The East Is Flat

The Wall Street Journal ^ | July 24, 2007

[Toddsterpatriot]

It wasn't too long ago that Albania was joked about as the last Communist holdout, a kind of Marxist museum. Not anymore. The small Balkan country is about to halve its personal income-tax rate, starting August 1, to a flat 10%. The corporate rate is also slated to drop to 10% in early 2008.

Albania's flat tax is the latest sally in an intramural tax competition fueling growth in the former Communist bloc. The trend began with Estonia in 1994 -- then-Prime Minister Mart Laar had read Milton Friedman's "Free to Choose" -- and now extends to a dozen nations. The Czech government says its move to a flat 15% tax next year is "a certainty." And Montenegro plans to reduce both income and corporate taxes to a flat 9% by 2010.

The Adriatic Institute for Public Policy, a think tank based in Croatia, has found that governments that adopt flat-tax regimes see either steady or increased revenues within the first year. Macedonia expected increased revenue when it reduced both its 15% corporate tax and its 15-18-25% progressive income tax to a flat 12% at the beginning of the year. But it got more than it bargained for. Finance minister Trajko Slaveski recently told the Economist that "lower taxes did not just yield higher revenue -- they yielded 20% more than we projected."

For Western Europeans, their neighbors' low, flat taxes are both an opportunity and a lesson. In the first quarter of this year, the euro zone -- dominated by France, Germany and Italy -- for the first time sold more goods to the 11 new Central and Eastern European EU members than to the U.S. Old Europe has these new customers in large part because New Europe is getting its fiscal policy right.

[Toddsterpatriot]

I've seen enough proof that the flat tax works. Where is the proof that the FairTax works?

[Toddsterpatriot]

Ping!

[gleeaikin]

ping for flat/fair tax

[Don Corleone]

Parents CAN learn from their children.

[Wonder Warthog]

"I've seen enough proof that the flat tax works. Where is the proof that the FairTax works?"

Perhaps because the "FairTax" IS a "flat tax"?? It's just collected at a different point in the economic cycle.

[Toddsterpatriot]

Perhaps because the "FairTax" IS a "flat tax"?? It's just collected at a different point in the economic cycle.

So where is the real world example of a FairTax, so we can see the success?

[Jacquerie]

Where is the proof that the FairTax works?

Prior to the 1913 income tax when the only taxes one directly paid was the sales tax.

[Toddsterpatriot]

You have any examples in the last 50 years?

[Jacquerie]

The past 50 years is an example of betrayal between a people and its government. A once free people must testify against itself every April 15th. Political parties reward supporters and attack opponents with tax law. The 14th Amendment requires equal protection yet our government could theoretically tax incomes at 100%.

Between 1789 and 1913 there were no taxes (absent a few civil war years) on income. We went from an agricultural backwater to a world leader on sales taxes. The Fair Tax works.

I ask you to tell me why the current immoral system is better.

[Toddsterpatriot]

So that’s a no?

[Bullish]

Don’t show this to the liberals. They’ll blow a fuse.

[Jacquerie]

I ask you to tell me why the current immoral system is better.

Tick tock, tick tock . . . .

[Toddsterpatriot]

You first.

[Jacquerie]

I have to assume I’ve read your best arguments. Let me know when you have another shallow thought.

[Toddsterpatriot]

I have to assume I’ve read your best arguments.

There you go, making an ass out of yourself. Run away. LOL!

[Principled]

snicker...

The nrst is indeed a flat tax - and before our income/vat tax we had only excises.

DOH!

[Toddsterpatriot]

Maybe you can answer the question the other guy was afraid to answer? You have any examples in the last 50 years?

[Principled]

LOL - first it was just flat - now it’s flat AND the last 50 years eh? I wonder what you’ll change it to next? WHo cares - it doesn’t matter.

[Ramius]

I’m sure it would work at least as well as the VAT tax in the UK. :-)

[Toddsterpatriot]

LOL - first it was just flat - now it’s flat AND the last 50 years eh?

The other guy had to go back to 1913. Any examples more recent? Before we change our system so dramatically, it'd be nice to see how well it worked, more recently than pre-WWI.

[jmyrlefuller]

Sorry, but I have to correct you here.

Sales taxes have never been collected in this country on a national scale— ever. The vast majority of American income came from import tariffs and excise taxes, not consumer sales tax.

Let me give an explanation why a FairTax would not work: currently, federal (note I don’t count state) tax deductions from most income taxes range from 10-20% for most wage earners. The FairTax would increase prices on every retail object in America by 30%. The result would be a de facto reduction in the money supply and recession. Not to mention that the FairTax would be on top of any state and local taxes, which would be unaffected.

And honestly reporting your income is not self-incrimination as you so claim. In fact, not doing so would be lying under oath.

[Man50D]

I've seen enough proof that the flat tax works.

I've seen enough proof the flat tax has been a miserable failure in the U.S. It's known as the income tax and it started as a flat tax. The first tax ranged from 1% on the first $20,000 of taxable income and was only 7% on incomes above $500,000. In the beginning, hardly anyone had to file a tax return because the tax did not apply to the vast majority of America's citizens. The overwhelming majority who did pay fell into the 1% bracket rendering the income tax essentially flat tax. Twenty six years after the Sixteenth Amendment was adopted, only 5% of the population, counting both taxpayers and their dependents, was required to file returns. Today, more than 80% of the population is under the income tax. Any Flat Tax passed by Congress would evolve into the same oppressive tax system we have currently.

Where is the proof that the FairTax works?

The proof is with founding father and first Secretary Of The Treasury Alexander Hamilton who endorsed a national sales tax in his Federalist Paper #21. To quote:

"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed-that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four." If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them. "

[Toddsterpatriot]

I've seen enough proof the flat tax has been a miserable failure in the U.S. It's known as the income tax and it started as a flat tax.

More recent flat taxes, that remained flat taxes, seem to have done very well.

Where is the proof that the FairTax works?

The proof is with founding father and first Secretary Of The Treasury Alexander Hamilton who endorsed a national sales tax in his Federalist Paper #21.

That's interesting, but not proof that it works. Try again?

[Man50D]

The FairTax would increase prices on every retail object in America by 30%.

Sorry, but I have to correct you here.

The Fair Tax rate of 23% is less than the more than 30% people pay today with the income tax. The income tax bracket most people fall into is 15 percent, and all wage earners pay 7.65 percent in payroll taxes. That’s 23 percent right there. Add in the 7.65 percent employer matching and you're up to 30%. On top of that, you have to add in the business taxes and associated compliance costs passed on to consumers in higher prices.

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 Fair Tax rate factored in will result in prices remaining the same as with the income tax.

People will also have more purchasing power with more money in their paychecks and the average effective(after the rebate) rate reducing the Fair Tax rate from 23% to 15.5%. This is essentially another price reduction.

[jmyrlefuller]

Points well taken, to which I respond that you are partially right— there are many objects that are currently taxed heavily on a federal scale (e.g. gasoline) that would see a lower increase or even a decrease in price than 30% with a FairTax. However, it’s important to note that not all object/excise taxes are on the federal level. The belief that the tax removals and FairTax levy balancing each other out on most items seems a bit on the optimistic side.

As for the payroll argument, as you stated, FICA is a dual tax— 7.65 percent on the worker, 7.65 percent on the employer for employing you. Especially for lower-wage jobs, there is no guarantee that the other 7.65 percent will ever make it to the worker’s paycheck. However, it would slightly decrease overhead, which could trickle down to retail prices.

I see your points, although I am a bit skeptical of how they would work in practice. Thank you for your response.

[Principled]

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 Fair Tax rate factored in will result in REAL prices remaining the same as with the income tax.

I inserted the bold into your quote. IMO, it must be in there. Otherwise, the second quote:

People will also have more purchasing power with more money in their paychecks...

won't work.

If take home increases, then it must be that the employee retains his previously withheld payroll and income taxes.
If the employee retains his previously withheld payroll and income taxes, then retail prices will not fall by that amount - they will only fall by the amount of business savings upon elimination of the income tax system. Business taxes per se plus compliance costs come to 9% of retail prices. Using only this 9% coming off prices at retail and combining it with the increase in employee take home pay, real prices [purchasing power] remains nearly constant.

If you pulled that quote from afft or the fairtax book - please tell them about it!

Example:

I buy an item today w/ a $100 price tag. My total federal effective tax rate is 21%, so the item costs me $126.58 in earnings.

So my after income/payroll tax cost under our income tax system is $126.58.

My after nrst cost is like this: first, the price drops to $91 - then add the full marginal nrst (we will ignore the rebate) and the after nrst price is $127.18.

So my after nrst cost is 127.18 - within sixty cents.

So purchasing power remains stable.

Please do not allow posters to compare PRE-income tax prices to POST-nrst prices. Obviously, that is not a valid comparison.

Use both after tax prices if you want to compare the effect of tax systems on prices! If you do that, you will see purchasing power remain stable. And if you do use the rebate in your analysis, you will see purchasing power increase almost across the board - b/c the nrst has a larger base - that's why marginal rates AND effective rates are lower. :0)

[Man50D]

Where is the proof that the FairTax works?

Your logic is flawed at best and ludicrous at its worst. By your line of thinking Washington should never have crossed the Delaware with his troops because it never had been done before. Allied forces should not have landed at Normandy during WWII nor should the U.S. have attempted to land men on the moon because there was no precedent. The common thread among these historic achievements is they succeeded because they were well planned even though those involved in the planning were willing to think outside the box.

The Fair Tax is another moment in history of such a well thought out new plan as the examples above without the necessity to think outside the box since the planning for a national sales tax began with a renowned financier in Alexander Hamilton who had more financial foresight than most men of his time.Your dismissal of these facts as if it they were after thoughts prove they are no doubt lost on you.

[Toddsterpatriot]

Where is the proof that the FairTax works?

Your logic is flawed at best and ludicrous at its worst.

So, no proof?

The common thread among these historic achievements is they succeeded because they were well planned even though those involved in the planning were willing to think outside the box.

Wow, these are exactly like radically changing the tax system of a $13 trillion economy.

The Fair Tax is another moment in history of such a well thought out new plan as the examples above

It's so well thought out that no other country uses it. Let's jump right in!

the planning for a national sales tax began with a renowned financier in Alexander Hamilton who had more financial foresight than most men of his time.

Hamilton was a brilliant guy. Too bad we didn't start the country with a FairTax, then we wouldn't be making a huge change in a $13 trillion economy.

[JasonC]

Since the major revenue source was the tariff, that "directly paid" is dishonest spin.

[Lancey Howard]

Even as the communists and socialists abroad continue to learn from their grievous mistakes and see the positive power of capitalism, Democrats here continue to try to push America toward the mediocrity of Euro-style secular socialism.

They will succeed only if we let them.

[ken21]

agree,

but we’ll never see the pre-1913 again because both parties like spending money,

not to mention,

the control that the i.r.s. exerts over many people.

[Man50D]

So, no proof?

You're right. The Wright brothers should never have invented their flying machine prior to someone else proving it could be done. Alexander Graham Bell was an idiot for not waiting to get proof form another source people could speak to each other by their voices being carried electronically through a wire over great distances. Marconi wasted his time inventing the radio since no one else could prove prior to his invention such a medium could exist.

It's so well thought out that no other country uses it.

Oh I see, we should wait for approval from another country before we do anything because you assume they possess total superior intellect over Americans on every subject.

Hamilton was a brilliant guy. Too bad we didn't start the country with a FairTax, then we wouldn't be making a huge change in a $13 trillion economy. Hamilton was a brilliant guy. Too bad we didn't start the country with a FairTax, then we wouldn't be making a huge change in a $13 trillion economy.

I'll let you in on a little secret. The Secretary of the Treasury doesn't enact federal tax laws. That is the responsibility of Congress.

It's apparent you think Americans should just sit around waiting for foreigners to create something before we can do anything. The USA never would have existed with your illogic.

[lewislynn]

The income tax bracket most people fall into is 15 percent, and all wage earners pay 7.65 percent in payroll taxes. That’s 23 percent right there. Add in the 7.65 percent employer matching and you're up to 30%.

Interesting, if I told you what my gross income was could you tell me absolutely what my income tax rate is? You pretend that you know.

[lewislynn]

there are many objects that are currently taxed heavily on a federal scale (e.g. gasoline) that would see a lower increase or even a decrease in price than 30% with a FairTax

Is the income tax on gasoline heavier than other products? The Fairtax would only eliminate income taxes, any other taxes on gasoline would be taxed again by the Fairtax.

H.R.25

Fair Tax Act of 2005 (Introduced in House)

---

`SEC. 101. IMPOSITION OF SALES TAX.

`(a) In General- There is hereby imposed a tax on the use or consumption in the United States of taxable property or services.

`(b) Rate-

`(1) FOR 2007- In the calendar year 2007, the rate of tax is 23 percent of the gross payments for the taxable property or service.

[lewislynn]

The Fair Tax works.

Sorry to inform you but the Fairtax only works in your mind...it doesn't exist.

I ask you to tell me why the current immoral system is better.

Yes it's true the Fairtax fantasy is better. But fantasy is always better than reality isn't it...Once again the Fairtax doesn't exist, it's a fantasy.

[Toddsterpatriot]

You're right. The Wright brothers should never have invented their flying machine prior to someone else proving it could be done.

Hamilton recommended the idea how long ago? And still, no one uses it.

Oh I see, we should wait for approval from another country before we do anything because you assume they possess total superior intellect over Americans on every subject.

No, we should be the first to use it because, what's the worst that could happen to our $13 trillion economy? LOL!

I'll let you in on a little secret. The Secretary of the Treasury doesn't enact federal tax laws. That is the responsibility of Congress.

Really? Wow!

It's apparent you think Americans should just sit around waiting for foreigners to create something before we can do anything.

No, I think we shouldn't screw up our economy just because you have a hard on for the IRS.

[Toddsterpatriot]

You didn’t catch a FairTaxer in a lie, did you? LOL!

[Toddsterpatriot]

The Wright brothers should never have invented their flying machine prior to someone else proving it could be done.

How many people died testing their early flying machines? I'd prefer we not take the US on the first NRST test flight.

[jmyrlefuller]

Is the income tax on gasoline heavier than other products? The Fairtax would only eliminate income taxes, any other taxes on gasoline would be taxed again by the Fairtax.

I was merely using gasoline as an easily recognizable example. Now, as far as I understand it, the FairTax supporters claim that the FairTax would eliminate all other federal taxes and replace it with a NRST.

Don't get me wrong, I'm not a supporter of the NRST option as I said before because in practice, the supposed effects of the FairTax are optimistic at best. In principle, FairTax supporters make it sound good, but practically, I don't see it working.

[Man50D]

Now, as far as I understand it, the FairTax supporters claim that the FairTax would eliminate all other federal taxes and replace it with a NRST.

The Fair Tax does not replace all other federal taxes. It replaces all Federal income taxes.

[lewislynn]

The nrst is indeed a flat tax

Not when you calculate the phony rebate in.

- and before our income/vat tax we had only excises

Can you show an example of how the income tax is also a VAT?...I didn't think so.

[Principled]

The nrst hr 25 is indeed flat even when the rebate is considered. "Flat" is a description of the marginal rate, not the effective rate. Were you unaware?

For instance, the flat income tax proposals have a flat marginal rate, but effective rates will vary depending on untaxed income - just like the nrst will have effective rates that vary depending on untaxed spending.

Our income tax does indeed have VAT characteristics. Our income tax system adds tax costs at every stage of production. And that is the functional definition of VAT.

I think you would look less foolish if you would avoid answering your own questions incorrectly - even before you've allowed time for a reply!

Separately, what's the longest a flat income tax stayed flat?

[Jim 0216]

Perhaps because the "FairTax" IS a "flat tax"??

The author of "Free to Choose" said that policies putting "fairness" over freedom produces neither, whereas freedom over "fairness" yields a great deal of both.

[lewislynn]

Our income tax system adds tax costs at every stage of production. And that is the functional definition of VAT.

No it doesn't and no it isn't. Income taxes aren't added.

And that isn't an example that's an opinion, so I did answer my own question with accuracy.

[Principled]

My assertion was "Our income tax system adds tax costs at every stage of production."

I stand by that statement.

Look anywhere Lewis - just look - a VAT is a tax levied at each stage of production. Hence a VAT adds tax costs at each stage of production.

Our income tax system adds tax costs at each stage of production.

Both our income tax system and a VAT add tax costs at each stage of production. Do you see it yet Lewis?

Sheesh.

[lewislynn]

Still can’t do an example?...Not without making a fool of yourself again.

[Principled]

Lewis, what are you rambling about?

I said, "Our income tax does indeed have VAT characteristics. Our income tax system adds tax costs at every stage of production. And that is the functional definition of VAT."

You said, " No it doesn't and no it isn't. Income taxes aren't added.

Well, I didn't say "income tax" - you made that up [what a surprise]. I said "Our income tax system adds tax costs at every stage of production". Do you disagree with that?!

I think you should stop digging! rotflmao ... again

[lewislynn]

Well, I didn't say "income tax" - you made that up [what a surprise]. I said "Our income tax system adds tax costs at every stage of production". Do you disagree with that?!

I think you should stop digging! rotflmao ... again

And still no example.

Silly me, thinking taxes might also be "tax costs". Were you saying something about digging?

[Principled]

Silly me, thinking taxes might also be "tax costs"

Not silly at all. Taxes ARE tax costs!

'Course, you said "income taxes" - you backing away... again? lol

Sorry lewis... you're pitiful. I'll stop.

[AFreeBird]

So where is the real world example of a FairTax, so we can see the success?

Help us pass one.

Succeed or fail, it is better than the Charlie Foxtrot of a system we have now.