Posted on 01/23/2008 3:28:27 AM PST by xcamel
H.R. 25, the legislative proposal inappropriately named the FairTax, would eliminate the Federal income tax and replace it with a national sales tax. It is axiomatic that if enacted, those individuals who have saved money during their lives would be faced with double taxation. (Under the Fairtax, someone who earned $1000 and paid income taxes of say, $250, would find his remaining $750 subject to a 30% sales tax on all retail purchases.)
Generally, when commentators have pointed out the above fact, they have been met with either personal attacks or nonsensical economic gobbledegook. Recently, Bruce Bartlett, a former deputy assistant secretary for economic policy in the George H.W. Bush administration wrote a treatise entitled “Why the FairTax Won’t Work” in a noted tax publication. In that same publication, a week later, Laurence Kotlikoff, who appears to be the lead economist speaking for Americans for Fair Taxation, responded. Mr. Bartlett’s statement with respect to double taxation and Mr. Kotiloff’s response are as follows:
Bartlett:
(The Fairtax) penalizes those late in life who have saved for their retirement during an era when saving was heavily penalized by the income tax. But rather than being able to spend their savings tax-free, as they anticipated, they will now have to pay sales taxes on everything they buy, including health care. It will be hard for them to avoid seeing this as a double tax.
Kotlikoff:
Bartlett suggests that it would be unfair to force wealth holders to pay extra taxes when they spend their wealth (principal). He might have added in his defense of the rich that most of the rich are older and that we should tread lightly with respect to the elderly.
Well rich members of today’s older generations may be a concern of Bartlett. They aren’t a concern of mine. Our country has spent the past five decades transferring ever greater sums from young workers to contemporaneous older generations, including extremely wealthy members of older generations. The most recent example his the introduction of Medicare Part D’s prescription drug benefit. This transfer to current and near-term elderly has a present value cost of some $10 trillion.
The above confirms that supporters of the FairTax understand and acknowledge that the Fairtax would cause anyone that has saved money during their lifetimes to face double taxation. (Mr. Kotlikoff’s extensive prior writings are consistent with his above paragraphs. Perhaps his most interesting paper is his short presentation in 2001 entitled: “The Case For a Tax Hike”.)
While it is the contention of both myself and Mr. Bartlett that the rich will undoubtedly be the mega-beneficiaries of the proposed FairTax, Mr. Kotlikoff’s acknowledgement that there would be double taxation to anyone, rich or poor, who saved money for their retirement is of great importance.
Older generations are and should be a concern of most Americans. Endorsing a tax plan that penalizes Americans who have saved money for their retirement is a pretty interesting position. Penalizing older Americans with double taxation because the government has determined to subsidize medications that keep them alive is, well, a bit beyond the pale.
The double taxation element of the proposed Fairtax is not an issue solely for the rich. It is an issue for anyone with any savings, including and particularly for the retired individual who has been responsible and saved for retirement. It is not an issue which is ameliorated by a monthly prebate of $188.00 which theoretically covers taxpayers at the poverty level; having income $1.00 beyond the poverty level does not make one rich.
The very thought of subjecting the savings of responsible social security recipients to double taxation on their savings should be a notion which is repugnant to Americans.
Hank Adler is an Assistant Professor at Chapman University
Not going to happen. You I think are going to be one of those people that gnash your teeth when the FairTax is enacted and will recant later when its popularity is solidified.
And by the way, Roth accounts that are kept for any time are mostly untaxed because the growth in a Roth account is never taxed.
Have fun with your Flat tax advocacy. If you can see it gain 1% support of Congress, let me know.
Yes, and the growth in Regular IRAs and 401ks is untaxed too. Which brings me to my main point that you still haven’t answered.
If you have put $500,000 into accounts that either are or have been converted and rolled into Roth vehicles, and you were at the highest income tax rate, you have already paid 125k+ in taxes. In fact, you’ve paid much more than that in real terms when you factor in inflation and the opportunity cost of not having the taxed money to invest separately. Someone could have 500k in traditional vehicles AND also have had the 125k+inflation to invest all along.
I think we need tax reform, lower rates, and lower government spending, not a paradigm shift.
Yeah and you haven’t bothered to answer how embedded taxes are avoided when taxed savings are withdrawn and spent in the United States.
The argument is specious. It presumes that only the FairTax will tax after-tax savings through spending when in fact all spending currently is helping American business to recover their tax liabilities through higher prices.
But you have been told that and you ignore it.
So I’ll make it simple for you with a simple yes-or-no question:
Do you believe there are no federal embedded taxes in the prices of retail items today? Yes or No?
I did address it and I do agree there is an embedded tax and recognize that the fairtax will remove that and that prices will remain largely the same. My argument still stands despite that. Let me repeat it for you again.
If you have put $500,000 into accounts that either are or have been converted and rolled into Roth vehicles, and you were at the highest income tax rate, you have already paid 125k+ in taxes. In fact, you’ve paid much more than that in real terms when you factor in inflation and the opportunity cost of not having the taxed money to invest separately. Someone could have 500k in traditional vehicles AND also have had the 125k+inflation to invest all along
***THIS MEANS THAT THE GOVERNMENT HAS CONFISCATED 25-33% of my money from the past -— more when you count the inflation and opportunity costs lost. This confiscation WOULD NOT have taken place in other vehicles such as traditional IRAs and 401ks. People made choices to pay taxes at an earlier time by using a ROTH with a guarantee from the government that they would not pay federal taxes later.
Let’s make this clear, Ok?
The FairTax is applied to spending. It has nothing to do with IRAs, Roth IRAs, 401ks, Roth 401ks (yes, they exist) or any other retirement fund instrument.
It is the Income tax that spurred the above investment schemes which are nothing more than financial firm marketing schemes with tax lobby support in legislation.
The money that is socked away in these retirement accounts is dead money. It is replaced by money printed out of thin air by the Fed and used to purchase other paper issued by the Treasury in the form of T-Bills. This is basic monetary policy. Lure workers away from pension funds and put them into DIY dead money retirement funds that provide Treasury with the ability to offset T-Bill debt. Now what has any of this to do with the FairTax? Answer: nothing.
You are mixing inflation and fuzzy subjects such as ‘opportunity cost’ in with a replacement tax system.
What you are saying is that Americans were suckered into transforming their retirement savings into dead money through tax marketing schemes and we should all suffer that madness together, else be free of the NRST.
And that is the argument that Fidelityphiles and other scummy financial marketeers peddle about on these FairTax threads. Yes, they are going to take a hit along with their K-Street lunch buddies and the people walking through the revolving door from the IRS.
The tax system change will happen and there will be vastly more winners than losers. If you are part of the losing camp, then I suggest plotting a change.......Now.
Now here’s your answer. Under the FairTax, people will still put money aside for retirement. The retirement vehicles will return to their traditional forms; pension funds, annuities, whole life insurance. The tax scheming marketeers will hit the pavement looking for a new job or they will go to the drawing board and replot their marketing strategies.
The fact is that people that put aside funds for retirement in whatever vehicle, they will be subject to inflation because of monetary policy and it matters not whether the tax system is consumption based or production based.
If retirement funds were socked away under a tax marketing scheme, then the FairTax does nothing to harm the original tax benefits of that scheme.
Opportunity cost is unquantifiable and could go either way based on a person’s choices and tolerance for risk. It is irrelevant to the tax system. Historically retirements were secured via pension fund management and they required long term premiums. The rise of the tax advantage marketing schemes did not replace the need to invest long term in retirement accounts, those needs existed prior to tax advantage schemes.
You still haven’t answered my points other than to effectively say “oh well, $h+ happens.”
Anyway, the fairtax will NOT be implemented any time when the Democrats control either the White House or the Congress. And I think that it would have a hard time passing even when the Republicans control BOTH branches as only a small faction of them support it.
You don’t have any points!
The FairTax will be passed because millions of Americans are putting heat on their elected reps. This is a People movement, not a dem versus pub tryst.
It’s the same as Incomprehensible Immigration Reform in terms of heat from the electorate.
Now go cry in your beer and keep repeating to yourself ‘never happen, never happen, never happen’. We’ll do the heavy lifting and wake you up when it’s over.
The FairTax will need to make a provision for one-time payoff to people with tax-advantaged accounts to even have a CHANCE of passing. Where will that money come from? The money needed to do that will be more than defense budget for a given year.
Also, the FairTax loonies will lose their most famous proponent when Huckabee is forced to stop talking about it when he becomes McCain’s VP
Not gonna happen.
The FairTax movement does not need to pay off Fidelity or any of their accomplices.
Not Fidelity...but account holders.
People made choices to pay taxes at an earlier time by using a ROTH with a guarantee from the government that they would not pay federal taxes later.
And for that to be true, one must make the leap of faith that federal tax laws will remain as they are and not be changed to your detriment. Could that happen??? Who knows!!In fact, it represents a gamble on your part.
At the very least if you use those funds under a carried-forward income tax system you will be paying higher prices due to the income tax system AND your effective tax rate will be greater than it would be under the FairTax - in fact something like twice the typical effective tax rate for the income tax. And this doesn't trouble you???
After all with the FairTax any money your investments (using, say, your 1/2 million nestegg) might make would be untaxed - and that's not the case if your tax protection goes south or in some cases even if it does not (depends upon the particulars). And why have all the gobbledegook, expense, and hoop-jumping through that the government creates at its whim? Do you not realize that is an extra expense also?
Uh no....account holders will not be harmed by the FairTax.
Fidelity will lose business because of the FairTax.
Huckabee is racking up in the win column tonight. He spent a lot of money advertising in Georgia that he wanted to be the president who signs the order to dismantle the IRS. Whether you like him or not, his message on taxes is well received.
Look at the trend in the number of members of Congress that have signed to cosponsor the FairTax in the last year and half.
Look how the AFFT has more than doubled its memberships to well over a million.
And now a presidential candidate is carrying the FairTax banner.
But even more significantly watch how tax code special interests start to squirm and whine.
Everywhere people are waking up. In my experience they hear about flat tax success around the world. Then they hear how the flat tax doesn’t cut it over the longer term. And then they learn that America has the innovative FairTax!
Why should Americans be followers? They can lead with the FairTax! It is hands down superior to the present tax code or any flat tax simplification effort because the flat tax will be manipulated to another mess within 10-15 years.
I could care less about Fidelity, or any other brokerage. I care about people who will have lost HUNDREDS OF BILLIONS in money they could have invested elseware that will now be taken from them in an illegal government grab.
Watch out for those hallucinations.
You see it took you all of 72 words to explain it -- that, as you well know, is way beyond the extent of their attention and learning spans.
Are you telling us that the employer now only has to deduct a total of 5% from a person's paycheck and sent it in to IRS to pay his income tax, social security tax (and the employer's matching contribution), medicare tax?
Whoop-de-dooo! When and how did you get the IRS to go along with that?
: Not by yuou it hasn't. Not on this board by anyone. And nobody has yet posted any athoritative material doing so.
Whewn are you going to do that to back up your baldface, unsupported declarations -- you haven't yet. That time you gave me a list of supposed debunkers, it only contained one tax lawyer protecting hbis several-hyndred-dollars-per-hour job. You have to do better than than.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.