Replies

phil_will1 wrote:
I disagree. First of all, as I previously pointed out, the deductions are where the bulk of complexity lies - not in the rate schedule. We tried a semi-flat tax in 86, and now the Code is far worse than it was then. Would lobbysists/legislators try to complicate a sales tax system? Of course, but those who worked so hard to enact a simpler, fairer system would be fighting them tooth and nail.

Let's look a little more closely at this. I think you're doing more to support my point than your own.

I'll agree that we tried a much simpler tax code in 1986. Fewer rates, fewer deductions, semi-flat characteristics, much simpler than the code that immediately preceeded it.

Now, nearly 20 years later, we have none of that simplicity. We have more tax rates, a bunch of different "refundable" credits, expanded deductions, and all kinds of added complexity.

Do any of the sponsors of this "fair tax" have any history of fighting tooth and nail against needless complexity and bad tax policy? On what basis are you assuming that they will fight changes to a sales tax code tooth and nail? Is that just wishful thinking on your part? Or is there some actual evidence that at least the supporters of this proposal have a history of resisting changes and needless complications added to the tax code? And what about the part of Congress that won't support the fair tax initially? You aren't even going to try to convince me that those people will not try to add complexity and junk up the new sales tax code to "improve" it and make it more palatable to their constituencies, are you?

Unless the voters start voting people out of office because of this counter productive behavior, the critters in congress aren't going to stop this. And the fair tax supporters would be a lot more credible if they could show some credible history of simplifying the current code and keeping it simplified for a reasonable period before trying a wholesale replacement.

With no history of resisting changes, we have to assume that the sales tax code will become convoluted and complex fairly quickly. There's no credible reason to believe otherwise, and I don't care how badly you want to beleive the congress won't needlessy complicate and convolute the fair tax, it still will happen.

So then the question becomes, do you want to have to deal with a complex and convoluted tax code once a year for an income tax return? (Or once a quarter for your estimated tax payment?) Or do you want to pay the compliance cost of your grocery store, gas station, home improvement warehouse, convenience store, liquor store or whatever having to wade through a convoluted sales tax code every time you buy something? Because with the "fair tax," in 10 years, it will take a whole lot of computing horsepower and a fair amount of CPU time to calculate the sales tax on your weekly grocery run. And you can probably count on a lot more paperwork at least annually to compute what your monthly "rebate" check will be.

In a worst case scenario, you might end up having to provide a federal taxpayer ID of some kind in order to buy anything at a store. I doubt that's on the immediate horizon. But I also doubt that in 1913 anyone could forsee that you would have to provide a taxpayer ID number and photo ID to an employer before they could hire you.

phil_will1 wrote:
You believe that a flat tax would be as effective in stemming the trend toward complexity and higher compliance costs, our history with an income tax (which began as flat) notwithstanding.

And you believe that a "fair tax" that starts out flat will stem the trend toward complexity and higher compliance costs. But you ignore what has always happened to "flat", simple federal taxes, at least the ones that are broad based and apply to a lot of taxpayers and a high volume of transactions.

There's nothing but wishful thinking on the part of "fair tax" supporters to support that belief.

I'll admit that I'm speculating here. But you are also speculating about the future, and your speculation has no basis at all in any history available. My speculation is more of an extrapolation of decades of tax policy history. Your speculation assumes that tax policy history will completely change and magically reverse itself with the implementation of a new tax system.

pigdog wrote:
All of the above clearly shows the gross misrepresentation in your statement: "Transactions that go untaxed due to tax avoidance or tax evasion under the current system will also be untaxed for the same reason under the NRST."

Odd that you call it a misrepresentation after agreeing that the same transactions that go untaxed due to tax evasion with the income tax go untaxed due to tax evasion under the NRST. If you want to say I'm making a misrepresentation, please point out which specific transactions you believe are untaxed now that would be taxed properly under the NRST.

pigdog wrote:
The assumption you make opf 2,000 changes in the first 5 years (as with the past 5 per your numbers) is quite funny in view of the utter simplicity of the FairTax as it now is written. There is nothing like the corpus of arcana that exists with the IT. By comparison the FairTax is an open book and changes would be MUCH more visible - and therefore those attempting them would be more accountable than at present. I believe it would be MUCH more difficult to make the sow's ear when starting with a silk purse that is apparent to all.

See my previous response to phil_will1. You can believe anything you want. That won't change what actually happens. Do you have any actual evidence that it will be more difficult to implement changes to the NRST if it's implemented. I don't see any reason to believe that the same lobbyists and congress critters that gave us our convoluted, arcane income tax code won't be able to give us a convoluted, arcane sales tax code.

The income tax started out as something fairly simple. The 1913 Income Tax Act was probably only 1/3 of the size of HR 25, so I don't think you're starting out with a simpler tax than the income tax was at the beginning. And I doubt that the taxpayers and citizenry will be any more vigilant or observant of changes to the sales tax code than they are with the income tax code.

And the NRST won't tax all goods the same. Right from the start, some goods will be taxed more than others. There are fuel taxes on gasoline and diesel fuels. There are taxes on tobacco and alcoholic beverages. Even if the sales tax code stays relatively static, there are plenty of other opportunities for lobbyists and social engineers to exercise their control over our lives.

The problem isn't so much that the tax code itself is socialist in nature. The problem is that there are a bunch of socialist legislators who write the tax code. HR-25 won't change that. The same bunch of socialist legislators will be in charge of writing the sales tax code for the NRST.

pigdog wrote:
It's more than a bit difficult where your statement about a "windfall" for the government and an expansion of their powers comes from since that is clearly not the case from the wording or intent of the bill ... in other words, a completely unsupported statement.

Actually, the windfall to the government follows logically from the claims of "Fair tax" supporters and the bill presently being discussed.

This requires some logical thought and analysis. Tell me if you disagree with anything here, or if I get anything grossly wrong.

First, when the "Fair tax" (so called) is implemented, all employers will get several positive effects from it. They won't have to withhold income taxes and FICA taxes from employees' paychecks any more, and they won't have to send those payments to the government. Most so called "Fair tax" supporters assume that the taxes withheld from the employees' paychecks will be paid to the employees. Hence the claim that you get to keep your whole paycheck.

But there's more. The so called "employer's share" of the FICA taxes won't be due any more either. And there will be less of an accounting burden (and less of a burden for the attorneys in the legal departement as well) under the fair tax. Supporters of the so called "Fair tax" tell us these savings will be passed on to customers in the form of lower prices, and/or passed on to shareholder in the form of higher earnings.

And it doesn't stop there. Since all organizations will be cutting prices to customers due to market pressures, and since goods bought for business uses are exempt from the so called "fair tax," employers will also see their operating costs fall as prices generally fall from the removal of embedded taxes and compliance costs. Revenues might fall slightly, but since costs are also falling, profitability will increase, or at least not be hurt.

So far, this is just the (so called) "Fair tax" mantra. Are you with me so far? Have I gotten anything wrong?

But here's the kicker. There's one employer, one organization, and they are a large one, and they take a significant portion of my monthly budget. This one employer has already announced that they have no intention of charging less money for their services. They intend to keep all of the benefits of this so called "fair tax" for themselves. They will not allow the so called "fair tax" to reduce their gross revenue stream for any reason. This organization doesn't care that stuff will cost less. They will just buy more with my money.

Care to guess which organization it is that won't cut their prices, won't reduce their gross revenue stream and won't pass any of the alleged savings of the so called "fair tax" on to me?

No apology required ... got the info and thanks for the answers.

You asked "Do any of the sponsors of this "fair tax" have any history of fighting tooth and nail against needless complexity and bad tax policy?". The answer, of course, is a resounding "yes" in that many of the FairTax sponsors (and supporters) have been "fighting" as you put it to bring the FairTax into being as the tax law of the land. Understand that there are something like 600,000 FairTax members which represent a very good start of aware citizens.

I expect the FairTax bill to pass pretty much in its present form and start life as a much cleaner, simpler tax system than even the 1913 tax bill ever was since that tax bill already had in its makeup the seeds of its own destruction with exemptions, deductions, etc. and the very basic flaw of giving the government the ability to DEFINE "income" and to control citizens through the "aberrations" of deductions, etc. built in at its inception - and increasing thereafter. Those sorts of things are open invitations to political meddling. The "1913 experience" has certainly taught us (finally) what happens when you allow such a weakened bill into law.

With the FairTax, OTOH, the taxable item is not something such as "income" already at the start replete with deductions, exemptions, etc., but end-consumption retail sales of goods and services without all the aberrations just mentioned. That is a more concrete and identifiable tax basis than the sort of "income tax" at its inception, even, in 1913. It was all of those very deductions, exemptions, etc. that were the death knell for the IT as it clearly showed the pols a way to manipulate and gave the inference that taxpayers were amenable to that sort of manipulation - after all, it was there as a starting example. There certainly are no similar embedded starting points in HR25 despite your fanciful speculation of future government controls. After all, it is up to us to elect the pols (or not) - many people seem to have forgotten that or have the hopeless attitude they cannot do anything to influence the fellows in DC. Despite what you may think, you can by grassroots support.

The FairTax is much cleaner initially than even the 1913 tax bill and by modern legislative standards is a small bill in size. The history of trying to eliminate the anathema of the IT (along with its bugbear the IRS) is clearly the "fighting against complexity and bad tax policy" you inquire about. As for attempts to change the FairTax bill, as I said in my last paragraph of #660 (which perhaps you might re-read since you may have missed it) there certainly WILL be attempts to defeat the bill legislatively either by outright opposition or by offering up alterations that have the effect of gutting and weakening the effect of the bill. This is already well known, I think, to most who support the bill presently.

Actually, you needn't even pose the question of which tax system most reasonable people would rather live under; the present IT or the FairTax. The answer is very clear to most people - the FairTax would be far, far less intrusive in our private lives that the IT and there would certainly would be no need at all ".. wade through a convoluted sales tax code every time you buy something ...". In operation the FairTax is simplicity itself and even for the retailer reporting the sales each month the report required is greatly simpler (is is identified in the bill) than the body of reports required for the IT --- and the retailer is paid for doing so.

With the FairTax, the government has no say so over how (or when, or if) I spend my money to consume ... and there are no penalties on (or legal nightmares facing me) as an individual payer of the tax. Those things are certainly at least potentially if not actually there there with the IT. The choice is a zero-brainer for most except those who support the status quo or who haven't (yet) found out what is involved in the FairTax. If you've never been treated to the tender mercies of the IRS under the present IT system, you just haven't lived.

My observations about the FairTax vs the IT are based upon observation of the two tax systems at inception and I showed above why the IT was greatly flawed from the beginning which some politicians of the time realized:

""A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house....The law will of necessity have inquisical features, it will provide penalties, it will create complicated machinery. Under it men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the taxpayer. An army of federal inspectors, spies, and detectives will descend upon the state." -- Virginian House Speaker Richard E. Byrd, 1910, predicting the consequences of an income tax."

Too bad we didn't listen. But you see that, unlike your statement that it could not be foreseen, indeed it was and clearly so.

The avoidance/evasion comments in #660 were referring to income obtained by drug dealers which clearly have no income tax paid directly to the government by the volition of the criminal. As I pointed out the situation changes when the sales tax collects 23% from his purchases - considerably more than at present.

As we've seen, even the 1913 tax code was anything but pristing OR simple and carried the seeds of its own destruction. The FairTax is quite different and starts us with a much cleaner tax slate making it much more difficult to legislatively assault. It is up to us as taxpayers to begin to control those who are out of control in DC (and not all are - witness the building number of co-sponsors).

The one employer you mention is - believe it or not - subject to voter control and must operate under a set of laws. One of these laws, when repealed, will help make it more and more likely the IT will not rear its ugly head at least in our lifetime under reasonable circumstances. In addition with coitizens having the ability to withhold tax revenues is they don't like government spending it will certainly soon dawn on the Congress that indeed things have changed and this ain't your Father's IT no mo' with most of the bils introduced to add some particular loophole or special exemption to the IT which can't be seen by the citizens since they can't see their tax burden. It's called empowering the people a bit. Your presumption that they won't cut their prices is just that - a presumption.

"So then the question becomes, do you want to have to deal with a complex and convoluted tax code once a year for an income tax return? (Or once a quarter for your estimated tax payment?) Or do you want to pay the compliance cost of your grocery store, gas station, home improvement warehouse, convenience store, liquor store or whatever having to wade through a convoluted sales tax code every time you buy something? Because with the "fair tax," in 10 years, it will take a whole lot of computing horsepower and a fair amount of CPU time to calculate the sales tax on your weekly grocery run. And you can probably count on a lot more paperwork at least annually to compute what your monthly 'rebate' check will be.

In a worst case scenario, you might end up having to provide a federal taxpayer ID of some kind in order to buy anything at a store. I doubt that's on the immediate horizon. But I also doubt that in 1913 anyone could forsee that you would have to provide a taxpayer ID number and photo ID to an employer before they could hire you."

That's a pretty frightening picture you paint. Before we get too frightened by it, let's examine it a bit further.

First of all, even if differential rates on various consumption items and complicating the rebate are inevitable, as you suggest, that still doesn't even come close to the 60,000 page monstrosity that we have now. Absent from the equation would still be holding periods for capital gains/losses, computing the tax basis for capital property, amortization of business start-up costs and other intangibles, AMT calculations, depreciation schedules (inc. different useful lives and depreciation methods for different types of assets), floors and ceilings for all sorts of deductions, R&D tax credits, deferred taxes for book purposes (which may be an asset or a liability), different types of retirement accounts and the distinct tax treatment of each, different types of child credits, etc. etc. etc. etc. etc. etc. etc. IOW, even if the worst case scenario that you paint for the implementation of a sales tax were to come about, it still would not be nearly as bad as what we have now.

Now, let's examine the likelihood of your worst case scenario developing. Since you brought up the importance of historical precedent, let's think about our extensive history with sales taxes. I believe there are 45 states which currently have sales taxes. Correct me if I am wrong, but I don't think any of those have been added within the past 15 years or so. How many of them have the degree of complexity that you insist is inevitable for an NRST? Zero, zip, nada, nary a one. In fact, most of the complexity with state and local sales taxes arises from jurisdictional differences, a problem that would be non-existent with an NRST. Furthermore, there is already a substantial move to simplify and standardize sales taxes nationally. You can learn more about the SSTP here
http://informationweek.com/story/showArticle.jhtml?articleID=163105744

So here is what we can say about our rather extensive experience in this country with sales taxes
1. in no case are they nearly as complex as the scary scenario that you painted, which isn't even as bad as the current system from a complexity standpoint,
2. the elimination of deductions removes a vast "playground" for elected officials to exercise their proclivity for complication,
3. contrary to income taxes, the trend right now in mid 2005 is toward simplifying sales taxes. That certainly isn't a recognizable trend with respect to income taxes.
4. Because the FairTax would encourage states to harmonize their tax systems with the FairTax, and there are good reasons to believe that they will, passing the FairTax can even be expected to have a positive effect on state revenue systems, as far as complexity goes.

Therefore, I don't think it is even debatable whether or not passage of the FairTax would result in a simpler, less burdensome system than the current one, both initially upon passage and for years and years afterward. The FairTax as currently written represents pretty much the "irreducable minimum" as far as simplicity. The question is to what extent FairTax supporters would be able to successfully fight to keep it "pure". Even a huge, exponential complication of that current irreducable minimum would leave us with a much, much simpler system than the one that we have today.

There is one very important reason that simplifying the current system is impractical. The jumbled up mess of spaghetti that our current system has evolved into is one in which any change in one area will have a ripple effect on others. I don't believe, for example, that President Bush set out to complicate the tax system with his tax cuts when he came into office 4+ years ago. It is simply the nature of the current system. There are major problems with the current system which must be addressed, such as the AMT. Trying to do so without adding complexity will be an exercise in futility. And I'm just talking about the major equity problems, not the economic problems. There is no way, for example, that I am aware of to retain the current system and make our tax system border adjustable so that our producers can compete on a level playing field with their international counterparts without MAJOR redesign and complication.

A friend of mine with a technology background made a good analogy that I think is appropriate to this discussion. He said that there are times in business when the application software that the business runs on has been modified so many times and has had so many "band-aids" applied, that it just makes more sense to throw the whole system out and start all over with a comprehensive, well-designed replacement, even though software conversions are a major pain in the ___." He said that we are probably a good 10 - 15 years beyond that point with our tax system.