Abolish the IRS

"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."

I didn't set out to prove a retiree would be better off. I set out to test what would happen, not trying to meet a previously decided upon agenda. And Rob provided the figures, I only made the additional assumptions he told me to.

You look at the total taxes paid, and decide the retiree is much worse off ? Isn't it more important to look at how much buying power they have ? Assuming the worst case -- all purchases are subject to FairTax -- they come out a little worse off. I didn't try to hide that.

If the numbers in the table above were correct, then the middle three quintiles would lose big under the FairTax.

However, those numbers are not correct. They are too simplistic in their assumptions. If you look at the CBO link you provided, you will find the CBO definition of Income:

"Measuring Income This analysis focuses on adjusted pretax comprehensive household income. That measure includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals, as noted above), employee contributions to 401(k) retirement plans, and the value of income received in kind from various sources (including employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps, among others). The calculations use the Census Bureau's fungible value measure to determine the cash equivalent of in-kind government transfers. "

So not all of the figure you provided as "Gross Income" is actually spendable income. For the elderly, you would need to subtract the fungible value of the Medicare and Medicaid benefits. The value of those cannot be "spent" subject to FairTax, so your Total Tax Inclusive Spending and FairTax Paid figures are all too high.

According to sources like this http://www.aaas.org/spp/rd/tbi2.pdf the Medicare Expenditures alone are over $200B. Divided by 40M elderly, that would mean $5,K each. Because your chart assumes all households contain two elderly, $10,000 of each of the income listed in your chart is not money-income. But the "Effective Tax Rate" for the current Income+Payroll+Corporate tax system is a percentage of this as though it were in fact spendable cash.

Removing just $10,000 from each "Total Spending" would change your Table a bit. Here is your table with just a $10,000 adjustment to FairTaxable spending:

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 Burden
Lowest Quintile	$ 11,300	1.0%	$5,376	$1,236	$(2,840)	-25.1%	-2410%
Second Quintile	$ 26,400	2.5%	$20,476	$4,709	$633	2.4%	-4%
Middle Quintile	$ 42,500	5.3%	$36,576	$8,412	$4,336	10.2%	92.5%
Fourth Quintile	$ 64,700	10.4%	$58,776	$13,518	$9,442	14.6%	40.4%
Highest Quintile	$173,600	22.8%	$167,676	$38,565	$34,489	19.9%	-12.7%
All	$ 55,200	14.6%	$49,276	$11,333	$7,257	13.1%	-10.6%

To really create an accurate chart, we would need the quintiles with another column for "Money Income". So that we weren't counting Medicare, housing assistance, Medicaid, etc. as though FairTax would be paid on those "in-kind" benefits.

Using just the adjustment for the Medicare benefits, we can see the only tax burden increase is on the middle and fourth quintiles. We would still need to make adjustments for actual spending that would not be FairTaxable -- used vehicles, educational expenses, travel outside the US -- to get a true picture.

Are you trying to suggest that, apart from Medicare and Medicaid expenditures, the lowest quintile elderly households only currently have $1,300 a year in income?

Be reasonable. You've obviously made an erroneous assumption.

Are you trying to suggest that, apart from Medicare and Medicaid expenditures, the lowest quintile elderly households only currently have $1,300 a year in income?
No he's trying to suggest everyone would be better off with the Fairtax and no matter how hard he tries he can't do it. Besides nothing is exempt (they like it that way) so the "in kind" benefits he lists are all taxable services...someone would have to pay them. That's why the bill allows for the bureaucrats at SS to "determine the (sales tax) rate" every year without a vote from Congress or the President....

Of course that is ridiculous. Most likely, the lowest quintile doesn't have two persons in the household. But you had used the FCA for two people, so I used the Medicare expenditures for two people.

FYI, if somebody had never made more than minimum wage and retired today, SS would only be paying them $7,300/yr. That isn't far off from the $11,300 - $5,000 medicare benefit.

Although any measure of income definitely must include "in-kind" benefits, for our purposes in trying to pin down tax burdens, we really need numbers based on "money income" that excludes these things. My alteration of your table was just to demonstrate what happens when you take into consideration that not everything reported as INCOME will actually be spent on FairTaxable items.

This is especially important, because the CBO uses the "fungible" method to place a value on the "in-kind" benefits. This strikes me a bizzare, and I see no way to estimate it properly. We'd have to find their table by quintiles. Even though the benefit costs the government the same no matter who receives it, the fungible method actually alots a higher value to lower money-income recipients.

Much better to find an income and effective tax table that includes the money-income figures.

Lewis,

I am honestly exploring an issue. It is a fact that a valid comparison between the existing tax system and the FairTax is more complicated than simply comparing the rates or even the dollars someone pays.

I haven't made any wild assumptions to make the FairTax come out ahead. I've made only those adjustments that might not be obvious at first glance, and the FairTax still loses. So be it. I haven't "failed" to prove the FairTax better for retirees, because that wasn't the goal. If you recall some of my other posts, you'll remember that I am not 100% behind the FairTax as written.

I haven't "failed" to prove the FairTax better for retirees, because that wasn't the goal
Yes it was. Judging by your snippy remarks and demands to Final Authority I'd say it was exactly your goal. You even commented after the comparison you contrived that the two examples were about even when clearly, even with your false assumptions favoring the Fairtax, they weren't.

It is a fact that a valid comparison between the existing tax system and the FairTax is more complicated than simply comparing the rates or even the dollars someone pays.

You say that now after you know you can't honestly skew the numbers without getting caught.

If you recall some of my other posts, you'll remember that I am not 100% behind the FairTax as written.

Big deal. As I recall this is not your first attempt at skewing numbers in favor of the Fairtax either.

What "false assumptions" ? If you disagree with my assumptions, then provide a counter-argument, with independent backup.

What numbers did I try to "skew" ?

"...the two examples were about even when clearly, even with your false assumptions favoring the Fairtax, they weren't."

When two examples fall within 5% of each other, that is pretty "even", in my book. Total purchasing power under the income tax was $3,408,000 and under FairTax $3,248,000. A difference of 4.7% and that is even assuming ALL spending was on taxable items. A little time traveling in Canada, or taking art classes, or buying used vehicles, antiques, etc. might even have erased that small difference. On top of that, I stayed completely away from any assumed decrease in prices, even though Rob has previously mentioned he would expect an 8% drop.

As far as being "snippy" with FA, I would bet he had a much larger difference than 5% in mind when he made those dogmatic comments. His refusal to give any particulars about an example that might prove his point just showed it was nothing more than an assumption. He'd never run any numbers, or he'd have been able to provide them.

"You say that now after you know ..." Actually, last week another poster named Polybius and I went through another example, and I asked all the same questions. The idea that a valid comparison is going to be complex is not news to anybody but you.

BTW, do you realize most elderly's spending is greater than their income. Much of their spending is savings. That's where the double taxation under the FairTax comes in.

It hadn't occurred to me when looking at your table, but that could make sense. So even with the adjustments for "in kind" benefits, their spending could exceed what was in your table ? Yeah, that is possible.

Probably there isn't much savings to deplete in the bottom two quintiles, but certainly above that, people may be depleting savings beyond any earnings on investments.

Then again, retirees with savings don't want to run out of money before they die or need it for a medical emergency. And they can't count on whatever figure they've estimated for inflation. So they may actually spend LESS than their investments are earning, at least during the early years, and let it build up. That is what my folks are doing, and they are 15 years into retirement. In their case, the income taxes are due whether they spend it or not.

It would be interesting to see a comparison of money income vs. actual spending by quintiles. When I have a few minutes, I'll see if I can find something. If you find something first, please post it.

Elderly Childless Households - 2002