Posted on 01/14/2008 6:51:54 AM PST by K-oneTexas
COLUMN: The FairTax Promotes Economic Equality Submitted by on 01-13-08, 10:16 pm | Updated on 01-13-08, 10:35 pm |
by Thomas Davis
President John F. Kennedy once argued that our tax system “reduces the financial incentives for personal effort, investment and risk-taking.” Unfortunately, there has not been much improvement since JFK's presidency.
In fact, the tax code has become more complicated and burdensome. Since 1954, the number of words in the IRS regulations has increased by 939 percent. Just consider, how much time do you, or more likely your parents, spend preparing taxes? Or how much money do your parents spend having an accountant prepare your family's taxes? And how much time does a company spend making business decisions with respect to the tax code?
The answer is astounding: Economists estimate that we spend over $200 billion every year and about 5.8 billion hours complying with the tax code. American companies spend another $200-300 billion making business decisions based on tax implications. The average American spends twenty-seven hours preparing his or her income tax forms, and almost 45% of tax compliance costs are directly incurred by individuals.
While the current situation is complicated, the proposed solution is simple. It's called the FairTax. Some of the nation's most eminent economists and businesspeople have researched and developed a system applying a national sales tax of 23% on all goods and services at the retail level. In return, no more income tax. No more corporate income tax. No more payroll taxes, gift tax, alternative minimum tax, self-employment tax, capital gains tax…you get the picture. By the way, no more embedded tax in the goods and services you currently purchase, which averages around 22%.
Whether you realize it or not, the cost of corporate income taxes, payroll taxes and other taxes have been factored into the price of the goods and services you purchase. So when politicians try to tax what they deem to be greedy businesses by assessing higher corporate income taxes, those taxes are actually passed on to you, the consumer. By eliminating embedded taxes, the prices of what you buy after applying the 23% consumption tax would hardly change from current prices. The difference is that you bring home your entire paycheck and that tax is transparently assessed at the end, not through an onerous and bureaucratic system applied within a price tag.
And don't worry; this simplified system is revenue neutral. The government will collect as much money using the FairTax as it does under the current system, having no effect on current ability to fund government programs. Actually, economists expect economic growth to be around 10.5% for the first year, effectively increasing the government's revenue.
Under the FairTax, you would get your entire paycheck and would only pay tax on what you consume, encouraging Americans to do something we do not do well — save. In order to make the FairTax fair, all people would receive a prebate, or advanced rebate, that reimburses them for tax paid up to the poverty line. In other words, you only pay tax for living beyond your necessities.
Without a corporate tax, America will encourage companies to come back to the United States, providing new jobs for Americans. Without embedded taxes factored into the price of a product, American companies can export goods and sell them at prices lower than foreign products. While the benefits are numerous and the drawbacks are few, I encourage you to question the FairTax Act of 2007. Challenge it. Look for shortfalls. But don't forget to take the time to find credible answers. Read The FairTax Book by Neal Boortz and Congressman John Linder. Visit FairTax.org. Search the Web for scholarly criticism. You will see that the FairTax stands for innovation and equality. Do you?
No thanks. Senior citizens have already been taxed on retirement savings plus getting screwed on reduced interest rate income.
Oooh, intelligence is necessary, huh ? Better stop drooling on your bib, then.
All compensation is negotiated. I guarantee you employers know who “pays” the full 15.2% and will renegotiate employee compensation accordingly.
After all, we are all still competing with illegals who pay none of the 15.2% now.
Let’s see. If I buy a used car, I would pay no Fair tax. If I buy a “used” house, I pay no Fair tax. If I shop on ebay, at garage sales, at Goodwill, and so on, I pay no Fair Tax.
What’s left - groceries, gas, car repair, and so on. Would 20K cover most of those expenses ? Probably, so I’d only pay “federal tax” on whatever I spent above 20k.
That’s a lot less than what I pay now, and I’d gain tons of hours a year plus a lot of storage space. if I don’t have to pay yearly Federal taxes.
Which is EXACTLY what I saying all along. These savings only come about if the employee takes a pay cut.
Seniors already paid taxes on their pensions, IRAs and 401Ks ?
I don’t think so.
That is one type of savings. I think it is safe to say that vast majority of retiree savings have already been taxed.
OK, semantics. How can you take a “pay cut” on income you’ve never had and WILL never have under the current situation ?
Are there any deductions under which FICA gets returned to you ? None that I am aware of. Well, EITC maybe.
I don’t think so. My 78 yo father gets a pension and must take distributions from his 401k and IRA. Guess what - he pays taxes every year.
so you will never buy a new car again. so everybody will be buying used cars, which will drive the price of used cars up, new cars down. if nobody buys new cars, guess what will happen to one of the biggest industries in the US?
not onlu GM/Ford/Chrysler/etc., but their oems, suppliers, vendors, etc. it’s going to be more than a couple of hundred thousand people.
and guess who is going to have to pay more for their unemployment benefits, and eventual welfare? and guess where that money is going to come from?
if you pay less taxes, others must pay more in order to maintain the target revenue. but if you really beleive that you will pay less taxes, then I have a bridge to sell you.
Investments (including tuition) would not be taxed under the fairtax.
Not getting IRAs and 401Ks. Getting annuities and interest on CDs. Pensions had tax paid deductions.
Price instability is a vital concept in this whole discussion, because 1) it's going to continue, unfortunately -- the gov't isn't about to stand back and let mkts clear; if anything they'll meddle more, and 2) any policy or tax regime must therefore perforce take into account said instability and MUST not exacerbate it.
ANY new tax regime introduces uncertainty into the mkt, and contributes directly thereby to (in this case) the continuation of price instability. The exception to this WOULD be (it hasn't been through all of history, but perhaps this time we'll get lucky) a new tax regime that, presumably by its stringent definitiveness, would reduce uncertainty. The 'fair' tax doesn't begin to meet this standard; hell's bells, you lot can't even offer a clear and complete and consensus description of how this mystical 'prebate' would operate.
I am profiting hugely from the current wave of FOMC easing, but notwithstanding that, I'll tell you right now that it's STILL wrongheaded. Greenbean was far too slack in monetary policy, due mainly, I might add, to the horrendous press he got during the 1991 recession. Bernancke should at least know better, but apparently he doesn't. Yuck.
The subprime/CDO/SIV mess is/was much more political; banks had been hammered for at least two decades by ACORN and other assorted Marxist assholes for 'redlining', i.e. not lending to credit-unworthy people. So the banks et al. adapted -- badly and greedily, I grant you -- and what happens? Now we have record-high (ex 1930s) default rates, untold amounts of capital have been vapourised, and ACORN and the bastards are now whining about ''predatory lending'', as if someone had held a gun to the head of the credit-unworthy in order to get them to sign on the dotted line. Bah!
My adaptation of Cicero's opening line of his first oration against Catalina was apropos because you assumed -- with no justification whatever -- that I was unfamiliar with the phrase ceteris paribus. Such assumption does try one's patience. Cuius vis homini errare est, I suppose.
The dangerous part of ceteris paribus in economics is that they never are.
Evidently, you've not had the 'pleasure' of dealing in a number of Uncle Sam's ''preferred'' retirement accounts.
I don’t buy new cars now, so it’s not an issue for me. I buy 2 yo coming-off-lease cars with 17-25k on the odometer. The major amount of depreciation has come off the car and I still have lots of warranty room. A win-win for all. Those who want to pay the depreciation to get the latest and greatest features can go right ahead and do so. The suppliers will not suffer too much - they’ll still sell parts for repair. And I’ll be paying tax on the parts.
And, since the car manufacturers won’t have that distorting tax code to reward them for bad behavior, they will pay their workers as Toyota/Honda/Hyundai etc do at the plants in this country, and not pay the unions for makework and endless benefits. If they do, their cars will be more expensive - oops, that’s their problem now. Not to mention, we won’t be paying the federal taxes built into every part of the car.
I don’t know what will happen to the level of taxes but I know one thing - instead of being held hostage to the Democrats and RINOs of the tax code built in the years since the New Deal, I and every other taxpayer will have more control over how much tax we want to pay. If you choose to be a high consumer of new products, you will pay more. If you cut consumption or consume different things, then you will pay less.
And the best benefit - every single person will be very aware of the tax they are paying. It’s the same reason why states don’t raise sales tax very often. It’s highly visible. Right now, withheld taxes hide the true amount of taxation we live under. Sheesh, people think if they get a refund it’s “found” money; they don’t think of it as their own money lent to the government at no interest.
Then you pay taxes now under current tax code on CD interest and pensions.
Exactly. But what's your problem with that? It means you pay zero in taxes.
Since I started investing in IRAs long before the Roth came along, and my income does not allow me to benefit from a Roth, it is not an option for me or for many like me.
Secondly, employer-sponsored pension plans have a very favored tax treatment - ie no federal taxes. In 2004, the estimated “loss” to the treasury from such plans, according to the GAO, was 95 billion. Name me one employer-sponsored type of pension plan where taxes were paid up front.
As far as the “separation” tax - well, don’t get a divorce. Under the Fair Tax, that wouldn’t even be an issue, so I don’t know what your point is on that.
NO it means the government gets to use our up front money interest free same as the current system.
In that regard it changes nothing and thus is a has failed before starting.
Where I live now, we have a sales tax of 7%. When I buy something priced at a dollar, they charge me $1.07 and I take my stuff and walk out the door. Please show me the math you use that makes that something higher than 7 percent? To me, that's an effective rate of 7%.
Adding government meddling isn't ceteris paribus. It goes beyond the policy and is very arbitrary; you can make any policy sound bad. The second point is the whole point of the debate; will the fair tax cause excessive price fluctuation. You can say yes, which is fine, but the evidence that I have seen from other economists say no. But either way, what prices are currently doing doesn't matter because it doesn't change how the policy operates nor does it affect the outcomes. (If it indeed causes significant price fluctuations, it will do that regardless of current price fluctuations.)
Any new tax regime almost by definition increase uncertainty. Additionally, there isn't a clear and complete consensus because it's unclear how the final bill will look. The point of the fair tax is to get an general idea on how to change the current tax system, perfection is done in Congress. But the general idea is there: a check is written to each American based on the number of people in the household and poverty levels as determined by government statisticians. I don't really care for this, but if it is necessary in order to reform the current income tax structure, I'd live with it.
I'll agree with most everything else, except noting that loose monetary policy is still very significant since it artificially lowers interest rates and makes people think they can afford more debt. Also even though the economy is never ceteris paribus, it would be impossible to analyze any economic issue without it. (Friedman wrote a good article on this, I think "Essays in Positive Economics" (1953), but not positive.)
Oh, and just to make sure that were not getting to heated, because we'll probably agree on most other things, have a blessed day.
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