Clinton Collapse?

[Finglefinn]

Prices will in fact, drop, and I will tell you why.

The average retail/consumer product has eight stages of production from raw material to finished product. Several of these stages include transfer of materials/product from one entity to another. Obviously, some have significantly more and some have less. Every time a material changes hands, there is markup for profit which typically pays for the seller's operating costs, including overhead and taxes. Each of those transactions also has sales tax attached, unless excluded by state law or some other fashion. Even if there is no sales tax, the seller still has taxes to pay in his operating costs, i.e. income tax, payroll tax, B&O, etc. If all taxes within the seller's operating expenses are removed and collected by way of a sales tax, the seller has effectively reduced his operating costs and the price will go down. Instead of marking his product up to pay his taxes, all taxes are included in the sales tax. Those that don't reduce their prices accordingly will get run out of the market by those that do.

[Rsak]

Normally I would agree Fingle, but OPEC and gasoline has convinced me otherwise that it will be anything but a fast process. We would be looking at close to a generation before we could even expect prices to stabilize to a new norm.

[Ddrak]

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.

Again, I disagree. The thing about income is that unless you spend it then it's not really income. Ultimately, everyone eventually either spends 100% of their income, or they will it to someone who will ultimately spend it or will it. That's the beauty of a sales tax or VAT system - you can't escape it. The second advantage is it encourages people to save - especially those who have a bucket of money to save. Savings stimulate the economy because it's money that the banks really don't want to hold on to and so ends up out there with cheaper loans. That sort of thing is a *lot* more solid than the usual trickle-down theory.

So, while you're focussed on the short term, the point is that income that is never spent (and I mean *never*) is not really income. It's utterly worthless to a person, and something not even worth considering.

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.

What on earth are you talking about? The whole point of a VAT is you cut income taxes by at least an equivalent amount. That means that the tax-home wages rise to match the loss of the higher effective retail prices.

In the end, a VAT penalizes the rich over income taxes because there's far fewer ways for a smart accountant to get around it, especially on a well-implemented VAT that doesn't go into stupid exceptions for clothing, food and the like. Where you run into trouble is in keeping the progressive structure the same, so usually a VAT is accompanies by an income tax that kicks in at a much higher level to make up the difference. That's where the "FairTax" system falls down - the probate isn't sufficient to enforce a progressive structure similar to what already exists, and analysis shows that the middle class end up footing a larger share of the tax base. FairTax would work if they left an income tax at the high end.

Prices will in fact, drop, and I will tell you why.

They don't. Think of the whole thing as a closed system and look at the outputs. A person buys things. Taxes are paid to the government. If you keep the whole thing revenue neutral then the only real thing you can tinker with is the distribution of taxation. The mechanics of that distribution are all inside the system but ultimately you have people earning money, paying taxes and buying things.

That's exactly why I like a VAT as the base form of taxation. It's damn hard to get around and so the distribution of taxation (the only thing available to tinker with) becomes smoother and not open to abuse by smart accountants.

Dd

[Finglefinn]

Normally I would agree Fingle, but OPEC and gasoline has convinced me otherwise that it will be anything but a fast process. We would be looking at close to a generation before we could even expect prices to stabilize to a new norm.

On some products, I agree with you Rsak. But on the vast majority of products where there is intense competition globally, the prices will stabilize very quickly. 24 hour communication has paved the way for this kind of market movement and stabilization. Look at the financial and investment markets. Funds transfer very quickly from buyer to seller and pricing is even more sensitive these days in just about every market in the world. Fundamental tenants of economics still exist, they just happen much faster in today's market.

[Partha]

What on earth are you talking about? The whole point of a VAT is you cut income taxes by at least an equivalent amount. That means that the tax-home wages rise to match the loss of the higher effective retail prices.

Dd, you don't get it.

When I was a mere sprout, single, no dependents, making less than 20k per year, I was paying a grand total of 22.5% of my income in taxes. All taxes. Federal, state, FICA, the whole shebang.

You're talking about replacing it with a 23% tax for the federal government alone. That's a huge INCREASE in taxes - especially since you 'can't escape it'.

Less buying power for the poor under your 'FairTax' system, and don't get started on that 'tax credit' business. If I made 20k a year, it would only affect half of my income according to them.

Plus, there's a pair of details.

The FairTax is replacement, not reform. It replaces federal income taxes including personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.

No, of course a repeal of the estate tax, capital gains taxes, AMT, and corporate taxes would not be beneficial to the wealthy. Noooooo.

Secondly, business purchases are not taxable. Can you say 'loophole'? I knew you could.

[Ddrak]

Actually, I'm pretty sure you're not following the conversation Partha. In the quote you took of me I'm clearly talking about a VAT and yet you're countering with examples from the FairTax proposal which is most definitely not a VAT. To address your issues, and try to focus on a VAT (which I support) vs FairTax (which has issues) will be interesting but here goes:

When I was a mere sprout, single, no dependents, making less than 20k per year, I was paying a grand total of 22.5% of my income in taxes. All taxes. Federal, state, FICA, the whole shebang.

You're talking about replacing it with a 23% tax for the federal government alone. That's a huge INCREASE in taxes - especially since you 'can't escape it'.

In terms of a VAT based system, you can do a number of things but typically a VAT is in the 10%-15% range and then you have a minimal income tax on top of that, which would only kick in well above the $20k level you're talking about there. Welfare programs or minimum-wage limits should kick in at that level or below to keep the tax burden approximately the same.

When looking at the FairTax proposal you've neglected the probate system, which is a blatant fixed-dollar handout for everyone that essentially reduces your effective tax rate. Whether you measure that as a rebate or as a net boost in income changes the percentage numbers you get out of it but the numbers they are talking will work out pretty well at the 20k level. It's only the 40-200k level that seemed to get hit with an increased burden under the FairTax system.

I've no clue what the "tax credit" system you're talking about is. I don't think that's part of FairTax is it?

No, of course a repeal of the estate tax, capital gains taxes, AMT, and corporate taxes would not be beneficial to the wealthy. Noooooo.

I thought we already established FairTax reduced the burden on the wealthy, which is why you seem to be beating a dead horse here. If you want to talk about a VAT scheme, most of those things should be eliminated anyway as they make little economic sense or are completely subsumed by a VAT:

i) Estate tax. Always seemed stupid to me and encouraged trusts and other legal chicanery that reduced the net value of your estate. Essetially it becomes a tax on people too stupid to plan ahead.
ii) Capital gains. This is income. Under a VAT system you tax spending so the result is the person owning the capital gets hit later when they try to convert the gains to something tangible. It should be repealed, or at least streamlined significantly.
iii) AMT. This is just a classic indication of a broken tax system with too many loopholse. Get rid of it already and cut the loopholes. VATs are good at this.
iv) Corporate Taxes. VATs fix this also as they are paid at every corporate transaction, and refunded to the other end. Essentially it's self-governing because it results in your profits being taxed and easy to check as every refund claim will match a reported sale.

Secondly, business purchases are not taxable. Can you say 'loophole'? I knew you could.

Yes, I pointed this out even before you came onto the thread that it was the obvious failing of a purely retail tax system. You're clearly way behind in following the argument here. It's why most industrialized nations (read: everyone but the US) uses a VAT which solves that problem very neatly.

Dd

[Partha]

One question.

Again, I disagree. The thing about income is that unless you spend it then it's not really income. Ultimately, everyone eventually either spends 100% of their income, or they will it to someone who will ultimately spend it or will it. That's the beauty of a sales tax or VAT system - you can't escape it. The second advantage is it encourages people to save - especially those who have a bucket of money to save. Savings stimulate the economy because it's money that the banks really don't want to hold on to and so ends up out there with cheaper loans. That sort of thing is a *lot* more solid than the usual trickle-down theory.

i) Estate tax. Always seemed stupid to me and encouraged trusts and other legal chicanery that reduced the net value of your estate. Essetially it becomes a tax on people too stupid to plan ahead.

See the problem?

[Embar Angylwrath]

Those statements aren't mutually exclusive. If you'd bothered to try and understand this, instead of cherry-pick statements out of context, you'd be taken more seriously.

Dd (or someone else) also said that assets passed on through inheritance enter the economy when they are liquidated and spent. Otherwise, they are inert. At the point they enter into the economy, they are taxed. Doing away with the inheritance tax (if its replaced with a national sales tax) is better for the economy because it ensures that ALL of the worth of an estate will get taxed, eventually.

[Partha]

You don't see it, either.

Even inert assets enter the economy, assuming you're not burying dollars in the backyard.

Money saved is lent by banks to other people who spend it.

Money used to buy stocks is a one time loan to a business.

So what he's arguing is that we should repeal the tax because it might get taxed, even if it gets taxed otherwise.

Unless he wants to argue that rich people should get tax free money simply because they're unwilling to put it in the economy directly and let it get taxed.

[Ddrak]

See the problem?

No, I don't. Why should something be taxed if someone dies and wills it to you, but not taxed if someone has the foresight to give it to you while they are still alive?

The point you are missing is it gets taxed when it gets spent. You're so caught up on "getting money" that you're missing the fundamental issue that "getting money" means precisely nothing - it's spending money that is meaningful. Someone is not rich because they have numbers on paper, they are rich because they can translate those numbers into tangible things. If someone inherits a bunch of money then who really cares - it *will* get spent eventually or it's completely worthless.

Dd

[Klast Brell]

How about this. income is income regardless of how it's acquired and should be taxed as such.
All money circulates through the economy continuously unless you bury it in the back yard. To say that money has already been taxed is superfluous. My paycheck is taxed, and before it was my paycheck there was sales tax when someone bought my companies product. and before that it was their paycheck and it was taxed as well. Why should money handed on a silver platter be taxed less than money earned from the sweat of your labors?

But the tax code is full of exemptions for the wealthy. Investment income is taxed at a lower rate or not taxed at all. If i earned the same exact paycheck off of stock dividends as I do from my labor I would be taxed less.

Last time the vice president released his tax forms i ran the numbers. That year I paid 10% between federal tax, state tax, Social Security, Medicare. Chaney made over 250 times more than I did that year. But he only paid 6%. Why? Because the richer you are the more access you have to tax deductions and shelters.

[Embar Angylwrath]

How about this. income is income regardless of how it's acquired and should be taxed as such.
All money circulates through the economy continuously unless you bury it in the back yard. To say that money has already been taxed is superfluous. My paycheck is taxed, and before it was my paycheck there was sales tax when someone bought my companies product. and before that it was their paycheck and it was taxed as well. Why should money handed on a silver platter be taxed less than money earned from the sweat of your labors?

But the tax code is full of exemptions for the wealthy. Investment income is taxed at a lower rate or not taxed at all. If i earned the same exact paycheck off of stock dividends as I do from my labor I would be taxed less.

Last time the vice president released his tax forms i ran the numbers. That year I paid 10% between federal tax, state tax, Social Security, Medicare. Chaney made over 250 times more than I did that year. But he only paid 6%. Why? Because the richer you are the more access you have to tax deductions and shelters.

All good points Klast. And all of them are remedied by a national sales tax. You and Cheney would be on equal footing. All income to you (and Cheney) would be tax free, regardless of source. Stocks, dividends, inheritance, or a paycheck. Only when you spend it, will you get taxed. AND... I repeat AND... you get a tax rebate at the end of the year to compensate for threshold income levels. In other words, the closer you get to the poverty line, the more of your taxes you get back.

Sounds fair to me.

[Klast Brell]

Is there VAT on the purchase/sale of stock? If I buy 1000 shares of MSFT from You for 33.37 a share what is the VAT?

[Partha]

Of course, in the example above, the tax would only be 'fair' if Cheney spends 250 times what Klast does a year.

Any takers on THAT bet?

Thought not.

[Lurker]

Klast,
Embar isn't talking about a VAT. He's talking about a much goofier idea, the national sales tax or 'fair tax'.

[Embar Angylwrath]

Of course, in the example above, the tax would only be 'fair' if Cheney spends 250 times what Klast does a year.

Any takers on THAT bet?

Thought not.

So what do you think Cheney does with the money? Stuff it under his matress?

[Embar Angylwrath]

Is there VAT on the purchase/sale of stock? If I buy 1000 shares of MSFT from You for 33.37 a share what is the VAT?

No. Stocks are investments, not expenditures. When the stock is liquidated, and the money spent on services or products, then it becomes taxable. This encourages saving and investment. Also, because there is no more tax associated with income (and no deductions), any losses on investments are born purely by the holder of the investment vehicle. In other words, those rich bastards that have their foot on the neck of the working man can no longer write off losses.

Most of you knuckleheads don't realize rich people have more opportunity to take write-offs that reduce tax liability. For instance, although I'm not rich, I do have a six figure income. I'm self-emloyed. And because of IRS rules governing deductability in business expenditures, I'll pay income tax on an estimated 20K. I didn't try to do it, thats just how the numbers fall out when the account throws them into the software. A VAT or sales tax eliminates the ability for anyone to take a write-off.

I guarantee I spent more than 20K this year. A national sales tax would have tagged me for more liability than what I currently am required to pay. So by backing the FairTax (or even a VAT), I am advocating for a sytstem that will require I pay more in taxes.

[Ddrak]

Is there VAT on the purchase/sale of stock? If I buy 1000 shares of MSFT from You for 33.37 a share what is the VAT?

Typically a VAT doesn't cover stocks, after all they are neither a good or a service, just a form of security (like putting money in a bank). As you don't actually get anything new from it then it's treated like any other income. The "FairTax" system doesn't do anything to it either.

Remember though, most VAT systems do retain income taxes at the higher end so it really depends what sort of system we're discussing here.

Of course, in the example above, the tax would only be 'fair' if Cheney spends 250 times what Klast does a year.

Any takers on THAT bet?

Sure. Eventually he'll spend his money - probably on heart operations, or his children will when he leaves it to them. Not much good to them as numbers in a bank.

Dd

[Lurker]

I'll pay income tax on an estimated 20K.

...

I am advocating for a sytstem that will require I pay more in taxes.

Embar, after years of constant whining about how much tax you have to pay I find it extremely hard to believe either of those statements.

[Embar Angylwrath]

I'll pay income tax on an estimated 20K.

...

I am advocating for a sytstem that will require I pay more in taxes.

Embar, after years of constant whining about how much tax you have to pay I find it extremely hard to believe either of those statements.

You've always had a hard time with the truth.