Posted on 03/08/2005 9:20:44 AM PST by n-tres-ted
Our tax code is a mess for a reason. Special interests pay for special favors. And with 17,000 pages and counting, there's plenty of places for our politicians to hide the kickbacks. Meanwhile, all the exemptions, deductions, exceptions and special provisions reduce the tax base, which means higher tax rates and smaller incentives for individuals and companies to produce income. And whether the tax breaks are set in fine print or spelled out in bold type, they generally favor the rich, making our tax system less progressive than is generally believed.
No tax system is perfect, but ours is so awful that fundamental reform is the only option. Fundamental reform is not just a necessity; it's also an opportunity to stop taxing income and start taxing consumption. My colleagues and I have been studying income and consumption taxation via computer simulations for some time now. We've found that switching from taxing wage and capital income to taxing consumption can significantly improve economic efficiency and growth. What's more, it can make our tax system much more progressive and generationally equitable.
(Excerpt) Read more at online.wsj.com ...
What do you mean by, "cast off"?
Cordially,
In other words increased costs are absorbed, and not always passed on to the consumer.
Tax incidence -- that is, who actually bears the ultimate tax burden -- is an elusive question that has been the focus of many economic papers, because the answer is not clear. However, the general consensus among economists is that perhaps a portion of the corporate income tax may be passed on to consumers in the form of higher prices, but that the majority is ultimately paid by corporate owners in the form of lower after-tax profits and by employees in the form of lower compensation. Most economists concede that personal income taxes and payroll taxes are ultimately borne by labor and are not passed on to consumers in the form of higher prices.
Most people don't realize that the FairTax rate is actually the sum of three separate rates, the general revenue rate; the old-age, survivors and disability insurance rate; and the hospital insurance rate. The general revenue rate is set statutorily at 14.91%. The old-age, survivors and disability insurance rate and the hospital insurance rate will change every year (yes, the FairTax rate changes every year) as determined by the Social Security Administration. The charts below show what happens to the general revenue rate when there is an increase in the the old-age, survivors and disability insurance rate and the hospital insurance rate (which are combined here for simplicity).
Example:
Tax Inclusive General Revenue Rate Combined Social Security & Medicare Rates Total Rate
Gross Payment on $1000 item Amount going to General Revenue
(14.91% x $1,298.70)Effective Tax Exclusive General Revenue Rate
Now with an increase in the combined Social Security& Medicare rates (the ones set by the SSA) and keeping the statutory 14.91% general revenue rate.
Tax Inclusive General Revenue Rate Combined Social Security& Medicare Rates Total Rate
Gross Payment on $1000 item Amount going to General Revenue
(14.91% x $1,175.23)Effective Tax Exclusive General Revenue Rate
This shows that if the Social Security and Medicare sales taxes are increased, the gross payment that the general revenue tax inclusive rate is being applied to is increased thereby increasing the amount of tax it collects. So it's a general revenue tax increase, about $50 billion a year, that has never been voted on by Congress or signed into law! None of this would be an issue if the FairTax was stated in the correct tax exclusive method.
Ignoring the business profit tax which IS a tax collected by business FROM someone else,
The tax is not in addition to the profit it is a percentage OF the profit. The profit is collected FROM someone else therefore the tax has to be from someone else.
the 19% individual income tax and 15.30% total payroll tax adds up to a total burden of $34.30 on every hundred dollars on an INCLUSIVE basis. In other words, for every $100 an employee takes home, his pre-tax earnings was subject to a 34.30 total tax burden.
Except, if I'm not mistaken the income tax is applied to income of $34,000 and over. So it couldn't possibly be "for every $100 an employee takes home, his pre-tax earnings was subject to a 34.30 total tax burden".
"If you think the rent is inflated due to the landlord paying the income tax why don't you think it will be inflated due to the landlord paying the FairTax on his personal purchases?"
Oh brother. Another novel economic theory. Is there no end to the leaps of logic you will take to disparage the FairTax?
Bot the flat tax and the nrst add to prices. The flat tax doesn't subtract from prices.Uh, the flat tax uses income minus savings as a base. It's subtracted from this base. It doesn't "add" to prices. It's subtracted from tax inclusive consumption. The NRST uses tax exclusive retail sales as a base and is added to this.
Our income tax adds to prices too. Why is it tax inclusive?You have no clue what I'm talking about, do you?
Let your BS detector buzz all it wants. I don't even hint at my own personal information on the Internet other than in the vaguest of terms and your opinion of my veracity is irrelevant to me. As for the "faux hissy fit", no it's a genuine hissy fit. Under the NRST, I can't imagine the opportunity for an individual to start a new business. A large corporation, yes, an individual no. It's all pie in the sky and BS on the ground. From the schemes I've seen, be it flat tax or consumption tax, I see more losers than winners. Go back to the drawing board and come up with something that will fly and not a tax scheme designed by Samuel P. Langley.
"The consumption in this country leans heavily on imports -- everyday clothes, furniture, toys, cars, small appliances. The retail stores are packed with imports."
Very true. The trade deficit is up to $600 billion per year and continuing to go up.
Why is that? To a great extent because we have a tax system that puts US producers at a disadvantage vs their foreign competitiors, not only in other markets, but here in our own, the largest consumer market in the world.
If we address the root cause, it seems logical that the symptoms will be affected. That is what is disengenuous about your argument. You say that, even if we address the root cause, the symptoms will remain.
Methinks thou doeth think too little.
Oh brother. Another novel economic theory. Is there no end to the leaps of logic you will take to disparage the FairTax?It's not novel at all, it called "real income." You should find it discussed in any Econ 101 text book. You really need to pick one up. It would tell you that real income is "income measured in terms of the goods and services it can buy."
Oh brother. Another novel economic theory. Is there no end to the leaps of logic you will take to disparage the FairTax?
Assuming 100% rent income:
Rent before sales tax...$1000
$1000 minus 25%Income tax = $750 disposable (after tax) income
Playing your silly price game.
Rent after sales tax $1000 minus 25% (previous income tax) $750.00 (pre-tax gross income)
$750.00 plus new sales tax = $974.00
Remit 23% ($224.00) federal tax = $750.00
$750.00 minus 23% tax when spent = $577.50 disposable (after tax) income
Income tax = $750.00 after tax income
Fairtax = $577.50 after tax income.
A 23% ( no surprise) loss of after tax income.
Oh BTW, the total sales tax collected from $974.00 rent would be $396.50 OR 41% tax.
"I guess we do. Please explain how pre-tax housing prices will drop 25%.
Are land prices going to drop 25%? -- I don't think so.
The actual construction is highly labor-intensive, so how is that cost going to drop if everyone gets their old gross pay? Don't tell me the average home-builder has legions of tax lawyers on his payroll whom he can fire!"
The amount of imbedded tax cost is highly dependent on the numebr of levels in the supply chain; therefore, the number ot times corporate income taxes get passed up through the supply chain. Houses (and cars) and other big ticket items have more levels in the supply chain than simpler products.
Land only accounts for about 20% of a typical home's cost.
Chaos for one. The drift I get from most of you is that you were either in school, worked for a large company, or were stoned during the 1970's when Nixon's, "Federal Wage and Price Control Act" was in effect. Disregarding the fact that the act itself was a disaster, as business man, and a small one at the time, it's implementation and compliance was horrendous. Prices did not remain stable but actually increased. The opposite of the intent was the actual product. I belive that is what will occur with a flat tax or an NRST.
Is there a method to resolve the current problem of the tax system? Perhaps as a first step, Congress can pass its own ethical rules that will require each representative and senator to prepare and file his own tax return without any professional help or guidance and under penalty of being dismissed from Congress, certify his compliance to his respective ethic committees.
-- Denis A. Kleinfeld
It's a game. We [tax lawyers] teach the rich how to play it so they can stay rich -- and the IRS keeps changing the rules so we can keep getting rich teaching them.
-- John Grisham (The Firm)
I never said they weren't taxed, however it is disingenuous for some to act like the final cost is goin g to go up by the amount of the FairTax. And since the entire bill is paid today (and also will be under the flat income tax by the way) with after tax dollars, those excise taxes and other taxes on the bill are effectively taxed under both those systems.
So the FairTax is certainly no worse than today or than the flat income tax in this regard. And in fact, since the total tax burden on that labor is less than either of those systems, I'd have to say it is better.
However, it does leave the control of tax burden in the hands of each citizen. Under any income tax, the government applies a filter to every dollar...even those under the the deduction. Under the FairTax, the value of a citizen's labor is put in his hands first and the level of taxation is determined by his own habits.
I certainly understand what you're talking about, but it makes no difference. The point is that on the margins, a 23% income tax (inclusive) is equal to a 30% NRST (exclusive), and the total flat tax burden on labor, including payroll tax is greater than 23%.
Quotes from lefty fiction writers are necessary to make your case?
There is no one exclusive (no pun intended) way to express tax rates. There is more than one way that may be used each time. The method you choose may or may not be the same I choose.
I choose tax exclusive rates-
under the nrst to determine how much an after tax price will be (eg a $50 shelf price becomes 50*1.3=65)
under the income tax to determine how much I have to earn to be able to pocket a certain amount (eg to save enough to buy that new $50 pair of slacks, I need to earn $65)
I choose tax inclusive rates-
under the nrst to compare to the inclusive income tax rates I pay and to determine what part of my spending goes to taxes
under the income tax to determine what part of my earnings goes to tax
There is no one way more appropriate than another. In fact your assertion, "the reason the inclusive rate is appropriate for the income tax or flat tax, is that a sales tax adds the tax to the base, the income tax or flat tax subtracts the tax from the base." can be viewed differently. "the reason the inclusive rate is appropriate for the nrst, is that a sales tax subtracts the tax from total spent, the income tax or flat tax adds tax to what you must earn to be able to buy something."
6 of one, half a dozen of the other" as grandma used to say.
So while you would like to say that method of rate calculation is a reason for rejecting the nrst, it's not. It's just the reason you're using today to try to dissuade others from embracing reform.
That's just it. I have read both proposals, pro and con and both left me wanting. Having been very active in California's Proposition 13 initiative in the late 70's, I am no newcomer to tax issues. The problem with a detailed reply is that the schemes presented do not warrant the repetition of that already said elsewhere. You don't need me to tell you what's wrong with the FT or NRST. There are plenty of web sites that have that info and opinion.
My first post on this thread to this subject was that I believe a consumption tax will lead to a deep economic depression. I see no reason to defend that opinion. That is my opinion and as long as it is opposite to yours, any evidence to support my position will be dismissed out of hand. This thread is not a debate, but an inquisition, however, I am not compelled by anyones opinion of me to quote chapter and verse the facts and reasons for my opinion. Therefore, your position on my posts is irrelevant to me.
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