Posted on 08/02/2004 6:39:26 PM PDT by RWR8189
Ah, there you are! As soon as I saw all that red font, I knew it was you.
Been busy the last couple of days, I take it?
"I've always favored (if thats the right word) a flat tax over a consumption tax since the latter seems to "punish" and discourage the very root of capitalism- consumption. A flat tax also takes away the Dems big modus operandi, wealth redistribution. But I'm open to ideas by someone who knows something about the subject."
The reality is that a flat tax won't stay flat for long. What we have today is a flat tax 90 years removed from inception. As recently as 1986, we had an "almost-flat" tax and the system today is far worse than that one before the well intentioned, but temporary, simplification.
The fact of the matter is that, if the past 90 year experience has taught us anything, it is that any system that is based on the elusive concept of "taxable income" is destined to be caught up in a spiral of ever increasing complexity and compliance costs.
This doesn't even touch on one of the biggest problems with such a system in the 21st century, which is that tax costs "cascade" within the production chain, making our products uncompetitive on the world market. This is a huge factor in our ballooning trade deficit. In an increasingly global economy, we simply cannot afford to stick with such an antiquated and outdated system.
Been busy the last couple of days, I take it?
Even I am allowed out of the house once in awhile.
Though they do require a one week's notice to all surrounding towns in order to prepare for my arrival ;O)
"There is the possibility that the deficits are so huge that income taxes fail to get us out of the hole. A consumption tax could ultimately raise more money than the IC because any figure under 100% could be levied. I pays to be skeptical when new taxes are proposed."
It is likely that converting to a consumption tax would make a substantial dent in the deficit, but not for the reason that you advance. In fact, consumption taxes tend to be self limiting, as explained by one of the founding fathers:
"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."
Alexander Hamilton in Federalist #21
The reason that the FairTax would have a positive effect on the budget deficit is that it would provide enormous economic stimulus. For example, a study by Dr. Dale Jorgenson of Harvard University forecasts GDP growth of 10.5% in the first year after enactment. That is smoking. The rate of growth would gradually decline in subsequent years, but still would level off at a rate above where it would be under the current system.
That type of economic growth would have a huge impact on the (budget) deficit. I have already discussed the trade deficit.
I get it- but isn't a consumption tax going to give the gvmnt leverage as far as tax rate reductions for compliance with "cafe" and other environmental standards, minority production, etc? It just seems that a consumption tax also "cascades" from production to market. Help me out here.
That's only true going forward - money contributed before the income tax is eliminated would have been contributed income tax free. That is it would have been subsidized by others who did not contribute for whatever reason.
I would gladly trade that minor inequity (and others more grevious like the home mortgage interest deduction) for an end to the income tax.
In Japan we are so lucky ! We have income tax AND income tax ! Hehehe...
"It just seems that a consumption tax also "cascades" from production to market."
The idea is a single stage, flat rate, no exception, no loophole system. There is a rebate to keep it from being regressive. This mechanism is much simpler and much less prone to political manipulation than the more traditional one of exempting specific consumption classes.
This bill, when passed, will do 2 things
(1) Put a LOT of lobbyists out of business, and
(2) would constitute the largest transfer of power out of Washington back to the people in the 200+ year history of the country.
To learn more, go to
www.fairtax.org
It just seems that a consumption tax also "cascades" from production to market. Help me out here.
If the tax is a retail sale tax there is nothing to cascade. The tax is collected from the consumer by the retail business then remitted to government.
Business purchases for business use are not taxed in a retail sales tax situation therefore do not cascade from production to market.
This is a great idea and has the potential to save Pres. Bush and the Republican party. They've got to be bold about it explaining it, though. We will hear "Bush's wealthy friends" and "the fortunate few" in nearly every news report. The only hope is to be like the Gipper and go over the head of the liberals, making the case directly and unflinchingly to the people.
Agreed. I think a big red "Federal Tax 22%" at the bottom of every receipt, though, will ignite a new breadth of interest in spending cuts to accomodate a lower rate.
"I would gladly trade that minor inequity (and others more grevious like the home mortgage interest deduction) for an end to the income tax."
The elimination of the home mortgage deduction isn't really a "grievous" inequity. It does not make sense to retain a deduction against a tax that no longer exists. The purpose of the home mortgage deduction is so that you can pay your mortgage interest out of pre-tax money. With the FairTax, you pay for everything with pre-tax money.
Furthermore, interest rates should fall to approximate the tax free rates. That works out to be a 25 - 30% decline. That more than makes up for any tax savings attributable to the home mortgage deduction under the current system.
Actually, the root of capitalism isn't spending money, it's making money.
Some people have been brainwashed by the commies, including the President, so you're in good company. The actual heart of capitalism is private ownership and investment. (But sure, you've got to make money for it to be successful. My reference to the President is that he pushes consumption in his economic speeches, not investment.)
Thanks, everyone. I've let my hatred for the IRS cloud my objectivity and reasoning. We can still bring down this dinosaur, right?
there is a sea of difference between a flat tax and a national sales tax. I'm keeping my fingers crossed that the Republicans embrace the latter. IMHO a flat tax will be too easy to screw with over time. Our current income structure tax was a flat tax once.
Sick today - must have messed up my thinking. Feeling better now.
And a VAT would be a lousy tradeoff.
Why not simply go with the flat tax at 10% of the taxpayer's annual income? Consumption taxes are, by their very nature, regressive tax models that the sheeple will only tolerate for so long (once they realize that they're paying out over 50% of their annual wages in taxes while the wealthy are paying less than one-tenth of 1%).
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