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.
But eliminating the income tax and taxes on business altogether and replacing them with a retail sales tax would indeed be the FAIR and straight forward way of doing it.
Tax Reform PING.
"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."
Spoken with a forked tongue.
On the Net:
President's Advisory Panel on Federal Tax Reform:
http://www.taxreformpanel.gov
http://www.taxreformpanel.gov
You can subscribe to their e-mail news letter.
I didn't know of their webpage and just checked it out.
Sorry for the piecemeal addition of info, but I think it's interesting.
I just found out from their website, that they are holding open hearings May 11-12.
Here is the agenda of the testimony:
http://www.taxreformpanel.gov/meetings/meeting-05_11-12_2005.shtml
From an economic point of view something like the fairtax would be economically optimal since it would divert income from consumption to saving plus the removal of other taxes on saving and investment.
much as I hate to say it it sounds as if the fairtax would be a pain in the ass to implement, what with all the cribbing for exemptions and whinging seniors.
I used to be a fan of the national sales tax and actually still have the sticker on my truck but... I studied deeper and finally had to admit that it is the means by which "the powers that be" will finally have the micro managing control over econemies that they always wanted. Don't worry I don't hear any black helecopters, ha. It's just the basic outgrowth of trying to manage massive economies based on a floating currency, with intrest rate manipulation and debt volume to fill the "valleys" in the chart.
We have been on this system for 70 or 80 years now and it was doomed from the beginning unless we would have had super computers in 1930.
Allas, egos got the better of the money men in that era way before they could realize the monumental task they had set ahead of themselves by trading the gold standard for a managed currency. Fast forward to today and nothing is new under the sun... egos win again and a new batch of "mere mortals" think that if we only had the data and taxing authority that would be supplied by a National sales tax, we would finally be able to excersize enough control on the econemy to ensure prosperity forever and avoid the train wreck of paper econemies.
Sorry for being long winded (I dable in economic studies). I'll put my suggestions in another post. don't get me wrong, I am a big fan of revamping of course.
I actually think that the founding Fathers were the geniuses some of us believe they were. They did put three forms of taxation in the constitution and "wage tax" was definately not one of them. So, I'm definately not a fan of income tax. The three forms that I would endorse (as if my endorsement mattered) are found in the constitution: A) Tarrifs B) commodity taxes C) head taxes (usually reserved for wartime or extrordinary situations).
The founders reasoned that these taxes would not prohibit the "pursuit of happiness" (property) and it could be easily determined when the tax had become too high because the commodity would fall out of favor or barterring would spring up. Tea tax too high?... everyone starts liking coffee; or, you say directly to the grower, "I'll trade you two chickens for three pounds of tea?".
of course these days that logic is totally lost on our fearless leaders. You don't like the cigarette taxes today?... don't you dare start trading with the wholesaler or the ATF will visit you. Who cares how high the tax is when you can MAKE people pay it.
Anyhow, in the tradition of our founders, I say we go back to the constitutional taxes. That will finally let us own our property again and they will be so 'visible' that poeple will make some real noise when they get too high. That might give us a responsive government. what a concept.
Any new tax system should not prohibit ownership, be very visible and have a low low low bureaucracy factor. The IRS should be reduced to a little accounting outfit that reports "internal revenue" to the government. Whatever comes in, they just log it and send a spreadsheet to the congress.
Income taxes, estate taxes, property taxes and the like, all prohibit ownership of anything and income tax is the worst of the bunch because it potentialy prohibits ownership AND liberty. Try not paying for a while and see if your "liberty" gets restricted to an 8x10 cell.
"A combination of income and retail sales tax would be deadly."
Never a more true statement. If we get to reform the system, it should be much more visible. No more "witholding" and definately no "VAT" somewhere in the supply chain bloating consumer prices. The ones you can't see are always the most dangerous.
Good posts Clarion. Another thing I just remembered about fairtax or similar sales taxes, is that by taxing only goods, they create a substitution bias away from goods and toward services.
that's easy to fix though, just tax services as well as goods (as a result you can get away with a lower rate too).
when it comes to consumption taxes I am more a fan of plain flat retail or wholesale taxes vis a vis a GST or VAT type tax. there are advantages and disadvantages to both systems but overall i think sales taxes are better, albeit like i said a sales tax needs to be applied to services as well to prevent substitution bias.
Well... yes and no. That's what I was trying to get at with the founders. 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."
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.
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 or find new sources.
I'm not meaning to jump all over your ideas, you are right about the main point. The consumption based taxes are far better than anything we currently have.
I just get really worked up when people or politicians propose the idea that my labor is whithin their jurisdiction. Your labor or even mental abilities are the only thing you truly own and even that has been rested from you. If you don't give an unkown, undeserving third party, a cut of your labor via the nanny-state... get ready to lose all you posession and then your liberty.
It is simply criminal to tax the sweat of a man or woman, in my view. That is why I terribly dislike the current system.
Truth is, I'm dreaming if I think the Congress and President would allow a tarrif/commodity system to come back to prominence. The loss of power for them would be far too great.
Too bad really. It ran our country for about 150 years. but, the founders could have never imagined the everwhelming Nanny-state that would suck up even super high tarrifs and taxes on every commodity available plus a crushing head tax to boot. And we'ld still have a defecit, ha ha!
Tax policy should be about collecting the minimun necessary revenue to run Government.
what i mean is, if you're going to tax, you may as well tax in such a fashion as to maximise economic growth.
all income is by definition saved or consumed; so therefore consumption taxes will create a substitution bias toward saving. in turn, consumption taxes on goods only (and not services) will create a substitution bias toward services, etc. so we can make a couple of mutually agreeable conclusions:
1) taxes should be levied only on consumption, not on income or on capital gains or land or whatever. the rationales for this are many and endless but suffice it to say that consumption taxes create a substitution bias away from consumption... tax something and you will get less of it.
2) so we're at consumption taxes. if you tax some things (say, goods) and not other things (say, services) you will create a substitution bias toward the relatively cheaper item (that without taxation). So, if a country wants to implement a consumption-tax-based tax system - and I recommend such a system with the highest praise possible - they should tax ALL consumption (i.e. services as well) and equally (i.e. same rate on everything).
with that, they can then proceed to scrap all income and capital gains taxes post haste!
Well, I should really have been in bed about 4 1/2 hours ago but, let me take another stab at this.
Your conclusions are right (mostly). I just principaly dissagree with taxing service (labor). I wish the Government good luck in making me into a tax collector every time I fix someone's sink or build them a garage. Taxing 'service' begs for a black market or another IRS type agency (yikes!).
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. If the government finds themselves short on cash under a consumption model, they should darn well look at reducing the rate to enduce consumption or cut back on government.
Never the less, I dream of a day when income, capitol gains, estate taxes and the like are all replaced.
Also, if you mean things like phone, cable and water service when you say "services" we could be closer to the same page.
If you would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25), offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
H.R.25,S.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information:
Good posts Clarion. Another thing I just remembered about fairtax or similar sales taxes, is that by taxing only goods, they create a substitution bias away from goods and toward services.
that's easy to fix though, just tax services as well as goods (as a result you can get away with a lower rate too).
Interesting, that is precisely what the FairTax legislation proposes to do.
H.R.25 repleals all federal income and payroll taxes, as well as AMT, capital gains, and gift/estate taxes and replaces them with one, single stage single, rate tax collected at the retail register administered by state tax bureaus in parallel with current state and local retail sales taxes.
Bottom line is a visible single rate retail sales tax, on all new goods and services with no exceptions or exemptions for anyone.
Seems they favor nrst individuals or nrst on individuals/business.
That's fine, cuz it will be obvious that the latter is just hiding taxes in prices. They'll get over that - that's part of the reason we want reform....
Seems they favor nrst individualsWhat gave you that idea? Every member of the panel yesterday said they had issues with a NRST and compliance, which is the Achilles heel of the FairTax. Wright was never able to give a reasonable answer to the compliance questions.
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