Posted on 06/07/2006 3:47:07 PM PDT by pigdog
FairTax Strikes Back - Introduction On April 8, 2003 I wrote my first article on the FairTax proposal. The article FairTax - Income Taxes vs. Sales Taxes detailed the costs and benefits of moving from a system of income taxes to a system of sales taxes. In the article I concluded that "[the]FairTax is an interesting proposal which is unlikely to ever be implemented." The response I received to this article was overwhelming. I've gotten hundreds and hundreds of e-mails on the article, every last one of them from a FairTax supporter. While many of the supporters had something negative to say about the article (and its author), one FairTax supporter wrote a number of intelligent, passionate e-mails about the benefits of the FairTax system, and pointed me towards studies supporting the FairTax.
That supporter is Al Ose, author of the book "America's Best-Kept Secret: FairTax." I was quite impressed with Al's e-mails, so I invited him to write a pro-FairTax article for Economics at About.com. This is that article.
Since it was beyond your understanding the first 30 or 40 times we discussed it, I see no point in helping you demonstrate your misunderstanding of what's involved even more.
You care to explain the essential long term difference as to how taking deductions by expensing is substantively different from taking deductions by depreciation schedules over time instead of in the same year the expense in incurred?No I don't care to explain. It was your quote that stated a "subtraction-method VAT is essentially identical to a business income tax except that all purchases of plant and equipment may be expensed, rather than depreciated as under current U.S. law." If you disagree, you explain.
Which is why such may be deducted in the subtraction method VAT asb eing otherwise taxed to prevent tax cascading. An example of such as in the application of deducting wages to which business payroll taxes have been applied or where the employee of a business would be taxed on wages received.If it deducts wages it's not a subtraction method VAT, it's a flat tax.
Case in point being the deduction of paid wages in regards the Flat Tax which uses the subtraction method VAT and deducts wages which are taxed to the employee rather than the business wher they would be taxed to the business under a standard VAT only system.
Oh, but it is - a theoretical VAT. Like most theoretical things, we see the flaws in the system every day along with the crushing administrative costs and burdens of operating such a system.I can only shake my head. If you think our current system is a VAT, there is nothing I could possible say to make you believe otherwise. [So all this time we thought we had an income tax when we really had a VAT...who knew!]
That's why calling either VATs or flat taxes "consumption taxes" is both pointless and misleading - they are that in theory only.A NRST is only a theoretical consumption tax. Buying something at retail does not mean you'v consumed it. If I buy car, have I consumed that entire car? No. But I've paid the sales tax as if I had. Under a more accurate consumption tax, I wouldn't pay a retail sales tax on the car but would pay a periodic tax on the imputed rental value of the car.
Any income-based taxes suffer from most of the failings we observe in our present tax system no matter what you prefer to call it.All taxes can be defined as income taxes if that's what you want to do, even the FairTax. The FairTax taxes income you spend at retail. Does that make the FairTax an income tax?
Any income-based taxes suffer from most of the failings we observe in our present tax system no matter what you prefer to call it.All taxes can be defined as income taxes if that's what you want to do, even the FairTax. The FairTax taxes income you spend at retail. Does that make the FairTax an income tax?
Perhaps, but that isn't what is meant by our current system behaving like a vat. That's more of your word games.
Only profitable business pays income tax, but there are other federal tax costs that get rolled into prices.
What about any payroll taxes paid by the business. What about any compliance costs (like GM spending 2.3 million on tax consultants to help minimize their taxes), what about ALL the suppliers in the chain who may have had income taxes, payroll taxes, and compliance costs.
Why are we even discussing whether our current system is a VAT or not. This is ridiculous.]Back in the day their rhetoric was "our income/VAT tax"...It's because of the embedded, cascading taxes at every level of production (that you obviously don't understand).
BTW, did you know using their pigdog/principled math method of reducing prices at every level they can eventually, (mathematically) completely discount away the entire costs of the lower level, if not levels of production...but what do I know? I'm so math challenged.
A VAT taxes the value added at each stage. Our current system doesn't do this. It's not a VAT. A NRST is more of a VAT than our current system. The retail price is just the sum of all the "values added" throughout the chain; thus, taxing the retail price is taxing the value added to a product.
The FairTax is truly a consumption tax with the tax collected when the thing is purchased for consumption.You are confusing consumption expenditure with consumption. Consumption is the "use of goods and services to satisfy wants and needs." Consumption expenditure is the "actual expenditure on final goods and services by the household sector." The FairTax doesn't tax the use of goods and services, it taxes the expenditure on goods and services if they are bought at retail, regardless if they are ever consumed or not.
We weren't talking about adding tax costs at every level, we were talking about taxing the value added at every level. Our current system doesn't do this. It's not a VAT."Our current system doesn't do this."Non-vertically-integrated, multi-stage productions DO add tax cost at each level of production. If company "A" manufactures a component of a larger assembly, and sells the component to company "B" for inclusion in the final product....there is tax cost associated with the sale of the component and the sale of the final assembly. Why do you think our current system doesn't tax each state of production?
No I don't care to explain. It was your quote that stated a "subtraction-method VAT is essentially identical to a business income tax except that all purchases of plant and equipment may be expensed, rather than depreciated as under current U.S. law." If you disagree, you explain.
I don't disagree with the statement at all. Observing that there is no essential difference between immediate expensing of inputs as opposed to depreciating inputs over time, there is no essential difference at all.
Seeing as you disagree with the characterization that the business income tax is essentially identical to a subtraction method VAT.
YN: Our current system is not a VAT
It is indeed yours to explain the difference which I, for one, do not perceive.
If it deducts wages it's not a subtraction method VAT, it's a flat tax.
Problem there is two fold, wages are taxed to the employer in the Flat Tax, since the business excise on employments is not repealed and is still levied under all version of Flat Taxes to date, just as they are under the current system.
And secondly the Congressional Research Service, as shown above clearly describes a Flat Tax as a modified VAT with a wage tax. A characterization that is supported not only by the CRS but many others as well.
FLAT TAX, VAT TAX, ANYTHING BUT THAT TAX; Duke Law Magazine, Spring 96:
- "The flat tax is essentially a VAT, with a personalized element for wages. Thus, the business tax allows deduction of all purchases -- as does a VAT -- but also allows deduction of wages. The wage income that is taken out of the VAT base, however, is also taxed, but is assessed against the individual wage-earner, not against the business."
CONSUMPTION TAX PROPOSALS; 1996 Deloitte & Touche LLP
- The Armey bill, H.R. 2060, would replace the current corporate income tax with a tax on business activities equal to 20 percent (17 percent after 1997) of business taxable income. The tax would apply to every person engaged in a business activity, whether an individual, partnership, corporation, or otherwise. Taxable business income would be gross active income (that is, income other than investment income) reduced by an array of business deductions.
- This business activity tax resembles a VAT computed by subtracting the costs of inputs from gross receipts, except that H.R. 2060 allows a deduction for cash wage expenses. Note that, under the bill, cash wages are subject to tax at the individual level at the same flat rate applicable to business profits. Thus, the combination of the business activities tax and the individual tax is roughly equivalent to a VAT. In addition, taxing wages at the individual level allows a generous personal exemption that makes the personal tax more progressive. To ensure that compensation is taxed once, tax-exempt entities that pay compensation other than as cash or retirement plan contributions would be subject to an excise tax.
Are you now arguing that the Flat Tax is just a continuation of the current income tax system taxing both income and consumption rather that a VAT which would tax consumption only?
| http://www.taxfoundation.org/files/rl33443.pdf Congressional Research Service Flat Tax Proposals and Fundamental Tax Reform
The Relationship Between Income and Consumption Although our current tax structure is primarily an income tax, it actually contains elements of both an income- and a consumption-based tax. For example, the current tax system includes in its tax base wages, interest, dividends, and capital gains, all of which are consistent with an income tax. At the same time, however, the current tax system excludes some savings, such as pension and Individual Retirement Account contributions, which is consistent with a tax using a consumption base. The easiest way to understand the differences between the income and consumption tax bases is to define and understand the economic concept of income. In its broadest sense, income is a measure of the command over resources that an individual acquires during a given time period. Conceptually, individuals can exercise two options with regard to their income: they can consume it or they can save it. This theoretical relationship between income, consumption, and saving allows a very useful accounting identity to be established; income, by definition, must equal consumption plus saving. It follows that a tax that has a measure of comprehensive income applies to both consumption and savings. A consumption tax, however, applies to income minus saving. A consumption tax can be levied at the individual level in a form very similar to the current system. An individual would add up all income in the same way as he or she does now under the income tax but then would subtract out net savings (saving minus borrowing). The result of these calculations would be the consumption base on which tax is assessed. Equivalently, a consumption tax can also be collected at the retail level in the form of a sales tax or at each stage of the production process in the form of a value-added tax (VAT). Regardless of the form or point where a consumption tax is collected, it is ultimately paid by the individual doing the consuming. It should be noted that consumption, in the economy as a whole, is smaller than income. Thus, to raise equal amounts of revenue in a given year, tax rates on a comprehensive consumption base would have to be higher than the tax rates on a comprehensive income base.
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Why are we even discussing whether our current system is a VAT or not. This is ridiculous.
Seems to me core to understanding what kind of tax system we actually have, especially if we intend to change it to a system that is actually a consumption tax instead of a combination that we currently have.
To not discuss the current system in light of the alternatives offered, and how the may differ from a pure consumption tax where they are claimed by some to be such, is what is ridiculous.
describes a Flat Tax as a modified VAT with a wage taxOur current system isn't a flat tax so why are we discussing this?
It is indeed yours to explain the difference which I, for one, do not perceive.Our current system does not tax the value added at each level, it taxes income. Is income equal to value added? If you don't know the difference between the two, that's your problem. I really have no inclination to educate you.
The FairTax doesn't tax the use of goods and services, it taxes the expenditure on goods and services if they are bought at retail, regardless if they are ever consumed or not.
Hmmm, sure looks like a use or consumption tax generally collected at point of consumer sale, just like state use or consumption taxes to me. Even has provisions for collection where taxable property or service is aquired in transaction other than retail sale, just as a state use or consumption tax would.
H.R.25Fair Tax Act of 2005 (Introduced in House)
`SEC. 101. IMPOSITION OF SALES TAX.
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`SEC. 103. RULES RELATING TO COLLECTION AND REMITTANCE OF TAX.
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You are such a fraud and a baby.
You blame it all on a few comments by pigdog but all you really want to do is disrupt these discussions amongst FT supporters and those who want to learn about the plan. You and your ilk make any thread difficult to wade through with all of your whining. That is your intent and your only hope for keeping the status quo.
Any defender of any form of taxation of one's earnings (call it the income tax or a flat tax) should be ashamed of themselves. By definition, it's unamerican.
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