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Abstract:
I know I have a better shot of getting into Yale for law school than seeing the new administration in Washington enact this policy, but I'll give it a shot anyhow. Our federal tax system is broken and out of control. The amount of time it takes to earn enough money to pay your entire federal tax burden has steadily come later and later each year....
Originally posted byHank Van Gieson
Paul,
Here is a perspective from a History major who has long ago retired from the workforce. But first a correction to your statements about "embedded taxes". For openers, there is no such thing! There are embedded costs of the income tax system, and the costs include not only tax costs but compliance costs as well. That 22% you wrote about came from a Dale Jorgenson study done for AFFT back in 1998. What many don't seem to understand is that two thirds of those embedded costs consist of employee income and payroll tax withholding. Unless you believe that everyone would be willing to take a gross pay cut in the amount of their withholding, then businesses will only be able to reduce their costs by about 7.5% by eliminating business income taxes and their share of the payroll tax. Add to that a generous 2.5% for compliance costs (which Jorgenson didn't address) and the best you can hope for is a 10% reduction in costs, which means a 17% increase in retail prices on average. (1.00 x .9 x 1.30 = 1.17) Notice that the retailer, after lowering costs by 10% must add in the exclusive sales tax rate of 30%, not 23%. Retail prices are going to rise, the only question is how much.
The most recent Fairtax rate study by a couple of Rice economists indicates that the revenue neutral exclusive rate would be more like 38%-which simply means that retail prices would rise by 25%. And most economists familiar with the Fairtax seem to believe that there would be full monetary accomodation and prices might rise by the exclusive tax amount? No need to worry, however, because if you take home your gross pay plus receive the cash grant entitlement called the "prebate", your purchasing power should remain about the same under the Fairtax. But, don't expect to be able to save any additional money. You'll need it to pay the higher after tax prices!
There is a lot else wrong with the Fairtax plan, but here are just a few things to consider: (1) By including payroll taxes on the list of taxes to be replaced, and incorporating the prebate feature, a group of 30 million workers would be created that pay no net federal tax annually and yet would still qualify for full pension and health care retirement benefits. Is that good for the country? Compare that number to the less than 1 million workers today that can reduce their income tax liability to near zero, and then use the refundable EITC to offset their payroll tax amount. (2) After paying into the SS Trust Funds for 45 years or so, all seniors will be forced to resume paying for their retirement benefits with their sales tax dollars. Is that fair? (3) My after tax savings will essentially be double taxed. Is that fair? (4) The Fairtax proposes to tax State and Local government operations (which will likely be found to be unconstitutional) which means that 15% of the revenue needed to run the federal government will be hidden in higher state/local taxes, 30% higher in fact. Is that transparent and fair?
There are many more problems, but you get the idea. Let me close by proposing an alternative I call Fairtax-Lite. It's a 12% national sales tax, no exemptions, no prebate, no taxation of state and local government operations, no inventory tax credit, leaves payroll taxes in place, and phases in over five years. If you really want to get rid of the IRS/IRC, Fairtax-Lite has a much better chance of Congressional consideration, imho!
Originally posted byHunter G. Robinson
If I remember correctly, Georgia voted for Huckabee more than McCain in the Republican primary, and I think that in itself shows that the Fair Tax stands a real chance if we continue to tell our represenatives that we will vote for candidates who have a real interest in changing the broken aspects of Washington.
Originally posted byHunter G. Robinson
I fell like I am watching a political debate in late November. I think the Fair Tax has many innovative ideas that will fix a whole host of problems not only in our tax plan but also in the way the government views its relationship with the hard-earned dollars of its constituients.
Of course Hank has found a few flaws in the system, but the pale in comparison to those of the current federal income tax. While he can debate whether or not individuals will end up paying a higher price for goods, he can not argue that this program will bring businesses into the United States and increase the productivity of the American work force by rewarding hard work.
What is necessary to have this kind of idea go through our government is a strong voice from the citizens of Georgia and other states where voters aren't swayed by exemptions. If I remember correctly, Georgia voted for Huckabee more than McCain in the Republican primary, and I think that in itself shows that the Fair Tax stands a real chance if we continue to tell our represenatives that we will vote for candidates who have a real interest in changing the broken aspects of Washington.
Originally posted bywes
I was in a poli sci class where a few people argued for the "Fair" tax. The professor who has a JD from Columbia, an MPP from Harvard and a PhD in political theory from U of Chicago took the book home and came back the next day laughing. He said the plan was untenable and would be catastrophic. In the face of so many people public policy analysts and economists who denounce this plan, I don't understand why people continue to support it. The system we have now needs lots of work and I wouldn't pretend to defend it. But a progressive tax structure is fair and it does not punish people. People who use more government services should pay more. The person who makes 250k is more benefited by an educated populace, a stable economy, good roads, a vibrant national defense, and regulation of the markets than a person who makes 25k. The same hold true for someone who makes 2 million compared to the guy who makes 250k. It's just fair.
Btw, Adam Smith, the guy who is wrote Wealth of Nations and put on paper for the first time the idea of Capitalism, said he thought it was reasonable to expect the rich to pay more taxes. What's more, under President Eisenhower the top income bracket was 94%. Even under President Reagan it was 50%, so when there is complaining about 35% being too high or even 39% being outrageous, I suggest we keep some historical perspective and listen to people who have more of an idea of what's going on like Warren Buffet rather than a alcoholic congressman and a windbag.
Originally posted byTony
The more wealthy would still pay more taxes because they buy more items. If some guy buys a yacht, he's gonna pay a good amount in sales tax. Lower income people will not be spending near as much.
Originally posted byTony
Lower income people will not be spending near as much.
Originally posted byTony
Tell that to the guy paying for groceries with food stamps, while wearing brand new nikes, in front of me in line at Kroger. Better yet...tell him as he, and his four kids, get into his dubbed out Monte Carlo.
Originally posted byCK
Tony, what you must realize is while they might pay more they are only paying more because they are spending more. They are spending more, because they have more money. However, if you look at the percentage most people spend of their annual income you will find that lower and middle class facilities spend most of their income. Families in the upper class spend a lower amount of their income and reinvest more of their income to generate wealth. The problem is they are not taxed on what they reinvest. In the end they pay a lower -percentage- of their income in taxes, while middle class will pay a higher percentage of their income in taxes.
Originally posted byCK
Tony, what you must realize is while they might pay more they are only paying more because they are spending more. They are spending more, because they have more money. However, if you look at the percentage most people spend of their annual income you will find that lower and middle class facilities spend most of their income. Families in the upper class spend a lower amount of their income and reinvest more of their income to generate wealth. The problem is they are not taxed on what they reinvest. In the end they pay a lower -percentage- of their income in taxes, while middle class will pay a higher percentage of their income in taxes.
Originally posted byWes
Queen B,
I am not going to defend someone who matches the profile you espouse, BUT what I will say is that I don't honestly believe there are many of those cases out there and that you don't have a clue as to their situation or background and judging them without that information is a prejudice we can all do without.
Originally posted byG
Did you not hear that everyone will get a rebate check every month for the necessites.
Originally posted byG
Did you not hear that everyone will get a rebate check every month for the necessites. That means, there is no tax on them. And yes, businesses pass along taxes to the consumers, meaning that the 39%+ taxes they have to pay, we have to pay. Or the employees have to pay by having less in wages. So if they make the same revenue, but pay nothing in taxes, that means they have more money on books. In that case, they either can do a couple of things. Reinvest in more projects for their company that will in return hopefully make more money. Or they could pay them back in dividends or buy back shares of stock. Which will mean that people that invest in them will make more money, or even more people will see that and invest more in them. When people start making more money in a specific market, other business people see that and that brings in competetion and will lower the prices to everything in that market. That is when the economy starts to grow because you get more and more businesses coming in and which creates more and more jobs for people to have. These people then can keep ALL the money that they have earned and will be able to spend it how they choose. Competetion is what makes this country great. The more competetion we have and less government involvement, the better our economy is.
Hank Van Gieson
posted 11/21/08 @ 8:02 AM EST
Here is a perspective from a History major who has long ago retired from the workforce. But first a correction to your statements about "embedded taxes". For openers, there is no such thing! There are embedded costs of the income tax system, and the costs include not only tax costs but compliance costs as well. That 22% you wrote about came from a Dale Jorgenson study done for AFFT back in 1998. What many don't seem to understand is that two thirds of those embedded costs consist of employee income and payroll tax withholding. Unless you believe that everyone would be willing to take a gross pay cut in the amount of their withholding, then businesses will only be able to reduce their costs by about 7.5% by eliminating business income taxes and their share of the payroll tax. Add to that a generous 2.5% for compliance costs (which Jorgenson didn't address) and the best you can hope for is a 10% reduction in costs, which means a 17% increase in retail prices on average. (1.00 x .9 x 1.30 = 1.17) Notice that the retailer, after lowering costs by 10% must add in the exclusive sales tax rate of 30%, not 23%. Retail prices are going to rise, the only question is how much.
The most recent Fairtax rate study by a couple of Rice economists indicates that the revenue neutral exclusive rate would be more like 38%-which simply means that retail prices would rise by 25%. And most economists familiar with the Fairtax seem to believe that there would be full monetary accomodation and prices might rise by the exclusive tax amount? No need to worry, however, because if you take home your gross pay plus receive the cash grant entitlement called the "prebate", your purchasing power should remain about the same under the Fairtax. But, don't expect to be able to save any additional money. You'll need it to pay the higher after tax prices!
There is a lot else wrong with the Fairtax plan, but here are just a few things to consider: (1) By including payroll taxes on the list of taxes to be replaced, and incorporating the prebate feature, a group of 30 million workers would be created that pay no net federal tax annually and yet would still qualify for full pension and health care retirement benefits. Is that good for the country? Compare that number to the less than 1 million workers today that can reduce their income tax liability to near zero, and then use the refundable EITC to offset their payroll tax amount. (2) After paying into the SS Trust Funds for 45 years or so, all seniors will be forced to resume paying for their retirement benefits with their sales tax dollars. Is that fair? (3) My after tax savings will essentially be double taxed. Is that fair? (4) The Fairtax proposes to tax State and Local government operations (which will likely be found to be unconstitutional) which means that 15% of the revenue needed to run the federal government will be hidden in higher state/local taxes, 30% higher in fact. Is that transparent and fair?
There are many more problems, but you get the idea. Let me close by proposing an alternative I call Fairtax-Lite. It's a 12% national sales tax, no exemptions, no prebate, no taxation of state and local government operations, no inventory tax credit, leaves payroll taxes in place, and phases in over five years. If you really want to get rid of the IRS/IRC, Fairtax-Lite has a much better chance of Congressional consideration, imho!