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Dear Mind-numbed Robot,

"In order to accomplish what you suggest, the middle class would have to live like the poor for a period of time in order to save to make the investments, to give time for the investments to start paying off, and finally until the investments paid off enough that they could live like the middle class they are. If they stay that wise and disciplined they could eventually climb into the upper class."

Well, it depends on what you mean by "live like the poor..."

My wife and I started out without much when we married over 22 years ago, and often, we felt poor. I remember thinking how nice it would be if we merely had all the cooking utensils and gadgets my mother had. But we have tried to be prudent all these years, and I think we were married over 10 years when I finally decided that we had an adequate number and variety of cooking gadgets. LOL.

But we were never poor. We always owned our own home. We could always pay all our bills. We always had two working cars. We always had at least a month's bills in the bank (and usually more than that). We always had enough food, enough clothing, heat in the winter, a/c in the summer. Some years, we didn't have elaborate vacations. Often, I bought the polyester-blend slacks instead of the wool ones, but my gosh, for me to even suggest that we ever lived as we were poor would be to insult everyone who has ever known true want.

We have always spent a high proportion of our income, and over the years, as our income grew, we have enjoyed all the necessities, and many of the luxuries of life.

However, we have also tried to be sensible, and have tried to make sure that some modest amount of our income would be put aside.

I suggest that the difference between living on most of one's income and living on all of one's income isn't as great a difference as you've laid out.

Now, that wisdom is rare is a truism. That many will not bother to do what it takes to accumulate wealth is almost a tautology. But that's not an effect of tax law.

And actually, it turns out that a pretty significant proportion of the middle class HAS availed themselves of some of these things. I've read that 50% of households have retirement accounts through which they invest in equities, either directly, or indirectly through mutual funds.

My point remains, most all the ways by which the rich reduce their tax liability are available to the middle class. In fact, many middle class households are building wealth precisely through tax-advantaged retirement accounts, real estate investing, and other means.

"Real estate appreciation can be deferred, tax wise, but the rent on the property can't be and that is when they get into all the tax shenanigans to minimize their taxes and maximize their gain."

What are you talking about? For many real estate investors, the vast majority, or even all rental income is tax-advantaged, often to the point of paying no current taxes at all, due to the deduction for depreciation. It doesn't take much effort to avoid taxes on rental income, at all. I've pinged another poster who generates some of his income from real estate investment. If he chooses, he can elaborate on his own experience.

Lots and lots of middle class folks do this.

"The rich also have trusts, foundations, and other avenues they utilize to shelter large amounts of wealth from taxes. The middle class can't participate in that because they don't have that much money. I suppose they could go through the motions but it would be meaningless."

That's true to a degree, however recent innovations in this area have made much of this sort of thing available for the merely well-to-do rather than only for the very rich.

"The tax laws, like all laws, are supposed to be written for all, not just a few. These laws meet that criteria only technically as only a few can access them."

Well, the problem is that the tax laws, which are SUPPOSED to be written for all, have often been written to penalize the most successful. It's difficult for me to offer a criticism of the most successful when they manage to escape those efforts.

"I recall an especially egregious case when Jim Wright was Speaker of the House, before his shenanigans got him booted so as not to shine too much light on the rest, was a provision of the tax code that excluded everyone living at a certain address in Ft. Worth from taxes for a particular year."

Regrettably, there is no tax system that is immune from that particular type of manipulation. The resident of that address could have been as easily granted, in a private bill or a nearly-hidden amendment to a larger bill, a sales tax exemption, complete with an exemption certificate issued by the Department of the Treasury (or whoever will issue these things at the federal level).

"The Fair Tax eliminates all that and leaves the poor and middle classes with more money to do the things you suggest, and they do them for the money they will make rather than for the money they will keep away from the government."

My own analysis suggests that poor will do pretty well, the working classes will do pretty well, the lower middle class will do okay, and the upper middle class - the folks who often have been most aggressive in the use of the current tax code to avoid federal income taxes, through things like large mortgage payments, acquisitions of cars & things using home equity loans, aggressive contributions to retirement accounts, preference for high non-taxed benefits rather than higher salaries (better health insurance, disability insurance, life insurance policies, etc., rather than higher salary), and who often school their children apart from public schools - these folks will get hit. They will often wind up being net losers.

The truly wealthy, however, will wind up being largely net winners (not that there won't be a few exceptions). My accountant, who has a fair number of folks with "unearned" income in seven figures, tells me that since the 1986 tax reform by Mr. Reagan, most of these folks average about 20% of their income in federal income taxes.

Since it is unlikely that many of these folks will spend most of their income on new, taxable purchases, most of these folks are going to make out like bandits from the proposed national retail sales tax.

However, I'm troubled by the fact that it seems that most economic classes will benefit from the new system, as the act is supposed to be revenue neutral. I've read everything about picking up more money from better compliance, but I'm really not persuaded by the argument. Tax avoidance and tax evasion migrate to where the bulk of the taxes are collected. I can imagine a boatload of ways that folks will use to avoid the payment of these taxes, and I think that the gains from collecting taxes from the "underground economy" may be real, but much more modest than the proponents of this system describe.

In which case, the actual rate of taxation won't be 30%, but rather something higher. Even at 30%, I suspect that we'll be approaching the point of diminishing returns.

"As for the rich, who cares how much they have or what they do with it. Unless they keep it in millions of mattresses or jars buried in the backyard, they will put it to work helping the economy. Even if they just stuff it in the bank or other financial instruments that money is reinvested in the economy. That creates jobs and millions more people buying things. That more than makes up the money they spent on used yachts rather than new ones."

I commend you on your non-statist, non-classist, non-envy-of-the-rich attitude.

However, from what I can tell, the very rich are already doing just that. Few have their money buried in the backyard, or hidden under the mattress. A wonderful way of minimizing one's taxes is to invest in passive investments for the long-term, and sit back and watch the unrealized capital gains mount. That is the single biggest way the rich avoid taxes now, and that will remain the single biggest way the rich avoid taxes under a national retail sales tax. Thus, the level of investments by the rich likely won't rise more than a bit. However, their tax burden will likely fall modestly.

"You seem too smart to have overlooked all this."

Well, flattery will get you nowhere (unless you're female, and cute).

"Another agenda?"

What the hell is wrong with you national retail sales taxers?

Why must you assume nefarious motives for everyone who thinks differently than you think?

Did I accuse YOU of nefarious motives for supporting a tax scheme that I consider half-baked and half-assed?

Did I wonder whether maybe YOU might have a hidden agenda?

I can think of hidden agendae for support of this asinine system, but I don't impute it to those who disagree with me. I give you all the benefit of the doubt that you support this hare-brained scheme because you're honestly convinced it's a good idea.

What is wrong with you people that you cannot give the same benefit of the doubt back?

Don't post back to me, unless it is to apologize for the gratuitous questioning of my own intentions.

sitetest

Don't post back to me, unless it is to apologize for the gratuitous questioning of my own intentions.

I apologize for the gratuitous questioning of your intentions. I had second thoughts about it when I wrote it.

However, do you consider this less offensive?

What the hell is wrong with you national retail sales taxers?

Why must you assume nefarious motives for everyone who thinks differently than you think?

Did I accuse YOU of nefarious motives for supporting a tax scheme that I consider half-baked and half-assed?

Did I wonder whether maybe YOU might have a hidden agenda?

I can think of hidden agendae for support of this asinine system, but I don't impute it to those who disagree with me. I give you all the benefit of the doubt that you support this hare-brained scheme because you're honestly convinced it's a good idea.

What is wrong with you people that you cannot give the same benefit of the doubt back?

I plead guilty that the advantages to the Fair Tax seem so obvious to me that I can't understand those who don't support it. That you think it is a tax scheme that...(is) half-baked and half-assed? ...this asinine system, ...this hare-brained scheme is a puzzle to me. However, I am aware that I have been wrong in the past though not on things I have investigated as well as I have this. Still, I know I could be wrong and that is why I apologize.

Your situation in life, even from the start of your married life, is a little higher on the rung than I was imagining for the middle class in my argument. Although you were definitely middle class I was thinking a little lower on the rung.

However, this statement is a very important one. Well, it depends on what you mean by "live like the poor..." ...and often, we felt poor. You probably reacted to that as a challenge because of your nature, your nature being a combination of nature and nurture. Our reactions are abrbitrary and self-chosen. One can be really, really poor and choose not to consider himself such. It is strictly an attitude and values thing. However, you and those who react like you are the exceptions who make the rule.

Most are riding the wave they caught with little thought of other possibilities other than the next wave which might happen along. Few are goal setters and planners. Those are the ones who would benefit from an NRST because their knowledge and their natures are such that they can't or won't take advantage of the present system. The Fair Tax benefits them without their trying, without goals and plans. They benefit by just living and they are the majority by far.

Now, that wisdom is rare is a truism. That many will not bother to do what it takes to accumulate wealth is almost a tautology. But that's not an effect of tax law.

As you see from above, I think it is an unintended consequence of the tax law. However, since much of the current law is purposely hidden and complicated it may not be unintended. Regardless, its complexity causes many to seek expensive help, money better spent elsewhere, or misfile or not file at all, questioning whether the complexity achieves its purpose.

I've read that 50% of households have retirement accounts through which they invest in equities, either directly, or indirectly through mutual funds.

I suspect that most of that is taking advantage of 401Ks rather than individuals making independent investment decisions. If it weren't for the structure of the tax system there would be no need for them to be confused by the variety of IRAs, etc., to avoid or delay taxes. Those are developed to be attractive in the losses they avoid instead of the money they make.

My point remains, most all the ways by which the rich reduce their tax liability are available to the middle class. In fact, many middle class households are building wealth precisely through tax-advantaged retirement accounts, real estate investing, and other means.

This is another area in which we disagree. Building wealth by avoiding taxes is like staying healthy to avoid death. It is a good idea for the wrong reasons. Why not stay in good health just because it feels good and allows one to do more? Why not just build wealth for the purpose of building wealth and having more money with which to do it? How about making decisions based on business principles rather than tax avoidance?

People say eliminating the mortgage interest deduction would kill the housing market. Why? People have to live somewhere. Therefore, builders will build apartments if people didn't want houses. In reality, people will buy a house if that is what they want or live in an apartment if that is what they want. The interest deduction is a sop to the lending institutions to spur borrowing, or so they think.

What are you talking about (concerning rent as taxable income.)? For many real estate investors, the vast majority, or even all rental income is tax-advantaged, often to the point of paying no current taxes at all, due to the deduction for depreciation. It doesn't take much effort to avoid taxes on rental income, at all.

I suppose it is a matter of opinion as to whose point is being proved here. Rent IS taxable income but an investor can offset that with depreciation and other expenses applied to the property. Eventually, the property will be fully depreciated and that write off will be gone. In any case, a person is having to play the tax system in order to make it all work for him. Why not eliminate that?

Rent would be taxable under the NRST for residential property I agree, but it would be a rather straight forward process of collecting and remitting it. The elimination of all the embedded costs would also allow the landlord to lower his rent if he cared to or if competition forced it while still making the same margin.

Well, the problem is that the tax laws, which are SUPPOSED to be written for all, have often been written to penalize the most successful. It's difficult for me to offer a criticism of the most successful when they manage to escape those efforts.

I agree. I would think you would want to end that by ending the tax system which makes it appealing.

Regrettably, there is no tax system that is immune from that particular type of manipulation. The resident of that address could have been as easily granted, in a private bill or a nearly-hidden amendment to a larger bill, a sales tax exemption, complete with an exemption certificate issued by the Department of the Treasury (or whoever will issue these things at the federal level).

To my knowledge there are no exemption certificates in the Fair Tax. Politicians could create one but they can create anything, even unconstitutional things. We must work hard not to allow it.

...and the upper middle class - the folks who often have been most aggressive in the use of the current tax code to avoid federal income taxes, through things like large mortgage payments, acquisitions of cars & things using home equity loans, aggressive contributions to retirement accounts, preference for high non-taxed benefits rather than higher salaries (better health insurance, disability insurance, life insurance policies, etc., rather than higher salary), and who often school their children apart from public schools - these folks will get hit. They will often wind up being net losers.

That I don't understand at all. How can the loss of the ability to manipulate a tax that no longer exists be harmful? They will be made whole on the sales taxes for necessities and they can pick and choose what and how to buy the rest. If you are suggesting that the use of tax advantages makes that group nonpayers then that just adds to the number who pay no taxes, putting a greater burden on the rest. Even then they won't be able to avoid SS and Medicare taxes even if they are self-employed, thus negating a portion of their gain, or more correctly, adding back some of the costs they are avoiding.

My accountant, who has a fair number of folks with "unearned" income in seven figures, tells me that since the 1986 tax reform by Mr. Reagan, most of these folks average about 20% of their income in federal income taxes.

Regrettably, the 1986 Tax Reform and Paperwork Reduction Act was an increase, not a tax cut. To get Reagan to agree to that the Democrats agreed to cut $2 in spending for $1 in tax increase. They lied and they reneged, later blaming Reagan for the tremendous deficit that naturally ensued. The bill was so voluminous and complicated that I would n't be surprised what was hidden in there. It did eliminate a lot of deductions taken by the common folk.

Since it is unlikely that many of these folks will spend most of their income on new, taxable purchases, most of these folks are going to make out like bandits from the proposed national retail sales tax.

As I said earlier, who cares? I agree that the super rich are unlikely to spend most of their income on new purchases no matter how many mansions or yachts they buy. But they will still buy more new items than any other class and therefore carry their share of the tax load. Notice I didn't say fair share because that is a greatly misused term.

As far as the revenue neutral thing, that was determined by people a lot smarter than I am. Maybe someone else will cover that for you

I will say, to be as pisssed as you were you remained amazingly cool when writing this.