Posted on 04/18/2005 9:30:29 AM PDT by witchypooy
That's because a significant portion of the "revenue" the FairTax generates isn't just "revenue," it's an expenditure also.
Could be that is why it is 23% instead of something less that 20%, to compensate for the progessivity introduced and other costs related to provisions in the bill.
Just like the Income/Payroll tax system hit 40%+ rates on the margin to assure that revenues are sufficient to make up for tax credits, personal and standard exemptions and all the other little bells an whisles that make up uppty thousand pages of complex code giving every lobbiest and special interest it own little niche to hide from taxation under.
It's just the federal government giving themselves money.
Just like it does today and would under the Flat Tax as well.
A fairly comprehensive discussion of the issues involved in the NRST levy on government consumption can be found in this PDF:
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Prepared for Americans For Fair TaxationPrepared for Americans For Fair Taxation This report responds to Ken Kies’ letter to Chairman Archer of January 12, 1998. In his letter Mr. Kies propounds several objections to the Americans for Fair Taxation (AFFT) FairTax plan (FairTax) as raised by the Joint Committee on Taxation (JCT) staff. This memorandum addresses those objections with respect to three basic issue areas. They are:
Page 14-16
C. Government Value Added Should be in the Tax Base The Same As It Is In the base of the Income and Flat Tax Schemes
We anticipate that one possible source of confusion on the part of the JCT is the tax treatment of government output. How should such output be taxed, if at all? The GDP includes, of course, both government value added and private value added. Government value added is included at “cost”, which is primarily the wages paid to its employees. The income tax taxes income whether the source is government or the private sector, and by doing so, taxes government output. While the government pays its employees a gross amount and then withholds the income tax from their paychecks, we could, of course, just pay government workers a lower tax-free wage. This would accomplish the same objective. However, we choose not to do this: with the result that we have higher spending (from paying pre-tax wages) and higher tax revenue (from the income tax on those wages). And it is important to note that the flat tax does tax government (and non-profit) output because government (and non-profit) wages are included in the tax base. To be consistent, the AFFT FairTax does so as well. A pure subtraction method VAT (aka a business transfer taxes) would not typically tax government value added. The Hall-Rabushka flat tax variant is an exception, however. Unlike a normal subtraction method VAT, the flat tax allows a deduction for wages and then taxes wages at the individual level. In doing so, it also provides the mechanism for taxing government wages (while a normal BTT only taxes business wages by taxing receipts and denying the deduction for wages). Thus, the flat tax base is much larger than the base of a normal BTT (i.e. larger by the size of the government wages).62 So today, both the income tax and the flat tax tax government output. However, a sales tax, in the absence of a special rule, would, like a pure BTT, not tax government value added by employee wages. In the absence of a tax on government payroll, therefore, the tax base would be much smaller than under either the income tax or the flat tax schemes. Assuming spending was held constant, this would effectively increase the relative size of government by the proportion of revenues relative to wages and government purchases that are foregone. The FairTax taxes government value added in order to maintain the relative size of the government to the private sector, rather than increasing the size of the government. Another way of looking at this problem is to examine it from two different perspectives: incidence forwards and backwards. If we assume that consumption taxes are fully incident on the factors of production, then the return to capital and the return to labor will decline by the amount of the tax. As noted earlier, under this incidence assumption, tax-inclusive prices would not be higher but the return to workers and capital would decline. Thus, in the absence of a special rule, government workers would experience a windfall. Their consumption prices would not go up and their wages would go up by the amount of the repealed income tax but, since government value added is not taxed, their wages would not appear to be subject to downward pressure.63 Taking the alternate incidence assumption, namely that the FairTax would be fully passed forward and borne by consumers, government employees would pay the tax just like private sector workers, since tax-inclusive prices would be higher by the amount of the FairTax. Government workers would, of course, have higher pre-tax wages, but the costs of purchasing goods and services would be higher by the amount of the FairTax. However, the inequity in our alternative incidence assumption redounds to the beneficiaries of government who would now be consuming a level of government services that is enlarged by the removal of the wage taxes formally imposed. We collectively would be getting the benefit of government (the Armed Forces, the Consumer Product Safety Commission, National Public Radio, or the JCT on Taxation) free of tax. Those who disproportionately benefit from government would disproportionately benefit from this effective increase in government spending. Or, put another way, we would have legislated a huge increase in the size of the government that is paid for by the private sector. Another way of addressing this problem is to simply take the National Income Product Accounts and start calculating the tax base under the various consumption taxes. If one goes through this exercise to demonstrate the oft-repeated equivalence of the various consumption tax plans, it becomes clear that in the absence of a special FairTax rule regarding government, the flat tax has a broader base because it taxes government wages. Similarly, a pure income tax is broader not only by the amount of unconsumed capital income but also by the government wages amount.64 In the context of a sales tax, then, an employer payroll tax on government wages simply achieves parity with the income tax and the flat tax. Failure to impose this tax would exempt government value added from tax for the first time and constitute a dramatic incentive to consume through the medium of government. The JCT seemingly recognized this in their pamphlet “Impact on State and Local Governments and Tax-Exempt Organizations of Replacing the Federal Income Tax,” p. 57-58, May 1, 1996. A sales tax should also be imposed on government purchases from the private sector to fully reflect the opportunity cost of that purchase. Government enterprises (e.g. Amtrak, the Post Office) are a separate case. They can easily be put on equal footing by taxing their sales and exempting their inputs as if they were a private enterprise. If government (and non-profit) enterprises are not subject to tax, they will have a huge relative price advantage over private companies through cross-subsidization.
62. Even a normal BTT, however, taxes government purchases of goods and services from the private sector since the private revenues from those sales are includible in the taxable base. 63. Eventually, with free market forces, private sector workers and perhaps political pressure would bid the government salaries down. However, given the rigidity of government pay scales and rules against exchange this may take many years (i.e. government wages may be “sticky”). In the interim, the relative size of government will have increased. 64. Since the sales tax does not tax the “return” to government investment (i.e. later government consumption scored as government capital consumption in NIPA), using a tax prepayment approach that is equivalent in present value terms to taxing the returns is appropriate. |
That is Enron accounting.
Just as government always has and will continue to do under your espoused favorite the Flat Tax.
LOL, now that is funny. Where do I find these workers? I find once workers take home enough money to pay their bills they tend to stop working.That's called the income effect and it is the yin to the substitution effect's (what CG was describing) yang. Empirical studies have shown that increases in wages have very little effect on the labor supply and for certain portion of the population, increased wages can actually decrease the labor supply for the very reason you describe.
In fact, the Associated General Contractors of America has endorsed the Fair Tax plan.
That endorsement testimony delivered via a statement sent to the Ways & Means committee April 2000 can be found here.
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American General Contractor's Association
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Just like it does today and would under the Flat Tax as well.This and all the stuff the AFT wrote is a red herring. It does nothing to address the issue. Today the taxes government pays is accounted for on the expenditures side, not so with the FairTax. This is the issue with the FairTax's "revenue neutrality," not the fact that government is paying the tax.
I taught I taw a putty tat. It's "tout".
Just keep telling yourself that, dude. Their press release is here: http://www.freerepublic.com/forum/a382f3452282f.htm
Just accounted for in the tax rate to assure the rebate and tax on government consumption is paid for and stay within the constraints of the requirements of revenue neutrality is all.
Sorry, no fish for you this day YN.
Just accounted for in the tax rate to assure the rebate and tax on government consumption is paid for and stay within the constraints of the requirements of revenue neutrality is all.Still can't address the issue, can you? At least Kotlikoff see through this crap.
Yeah, he can see it so much he's endorsing the Fair Tax! LOL
Yeah, he can see it so much he's endorsing the Fair Tax! LOLAt 30% inclusive! LOL!
At least Kotlikoff see through this crap.
Yes he sure does see through your crap all right:
| The Case for the 'FairTax' By LAURENCE J. KOTLIKOFF Wall Street Journal, March 7, 2005; Page A18 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. * * * Efficiency means different things to different people. To economists it means equating the extra output workers and savers generate for society with the extra compensation they receive for their sacrifice. Government taxation throws a wrench into this equation, setting the private return from working and saving below the social return and leaving the public supplying too little labor and capital. When tax rates get really high, people stop working and saving altogether. At that point, everyone can see the system's nuts. But even moderate tax rates can cause major economic distortions. Unfortunately, our tax rates, particularly on labor earnings, aren't moderate. They're high. This is true despite recent federal tax cuts. Add together all the federal and state personal income, payroll, excise and sales taxes, and you quickly reach effective wage tax rates of 50% -- and not just for the rich and middle class. For the poor, the rates reach this level thanks to their loss of welfare and health-care benefits as well as tax credits from earning more money. The bottom line is that our tax rates remain far too high and continue to generate a very large efficiency loss from taxation. The introduction of a consumption tax would broaden the tax base, significantly reduce tax rates, and improve economic efficiency. The efficiency gain comes not just from lowering rates; it also comes from effectively taxing something whose supply can't be distorted. That something is the existing stock of wealth. Democrats need to listen up here. Their view that taxing sales is regressive is just plain wrong. Taxing consumption is effectively the same as taxing wages plus taxing wealth. The logic is simple if you consider the most straightforward way of taxing consumption, namely via a retail sales tax. In this case, when people spend their wages or their assets on goods and services, they pay sales taxes, meaning they end up with less to consume. This is no different from having the wages and wealth directly taxed, but facing no sales tax. But what about saving one's wages and wealth and spending these funds plus accumulated interest in the future? Doesn't this avoid the consumption tax? No. You end up paying consumption taxes not just on the original sums, but also on the accumulated interest. The same holds if you save your wages and wealth and give it to your kids. When they spend it, they pay consumption taxes on both P&I. In present value it's the same as taxing the wages and wealth immediately. Thus a retail sales tax, with its effective wealth tax component, is highly progressive compared, for example, to taxing just wages. Over the years, we've moved pretty darn close to just taxing wages by reducing capital gains and dividend taxes and expanding tax advantaged retirement accounts. In the process, we've not only reduced overall progressivity. We've also shifted the tax burden from the elderly, who receive most of the capital income, to the young, who earn most of the labor income. The FairTax proposal, which awaits Congressional passage as H.R. Bill 25, would greatly rectify this intra- and inter-generational inequity and do marvelous things for our economy. The FairTax (details at www.FairTax.org) replaces not just the federal and corporate income taxes, but also the federal estate and gift taxes, and the highly regressive FICA payroll tax with one simple and fully transparent federal retail sales tax. In addition, the FairTax provides a highly progressive rebate to each household of their sales tax payments on consumption expenditures up to the poverty line. Assume H.R. 25 becomes law. Overnight, people would move from paying, to the feds and states, roughly 50 cents per dollar earned on their supplies of labor and capital to roughly 30 cents. Because the relationship between tax rates and economic distortions is non-linear, this would reduce the excess burden of our tax system by roughly two-thirds! A very conservative estimate of this annual saving is 2% of GDP or about $250 billion for the coming year. Add in the aforementioned $250 billion in wasteful tax compliance, and we're talking big bucks. But this is still small potatoes compared with the gains in economic growth associated with adopting the FairTax. Over the next few decades, the FairTax would likely raise U.S. GDP by 15% relative to its alternative value. Here's why. The FairTax generates much bigger incentives to work and save. It also redistributes from rich older spenders to younger savers. While it's not widely known, America's biggest spenders are actually the elderly, and for good reason. They know they have fewer years left to spend their resources and, consequently, are consuming their resources at more than twice the rate of the young. What about the poor, both young and old? Wouldn't they be worse off under the FairTax? No. The FairTax's rebate would leave poor young households paying a zero net sales tax. And it would leave poor elderly households better off thanks to both the rebate and Social Security's automatic adjustment of benefits to any increase in prices. The FairTax would also relieve the tax burden on middle-class workers. Since the FairTax generates a goodly portion of its revenues by effectively taxing wealth, it can afford to have a lower effective tax on wages. Is a sales tax the best way to tax consumption? Notwithstanding some enforcement concerns, my answer is yes. The flat tax, propounded by some, purports to tax consumption. But read its fine print or talk to its sponsors. You'll find special transition rules that eliminate any effective taxation of existing wealth, leaving the rich, particularly the rich elderly, completely off the hook. The same simulations showing efficiency gains and enhanced economic growth from consumption taxation, show the reverse from moving to wage taxation. Thus, the flat tax, as it would likely be implemented, is a loser on both economic and moral grounds. Fundamental tax reform is long overdue. Consumption taxation is the way to go. The FairTax is a reform every Democrat who cares about equity should love. And it's a reform every Republican who cares about efficiency, transparency and growth should champion. Mr. Kotlikoff, chair of the economics department at Boston University, is co-author of "The Coming Generational Storm," out next month from MIT Press. |
At 30% inclusive! LOL!
Yep 23% Fair Tax HR25 at federal level along with 7% average state and local taxes.
"Assume H.R. 25 becomes law. Overnight, people would move from paying, to the feds and states, roughly 50 cents per dollar earned on their supplies of labor and capital to roughly 30 cents."
The Case for the 'FairTax', By LAURENCE J. KOTLIKOFF; Wall Street Journal, March 7, 2005
Yep 23% Fair Tax HR25 at federal level along with 7% average state and local taxes.You read a lot into a little. It's not clear what Kotlikoff is saying there.
"Simulation analysis and a variety of empirical calculations suggest that the retail sales tax rate needed for revenue neutrality under the Fair Tax, assuming no decline in the real value of government purchases, would be roughly 30 percent when measured on a tax-inclusive basis."
[source]
You just don't get it, do you?I get that the 23% rate is bogus. I get that prices won't drop without wages dropping. I get that enforcement of the FairTax is a big concern.
Hmmm...I guess you feel a little betrayed then, huh?
The following is very clear:
Written in April 2000 not clearly separating state and fed taxation, where this is much clearer as to exactly what he includes in taxing via the Fair Tax act as he regards as of March 2005.
"Assume H.R. 25 becomes law. Overnight, people would move from paying, to the feds and states, roughly 50 cents per dollar earned on their supplies of labor and capital to roughly 30 cents."
The Case for the 'FairTax', By LAURENCE J. KOTLIKOFF; Wall Street Journal, March 7, 2005
Hmmm...I guess you feel a little betrayed then, huh?Not at all. I get all of that from many other sources, too. And some of them have nothing to do with the AFT!
Thank ya...Thank ya very much...Elvis has left the building.
Written in April 2000 not clearly separating state and fed taxation,The FairTax is a federal tax. You knew this, didn't you? So when Kotlikoff states "the Fair Tax ... would be roughly 30 percent when measured on a tax-inclusive basis," that means federal only.
Well, you can quote Kotlikoff articles all you want. The bottom line is...he endorses the Fair Tax.That's right and even an economist that supports the FairTax doesn't buy the AFT's and FairTaxer's B.S.
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