Posted on 05/12/2005 12:25:08 AM PDT by FairOpinion
WASHINGTON - A presidential commission looking into how to make income taxes fairer and simpler heard pitches Wednesday from experts with ideas about revamping or replacing the current system.
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The commission examined plans to base taxes on spending rather than income, which could mean a national sales tax or a European-style value-added tax.
As for transforming the income tax, the commission heard proposals for comprehensive change and minor tinkering.
"Not one person who we encountered as we traveled the country told us that our current tax system was good for America and that we should leave it alone," said the commission's chairman, former GOP. Sen. Connie Mack of Florida.
After hearing complaints about tax laws, the President's Advisory Panel on Federal Tax Reform used this meeting to consider ways to replace the system.
Michael Graetz, a Yale Law School professor, offered an outline of how to meld income taxes with a value-added tax. That tax, used widely in Europe, imposes a levy on the increased value of a product at each stage of production.
Under his plan, consumers would see a 13 percent to 14 percent value-added tax appear on their purchases.
Individuals earning less than $50,000 and families making under $100,000 no longer would pay income taxes under such a plan. Those still paying income taxes would get a simplified system and a top tax rate of 25 percent.
"I am very skeptical that you can fix the income tax," Graetz said.
Federal Reserve Chairman Alan Greenspan has told the commission that he supports some combination of income and consumption taxes as a catalyst for economic growth. Others have warned about the dangers of a poorly designed hybrid.
A consumption tax could take the form of a national retail sales tax, a potential replacement for income, estate and payroll taxes. Americans for Fair Taxation offered a plan setting a 23 percent sales tax on purchases, with exemptions for the poor.
An alternate plan, offered by David Burton of the Free Enterprise Fund, would reduce the rate to 8.4 percent for individuals by also levying the tax on businesses.
In the event the current income tax was retained, experts made the case for ways to promote savings and to simplify credits and deductions.
That could mean letting businesses immediately expense their investments and expanding individuals' ability to save money tax free.
"Why go searching for some new, magic elixir with unknown results?" said Ernest Christian, director of the Center for Strategic Tax Reform. He said the value-added tax was an "exotic import" at odds with the U.S. tax experience.
Others endorsed keeping the incentives for homeownership and charitable giving that President Bush wants preserved, while reducing the many other deductions and credits now available.
The commission, which expects to make final recommendations this summer, discussed options for a flat tax that eliminates deductions and credits, reduces income tax rates and erases taxes on investment income.
"There's not a human being alive today who knows what's in the code," said Steve Forbes, a one-time presidential contender who favors the flat tax.
Commission members asked about how the country could shift to such a tax, wanting to make sure the government got the revenue it needed during that transition.
Former Sen. John Breaux (news, bio, voting record), D-La., the commission's vice chairman, asked whether people could accept a system that taxes wages but not investment income. Others raised questions about eliminating the current system's progressive tax rates.
Former Rep. Dick Armey, R-Texas, said it is a "big job" to convince voters that the poor and wealthy could benefit from a flat tax.
"What's fair is to treat everybody exactly the same as everybody else," he said.
Not that I agree with your statement - but compliance is an issue irrespective of the system. That compliance is an issue is, well, trivial.
Let's not cut too much out of quotes...
. It is totally dangerous to liberty (though most of ours is already gone) to say or enact tax policy in order to "prevent substitution bias."
Why would you want a tax system with "substitution bias". That is what we have now in the income tax system, where one kind of income is taxed another note, where specialize deductions and rule create favored niches in the economy and encourge the citizen to always be looking out for that loophole to hide thier income under that is specifically created by Congress to modify social and economic behaviour.
Tax policy should be about collecting the minimun necessary revenue to run Government. We must abandon the failing system of instituting taxes to mold public behavior.
That is why you want a broad tax base, with as few exceptions as possible in it. That way there is no favorites to be rewarded or olitical opponent to be punished in the the tax law. There should be no biases in the tax system and certainly the entire tax system should be open and in front of the direct perceptions of the electorate.
If people start bartering or "trading services" then that just means the tax is too high and it is time for the government to roll it back a bit
Definitely government should be considering rolling back services as well as rates in such a case. A fully visible tax, such as a retail sales tax acts in just the right manner to assure the voter starts pounding on the Congress Critter's door for less government an lower taxes.
or find new sources.
New sources? That sounds alot like hiding taxes from view to me, say as corporate tax in the background where it is unnoticed? Like VATs, GST's,corporate income taxes, business transfer taxes, .... Perfect way for government to start picking and choosing winners and loosers again.
I just get really worked up when people or politicians propose the idea that my labor is whithin their jurisdiction.
It is simply criminal to tax the sweat of a man or woman, in my view.
Only problem with that position is that every consumption commodity is a product of the labor of the citizens. The factor that distinguishes a consumption tax is that it is paid by the laborer out of wages when they purchase goods or servicds, rather than collected on the basis of taxed income which paid by the laborer when they earn their wage.
Any way you can view taxes, the individual citizen pays the tax, passed through in prices and lower wages when a tax is levied on businesses, as an income tax collected on the bases of earnings from the earner, or as a consumption tax when collected on the basis of one's purchases out of what they have learned.
The bottomline as regards liberty, is how much is government involved in reaching into our family privacy and lives to collect that tax what ever its form, and how visible is the tax to assure the electorate can perform that function with which we are all charged in representive republics, to excercise the "eternal vigilance" that is necessary to maintanance of our liberties and holding government to account for its excesses.
The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt."
-John Philpot Curran: Speech upon the Right of Election, 1790.
That is why consumption taxes in general were view to be superior to other forms of taxation by the founders of this government under the Constititution. The tax is visible and perceived by the citizen who is responsible for the payment of it and becomes a focus of the citizens's attention as regards their perceptions of government.
James Madison, Federalist #39:
- "The difference between a federal and national government, as it relates to the OPERATION OF THE GOVERNMENT, is supposed to consist in this, that in the former the powers operate on the political bodies composing the Confederacy, in their political capacities; in the latter, on the individual citizens composing the nation, in their individual capacities. On trying the Constitution by this criterion, it falls under the NATIONAL, not the FEDERAL character;"
Anti-Federalist Papers #3 NEW CONSTITUTION CREATES A NATIONAL GOVERNMENT;
- There are but two modes by which men are connected in society, the one which operates on individuals, this always has been, and ought still to be called, national government; the other which binds States and governments together (not corporations, for there is no considerable nation on earth, despotic, monarchical, or republican, that does not contain many subordinate corporations with various constitutions) this last has heretofore been denominated a league or confederacy. The term federalists is therefore improperly applied to themselves, by the friends and supporters of the proposed constitution.
- "A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land."
- "The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury."
- ``A CONCURRENT JURISDICTION in the article of taxation was the only admissible substitute for an entire subordination, in respect to this branch of power, of State authority to that of the Union.'' Any separation of the objects of revenue that could have been fallen upon, would have amounted to a sacrifice of the great INTERESTS of the Union to the POWER of the individual States. The convention thought the concurrent jurisdiction preferable to that subordination; and it is evident that it has at least the merit of reconciling an indefinite constitutional power of taxation in the Federal government with an adequate and independent power in the States to provide for their own necessities.
Under consumption taxes the revenue stream to government is more in the control of the citizen than when it is visible and open and can be reacted to in a naturally limiting manner.
- Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions."
- 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. ... Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment.
Seems they favor nrst individuals or nrst on individuals/business.
Let's not cut too much out of quotes...
Indeed, the key thing to watch for is they don't create a system that ends up hiding the tax from the voter all over again. A electorate can hardly be said to be able to exericise "eternal vigilance" when most of them have government imposed horse blinders on. A tax behind the scenes, levied on a business, is never more than a stealth tax on the individuals investing in it, purchasing its products and employed by it.
if you built (say) a barbecue (i.e. a good) and sold it to your neighbour he wouldn't pay you sales tax on it; why would it be any different if you went over there and physically built him a barbecue? only transactions between businesses and consumers should be taxed (i.e. not consumer to consumer like you posit).
And secondly, I do see that goods will suffer to services initially but, goods are "goods". They just can't all be replaced with "services" and many are necessities.
that would create relative overinvestment in service industries but that's a bit economically abstract. at any rate I don't see the problem with taxing services; if it's a consumption good or service provided by businesses to consumers then give it the flat sales tax treatment and that irons out any problems you've raised so far.
Also, if you mean things like phone, cable and water service when you say "services" we could be closer to the same page.
they're consumption goods or services, so yes (utilities like water... taxing that could be politically painful, but in principle yes)
I have always believed consumption taxation is the optimal model of taxation and I am glad that it is getting press in the US. Federalist #21 is dead on re "signal advantage" quote.
my optimal model of taxation in a federation of states would go something like this. the federal government would be constitutionally prohibited from levying taxes of any sort (or levies, or tariffs, etc). the states of the federation would raise revenue any way they see fit (once again, through consumption taxation preferably, and it may be a good idea to put that in the constitution as well, that the states are only allowed to tax/levy/excise consumption). The federal government would lay down its budget each year in consultation with the states (would be quite difficult with 50 states, mind you) and the states would fund the federal govt on a strict per-capita basis (might want to make the per-capita basis a constitutional thing as well, otherwise you'll get the inevitable cribbing for exceptions from poorer states).
ok better sleep now. comments?
Not that I agree with your statement - but compliance is an issue irrespective of the system. That compliance is an issue is, well, trivial.But some more than others. The NRST is the worst of them all.
What is a NRST on individuals/business? I don't recall a system like that being discussed.Seems they favor nrst individuals or nrst on individuals/business.Let's not cut too much out of quotes...
If you would take the time to REALLY study it you would find that the Fairtax does EXACTLY this without the excess baggage.
Amen to that MAN!!!
No, it's the system that will lose less to non-compliance than the others being considered.
Implicit in your belief, as well as the founders', is the notion that the federal government taxes businesses and states only. A head-tax should replace the income tax and the states should figure out how to best pass that burden along to their citizens. If the state spends money on behalf of the nation (interstate roads, etc.) it can "write off" those costs on a giant 1040 form!
No, it's the system that will lose less to non-compliance than the others being considered.Wait for the Panel's report. I can almost guarantee it will say a NRST should not be considered and that the main reason will be compliance.
The federal government would lay down its budget each year in consultation with the states (would be quite difficult with 50 states, mind you) and the states would fund the federal govt on a strict per-capita basis (might want to make the per-capita basis a constitutional thing as well, otherwise you'll get the inevitable cribbing for exceptions from poorer states).
That was tried prior to the Constitution, under the original Articles of Confederation.
It failed miserably to provide even the minimal needs of the Continental Congress to provide for bare minimums of federal government of the times. That is one of the prime reasons why we have the current Constitution and the strong tax authority granted to Congress in regards laying and collecting taxes in Article 8:
Constitution for the United States of America:
- Article VI: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."
- Article I Section 8: "The Congress shall have power to lay and collect taxes, duties, imposts and excises,
to pay the debts and provide for the common defense and general welfare of the United States;
but all duties, imposts and excises shall be uniform throughout the United States; "
- Article I Section 8: "To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof."
- The principle of regulating the contributions of the States to the common treasury by QUOTAS is another fundamental error in the Confederation. Its repugnancy to an adequate supply of the national exigencies has been already pointed out, and has sufficiently appeared from the trial which has been made of it. I speak of it now solely with a view to equality among the States. Those who have been accustomed to contemplate the circumstances which produce and constitute national wealth, must be satisfied that there is no common standard or barometer by which the degrees of it can be ascertained. Neither the value of lands, nor the numbers of the people, which have been successively proposed as the rule of State contributions, has any pretension to being a just representative.
- "The change relating to taxation may be regarded as the most important; and yet the present [Continental] sic Congress have as complete authority to REQUIRE of the States indefinite supplies of money for the common defense and general welfare, as the future [Constitutional] sic Congress will have to require them of individual citizens; and the latter will be no more bound than the States themselves have been, to pay the quotas respectively taxed on them. Had the States complied punctually with the articles of Confederation, or could their compliance have been enforced by as peaceable means as may be used with success towards single persons, our past experience is very far from countenancing an opinion, that the State governments would have lost their constitutional powers, and have gradually undergone an entire consolidation."
James Madison, Elliots Debates Vol 3 p128:
- Mr. Chairman, in considering this great subject, I trust we shall find that part which gives the general government the power of laying and collecting taxes indispensable, and essential to the existence of any efficient or well-organized system of government: if we consult reason, and be ruled by its dictates, we shall find its justification there: if we review the experience we hav had or contemplate the history of nations, here we find ample reasons to prove its expediency. There is little reason to depend for necessary supplies on a body which is fully possed of the power of witholding them. If a government depends on other governments for its revenues -- if it must depend on the voluntary contributions of its members -- its [*129] existence must be precarious. A government which relies on thirteen independent sovereignties for the means of its existence, is a solecism in theory and a mere nullity in practice.
*** snip ***
- If the general government is to depend on the voluntary contribution of the states for its support, dismemberment of the United States may be the consequence."
See also: James Madison, Elliots Debates Vol 3 p249: On Problem of Requistions and Direct taxation.
Implicit in your belief, as well as the founders', is the notion that the federal government taxes businesses and states only. A head-tax should replace the income tax and the states should figure out how to best pass that burden along to their citizens.
I suspect you had better take a closer look at history for the founders expessed intent as regards taxation under the Constitution.
Refer comments #23 & #36. Taxes on commerce & consumption were the preferred mode, with capitations and poll taxes relegated to the last resort position along with taxes on property (i.e. direct taxes).
Are you asserting that the panel's findings are infallible?... or that politics will not distort the report?
If a member of the panel says it will make old people eat dog food, will you accept that?
There's more that's certain than just death and taxes ... you have to include evasion. It will be there in ANY sort of tax system that can be imagined.But some more than others.
In fact, even the IRS admits to something like a 20-25% revenue "shortfall" due to evasion for the present income tax.It's more like 15-17%.
In view of that fact,As I showed, it's not a fact.
how is it that you believe the FairTax is, somehow, deficient in that regard?More than anything else, common sense. All the tax is collected at one point in the chain and there is no verification of the transaction (no double reporting). The only way to know if a business is cheating is spot audits.
It shouldn't surprise anyone the all the other panel members "had issues" with the FairTax on evasion since each was proffering a different and competing tax plan. That certainly gives no credence to any evasion issue - all those plans have them as well!Again, different plans have varying degrees of evasion/avoidance. The NRST is the only plan I can recall the panel expressing concern about, though. I would be shocked if they suggested a NRST when the same thing could be accomplished with a VAT.
Since you seem, from your comments, to be opposed to the FairTax, what sort of tax system do you prefer (VAT, flat, other) and how does that preferred system eliminate or minimize evasion?Flat tax or a VAT. Neither collects all taxes at one point and both have more than one reporting of most transactions.
That's misleading to use inclusive rates! /sarc
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