Posted on 02/03/2005 9:54:12 AM PST by EternalVigilance
Therefore, we have only two alternatives left: The flat income tax and the sales tax. They have the same base: Consumption less approximately $25,000 exemption per household. Therefore, they will affect the economy in the same way over the long run. The reason the flat income tax wins is because it doesn't have negative monetary policy consequences in the short run.
Therefore, we have only two alternatives left: The flat income tax and the sales tax.
True,
They have the same base: Consumption less approximately $25,000 exemption per household.
False, the Flat Tax legislation proposed taxes business capital gains, dividends, and interest income even when re-invested as well as initial capital placed into investment and individual retirement plan returns while the NRST does not tax any incomes that are placed into investment/savings or re-invested. Additionally the Flat Tax does not reach to transients in the US where the NRST does.
Those reasons alone, not even extending myself to dig into secondary sources mean the Flat Tax actually has a smaller tax base than the NRST, and impacts investment capital.
Therefore, they will affect the economy in the same way over the long run.
Untrue for the above reasons.
The reason the flat income tax wins is because it doesn't have negative monetary policy consequences in the short run.
And what negative monetary policy consequence do you figure an NRST has that your Flat Tax does not?
The net effect I see, of monetary consequence, is a strengthening of the dollar in response to foreign trade balances attracting investment flows that strengthen our markets and business infra-structure, which looking at current valuations we see to be rather down on as it is.
Many economists expect the money supply to be increased by the tax rate if a sales tax were created. Otherwise, wages would have to go down by the tax rate.
The net effect I see, of monetary consequence, is a strengthening of the dollar in response to foreign trade balances attracting investment flows that strengthen our markets and business infra-structure, which looking at current valuations we see to be rather down on as it is.
That has nothing to do with monetary policy. It only shows your ignorance.
First of all:
consumption = income - investmentTherefore, the flat tax, which taxes income - investment is the same as a direct tax on consumption. Since they are the same, they impact the economy in the identical manner. This includes foreign trade.
You have suggested that tax paid on exported items needs to be rebated in order for the flat tax to be equivalent to the sales tax. Rebating tax paid on exported items has the effect of removing exported items from the tax base. Therefore, you are arguing that:
Consumption = Income - (Investment + Exports)
I think you know which equation is correct.
Therefore, the flat tax, which taxes income - investment is the same as a direct tax on consumption. Since they are the same, they impact the economy in the identical manner. This includes foreign trade.
Sorry doesn't work, under a retail sales tax only final sales to consumers are taxed, suppliers and manufacturers are not, which includes export sales.
The is no tax embed in price with an NRST at export level. All taxes collected from the chain of production remain inbedded with the Flat Tax, while the VAT at least provides a mechanism to reasonably rebate taxes paid by businesses through its credit voucher mechanism.
Flat Tax has no provision what-so-ever to rebate taxes paid by upstream suppliers thus exports go out laden with US corporate taxes including payroll taxes and all the overhead cost burdens attendant with those taxes under the Fat Tax:
Flat Tax as Seen by a Tax Preparer
by Vern Hoven
I think you know which equation is correct.
Sure do, as stated by economists rather than your pitiful attempt to amend amend it:
consumption = income - investment
"Here is the logic of our system, stripped to basics: We want to tax consumption. The public does one of two things with its income—spends it or invests it. We can measure consumption as income minus investment
The Flat Tax; Chapter 3, by Robert Hall and Alvin Rabushka
That last reply by you is as terrible an example of intellectual dishonesty as I have ever seen on these threads.
Consumption = Income - (Investment + Exports)
If Consumption = Income - Investment, why does the flat tax need to exempt exports from the tax base? My position is that since Consumption = Income - Investment, and that the flat tax tax base is Income - Investment, then the flat tax tax base is consumption. There is no reason to exempt exports from the tax base. The flat tax is inherently border neutral. I know of no economist who would argue otherwise.
On one hand, you say that the flat tax needs to exempt exports from the tax base to become economically equivalent to a sales tax. On the other hand, you deny that:
LOL, I don't claim them to be equivalent except in how much revenue they can generate.
That does not mean their impact is the same as regards consumer and business behavior. Nor that the impact different sectors of the economy the same for them most certainly do not.
The proposed Flat Tax clearly levies a tax at all levels of production on the basis of profits, capital gains, interest and dividends and upon individual income in the form of retirement investment returns and wages and any income used to purchase investment vehicles such as stocks and bonds.
The NRST clearly levies a tax only on retail sale of new goods and services and is collect from the purchaser with the business as a hired agent/collector for the government.
The results in the differences of collection and the imposition of cost throughout the chain of production of the Flat Income Tax lays a profound burden on the economy and individuals far greater than that laid by a retail sales tax.
why does the flat tax need to exempt exports from the tax base?
Because the proposed flat tax leaves corporate payroll excises in place and levies taxes on all profits, capital gains, interest and dividends of all upsteam suppliers and the export company as well, those taxes and the costs attendant with them, and the planning, accounting, and litigation costs that go with them are passed on in exports and are unrecoverable because the flat tax does not provide for any mechanism to recover those costs except for higher priced exports.
The NRST is not charged on business to business purchases, nor doe business pay income or payroll taxes thus is not even in the price of exports.
Fundemental differences in application means that the Flat Tax causes export pricing to be higher than under the NRST case. No NRST is charged on an export (to do so would would be in violation of a express prohibition in the Constitution) and thus the difference.
. The flat tax is inherently border neutral. I know of no economist who would argue otherwise.
Interesting I know of no economist that claims the flat tax to be border neutral at all. In fact I have found no economist to claim that. I know they consider the VAT to be because it is border adjustable when implemented as its invoice/credit version, the NRST is naturally because it does not tax business inputs or business at all. Sorry the Flat Tax does not meet either condition. A Flat Tax could be regarded a consumption tax if an only if it truly does not tax funds going to investment nor returns from investment.
With no mechanism for rebating taxes paid to upstream business supplying the manufacture of exports there is no way to even make the Flat Tax (consumption equivalent or not) border neutral.
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