WSJ: One Simple Rate - A flat tax would uleash a stupendous economic boom, by Steve Forbes

Wall Street Journal ^ | August 15, 2005 | STEVE FORBES

[OESY]

A major domestic battle looms this fall, when tax reform-- a centerpiece of the president's bold domestic agenda-- will finally be on the table. The President's Advisory Panel on Federal Tax Reform is expected to release its findings by the end of September. After the political shellacking the White House took on Social Security, the administration will be strongly tempted to take a conciliatory path that supports only superficial reforms, essentially preserving the status quo of our hideous income tax code.

Such a course would have perilous consequences, economically and politically. In fact, the administration has an opportunity here to boldly retake the initiative, to recover lost political support and thrust an already decent economy into high gear and, at the same time, make America better able to meet intensifying competition from China, India and others. How? By junking the entire federal income tax code and starting over with a flat tax. A growing number of countries are doing this -- and so should we.

The current system is beyond redemption, a beast whose complexity, confusion and outright unfairness have corrupted our economy and society. Americans waste more than $200 billion and over six billion hours each year filling out tax forms. They engage in all kinds of useless economic activity intended to take advantage of the code's complicated maze of deductions and to reduce taxes -- from deducting donations of old socks to making unwanted investments. The waste of brainpower -- at a time of increasing global competition -- is incalculable.

The code corrupts our system of government by encouraging the crassest political conduct and by creating a massive, intrusive federal bureaucracy. One-sixth of the private-sector employees in Washington are employed by the lobbying industry. One-half of their efforts are directed at wrangling changes in the tax code....

[pigdog]

We've been through this several times, Nightie, and that's YOUR assumption. Why bring up this old saw of yours again?

You don't even understand how the model operates and you don't understand that equation is for establishing initial conditions to project from. You seem to enjoy misstating things.

[pigdog]

And neither do you, Nightie. But I'd take their opinions as more informed than yours - that's certain.

[pigdog]

And the cost of constructing new refineries is a many year and many multibillion dollar undertaking. Extremely capital intensive.

There hasn't been a new one built for several decades.

[GVnana]

As always it is up to the American people to constrain their representation in govenment. Always has been, always will be.

That's true. But on April 15th I can state what I paid in federal income taxes. I don't see how I could do that with the national sales tax unless I start carrying a shoebox of sales receipts everywhere I go. (Actually, for me that's not true, because I track all my expenditures, cash included on my computer. I'm self-employed.)

But your Average Joe 6Pack isn't going to have a clue.

[Principled]

I think it's important to know what you paid - but it's also important imo to avoid making the payment painless. That is, there should not be a mechanism in place that reduces one's perception of taxes being paid.

Examples of such are withholding (you don't really pay it - you just don't ever see it) and business tax (you don't see it as tax, just higher prices).

jmho

[ancient_geezer]

That article also assumes the imported cost of crude oil will drop by more than 13% by enacting the fair tax. How is this possible when it is mainly imported?

By production rising 5% though increased application of technology as capital investment in the industry rises.

A point to note is that today import dependancy for crude oil in the U.S. is close to 50% where most industrial countries are much higher with places like Japan and Germany hitting levels above 90% and China with little oil infra-structure heavily dependant on oil imports and reliance on coal as it basis for energy needs.

It should also be noted that energy policy changes as oil prices rise turning to more dependance on alternative energy technologies. Economics is not a static paradigm in any sense of the word. Where crude oil prices rise, alternatives become economically feasible. One good source just waiting for the right barrel price has been the shale oil reserves of the western slope of the Rockies. Look for new in rapid order should oil prices look to stabilize at current or higher levels.

[GVnana]

Thanks for the link. It is Interesting. I'm sure there's no provision in the bill. It's what Congress does to it after passage that concerns me.

[ancient_geezer]

That's true. But on April 15th I can state what I paid in federal income taxes. I don't see how I could do that with the national sales tax unless I start carrying a shoebox of sales receipts everywhere I go. (Actually, for me that's not true, because I track all my expenditures, cash included on my computer. I'm self-employed.)

But your Average Joe 6Pack isn't going to have a clue.

I'm Average Joe 6Pack spending nearly 100% of my income on consumption, the calculation is simple and straight forward. Taxrate * (Income) - (sales tax rebate).

Certainly don't need a box full of sales receipts to tell me what my sales taxes paid are in a ubiquitous retail sales tax like the FairTax implements. Takes five seconds on my little handheld calculator.

[pigdog]

But there is no opening in the bill for selective taxation . It is a one tax fits all situation and raising the rate one small bit affects all taxpayers. Once the bill passes this way it is the law and it will be exceedingly difficult for the pols to manipulate it the way they have been doing for almost 100 years with the income tax.

No comparison at all.

[GVnana]

You mean you would rather the government know you have X dollars invested with Your Broker, Inc. than to know you shop at Wal-mart? There's no comparison, in my book.

Don't be so hasty. Once the government collects income tax from the individual, it doesn't come calling. It doesn't care where your money is, so long as you pay. It wouldn't be much different with a sales tax except that many individuals who are not burden with collecting and reporting taxes under the current system would now become reporting agents.

Your Broker, Inc. will report every transaction they collect on. Time, Date and Amount and you can bet the Who will be included.

[ancient_geezer]

. It's what Congress does to it after passage that concerns me.

That is true of any tax system especially the current one. No tax system can be proof against electorate complacency. The current income payroll tax system or any system in which a major part of the code addresses tax collection behind the corporate veil where the individual voter does not perceive the impact on his standard of living and livelyhood is totally open to such change with no oversight and control by the citizen possible.

"The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt."
-John Philpot Curran: Speech upon the Right of Election, 1790. (Speeches. Dublin, 1808.)
http://www.heartland.org/Article.cfm?artId=10714

 

Bush touts relief as tax day looms

Another 3.9 million Americans will have their income tax liability completely eliminated, officials said.

That's 3.9 million Americans more added to the spending constituency of 70% of the public clamoring for more from government, expecting someone else to foot the bill.

 

The Honorable James DeMint (R-SC)
United States House of Representatives
APRIL 5, 2001

• "There has been a shift in the relationship between individuals and government, he argues, such that fewer and fewer are paying taxes at the same time that more and more are receiving increasingly generous benefits. If it becomes the case that most voters do not bear a financial burden for this largess, then there will be little to restrain--and significant political incentives to encourage--the continued growth of government.

 

 

As attributed to University of Edinburgh University History professor and Scottish jurist Sir Alex Fraser Tytler (1742-1813). by John Bagot Glubb :

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess from the public treasury. From that time on the majority always votes for the candidates promising the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship."

[GVnana]

You'll pardon me if I'm suspicious?

[pigdog]

No - that's not the case at all. There is no "government tracking" of sales of that sort. This is clearly specified in the bill so do not scare yourself. It is not possible from the information collected and here is no tracking by individual taxpayer as well as none by his purchase habits. It is none of he government's business.

Big Brother will have left the building with the FairTax.

[pigdog]

Sure - suspicious is one thing ... paranoid is another. You should invest a small amount of time in both reading the bill and the economic material on the FairTax website.

The bill:

http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25:

FairTax website:

http://www.fairtax.org/research.html

[lewislynn]

This is my favorite typo of the afternoon, by pigdog, the post checker.

Typo? It's a Freudian or more appropriate fraudian[sic] slip.

[ancient_geezer]

Once the government collects income tax from the individual, it doesn't come calling. It doesn't care where your money is, so long as you pay.

Sure, that is why the government has brokers and savings institutions provide 1099s on any returns from your sources of investments and savings, and keeps rather close track of said earnings potential.

I would much rather government totally out of my personal financial life. They simply have no legitimate need for such information where taxes are for the clearly state purpose of paying the bills with no mandate to track the citizen's wealth or income data whatsoever. Funding sufficient revenue for the execution of the constitutional functions of government requires no such tracking of individual citizen's household financial activities.

Your Broker, Inc. will report every transaction they collect on. Time, Date and Amount and you can bet the Who will be included.

With no legal or functional requirement to report individual information in the remittance of any retail sales tax to state tax administrators.

Your Broker today is required to report such data in filing 1099's because individual income taxes mandate such reporting to work.

Retail sales taxes have no requirement as is very apparent in the manner in which states have historically collected such taxes through businesses across the history of this country without needing or looking for such detail as you describe.

Sorry, your argument holds no water. The current system does all you argue is a problem with a National Retail Sales Tax. Yet a retail sales tax does not and never has required individual levels of reporting to facilitate state collection of said revenues through businesses.

The FairTax does not implement such individual tracking, as no retail sales tax needs it. The FairTax uses the states as is administrators interfacing with local business in collection of the national retail sales tax. The feds are isolated from the individual through a two layer buffer and have zilch connection to information traceable to individual transactions, and that is the way it should be.

The income tax on the otherhand, we all intimately know to be otherwise, as was predicted on the change over from federal dependence on consumption taxes to the nearly exclusive (94%) dependence on the modern income/payroll tax that inherently demands individual tracking by federal agencies:

"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 tax payer. 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.

[GVnana]

You know, if you didn't keep pounding on the obvious, we might get somewhere.

Yet a retail sales tax does not and never has required individual levels of reporting to facilitate state collection of said revenues through businesses.

Great! The government will just take everyone at their word. I don't think so.

[RobFromGa]

By production rising 5% though increased application of technology as capital investment in the industry rises

THis economc model takes into account these detailed guesses about the effect of the increased application of technology on oil prices, and we haven't got a clue what the price of oil is going to be next week. I don't believe that this economic model was naearly this detailed or precise.

You also seem to be arguing that employees are not going to get their whole paycheck when the Fair Tax is enacted and that the business will "save" this money. I can't understand how you think these taxes are going to be saved by the business when they are going to be going to the employee. Can you be more clear about your position on this?

I know Linder and Boortz are clear that the currently withheld federal and FICA taxes will go to the employee and remain a cost to the business. I know Boortz states that the employer portion of the FICA will go to the employee too. Do you agree with that statement?

[RobFromGa]

Where crude oil prices rise, alternatives become economically feasible <>Right, because they become competitive. And if they create a glut, the prices go down again and they become uncompetitive again. But you are correct that there are a range of energy sources available to come on-line as the price of energy continues to rise. As the lower cost sources are depleted, one by one, the higher cost sources must pick up the clack and the average price goes up.

[RobFromGa]

Watch out, with the FairTax proponents its a short step from being suspicious to being branded an SQL'er, and given a derogatory nickname. Next they'll be calling you paranoid, followed by suggesting that you have ulterior motives. By morning they'll be questioning whether you are even really a girl.

Are you a plant? Is your father an IRS agent? Do you take tax deductions?