Posted on 12/17/2004 4:38:48 AM PST by JOHN W K
ANSWERING A FAIR TAX QUESTION
During yesterday's show a caller asked what would happen to her 401K funds if the Fair Tax bill became law. No income taxes had ever been paid on that money residing in her 401K. If, by the time she starts drawing that money out, the income tax is history, will she have to pay some sort of penalty? One month ago I would have rattled off the answer. No. No penalty. No taxes. You take the money and run. Yesterday, however, I was a bit more cautious. I've spent many hours over the past weeks studying the history of the income tax, the history of withholding, and various schemes for tax reform including, of course, the Fair Tax. I wanted my answer to be dead-on accurate, so I deferred until I could dive into the bill.
(Excerpt) Read more at boortz.com ...
"And covering bad loans for tax payments."
There you go again, YN. Hallucinations must be a real bummer. Take your meds and calm down.
"[read any non-AFT distributional analysis and you see I'm right]"
Perhaps. There's a first time for everything.
Oh, I have read plenty of stuff from the guardians of the status quo that you idolize. The JCT, Brookings, all that crowd. AFT exists to promote and advance the FairTax proposal. These other organizations exist to perpetuate the current system no matter how much economic damage it does. Like you, they have a personal vested interest in maintaining a system that they benefit from - even if they are in the minority.Nice. Don't agree with the AFT and you are a "Guardian of the Status Quo"!
You must have missed my post at 171.You must have missed my reply. Illegal immigrants would probably pay more, although you seem to think they would pay the same price and that the "embedded tax" they were previously paying would just be visible. Do you still believe that?
So it would be the first time you read a non-AFT distributional analysis."[read any non-AFT distributional analysis and you see I'm right]"Perhaps. There's a first time for everything.
"Illegal immigrants would probably pay more, although you seem to think they would pay the same price and that the "embedded tax" they were previously paying would just be visible. Do you still believe that?"
Only to the extent that they purchase goods which are produced in the USA. As I have posted many, many times before, imports will increase in after-tax pricing as we eliminate the preference the current tax system provides to foreign producers.
"As I have demonstrated before, illegal activity is a wash. In the example of the drug dealer, the dealer would be paying taxes on the transaction but the buyer would not be paying taxes on his income, ie. a wash."
Oh! YN has demonstrated it before! I almost forgot that noone is allowed to disagree with YN and post anything contrary to his previously posted positions!
There are two questions with respect to the illegal activites and how they would be treated under differing tax systems.
1. What happens to the incidence (i. e. who pays and who doesn't)
2. What is the net effect on total revenue.
The question that you posed and that I answered relates to #1. You are now very cleverly trying to insert your version of the answer to #2 into the debate and convince others that it negates my answer to #1. I will stand by my initial response - drug dealers, prostitutes and illegal laborers would be paying more under the FairTax than under the current system.
If you want to debate the net revenue impact, we can do that sometime when I have more time but please let's not deliberately try to confuse others on the thread by mixing the two.
"As to those "those taking advantage of the many loopholes in the current system to lower their tax burden well below what the 'progressive' nature of the current system suggests is the objective" you'll have to give me an example because that could be anyone but I would bet the majority of them (in numbers) are middle class people like me."
Ok, here are a couple of examples that come to mind.
1. Ted Turner - tax returns entered into the public record during his divorce from Jane Fonda several years ago revealed that on an income of somethng like $125 MM for a recent tax year, he paid about $5 MM in taxes - a rate of less than 5%.
2. I have a client in the real estate development business who will remain unnamed. This man lives in a $3.1 MM home with no mortgage, drives a new Mercedes sports car and has a net worth in excess of $150MM. His tax returns show 7 figure losses for the past few years. I can assure you that he isn't losing money on his business ventures.
Teresa Heinz Kerry is another possibility, with her reported 12% tax rate. That really depends on how much she spends on consumption, however, so I left her out.
-- Yes. Over 98% will pay less, and that's based on a 100% consumption rate. By saving or spending money on untaxable goods (used items, education, etc.), tax rates go down.
I know you can't understand how we can give everyone a lower rate, but it's pretty simple: we're expanding the tax base! Do you know how much money goes untaxed nowadays? Think of the high-consuming upper class like the Kerrys and Heinzes.
Oh! YN has demonstrated it before! I almost forgot that noone is allowed to disagree with YN and post anything contrary to his previously posted positions!Sure you can. But you have post a resonable reply. You haven't.
The question that you posed and that I answered relates to #1. You are now very cleverly trying to insert your version of the answer to #2 into the debate and convince others that it negates my answer to #1. I will stand by my initial response - drug dealers, prostitutes and illegal laborers would be paying more under the FairTax than under the current system.I believe our discussion was about revenue so #2 is relevant, not #1.
"[read any non-AFT distributional analysis and you see I'm right]"
"Perhaps. There's a first time for everything."
"So it would be the first time you read a non-AFT distributional analysis."
Nope. First time that you were right about tax reform.
Actually, you may have a legitimate concern relative to the labor supply. As a matter of fact, Congressman Linder has shared that concern with those attending his town hall meetings. What a wonderful problem to have - so many good jobs created by the greatly increased demand for US produced goods and not enough qualified Americans to fill them.
However, I read a column by NYT writer David Brooks (11/30) that pointed out what a huge transformation the economies of the world are undergoing, largely as a result of free trade policies, not only in the US, but in nations around the globe. The number of people living in the most severe poverty (less than $1 per day) is projected to decline by 96% during the 25 year period between 1990 and 2015. The surging tide of globalization around the world is creating an economic trend of historical proportions. To the extent that we have excess demand for labor that we can't fill domestically, then we can always continue to outsource even more than we are now. If the US were operating at full employment, then outsourcing would not be nearly as controversial as it now is. With outsourcing, we have virtually an unlimited labor pool for all practical purposes.
The 21st century is going to be very exciting. I wish I were young enough to see more than just the first part of it.
"Again, go somewhere besides FairTax.org for you info and you will get a different picture of the FairTax."
The examples that I posted at #186 (and which you ignored after asking for them) did not come from www.fairtax.org.
The examples that I posted at #186 (and which you ignored after asking for them) did not come from www.fairtax.org.I didn't ignore them. See #188.
Yes. Over 98% will pay less, and that's based on a 100% consumption rate.You don't know what you are talking about. It's these stupid claims of pie in the sky result that make me distrust the AFT and their shills so much.
Distributive Analysis of Tax Reform
Conclusion
Currently, the federal government collects taxes from a hybrid system in which the effective tax base is partly determined by wages, consumption, and capital income (not symmetrically). Like nearly all recent analysis of the topic, our calculations reveal a current federal tax system in which average effective tax rates are roughly proportional through most of the annual (comprehensive) income distribution, but rise strongly at very high levels of income. This pattern of progressivity at the top results from applying graduated marginal tax rates on personal income, explicitly taxing capital income, and taxing corporate income “twice.” Proportionality at the bottom and through the middle of the income distribution largely arises from two offsetting factors: built-in regressivity from payroll taxes with earnings caps and generous exemptions and standard deductions in the personal income tax (as well as the earned income tax credit).
As a consequence of federal tax progressivity, moving to a flat-rate, consumption-based tax system will reduce effective tax rates on families at the top of the (annual, comprehensive) income distribution. Effective tax rates are easily lowered to zero percent at the bottom of the distribution simply by implementing a lump-sum payment (demogrant) to all residents. An effective demogrant, however, is extremely expensive to operate. Put another way, financing both “ordinary” government activities and the demogrant requires very high marginal tax rates on consumption, which presumably mitigates the potential efficiency gains sought by many consumption tax reformers. With a demogrant included, our analysis and much other recent work on the topic reveal that financing government services will be accomplished by increasing the tax burden on a broad “middle class” of families reporting annual (comprehensive) income in the range of $20,000 to $200,000.
Source: Mieszkowski, Peter, and Michael G. Palumbo. (2002). "Distributive Analysis of Tax Reform." In United States Tax Reform in the 21st Century, George Zodrow and Peter Mieszkowski, Editors. Cambridge University Press.
It's called the Constitution of the United States.
"The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation and foreign commerce. … The powers reserved to the several States will extend to all the objects which in the ordinary course of affairs, concern the lives and liberties, and properties of the people, and the internal order, improvement and prosperity of the State."
If one believes in financing the federal functions which are constitutionally authorized and enumerated in our federal constitution, then a national revenue must be raised. It is as simple as that.
I personally favor the founder’s original tax plan which was intended to first rely upon external taxation___ duties and imposts on imported articles [have foreigners pay for the privilege of doing business on American soil], and then, if insufficient revenue was raised from external taxation, internal taxation was then to be resorted to by imposing an excise on articles of luxury, and each article was to be specifically chosen by Congress for the excise, and then evaluated for the appropriate amount of tax to be imposed upon it.
And finally, if Congress spent more than what was brought in from the above sources during a fiscal year to meet its exigencies and created a deficit, then a direct tax upon the states was thought to be a proper requirement to extinguish the said annual deficit. Under the direct tax each state was intended to contribute a share of the total figure being raised by Congress based upon its number of votes in Congress,___ representation with proportional obligation! No loopholes, manipulation, and, those state congressional delegations with the biggest mouth in Congress, who continually use their large voting strength to squander federal revenue using their liberal voting strength, were to be burdened with the largest share of the direct tax burden…just as our Founding Fathers intended! What an immediate cure for our left wing socialist pigs who have burdened our nation’s younger generation with a national debt which exceeds $ 50 trillion! see:Measuring the Federal Government's Unfunded Liability
But such is our founding fathers plan, a plan which not one in a five thousand people fully understand, nor realize how it helped to control Congress’ actions and pave the way for America to become the economic marvel of the world.
In regard to the internal excise upon articles of luxury, the question has been raised: who decides what's a luxury and what isn't?
Good question!
I believe that specific articles ought to be excluded from the list of taxables to encourage a healthy business environment on American soil in order for America to compete with foreign made goods and to form a strong domestic manufacturing capability which is essential to the survival of our nation. I also believe that articles of necessity, such as food, clothing, medical expenses, etc., ought not be taxed to avoid an oppressive burden upon the poor and working class, but all such articles excluded must be excluded upon a truthful acknowledgement of what constitutes luxury as opposed to a necessity. Tools of production, supplies necessary to conduct business, food, shelter, clothing, and even medical expenses can truthfully be claimed to be both a necessity and luxury in particular instances, and the very reason why a close examination by Congress of each particular article in question is necessary. Surely there is a clear enough distinction between such foods as caviar and chicken eggs, between wine and milk, between silk and cotton underwear, to truthfully say one is used as a luxury and the other a necessity. I believe in such cases the people’s perception will prevail in Congress to a larger degree and help to diminish the outrageous inequalities now experienced under federal taxation.
But in the final analysis, it is far better to have Congress spend its time selecting specific articles of consumption for taxation than legislating our freedoms away and manipulating the definition of “income” to mean whatever the powerful want it to mean and then place the burden of taxation “directly” upon particular economic classes from which they have no escape.
In any event, the founder’s plan was based upon principle, with a number of important and self regulating checks and balances built into the system to control the actions of Congress. Neither the fair tax, national sales tax, flat tax, income tax, value added tax, nor any other proposal contains the checks and balances our founding father’s thought necessary to encourage Congress to act fiscally responsible and raise a federal revenue for only those things constitutionally authorized. Our founding father’s plan is the one I believe we need to return to. That is my opinion and I have not seen any sensible argument to change my mind.
I hope the above has sparked some interest in our founding father’s original tax plan, enough interest so it will be carefully consider as an alternative to the various proposals being advocated in this thread.
Sincerely,
JWK
ACRS
"...a national revenue must be obtained; but the system must be such a one, that, while it secures the object of revenue it shall not be oppressive to our constituents." Madison, during the creation of our nation’s first revenue raising act.
"What's the bill #?"
"It's called the Constitution of the United States."
Interesting. The Constitution is already in effect. That must mean that the tax system that we have now is the one that you support.
Your glib and adolescent remark only applies if the legislative intent of our constitution is being adhered to, which it is not!
Yes. We truly do need to get rid of all of this philosophical bitching and moaning and enact fundamental tax reform. If we ever did get down to a Constitutional level of spending (~$500 billion), we could theoretically eliminate all taxation and simply print the money needed to pay the bills. But since that's not going to happen within at least the next few decades, let's talk about realistic ideas.
I think that the Fed would tighten the money supply during implementation of the FairTax.
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