Posted on 09/28/2005 12:14:25 PM PDT by hripka
The main problem with the Fairtax is that there is no way that you are going to get employees to accept a reduction in their gross pay to the current amount of their takehome pay.
No problem at all as I see it. Folks get to keep their full gross. Business gets the advantage on nolonger dealing with the income or payroll tax systems and the lower overhead cost and reduction of deadweight losses their.
As you know, this is necessary in order to have prices "stay about the same".
I don't know that at all, as the efficiencies that arise from repealing the corporate income and payroll taxes are quite substantial and of much greater impact than the tax payments per-se business is saddled with under the current system.
All in all, according to Jorgenson, one can expect tax + price of goods and services to fall a net of 3% initially declining as much as 10% increasing purchasing power as time and economic growth proceeds across the 25 year interval of the Jorgenson simulations.
Overall, others such as Kotlikoff, find a long term advantage, over the federal income/payroll tax system, to be as great as 15% in advancing the standard of living.
In fact Kotlikoff finds an even substantially higher lifetime advantage when coupling social security reform with fundamental tax reform in the form of repealing income and payroll taxes and going to a consumption tax system:
NCPA Study #275, Combining Tax Reform and Social Security Reform
- Without reform, real wages at mid-century will be 10 percent lower than otherwise because of elderly entitlements.
- With the set of reforms proposed here, real wages will be 4 percent higher than otherwise by mid-century and 10 percent higher by the end of the century.
- Without reform, average take home pay for workers will be 26 percent lower by 2050 and 31 percent lower by the end of the century because of elderly entitlements.
- With the set of reforms proposed here, pretax wages are 21 percent higher at the end of the century than would otherwise be the case and the effective average tax on wages falls from roughly 60 percent to roughly 37 percent.
Seems to me going to a combination of FairTax style consumption only tax coupled with Personal Savings Accounts funded out of a ~20% (tax exclusive) tax rate on all consumption purchases is the viable way to go.
Takes care of many issues and is far superior to handling taxes and Social Security the way we do to day.
Refer to the full paper at:
Tax and Social Security Reform
http://www.ncpa.org/pub/st/st275/index.html
NCPA Study No. 275
Thursday, September 29, 2005
by Hans Fehr, John C. Goodman, Sabine Jokisch, Laurence J. Kotlikoff
Until the mainstream FairTax warriors come clean with the people that they are trying to sway that they are expecting every wage earner to take a 20-30% cut in gorss wages (takehome pay will remain about the same) then the program has no chance of enactment.
Seems to me your 1996 Ways & Means testimony of Jorgenson regarding just replacement of income taxes alone with a retail sales tax is rapidly loosing relavence to more complete and uptodate studies that look at a much the much broader picture of effects and results obtainable when both income taxes and payroll taxes both are taken into account.
You may be able to fool people a little lontger, but eventually you have to come clean and then the plan is dead.
LOL, more studies coming out in months ahead as the President's Tax Reform Panel winds up it's work. We shall see how they measure up in providing revenue neutral policies that reflect the current conditions and tax system as it exists today rather than how it existed prior to 1996 for the Jorgenson Models to which you refer.
Boortz and Linder took a big gamble in making the 100% paycheck promise in their book, and they can't back it up in reality.
Only in your eyes, as even Jorgens admitted that real wages rise with increased efficiencies that arise with the repeal of corporate income tax of his 1996 testimony. How much more, with an economy 10 years down the road, and lower tax rates as a result of the Bush adminstration tax cuts is for current and more complete studies to determine, the first of which above appears more than encouraging to me.
Taking an economic assumption made for modeling convenience as real life as you have in assume a pay cut must be taken is just foolishness in the extreme. Kotlikoff make no such assumptions in his papers, and in fact does not even take the full range of business overhead cost into account in arriving at his conclusions. Indeed futher studies on full replacement of both income and payroll taxes ought to interesting indeed as we progress in the completeness and accuracies of econometric models.
Most of the people who bought the book and who are talking it up have no idea what the plan means in reality.
You certainly don't that is for certain.
You, yourself have admitted frustration at finding NO consideration of compliance, overhead, or any other tax related cost in Jorgenson's models. You and I agreed that they just aren't there.
Other than hope (a highly unreliable methodology) there is no justification to consider Jorgenson model accurate for a system with different wage behavior and different externalties (like overhead costs). To keep using it as a reference is just plain dishonest.
Remember the conversation you and I had about wages in the Jorgenson simulation being net of taxes.
Are you aware that real wages rise, i.e. increase one's power to purchase goods and services as a consequence of replacement of both income an payroll taxes.
Infact even under Jorgensons's assumptions real purchasing power of the consumer increases by 3% in the first year rising to 10% in the 25th due just to replacing income tax alone with a retail sales tax. That is not not even accounting for the efficiencies gained as a consequence of lower tax related overhead costs and repealing the regressive SS/Medicare wage taxes.
You do realize that if wages are kept at gross levels, that prices will not decline as Jorgenson predicts.
Actually Jorgeson's models predict an increase in purchasing power which assuming gross wage were held constant to baseline wages requires a decline in prices paid by the consumer (taxes include in price.)
You, yourself have admitted frustration at finding NO consideration of compliance, overhead, or any other tax related cost in Jorgenson's models. You and I agreed that they just aren't there.
You are certainly correct there. However, taking such into account assures an even larger increase in purchasing power for the consumer and that is under replacing income tax alone.
The effect of removing the corporate employment excise as well can only increase the benefit to the individual and assume gross wages held constant against what they would be under the baseline income tax scenario assures a price decline must take place in such a situation.
Other than hope (a highly unreliable methodology) there is no justification to consider Jorgenson model accurate for a system with different wage behavior and different externalties (like overhead costs).
You are correct for obviously the Jorgenson 1996 models underestimate the effect on purchasing power due to removal of overhead costs and the removal of payroll taxes that Jorgenson did not account for in the model under discussion, that which generated his 1996 Ways & Means Testimony results.
To keep using it as a reference is just plain dishonest.
For lack of a better it has certainly been appropriate to use a model that obviously underestimates the benefits. That is hardly dishonest in any manner.
But for a much more uptodate treatment of what is possible with a retail sales tax system that addresses both income and payroll taxes with reform of Social Security, the NCPA study just released is an eye opener. Interestingly I am sure that one is only the first of many comparative studies that are coming out addressing the various forms that tax reform can take and their effects on the economy and the individual.
I turn your attention back to #421 which indeed refers to that NCPA study rooted in current tax law and the current economy with the refinements possible across the last decade of building on Jorgenson's and other's attempts to provide appropriate models for study of tax reform measures.
Tax and Social Security Reform
http://www.ncpa.org/pub/st/st275/index.html
NCPA Study No. 275
Thursday, September 29, 2005
by Hans Fehr, John C. Goodman, Sabine Jokisch, Laurence J. Kotlikoff
By the way the above compares five different tax systems with and without Social Security reforms relative to current system performance and provides a much more comprehesive treatment of what is possible.
From all I can determine this is just the first of several new studies we can expect to be released in coming months as the Tax Reform Panel winds up its work. You can be certain there will be more to come as we move into a phase in which Congress actually starts framing the details that tax and Social Security reform will actually take.
It is indeed interesting the best results in that NCPA study revolve around the FairTax style of tax reform. That of replacing both income and payroll taxes and using a sales tax rebate mechanism to introduce a minimum level of necessity expenditure that is effectively tax free.
Jorgenson predicted after-tax prices to decline PRIMARILY because wages declined to "net of tax" levels. In reality, there is no data to suggest purchasing power gains are independent of wage behavior, your speculation to that effect notwithstanding. If prices rise, ALL incomes must rise (even those without taxable income ... that's not possible !)
Jorgenson also predicts that economic benefits greater than those of a Progressive Sales Tax (FairTax) can be had from a Proportional Labor Income Tax (Flat, no progressivity) ... almost 50% greater. You see, the magic behind the economic gains comes from the elimination of taxing capital formation and the elimination of progressivity ... not from whether you tax labor income or retail sales.
Your extrapolation of his results is pure sophistry . The attachment of your extrapolations as attributes of the FairTax is dishonest.
Joregenson predicted gains from a different form of sales tax ... not all sales taxes are created equal. Jorgenson's tax was not progressive, the FairTax is.
That was the study he did in demonstrating his own concoction of a dual rate income tax, the "Efficient Tax" was it not?
You are aware are you not that the deadweight losses associated with the maximum marginal rates of a tax increase proportaionatly as the square of the tax rate; which is really being said and was demonstrated in that study. When progressivity of any tax system is increased by either rebating tax collected or constraining the size of the taxbase by exempting persons, goods, or services from taxation, deadweight losses increase with the maximum marginal rate of the tax system, decreasing purchasing power of the household and thereby net welfare of those households.
The other factor different from the early 1996 studies, is that payroll taxes were also repealed, reducing maximum marginal rates substantially more than rebates increased those rates. On net a strong improvement over a bare bones tax that only replaces the income tax side of the tax system having no rebates or exclusions.
Progressivity, as Jorgenson proved in later studies significantly diminishes the "welfare effects" of the tax scheme.
As I remember the paricular implementation for an NRST in that Efficient Tax study of his arbirarily halved the implemented NRST taxbase relative to what a fully implemented NRST under the FairtTax would have, that doubled the maximum marginal rate of his model for NRSTs. I would say the only thing he "proved" in that study was much higher marginal rates tend to burden an economy exessively. A point I do not disagree with.
Fortunately adding progressivity increases the tax rate less than repealing the SS/Medicare tax, thus on net the FairTax demonstrates a strong improvement over the current tax system, and improvement over the barebones NRST of his '96 study that only replaced the income tax side.
Jorgenson predicted after-tax prices to decline PRIMARILY because wages declined to "net of tax" levels.
In reality, there is no data to suggest purchasing power gains are independent of wage behavior, your speculation to that effect notwithstanding.
The better statement would be that Jorgenson did not address the issue of reduced costs on business at all. No data was a choice of the implementation of his model alogrithms not a lack of demonstrable effect in an operating economy.
If prices rise, ALL incomes must rise (even those without taxable income ... that's not possible !)
If prices rise incomes overall also rise (regardless of being taxable or not) as receipts to business are redistributed back into the economy as wages, return on investment, and payments for input goods services and infrastructure improvements which perculate up the market chain.
However for analysis puposes we are arbitrarily holding gross incomes constant as compared to the income tax baseline, remember? The results in an output that reflects changes in household purchasing power and and increased standard of living (i.e. welfare effects)
The idea of these studies is to examine the net "welfare effect") of those incomes across the board removing any inflation or deflationary trends out of the model output. The idea is to address real wages, real prices (i.e. discounted for inflationary effects) in the economy. Whether we simply look at takehome pay as our constant, or gross pay is irrelavent to the ulitmate result in whether there is an improvement in implementing a retail sales tax to replace income and payroll taxes.
Jorgenson also predicts that economic benefits greater than those of a Progressive Sales Tax (FairTax) can be had from a Proportional Labor Income Tax (Flat, no progressivity) ... almost 50% greater.
Again noting that Jorgenson has never taken the removal of tax related overhead costs on business into account in any of his models.
You figure you are going to actually enact a wage only tax without progressivity in any practical legislation that can get through Congress. No progressivity puts the tax system in fantasy land automatically and not even a ghost of a chance of enactment.
You see, the magic behind the economic gains comes from the elimination of taxing capital formation and the elimination of progressivity ... not from whether you tax labor income or retail sales.
Lets see taxing consumption only (FairTax) eliminates taxing capital formation. From most studies done, progressivity of the FairTax is essentially the same as the current tax system. Net improvement there. Add in the effects of overall reductions of maximum marginal rates (expanded taxbase) in reducing deadweight losses, and reduction of tax related overhead costs on business that are not addressed in any of Jorgenson's studies, the FairTax remains by far the most viable and best choice for a tax system to meet the essential funding needs of the federal government.
Sorry but as long you continue to ignore those basic factors you are blowing smoke.
Your extrapolation of his results is pure sophistry .
The pot calling the kettle black? Sorry but the extrapolations are quite reasonable and your denial of the potential gain in benefit to the household in political empowerment and and economic terms is the sophistry here.
The attachment of your extrapolations as attributes of the FairTax is dishonest.
Hate to be the one to inform you but the repeal of income and payroll taxes from the backs of business and reduction in marginal rates as a consequence of broadening the tax base are attributes of the FairTax legislation. Your attempt to dissociate the FairTax legislation's implementation by mere reference to label encompassing what it actually is and does is the logical fallacy in that statement.
Your desire to remove any benefit of enacting a National Retail Sales Tax over the income/payroll tax system we have today, or any realizable income tax that would be enacted by Congress for that matter, is the real dishonesty and sophistry going on here.
Trying to present a politically dead example of a tax system, "Proportional Labor Income Tax" (wage only tax with no progressivity) as though it would have any political viability and comparing such to an achievable system is sophistry of the first order.
Joregenson predicted gains from a different form of sales tax ... not all sales taxes are created equal.
By the way, Jorgenson is not the only economist out there today doing this work, as he pretty much was back in '96.
The results of 10 years improvement in tecniques and expansion on his models by other's criticisms of his first generation IGEMs has provided much better analysis from which to judge the comparative benefits of different tax reforms.
I suggest you start getting into more current implementations with more uptodate economic and tax system inputs reflecting today rather than what was cutting edge a decade ago. Not even economics as the dismal science, is totally moribud or insensitive to advancements in the computational capcity of the last 10 years.
Your references are rapidly being over taken by new studies spurred by the efforts driving the inputs to the Presidents Tax Reform Panel.
With the production of that body's work and the surrounding interest, on all sides, of tax reform many new studies are now coming out. Some even touch on the FairTax legislation's approach to tax reform.
I highly recommend you avail yourself of the opportunity to update your knowledge of the subject. Continually going back to Jorgenson's older works and methodologies just isn't going to avail you much of anything. Those Jorgenson studies left far to much out of consideration being essentially first pass attempts to create a system for dyanamic analysis for evaluating economic policy.
You attempt to deflect the criticism by suggesting that I am shopping some alternative to the FairTax ... I am doing nothing of the sort. I AM attempting to separate the real benefits of the FairTax from the ficticious benefits (something I notice you have no interest in ... as long as your agenda is satisfied, you're happy with supportive disinformation.)
You want to move on to more recent studies? Fine, then stop invoking the twin gods, Jorgenson and Payne. They are your favorite cites. And anytime someone attempts a rebuttal to you using contemporaneous sources you cry foul and claim the rebuttal to be dated. Most other sources you cite are not original research but are little more than regurgitations of Jorgenson and Payne. Why is it OK for you to deal with antiquated sources yet it's not OK for anyone else to even discuss the applicability of those sources, let alone use them to demonstrate the errors of your assertions?
I guess if you can't refute the rebuttal, you should attack the source.
Since YOU continue to use Jorgenson to back your claims of benefit,
Actually I don't. I have been merely responding to others questions and statements concerning Jorgenson's statements about his '96 Ways and Means Testimony.
As you well know I predicate increases in purchasing power that is obtainable under the FairTax to predominately derive from increased production efficiencies from reduced tax related overhead costs and have always done so.
As you have pointed out and I have always agreed, Jorgenson's works fail to implement tax related overhead cost into his IGEM missing much of the potential for actual immediate improvements in consumer purchasing power.
Furthermore even Jorgenson has makes it clear that implementing a national retail sales tax impoves standard of living over the current tax system which is my base claim.
Take the benefits of repealing the SS/Medicare tax and reducing tax related overhead costs on business with the increased efficiencies that arise, the benefit to the household taxpayrer/consumer is substantial.
I keep pointing out that the study YOU keep quoting did not study the FairTax as it is proposed.
You are merely echoing my statements as regards his '96 W&M testimony the study for which I have pointedly stated does not implement repeal of SS/Medicare payroll taxes nor the FCA rebate nor does it implement any provisions for reduction in business overhead costs that occur with the FairTax legislation as proposed. The conseqence is the '96 testimony understates the benefits and potential for increase in standard of living that the full FairTax implementation would provide.
I AM attempting to separate the real benefits of the FairTax from the ficticious benefits
Then why are you repeatedly ignoring the differences of Jorgenson's '96 tax reform modeling as regards what the FairTax legislation actually implements?
(something I notice you have no interest in ...
Obviously your ability in discerning my interest in this lacks considerably.
as long as your agenda is satisfied, you're happy with supportive disinformation.)
Lets see, pointing out the shortcomings of Jorgenson's analysis in regards business overhead expenses, lack of replacing Social Security wage taxes, and effects of FCA sales tax rebates is being happy with disinformation in your estimation you.
Sorry but the reality is that Jorgenson's '96 tax lsystem studies establish a minimum to be expected, not the full benefit. A fact that can readily be discerned by anyone how takes a minimal look at his reports and understands what is missing in his models.
Pointing out that the benefit to be derived by American households from the FairTax implementation should substantially exceed that indicated by Jorgenson in that '96 testimony is hardly being "happy with supportive disinformation."
On the contrary, it is necessary to provide information lacking from that testimony, required in understanding the full benefit that can be derived in a real world implementation of the NRST as laid out in HR25.
Yes I do have a clear agenda, I do support it's enactment for I firmly believe it to be the best direction for us to go in how we fund federal government and provide empowerment to the individual citizen as regards the choices he makes with the income he earns. The individual should have first option of how his income allocated fro his family's benefit, not government.
Furthermore, to provide a clear picture of benefits of the FairTax legislation, it is indeed necessary to show where older studies, which do not directly address the FairTax per-se, fall short and intererpret them in light of the specifics of how the legislation's potential effects are manifested in the real world outside of simplified models.
You want to move on to more recent studies? Fine, then stop invoking the twin gods, Jorgenson and Payne.
LOL, I will invoke whatever studies provide insight. Payne provides the most complete compilation of all overhead costs recognized by economists in and out of government both, Jorgenson's study at least provides a mimimum to be expected and a place for analysis to start. Sorry if you can't handle that.
They are your favorite cites.
They are useful and for a long time the only available cites that address critical factors in understanding how the FairTax can provide the benefits it does. Hardly my favorite cites, they are merely available for backing up what I present.
Your attempt to reduce the field of references to useful information is noted. Nice debating trick but not going to work here.
Most other sources you cite are not original research but are little more than regurgitations of Jorgenson and Payne.
Interesting that economists and policy makers tend to cite those studies that exist and are considered authoritative or useful isn't it?
And anytime someone attempts a rebuttal to you using contemporaneous sources you cry foul and claim the rebuttal to be dated.
Rebuttal? Thus far you have been merely echoing what I have been saying, but leaving out the critical factors that allow an estimate of what the FairTax legislation could actually provide.
I only claim foul where folks fail to interpret results of narrow studies in light of additional critical information.
And yes I do expect folks to provide analysis with as uptodate data and relavent information as possible. That is why I have been turning folks attention toward the latest NCPA study as input regarding tax reform containing FairTax like implementations. That NCPA study lends additional comparative information based on more current taxlaw and economic factors (2000 vs 1996)
Of interest especially in the new NCPA study are the comparative analysis showing results of various tax reform implementations in terms of their effects on different economic classes (distribution) as well as age profiles in terms of lifetime benefit expectations in comparison to what the current system holds for us. In that the NCPA study is superior for it give us a quantitative description of where we are now, and provides a picture of where the tax reform implementations studied (two income tax, and three consumption tax variants) might benefit us.
You will find that since the NCPA study came out (September 29, 2005), I will be referring much more to it than I do the older studies, and expect to update my presentations and arguments in refererence to that and the many others that will most certainly be coming out over the next few months in response to the Tax Reform Panel reports.
Why is it OK for you to deal with antiquated sources yet it's not OK for anyone else to even discuss the applicability of those sources, let alone use them to demonstrate the errors of your assertions?
As long as others continue to refer to those "antiquated" sources I will address what I see as misinfomation and poor interpretation of their application as regards the FairTax. It is perfectly OK for anyone do the same and point out where the applicability of studies must be adjusted for factors not present in the model implementations. Of course I do expect that others in turn provide a reasoned interpretation to which I may concur or rebut as necessary.
Use whatever you will if you actually find a real error. Be prepared however to defend your position in the face of the fact that I am well aware of the shortcomings of modelled simulations.
A model is useful only for a starting point of analysis it is never the last word in anything, as every model, of necessity, is merely a simplification and most leave out critical factors that must be accounted for in applying their results to the specific cases under discussion.
I guess if you can't refute the rebuttal,
One should use the best and most uptodate information one has available to support positions. A "rebuttal" that isn't is hardly useful for anything.
you should attack the source.
Pointing out the deficiencies of a source report or study and interpreting such in light of the specific case at hand is hardly attacking sources. Something you should keep in mind.
Using current and more complete studies are preferrable to older less detailed modeling. Using studies addressing the specific case is better still. Lacking current and specific case studies one makes use of what is available with adjustment and interpretation for the specific application.
When you start using research studies and data in that manner then I may have more sympathy for whatever postion it is that your are taking. Unfortunately the only position I see you taking is that of Jorgenson '96 IGEM studies don't cover the specific case of the FairTax legislation adequately.
I wholly agree with that assessment and always have.
However that does not prevent one from using such studies to gain insight into the specifics of any particular reform legislation to which a particular study's insights can be applied.
"But why do I even bother to educated you as you are ineducable."
Yes, I am quite familiar with SQL attempts to "educate" me. You guys offer an opinion which often runs counter to the language of the bill, to logic or common sense or to economic principles, then get irritated when FairTaxers don't just accept these assertions.
Please spare me.
"Why would a state remove its income tax?"
Several reasons. First of all, political pressure. If state residents were no longer required to file personal federal tax returns each April, they would be under considerable pressure from their constituents to stop requiring it at the state level.
Second, most states which tax income "Piggy-back" onto the federal system to do so. IOW, the first line of the state tax return is typically AGI or taxable income from the federal return. States wishing to continue taxing income after the FairTax passes would have to build their own Internal Revenue Code from the ground up - a daunting task for a state legislature, both practically and politically. Remember, most (all?) state legislative bodies are part-time.
"What is 'excessive consumption' and who gets to decide what is considered 'excessive'?"
I would say that when a nation's savings rate is nearly zero (as ours is today), that would constitute "excessive consumption".
Now, it's my turn. The economists are virtually unanimous in their view that our savings rate is too low and, unless this is addressed, this will cause significant economic problems downstream.
Do you have a strategy for addressing the virtually non-existent national savings rate without affecting consumption?
"May I repeat: we haven't even yet tried to get rid of withholding!"
Just who is "we"? You are more than welcome to work toward that end and my guess is that a number of FReepers would support you in that effort. My personal view is that it is politically impractical, but I would be the first to applaud you if you were successful.
"When someone hires me as a consultant, they hire me to use my brain. It has been used before, hired out for that purpose. Does that make my consulting fees exempt?"
Now there is one that I never heard before. If that is true, then it means that SQLs engaged in consulting after the FairTax passes would definitely have to charge the FairTax, since their brains have most definitely never been used.
Sorry, couldn't resist.
"Every piece of wood/drywall/fixtures/electricial equipment in new home construction would also have an upfront increase of 23%"
Incorrect on two counts:
1. materials and other business inputs would not be taxed; this is a national RETAIL sales tax, and
2. the after-tax price increase of the final product would be cushioned by the price decline from the removal of the current system.
Oh ... so YOU get to decide what's excessive. So how far from zero must the savings rate be before consumption move from "excessive" to merely "unreasonably high"?
In 1985 Franco Modigliani won a Nobel prize for concluding, essentially, that people save for themselves over their working lifetime to meet their perceived needs in retirement (that would be their retirement consumption.) Friedman said savings was trans-generational; Keynes said savings was constant and proportional to growth -- neither of these "opportunity" driven hypotheses is now considered accurate. Savings is apparently less "opportunity" driven than "need" driven.
You might argue that people are not saving enough for their retirement; if so, they do not adequately perceive the need. They may believe they will work and not retire; perhaps they believe they will live adequately from pensions, their savings, or gov't assistance; perhaps they think they'll with the lottery; maybe they're just clueless. But, if you want to alter their savings behavior, then alter their perception of need ... the tax code, more of an "opportunity" driver than a "need" driver isn't as effective here as you might hope.
Perhaps the BEST thing you can do to spur the savings rate is eliminate Social Security and other Gov't subsidies (transfers) meant to supplement income. When people realize the safety net is thin or non-existent, and they have to take care of themselves, they'll save; but it's not clear that would be an overall improvement.
However, if you insist on using the tax code to try to spur the National savings rate, then simply eliminate all taxation of personal savings and personal investment; no other change is necessary.
However, if you insist on using the tax code to try to spur the National savings rate, then simply eliminate all taxation of personal savings and personal investment; no other change is necessary.
Do you have a study that demonstrates that? Or is it merely your personal conjecture?
Studies in the from of formal models I have run across, evaluate that kind of change as a revenue neutral Flat Tax compared against the current tax system. Unfortunately consumption is projected to increase and investment/saving fall with those studies.
The problem being there is no disincentive for consumption out of merely removing taxes on capital earnings as the effective marginal tax rate on consumption for low income groups actually falls in merely making that kind of change. The major point to be noted is the current system largely leaves invested capital earnings untouched already for those folks as it is through the use of 401k's,IRAs, and other investment/savings vehicles that provide for tax free accumlations of income. The net consequence overall is more spending and less savings than exists now in implementing the kind of incremental change to the current system you suggest.
. However, if I recall correctly - it would seem that the states with whom I have had revenue dealings in the past have all wanted anyone who brought stuff from out of state into the state to volunteer that information and make some tax accounting of it.
The FairTax legislation is a national sales tax, crossing a state border with consumption products is irrelevant to to a national tax.
OTOH, the legislation provides for products bought for use in the U.S. from vacationers etc. are a another matter. In which case customs is charged with the responsibility to collect the NRST on such items in the same manner as any import duty.
Seems to me an excellent occupation for out of work IRS agents would be on beefed up border control for catching smugglers ... etc. ;O)
Context is important. You'll note that I said that I do not advocate using the tax code to incent savings. According to Franco Modigliani, who spent the better part of his career studying savings and investment and won a Nobel Prize for it, savings is not opportunity driven, it's need driven. The tax code alters neither real need nor perceived need, so is unlikely to be an effective tool for spuring savings.
Phil_will1 asked me what I would do to spur the savings. Go back and reread my post to figure out what I really suggested.
Studies in the from of formal models I have run across, evaluate that kind of change as a revenue neutral Flat Tax compared against the current tax system. Unfortunately consumption is projected to increase and investment/saving fall with those studies.
Then those studies are irrelevant. I did not say flatten the tax rate, I did not say anything about revenue neutrality. I did not say anything about prgressivity (likely a part of yours studies) which is largely blamed for the increasing consumption. Just for the record which "studies" are you referring to?
The problem being there is no disincentive for consumption out of merely removing taxes on capital earnings ...
And what, exactly, is the "disincentive for consumption" under the FairTax?
The major point to be noted is the current system largely leaves invested capital earnings untouched already for those folks as it is through the use of 401k's,IRAs, and other investment/savings vehicles that provide for tax free accumlations of income.
No we don't. We just defer the tax to a late date. And in retirement, collection SS and taking distributions from tax favored investments virtually guarantees you'll pay income tax on your gains. And many of these vehicles have limited tax-favored contributions. And for what it's worth, they don't work very well because they are opportunity drivers, not need drivers. Call these similar to the elimination of tax on all personal savings and investment is like calling the California energy market "deregulated."
The net consequence overall is more spending and less savings than exists now in implementing the kind of incremental change to the current system you suggest.
Now you're into your own personal conjecture. You seem to have a penchant for relying on studies that don't come close to modeling the assertions you make.
Every piece of wood/drywall/fixtures/electricial equipment in new home construction would also have an upfront increase of 23% -Actually it's 30% (phil_will1 knows that he'd obviously rather you didn't) and it isn't upfront but it is an increase at the end...as if up front or at the end matters to the buyer.-----
1. materials and other business inputs would not be taxed; this is a national RETAIL sales tax
2. the after-tax price increase of the final product would be cushioned by the price decline from the removal of the current system.phil_will1 also knows there won't be a "cusioned price decline" unless it comes from the backs of labor through wage concessions and that would be only on products produced in this country...
phil_will1 has argued for years that there would be 20% price reductions along with 100% paychecks...he was recently jubilant at a new study by AFT (the same AFT that promised 20% reductions for years) that might prove 12% reductions...what happened to the 20% reductions phil_will1?
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