money, and the wealthy have to give more away in taxes and then when we recover these taxes are released, the wealthy gain more money back and the poor/middle class maintain what they saved and don't have to spend as much in taxes anymore. THat is one reason why I highly support a consumption tax. If regulated right it will create large benefits for the long term.

3) Rich v. Poor only argument: As I stated above I agree with your views that the wealthy should be taxed MORE. But that doesn't mean the poor/middle class shouldn't be taxed more than they are getting taxed now. I disagree with you when you say lower taxes on the poor and middle and higher taxes on the wealthy will save our economy. We are in so much of a hole right now the government needs money. If they don't get it much worse things(Inflation, even worse unemployment) lurk in the close future. In counter to one point you made we need every aspect of our workforce, a stable poor, stable working class, stable upper-middle, and stable wealthy class. A healthy, modern, western society cannot live without this class stability. Every group should have benefits and losses in relation to their position on the class ladder and how the country's economy is doing as a whole.

4) Why VAT? I truly believe a VAT has two major factors that make me believe it will help. It is the fairest way to tax the poor/middle class because you are only taxing them on what they spend. Thus not only are they not necessarily taxed 100% but they are encouraged to save. By having a society that is encouraged to save, we may have to suffer for awhile, but in the future we will have a vibrant society with a balanced economy.

 

[drz-400]

By the way, who was the moron who thunk up the idea of taxing people for working anyhow?

I agree with you on the gas/sin tax. They can actually produce efficiencies since they minimize negative externalities.

Typically, the labor markets have a rather inelastic supply. This allows for an efficient way to produce tax revenues since this inelasticity will result in a much smaller dead weight loss. I think it is important to branch out however and not just tax one thing, since as you increase the tax, the dead weight loss grows expodentially.

 

[imagep]

Whats a "GINI coefficient "?

 

[imagep]

I agree with you on the gas/sin tax. They can actually produce efficiencies since they minimize negative externalities.

Typically, the labor markets have a rather inelastic supply. This allows for an efficient way to produce tax revenues since this inelasticity will result in a much smaller dead weight loss. I think it is important to branch out however and not just tax one thing, since as you increase the tax, the dead weight loss grows expodentially.

Oh I agree about the need to have multiple tax revenue sources. Their are pros and cons of every type of tax, by collecting just a little from each source we probably would minimize the damage done to any particular groups who would be hit by that particular tax. I also like the idea of a "flat" rate income tax, as long as it only kicks in once someone is earning an insane amount of money and as long as it is the same percentage regardless of the income source. Thus income from work or investments or even inheritance would all be taxed exactly the same way - after all, fair is fair.

1) I'm thinking that a small (like less than 10%, maybe even less than 5%) sales tax. That tax would tax everyone a little, but no one group particularly hard. Even the poor and the extremely rich and and illegals and criminals couldn't avoid a sales tax. This modist sales tax could help facilitate a cut in the lower income tax brackets.

2) An elemination of all lower income tax brackets. This would really help our economy by encouraging people to work. It would also make the production of goods and services cheaper to help offset the small sales tax. The small sales tax may not totally collect enough revenue to offset the elemination of lower income tax brackets but half the people in the country dont pay any federal income tax anyhow so I think that it would come pretty close.

3) Significantly increasing "sin" taxes on fossel fuels, alcohol and tobacco (which by the way I use all of these products) would probably fill in the gap that eleminating lower income tax brackets would create. The unintended but yet valuable side effect would be a better enviroment, improved health, fewer alcohol related deaths and injuries and issues, and less dependance on foriegn oil.

4) I would raise the top income tax bracket so that only the really rediculously wealthy are paying it, and I would also raise the percent that they pay from 38 to 50%. Although this sounds like a tax increase on the wealthy, it really is not a big increase as the wealthy will be getting a huge tax cut by eleminating any taxes that they now have to pay in the lower brackets. It is just sort of a trade off, and only people in the top 1/4 of the top 1% (annual incomes over $2 million dollars) would actually have to pay more in taxes, and even then it would be fairly modest and unlikely to affect their standard of living.

5) I would treat income derived from capital gains exactly like income derived from working. So a typical middle class person who happens to make a few bucks, or even a few hundred thousand dollars a year from his investments would actually get a big tax cut as he would have to pay no taxes on the first $400k or so that he makes each year. Once again, the only people that would suffer from eleminating the "discount tax rate" that we call capital gains and replacing it wth the full income tax rate would be the extremely wealthy (like people who make millions of dollars a year from investments).

6) And here is the one thing that I really have not discussed on this forum: Inheritance Tax. It always pisses me off when I here a politition say that he wants to cut taxes for the middle class and then says that he would vote to eleminate capital gains tax and also the "death tax". Death tax, it sounds so ominious. When they explain it, it seems perfectly logical to eleminate tax on inheritance. but when you really think about it, inheritance tax is the one tax that actually harms no one. You see, inheritance tax is not a tax on the living, it is a tax on the dead. And it is a tax on the "excess" that the dead had and no longer needs. Everything that one does not consume is "excess" - like if someone fixed me a bowl of soup and I ate as much soup as I wanted and I poured the rest down the drain, the portion I poured down the drain was only the "excessive" part, I consumed the portion that was not in excess. Inheritance tax takes nothing away from the people who earned the wealth. Granted some people think that it is stealing from the heirs, but in reality it was never the heirs money to begin with. The heirs did not earn the money, it is not theirs. There is no "birthright" in this country, the son of a President who dies in office does not automatically become President, the great great grand children of someone who won the Pulitzer prize dont automatically get the Pulitzer prize. We get what we earn. Inheritance was only earned by the person who earned it and passed away, his heirs earned nothing. People who object to inheritance tax are people who are simply wanting something for nothing. I see them as being no better than a welfare reciepiant.

Now I am not suggesting that the government sieze the posessions of dead people, I am simply suggesting that inheritance income be taxed exactly the same way that income from any other source is taxed. Once again, this is in keeping with the idea of a "flat tax" - everyone pays the same percentage of tax on every penny of income that they recieve over $400,000/yr regardless of the source of that income. No sweet deals for the mega-rich.

 

[jking948]

Whats a "GINI coefficient "?

It measures the wealth gap between rich and poor and everything in between.
Gini-Coefficient