Posted on 05/27/2005 10:53:33 PM PDT by Extremely Extreme Extremist
President Bush is calling for a complete overhaul of the broken U.S. tax code, and his Advisory Panel is holding hearings to make recommendations for reform. As I testified to the Panel earlier this month, instituting the flat tax is the right answer.
Our current income tax system is a catalog of favors for special interests and a chamber of horrors for the rest of America. As a country, we spend more time filing taxes than we spend building every car, truck, and van produced in the United States. To put this in perspective, it takes the average taxpayer over 26 hours to file a standard 1040, which has caused over 60 percent of Americans to pay a professional to complete their taxes. Simply complying with the complex tax code costs $194 billion each year, or about $650 for every man, woman, and child in America.
Aside from the tax system’s complexity and unfairness, it also inhibits saving, investment, and job creation; it imposes a heavy burden on working families; and it undermines the integrity of the democratic process. The U.S. tax system cannot be repaired by tinkering or fine-tuning. It must be completely replaced with a simple and more efficient alternative. Of the many proposed reform measures, the flat tax best meets the goal of collecting revenue in the simplest, fairest, and most transparent manner possible.
The flat tax will replace the current tax code with a flat-rate income tax that treats all Americans equally. All income is taxed only once and at one rate. There are no breaks for special interests and no loopholes for powerful lobbies, just a simple tax system that treats every American the same.
Individuals and businesses will simply complete a tax return the size of a postcard. All deductions and credits would be eliminated, while the only income not subject to tax would be a generous personal exemption for every American. For example, a family of four could be exempt from the first $40,000 of income. This personal deduction would be indexed to inflation and the flat tax rate could be calculated to be revenue neutral, so as to not increase the deficit in the process of enacting this important reform. Additionally, according to a study by the former chief economist for Congress’ Joint Committee on Taxation, national income would be 5.7 percent larger after five year under the flat tax than under the current system. That means over $500 billion in increased output or more than $3,000 in additional income for a typical family of four.
One competing idea-- the national sales tax-- exhibits the perception of efficiency, but we cannot introduce such a powerful new tax collecting regime unless the 16th Amendment to the Constitution is repealed (a highly unlikely event). Otherwise, we risk the harmful reality of having to pay both a national sales tax and a federal income tax. Therefore, those in favor of modernizing the current code should work towards enacting the flat tax. It solves the problem and it is politically achievable.
Every American will benefit under a flat tax system. An increase in national income will increase charitable giving, lower interest rates will more than offset the loss of the mortgage deduction in the current system, the income exemption will continue the tax code's progressive precedent, saving for your retirement or children’s education will be easier, the marriage penalty will be eliminated, the deduction for dependent children will double, and every taxpayer will see their tax rates reduced.
For the sake of fairness, simplicity, and an improved economy, I strongly urge the President’s Advisory Panel on Federal Tax Reform to recommend the flat tax.
Former House Majority Leader Dick Armey currently serves as co-chairman of FreedomWorks, a national grassroots organization fighting for lower taxes, less government, and more freedom.
Let me give you a clue, AG. If an economist doesn't make assumptions he isn't an economist. That's part of the job. It's a soft science.
Seems we should address some misconceptions that each of your excerpts raise and encourage folks to actually read the full material that your quotes are taken from.What misconceptions? My group of quotes are specifically on price levels after the switch to a NRST. My quote from Kotlikoff addresses that issue and stands on it's own. There was no need to post all of the other stuff you did. It did not change the statement I posted one bit. If you would like to address other points from his statement, cut & pastie away!
Interestingly, one may wonder where wage decreases arise from when business income and payroll taxes are repealed and heavy tax related overhead costs on business decline allowing for lowering of producer prices without impacting wages at all.You're making assumptions, AG. (What were you saying about assuming?) Unfortunately for your position, a vast array of learned economists (including the authors of the FairTax) assume otherwise. So who's assumptions should we trust? The learned economists or the anti-IRS tax kook who's emotionally invested in a specific tax proposal? Tough choice.
Somehow expecting the Fed to act in a way to reduce folks wages seems to be some what of a stretch especially seeing that much of the NRST tax impact will be reduced by the normal competition for market share optimizing business profits at lower producer(i.e. shelf, pre-tax) prices.What you don't seem to realize is that the only way producer prices can drop the amount you propose is only if wages drop also. This is what was happening in Jorgenson's model that led you to believe in the "FairTax Miracle." Unfortunately, it can't happen.
However, seeing your quote is a footnote afterall, it also behooves us to also look at what the footnote actually was in reference to:Why? The footnote stands on it's own. Oh, right. It's just an opportunity for more cut & pasties. (FreeRepublic should sue you for the bandwidth you waste.)
One should be keeping in mind FairTax legislation in HR25 actually proposes a maximum marginal tax inclusive rate(i.e. included in payment) of 23%,And, of course, it will be the first bill in history to be pass as proposed! Another FairTax Miracle!!
Only a retail sales tax assures visibility of the cost of government in a proportionate personal way in comparison to the benefit one receives through his consumption, instead of tax on the contribution one makes through productive efforts as measured by income whether such be in wages received or earnings from property at risk.OMG! You're right! Only the FairTax can save us! What was I thinking? I've been blind for so long! But you taught me to see. Thank you, AG! Thank you!
Right- that's one of the problems of having invisible taxes such as those hidden in prices (not shown or quantified anywhere) - taxes like business income taxes, employer payroll taxes and other federal tax related expenses like compliance costs.
...what makes you think things will change in the future?
One of the changes will be that we'll get our paycheck free of federal deductions - the increase in take home pay will be noticed - and that increase is what used to be withheld by the feds for income tax and payroll tax.
Another change will be that one's full federal income and payroll tax burden will be shown on receipts, quantified that is.
Third, and by far most important IMO, is that folks will have to pull extra $ out of their pockets, everyday, to pay for their tax burdens. Eliminating withholding AND making folks pay with cash will make a lot of folks change the way they think w/ respect to government spending.
That's fantasy.
And you wonder why nobody trusts you? Omitting relevant portions of text and using your own comments to connote that the entire quote's meaning is different than it really is - that's one of the main reasons.
How about your fantasy that tax incusive rates don't exist...but insisting on using them! LOL
I wish you'd get started on the math again!
How about your fantasy that tax incusive rates don't exist...Actually I'm beginning to think I'm your fantasy...Aside from that, to illustrate how confused you are on "inclusive...exclusive" I said with accuracy that there can't be an exclusive tax rate on, of or against I-N-C-O-M-E...
Get it?
fantasy? what's 100-22? You used to think it was 88 ... for an entire thread... until you were corrected several times.Oh lucky you...After 6 yrs you finally found something (if you want to call a mistake something) you can pound me on the head with...oh yea except for your made-up, baseless fantasy about me selling some pay no tax kits that for some strange reason only you have ever heard of.
everyone makes mistakes... but even after it was pointed out, you insisted on using it for the basis of your argument. THAT'S what's dumb.
Looey - do you deny that you were once posting on the Tax Protester threads with views completely in line with the TP crowd??
Do you deny that you once made a 400% error on an arithmetic problem THAT YOU DEFINED??
Come now, looey, be honest and stop taking things out of context.
It's good to see that you are finally beginning to see the light and, presumable, have given it up on your Nightmare VAT/Nightmare Flat tax notions.
Your support of the FairTax makes just one more convert.
(You are supporting it now, right??)
OMG! You're right! Only the FairTax can save us! What was I thinking? I've been blind for so long! But you taught me to see. Thank you, AG! Thank you!
Your welcome.
There was no need to post all of the other stuff you did.
Sure there was, as the material you quoted had a much greater context demonstrating how opponents of the NRST misrepresent it through fallacious, inconsistant and incomplete arguments.
Surely you would want folks to see the import of Mastromarko and Burton's remarks regarding William Gales comments regarding prices and wages without having to load a full PDF, wouldn't you?
Omitting relevant portions of text and using your own comments to connote that the entire quote's meaning is different than it really isBut they weren't relevant.
Sure there was, as the material you quoted had a much greater context demonstrating how opponents of the NRST misrepresent it through fallacious, inconsistant and incomplete arguments.My quote from Mastromarco and Burton was none of those. None of what you posted changes what they said. They clearly stated that either inclusive prices and after-tax wages stay the same; or prices and after-tax wages will increase. It's their opinion that it's an "either/or" situation.
"The replacement sales tax could be incident on the factors of production or it could be incident on consumers through higher prices. It cannot be both. If it is incident on the factors of production, then wages and the return to capital will fall but sales tax inclusive prices will not be any higher, on average, than they are today. If the sales tax is fully incident on consumers, then prices will increase by the amount of the sales tax but returns to labor and capital will be higher. "
Criticism of the Sales Tax for Residential Real Estate Isn't Built on a Solid Foundation
by Dan R. Mastromarco and David R. Burton
[authors of the FairTax]
Tax Notes, June 29, 1998, p. 1779Footnote #13: The degree to which after-tax wages will increase is a function of the incidence of both the sales tax and the repealed taxes. If the income tax and payroll taxes are incident on income recipients and the sales tax is incident on consumers, then after-tax wages and returns will go up quite considerably as will tax inclusive prices. If the sales tax is incident on the factors of production, then after-tax wages and the after-tax return to capital will not go up to any considerable degree (at first) but producer prices will fall and retail prices, even including the sales tax, will remain roughly comparable. The real purchasing power of wages will undoubtedly increase considerably over time because of a larger capital stock (increasing productivity), microeconomic efficiencies caused by a more efficient allocation of scarce resources, and higher productivity from lower compliance costs.
That's and interesting set of if/then/but alternatives, in a footnote, especially in context with Mastromarko and Burton's preceding statements, that it pertains to:
Criticism of the Sales Tax for Residential Real Estate
Isn't Built on a Solid Foundation
http://www.fairtaxvolunteer.org/smart/TaxNotesRebuttal.pdfby Dan R. Mastromarco and David R. Burton
[authors of the FairTax]
Tax Notes, June 29, 1998, p. 1779[34] Let us again see the world through the eyes of our fairly average homebuyer. Recall the median family income of a married couple in 1995 was $47,129. Recall further that if that income were all wage income, then that couple would have paid $7,210 in combined payroll taxes on those wages (employer and employee share). Even if that couple did not itemize, the income taxes that they would pay if they filed married filing jointly would be $6,433, or 10 percent less than the payroll taxes. /8/ In other words, the couple would have paid more payroll taxes than income taxes (assuming here, with most economists, that the employer share is borne by employees). When the couple takes a mortgage interest deduction, the couple cannot take that deduction against the most significant form of taxes that apply to them -- payroll taxes.
[35] Now let us consider what happens under the Fair Tax. Under the Fair Tax plan, mortgage interest is simply not taxed -- not at all. Therefore, like current law, homebuyers would pay mortgage interest out of pre-income-tax dollars. But because the Fair Tax repeals both payroll taxes and the income taxes, the interest payments would be made with both pre-income and pre-payroll tax dollars. This would significantly advantage homebuyers relative to current law by reducing the cost of servicing their loans. Since the interest must be paid with after-payroll tax dollars, a taxpayer today must earn $108.28 to pay $100 in mortgage interest if only the "employee" share of the payroll taxes are considered. If the employer payroll taxes are considered /9/ (or if the taxpayer had a sole proprietorship), he or she must earn $118.06. Under the Fair Tax, that taxpayer would need to earn only $100 to pay $100 in mortgage interest.
*** Figure 1
Cost of Purchasing $150,000 House
(Wages That Must Be Earned For Purchase)
As described in text of articleexcluded
*** [36] The relative advantage of not taxing interest payments in a sales tax vs. the mortgage interest deduction in the income tax is depicted in Figure 1 above. In this graph, we seek to take representative information from the U.S. Federal Housing Finance Board, /10/ again using the average purchase price of a previously occupied home, $150,200. /11/ But we add the fact that the interest rate on all loans was an average of 7.6 percent last year and that the median term of all loans was about 27 years.
[37] If we were to model our typical married couple above, with a typical home purchase, with a typical interest rate, with a typical term of years in a simple graph, we could compare how much today's mortgage interest deduction benefits the homebuyer relative to the full nontaxation of interest on mortgages under the Fair Tax. Over the course of the 27-year term, an interest rate of 7.6 percent would add $203,655 to the required payoff of the loan. To completely pay off their loan, our couple will have to earn $453,936 once employee payroll taxes and income taxes are taken into account. (Considering the impact of employer payroll taxes would make the figure higher.) Under the Fair Tax, in contrast, the couple would need to earn only $388,400, or fully 14.4 percent less.
[38] This is not the end of the advantages, however. Our family's disposable income would probably go up by the 7.65 percent employer payroll tax and, since interest is no longer taxable, interest rates would come down by about one-quarter as they settle toward the municipal bond rates. /12/ These two factors would save our couple over $148,000, which consists of $97,335 in additional wages and $50,913 in reduced interest costs. If we were just to consider the interest rate reduction, the cost of homeownership would be $337,487, or 25.7 percent less than under current law. Our homebuyers would also have $97,335 more in income over those 27 years with which to purchase the home./13/
[39] In short, homeownership under the Fair Tax is vastly more affordable.
FOOTNOTES
/8/ $47,129 - $7,100 (standard deduction for married filing jointly) = $40,109. The income tax on taxable income of $40,109 is $6,433.
/9/ Most economists believe that the employer-employee split is really a fiction; that employees really do bear the full 15.3 percent. However, we make this adverse assumption to arrive at a conservative estimate of the advantages of the Fair Tax.
/10/ Rates and Terms of Conventional Home Mortgages, Annual Survey.
/11/ The Fair Tax, in contrast to the Schaefer-Tauzin plan, taxes only new homes, since it taxes goods and services only when they are first consumed.
/12/ See, e.g., Golob, John E., "How Would Tax Reform Affect Financial Markets?" Economic Review, Federal Reserve Bank of Kansas City, Fourth Quarter, 1995.
/13/ The degree to which after-tax wages will increase is a function of the incidence of both the sales tax and the repealed taxes. If the income tax and payroll taxes are incident on income recipients and the sales tax is incident on consumers, then after-tax wages and returns will go up quite considerably as will tax inclusive prices. If the sales tax is incident on the factors of production, then after-tax wages and the after-tax return to capital will not go up to any considerable degree (at first) but producer prices will fall and retail prices, even including the sales tax, will remain roughly comparable. The real purchasing power of wages will undoubtedly increase considerably over time because of a larger capital stock (increasing productivity), microeconomic efficiencies caused by a more efficient allocation of scarce resources, and higher productivity from lower compliance costs.
But they weren't relevant.
You are the only one saying this. See how the meaning changes when the parts you omit are included? That makes them relevant.
I'll tell you again - that's the issue with your posts... you're dishonest with them.
That's and interesting set of if/then/but alternatives, in a footnote,Sorry if you can't understand that it's an either/or situation. Mastromarco and Burton obviously do.
especially in context with Mastromarko and Burton's preceding statements, that it pertains to:None of that changes the quote I posted. It is truly extraneous.
Omitting relevant portions of text and using your own comments to connote that the entire quote's meaning is different than it really is.They weren't relevant. They don't change the quote's meaning in the slightest. This is the quote:
This sentence and the one preceding it assume the price level will rise with the adoption of the Fair Tax. If the Federal Reserve used its monetary policy to maintain the consumer price level, the adoption of the Fair Tax would entail a decline in the level of producer prices and, thus, the nominal wages and capital income received by productive factors.
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