In our view: Changing tax law (To The Fair Tax)

The Joplin Globe ^ | September 29, 2006

[Man50D]

Here's a sobering economic forecast: If the United States doesn't get control of health-care spending, Social Security and other expanding federal programs in the near term, it will face a financial catastrophe when 77 million baby boomers retire. Such is the dire prediction of Professor Laurence Kotlikoff of Boston University.

Similar prophesies have been pronounced over the past decade or so. Unfortunately, Washington doesn't hear - or want to hear - about the potentially devastating impact of long-term obligations involving Medicare, Medicaid and Social Security. Those who could make the necessary changes, such as privatization of Social Security and implementation of a Fair Tax, to soften the coming blow either wring their hands at the looming prospect or deny the consequences.

Kotlikoff, who is a research associate with the National Bureau of Economic Research, suggests that the $63 billion gap will require doubling the payroll tax or making big cuts in benefits. Another alternative would involve raising the minimum age for retirement to 70 or 75. The most likely response could involve all three: increasing payroll taxes, reducing benefits and pushing the retirement age higher.

In the long term, if something isn't done, the size of the problem could become gargantuan. "Think about 77 million baby boomers getting roughly $40,000 a head and you see the magnitude of the problem," Kotlikoff said. "We are talking trillions of dollars. Forty-four thousand dollars times 77 million is a very big number."

Radical tax reform is one way to help beat the wolf away from the door. A Fair Tax, which is "a federal retail sales tax coupled with rebates for those below the poverty line," would put an end to the complex tax code and replace it with a transparent, simple system.

Kotlikoff suggested another approach, albeit one that would become a political third rail, that could require asking the elderly to pay for more of the prescription drug entitlement program. "We can not leave the whole bill to young people," Kotlikoff said.

We think a Fair Tax is needed. It would not only simplify the system, but would eliminate audits, complicated tax forms and misinterpretation by tax officials, and end capital gains and income taxes among others. Gone, too, would be tax-evading loopholes.

Whether Congress and Americans can muster the willpower to accept a pay-as-you-go approach to government entitlements as an alternative to shifting payments for long-term obligations onto our sons and daughters and grandchildren is the trillion-dollar question. If Kotlikoff is correct, sand in the hourglass is running out.

[Man50D]

Fair Tax ping!

[Jacquerie]

As long as the old media, labor unions and rats refuse to acknowledge the guaranteed bankruptcy of Social Security, nothing will be done to fix it. Take a good look at Europe, for their economic sclerosis is our future, the rats will make sure of it.

[Bitsy]

I don't know about the 77 million but I am 62 and can't even think of retiring on the money I would get from SS. I will be saving for my nest egg most probably till I drop and don't need it anyway!

[KarlInOhio]

I support the Fair Tax, but it has nothing to do with SS and Medicare benefits paid. That $44,000 times 77 million is still the same very large number after the Fair Tax.

Now a factual problem with the article:

A Fair Tax, which is "a federal retail sales tax coupled with rebates for those below the poverty line,"

Nope. Everyone would get the rebate, not just those below the poverty line.

[griswold3]

The "prebate" should be promoted as a "retirement savings" plan option or an emergency fund.
Financial planners such as Suze Orman or Singletary Says, promotes a 6 month emergency fund. If everyone had one our country could become "bulletproof" in times of disaster. It's a National Security Issue !!

[KarlInOhio]

If everyone had one our country could become "bulletproof" in times of disaster. It's a National Security Issue !!

The 6 month emergency fund works for the individual. However if there were a disaster of such proportion that everyone had to tap in at once it wouldn't work.

The only disasters I could think of like that would be a major nuclear/chemical/biological strike on several major cities at once or a joint Arab/Chinese embargo. If everyone had a big stack of $100 bills to fall back on, but there weren't enough current production or stored supplies to provide for everyone there would be massive inflation (too many saved dollars chasing too few goods) as people would be trying to outbid each other for MREs and bottled water.

[griswold3]

What you say is true.
But if those contemplating our demise economically believed we could sustain ourselves with this until we got back on our feet, it could be a deterent. (I watched a documentary on AlJazeera(sp) where Arabs were convinced we had 20 years of oil supply and concluded it would be no value to them to cut off our oil.)
Disaster scenerios you present would bring out the character of America and I believe a "barter system" in times as those.

[theBuckwheat]

>>
If the United States doesn't get control of health-care spending, Social Security and other expanding federal programs ...
<<

Whoa a minute! Spending has nothing to do with taxes. Spending is spending. Congress can turn on the spigot and it can turn it off. We could have an even more weath-destroying, upside down, and costly tax system than we already have (like if we pass the Fair Tax, but fail to repeal the 16th Amendment!), and we could have a balanced budget.

Nobel economist Milton Friedman said that what matters is spending, spending tends to drive taxation. Government must get the money it spends from somewhere.

Friedman's sources for that spending are:

1) taxation;

2) inflation;

3) borrowing;

I would add asset sales, such as revenues from oil and gas leases or selling Yellowstone Park.


How taxes are raised is very important. The income tax is UnFair and it destroys personal financial privacy. We fret about Bush's wiretaps of some overseas conversations. We don't fret that everyone who earns "income" as Congress defines it must disclose their personal financial details in violation of the spirit of the Fourth Amendment as well as the Fifth!

I am in favor of the Fair Tax. But it alone will not prevent Congress from passing spending bills that are disconnected from government incomes, or worse, from passing loan guarantees and making promises to the geezer lobby about future medicare benefits. If our current budget deficit is enough to give sane people a headache, then what of the unfunded future liabilities of our government?

If government was required to follow the GAAP, its finances could not be "certified". That is the shameful truth. Not only do we spend like there is no tomorrow, we cook the books as well.

[Normal4me]

Sadly, most people in this country view Social Security as a retirement plan. It was never intended to be such a thing. I see it as loss revenue that I could be adding to my own retirement investment. :-(

[pigdog]

You're right of course. It's based solely on family size. And it certainly helps to lower the effective FairTax rate for everyone.

[pigdog]

The FairTax in and of itself does not alter spending but it does one very important thing. It makes the tax cost of government very apparent to each taxpayer - and there are more taxpayers since everyone pays at point of sale.

Making the costs more apparent will make for more unhappy taxpayers when they see government continuing to spend like drunken sailors. But with the FairTax the taxpayers have a medium to get the attention of Congress - they can alter their spending habits and that will clearly be noticed.

[theBuckwheat]

>>
It makes the tax cost of government very apparent to each taxpayer - and there are more taxpayers since everyone pays at point of sale.
<<

This is a very important component of taxes: to fund government and to make the citizen painfully aware of the cost of government services he demands to be provided with.

Socialists wish the second point would go away, so they do all they can to make taxes invisible. One of the best ways of doing that is by taxing corporations, which can only pass the tax on in the form of higher prices.

The worse way that government hides taxes is by deliberate inflation of the currency, a policy that theft under the color of law. It should be noted that our present Federal Reserve (a corporation whose shareholders do not include the Federal government), has a "target" rate of inflation of 2%.

Lastly, governments may issue debt, which by its sovereign power may force the public to purchase, with the intent on eventually repudiating it, that is, refusing to make good on it. The reverse may be true.

A few years ago Argentina's government announced that private savings could not be withdrawn except a little at a time and that there were strict controls on conversion to other currencies such as the US Dollar. This had the effect of seizing all the private savings in the entire country.

Even when government returns all the looted funds, the time value of those funds was stolen, because the owner did not have free use of the money during the crisis. It is like skimming a percent or two off the entire nation's wealth.

[upchuck]

Thanks for the ping.

Author is dead on.

Fair Tax BUMP!!

[Taxman]

Let me be a bit more forceful than Dr. Kotlikoff:

The US is accelerating towards a huge financial train wreck!

The FairTax is but one step in the right direction.

We the People best wake up, roll up our sleeves and get to work and force the Congress and the Administration to become more responsible to their fiduciary duties!

We can do this, but it will take a monumental effort.

We have an election coming up 5 weeks FRom next Tuesday -- get out and vote for the candidates you know will serve the Constitution first!

And hold them accountable!

And get ready for 2008!

[Conservative Goddess]

"I see it as loss revenue that I could be adding to my own retirement investment. :-("

And you are absolutely correct. This is the opportunity cost that no one in the government...or the leftists, care to address.

[xcamel]

UFT bump

[pigdog]

SQL bump!

[lewislynn]

Nope. Everyone would get the rebate, not just those below the poverty line.

So introducing another entitlement is the Fairtax solution to entitlement spending.

[xcamel]

You're not really very bright, are you?