So, myself, a liberal libertarian, and my friend, a conservative libertarian, have been getting into some good political discussions over email. He sent me this article:http://www.townhall.com/columnists/nealboortz/nb20040827.shtmlBasically, it outlines a national sales tax which would repeal all national income and corporate taxes. PLease read and let the discussion begin. Eric
PLease read and let the discussion begin. Without reading, it is my belief that there isn't enough political backbone in the House and Senate, to say nothing of the White House, to pass anything resembling a national sales tax while repealing income taxes. Therefore, discussions of such a tax are not interesting to me.Should Congress start displaying some real interest in the subject, then I'll start spending time with the issue.--Peter
Eric,This idea has been around a LONG time.But like the other poster said, there's currently not much chance of this ever getting implemented... unless...I was thinking about this a few months ago, after a local Republican caucus meeting here in Houston. Some people had asked if they could hand out flyers on their idea of a national sales tax. (I'll try to find their link again). Ah, here it is.http://www.fairtax.org/Anyway, later that week, I saw a show on the history channel about voter's rights. They talked about all the schemes that have been used to prevent low-income and minority groups from voting. Eventually we outlawed "poll taxes" and similar tactics that put people at a disadvantage for their lack of wealth or education.So I started thinking about how similar the current tax laws are to this situation. People with lower wealth and education are at a major disadvantage when it comes to preparing their taxes to maximum advantage. I wonder about the consitutionality of this. I'm surprised that minority groups haven't raised this issue more strongly yet. Maybe they just haven't thought of it in those terms yet.
IMHO, such a national sales tax would be a very regressive tax system, penalizing those with a lower income. If you start doing exceptions for certain expenditures, then you create a bigger monster. The only good thing about it would be that it encourage savings. But savings does not improve production and it will result in a lower GDP.The reason that minorities do not push it is that besides been regresive, it would eliminate the Earned Income Credit, which minorities are the main beneficiaries of.RPons
Without reading, it is my belief that there isn't enough political backbone in the House and Senate, to say nothing of the White House, to pass anything resembling a national sales tax while repealing income taxes. Therefore, discussions of such a tax are not interesting to me.I absolutely agree. It is probably entirely possible to devise a new tax system that is way simpler and fairer than the current one. But if it is radically different, as must certainly be, there is absolutely no chance that the legislation would ever make it through the system.It is kind of fun to think about, in a hypothetical sense, like the question about the tax consequences of winning the lottery... but that's about it.T
erichollins: "So, myself, a liberal libertarian, and my friend, a conservative libertarian, have been getting into some good political discussions over email. He sent me this article:http://www.townhall.com/columnists/nealboortz/nb20040827.shtmlBasically, it outlines a national sales tax which would repeal all national income and corporate taxes." Why not tell us what you think? Especially why you think that it will be better?As others have noted, this has been around for awhile, so I will fire my "stock" issues.First, I tend to doubt that entire propsition (and all of its underlying assumptions) because of the games they play with the tax rate - 23%, inclusive of taxes. WRT to sales, most of would say that goods that cost $77 dollars plus $23 in taxes, would have a 29.87% tax rate (23/77) and not 23%. As FairTax misleads to the the tune of nearly 6% of actual tax rate (or nearly 30% ([29.87 - 23]/23), why should I trust any of the rest of the piece?Second, abolition of FIT for a consumption tax screws all existing Roth accounts, whose withdrawals will now be taxed significantly when spent, unless total spending is below income level covered by rebates.Third, the conclusion that the 29.87% rate is revenue neutral appears to me to be built on a a series of nested assumptions; if any of them are wrong, then the whole house of cards falls.Fourth, unless the 16th Amendment is repealed, who truly tusts Congress to not re-implement a FIT, when some "crisis" occurs?Fifth, as I understand it, the FairTax only applies to initial sale for consumption, which will create whole new places for game playing WRT to purchasing "used" whatever, without the 29.87 tax. If it applies to all sales, then lots of people who do not collect sales tax now will need to start.There are probably more issues that I have noted in prior posts throughout TMF, so this is only my off-the-cuff recall.Regards, JAFO
First … the briefest of overviews: Simply put, HR25 would provide for the repeal of the 16th Amendment (the income tax amendment) and the dismantling of the IRS.Sorry, but when I got to this point I quit reading. When they can't even be honest in the overview, I doubt that they're going to be honest in the nitty gritty.Yes, I have prejudices as a defrocked tax collector. IRS is the agency everyone loves to hate, thus the "eliminate the IRS" button pusher, which is, simply put, twaddle.Sorry folks, but you can call it the "Agency of Barking at the Moon" and it's still the IRS. You can hide it in the states (a frequent proposal), and it's still there. (Sales tax is hardly a Wonderland of self-enforcement. Ask any state with one.)So, without knowing the specifics of this proposal, some general thoughts about using a sales tax to replace the income tax. I guess the employment taxes too, since they scream something about taking home your "whole" paycheck.The last rate I saw to acheive current revenue is 27% Who knows, since there are so many ways to play with the numbers. I do know enough about human nature to know that a rate which will achieve current income is going to be hard to sell. After all, the real fault for our convoluted income tax system lies in our mirrors. While there are many debates to be had over "proper" government spending, strangling the revenue stream, as the 17%ers freely admit they want to do, is not the way to have that debate.We don't really give a rat's patootey about the poor in this country, but we have to pretend we do. The most reasonable suggestion I've seen is a check for the sales tax on subsistance spending sent to each household each year. Two problems for me here. First, the possibilities for fraud are endless. Thus, you need an enforcement acticity to prevent it. Oops, there's those nasty "Moon" people again. Second, I'm a great believer in progressivity in the tax system. When my brother complained about how much his taxes went up because of the 1993 "biggest tax increase ever," my one-word response was "Congratulations." For your taxes to go up under that law you had to be doing very well. I recall Mr. Filene, of Boston merchandising fame, remarking that he really didn't mind giving a large part of his income back to the public in the form of income taxes. "After all, it all came from them."On the "whole paycheck" front, what is proposed to see that old people and the disabled aren't eating cat food and foregoing medical treatment because there's no more Social Security and Medicare? If those benefit programs are included in this flat rate, I just heard the "kaching!" of a rate more in the 30's than what I thought before.Finally, as is so often the case, the Devil is in the details: transition. Since we have such a complicated system in place, it affects numerous long-term financial decisions that have already been made. What do we do about people who are now spending money they've already paid income tax on? How do we handle such long-term transactions as home purchases. How will Detroit deal with car prices about a third higher than they are in order to pay the tax?As I said earlier, I don't know the specifics of this particular plan, nor am I likely to learn them any time soon. I'm too busy trying to keep up with "simplification," including the bill Congress just passed. If anything ever comes of this, I'll pay attention then. (This means after the endless blue-ribbon panels. It also means that if your Congresscritter touts a "sunset" for the tax code without proposing a replacement, toss the idiot out on his/her butt.)In the meantime, be careful what you wish for. You might get it.Phil
The reason I was interested in the "Fair Tax" is that one of our candidates for the US Senate is a co-author of H.R.25. After reading it, I was appalled. If this is what we have to look forward to, I'll move to Mexico or Belize for my retirement.Donna
PonsEA says:But savings does not improve production and it will result in a lower GDP.Please help me understand how savings (and investment) does not improve production?Thanks,Will
The "Fair Tax Act" (H.R. 25) really does not have a chance of passing this term. It might better be described as a tax-protest resolution, than a serious legislative proposal.First of all, the administration has not backed this bill.Second, H.R. 25 has been sitting in the House Ways & Means Committee since January 2003, when it was introduced. There has been no action on it since then. The last time I checked, the bill had 54 Republican co-sponsors (no Dems.), and only one of them was on the Ways & Means committee. If memory serves me right, he was one of the guys from Colorado. There are some well-known guys, including Tom DeLay, the majority leader, but I still think the bill is for show, not for real.The companion senate bill has only one co-sponsor, Sen. Zell Miller of Ga., who is now a man without a party. It also has had no action.(Technically, for constitutional purposes, a bill has to pass the House first, but in reality, bills are often introduced in both houses, so that the Senate Finance Committe has a chance to work on proposals in advance of final House approval.)A REAL tax bill, that's going to pass, is co-sponsored by just about all the majority party members on Ways & Means, including the chairman. FWIW, many years ago, one of my colleagues and I tried to figure out how the government could operate without an income tax. We figured it would take a sales tax with a rate of about 30% to come close to a balanced budget. Interesting this proposal is that close.As a political issue it would be a disaster, IMHO, moving completely away from a tax based on ability to pay. Today retirees can make about $12,000 plus Social Security and pay no federal tax at all. Think what a 24% sales tax would do to people like that. Shifting the tax burden from the rich to low-income retirees, and kids saving for college, is that really the way to go? I don't think so, and don't think most voters will either.-Bill
Eric,I work in Germany, which has a 16 percent value added tax on EVERYTHING. My wife, who works for the German government, still pays about 38 percent of her monthly income to the national taxes. In addition to the taxes, she pays EUR 596.42 each month for her health insurance. Even with these high taxes and health payments, Germany is not in great financial shape (my opinion). How is a national flat tax in the US, with no SSA or MediCare payments, going to help?Out of curiosity, I read the article with an open mind until I noticed that pieces did not add up. For example,Second. Don't forget the 22% in imbedded taxes. These embedded taxes exist in virtually everything poor Americans or any other Americans have to buy. These embedded taxes represent all of the corporate and business income taxes and payroll taxes that the companies involved in the production, manufacture, marketing, distribution and sale of the goods and services must pay in the course of business. As soon as these taxes are gone, and after the competitive forces of the free market work their magic consumers, including the poor, will be paying at least 20% less for virtually everything they buy.If I believe this, how long will it take the Adam Smith invisible hand to adjust the marketplace? Will it be overnight, or will it take generations? I might be deluded, but I do not foresee manufacturers or retailers adjusting the prices of goods or services that the consumer is already paying just because an internal tax went away. I see this as "found money" for the business.You need a clearer picture? Pull out your calculator. Let's say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax at 23% would be $8.07. This brings the total price to $43.17. That's less than would have paid under today's tax system. This single mother, whom we'll consider “poor,” has just received a 12% to 15% increase in her weekly paychecks, and she's paying less at the grocery story for her basic necessities.I did pull out my calculator and Mr. Boortz's math appears to be flawed. If the $45 includes the 22 percent embedded tax, this means the equation to determine the end price of $45 is 1.22x = $45. Therefore, x = $36.89, not $35.10. If I add the 23 percent sales tax to this, the price rises to $45.37, not $43.17. This is an increase of $9.90, not $8.07.Mr. Boortz did not indicate if the embedded tax included the sales tax collected at the point of sale. If there is an unidentified additional tax that could be removed, this might lower the adjusted price.If the Fair Tax Act had been law in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have had to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government would have rebated this amount to you in 12 equal monthly installments of $465.This again appears to be incorrect math. Based on an annual allowance of $24,240, which includes the 23 percent national tax, I came up with a sales tax of $4,532.68 (using 1.23x = $24,240). The 12 equal monthly installments would be $377.72. This is a difference of $87.28 per month that the family would not receive.Now … bear in mind, this rebate isn't only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life.If the government is going to rebate the tax on the necessities of life, why collect it in the first place? Where is the value added to this process?What I do not know about the Fair Tax would fill volumes, but when I see obvious errors, it causes me to doubt the entire presentation.Mike(if my math is wrong, please correct me)
Will said:Please help me understand how savings (and investment) does not improve production?ThanksIf they money is not put back into comsumption, then there is not need for production.
PonsEA:If they money is not put back into comsumption, then there is not need for production. To which I reply:Thanks, I guess I always thought that savings and investment financed production.Will
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