Posted on 01/11/2006 11:59:10 AM PST by Eaglewatcher
There are essentially three tax reform proposals being considered by Congress. There’s Rep. John Linder’s (R-GA) FairTax, the flat tax, and the politically (though not popularly) preferred method of incrementalism.
Before we dwell on the differences between the flat tax and The FairTax Book co-authored by John Linder and myself, let’s acknowledge one political reality illustrated by the success of both The FairTax Book and Steve Forbes’ Flat Tax Revolution: the people of the United States are ready for bold and decisive tax reform NOW. They don’t want the incremental approach. The FairTax Book would not have debuted No. 1 on the New York Times Bestseller List if people were disinterested in wholesale tax reform.
Pleasantries aside, let’s illustrate the superiority of the FairTax plan over a flat tax. Flat tax advocates propose a flat 17% tax on all earned income with just a few allowable deductions. Nice try, but we’ve been there --- done that.
In 1986 Congress passed what was essentially a flat tax. The main difference between the 1986 effort and that proposed by Dan Mitchell, Steve Forbes and others was that the earlier effort set forth two flat tax brackets: one at 15% and the other at 28%. It’s now 2005, some 19 years after this attempt at a flat tax … and the tax code has been amended nearly 10,000 times.
A flat tax leaves politicians room to tinker, to manipulate the tax code for the benefits of large campaign donors or specific constituencies. As we’ve seen, with a flat tax it is all too easy for the political class to decide to add just a “small” surcharge to high income taxpayers; after all, the surcharge will only affect a small percentage of taxpayers, and the money can be used to buy votes from an even larger percentage! Under the FairTax, the national retail sales tax, there is no way to raise the tax rates on the rich, or to favor any one particular business group. The FairTax treats each and every citizen exactly the same, playing no favorites among people or business entities. You can’t raise the rate without raising it for everyone, nor can you offer one particular product a break since the tax is applied universally. Nobody, rich or poor, has to pay the FairTax on the basic necessities of life, because the prebate* is applied universally.
The FairTax would constitute the largest transfer of power from government to the people since the Revolutionary War. The flat tax takes no power from government. The FairTax is a revolution. The flat tax is an idea that’s been tried before, and found wanting.
*Prebate? Read The FairTax Book … you’ll love this idea.
That is precisely the point. The entire education sector is exempt under the Fair Tax. The Fair Tax picks winners and losers in the economy. It exempts, what, 5-10% of the economy. Why not exempt the health care sector, too. That is at least as much of an "investment" as education.Couldn't anything that appreciates (e.g., a house, art) be considered an investment?
Once again, your analogy is flawed. It is the STUDENTS who are given the "tax break" (if you want to call it that) under the FairTax, not the teachers, etc.Are you implying, admitting actually, there would be noticeable price increases on non-exempt services under the Fairtax?
Try applying your "It is the students who are given the tax break" analogy to other exempt businesses VS consumers under the revenue neutral Fairtax...it doesn't work, does it.
Not in economics.
Not in economics.I get that. I was talking in the political process. The National Association of Realtors currently lobbies Congress that a home purchase should be treated as an investment. I doubt they would stop trying to make this point if the FairTax were enacted. I think they would triple their efforts.
Well sure. Anything could be defined as an "investment" in the political process. That's what the Fair Taxers are doing with education. They are trying to implement their public policy preferences through the tax code. Education is good in their minds, and it shouldn't be taxed. Therefore, it is magically an "investment" and not consumption. Health care could equally be determined to be an "investment". Housing is a large portion of people's net worth. Why not make that an "investment"? That is the problem I have with Fair Taxers. They are willing to use the political process to pick winners and losers in the economy right out of the gate. And they have the nerve to suggest flat taxers aren't pure? Hah!
"I believe as Reagan said, broaden the base and lower the rate. Consequently, I believe that we should tax all economic activity only once at a very low rate."
Ok, I am confused then, because I thought you supported the flat tax, which certainly taxes the same economic sectors multiple times throughout the production chain.
I am, however, delighted that you acknowledge the benefit of having a broad tax base as a means of keeping the rate at a minimum, since the FairTax has the broadest base of any tax reform proposal that I am aware of.
"If you don't tax it as consumption, you are not taxing an entire sector in the economy. Therefore, the taxes on all other sectors must be higher."
So all sectors of the economy are considered consumption? You would therefore favor taxing investment income? Are you sure you understand the nature of a consumption tax?
"By magically declaring education to be an 'investment'..."
You keep referring to concepts that you don't understand as "magic". You are welcome to your opinion, but you should be aware that it isn't widely held.
"FWIW, the Hall-Rabushka flat tax treats everyone the same under both of the above tests."
Great, what's the bill number? BTW, thank you for now referring to the specific version of the flat tax that you support, rather than just a generic "flat tax".
"That is one reason the flat tax is superior."
The Hall-Rubushka flat tax, you mean? That would appear to be a matter of opinion, I would say.
"You really need to take the basic micro-economics class at your local community college. Your understanding of economics could use a little improvement. Please consider it."
Your arrogant and condescending tone does nothing to enhance your position.
"Try applying your 'It is the students who are given the tax break' analogy to other exempt businesses VS consumers under the revenue neutral Fairtax...it doesn't work, does it."
I have no idea what point you are trying to make.
I always use economic principles when talking economics. It is not opinion.
Your arrogant and condescending tone does nothing to enhance your position.
I am not arrogant. I am suggesting that you learn a little bit about what you're talking about. Again, if you understood economic terms, our discussion would be much more fruitful. I truly think a micro-economic class would be helpful for you.
You base your position on an inaccurate understanding of economics. Therefore, I can't conclude if your position is one of ignorance or emotion.
Ok, I am confused then, because I thought you supported the flat tax, which certainly taxes the same economic sectors multiple times throughout the production chain.
This is an example of an inaccurate understanding of economics. The flat tax only taxes economic activity once. Please consider the micro-economics class.
"This is an example of an inaccurate understanding of economics. The flat tax only taxes economic activity once. Please consider the micro-economics class."
I will pass your suggestion along to the 81 professional economists who have endorsed the FairTax.
http://www.fairtax.org/pdfs/Open_Letter_President.pdf
Oh, but it is a matter of interpretation to a large degree. To me education is not consumed but something done to (hopefully) yield greater rewards - not necesarily monetary, but usually so - down the line.
And I also think it is more correct to consider education as "not taxed" rather than "being exempted".
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