Posted on 08/15/2005 5:55:06 AM PDT by 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....
(Excerpt) Read more at online.wsj.com ...
They would means test it, then probably increase the prebates gradually for those who still qualify based on their SOCSEC reported wages.
Right and get a majority of voters mad at them for repealing their FCA sale tax rebate. Every legal resident means every legal VOTER, recieves the same FCA sales tax rebate.
Looks to me that would make an excellent way for any politician to commit political suicide.
When was the last time you saw Congress lower the personal exemptions and standard deduction on income taxes or make them means tested?
The FCA sales tax rebate is a sales tax equivalent for the personal exemption and standard deduction of the income tax system it replaces.
Politicians crave the power to buy votes, they will find a way.
Removing or reducing the basic tax exemption from the majority of taxpaying VOTERS certainly is not finding a way to buy Votes in my political play book.
its called class warfare, it happens all the time.
They wouldn't remove the majority, just the top 20% of earners.
There will be no federal tax forms to fill out because the tax will not apply to your income. It will apply to your purchases of goods and services!
So, a family of five making $35,000 a year would be taxed at a higher rate than a single guy making the same amount because they buy more stuff?
they have to do the prebates to try to buy the votes of the poor people because they need them to pass this plan. This is the way to ensure that poor people don't have to pay any taxes of any kind so they'll go along with the plan, at least right now the pay FICA.
the FairTax will simply be an additional line on the current sales tax reporting form.How do you know? The federal sales tax would be administered by the states. Did you get confirmation from all 50 states what their sales tax reporting requirement would be for the new federal tax?
could you please comment on my example started in 271, clarified in 281 and 321 of a carwash business example?
you seem to be the one guy who stays civil and tries to answer at least some of the question.
where are the upstream costs in such a labor intensive business.
It's not going to pass. It's not even going to come close to passing. This thing -- or various versions of it -- has been kicking around for years. If they wanted to pass a fair tax then they'd say, Okay, a straight 15% on everything, salary, unearned income, the whole sheebang. They never will, because:
A)Too many people make money on the tax code.
B)Pols hand out tax breaks for contributions, it's the coin of the realm. It would remove political currency.
C)A smart lawyer/accountant can reduce the taxes to much less than 15% given enough incentive.
I agree it has no chance. It will always be too dramatic of a change.
The most important thing we need to do now is privatize SS, rein in spending, make tax cuts "permanent", eliminate death taxes, eliminate AMT, eliminate corporate taxes and start another round of personal income tax cuts to find the sweet spot on the Laffer curve.
How is any tax "revenue neutral"?
So the only way that a small bizness would have a lower cost of production would be if the profit to the owners was reduced by the amount that they are now paying in income taxes on the profits (K1 distributions). The owners would receive the same amount of profits as they now have after income taxes.
You would do better to look at how Jorgenson's study was done and the fact that his findings are based on setting his functional parameters based on econometric measures of a long history of tax data affecting prices, consumer and business behaviours throughout many sectors of the economy.
What you are overlooking is the fact that no business will pay income or payroll taxes, and only retail transactions will be taxed for a business to remit to state govenment.
As a consequence the lower tax related costs are realized throughout all levels of production, passed from one supplier to the next in the purchase of their inputs, as well as their own increased productivity and efficient use of resources.
The repeal of business taxes, removes the tax related avoidence behaviours implicit in the income tax system, the litigation and audit costs related controversies with the IRS. Repeal removes the costs to businesses associated with the relocating to more tax advantaged parts of the world and encourages them to remain in the US by removing the federal tax system from their backs, it remove the fees and fines associated with losing disagreements with teh IRS over what is deductible and what is not, ...
There is a lot more involved in the changes in business behaviour, costs and productivity associated with repealing the federal business tax system than merely the amount of tax collected by government.
Remember, just because a business may not have a taxable profit, does not mean the costs associated with realizing that status are gone. The costs of achieving a lower taxable income often are greater than the tax finally remitted to government. On average that overhead costs bound up in tax avoidence and accountancy activitites as well as litigation when controversy arises under the income/payroll tax system far larger than the tax actually remitted to government.
The small business owner (or shareholders) would not receive the same income tax removal that employees get. Is this what they are saying the embedded taxes are going yo be saved from?
The reductions in price arise from increased productivity and efficiencies that arise with the repeal of business taxes and no longer diverting resources into tax avoidence but into business enhancement which bring about lower costs in imput purchases by a business as well as lower cost and more productive utilization of business assets and resources that become possible when income payroll tax management is no longer a factor in business decisions and activities.
The total reduction in producer prices are not just the amount of tax that is remitted to government by a business it is the full dynamic that occurs with more productive use of capital, human resources, cash flow, and the regenerative effect of such increases in productivity on the economy as a whole as well as individual transactions of manufacturing purchasing and selling of materials and services for the production of final products at retail.
That would explain where the extra money is coming fromm it is coming from the business owner.
Don't confuse the business with the business owner, that owner is an individual benefactor of the business through his returns on his capital just as the employee is in his wage as a return on his wage. It is the ability of the business to operate more efficiently at lower costs in its input purchases, its internal productivity advances, and interaction with the consumer in competitive markets that the reductions are realized. It is a dynamic change in behaviours on the part of consumers, producers, and investors that provide the conditions that result in change in producer pricing.
The tax reform proposed is a revenue neutral one, any increase in productivity increasing economic growth is reflect in a lower tax rate overall as the economy expands enhancing the taxbase. The lower burdens on the consumer results for a lowering of that intrinsic tax rate, as well as profiting the business in removal of its tax and tax related overhead costs.
The net total effect is lower costs on business from productivity gains, with the employee's gross wage held constant, The business utilizes its lower costs and investment in capital assets in a manner to optimize its profits through expansion, productivity impovements, and using savings to compete for market share and enhancing profitibility with the lowering of price for cost reductions realized.
The consequence derives from the repeal of the current tax system and its burdens on much of the economy and thus is referred to in terms of removing taxes. The impact however is much more wide ranging than just the amounts actually remitted to government by businesses as taxes.
Of course they would reduce wages to employees to compensate for the unequal treatment.
No business profits from abusing its employees. Business owners derive their compensation from return on capital. Lower costs from more efficient utilization of assets, higher productivity and wider markets means more profit to owners not less. There is no basis to assume lower gross wage to employees at all.
its called class warfare, it happens all the time.
They wouldn't remove the majority, just the top 20% of earners.
From the same folks that provide campaign dollars, you mean.
Not all businesses have employees, but that aside, they account for the income paid to the employees and the taxes withheld. That is the "transaction" on which the tax is based.
Businesses already record each transaction at the time of sale.
At the retail level, if their books are that detailed. But not in the service sector.
Businesses need answer only one question to determine the tax due: How much was sold to consumers?
OK. And how do you answer that? If I spend one hour more of my time (God help me I'll be a robot punching a clock) with client A than I did with client B, for the vary same service, must I collect additional taxes from client A for the service required? Don't tell me I set the rate on my gut feelings. I could do that now. But I couldn't with a sales tax. I'll get stuck for cheating on taxes.
What do I do with the little old lady that's hard of hearing and needs two additional days of work over the average? You'd think I couldn't bill for that. You'd think I wouldn't. But what kind of lawsuit and legal problems would I open myself to if I charged her more for the service? Or if I didn't? Some things don't reduce to dollars and cents that easily.
What is three times my retail cost of food?
What ever you spend for the amount of food you choose to eat.
HHS doesn't care how much you choose to eat or what you eat or what your retail cost of food for what it eat is.
HHS establishes the HHS povertylevel on the basis of a nutritional diet not your proclivity to eat junk food in profligate amounts or starving yourself on a crash diet, those are your choices unrelated to the measure used to calculate the sales tax rebate.
Three times the cost of a nutritious (i.e. healthy) diet is the measure nothing more nothing less. You can spend as much or as little as you want. You will receive the sales tax rebate based on the taxrate times the HHS poverlevel for specified household size.
Expend more, help pay down the national debt. Expend less, help pay down your own debt.
I don't believe in the Laffer Curve -- it's just another "money for nothing and chicks for free" deal.
How is any tax "revenue neutral"?
By providing the same level of tax revenue as the tax law it replaces, or by inducing dollar for dollar cuts in government programs where tax revenues are lowered.
I don't believe in the Laffer Curve -- it's just another "money for nothing and chicks for free" deal.
I see you don't believe that government gets zero revenue when tax rates are zero, and zero revenue when tax rates are 100%, and something more than zero inbetween.
You also have to take into account the reduction in prices your suppliers are able to give.There's your problem. You didn't use the Fairtax calculator. When you you use the Fairtax way of calculation, if you have 3 suppliers each one reducing their (cascading tax) price of say 4%...well that's 12% savings (in fairtax math) right there.Yes I did that was where the 4% cost savings came from in my analysis.
Now, when you reduce your own profit by the amount you would have paid in taxes you have about 20% reduction...Btw, profit isn't self-employment "income" in the wage sense so don't worry about having to report your inco....I mean profit, to SS if the Fairtax is passed....You might want to check with pigdog for the fairtax definition of "self-employment "income". He's the arbiter of everything....fairtax .
If you want to find more ways to reduce your price you can take money from your employee's, like the Fairtax economist Jorgenson (who has since bailed from the fairtax) figured in his Fairtax study....
business owners are going to get to keep all the profits without sharing them with the government by paying taxes. So this is good for the business owner from a profit standpoint if it weren't for the ugly problem that his cost for a car wash is now too high when you tack on the 30% and he loses business.That would make way too much sense were it not for the Fairtax rule of "competition will force you to lower your prices"...Besides everything will be about the same with everyone (but you) having more money to pay your higher prices....Don't worry, be happy.
< /sarcasm >
That's the beauty of selling the curve, there are no arguments about the extremes on either end. It's the murky middle that I have a problem with.
What's to believe about the murky middle? There is an optimum tax rate that works for govenment in that if a nation is tax at that rate the maximum revenue to government is maximized.
Not a particularly healthy place for business or the individual however, it tends to lead to high levels of taxation and moribund economies.
Below that tax optimum revenues are lower but the economy grows more rapidily.
Above that tax optimum revenues fall off as the economy dies.
That is all there is. The optimal level of total taxation from a government's view is around 30% of GDP. Tax more your slowing the economy so fast revenues fall off. Tax less the economy picks up and revenues fall, good for the people, good for limiting government.
With the current economy with state and federal tax total is around 27% of GDP, about 10% state the rest federal.
The government, in my opinion, is too close to the nasty optimal. We need to get it down more. Efficiency in government squeezing blood from the turnip is not a good thing.
If I were running things, I would raise some taxes, create new taxes and eliminate other taxes.
A)I'd raise taxes/tariffs on some imports of goods
B)Lower taxes at the middle tax bracket
C)Create tariffs for importation of personnel (H1Bs) and electronic service industries. If a company wants to build a call center in India, fine, but they have to pay taxes on the expertise they're electronically importing.
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