The Fair Tax: Stop the Tax Cheats

chronwatch.com ^ | Feb. 19, 2006 | Jan Larson

[pigdog]

I have no doubt that Squirrels everywhere would agree!!!

[Your Nightmare]

The income accruing untaxed builds up (compounds) at a faster rate than it would if the income were spent as it came in (which is what your example actually presumes. It makes far more sense for the investor under the FairTax to continue the build-up so that he'll have additional funds.

Sorry, you don't understand compound interest. It doesn't matter if you take out 30% at the beginning of a investment or just at the end. The return to the investor is the same. The tax is just another factor being multiplied in a list of factors (the periodic returns). As you evidently didn't learn in grade school math, it doesn't matter in what order you multiply numbers in, the result is the same.

[Always Right]

I think the Fairtax pretty well won this one, since we can't find any reasonable set of assumptions that makes the numbers not work in it's favor. To tell the truth, I was suprised by the results - I expected it to be a wash, not a 5-8% savings in favor of Fairtax on the total cost of purchasing the home.

Why surprised, you assumed the current interest rate is 42% higher than it would be under the fair tax. I am shocked your example only shows a 5-8% savings.

[Your Nightmare]

I think the Fairtax pretty well won this one, since we can't find any reasonable set of assumptions that makes the numbers not work in it's favor. To tell the truth, I was suprised by the results - I expected it to be a wash, not a 5-8% savings in favor of Fairtax on the total cost of purchasing the home.

I don't think your example was realistic at all. Give me a little time to do it the way it I think it should be done.

[BubbaTheRocketScientist]

Why surprised, you assumed the current interest rate is 42% higher than it would be under the fair tax. I am shocked your example only shows a 5-8% savings.

Okay, so what's your interest rate assumption? Interest rates won't change, lenders will profit all of the additional profit due to the tax-free status of interest income, and we'll just ignore competitive market forces?

Also note I added together the base risk-free rate, and the risk free premium, at a level 50% lower than the current risk-free rate alone. I think this assumption is overly conservative.

[BubbaTheRocketScientist]

I don't think your example was realistic at all. Give me a little time to do it the way it I think it should be done.

Looking forward to seeing what you come up with.

[BubbaTheRocketScientist]

One more note... don't forget where we started this conversation: You want to see some chump change? Try calculating the interest costs when people have to finance their FairTax on large purchases (or even credit card purchases).

Let's see...what's 30% of a new home...at 4-5% interest...30 years.... On a $200,000 house, the $59,700 FairTax ($259,700 total) ends up costing the buyer an additional $49,000 just in interest on the FairTax! So their $59,700 in FairTax ends up costing an extra $109,000, or 54% of the $200,000 purchase price.

I'll be VERY interested in seeing what assumptions are required to make the Fairtax look as bad as you originally stated...

[Always Right]

Interest rates won't change, lenders will profit all of the additional profit due to the tax-free status of interest income, and we'll just ignore competitive market forces?

Since prices will rise, yes I would expect lenders to take additional profits. Workers get to take home more, why not businesses and banks? Prices will see a 20% increase even if business pass on all their tax savings to the customers.

[pigdog]

You miss the point that if you continue under the income tax, you'll take a "hit" when you spend the already-taxeed money due the the embedded tax costs that raise prices solely due to the effects of the income tax.

You seem to think you'll get a free lunch. You won't. No matter how you slice it you'll pay more tax. At least with the FairTax you can control the amount and timing of the taxes you pay since not all things are taxed where with the income tax ANY expenditure has the hidden taxes embedded.

Also, with the FairTax there would be no tax on the investment income you generate so that you could allow it to compound much mopre rapidly than under the income tax. You'd end up with far more wealth fairly quickly under the FairTax if you'd use reasonable restraint in your consumption. You seem fairly well-to-do so accelerated compounding should be easily accomoplished.

I suspect you'd be much better under the FairTax since - after all - one of the things it accomplishes is raising the general level of he economy meaning that there'll be many more investment opportunities. You're looking at the glass as half empty when someone with your resources should be seeing that it is really half-full and will fill up rapidly under the FairTax. You're far too pessimistic.

[Always Right]

I'll be VERY interested in seeing what assumptions are required to make the Fairtax look as bad as you originally stated...

Just using the same interest rates under both cases would do it.

[BubbaTheRocketScientist]

Just using the same interest rates under both cases would do it.

If one makes unrealistic assumptions which defy basic economics, it is possible to achieve any result you desire on paper. See "Mugabe" and "600% inflation" for a nice example of how this works.

[pigdog]

Giving employees 100% of their wages (ignoring non-Uncle deductions) does not increasse the money supply and therefore is not inflationary. it just puts more disposable personal income in the hands of hose who can, guess what, dispose of it for their families when they couldn't before since it was held hostage by Uncle with little recourse on their part.

And prices pre-tax will drop under the FairTax ending up about where they are now or perhaps a bi less. the economy will grow considerably.

[pigdog]

Your #181 is full of BS and lies. It is not true at all - as several posters have pointed oput to you before (many times, in fact).

[BubbaTheRocketScientist]

Giving employees 100% of their wages (ignoring non-Uncle deductions) does not increasse the money supply and therefore is not inflationary.

It may have a minor effect at first - additional payouts will result in increased bank deposits at first, and bank money creation could cause a very small inflationary pressure. My guess is the effect would be extremely minor given the overall size of our money supply to begin with, and would rapidly work it's way out of the system as NRST taxes are collected.

[pigdog]

HA!!! You're million dollar nest egg should actually go much further under the FairTax unless you're very stupid. Whoops - forgot who I was talking to ...

Prices will drop after the income tax is eliminated and I've shown seveal times that there is indeed room in embedded cascading business income taxes to cram a good bit of increase into prices due solely to the income tax and its effects - without even considering payroll taxes or even compliance costs.

Your horseback economic evaluations, then, are nonsense and prices will decline substantially after income tax goes away. the prebate adds about 3.5% to the rate - not 5% and if you'd get your consumption urges under control and invest you "million dollar nest egg" you should be able to expand it by compounding so quick it would make your head swim.

[pigdog]

To say they WILL is very pessimistic ... and it's should be up to all of us as voters to help make sure this does not happen.

If you have some studies to show how many illegal aliens currently receive S/S illegally, present it.

[BubbaTheRocketScientist]

embedded cascading business income taxes

Thank you! That was the piece of the puzzle I was missing. Are there any good estimates for what these embedded "business only" taxes constitute? I'm looking for a number exclusive of personal taxes currently withheld.

[Dimples]

This should be interesting ...

[pigdog]

A couple of things Rightie - which have been pointed out to you before but which you've surely "forgotten".

The prebate will actually probably involve very few checks at all since it will mostly be done by wire transfer as the government presently prefers since it's faster, less error-prone, and cheaper.

As soon as you start exempting "food" or any other class of noun this allows the pols right back into the rent-seeking game of defining certain things for certain people. That's one thing the FairTax gets us well away from.

I'm sure both those things just slipped your mind because they've been brought up hundreds and hundreds of times.

Pay attention!!

[pigdog]

"... If I were designing a sales tax ..."

Omigawd - run for the hills folks, All is lost!!!

How about sushi??? It that a prepared food??? What does "prepared" mean and who defines it? Who defines "food" for that matter. Are sunflower seeds in the shell food or are they seeds? What about steak bought at one of the black market Mexican importers? Its that food? How do you tax it???

What does the phrase "prepared food like those by restaurants" mean. What is a restaurant? Does that include sidewalk cafes? What about street hotdog vendors or walk up food sellers???

Got the picture Rightie???