Posted on 05/28/2004 12:27:11 AM PDT by JohnHuang2
Two tax issues seem to be getting a lot of discussion on the Internet these days. First is a big increase in the gasoline tax in order to discourage oil consumption and make the nation less vulnerable to the OPEC oil cartel. Second is the idea of replacing the Social Security payroll tax with a progressive consumption tax. Both have serious flaws.
The idea that a higher gasoline tax will help our energy situation is ludicrous. All European countries have far higher gasoline taxes, and they are just as vulnerable to increases in the price of oil as we are. If a higher oil price translates into a 50-cent per gallon increase in gasoline prices (net of tax), then the Europeans and we are both going to pay 50 cents more per gallon.
The reason is that oil is an internationally traded commodity. Whether you are importing oil or exporting it, you are going to pay the world price one way or another when you use oil. If you are an oil exporter, you can hold the price of gasoline down for your citizens, but then the nation as a whole pays an opportunity cost equal the foregone profit. In the end, it is no different than an oil importing country using public funds to subsidize the price of gasoline.
The point is that from the point of view of a consumer, it makes no difference whether you live in a country that is self-sufficient in terms of oil or one that is not. When fundamental market forces cause the price of oil to rise, everyone pays. There is no way of insulating yourself except by shifting the cost to someone else.
Raising the gasoline tax may reduce domestic oil consumption, but this will happen only very slowly. It takes time for people to trade-in their gas-guzzling SUV's for fuel efficient Mini Coopers. Leaving aside the loss of welfare for those forced to drive in tiny little cars when they would rather be in something much bigger, let's suppose that the lower demand lowers the world oil price. Unless it goes down by an amount equal to the tax, consumers are still worse off.
In the end, the only beneficiaries of a higher gasoline tax are the government and the road building industry. That is because under current law, revenues from the federal gasoline tax go into the highway trust fund, which is used to build roads, bridges and such. When there are uncommitted funds in this trust fund, Congress tends to treat them like free money that can be used for any stupid pork barrel project as long as it involves transportation.
As a consequence, increases in the gasoline tax don't even reduce the budget deficit except for the minuscule amount of time between when the tax is imposed and the time it takes for Congress to spend it. Of course, the law could be changed to put higher gasoline taxes into general revenues. But the road builders and others who benefit from increased transportation spending will strenuously oppose this. Hence, this is unlikely to occur.
The idea of replacing the payroll tax is similarly unworkable. This system of funding Social Security benefits was created for a specific reason that is still valid. By tying a worker's contributions directly to his benefits, workers tend to view the payroll tax not so much as a tax, but rather as a payroll deduction for his 401(k) plan, life insurance or medical benefits. To the extent that this is the case, the payroll tax is viewed as part of a worker's pay and not a subtraction from it.
Of course, a worker loses the use of his payroll tax deduction. But most get it all back with interest. Indeed, because of the highly progressive nature of the Social Security benefit system, low-income workers get a very high return on their payroll taxes. They get back benefits in retirement that are far greater than the money they paid in. In this respect, the Social Security system reinforces work incentives, rather than being a simplistic "tax on work" that it is often portrayed as.
Replacing the payroll tax with some other broad-based tax that is unconnected to a specific worker's wages breaks the link between contributions and benefits. It will convert Social Security into a pure welfare program, rather than a government pension. The effect would be to reduce political support for the program and work incentives at the same time. Any disincentive effects from the replacement tax would come on top.
If we are going to replace some tax with a progressive consumption tax, it should be the income tax, not the payroll tax. If done properly, this would increase incentives for work, saving and investment that would boost real economic growth.
LOL, your */~rdavis whoever he is, constructs a strawman, and does a lousy job of analysis.
rdavis is a fellow Freeper named Remember (AFAIK). You can take up his analysis with him. He seems to have done a good job to me.
Good then he will be able to explain his methodology used to isolate the effects of changing marginal rates on avoidance behavior that causes the laffer curve to turn down as the maximum tax rates approach 100% and how tax avoidance behavior decreases as the marginal rates decrease providing higher revenues as marginal rates decline toward providing a nominal peak of revenue.
For the Laffer curve is a composite of two effects arising from limiting conditions on a taxed population, tax rates interacting with tax avoidence, limiting revenue extraction. The more you tax a thing the less it will be indulged in by those who are taxed.
High marginal tax rates hitting the most prolific earners increases their propensity to avoid the or shelter from the tax, set rates high enough taxpayers cease to produce or depart for a more tax friendly environments.
"Didn't the admins tell you to stop accusing people of multiple accounts just yesterday?"
Nope.
"Instead of making up crap about multiple accounts, why don't you use your head and answer my question?"
Because you have no interest in objectively evaluating the proposal, you are only interested in playing "gotcha". I have neither the time nor the interest. Perhaps other posters will play your silly little games.
"Nevertheless you are omitting the elimination of billions of dollars of compliance costs in your 'zero-sum'."
He is also ignoring the fact that illegal immigrants will be paying taxes at a rate that is disproportionate to the rest of us, as will foreign visitors.
"Congress folks derive their power from special favors they can grant through the complex tax code; and it is also in their best interest to hide the taxes in as many shadows they can create."
You forget one thing and that is that the ultiamte source of power for elected officials is the ballot box. When their exalted positions are threatened by obstructing such a well crafted proposal, they will come around.
Here in Ga, we have both senators and 8 of 13 House members (all Republicans)on the bill. By th end of the year, we will have at least 1 or 2 Democratic House members.
"I believe the sales tax proponents will offer bills in congress to fund certain government programs such as Medicare and prescription drugs. They will suggest a tax rate of 2 or 3 percent and say that this won't be a burden as they will suggest tax credits for the "poor" to offset such additional taxes. Now can one see the problems?"
I can certainly see the problem with your prediction. You have stated that economists cannot predict the economic impact of policy changes with a level of accuracy that satisfies you. You, on the other hand, can predict that tax reform advocates will change their proposals in ways that are contradictory to the principles that they are fighting so hard for.
Why don't you stick to bashing the proposal that has been made, rather than setting up straw man arguments?
Did they factor in this tax credit for goods in inventory when the NRST goes into effect?
Revenue neutrality is a comparison of the capacity of the tax law being replaced to generate revenue under normal conditions (i.e. non transition), against the capacity to generate revenue under the new law under the same conditions and nothing more than that. It is a theoretical measure adopted as a check of capacity not an absolute measure or crystal ball of the future.
The conditions for "Revenue neutrality" are established by CBO methodology which specify equilibrium conditions (i.e. after transition). CBO tasked with the determination of "revenue neutrality" under the Budget Enforcement Act ,transition rules or credits associated with such do not impact the "revenue neutral" rate of the NRST or any other revenue bill.
At 23% the NRST meets the BEA "revenue neutral" requirement as measured by CBO and that is all that is necessary to allow a revenue bill onto the floor of Congress for a vote.
Frankly the "revenue neutrality" condition can be waived (that's how we get tax cuts) under
PAYGO RULES: CRS Rules 98-20006
Refer 2 USC 900-909
House Point of order waivable by unanimous consent
Senate Point of order waivable by 3/5ths vote.
May be waived under Sequestration Rules on declaration of War or
conditions of <1% real economic growth for 2qtrs.
So we could even see an NRST rate below 23% if Congress is so inclined even with liberal opposition, while WOT/IRAQ provisions are still in force, and ignore the "revenue neutrality" conditions.
If you want a higher tax rate, go find a democrat, they say they will be happy to accomodate you.
What, you're income is so low that you qualify for the EIC? Congratulations, you just admitted that you prefer to use the government as an instrument of plunder. Well, it's me and many others like me that you're stealing from, thief. What a fine conservative individual you are.
The fact that you phrased your question thusly tells a grat deal about your philosophy of government. It doesn't 'cost' anybody anything, unless you are thinking in the paradigm of government programs.
I question your conservatism. Last time I checked, conservatives were in favor of reduced government. You're a troll and you probably don't even know it. I'll add you to the list of phony big government apologists who infest this site.
Who's serving the Kool-aid?
You got it right! The o-n-l-y tax proposal that meets all the tests of Simplicity, Openess, Effectiveness and Fairness is the FairTax Act (House = H.R. 25 and Senate = S.1493). Check out the websites shown below.....
Forget VAT and FLAT... both fail the test of openess and fairness. Both would be as bad as the Income Tax System of today, or worse.
Here ya' go... read, believe and be thankful!
[1] A QUICK LOOK! [2] INFO! [3] FAQs! [4] PETITION!
FairTax! = FAIRNESS & FREEDOM for America!
Cliff Cofer - WW-II Vet
I wrote the following email to Bruce Bartlett regarding his commentary on consumption taxes:
Dear Mr. Bartlett,
Regarding your commentary "More Bad Tax Ideas", there are a few points I disagree with. While I 100% agree with you regarding gasoline taxes, I do not agree on payroll taxes. In Fleming v. Nestor (1960), The Supreme Court ruled that there is no Constitutional right to Social Security benefits. Social Security benefits can legally be cut or eliminated at any time, and beneficiaries have no recourse. The Court held that, "To engraft upon the Social Security System a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustments to ever changing conditions which it demands."
To read the complete court ruling, go here: http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=363&invol=603
My take: The SCOTUS ruling stated that the Social Security System is in fact a welfare system. And if we were to implement a consumption tax to replace the Payroll Tax, what would prevent us from indexing benefits to income the same way we do now? What's more, most Americans, especially low-income americans, have no idea that employers pay an attitional 7.65% in payroll taxes that doesn't even show up on their check. And as you, I, and most economist concede, the employer share comes out of the employees check.
But I am totally on the same page with you regarding replacing the income tax with a consumption tax. But, why don't we replace both with a consumption tax, as called for in HR 25 and S 1493, also known as the FairTax Act. I have read some of your commentaries regarding the unfeasability of encorcing such a large sales tax. However, such enforcement problems may not be as bad as you think. After all, those enforcement problems arose in areas where there were other taxes already in place. Under the FairTax, a large sales tax would be the only tax. Furthermore, more than 90% of retail sales are through large businesses, where evasion wouldn't be an issue. The issue would only be with small retailers, who "do their own books". But, this would no be more than 10%, wher eevasion under the income tax system may be as high as 25%. More can be lerned at http://www.fairtax.org.
I enjoy reading your insughtful commentary at National Review and Townhall, and I believe the endorsement by a man of your stature would help bring the debate over fundamental tax reform back into the public and bolster the National Retail Sales Tax (NRST) "Movement". Over 50 congressmen have "signed on" and recently Tom DeLay came on board, which was a big win.
Sincerely,
No it doesn't. I will be at least $140 billion short because of this credit.
What Congress does with appropriations and the budget side is entirely a separate issue for an appropriations bill, ability to collect a tax is what counts against the rate under the BEA/CBO methodology.
The ability of the NRST (a revenue bill) to raise revenue, given constant (equilibrium) conditions in comparison to the tax law it replaces(which is a equilibrium), is the essential criteria set by CBO under the BEA. That is the essential criteria the NRST and any revenue bill must meet, given conditions for a waiver for setting a lower rate(i.e. tax cut) cannot be achieved.
PAYGO RULES: CRS Rules 98-20006
Refer 2 USC 900-909
House Point of order waivable by unanimous consent
Senate Point of order waivable by 3/5ths vote.
May be waived under Sequestration Rules on declaration of War or
conditions of <1% real economic growth for 2qtrs.
Justify your claim that the NRST is crap.
That would be dramatic if it wasn't pure bullshit.
Where does it say "consumption spending" is exempt?...More bullshit.
First of all, the idea of a National Sales tax has been around for quite some time. However, they were never implemented becasue they were regressive: if you only pay taxes on items consumed, the poor pay a higher percentage of their income to taxes because they save less. Well, the FairTax gets rid of that hang-upy instuting the Family Consumption Allowance (FCA), which pays every american a rebate to pay enough taxes to consume up to the poverty line.
There are multiple reasons why other consumption taxes have not caught on. the #1 reason is because of those who benefit from the current system: "old money". Under the current system, the burden of taxation is spread throughout investment, labor, and consumption, with consumption being barely taxed. As a result, anybody with a net worth over $30M can essentially make a million dollars a year without paying taxes (live off of the interest on tax-free bonds). Their money works for them, as it has for generations. They have no need to invest, no need to work, but only to consume. The upwardly mobile, however, must do all three. They must work hard, save and invest massive amounts of money, and keep consumption to a minimum to get ahead.
Why do you think it is that billionares and "hundred millionares" are Democrats but the upper middle class and early millionares are republicans???
Under a NRST, the upwardly mobile will be able to succeed easier. Every American will find it much easier to improve their lot in life. The losers in the NRST: Old money.
Theresa Heinz made $5M last year and only paid 15% in taxes. Why? She's "old" money.
America's uber-ruch will no longer be able to freely spend vast fortunes without consequence. If they consume, yet do not work and do not invest, they will see their fortuned slowly evaporate.
That, my fried, is the story of why rich democrats love high taxes: they don't pay them! The "New Rich", whom the bloe-bloods detest, pay all the taxes.
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