Instituting a flat tax benefits you

TOWNHALL.COM ^ | 05/28/2005 | DICK ARMEY

[ancient_geezer]

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.

Strange, I could have sworn the article you quoted from was concerning a rebutal of William Gale.

Guilty conscience perhaps?

"The lady doth protest too much, methinks."
--Hamlet (III, ii, 239)

 

None of what you posted changes what they said.

 

True, it changes nothing at all about what they had to say used in regard William Gale's analysis at all.

 

"Gale’s analysis of the impact on prices and assets levels is contradictory and confused."

"He [Gale] states that income taxes are “clearly incorporated in the price of goods that are bought and sold.” This means that when they are repealed, producer prices will come down as research conducted by Harvard’s Dale Jorgenson suggests. Jorgenson finds that repealing the income and payroll tax would reduce producer prices by 20-35 percent depending on the industry. "

Gale, however, then rejects the view that income taxes are in the price of goods we buy and assumes that removing them will not reduce prices. He can not hold both points of view simultaneously. Federal income and payroll taxes either are or are not incorporated into the prices of goods and services. If they are embedded in prices, their removal will reduce prices. If they are not, then their removal will not reduce prices but instead returns to labor and capital will go up. If returns to labor go up, people will see their after-tax wages increase and asset values will increase since the present discounted value of the new, higher returns will be higher.

 

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.

Actually there is a threeway potential, either people have more real income, or they pay less for goods and services, or a combination of both lower producer prices and higher wages as the economy grows.

For as pointed out by Kotlikoff

Statement of Laurence J. Kotlikoff,
http://waysandmeans.house.gov/legacy/fullcomm/106cong/4-11-00/4-11kotl.htm

Professor of Economics, Boston University, and Research Associate, National Bureau of Economic Research

Testimony Before the House Committee on Ways and Means - Hearing on Fundamental Tax Reform
April 11, 2000

 

• "Consumption taxation is needed not just to help our children. It is also needed to simplify the tax code and reduce effective marginal tax rates. The Fair Tax proposal is a case in point. This proposed reform would eliminate both the personal and corporate federal income taxes as well as the payroll tax, and replace them with a federal retail sales tax plus a rebate based on each household's demographic characteristics."

• "Compliance costs would be vastly lower under a retail sales tax. So would, it seems, enforcement costs. The reason is that a broad based sales tax, with no exemptions for housing or any other forms of consumption, would feature much lower effective marginal tax rates than those we now face and, therefore, much smaller incentives to evade taxation."

 

with the consequence:

"This means that when they are repealed, producer prices will come down as research conducted by Harvard’s Dale Jorgenson suggests. Jorgenson finds that repealing the income and payroll tax would reduce producer prices by 20-35 percent depending on the industry. "

Abit more than just Mastromarko & Burton's opinion concerning the inconsistencies of William Gale, is pointing in the most likely direction business will take in utilizing their reduction in taxrelated overhead costs.

Seems that the primary effect will be in the direction of reduction of lower producer prices, with growth in capital investment under tax free savings and investment providing the technological advance in productivity that leads to real wage growth and increased living standard even under Kotlikoffs very conservative assumptions of 25% higher tax rates than are actually called for in the FairTax legislation.

 

Statement of Laurence J. Kotlikoff,
http://waysandmeans.house.gov/legacy/fullcomm/106cong/4-11-00/4-11kotl.htm

Professor of Economics, Boston University, and Research Associate, National Bureau of Economic Research

Testimony Before the House Committee on Ways and Means - Hearing on Fundamental Tax Reform
April 11, 2000

 

• "The lower effective marginal tax rates under the Fair Tax would also mean much smaller economic distortions than currently exists. This reflects the proposition, which is well known to economists, that the welfare costs of distorting economic incentives rises with the square of effective marginal tax rates."

• In contrast to the limited empirical analysis of consumption taxation that has been conducted to date, consumption taxation has been studied extensively with large-scale life-cycle simulation models. My own research and that with Alan Auerbach, Cleveland Fed David Altig, Kent Smetters, and Jan Walliser indicates that the Fair Tax would raise the economy's living standard over the long term by roughly 15 percent. ⁽³⁾ This long-run increase in output is generated by a major long-run increase in capital formation and a modest increase in labor supply.

[Principled]

...This sentence and the one preceding it ...

What about the rest of the context? Eh? You're going nowhere on this issue until you become honest.

[Your Nightmare]

What about the rest of the context? Eh? You're going nowhere on this issue until you become honest.

OK.

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.

How does what AG posted change any of this? The assumptions are still the same. Either "the price level will rise with the adoption of the Fair Tax" or "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"

[Your Nightmare]

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.

Strange, I could have sworn the article you quoted from was concerning a rebutal of William Gale.

No reason for me to feel guilty. You're statement reads as if it were accusing me of "fallacious, inconsistent and incomplete arguments".

 

Actually there is a threeway potential, either people have more real income, or they pay less for goods and services, or a combination of both lower producer prices and higher wages as the economy grows.

For as pointed out by Kotlikoff

The quotes by Kotlikoff you posted don't point this out. They simply state "This proposed reform would eliminate both the personal and corporate federal income taxes as well as the payroll tax" and "Compliance costs would be vastly lower under a retail sales tax. So would, it seems, enforcement costs." You are making assumptions as to the effect of these statements. And then you try to tie these points to price drops by following them up with this quote:

"This means that when they are repealed, producer prices will come down as research conducted by Harvard's Dale Jorgenson suggests. Jorgenson finds that repealing the income and payroll tax would reduce producer prices by 20-35 percent depending on the industry."

Which Kotlikoff never said. Talk about dishonest.

Mastromarco, Burton, and Kotlikoff are very clear on the effect of the FairTax on prices and wages. It's an "either/or" situation.

[ancient_geezer]

"This means that when they are repealed, producer prices will come down as research conducted by Harvard's Dale Jorgenson suggests. Jorgenson finds that repealing the income and payroll tax would reduce producer prices by 20-35 percent depending on the industry."

Which Kotlikoff never said.

Strange, you don't seem to be paying much attention are you, for Kotlikoff said:

 

Statement of Laurence J. Kotlikoff,
http://waysandmeans.house.gov/legacy/fullcomm/106cong/4-11-00/4-11kotl.htm

Professor of Economics, Boston University, and Research Associate, National Bureau of Economic Research

Testimony Before the House Committee on Ways and Means - Hearing on Fundamental Tax Reform
April 11, 2000

 

• "Consumption taxation is needed not just to help our children. It is also needed to simplify the tax code and reduce effective marginal tax rates. The Fair Tax proposal is a case in point. This proposed reform would eliminate both the personal and corporate federal income taxes as well as the payroll tax, and replace them with a federal retail sales tax plus a rebate based on each household's demographic characteristics."

• "Compliance costs would be vastly lower under a retail sales tax. So would, it seems, enforcement costs. The reason is that a broad based sales tax, with no exemptions for housing or any other forms of consumption, would feature much lower effective marginal tax rates than those we now face and, therefore, much smaller incentives to evade taxation."

 

While Mastromarko & Burton, (you know the one's you have been partially quoting to us from,) and found in full context in comment #318, pointed out Jorgenson's findings:

 

Response to William Gale
http://www.fairtaxvolunteer.org/smart/GaleRebuttal.pdf

by Dan Mastromarco and David Burton
[authors of the FairTax]
Memorandum, March 16, 1998

J. Gail Perspective: Consumer Pricing: Up, Down and Sideways Simultaneously

 

• Gale’s analysis of the impact on prices and assets levels is contradictory and confused. He is right, however, that the analysis of the impact on prices, nominal wages, and asset prices should be divided into two questions: (1) the impact of the repeal of the income and payroll tax and (2) the impacts of the replacement sales tax.

 

• Throughout his analysis Gale asserts inconsistent opinions on the impact of both repealing the existing tax system and of replacing it with a sales tax. He states that income taxes are “clearly incorporated in the price of goods that are bought and sold.” This means that when they are repealed, producer prices will come down as research conducted by Harvard’s Dale Jorgenson suggests. Jorgenson finds that repealing the income and payroll tax would reduce producer prices by 20-35 percent depending on the industry.

 

• Gale, however, then rejects the view that income taxes are in the price of goods we buy and assumes that removing them will not reduce prices. He can not hold both points of view simultaneously. Federal income and payroll taxes either are or are not incorporated into the prices of goods and services. If they are embedded in prices, their removal will reduce prices. If they are not, then their removal will not reduce prices but instead returns to labor and capital will go up. If returns to labor go up, people will see their after-tax wages increase and asset values will increase since the present discounted value of the new, higher returns will be higher.

 

Talk about dishonest.

Lame, really lame.

---

 

Mastromarco, Burton, and Kotlikoff are very clear on the effect of the FairTax on prices and wages. It's an "either/or" situation.

Actually Mastromarco, Burton state it as "if/then" and "could be" scenarios as regards Gale's inconsistant positions, hardly an imperative choice of either case for the FairTax.

"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."

 

While Kotlikoff merely makes statements under a conditional assumption for a particular scenario involving the effects of CPI (which includes sales taxes) indexing of government benefits.

"The lifetime resource perspective leads naturally to comparisons of tax burdens within a cohort, since the lifetime resources of the young and old will be quite different simply because of their ages. Among the elderly, the Fair Tax would be particularly progressive because a federal sales tax would lower the purchasing power of the rich elderly who live off their assets, but not the poor elderly, whose primary means of support - Social Security benefits - would be automatically raised in response to a sales-tax induced increase in the price level. Hence, the Fair Tax features not just a demographic rebate, but also, implicitly, a rise in Social Security benefits. If government transfers to the poor young were also effectively indexed to the price level, the adoption of the Fair Tax would also trigger a rise in those transfer payments as well. ^(2)"

"2. 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. Under this scenario, government transfers, if they weren't reduced in nominal terms, would end up maintaining their purchasing power, while factor payments would not. I.e., the same real redistribution toward the poor would arise. "

Assumption for scenario statements is a far cry from an imperative. Especially as business tax related overhead cost are substantially lower under a retail sales tax resulting in considerable cost savings to the business:

 

Statement of Laurence J. Kotlikoff,
http://waysandmeans.house.gov/legacy/fullcomm/106cong/4-11-00/4-11kotl.htm

Professor of Economics, Boston University, and Research Associate, National Bureau of Economic Research

Testimony Before the House Committee on Ways and Means - Hearing on Fundamental Tax Reform
April 11, 2000

 

• "Consumption taxation is needed not just to help our children. It is also needed to simplify the tax code and reduce effective marginal tax rates. The Fair Tax proposal is a case in point. This proposed reform would eliminate both the personal and corporate federal income taxes as well as the payroll tax, and replace them with a federal retail sales tax plus a rebate based on each household's demographic characteristics."

• "Compliance costs would be vastly lower under a retail sales tax. So would, it seems, enforcement costs. The reason is that a broad based sales tax, with no exemptions for housing or any other forms of consumption, would feature much lower effective marginal tax rates than those we now face and, therefore, much smaller incentives to evade taxation."

 

Cost savingfs which provide a substantial advantage to be exploited in capturing market share in from laggard competitors.

 

Response to William Gale
http://www.fairtaxvolunteer.org/smart/GaleRebuttal.pdf

by Dan Mastromarco and David Burton
[authors of the FairTax]
Memorandum, March 16, 1998

J. Gail Perspective: Consumer Pricing: Up, Down and Sideways Simultaneously

 

• Jorgenson finds that repealing the income and payroll tax would reduce producer prices by 20-35 percent depending on the industry.

 

[pigdog]

Guys, guys ... Nightmare Boy is just pulling a looey and attempting to use things out of context in hopes of derailing the concentration of the thread on the FairTax.

As we see, though, (last paragraph of #323) he is now supporting the FairTax so no doubt his continued display of the "looey cognitive disability" relating to comprehension of reading mterial is just habit. IOW, part of looeys "stuff" has warped his mind. I think it's called cognitive dissonance - or sump'n like thet.

Don't you 'member how looey used to love taking a word or two out of the bill, posting it, and then claiming that it was clear English and meant the opposite of what it really meant? Same tactic. It's just done to try to detract from the real issue - which is -

There are 75 well-known economists who call upon the President and Congress to get behind the FairTax bill and pass it (that REALLY sticks in their craw):

http://www.fairtax.org/pdfs/Open_Letter_President.pdf

[pigdog]

Honest??? That'll be a cold day in Hell.

[Your Nightmare]

Tut tut, AG. You're changing what you said.

[Principled]

He believes that he has some credibility. As noted by several non-regulars on the most recent thread he posted, he doesn't. Funny that when they tell him so, he tries the same thing on them...says "you're wrong cuz I said so". He's melting.

[pigdog]

It's really good to see that so many of the new posters tumble to the stunts he is using.

That's very encouraging and restores my faith in Freepers and the American public in general. They gei it!!

[Your Nightmare]

You still haven't shown me how the meaning of the quote was changed.

[ancient_geezer]

Tut tut, AG. You're changing what you said.

Such a narrow world you live in YN, when the totality of a paper's points are lost to you in your quest to constrain the text and meaning of authors' works, just to justify your personal narrow gauge picture.

Sad, really sad.

[JTHomes]

Meanwhile, Joe Six-pack is caught between his wages and the NRST price increase. His purchasing power is drastically reduced...

Remember, though, no withholding, either for federal tax or FICA under NRST, so his take home will be more than he is used to.

[DugwayDuke]

I understand that, but it remains to be seen if that makes up for the NRST particularly in the short run while the economic system adjusts to the NRST. It will take time for prices to reflect the change in the tax structure.

[JTHomes]

It would be interesting to see what would happen. I think in many cases, retailers and manufacturers wouldn't want to be caught with their pants down if a competitor had already adjusted prices down, and might err on the side of caution and reduce prices. There must be some economic game theory models that might predict the behavior. Maybe no one would decrease prices right away. Some markets might behave differently too based on different inventory carrying situations.