Posted on 11/10/2005 3:18:48 AM PST by Man50D
Excellent! I love a party!
There's a whole web-site about the fair tax. Did you know that?
There is a whole website about gullible fools, did you know that?
I actually don't find it amusing at all. I think Protagoras and Final Authority are probably pseudonyms used by the same 11 year old brat.
He adds nothing to the discussion as his stated goal is simply to irritate others.
There are one or two SQL's who post reasonable arguments on here. But there are many more who don't. It does the fair tax crowd a big favor when the anti's are so belligerent and fail to make logical arguments.
FA,
Could you please provide an example of one of these
"retirees who have post tax investments to spend and have planned on financing their retirements otherwise at a very low marginal income tax rate."
Please provide the amount of their investments, the type of investment, how much of the investment gain is still unrealized, how much depreciation has been taken on real estate rental property, the average post-inflation rate of return, SS income and single/married status, and how their money will be spent in retirement. Also, their current income and what year they plan to retire, if they are not already retired.
I didn't ask for any personal information about you.
I asked for a hypothetical example. You have stated several times that this group of people would lose out under the FairTax. If you cannot provide a simple example of such a person, then you are working off nothing but rhetoric and assumptions. Each of the questions I asked was relevent to the calculation of such a person's taxes under the two tax systems.
I put together a very detailed example for Polybius in another thread, in the interest of honest discussion. I was willing to do the same for you.
As to who I am, I think that is clear. I am the person trying to honestly debate an issue. You are the person making wild assertions, refusing to offer any sort of proof, and getting belligerant.
So put up or shut up. Show us all an honest example, rather than just screaming invective.
Are you operating under a set of FairTax assumptions that assume that the price of goods are going to come down by 22% on average so that the 30% FairTax can be added, and prices will stay the same?
If you are operating under that assumption, then your calculations are going to be all screwed up.
Assume that the hypothetical couple are both retired, 63 years old, and have $1,000,000 saved-- $500,000 after tax money invested in safe dividend-paying investments and $500,000 in their home which they plan to live in for ten more years then sell it and move into a smaller place and invest the proceeds. They have saved up all their life and they plan to spend money now travelling the USA and buying stuff that appeals to them.
They also have a $200,000 Roth IRA which they have paid income taxes on and a $200,000 regular IRA. These guys have scrimped and saved, and by God, now they are going to enjoy the fruits of their labor.
Make whatever other assumptions you want about Mr. and Mrs. Accumulated Wealth.
No, Rob, I don't assume the 22% price drop. I work my examples without a price drop and then see how much prices would need to drop, if any, for that particular person to come out even or ahead under the FairTax.
My additional assumptions about Mr. and Mrs. Accumulated wealth are these:
1) Retired early in 2004, with last-year income of $60K, SS benefit $1245/mo =~$15K/yr.
2) Cost-basis of dividend-generating stocks in after-tax investment account is $200K, with $300K unrealized capital gains. Dividends of 3%/yr ($15K) under Income Tax system, Dividends increase to 4%/yr ($20K) under FairTax. Reduction of tax rate on dividends and capital gains historically results in higher dividend payouts -- corporate savings from eliminated taxes must go back to shareholders.
3) Regular IRA with $200K rate of return 5% subject to ordinary income tax rates.
4) Roth IRA $200K will grow at 5%/yr, and withdrawn with no Income Tax due.
5) Home appreciating in value 3%/yr faster than inflation. Original purchase price $75K. FairTax on new construction (consequence of no Price Drop) bumps price of existing homes so they are competitive.
6) Planned life expectancy is to age 95.
7) All rates of return are inflation adjusted.
Income tax 1st ten years:
Income = $15K(SS) + $30K(AT) + $15K(IRA) + $15K(Roth) = $75K
Taxable income = $7.5K(SS) + $15K(AT) + $15K(IRA) - $10K(Married Std Ded) = $27.5K
Income Tax bill = $3K
Spendable income = $72K
At end of ten years:
AT account down to $328K
IRA down to $137K
Roth down to $137K
Home sold for $675K, capital gains in excess of allowed for couple is $100K, tax collected is $15K, net invested is $660K, rate of return is %5.
Next 32 years of income tax:
Income = $15K(SS) + $16K(AT) + $8.7K(IRA) + $8.7K(Roth) + $42K(HOUSE) = $92.4K
Taxable income = $7.5K(SS) + $9K(AT) + $8.7K(IRA) + $33K(HOUSE) - $10K(Married Std Ded) = $48.2K
Income Tax bill = $8.4K
Spendable income = $84K
The income tax bill would actually fall a little each year as less of the withdrawn amounts are interest/dividends.
FairTax 1st ten years:
Income = $15K(SS) + $44K(AT) + $15K(IRA) + $15K(Roth) + $4K(FCA)= $93K
Taxable income = 0
Income Tax bill = $0
Spendable income = $93K ($72K price + $21K FT)
At the end of ten years:
AT account down to $214K
IRA down to $137K
Roth down to $137K
Home sold for $877K ($675*1.2987), net invested is $877K, rate of return is %5.
Next 32 years of FairTax:
Income = $15K(SS) + $12K(AT) + $8.7K(IRA) + $8.7K(Roth) + $55.6K(HOUSE) + $4K(FCA)= $103K
Taxable income = $0
Income Tax bill = $0K
Spendable income = $103K ($79K price + $24K FT)
It looks like it is about a wash to me. The money lasts until age 95 with approx the same purchasing power under Income Tax and FairTax. With no Price Drop figured into anything, Mr. & Mrs. Accumulated wealth have $5K less to spend each year during their last 32 years.
This supposes that they spend none of their time traveling outside the USA, and they buy everything brand new at retail - no used vehicles, no previously owned artwork, no educational expenses.
To break even compared with the Income Tax, Mr. & Mrs. Accumulated Wealth would like to see an average Price Drop of 4%, or a lower FT Rate.
That is quite a debating method you have there. I last encountered it among a group of 11 year old brats.
Now that you are defeated, don't go away mad. Just go away. Slink off into a corner and sulk because you couldn't think up an example. We'll all pretend we don't hear you crying.
Are you operating under a set of FairTax assumptions that assume that the price of goods are going to come down by 22% on average so that the 30% FairTax can be added, and prices will stay the same?No but s/he makes the assumtion everyone has more money to spend than they earn without mention of where the extra money comes from...The fairtax money tree I guess.
Not to mention s/he assumes receiving a yearly rebate for a family of four for 32yrs into RETIREMENT....s/he also didn't account for the 25% interest rate reduction. Interest rates effect investments as well as lending.
It's "HE" if it is bothering you.
No, I didn't mention where the FCA comes from. The FairTax rate of 23% supposedly covers this amount. That would be an issue for a separate thread.
The FCA amount for a family of four according to the 2005 tables would be $5,902. The amount for a married couple is $4,402. I rounded down to $4K.
Yes, interest rates do affect investments. Lower interest rates mean higher corporate earnings and higher dividends can be paid out. Rob didn't say the hypothetical couple's money was invested in CD's or bank accounts. He said "dividend-paying investments" and I was allowed to choose the investments. I chose high-yield mutual funds.
I'll take a look at this closer later, a few quick questions:
1. how did you calculate the $44k AT income in the FairTax example? (as compared with only $15k AT income off the exact same amount of money under the present scenario. by depleting the AT nest egg?)
2. how do you figure that all used homes will be worth 30% more plus real estate continue to rise at 3% over inflation after the FairTax is enacted? This is illogical to me.
3. did you mean next 22 years for the second phase?
4. Income tax for MFJ at 48,200 per year is $6500, not $8400. (and capital gains are taxed at a lower rate of 5% for those in the lowest two tax brackets so I think the taxable income would not even be as high as you state).
at first glance it looks like this hypothetical couple makes out better as you describe it by depleting their after tax next egg much faster until they sell their house, but then the additional amount of home appreciation you predict under the FairTax makes up for it and restocks the money they spent out of their nest egg.
if you look at the amounts that this hypothetical couple actually sends to the FedGov for the total period you describe is:
present system: ($3k * 10) + (6.5k * 22) = $173,000
FairTax system: ($21k * 10) + ($24k * 22) = $738,000
1. how did you calculate the $44k AT income in the FairTax example? (as compared with only $15k AT income off the exact same amount of money under the present scenario. by depleting the AT nest egg?)
[Yes, I had to deplete it faster in the FairTax to maintain the same purchasing power as in the income tax. My goal was to maintain as close to the same purchasing power between tax systems for as long as possible.]
2. how do you figure that all used homes will be worth 30% more plus real estate continue to rise at 3% over inflation after the FairTax is enacted? This is illogical to me.
[Over the last 30 years, real estate has averaged 3% over inflation. If you don't allow for any price drop, then a new home that is currently selling for 'X' will sell for 1.3*X under FairTax. Since existing home prices are generally competitive with new home prices of the same size in the same area, it seems reasonable to assume that existing home prices would have a final price similar to FairTaxed new homes. Since the FairTax won't apply, that is all benefit to the seller.]
3. did you mean next 22 years for the second phase?
[Oops. I did intend that, but all my numbers came from using a retirement calculator called "I'm retired, how long will my savings last ?" http://www.fincalc.com/ret_06.asp?id=12221 and I used 32 years after the initial 10. So my example turns out to run out to age 105. That income stream looked a little low to me for a $1.4M nestegg. Thanks for pointing out why.]
4. Income tax for MFJ at 48,200 per year is $6500, not $8400. (and capital gains are taxed at a lower rate of 5% for those in the lowest two tax brackets so I think the taxable income would not even be as high as you state).
[Well, the lower capital gains tax is slated to sunset in 2009, so I ignored the lower rate. But you may be right about the $6,500. That would make their spendable another $2K higher.]
at first glance it looks like this hypothetical couple makes out better as you describe it by depleting their after tax next egg much faster until they sell their house, but then the additional amount of home appreciation you predict under the FairTax makes up for it and restocks the money they spent out of their nest egg.
[Yes, they do go through their nestegg faster at first and benefit later from the higher home value. But the FairTax still penalizes them. They come out better under the income tax. To come out ahead under the FairTax, they'd need to get some Price Drop, spend some money not subject to FairTax, or buy under a lower FairTax rate. It looks like it is really the Roth IRA that is penalized most when compared to Income tax. Which makes sense, of course. Theoretically, if someone was relying entirely on Roth IRA money, they'd be really screwed.]
"if you look at the amounts that this hypothetical couple actually sends to the FedGov for the total period you describe is:
present system: ($3k * 10) + (6.5k * 22) = $173,000
FairTax system: ($21k * 10) + ($24k * 22) = $738,000"
Interesting, isn't it ? This couple spends about $200K less over the 42 years, but the government revenue is $565K higher.
I'll have to think about how that works.
"if you look at the amounts that this hypothetical couple actually sends to the FedGov for the total period you describe is:Kellis91789:present system: ($3k * 10) + (6.5k * 22) = $173,000
FairTax system: ($21k * 10) + ($24k * 22) = $738,000"
Interesting, isn't it ? This couple spends about $200K less over the 42 years, but the government revenue is $565K higher.For starters one is a tax on "spending" the other is on "taxable" income. Not all income is taxable but all spending would be. You also include the "rebate" as income...It's a rebate. It's only a welfare check if it's your only income and then it's still only worth 77% of it's face amount (the first year of enactment).I'll have to think about how that works.
As posted by Robfromga, Linder has openly said and Kotlikoff the economist's report to the Fairtax proves, the Fairtax is a tax on accumulated wealth. IOW, the people who accumulated wealth, survived the tyrannical tax system you all despise would once again be the wipping dog. Only this time it would be the tyranny of the fairtax.
In your quest to prove how much better off a retiree would be, you did just the opposite. You can't even prove it by using made up figures.
No, I didn't mention where the FCA comes from. The FairTax rate of 23% supposedly covers this amount. That would be an issue for a separate thread.It's not an issue for a separate thread when you add it to your gross income as if it's a welfare check. If everyone get extra income to spend, where does it come from?
The FCA amount for a family of four according to the 2005 tables would be $5,902. The amount for a married couple is $4,402. I rounded down to $4KYou're correct, I looked under at the table for a single person's FCA.
Elderly Childless Households - 2002
Gross
Income Effective
Income +
Payroll +
Corporate
Income
Tax Rate Total
Tax Inclusive
Spending
(including
$4,076 FCA) Gross
FairTax
Paid Net
FairTax
Paid
(Gross - FCA) Effective
FairTax
Rate Increase/
Decrease in
Tax BurdenLowest Quintile $ 11,300 1.0% $15,376 $3,536 $(540) -4.8% -477.5%Second Quintile $ 26,400 2.5% $30,476 $7,009 $2,933 11.1% 344.5%Middle Quintile $ 42,500 5.3% $46,576 $10,712 $6,636 15.6% 194.6%Fourth Quintile $ 64,700 10.4% $68,776 $15,818 $11,742 18.1% 74.5%Highest Quintile $173,600 22.8% $177,676 $40,865 $36,789 21.2% -7.1%All $ 55,200 14.6% $59,276 $13,633 $9,557 17.3% 18.6%
Source for Gross Income and Effective Income, Payroll, and Corporate Income Tax Rates: Congressional Budget Office
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