Clinton Collapse?

[Ddrak]

No, it isn't. The percentage is calculated the exact opposite way. If you earn $100 and are taxed 23% you'd pay $23 in taxes. If you spend $100 and the flat tax was really 23% you'd pay $23, not the $30 you pay under the 'fair tax' proposals. The actual 'fair tax' rate is 30%, and even that drastically underfunds the government.

Sorry, but you're flat out wrong.

With income tax: Earn $100, pay $23, have $77 to spend on stuff.
With "fair" tax: Earn $100, pay $100 of which $23 is tax.

In both cases, tax is measured as a percentage of the gross income, not the net income. Even your description is wrong - if you spend $100 under the "fair" tax then $23 of it is tax, not $30 (because spending includes tax, not excludes). In fact, the paper you linked says exactly that:

Therefore, a commonly understood 23 percent income tax rate would indeed be comparable to a 23 percent FairTax rate on a tax-inclusive basis.

I suggest you redo your math before making incorrect assertions on that number. Yes, it's a 30% sales tax, but that corresponds to a 23% income tax.

I'm not qualified to discuss whether it would underfund the government or not. If it does then obviously you need to raise the rate. What I *do* think is that sales taxes are fairer because they get you when you actually use the money rather than prior to investing it. Money itself and its acquisition is meaningless - it's only when you spend it that it has power and that's what's being taxed. If someone earns $200k/yr and only spends the same as someone earning $20k/yr on themselves then I have zero problems with them being taxed the same dollar value. It's only regressive if you measure based on income - which is stupid anyway unless you can explain to me how money saved is useful in any way without actually spending it.

In the more detailed paper, I think Bartlett is right on the money when he describes why a VAT is very much more desirable than the "fair" tax system - in fact I gave basically the same reasons in my previous post. VATs are self-enforcing, which the "fair" tax system will be almost trivial to avoid.

On prices and wages, the FairTax site says:

How does the FairTax affect wages and prices?

Americans who produce goods and earn wages must pay significant tax and compliance costs under the current federal income tax. These taxes and costs both reduce after-tax wages and profits and are then passed on to the consumers of those goods and services in the form of price increases. When the FairTax removes income, capital gains, payroll, and estate and gift taxes, the pre-FairTax prices of these goods and services will fall. The removal of these hidden taxes may also allow wages to rise. Exactly how much prices will fall and wages will rise depends on market forces. For example, in a profession with many jobs and too few to fill them, wages will likely increase more than in fields where there are too many employees and not enough jobs.

This is pretty much a fallacy, as Bartlett points out. Inertia will tend to fix prices and wages but I don't think that's as big an issue as Bartlett seems to be crying. If prices and wages both stay the same then the whole thing is a wash (you gain 23% on gross pay, lose the same on gross prices). FairTax certainly doesn't appear depend on any sort of net price drop in the way Bartlett rants about, at least that I can see.

Assuming revenue neutrality (which, again, I can't comment on), FairTax doesn't really strike me as particularly bad in theory. It will have significant problems in practice as it's far too easy to avoid paying it but the concept of replacing income taxes with sales taxes isn't particularly bad. I thought the flat rebate was an interesting solution to the problem of keeping it progressive.

Dd

[Partha]

One thing you two are ignoring in arguing for this tax is that a great deal of income for the rich is not used to buy ANYTHING, nor is it needed to. That creates incentive for them to save/invest...whereas what you want in a country with a negative savings rate is to get EVERYONE to save/invest...which they can't do because, as Bartlett neatly points out, they're having a great deal more of their income taxed under this 'FairTax' scheme.

Plans like this are merely attempts to convert America into Somalia.

[Lurker]

With "fair" tax: Earn $100, pay $100 of which $23 is tax.

No, the 'fair tax' would add $30 for a tax-inclusive rate of 23%. (100 + 30 = 130. 30 is 23% of 130.) Like you said, and the quote from Bartlett confirms, it only equates to a 23% income tax rate when considered on a tax-inclusive basis. In reality it's a 30% tax.

If someone earns $200k/yr and only spends the same as someone earning $20k/yr on themselves then I have zero problems with them being taxed the same dollar value. It's only regressive if you measure based on income - which is stupid anyway unless you can explain to me how money saved is useful in any way without actually spending it.

The fact remains that in the real world a flat tax is regressive and would shift more of the tax burden to the middle class. If advocates can sell the idea in light of those facts more power to them.

/agree Partha

[Embar Angylwrath]

I really think you don't understand basic economics Lurker.

...

If you are making 500K/year, and spending 70% of your income, you'll end up paying $105,000/year through the sales tax. If you make 60K/year, and spend every dime of it, you'll pay $18,000 per year through the sales tax.

Ha!

In your example the person making 60k a year would be paying 30% of his income in taxes, and the person making 500k a year would be paying 21% of his income in taxes. And according to you that's somehow going to bring in the same revenue to the government and it's not regressive. And I'm the one that doesn't understand basic economics? Amazing.

Did you see the part of the post where I said the 200K person spent onmly 70% of the income? So I'll make it fair. lets say that both spend every nickel. Then the person making 200K will spend 200K (100% of income) and the person making 60K will spend 60K (100% of his income). The person making 200K and spending 200K will pay $60,000 in taxes, and the person making 60K will pay $18,000.

There, feel better? All other things being equal, the person making 60K pays less taxes than the person making 200K, but both pay the same percentage on what they spend. Get it now, bright boy?

[Embar Angylwrath]

One thing you two are ignoring in arguing for this tax is that a great deal of income for the rich is not used to buy ANYTHING, nor is it needed to. That creates incentive for them to save/invest...whereas what you want in a country with a negative savings rate is to get EVERYONE to save/invest...which they can't do because, as Bartlett neatly points out, they're having a great deal more of their income taxed under this 'FairTax' scheme.

Plans like this are merely attempts to convert America into Somalia.

Have you seen the mansion Bill Gates built? Who paid the millions of dollars to build it? You guys need to get your heads out of your asses. Rich people spend big money. They spend it on vacations, houses, cars, art, boats, etc. All those purchases would be fair game for the national sales tax. Where you guys get off saying that rich people don't spend money is just unfathomable. It really shows the ignorance out there.

[Lurker]

In response to your prior post, that's not how things are in the real world, Embar. In the real world, people making over 200k a year don't spend every penny. In the real world a 'fair tax' does shift the tax burden to the middle class, their own numbers show this to be true. The 'fair tax' is impossible to sell honestly. That says just about everything that needs to be said.

In response to your last post, nobody said rich people don't spend money. Are you even capable of an honest discussion?

[Ddrak]

With "fair" tax: Earn $100, pay $100 of which $23 is tax.

No, the 'fair tax' would add $30 for a tax-inclusive rate of 23%. (100 + 30 = 130. 30 is 23% of 130.) Like you said, and the quote from Bartlett confirms, it only equates to a 23% income tax rate when considered on a tax-inclusive basis. In reality it's a 30% tax.

No, Lurker. Your math is flat out wrong, or you're being deliberately misleading by comparing a $100 purchase with a $77 purchase. Let me walk it through again for you, with baby steps.

Say someone is earning $100 before tax. With a 23% income tax, that means they take home $77 and then can spend that $77 to buy things. With a sales tax, they will take home $100 and then spend a *gross* (ie after-tax) value of $100 to buy things, which is the exact same $77 initial price as before with a $23 added on.

In short, if you want to compare income tax rates with sales tax rates then (as Bartlett says and you obviously misunderstand) you have to use the tax-inclusive rate and not the tax-exclusive one. To try to say the tax-exclusive rate is the "real" amount when comparing to income tax is blatantly deceptive and misleading. In fact, I would suggest you don't actually understand what you're talking about there.

If someone earns $200k/yr and only spends the same as someone earning $20k/yr on themselves then I have zero problems with them being taxed the same dollar value. It's only regressive if you measure based on income - which is stupid anyway unless you can explain to me how money saved is useful in any way without actually spending it.

The fact remains that in the real world a flat tax is regressive and would shift more of the tax burden to the middle class. If advocates can sell the idea in light of those facts more power to them.

Again, wrong. A flat tax is flat. It's neither regressive or progressive. That's the definition of "flat". Which part of "flat" is confusing for you?

Now, with a flat dollar-amount rebate on top of a flat-percentage tax then you end up with a progressive tax. Go look at Bartlett's numbers. Point out the "regressive" part for me, please? I'm afraid to say for your argument that there is none. What you *may* be able to show is that if you pick and choose the way you measure things that it's less progressive, but it's certainly not "regressive".

Measuring things against income is a mistake. Sales taxes are taxes on expenditure. As you obviously have no answer to the question of "what good is money if you never spend it" then your entire premise of looking at people's incomes falls down. You can *only* look at expenditure because that is all that economically matters.

Now, to make your argument for you instead of the strange misunderstandings you're putting forward, the only thing that's relevant in the discussion of the FairTax system as presented being a massive windfall for the high end of earners is the breakdown in table 5 in the document you linked.

Note, Bartlett's numbers almost universally are sourced from here: http://www.taxreformpanel.gov/final-rep ... rm_Ch9.pdf, which is an excellent analysis of the FairTax proposal. The real problems it has are twofold (ignoring the balance again which can be overcome by simple rate adjustments):

i) It is difficult to police as the difference between "retail" and "wholesale" is impossible to properly govern.
ii) The structure, even including the prebate, is significantly less progressive (but not regressive) than the current system.

Dd

[Lurker]

No, Lurker. Your math is flat out wrong, or you're being deliberately misleading by comparing a $100 purchase with a $77 purchase. Let me walk it through again for you, with baby steps.

Say someone is earning $100 before tax. With a 23% income tax, that means they take home $77 and then can spend that $77 to buy things. With a sales tax, they will take home $100 and then spend a *gross* (ie after-tax) value of $100 to buy things, which is the exact same $77 initial price as before with a $23 added on.

Ummm. . . except that the item under the fair tax will be $130; the original price of $100 plus the 30% tax.

Again, wrong. A flat tax is flat. It's neither regressive or progressive. That's the definition of "flat". Which part of "flat" is confusing for you?

It isn't flat in the real world, which is the whole reason they have to implement a 'rebate' system for low income people. The bottom line is that the 'flat tax' proposals all shift the tax burden to the middle class. There's no way to lower taxes on the upper class, which all the proposals do, and remain revenue neutral, and have it not be regressive. There just isn't.

[Embar Angylwrath]

In response to your last post, nobody said rich people don't spend money. Are you even capable of an honest discussion?

Remember the post of Partha's you gave the 'ol /agree to? Here's what he said...

One thing you two are ignoring in arguing for this tax is that a great deal of income for the rich is not used to buy ANYTHING, nor is it needed to.

So please explain to me how the rich don't have to spend money on mansions, cars, planes, boats, art, landscaping, islands, etc.? Partha (and you by agreeing with him) reek of ignorance and downright hatred of the wealthy. The wealthy spend money. Look at the sports stars, the superstar people in Hollywood, the Gates, the Jobs, etc. Someone had to write a check for all that property and bling. If you guys are living in some fantasy world where the rich jsut throw their money in a big swimming pool and take dives in it like Scrooge McDuck, then there's no honest discussion to be had because you're so out of touch with reality.

[Lurker]

Partha did not say the rich spend no money. Nobody has made any anti-wealthy comments at all from what I've seen.

Facts are facts. Switching from an income based tax system to a sales tax based system, and keeping federal revenue the same, has to be regressive. The tax burden must shift to the middle since the wealthy will be paying a lower amount.

[Embar Angylwrath]

Ummm. . . except that the item under the fair tax will be $130; the original price of $100 plus the 30% tax.

Whaaaa?

Dude, obviously you have no idea what you're talking about. A sales tax.. PAID BY THE CONSUMER... does not add any price pressure to the retailer selling the product. In fact, since all taxes are borne BY THE CONSUMER, competitive market pressure will cause the price to drop by almost exactly the amount paid (collected) by the corporation that sells the item. What you'll actually see, is a price REDUCTION at the point of sale.

[Lurker]

The 30% tax will be added to whatever amount the item is sold for. Are you saying that the price of the item will drop to the point that the final cost (item + tax) is less than the cost of the item under our current system? If so, you really have drunk the kool-aid on this 'fair tax' thing.

I'd have more respect for you, Embar, if you just told the truth. Just tell people you think the wealthy pay too much tax and that you want to shift more of the burden to the middle class, and you really don't give a good damn if the government is properly funding afterwards or not. Thats the result of the 'fair tax' proposals. Be a man and admit it.

[Ddrak]

No, Lurker. Your math is flat out wrong, or you're being deliberately misleading by comparing a $100 purchase with a $77 purchase. Let me walk it through again for you, with baby steps.

Say someone is earning $100 before tax. With a 23% income tax, that means they take home $77 and then can spend that $77 to buy things. With a sales tax, they will take home $100 and then spend a *gross* (ie after-tax) value of $100 to buy things, which is the exact same $77 initial price as before with a $23 added on.

Ummm. . . except that the item under the fair tax will be $130; the original price of $100 plus the 30% tax.

No - you're still not reading. The original price was $77, not $100. Remember, they only took home a net paycheck of $77 and so only had $77 to spend. In the sales-tax scenario they take home $100 and buy the same item that used to be $77 for $100 (ie a 30% markup).

It's a wash, and referring to it as a 30% tax in the same sentence as talking about income tax is deliberately misleading, or just ignorant. You should either describe the income tax as 30% of your net pay, or you should describe the sales tax as 23% of the gross cost. To talk differently about either is plain old bias.

Again, wrong. A flat tax is flat. It's neither regressive or progressive. That's the definition of "flat". Which part of "flat" is confusing for you?

It isn't flat in the real world, which is the whole reason they have to implement a 'rebate' system for low income people. The bottom line is that the 'flat tax' proposals all shift the tax burden to the middle class. There's no way to lower taxes on the upper class, which all the proposals do, and remain revenue neutral, and have it not be regressive. There just isn't.

No. The reason they implement a probate system for low income people is to turn it progressive. The tax system is already progressive. All the literature shows the "Fair" Tax system is also progressive, just less so than the existing system. To call it "regressive" is just a fabrication that shows a gross misunderstanding of the financials.

Also note that not "all the proposals" lower the tax on the upper classes. The VAT system looked at was revenue neutral and also kept the same burden profile. It was tossed away for keeping the existing system - hell if I know why.

The 30% tax will be added to whatever amount the item is sold for. Are you saying that the price of the item will drop to the point that the final cost (item + tax) is less than the cost of the item under our current system? If so, you really have drunk the kool-aid on this 'fair tax' thing.

I have to agree with that statement. Prices won't drop. They certainly didn't in Australia when a VAT was introduced. The difference is you get 30% more in your take-home pay and prices rise by 30% so it's a wash. From there the long term balancing is that goods settle in prices and wages do the same, so again a wash.

Dd

[Partha]

Have you seen the mansion Bill Gates built? Who paid the millions of dollars to build it? You guys need to get your heads out of your asses. Rich people spend big money. They spend it on vacations, houses, cars, art, boats, etc. All those purchases would be fair game for the national sales tax. Where you guys get off saying that rich people don't spend money is just unfathomable. It really shows the ignorance out there.

Erm, dude, Bill Gates has a yearly income of better than $2 billion. Are you seriously suggesting he actually spent anywhere near that sum on goods that would be taxable under your 'FairTax' scheme in a year? Every year?

Fail.


Dd:

All the literature shows the "Fair" Tax system is also progressive, just less so than the existing system. To call it "regressive" is just a fabrication that shows a gross misunderstanding of the financials.

No, Dd. 'Regressive' means that the implementation of the tax falls more heavily on the poor than the rich, in economic terms - which a VAT does. The rich don't spend nearly as large a portion of their income on taxable items as the poor do, therefore their tax burden is in actuality smaller. That's also why we call a capped Social Security tax 'regressive'.

From there the long term balancing is that goods settle in prices and wages do the same, so again a wash.

Except, of course, that goods do NOT settle in price. See gasoline. See bread. See meat.

[Embar Angylwrath]

Have you seen the mansion Bill Gates built? Who paid the millions of dollars to build it? You guys need to get your heads out of your asses. Rich people spend big money. They spend it on vacations, houses, cars, art, boats, etc. All those purchases would be fair game for the national sales tax. Where you guys get off saying that rich people don't spend money is just unfathomable. It really shows the ignorance out there.

Erm, dude, Bill Gates has a yearly income of better than $2 billion. Are you seriously suggesting he actually spent anywhere near that sum on goods that would be taxable under your 'FairTax' scheme in a year? Every year?

Fail.

All I could find was 2004 stats, which is still pretty recent...

http://money.cnn.com/2004/09/21/technol ... /index.htm

Annual salary/bonus of less than a million, dividends of 175.6 million. So roughly an income of 176 million, less than 10% of your statement. Where'd you get the income number of 2 billion?

[Lurker]

It's a wash, and referring to it as a 30% tax in the same sentence as talking about income tax is deliberately misleading, or just ignorant.

And it's equally misleading or ignorant to refer to it as a 23% tax in the same sentence as talking about a national sales tax. That was my original point, although I see looking back that I mistated it.

The tax system is already progressive. All the literature shows the "Fair" Tax system is also progressive, just less so than the existing system. To call it "regressive" is just a fabrication that shows a gross misunderstanding of the financials.

We'll use your language then and say that the 'fair tax' proposals aren't regressive, they're just less progressive. The result is the same; the shifting of tax burden to the middle. In other words, a tax increase on the middle class. Not exactly how it's being sold now is it.

[Ddrak]

No, Dd. 'Regressive' means that the implementation of the tax falls more heavily on the poor than the rich, in economic terms - which a VAT does. The rich don't spend nearly as large a portion of their income on taxable items as the poor do, therefore their tax burden is in actuality smaller. That's also why we call a capped Social Security tax 'regressive'.

Pray tell me exactly what their expenditures are that are not taxable? I think you're missing the point of a VAT.

Of course, you might still be persisting with the belief that money is useful when it's not actually spent on something. Perhaps you could burn Franklins to heat your home or something, but I don't see it as cost effective.

Except, of course, that goods do NOT settle in price. See gasoline. See bread. See meat.

They all settle in price. Naturally we are talking to the price points they would have been at should a VAT have not been imposed, but you seem to be conflating that with an absolute price point.

We'll use your language then and say that the 'fair tax' proposals aren't regressive, they're just less progressive. The result is the same; the shifting of tax burden to the middle. In other words, a tax increase on the middle class. Not exactly how it's being sold now is it.

No, it's not how it's being sold. I suspect the politicians pushing it don't even realize that.

I'm very much in favor of expenditure based taxation. I think it makes a lot more sense as a whole and encourages reinvestment of capital. I realize that to maintain a progressive system you have to have other methods (which usually means an income tax), but I think having the bulk of taxation for the low/middle being consumption based is a good idea.

I think the plan discussed here would have been a good idea.

Dd

[Partha]

Pray tell me exactly what their expenditures are that are not taxable? I think you're missing the point of a VAT.

Of course, you might still be persisting with the belief that money is useful when it's not actually spent on something. Perhaps you could burn Franklins to heat your home or something, but I don't see it as cost effective.

I'm simply saying that they don't spend the entirety of their income on things that will be taxed - they will save it. Savings aren't taxed - but they ARE useful, as banks take that money and loan it to people who would spend it. Poor people, however, don't have the ability to save nearly as much of their income as a rich one. That means you're taxing a larger portion of their income, and that's regressive.

They all settle in price. Naturally we are talking to the price points they would have been at should a VAT have not been imposed, but you seem to be conflating that with an absolute price point.

Considering that wages will not settle to compensate the VAT, lower/middle class people who are going to be hit by this tax should be very concerned about it.

[Partha]

Have you seen the mansion Bill Gates built? Who paid the millions of dollars to build it? You guys need to get your heads out of your asses. Rich people spend big money. They spend it on vacations, houses, cars, art, boats, etc. All those purchases would be fair game for the national sales tax. Where you guys get off saying that rich people don't spend money is just unfathomable. It really shows the ignorance out there.

Erm, dude, Bill Gates has a yearly income of better than $2 billion. Are you seriously suggesting he actually spent anywhere near that sum on goods that would be taxable under your 'FairTax' scheme in a year? Every year?

Fail.

All I could find was 2004 stats, which is still pretty recent...

http://money.cnn.com/2004/09/21/technol ... /index.htm

Annual salary/bonus of less than a million, dividends of 175.6 million. So roughly an income of 176 million, less than 10% of your statement. Where'd you get the income number of 2 billion?

You forgot the special dividend that they got paid in November. Bill saw over $3 billion for that.

But we'll still go with your figure, just to humor you. Are you seriously claiming that Bill Gates personally spends 176 million a year on items that would be taxed under the 'FairTax' scheme?

Fail. Twice.

[Klast Brell]

Huckabee can't sell it to the FisCons. He will never get the nomination.

I dunno about that Partha. He's also promising to eliminate the current tax policy and replace it with a national sales tax. I'm fiscally conservative, and I can get behind that idea.[/quote]

The only way a national sales tax would be fair would be if it applied to every transaction. And by every transaction I mean every transaction. Real estate, Stocks, mutual funds, and every other financial instrument.