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
In the long run we are all dead. Life should be good on Earth and in Heaven, or are you of the Islamic/Heathen persuasion?
“Replacing this money would require a sales tax rate of approximately 12%. Why is 30% bandied about so much?”
That’s a damn good question. Would it have anything to do with %50 of the taxpayers only paying %3 of the taxes?
Spreading the tax burden to all consumers (legal or not) sounds like a better idea. Maybe?
Please demonstrate using a gallon of Diesel as your "widget".
You have been asked this before, but continue with the FT b0t v1.0TM conditioned responses. You'll have to start delving a little deeper into the details or be run-over on the highway of truth and logic.
This is true, and a fair criticism. And it has never been denied by the Fair Tax promoters like Rep Linder and Neil Boortz.
But the Fair Tax eliminates multiple double taxations in the current system, and makes all current and future savings taxed deferred from the time it is implemented forward.
Funny how Mr. Adler fails to mention that. Nor does Mr. (not Dr., Adler does not have a PhD) Adler do any futher examination of the effect of the point of collection of taxation has on the economy.
I have yet to see any article defend or support a labor tax over a retail consumption tax on a larger economic level. It has only been small point “gotcha” articles like this.
You might want to consider this: If you live ling enough, Minimum Required Distribution (MRD) rules will eventually force you to pay income tax everything you have saved in these qualified plans. As for the Roth accounts: It was your choice to open or rollover your qualified after-tax savings the Roth account. Presuambaly you chose the Roth in order to reduce your future tax burden. That sort of "gaming" is a feature of the current tax system that the Fair Tax will eliminate.
That's the idea.
If that's the case how can the total tax burden be decreased?
It won't. At least not automatically. The beast will feed. The goal of the Fair Tax is to make taxation fairer and more efficient; cutting the overall burden will involve cuts in spending. Two important but separate questions.
What will the fair tax do? It will get rid of the stacks of tax forms many of us are filling out right about now. It will encourage saving and investment. It will put accountants to work on cutting costs and increasing productivity instead of working on hiding profits from the IRS.
This efficiency will result in some savings, but not a lot; in the final equation, the government must get what it spends (in the case of deficit spending, some time in the future), and it won't take less unless and until it spends less. It's that damn simple.
As I've said before, I'm not as starry-eyed as some FT proponents. I don't think it will fix everything. It'll fix some things.
Gee, I am surprised, the Tax Avoiders/Evaders have started to come clean...
So you favor the elimination of an entire market group from the economy....
Nice....
Retirees still travel, still spend money.
You don't know the same retirees I know. I know responsible retirees who were frugal in their working years, and now that they have a nest egg, now that their kids are financially independent, they're buying boats, beach condos and motor homes. Going on cruises. Spoiling the grandkids. There are several areas of the country whose economies depend on the spending of retirees.
Where do you think the young person's money comes from, a money tree or a stimulus package rebate check? The young person in your example either worked for the money at a job where his employeer withheld income taxes, or he got it from someone else, e.g., a parent, who worked for the money in a taxable job.
Not to mention that illegal aliens will pay more tax than they do today. They won’t be able to fly under the radar.
Please cite source of this information...
Thanks.
How positively "Clintonian" indeed
"We are going to take things away from you for the common good"
--The Hildebeast.
They are not and your reflexive responses using FT scripture don't pass muster.
You really need to upgrade to FT b0t v3.0 (beta)TM as used by FT shill philliwill. He at least doesn't evade the truth, he only avoids it, as required, and he have a much lower level of the s/w bugs that seem to cause the frequent personal attacks exhibited by FT b0t v1.0 TM
You already know exactly where to find it - he works for AFFT, you know...
Your example shows that the transition problem is greater than you think.
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