Posted on 08/03/2005 4:51:43 PM PDT by RobFromGa
A simple question...
So, under the FairTaxI get to keep my whole paycheck, prices for everything I will buy will stay the same even with the taxes included, and I get a prebate check from the govt every month. And businesses pay no taxes.
Where is the extra money coming from...
What is wrong with this reasoning below?
1. Right now the government collects $X in the form of all taxes.
2. All taxes are really paid for by consumers in the end result, either directly, or in the cost of their purchases which allow businesses to collect money in order to pay taxes. Companies do not really pay taxes they jsut collect them and pass them on.
3. The FairTax will collect the same $X per year in the form of taxes but using a different method.
4. Under the FairTax, the price paid for goods will not rise because getting rid of all the taxes built into goods will cause the prices to drop, then the FairTax will add onto the new lower price, resulting in the same price paid by consumers.
5. So, for a given taxpayer, shopping (consumption) will be revenue neutral. Ie. Prices are the same as before.
6. And each given taxpayer will get a "prebate" check every month that they are not getting now.
7. And each taxpayer will pay no taxes on capital gains, or on savings.
8. And, each taxpayer will no longer pay any taxes on income, or payroll taxes.
9. And, there will be no Fair Taxes on any purchases made for a business.
Are these all true so far?
Again, I get to keep my whole paycheck, prices for everything I will buy will stay the same even with the taxes included, and I get a prebate check from the govt every month.
Where is the extra money coming from???
Your point has been seen for many years by the FairTax supporters, but you have missed two important things:
1) The FairTax bill is not (and Cannot be) a spending bill - that's a later fight separate from this one and will be much helped by having the tax mechanism under controil and not subject to political mischief and whim as at present.
2) The existing entitlements are subject to existing laws of many years standing - quite beyond the control of this tax bill. Re-read the second half of #1 because it applies here, too.
Once the FairTax becomes law you'll find a lot of support from FairTax supporters on spending fights - and make no mistake they will be bitter fights too. Just look at all the entrenched interests that oppose getting rid of the income tax on these threads ... and this is - supposedly - a conservative forum.
This is what dooms this bill to the realm of a white elephant. You are showing a main problem within our society today. We tend to put on blinders and focus on only one thing, ignoring everything else that it may have an effect on that effects it.
Spending and taxation are directly tied hand in hand together. To grant the government easier access to tax dollars or to give them the ability to steal even more tax as they see fit, is sheer lunacy, to me.
This is why I keep repeating myself, we first have to control the spending, get it down to reasonable and fair levels and then, enact a new taxation policy, one that truly will be fair and could possibly be as low as 10%. And, that could be a 10% exclusive, nothing hidden and no exemptions, everyone pays, regardless of income. Of course, necessities would remain tax free and some other necessary items could be added. But first, the spending has to be addressed before government is allowed another dime.
Once this plan of the Fraudtax is in place and we find ourselves still paying income tax and the rate of the National Sales Tax increases well over the claimed 23% "inclusive" amount, it will be too late to try and hold down spending. The monster will have been released and allowed to forage our pockets as they see fit.
Don't be fooled by glib speech or claims by so called "experts" and "studies." The two issues are directly related and absolutely necessary to be addressed together.
Certainly the consepts spending and taxes are related, but you seem to miss the point that with a sales tax there is a certain self-limiting feature that when tax rates rist too high, tax revenues decline and the contrary with tax rates lowering.
There is such limiting feature at all with income taxes where the government has complete control and is easily able to hide things. The "easy access" you fear is exactly what the government has right now - and that must change. With the FairTax, the taxpayers once again have a voice in both revenue and spending and can withhold one if the other is not satisfactory.
You will NEVER reduce spending - as I said - until the tax system is reformed. Once it is, that's a whole new ball game as I pointed out. You appear to be of a mindset that the sales tax rate can climb to an unlimited degree - it can't; in fact it will most likely go down as the proposed rate is higher than most of us like. Certainly trying to bump it higher wiould cause those of a political persuasion great voter unhappiness - and that spell trouble for the pol ... and he knows it.
"Thank you for your description of what a necessity is vs. a luxury. That is one area of the Fair Tax that I was wrestling with, the prebate or untaxed items.
I am much more in favor of the prebate now. I could see this turning into another 60,000 page tax code once we start talking about what is luxury or necessity. I'd rather keep it simple."
Glad I could help. The research that went into the FairTax indicated that the American people were firmly opposed to a regressive tax system. The rebate is both the simplest and fairest way to accomplish that. Trying to exempt specific items would be a nightmare (pun intended).
"As I see it, putting such a burden upon Congress would keep them busy, giving them less time to screw with us."
Burden? What burden? I thought that it was so simple as to be self evident.
BTW if you want to keep congress busy with tax code manipulations, the current system does that quite nicely.
"You are greatly misinformed!"
No, he isn't; he just disagrees with you. There is a difference, you know.
"Uh, no. Feeding the beast is continuing to throw large amounts of money at an out of control heavily spending government, or in simpler terms, 'revenue neutral.' There is not one mandate, demand or suggestion contained in this to slow down spending, just assumptions and wishful thinking that they will."
I think that you will find that the President has made revenue neutrality a requirement of the Tax Reform Commission that he has set up. They will present findings and recommendations by Sept 30. If it isn't revenue neutral, it isn't in the running.
If we get tangled up in the partisan battle over the role of the federal government, we will never get anything accomplished with our dreadful tax system. The FairTax would, however, serve to exert downward pressure on rates; no doubt about that.
"I'm ready to limit their power and force them to be accountable for their spending, and to ensure the spending is absolutely necessary, unlike today and unlike under this fairtax nonsense."
How do you propose doing that?
I totally disagree. To give them an even more open ended taxation with no built in limitations is begging for trouble. As long as they have the power, either by income tax or consumption tax, to just raise rates as they see fit and there is no real incentive to curtail spending, they will simply raise rates as high as they wish. They have done it several times with the income tax, leading to where we are today.
This initiative looks good on paper with a lot of very nice sounding proposals. But, in the real world, it simply won't work. All this bill is doing with it's "revenue neutral" facade is giving them every bit as much money to play with as they want and leaving them the ability to grab even more. In the meantime, businesses get exempted from taxes and are freed to make obscene profits off of the citizen, who will individually carry the bulk of the payments.
Don't forget you also have the monthly payments going out and that money has to paid for as well. If there isn't enough, they simply borrow and raise our rate, leading us right back to where we are today and worse.
We need to starts ending government a strong message that we are tired as all hell and not going to take it anymore. We need to stop supporting these pork barrel Congressmen and run candidates that will hold down spending and force them to do it.
I hope you copied and pasted that link I supplied earlier to the Veterans Party of America. While I'm not totally in-line with them, they do have some good and workable ideas that would end up benefiting all of us even more.
Last I heard, he works for us. Without major spending controls, no tax reform will ever work, it will just be more of the same, as it has been for decades.
A grassroots movement needs to be started to demand an end to outrageous pork barrel spending as to decrease excessive foreign aide to countries that wish only to destroy us. Actually, there already is calls out there for just this and a political party advocating it, the Veterans Party of America. The Republicans and Democrats don't really represent the public like they should, so it's time for someone who will.
No, I don't belong to the party, at least, not yet.
The first step is to start dumping both current political parties, since neither really represents our best interests. Rather, they represent lobbyists and themselves.
Begging the question, combined with bandwagon fallacy (argumentum ad populum).
Two wrongs don't make a right. I claim the point you are trying to elude.
You seem top be in the minority though, since here are 75 well-recognized economists who say in their letter the Congress and the President in talking about the effects of the bill.....
More ad populum, variety "10,000 Frenchmen can't be wrong", combined with appeal to authority.
Of course, more than 75 environmentalist wackos insist that the United States should sign and ratify the Kyoto Accords. You in favor of that one, Mr. Chamber Cheerleader?
Didn't think so.
To review:
I argued that employers would recoup the amounts now withheld from W-2 income, if the income tax were repealed and the "Fair" (in your mind) NRST were passed into law instead.
You replied with garbage.
I claim the point.
Passage of NRST will not increase takehome pay, and it will increase retail costs to be borne by that income, as businesses dump their federal tax burden off onto their employees.
The Lobby, at the end of the day, represents Old Money, which owns a vast repository of callable favors.
Denying money access to congressmen and the legal means to buy them is, I agree with you, the first order of business.
Old Money is no better at seeing its own longer-term interest than it is at seeing the public interest. The Greek historian Polybius, in his historical comparison of different constitutions, discussed the Carthaginian institution of a supreme court armed with the power of judicial review. Carthage was the only nation before our own to have such a supreme court. Their justices, called in Greek, from the Punic, sufetes (~Hebrew shophatim, "judges"), were 104 in number and had the power to nullify legislation by declaring it unconstitutional.
When Hannibal invaded Italy, he defeated the Roman army with his elephants four times in legendary routs that destroyed the Roman forces in Italy, at Placentia, Trebia, Lake Trasimenus, and Cannae, which last was one of the great slaughters of ancient military history, and the masterpiece of Hannibal's career. But Hannibal found that he couldn't break the Roman alliance system, which was largely economic and social as well as political and military, without large sums in silver to help peel away the local leadership groups which had become clients of the Roman gentes, the great clans that ran the Roman senate and everything else.
Answering Hannibal's call for silver, the Carthaginian Gerusia (senate) responded by enacting a sales tax and dedicating the revenues to Hannibal's use. But the business community complained loudly, and when they were unable to prevail in the Gerusia, promptly bribed enough judges on the supreme court to have the law declared unconstitutional and the tax unenforceable. Hannibal's cause and campaign withered, and, ten years later, he was forced to abandon Italy, unable to trap the remaining Roman forces led by Fabius Maximus ("the Delayer") and unable, with a Roman force-in-being before him, to dissolve the alliances that were feeding Rome and her armies.
Fourteen years after Cannae, Scipio Africanus crossed over to Africa with a powerful army and defeated Hannibal at Zama. Carthage was finished. But the businessmen had had 14 years of tax relief in between -- until the Romans came to collect, that is.
But people who support big government and are socialist friendly fear a return to the founder’s original tax plan and support the socialist friendly, big government friendly H.R. 25 plan.
For those who are unfamiliar with our Founding Fathers original tax plan, as they intended it to work, a plan which even includes a specific method to extinguish an annual deficit, CLICK HERE and scroll down to :
American Constitutional Research Service Before the
Committee on Ways and Means
United States House of Representatives
June 1995
Mr. Chairman and Members of this Committee:
For some pro and con points of view concerning the fair tax see: RESPONSES TO FAIR TAX ARTICLE
Regards,
JWK
“He has erected a multitude of new offices, and sent hither swarms of officers, to harass our people, and eat out their substance” ___Declaration of Independence
"The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation and foreign commerce. ... The powers reserved to the several States will extend to all the objects which in the ordinary course of affairs, concern the lives and liberties, and properties of the people, and the internal order, improvement and prosperity of the State."--- Federalist Paper No. 45
"To give them an even more open ended taxation with no built in limitations is begging for trouble."
I agree with that statement, which is one of many reasons that I support the FairTax.
"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. When applied to this object, the saying is as just as it is witty, that, 'in political arithmetic, two and two do not always make four.' If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them."
Alexander Hamilton in Federalist #21
"In the meantime, businesses get exempted from taxes and are freed to make obscene profits off of the citizen, who will individually carry the bulk of the payments."
Only individuals pay taxes in any system. That is true now, and it will be true under the FairTax. The FairTax just ends the subterfuge.
"Actually, there would be no 60,000 page code…when Congress selects the specific articles of consumption and places the amount on each specific article."
Very well, then, can you respond to the questions and concerns that I raised about your plan in my post #894.
"The only problem with your logic pal, is our founding father’s original tax plan, in which the tools of production, supplies necessary to conduct America’s businesses and the necessities of life were intended to not be taxed is, it proved to work and was the corner stone in America becoming the economic marvel of the world."
All well and good, but according to lewislynn, another SQL, our current standard of living and prosperity is a testament to the efficiency of our current tax system.
Also, I have yet to see any response to the practical questions that I raised about your plan in post #894.
Your direct response to that post would be greatly appreciated.
"It is not discussing the FairTax at all at that point, but the effect of present taxation ("personal tax rates") on the model in its initial state."
Frankly it's difficult to understand where I said it WAS discussing the FairTax at all (as you can see, I didn't say that). In fact, the simulation never discussed the FairTax but, at a later point, a NRST (National Retail Sales Tax) similar in concept to the FairTax. You posted this same stuff months ago and it is no more germane now than then.
LOL! The master parser strikes again!
At the point in the model you were using, however, the chosen equation was from the intraperiod submodel which is basically a static general equilibrium statment (IOW, a starting point for the model), the equation itself which you post can be easily seen to be calculating INCOME tax effects, not sales tax effects. And the numerator is (which you call household time) is composed of work time plus leisure time.
Uh, no. The equation is used to set a base case and then the variables are changed (marginal tax rate on labor reduced to 0% with NRST) and the results are plotted over time. The equation is calculating the effects of the income tax - in this case, it is calculating the effects of going from having an income tax to not having one. Thus the reduction in the price of labor.
It does this to establish changes that occur as a result of interactions later in the model among its hundreds upon hundreds of equations (it uses a large number of vector transforms and matrix manipulations) in these later stages, not simple arithmetic as Nightie would have you believe. This equation shows that (in the base case, remember) if taxes are increased, the employer must pay the worker more (to accomodate the income tax). That seems intuitively valid.
Again, you are wrong (actually, it obvious you are just making stuff up). The price of labor equation is applied over time, not just in the base case. It's clear in the calculations. (Maybe you would like the find the price of labor calculation that doesn't include the marginal tax rate on labor.)
As noted by Jorgenson,
"The implied subsidy to leisure time would drop to zero under the NRST; under the existing tax system this is equal to the marginal tax rate on labor income."
That has nothing to do with the price of labor. The "implied subsidy to leisure" affects the labor supply, not the price of that labor. I provided the formula that the model uses to determine the price of labor and it's directly tied to the marginal tax rate on labor. It's very clear.
He goes on to say:
"Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers, shown in the sixth chart,would fall by an average of twenty percent.The seventh chart shows that industry outputs would rise by an average of twenty percent with substantial relative gains for investment goods producers."
It seems to me to be clear from those statements that he is saying prices would drop (due to the effects of removing income/payroll taxes - not reducing wages) but be offset by increasing economic activity (drop by 20%; increase business by 20%). That says nothing at all about wages being reduced (and the simulation shows just the opposite due to increasing economic activity as you might imagine). It does say, though, that prices would be reduced and then with the advent of the sales tax go back to about where they were (but now having tax included in them rather paid as a separate added amount).
It seems you must have skimmed over the part that says "and workers would no longer pay taxes on wages." How could workers no longer paying taxes on their wages affect prices unless those wages are reduced? This all fits with everything I've posted, from Jorgenson and every other source. You, on the other hand, have nothing except what you have made up.
As I have said, be circumspect in reading some of these posts. I'd certainly urge you to read the bill itself since it's an easy read and then to spend some time thinking about what is offered in the detailed economic analysis on the FairTax website. You should be able to sort the wheat from the chaff.
It doesn't say anywhere in the bill that prices will be reduced. You still haven't been able to show one source that says prices would drop anywhere near 22% without wages falling.
"Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wagesIn other words his "study" counters the Fairtax promise of "100% paychecks"....
His study pays for possible price reductions off the backs of labor.
Get it yet?
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