((((( THE OFFICIAL HERMAN CAIN PING LIST )))))
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Go Herman Go!
Posted on 12/13/2004 8:29:41 AM PST by Bob J
((((( THE OFFICIAL HERMAN CAIN PING LIST )))))
FReepMail me if you want to be ON or OFF this list
Go Herman Go!
Why isn't it bunk? If the senators are saying it out loud, they aren't afraid of losing their jobs anytime soon. FreeRepublic is not the real world, you know.
...what they, you and everyone forgets is how long an activist-Conservative's memory is...
I'm telling you the U.S. Senate Republicans should not screw up...'06 and '08 aren't that far away.
Santorum?
"But, rest assured that when Disney sets up their Economy Land theme park, that theory will be one of the first things they put in."
Why don't you publish a paper and disprove the elasticity of demand principle? You could make a huge contribution to the field of economics.
What you are saying is that producers don't produce more if they can get a higher price for their goods and buyers don't buy more at lower prices? Are you really disagreeing with that fundamental principle?
"We have two real problems:
1) We spend too much (at all levels of government - our budgets are based on overly optimistic economic forecasts).
2) We have a preditory judicial system that has created a mass parasitic drag on our resources.
The fair tax proposal does nothing to address these problems. Until we grow the economy and cut spending to restore balance, it doesn't matter what tax scheme you use, or whether we tax at all. We are all responsible and accountable for the accumulating debt."
I was referring to the TRADE deficit, not the federal budget deficit. The government's excessive spending has little, if anything, to do with our trade deficit.
What the FairTax would do would be to remove the tax component from the pricing of US produced goods, making them much more competitive in the increasingly global economy of the 21st century. It would end the advantage that our own tax system provides to foreign competitors.
No, it would not put an end to wasteful government spending, nor would it create tort reform. It also would not cure cancer or alleviate the horrible traffic here in Atlanta. What it would do would be to eliminate tens of billions of $$$ wasted in compliance costs and put US producers on a level playing field with their counterparts in other countries.
Since you brought up the federal budget deficit, it would most certainly have a major impact. The most significant factor in our deteriorating federal fiscal situation is the much slower economic growth that we have seen over the past few years. By significantly increasing the rate of economic growth (above 10.5% GDP growth in year 1), it would almost certainly move us back into surpluses for the first few years after it was put into effect. If we could exercise spending discipline in addition, then we could be back into surpluses (or tax cuts) indefinitely.
Transitional Issues in Tax Reform
Price Level Effects
Because the flat tax is similar in structure to the existing income tax system, its implementation would have relatively little effect on the absolute price level. Both before- and after-tax wages would be roughly similar before and after reform, so that nominal prices remain roughly constant.
In contrast, the effect of implementing an NRST on the absolute price level is less certain. One possibility is that the tax could be fully shifted forward in the form of higher prices for consumption goods, with no change in the price of investment goods, which are untaxed under the NRST. At the other end of the spectrum of possible responses, nominal prices could remain constant. Under this scenario, before-tax real wages would have to fall roughly to the level of prereform after-tax real wages in response to the elimination of the income tax. Intermediate responses between the "full price adjustment" and "no price adjustment" scenarios are of course also possible.
Choosing between these various scenarios requires making necessarily speculative assumptions about the response of the monetary authorities to the imposition of the NRST. However, most analysts assume that the monetary response would be sufficiently accommodating that the full price adjustment scenario would obtain.
The primary rationale underlying this assumption is the view that the downward flexibility of nominal wages is quite limited, in part because most wage contracts and agreements are specified in nominal terms. Thus, a tax reform that required wage reductions to reach a new equilibrium would be quite costly as these wage reductions would initially be distributed unevenly across industries. This in turn might result in considerable unemployment in sectors characterized by rigid wages, as well as misallocations of labor, at least in the short run. Proponents of the full price adjustment view assume that monetary policy would be expansionary to avoid these costs.
Most observers fall into the full price adjustment camp. For example, McLure (1996, p. 23) concludes that it would be "hard to imagine the monetary authorities not accommodating such an increase in prices." Gravelle (1995, p. 59) argues that full price adjustment is likely because a "national sales tax…would tend to produce an economic contraction if no price accommodation is made." In its analysis of the distributional implications of implementing consumption taxes, the Joint Committee of Taxation (1993, p. 59) concludes that, "Unless there are convincing reasons to assume otherwise, the JCT staff assumes the Federal Reserve will accommodate the policy change and allow prices to rise." Finally, Bradford (1996a, p. 135), in discussing the same issue in the context of a value-added tax, observes that, "It is commonly believed that introducing a value-added tax of the consumption type will bring with it a monetary policy adjustment that would result in a one-time increase in the price level…and no change in payments to workers in nominal terms."
Nevertheless, opinion on this issue is certainly no unanimous. For example, the alternative assumption [that wages will fall] is implicitly made by Jorgenson and Wilcoxen, who argue that implementing a national sales tax would reduce producer prices on average by 25 percent. Auerbach (1996) takes a compromise position by assuming partial price adjustment. In addition, European experience with the introduction of the VAT is mixed, generally suggesting partial price adjustment. On the other hand, Besley and Rosen (1999) find full (or even more than 100 percent) forward shifting of state sales taxes in the United States.
Source: Zodrow, George R. (2002). "Transitional Issues in Tax Reform." In United States Tax Reform in the 21st Century, George Zodrow and Peter Mieszkowski, Editors. Cambridge University Press.
Monetary Implications of Tax Reforms
Does it matter how the central bank responds when the tax system is reformed? Some economists would argue that in a very general sense it does not. Many would argue that the central bank's response would have little long-run effect, because what really matters is the productive capacity of the economy and because there could be no money illusion in the long run.
And, in the short run, the standard relation between prices and money makes it clear that, under limiting assumptions, the central bank need not change monetary policy. Consider the transition from our present tax system to a consumption tax. Ignoring any incentive effects caused by the tax reform, velocity and output are unchanged. With a revenue-neutral tax reform, aggregate after-tax income is unchanged, so there need be no demand-driven effects on consumer prices. Under these conditions, v, y, and q remain unchanged as a result of the tax reform, and thus maintenance of the status quo implies that the central bank need not change its policy. Assuming that output is constant, the central bank could eliminate any transitory price changes in the long run by leaving monetary policy unchanged.
But things may not be that simple. The implied changes to wages and producer prices require a degree of flexibility in the economy that many might find unlikely. Specifically, for the consumer price to stay constant, the producer price must fall by the amount of the tax. And because a drop in the producer price means that the business revenue produced by hiring another worker drops, the before-tax wage must drop by a corresponding amount. Many have argued that such price and wage changes are implausible and that the central bank should "accommodate" a transitory change in the consumer price level by adjusting monetary policy so that it is consistent with constant producer prices and wages.
Source: Bull, Nicholas, and Lawrence B. Lindsey. 1996. "Monetary Implications of Tax Reforms." National Tax Journal 49.3 (September): 359-79.
I asked he if they still teach the concept of the elasticity of demand. She said they certainly do. It's too bad more people don't understand basic macroeconomics, or that question/objection wouldn't keep popping up.I must not understand basic macroeconomics. Maybe you can explain to me how elasticity of demand states that prices would fall with the FairTax.
That's funny! We were just discussing the former Hogan's Heroes actor in our Freepmails, and here he pops up discussing the Fair Tax issue. Sigh, I sure miss the hijinx that would ensue when Cain, a.k.a. Major Hochstetter, would intrude upon Col. Klink's solitude and demand something of Stalag 13's commandant, prodding Hogan to quickly contact London via the soup can antenna hidden near the fake tree stump and come up with a zany, madcap 22 minutes of mirth and merriment for the entire God-fearing nuclear family!
"You know, I'm going to start thanking
the woman who cleans the restroom in
the building I work in. I'm going to start
thinking of her as a human being"
".....well regulated and fully functional free market..."
How do you have a free market if it is well regulated?
"If 90% of the goods sold at Walmart are made outside of the US then 90% of those goods are not subject to US value added taxes, so their cost of manufacture would be unchanged by the Fair Tax. On the other hand Walmart's customers would be paying an additional 23% at the cash register."
Yep, and that tax would be on both the US and Chinese good. In addition, the US goods price would drop to be competitive with the Chinese good. Keep in mind the foriegn producer would then have the disadvantage of their home countries tax burden. Motivating business to move to the US.
In other words employers would retain payroll taxes from the employee as a trade off for lower before tax prices only to be increased by 30% sales tax...
20% before tax reduction plus 30% sales tax =
Employee = Huge money loser in the end.
Employer and government = Huge money winner.
How many times do you have to have explained to you the difference between employer's share and employee's share of payroll taxes? How many times are you going to float the canard that employers could ad hoc violate employment agreements by keeping the former income taxes from the employees for themselves?
What is obvious is that you care not for the truth, but you'll use anything you can latch on to -- even after it has been proven false -- to attack the NRST.
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