Jorgenson ... again??? Don't you have anything more recent? That's a little dated isn't it? (Wow, I'm beginning to sound like YOU!) As I said before, don't complain, as you often do, when others use such "dated" material.
Where's your more uptodate or relavent study? I waiting to have a look at it.
As far as the current information goes regarding national sales tax variants and flat tax variants, there is plenty coming out now.
The most recent coming from NCPA,
NCPA Study #275, Tax and Social Security Reform
http://www.ncpa.org/pub/st/st275/index.html
with certainly more coming in response to the coming release of the Tax Panel Report.
So show us the more uptodate or relevant modeled studies supporting your conjectures.
More to the point, did I say anything about progressive Flat Tax proposal?
No. I did not. As I said, those studies are irrelevant; they don't model what I suggested at all.
Where is the more relavant study? Your conjectures fail to impress.
There is a HUGE disincentive to consumption in the ST modeled by Jorgenson:
Absolutely where the problem of negative savings and investment is most critical and where the greatest dependancy on government entitlement programs such as Social Security and Medicare lay. The very areas where government spending is highest and most critical, driving towards collapse of the entire system,
it raises the marginal tax rate on low income families!
As well as everyone else.
However adding a sales tax rebate to the mix changes the distributive effects significantly providing substantantive relief to those same families yet retaining that necessary highly visible disincentive to spend all that one earns rather than save and invest for future benefit.
Until individual savings and private ownership of retirement funds returns, the growth of socialistic programs and ever expanding federal presence is going to continue its path to an evergrowing nightmare.
With appropriate tax and Social Security reform those negatives are significantly reduced.
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.
These are the benefits that accrue with any of several rebated, single rate consumption tax systems coupled with true personal savings and investment incentives. The most pronounced advantages accruing to a retail sales tax style tax system because of its lower costs imposed on business and hence positive effect on household purchasing power and standard of living.
- For individuals born in 1980 and newly entering the labor market today, families in the bottom third of the income distribution can expect a 13 percent increase in their lifetime standard of living, compared to a less than 1 percent for those in the middle and a less than 2 percent for those at the top.
- For those to be born in 2030, the gains (relative to what otherwise would have happened) are 54 percent for the bottom third, 27 percent for those in the middle and 11 percent for those at the top.
Under Armey-Shelby, consumption rises because the PROGRESSIVITY of the tax makes the marginal tax rate for low income families zero (it has nothing to do with the tax on personal savings and investment ... low income families tend not to have any of that ... or the visibility of the tax.
LOL, keep telling yourself that, the current system is progressive to an extreme for lower income households not taxing interest, capital gains, dividends or wage income with EITC to the point they are actually subsidized.
Unfortunately the savings rate, for lack of any visible disincentive on their consumption looks like this:
You'll note, but I suspect you will ignore, the fact that that same study did not model the ST with any progressivity;
Ah but other studies have in fact been done specifically for the FairTax provisions in 1997 by Jorgenson applying the same techinques as his Baker study providing similar results.
You will not adding progressivity is at a cost to maximum potential, however the positive effects on providing similar incentives for saving and stronger discincentive to consumption are actually demonstrated in noting the quanititaive difference in results.
Here is text taken from the summary results of that modelling of the fair tax provisions regarding the impact on savings/investment versus consumption, with the addition of progressivity in combination with visible disincentives for consumption.
The specific report is available on email request from AFFT in pdf format.
| THE ECONOMIC IMPACT OF THE NATIONAL RETAIL SALES TAX By Dale W.Jorgenson May 18, 1997 Final Report to Americans For Fair Taxation INTRODUCTION AND SUMMAY The purpose of this report is to analyze the economic impact of substituting the National Retail Sales Tax (NRST)for individual and corporate income taxes,the Medicare,Social Security, and FUTA payroll taxes,and the estate and gift taxes.1 I consider a revenue neutral substitution-one that leaves the government deficit unchanged. Finally,I focus on the impact of this fundamental tax reform on economic growth over the next quarter century. I have summarized my conclusions in a series of charts: 1.The revenue neutral substitution of the NRST for existing taxes would have an immediate and powerful impact of the level of economic activity.The first chart gives a projection of GDP under current tax law. The second chart shows that GDP would increase by almost 10.5 percent in the first year.This increase would gradually decline to a little under 5.4 percent over the next twenty-five years. 2.Taxation of consumption would induce a radical shift in the composition of economic activity-away from consumption toward investment. The third chart shows that real investment would initially leap by a staggering 76.4 percent and then gradually fall to about 15 percent higher than under existing taxes. The third chart reveals that real consumption would initially decline by 9.1 percent. However,consumption would overtake the level under existing taxes within five years and grow rapidly under the NRST. 3.Holding net foreign investment constant,the fourth chart shows that exports would jump by 26.4 percent under the NRST, while imports would rise only modestly. This is the consequence of excluding exports from the tax base while including imports. The initial export boom would gradually subside, but exports would ultimately remain more than 13.3 percent above the level under the current tax system, while imports would fall a modest 0.9 percent below this level. 4.As a consequence of the elimination of taxes on capital income,individuals would sharply curtail consumption of both goods and leisure. In addition,the implied subsidy to leisure time would drop to zero under the NRST; under the existing tax system this is equal to the marginal tax rate on labor income. The fifth chart shows that the NRST would generate dramatic growth in the capital stock and a sharp initial rise in the labor supply that would gradually decline over time. 5.Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers, shown in the sixth chart,would fall by an average of twenty percent.The seventh chart shows that industry outputs would rise by an average of twenty percent with substantial relative gains for investment goods producers. 6.In the long run producers’ prices, shown in the eighth chart,would fall by almost thirty percent under the NRST.In addition,the shift in the composition of economic activity toward investment and away from consumption would drastically redistribute economic activity among industries.The ninth chart shows that production would rise in all industries,but the increase in production of investment goods would be relatively greater. 7.The imposition of the NRST would produce a sharply higher tax rate on consumer goods and services, but the tenth chart shows that the initial consumption tax rate would be twenty-three percent at both federal and state and local levels or only 18.4 percent at the federal level. This would gradually rise over time,but remain below thirty percent or 23.8 percent at the federal level . IMPLEMENTATION OF A CONSUMPTION TAX In Hearings on Replacing the Federal Income Tax, held by the Committee on Ways and Means in June 1995, testimony focused on alternative methods for implementing a consumption tax.The consumption tax base can be defined in three alternative and equivalent ways. First, subtracting investment from value added produces consumption as a tax base,where value added is the sum of capital and labor incomes. A second definition is the difference between business receipts and all purchases from other businesses,including purchases of investment goods. A third definition of the tax base is retail sales to consumers.This is the definition that underlies the NRST. *** Snip *** 3. National retail sales tax.Like existing state sales taxes,a national retail sales tax would be collected by retail establishments,including service providers and real estate developers.The actual collections could be subcontracted to existing state agencies. Enforcement procedures would be similar to those now used by the states. To defray the costs of collection at the retail and state government levels,the NRST would rebate 0.25 percent of the tax base to retailers and another 0.25 percent to state agencies. *** Snip *** DISTRIBUTIONAL IMPACT Daniel Feenberg,Robert Mitrusi,and James Poterba (1996) have shown that the “demogrant ” feature of the NRST produces greater progressivity in the distribution of the tax burden.This makes it unnecessary to consider additional policies to enhance progressivity as part of a shift to NRST. However,a very important limitation of this finding is that the impact is purely “static ” and does not include the dramatic gains in the level of economic activity and changes in the composition of this activity. Footnotes: 1 The NRST is described in detail by Laura Dale (1996) |
And, if your assertion is true, that purchasing power is increased under the FairTax (which I do not believe happens under the FairTax implementation) then the incentive to consume is increased even more!
Rising income over time due to increased investment does lead to more consumption, initially however, investment rises make that possible, and consumption fall significantly. The shift of resources from consumption drives prices down by the amount of cost savings to business and increased production efficiencies that arise assuring a large increase in purchasing power.
Purchasing power however is channeled both towards investment and consumption rather than consumption dominating as it does under the current tax system.
To suggest that the incentive to invest overwhelms the desire to consume flies in the face of Modigliani's work.
Only your interpretation of Modigliani's work.
Jorgenson made no such claim.
2.Taxation of consumption would induce a radical shift in the composition of economic activity-away from consumption toward investment.
With quantitative demonstration of the effect in his IGRM implementation.
The third chart shows that real investment would initially leap by a staggering 76.4 percent and then gradually fall to about 15 percent higher than under existing taxes. The third chart reveals that real consumption would initially decline by 9.1 percent. However,consumption would overtake the level under existing taxes within five years and grow rapidly under the NRST.
You've gleaned that characteristic of the FairTax out of thin air.
Another of your speculations that fails for lack of foundation.