Future projections call for a doubling in payroll taxes to meet the needs of future Seniors with only 2 people working for every retiree. That would be 15.3% chunk from your grandchildrens paychecks instead of 7.65%.And how is the FairTax going to change this? It's in the legislation that the rate changes every year so the FairTax would only collect as much for social insurance as the current system.
Payroll tax is already the most regressive tax and SSI only taxes up to $90,000 in earned wage income while Medicare taxes all earned income.I don't think payroll taxes are as regressive as make out and they certainly are the most regressive - excise taxes are. In fact, payroll taxes are progressive until the top 20% of wage earners - but the benefits are limited so why shouldn't the taxes be limited? Are you suggesting we steal from the rich to give to the poor?
Will the Flat tax reduce compliance costs if so how much??The Flat Tax will dramatically reduce compliance costs. On the individual level, only wages and pension contributions are taxed - no investment income is taxed - so it won't be complicated at all to determine tax burden. On the business side, the Flat Tax does away with the two most complicated issues of tax compliance - depreciation and foreign sourced income. All costs are expensed and the Flat Tax only taxes income generated in the U.S. (so all those trillions of dollars sitting in offshore accounts you talk about can come back to the U.S. tax free).
Will Your version of the Flat Tax stil keep the most Regressive tax of all the payroll Tax???A Flat Tax could, but on the personal side the Flat Tax is just a wage tax, just like the payroll tax, so it's not that big of a deal (certainly not as much as y'all like to make out of it).
What is the Rate of your Flat Tax on individual Income? On Corporate Income??Whatever rate is revenue neutral, just like the FairTax. What is the FairTax rate? I just saw a video yesterday on C-SPAN of an interview Linder did in December where he said the AFT recently had the FairTax scored and the required rate was 24-26% (which means it probably even high than that).
On Investment Income, Capital Gains Income, and Retirement Income??Zero percent. It's not a "Flat Tax" if it doesn't exempt the return from savings (investment income, interest, etc.).
What write offs or exemptions do you keep and what do you do away with??The Flat Tax eliminates all exemptions except for a standard personal exemption. It's not the "Flat Tax" unless it does away with all exemptions.
IS there a flat exemption of $xx,000 dollars ?Yes, this adds progressivity but, unlike the FairTax, doesn't allow for negative tax rates. People shouldn't profit from the tax system.
Is their a deduction for local taxes or mortgage interest in your tax plan?? What is the affect on the Housing market? Do you have a study on that or just an intuitive answer - either is fine.No deductions except the personal exemption. The only effect on the housing market will be from removing the government imposed bias (mortgage subsidies) toward home ownership. People will be free to make decisions based on their wants and need instead of what the government wants us to do. And, unlike the FairTax, it treats new homes the same as used homes so there won't be any government imposed bias between the two like there would under the FairTax.
How does your Flat Tax affect the Senior with Savings Pre or Post tax Savings??Like everyone else, none of their savings, pretax or post-tax, is taxed. The Flat Tax doesn't have the double taxation problem of the FairTax.
How does your Flat Tax encourage Economic growth and American Manufacturing? How does it make US Shores the preferred TAx Free Zone in the world for business and investment like the FAir Taz does?????The FairTax doesn't make the U.S. the preferred tax free zone in the world. It is in the bill (Title II;Section 905) that foreign corporation are taxed on their gross income from sources within the United States. Haven't you read the bill?
How will you solve future funding probelms for SSI and Medicare.It doesn't. Neither does the FairTax. In fact, the FairTax could exacerbate the problem. It's in the bill that Social Security payments be indexed by the FairTax rate. So payouts increase by 30%. Didn't you know this? It's in the bill (Title III; Section 303). You have read the bill, haven't you?
I don't think payroll taxes are as regressive as make out and they certainly are the most regressive - excise taxes are.That's "payroll taxes aren't the most regressive - excise taxes are."
"The Flat Tax will dramatically reduce compliance costs."
"A Flat Tax could, but on the personal side the Flat Tax is just a wage tax, just like the payroll tax, so it's not that big of a deal (certainly not as much as y'all like to make out of it)."
"The Flat Tax eliminates all exemptions except for a standard personal exemption."
Notice the careful wording .... "The Flat Tax"
There is no reference to a bill number or a specific proposal. Why is that? Probably because there is no current flat proposal in congress which meets the bill of particulars that YN is laying out.
If all these benefits are actually possible, why hasn't someone introduced a bill that would make all these things attainable for the American people?
As a matter of politics, the flat tax momentum is.... well .... flat (pardon the pun)
There is a single flat tax bill in the house, sponsored by Rep. Burgess with 5 co-sponsors. It is a flat tax option (meaning that it doesn't replace a line of the current 60,000 page mess); also, it isn't revenue neutral. That makes it dead politically.
There are 3 flat tax bills in the senate; their primary sponsors are Senators Shelby, Wyden and Specter. Senator Shelby's is the only one of the three with any co-sponsors: he has one. I haven't analyzed which of these bills does all the wonderful things that YN claims, but it would seem that if any one of them did, at least the other flat taxers would jump on board. Also, if the flat tax had any real legs, you would expect to at least see these three senators negotiating among themselves on a single bill that they could all support. Anyone want to bet that is happening now?
As evidenced by this information, flat taxers can't even arrive at a consensus between and among themselves as to which version they prefer. One has to also wonder why the Armey bill, which I believe was not a flat tax option, has morphed into the Burgess bill, which is. Surely Mr. Burgess knew when he did that that retaining the whole horrid current system would make his proposal less palatable to true reformers. He apparently concluded that a flat tax replacement proposal was just not going to fly politically.
Another point to note about flat taxers is that there is no visible and noteworthy attempt to educate Americans on the advantages of any of the flat tax proposals. Mr Armey used to have an organization called CSE (Citizens For a Sound Economy), but it got merged in with Bill Bennett and Jack Kemp's group (I can't recall the name of the new group) and you don't hear anything about tax reform from them now as an organized group. Sure, you still see the orphans wandering around pining for their great idea to catch on. They are in denial about the fact that the flat is on the wane in terms of support, rather than in its ascendency.
So the flat taxers have nowhere to go, no mechanism for educating others except in small and isolated ways and to try to stem the gradual erosion of support for the flat. When was the last time you met someone who is zealous about the flat who was new to tax reform? I never have, and I doubt they are out there in any significant numbers. The flatters will go to their graves believing in it, but they are not bringing in new converts, and since their numbers are so minute, theirs is a futile attempt.
Since the FairTax has usurped what they view as their rightful role as the frontrunners in tax reform, they spend their time attacking FairTaxers anytime they can maintain their anonymnity. Dick Armey was whacked around quite a bit by Billy Tauzin a few years ago in a series of debates, and since he quit, no flat taxer has been willing to debate. Tauzin introduced an earlier version of the sales tax as a bill into congress.
For those new to these threads, this is the dynamic in a nutshell behind all the nasty remarks between the FairTaxers and the flats. They may be quite sincere in their desire to see a flat get implemented, but their attacks on the FairTax are never going to create that desired result. The only way they are going to get any momentum is to do what FairTaxers do - do the hard work to educate Americans step by step as to why tax reform is important and why their proposal offers the best alternative. I doubt that you will find a single flat tax article posted on FR in the past few months.
Unless and until they do that, I will continue to refer to them as "SQLs" since they may not be intending to perpetuate the current system, but that would be the result if they were successful, intended or not.
"How will you solve future funding probelms for SSI and Medicare."
"It doesn't. Neither does the FairTax."
This has been repeatedly explained to YN, but I will post it again for the benefit of those with an open mind.
The primary problem with Social Security and Medicare is demographic. The ratio of workers paying into the system relative to the number of retirees drawing out of the system has been shifting in an adverse direction for years and that shift will continue as baby boomers retire. One economist has estimated that the 75 year shortfall in those two programs is somewhere north of $50 trillion. To put that number in perspective, the combined net worth of every household in America is around $43 trillion.
The FairTax addresses this problem directly by converting the revenue base of SS and Medicare from payroll to a general tax on the entire economy. If we succeed in doubling the economy over the first 15 years after enacting the FairTax (as some have suggested as a goal), then we double the base from which we draw these revenues. If we stick with a payroll base, there is no way that happens.
This is not to suggest that spending discipline and cost containment aren't going to be absolutley critical. It is going to take a concerted effort to save these two systems whch were never set up on an actuarially sound basis to begin with. It will also take, no doubt some painful and difficult decisions. However, to suggest that we simply limit our approach to spending cuts is absurd, given the magnitude of the problem and the politics involved. The kind of spending cuts involved to make a dent in such a huge shortfall would be staggering and they would involve telling the boomers "sorry, the money isn't there; we are cutting down the retirement income that you have been counting on and have been paying for for decades by more than 50%". Where is the political will to do that? I was watching the commentary before the President's SOTU message last night and one commentator speculated about whether the President would mention slowing down the rate of growth in entitlements, a topic he termed controversial. Where is the bill to drastically reduce those benefits, given that political environment?
Answer: It's the same place as the mythical flat tax bill that produces so many wonderful economic benefits and doesn't require any trade-offs - it's a figment of flatters' imaginations.
Tell me If I have this correct??
You support a Flat Tax On wage and pension income only?
What Rate is revenue neutral in your plan???
Like others you do not tax individual income from savings, investment, capital gains, but you do tax pension, 401k and IRA income & withdrawals?
You keep the payroll tax as it is ;so add 7.65% to your total tax burden.
You support a Flat tax on Corporate income but eliminate depreciation and allow immediate expensing? What is the corporate Rate???
No Corporate tax on foreign income? That will encourage companies to build more plants in Mexico won't it? Why make a profit in the US with American workers and pay a Flat Tax when I can make the same product in Mexico and bring the money home and pay no tax???
One time personal exemption? How much?? and please calculate the net rates and compare it to the net rates under the Fair Tax? Try Family of 4 at povertyline; 2 times Poverty; 4 times Poverty and 10 times Poverty line>
Under the Fair Tax we have a family of 4 at the Povertyline of $25,660. They spend $25,660 under the Fair Tax and their inclusive rate is 23% and they receive a prebate equivalent to that of $5902 to cover or offset the Fair Tax. Let's be clear they have a gross take home pay( no wage change) of $25,660; 23% goes to the Fair Tax on each $100 spent. and they receive a prebate of $23 for each $100 dollars spent. You could argue that the NET Tax Rate is ZERO. They spend all of their Gross pay so they pay $5902 in Fair Tax. They receive a Prebate for $5902. Net Federal tax rate is ZERO.
You could argue purchasing power a different way as well.
Their after tax purchasing power with no price drop is $24,303 and their net rate is 5.2%. ( $25,660 plus $5,902 equals $31,562 times 23% inclusive tax rate = $7,260. Reducing purchaisng power to $24,320. Their net tax rate and out of pocket expense is($25,660-$24,320=$1340) This leaves a net tax rate of 5.2% of their Gross Pay.
Compare this worst case scenario Fair Tax to the Flat Tax and the Fair Tax still wins!!! But this isn't really accurate now is it. $7260 is the tax on $31,562 of spending not $25,660 but since I have had others warp this in the past, I like to put this up anyway. Because even with this bad math example it beats the Flat Tax. Dimples should love this because it has no price drop or credit for embedded taxes at all. IT still beats his Flat Tax.
If your Flat Tax has a $25,660 exemption to cover up to the povertyline. Than this family pays Zero flat income tax but does pay 7.65% in payroll tax.
There net rate is 7.65%. Their purchasing power drops to $23,697.
We need more specifics of your plan so we can compare.
PLEASE PROVIDE.
Dimples, Did I understand that you would have no exemption?
Than the Dimple plan would have 17% flat income tax plus 7.65% payroll tax for a total of 24.65% on this family of 4 making $25,660?? There take home pay and purchasing power drops to $19,335.
Fair versus Flat ; Fair Tax wins AGAIN!!!
Dimples is that correct for your plan?? Please share more detail for your plan.
Now I used a worst case scenario with no price drop.
I still feel a price drop of 10 to 20% is probable. But I can win with out it.
"I know you FairTax people like to think the FairTax will have low compliance costs but I'm afraid they will be significantly higher than you think - and they hit a particular industry (retailers) harder than others. To be truly neutral economically, shouldn't the burden be distributed across all businesses? "
A very odd paragraph since the FairTax supporters don't "think" it will have low compliance costs. It demonstrable will have them - zero, in fact, for actual taxpayers. And they aren't considered guilty until they prove themselves Innocent to the tax folks (who they will then have no intercourse with) unlike the present (or any income-based tax).
As for the "burden" being distributed across all businesses - there is no "burden" and retainers are paid to collect the FairTax.
And so:
"... on the personal side the Flat Tax is just a wage tax, just like the payroll tax, so it's not that big of a deal (certainly not as much as y'all like to make out of it) ..."
... oh, so you're saying it's just like what we have from the personal standpoint and not a big deal ...??? that clears it all up then I guess. Does one, then, still have the "guilty until he proves he's innocent" thingy? The responsibility of "proving" your complete income? And are our rates lowered due to the illegal economy kicking in tax bus? Are our exporters helped by border-adjustability of the "non-round" tax (presumably the Nightmare Flat, whatever that is which we've never discovered).
And let's see - this "standard personal exemption" isn't subject to modification by Congress nor is it possible for the K-Street crowd to obtain special favors for favored taxpayers just as at present while hiding them in some corner of the existing, arcane Tax Code?
And, Nightie, those getting the prebate aren't "profiting from the FairTax system" as you so quaintly (and erroneously) put it. They're merely getting a refund of taxes, not a "profit".
As for housing, the buyers will still be having to purchase (and save a downpayment) with after-tax income just like now whereas with the FairTax the money is untaxed (and here's more of it if the buyer pays attention). They'll also be paying the higher interest rates just like at present. And there is no "bias" between new and used homes under the FairTax since used homes have already been taxed ... remember the FairTax precept of taxing a thing once and only once.
Under your Nightmare Flat, the folks with savings will still be hit with the embedded tax when they eventually buy things so they hardly get off scot-free. That's no different than paying the tax when they consume. That's the same "double taxation problem" that you attribute solely to the FairTax. Tain't so.
Sec. 905 is in the bill to make an incentive for foreign corporations to become domestic corporations for tax purposes (move here and pay no taxes) and to attract capital which it will certainly do.
As for SS & MC funding the FairTax will be much more beneficial in providing adequate funding while we all try to get rid of the entitlement albatross. The Nightmare Flat (or other similar) does nothing of the sort.