Posted on 09/08/2005 4:48:28 AM PDT by Your Nightmare
A bestseller advocating radical tax reform contains a critical flaw that misleads readers, according to a report in the October issue of MONEY Magazine.
...
While consumers would pay a federal sales tax on purchased items, the authors argue that prices at the store would stay the same. The reason: everyone involved in the process of production would no longer be paying taxes, so they could charge less for their goods and labor.
If true, that would mean a dramatic increase in Americans' purchasing power.
But, according to the MONEY report, the book fails to make clear that, in order for pre-tax prices to fall so sharply, companies would also have to cut wages they pay.
"Sure, you'd get to 'keep 100 percent of your paycheck,' as Boortz and Linder repeatedly write, but it would be a smaller paycheck," MONEY senior editor Pat Regnier writes. "That's kind of a big thing to leave out."
(Excerpt) Read more at money.cnn.com ...
That's even funnier Rongie. You had just been claiming on this thread that the economist Jorgenson was making the assumption for his model and now you're trying to spin his reporter's hitpiece as some sort of definitive economic discovery backed up by Jorgenson. Jorgenson, in fact said nothing of the sort - go read his actual words (and not the BS in the MONEY article of the stuff Robbie had hyped so long). He was saying that he assumed things for his model - not that they would or even had to happen.
The reporter obviosly has a great deal of animus toward Boortz - you can tell that by his work selection ("polemic", etc.) plus his attempts to belittle Boortz (and his fans) by relating things about his behavior completely unrelated to the FairTax. And his continued quoting of William Gale, Brookings, Slemrod, and the tax law professor (no doubt a wonderful liberal economist who knows lots about tax systems and their effects) is a clear indication he's trying to do nothing but trash the FairTax - and you might notice that he uses many of the half-truths and misstatements that you Squirrels do.
The reporter is even less informed about what "embedded taxes" might be than you SQLers and thinks it relates only to payroll taxes. That's truly nonsense. He never does indicate that he even has the foggiest idea of what embedded taxes really are - or why they will, indeed, drop when the FairTax becomes law.
Of course, you don't either so I won't bother to discuss it with you.
Ridiculous, Rongie ... the article is nothing but a hitpiece pure and simple. To believe otherwise you'd have to be truly a moron!!!
Not true -- there is now a hidden tax in everything people buy when they spend their savings and wages - and that is over an above any overt income/payroll taxes they already "formally" pay. It is caused by the increase in prices caused by cascaded, embedded taxes and compliance costs which are bundled into prices right now.
With the FairTax the manner in which it changes the way taxes are collected alters many things such as this "hidden tax" structure and will help lower prices. It also spreads the tax burden onto all people who consume where presently only a subset of wage earners pay taxes. By spreading taxes over a wider base the amount many people will decrease because more people contribute to the tax revenue.
There are certainly plenty of "productive people" (your words, not mine) who pay little or no tax and it is not based upon the choices they make but is foist upon them (and us) by the ridiculous tax laws. The burdens will change, but most people will be better off than at present helped in part by a greatly rising economy caused by the FairTax and the way it manages the tax system.
Stuff and nonsense, Looey. Your Looey-'rithmetic almost rhymes.
My original point was that a NST wouldn't be levied on the taxes paid at the state and local level. State taxes are controlled by the state and will remain exactly the same. Congress has no authority over what each state charges in sales tax.
This whole thing is a sham and rates will rise enormously from the initial 30% ratePlease explain the reasoning of your assumption.
I assume that some sellers of goods will find a way to sell under the table with no fair tax. That benefits them by allowing them to sell their goods cheaper than their tax-paying competitors but higher than what they sell for now. This provides an obvious benefit to the buyer, who now has goods at a lower price. The point is that people ALWAYS seek to maximize their economic well-being - always.
By the illegal economy you mention, I can see the benefit that illegal aliens would have to pay the fair tax when they buy things (except for the bundle they ship back home - "Envio dinero a Mexico" is the unofficial slogan of South Georgia). Drug dealers will continue to sell on street corners, but their Escalades and gold chains will cost more, I agree, if legally purchased.
I can't begin to estimate the differences in compliance under fair tax and the current system -- heck, I thought IRS was going to be obsolete! As I mentioned in an earlier post, if you want to see slow stupidity in motion, go pay a visit to your state's department of taxation. If that's who's going to be collecting up these taxes, better short the US Bond market!!
Where do you get a 28% rate when you sell your home under the FairTax ? By definition, your home is a "used" item, so the buyer would not be paying any FairTax on it. Gains in a home are also a "tax deferred" account in the sense that you purchased it with a heavy subsidy via the mortgage interest deduction.
As far as spending the gains goes, you would be paying 23%. The minimum retail price drop any reasonable person would expect from the FairTax is 10%. Even without counting the prebate, that means you would be paying $1.17 for what costs $1 today. As an inclusive tax rate -- to be compared to an income tax rate -- that is the equivalent of paying a marginal income tax of 14.5%. If you were spending those gains on buying non-taxabale goods -- such as a previously owned retirement home, then the rate would be significantly less than 14.5%. Or if retail prices drop by more than 10%, you would be paying less.
You must compare this to the income tax system. Depending on how long you've owned your home, and whether you are single or married, you might find some of your gains on the sale subject to your highest marginal rate. My folks have seen a gain of $850K on their home. Selling it would mean a 32% tax on $350K of the gain. That is 13% overall tax on the gain. Not much different than a conservative estimate of the FairTax.
Being single, my own excluded gains under the income tax are limited to $250K. My home has appreciated by $275K, so I have been thinking about selling just to avoid paying taxes on additional gains -- which is an example of how people feel pressure to make life-decisions by the tax system.
Add to this the fact that any money you did not spend on another home would be invested, and the income tax would tax that investment every year -- on top of the initial tax on the gains from the old house sale.
I don't see the overall taxes on the gains of a home sale being a big difference.
Don't forget that it's not just drug dealers and illegal immigrants who avoid paying income tax now. It is estimated that nearly 1 in 5 people cheat on their taxes. That doesn't include people who owe income tax and don't file.
"So would you support having everybody declare their portfolios and tax the unrealized gains that they may have? Tax holiday, indeed!"
No, I wouldn't do that. Only where the seed money was income that was tax-deferred. Everybody that put money in those deferred accounts understood that the income tax was only deferred and not avoided. Going back to find the marginal tax rate that was deferred when IRA and 402K plans were funded would be the proper thing to do - plus interest. On the other extreme is the tax that people would pay under the current income tax rules -- marginal rate on both deferred amount plus the gains.
My plan would be a compromise -- 15% flat rate on the entire account. 15% is a lower rate than anybody ever expected to pay. Give people 7 years to transfer their money, and the income tax stream for those 7 years would be $300B/yr. That would reduce the amount of FairTax revenue needed -- and hence lower the rate. During those 7 years, economists expect the FairTax to generate 10% additional economic growth in real inflation-adjusted terms. So the smaller FairTax rate would be bringing in more reveneu in real terms than the income + payroll taxes currently do.
By focusing on only the tax-deferred accounts, it would be easy to manage. The financial institutions would simply with-hold 15% of any withdrawals or transfers from deferred to regular accounts.
[There are certainly plenty of "productive people" (your words, not mine) who pay little or no tax and it is not based upon the choices they make ...]
Certainly true. An many of those people don't consider themselves tax "cheats" -- until they mention what they do to people whose entire income is W2 income and see the reaction those people have.
Pidog, you and I disagree on the value of having the FairTax prebate for similar reasons -- I think it is dangerous to have a big chunk of the population voting on spending issues when they will not have to pay for them. Philosophically, politically, and economically, I think the rebate is a bad idea. And it costs us 3% more in FairTax rate to fund it.
I rarely read them, don't bother.
And it costs us 3% more in FairTax rate to fund it.Actually it's 3 percentage points more or a 18.5% tax increase to fund yet another big government entitlement.
Yes, we do have a difference of opinion on the prebate but I see it as a good idea rather than a bad one.
However, should the bill pass without the prebate, that would be OK with me and I'd never miss it. I merely don't think that it can or will pass without it, but perhaps you do.
My overriding interest is in seeing the FairTax become law in a form little changed from the present bill.
If you don't read them, how did you know I exposed your fraud?? A litle birdie tell you, perhaps??
You forget the abuse nexus for FairTax: the monthly "rebate" check. More compelling than reducing deductions is giving people more money outright - a more direct route to the people voting themselves money out of the treasury.
No, I don't forget it at all. It is clearly defined in the bill in a particular manner. I do not see it as an "abuse nexus", but as a one time thing necesary to keep the bill from being attacked as (or seen as) regressive.
Any increase to attempt to alter the prebate mechanism would affect all taxpayers adversely - they also happen to be voters. This makes any changes unlikely.
Exactly. The "progressive tax" people will demand that "reasonable refunds" be made; just as the income tax was subverted by a host of "reasonable deductions", the FairTax will be subverted by a host of "reasonable rebates".
I wish the FairTax well. I hope it comes into play - not so much because I like it, but because ANY tax system becomes corrupt and must be replaced periodically.
The FairTax defenders are spending too much time saying "we've solved that" and not enough time creatively looking for ways to subvert it, as $XBs will rewarded to those who succeed in subverting whatever tax system is in place - and there WILL be loopholes.
Until the gov't returns to its roots of not taxing citizens, and not handing out money to them, there will always be room for corruption.
Even if they DO return to not taxing citizens, there will STILL be room for tax corruption and shennanigans - always will be ... by definition.
The definition of the prebate is written into the bill in a way that, to alter it an any meaningful way, would require a change of tax rate or a change in federal poverty definitional standards used in many govenment programs. Neither change is likely since a rate change affects taxes on everyone and cannot be hidden as at present and changing something used in many programs would be, as a practical matter, impossible.
The "progressive tax" people (whoever they might be) can yell till they're blue in the face to no effect. With enough votes to pass the bill, there will be sufficient political muscle behind it to overcome any such challenges.
-snip-
My 2 cents, as an employer I would be more inclined to give my employees a raise not having to send matching SS & Medicare payments to the Treasury each month, not to mention a little more profit. Still have to rethink my purchases though.
-end-
Don't forget, as a business you don't pay taxes on purchases. Only end users pay taxes.
If you had read my earlier post about the two changes I would like to see to the FairTax, you'd know 3 percentage points was exactly what I meant.
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