You Can't Soak the Rich

The Wall Street Journal ^ | May 20, 2008 | David Ranson

[ReleaseTheHounds]

Kurt Hauser is a San Francisco investment economist who, 15 years ago, published fresh and eye-opening data about the federal tax system. His findings imply that there are draconian constraints on the ability of tax-rate increases to generate fresh revenues. I think his discovery deserves to be called Hauser's Law, because it is as central to the economics of taxation as Boyle's Law is to the physics of gases. Yet economists and policy makers are barely aware of it.

Like science, economics advances as verifiable patterns are recognized and codified. But economics is in a far earlier stage of evolution than physics. Unfortunately, it is often poisoned by political wishful thinking, just as medieval science was poisoned by religious doctrine. Taxation is an important example. ...

Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." What a pity that his discovery has not been more widely disseminated.

[wintertime]

Always Right,

Do you directly or indirectly make a living because we have our existing income tax? ( Just wondering.)

The Fair Tax would put a lot of government employees and tax accountant out of work.

[Principled]

There is NO net gain.

That's fine. I'm not saying otherwise.

I'm saying the portion of total taxes coming from criminals and illegals will be more under the nrst than the portion currently collected under the income tax.

If currently legals represent 80% of population but pay 98% of taxes, under the nrst - for example - legals will represent 80% of the population but pay 80% of taxes.

The total paid by illegals will increase and the total paid by legals will decline.

[Mamzelle]

You can soak the rich if you tax wealth. Say, anyone with a net worth of over $50M--tax that.

I'm serious. It is the uber-wealthy who want to drive down the middle and upper class by taxing income, a tax they don't even feel. As soon as someone gets really rich, he starts wanting to make the middle class poor. Look at Soros, Bill Gates--they become "progressive" to gain status among their billionaire peerage.

It would appeal to my class resentment. I resent the heck out of meddling, condescending billionaires--and preachy nitwit Hollywood bigshots. Tax their wealth, since they don't really value it anyway.

[Always Right]

Do you directly or indirectly make a living because we have our existing income tax? ( Just wondering.)

Nope, but that is the typical response of fairtaxers to people who point out the bogus arguments of the fairtax. You sound like a member of the fairtax church.

The Fair Tax would put a lot of government employees and tax accountant out of work.

Why? Do you not think businesses won't still need to keep their books? Do you not think there won't be a gazillion government employees needed to collect this tax? It is simpler, but it also opens the door to a lot more non-compliance which will require a lot of government snooping to collect the revenue that it needs to be collected. One just needs to look at how state governments collect the high cigarette taxes. They subpoena company's records, get credit card information, and then goes after individuals. There is nothing in the fairtax code that stops the government from hassling individuals, who BTW are ultimately liable for the fairtax according to the bill.

[Always Right]

I'm saying the portion of total taxes coming from criminals and illegals will be more under the nrst than the portion currently collected under the income tax.

Criminals are avoiding remitting 23% of their gross under the fairtax. I don't see that as any different. Are criminals avoiding 23% of their gross under the income tax? I seriously doubt it. I think it would be pretty close to a wash.

[Principled]

You still aren't seeing it. Open your eyes. It isn't the total collected. It's the portion of taxes paid by illegals vs the portion of taxes paid by legals that changes.

It changes because now criminals don't pay PIT or payroll like they will under the nrst.

That's one of the reasons today's legal participants in the income tax system will see a boost in purchasing power - they no longer have to pay as much to carry the criminals and illegals.

[Principled]

You could think of one’s tax burden as three parts;

-embedded taxes
-PIT
-Payroll

Criminals/illegals only pay one of these - embedded tax. Legals, however, pay all three parts.

Under the nrst, one’s tax burden is only one part;

-tax on consumption.

Criminals/illegals will pay this tax, just like legals.

....

Under the nrst, criminals/illegals will pay a greater portion of the total collected [and legals will pay less].

[Always Right]

You could think of one’s tax burden as three parts;

-embedded taxes
-PIT
-Payroll

Only if you don't realize 'embedded taxes' already includes PIT and Payroll taxes. Do you ever wonder why the fairytax.org analysis is always so rosy? Because for the income tax it counts taxes twice. You can either count taxes being paid by the individuals and businesses that submit them, or you can count them as embedded. When you try to count them twice, you void any logical discussion and enter fairytax.org land.

[Always Right]

You could think of one’s tax burden as three parts;

-embedded taxes
-PIT
-Payroll

Only if you don't realize 'embedded taxes' already includes PIT and Payroll taxes. Do you ever wonder why the fairytax.org analysis is always so rosy? Because for the income tax it counts taxes twice. You can either count taxes being paid by the individuals and businesses that submit them, or you can count them as embedded. When you try to count them twice, you void any logical discussion and enter fairytax.org land.

[reformedliberal]

I was just out for awhile and was speaking with someone, a Republican, who was upset and worried about people who are both working and are finding it difficult to buy groceries and gas. I asked who they were voting for and she answered that they blame the Republicans for this economy and are voting donk.

My response was:tough love. I think this country needs to feel the pain in a personal way before they will take the time to understand economics and to appreciate capitalism. We are older and still capable of doing a lot of work that many folks hire out. I have posted often over the past few months on the old ways of squeezing a dime, saving a dollar and surviving what is upon us. I know there are many FReepers who are doing the same. Some of us have savings and assets and some of us don’t. But we aren’t the problem and we aren’t the ones voting for fascism.

I hope to God we can pull the rip cord at 10 feet above ground. I fear we may have to crash and burn and then survive the indignities of full blown fascism, with all the attendent blame pointed our way, if we are keeping our heads above water, even if just barely.

I have realtives who are affluent and who spent the good decades railing on and on about the Republicans. Most of them are going to scream blue murder when their retirement accounts are taxed, their income is taken into account when computing their property taxes (being proposed in MN) and the ones in the health professions find their livlihood nationalized and themselves conscripted for the Good Of The State. Their children are no better, but they, at least, are still young adults and could possibly wake up in time to vote against what is going to be a real horror.

Everyone needs to make sure they have heat, food and enough savings to keep up their insurance policies over the next several years. Bailouts will be for the improvident, not for the responsible, IMO. People with a lot of assets need to figure out how to keep them from the tax man, because the need for scapegoats and revenue sources is going to be intense.

Your plan is rational and therefore it will not be implemented with these idiots in power and with their inculcated supporters cheering them everytime they propose a public hanging of some imagined culprit.

[Wyatt's Torch]

I remember some discussion of this chart 10 years ago...anyway, the obvious objective is to increase GDP as 19.5% of a bigger GDP number creates more revenues. Will Obama’s plans to nationalize healthcare, curb free trade, confiscate profits from oil companies, and institute additional regulatory barriers grow GDP?

[ReleaseTheHounds]

Will Obama’s plans to nationalize healthcare, curb free trade, confiscate profits from oil companies, and institute additional regulatory barriers grow GDP?

Uh, NO!

[ReleaseTheHounds]

Sorry, Mamzelle, but I can’t agree. By what right would we propose to tax wealth? That violates the very foundations of our republic and its protections of life, liberty, the pursuit of happiness and of property. It bugs me to hear the stupid things the Uber Wealthy (Warren Buffett, Bill Gates, Hollyweirdoes, etc.) say, but that doesn’t justify taking their property. And while it would represent a huge one-time transfer, it really is stealing the “seed corn” of future growth.

No, that’s not an idea to be promoted. The Death Tax is bad enough as it is, assuming it comes back in a few years.

[T. Buzzard Trueblood]

"Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation."

Great read.

[Mamzelle]

The more I think about it, the more I like it.

Gates/Buffett/Spielberg---they start patronizing, meddling 501c3's "philanthropies" to work mischief in people's lives. Take their wealth, prevent the pernicious "charities" --and build a few aircraft carriers.

Another reason to try it--they'd SHUT UP.

[ccmay]

Looks like there was good empirical reason for the "king's fifth" of old.

I think the top third of taxpayers should pay 25%, the middle third 15%, and the bottom third -- all of them -- a token payment of 5%.

I have come to regard Bush's elimination of all taxes for such a large proportion of the poor to be a mistake. They do not feel invested in the nation in the same way as the rest of us. To them, government is merely a giant pinata to be beaten until it showers them with free goodies. Much better to make it one modest line item on the family budget, to which they will pay close heed when pandering politicians promise them the moon.

-ccm

[SamuraiScot]

FYI, the greeks were pagens.

You apparently miss the point. The pagan Greeks, despite the contributions of Aristotle et al., had a superstitious, rather than confident, view of the world. They did not have the philosophical and theological foundation to produce a culture of science. The medievals did.

In other words, Greece produced some great content, as did China and India. But to produce a millennium-long (and counting) scientific revolution required Western Christianity. It sounds so embarrassingly unsophisticated when secular academics whine about the medieval Church. They toss around terms like the "search for truth" and "freedom of inquiry"—seemingly ignorant of the fact that the medieval Church introduced those ideas to a hostile world and gave them their cushy jobs.

[higgmeister]

Absolutely they cheat the system. I just don't get how you see it as ANY different under the fair tax. There is ZERO difference. There is NO net gain. Let's say Spitzer pays a hooker $5000. Under the income tax, the hooker does not pay SS tax or Income tax. Under the fairtax, the hooker does not remit 23% of that gross payment for her services. Under BOTH systems the hooker keeps over $1000 that rightfully should be sent to the government. NO DIFFERENT, except the semantics which you twist it with.

To carry on with your scenario, the hooker keeps over $1000 that rightfully should be sent to the government. Under the current system that is the end of her story. She has tax free loot for her trouble. But, after the FairTax is enacted, when your hooker uses her illegal loot to purchase 600 thread count linen sheets at Dillards and a darling pair of Jimmy Choo's, 23%/30% percent Federal Tax is included in the price she pays.

For the first time, she and all of the other members of the vast shadow culture of criminals and other underground individuals will pay tax when they make retail purchases.

Their income was untouchable because it was outside the law but their consumption is not untouchable because they, or their family will make purchases. After all, a criminal makes money illegally so he can spend it. We tax them on the flip-side!

[Principled]

Oh my gosh!

Who pays more AR?
a) those who pay embedded taxes only
b) those who pay embedded taxes AND PIT AND Payroll?

According to what you just posted, a) and b) pay the same.

Sheesh.

The total collected doesn’t change - the total collected is just a % of GDP. GDP don’t care who spends, criminal or not. It’s part of GDP - it’s taxed.

[ReleaseTheHounds]

Your “simple logic” makes a great deal of sense. But, of course, the Dems would demagogue it to death (see my tagline) and drone on about payroll taxes (the looming disaster that they refuse to recognize or engage on).

Bush has made numerous mistakes tactically with his various programs and efforts. Reducing so many millions altogether from the taxrolls probably was a mistake but now the Dems are faced with trying to undo those tax rate reductions and in the inevitable spillover to who gets dragged back into the tax code. They just seem completely ignorant to the “unintended consequences” of their actions.