Posted on 05/12/2005 7:46:54 PM PDT by Your Nightmare
Members of the President's Advisory Panel on Federal Tax Reform on May 11 expressed concerns over the FairTax national retail sales tax, a plan that has emerged as an alternative with a major grass-roots push.
Panel chair Connie Mack, vice chair John B. Breaux, and other members worried the plan would be difficult to enforce, would be regressive, and would require a high rate in order to take in enough money to fund the government.
Breaux raised concerns that the proposed 23 percent (tax-inclusive) rate would not be sufficient to raise the revenue necessary to fund the government. The Joint Committee on Taxation estimated that it would take as much as a 57 percent (tax-exclusive) rate to be revenue-neutral. Further, Breaux said he thought exemptions that would be carved out to make the sales tax progressive would also complicate it.
Mack, who raised concerns similar to his fellow panelists', said he was "intrigued" by the plan. "But if it's such a great idea, why haven't other political entities around the world pursued it?" he asked.
Americans for Fair Taxation Executive Director Tom Wright emphasized that the plan emerged after "thorough academic research" and "thorough polling" The strong grass-roots push has resulted in some of the group's 600,000 members appearing at each of the panel's hearings and has inspired a large comment-writing campaign to the panel in support of the plan.
Sales tax advocates were among the 20 witnesses who gathered before the panel for a full day of testimony on tax reform proposals. Although the group has held several other hearings in Washington and around the country, the May 11 meeting was its first hearing on specific reform plans since Bush appointed the panel in January. The panel has been charged with identifying tax reform proposals that are progressive, encourage charitable giving and home purchases, and are revenue-neutral. The proposals are due by July 31.
Among the tax replacement and reform plans presented to the panel were the value added tax, consumption-based tax, and the flat tax, as well as proposals that would use the current income tax as the foundation.
Witnesses generally claimed that theirs was the fairest, simplest, most flexible, most transparent revenue-neutral proposal that would improve economic growth and savings while meeting the president's criteria of encouraging charitable giving and home buying. Witnesses presenting consumption-based plans praised their overhaul as taking millions of low-income taxpayers off the rolls, being easy to transition to on a worldwide basis, and including safeguards to prevent new loopholes that would result in increased complexity down the road.
Tax reform panel members, who agree the current tax system needs to be fixed, grilled witnesses without revealing whether they will ultimately endorse a consumption- or income-based tax or a different mixture of the two.
Are you about to try to sell me a "Pay No Income Tax" kit?
Hey, what's 100-22?
Prepositional looey-rithmetic is a bitch ... is that "on", "of", "in", "at", "below", "behind", "in front of". etc.? One needs to know these things since it could make the answer anywhere from -12 to 187.
Sheeze!!
I know he's not that stupid... he's just trying to confuse the thread - but he's given an opportunity to explain in ten ways to every lurker how clear it is - and he's shown himself to be quite stupid in the process.
This is my first post to FreeRepublic, and I see some reasonable voices, so I like to pose a suggestion and get some feedback.
I should say upfront that I am a supporter of the FairTax and have been for several years. I am convinced by the arguments, including the hidden taxes in retail goods, the inefficiency of those hidden taxes, and free market (cuthroat) competition reducing prices pre-sales tax.
However, I am not entirely happy with the FairTax as written.
One issue: PIT-Deferred Savings vs. non-Deferred Savings
Many people like myself have been putting money away into tax-defferred 401k's, IRA's, and pensions. When it was put away, we understood that we had not escaped the PIT, only deferred payment until a later date. Many others have saved outside of tax-deferred accounts or even converted tax-deferred into non-deferred accounts like a Roth.
Take two people who had $200K in a 401k. One chose -- for what seems like sound reasons under current PIT -- to convert to a Roth. The other did not. After the FairTax is implemented, they will have unequal buying power. Through no fault of his own, the Roth holder has only $120K remaining to spend while the 401k holder has $200K.
While I am not a fan of government spending, the fact is that we (the people) have committed to spending.
The government, reasonably, expects those future PIT payments from those tax-deferred accounts as a revenue stream.
Those that put money away in tax-deferred accounts understood that they would have to pay the PIT later -- hopefully at a lower rate than current income, but still pay it.
Those tax deferred accounts total more than $11.5T today. If those accounts were disbursed over a seven year period and a flat-rate PIT charged at 15%, the government would have an average revenue stream of $300B per year.
That would allow the FairTax rate to be 19% rather than 23%.
That rate would be more palatable to those that claim enforcement and evasion rise exponentially as the rate rises. I think a 19% rate would make passage of the FairTax easier, as well.
If the economy expands as the AFT claims, and as I am convinced it will, then 19% for the long haul will be enough.
Before somebody attacks me as one trying to spitefully grab PIT from those with money in tax-deferred acounts, I'll tell you that 80% of my savings is in a 401k. So I am advocating taking a hit for the good of the country as a whole and the passage of the FairTax.
Sorry ...
"claim enforcement and evasion" s/b "claim enforcement difficulty and evasion"
The government, reasonably, expects those future PIT payments from those tax-deferred accounts as a revenue stream.The money in deferred accounts would be taxed when it is finally spent. It's the people with money in the non-deferred accounts that get double taxed (once when they earned it and then again when they spend it).
Those that put money away in tax-deferred accounts understood that they would have to pay the PIT later -- hopefully at a lower rate than current income, but still pay it.
Yes, tax-deferred would be taxed once under the FairTax.
Under the PIT, however, the tax-deferred money would have been taxed twice.
So the fairness issue in comparison to the non-deferred account holder is still an issue.
Perhaps it was not clear from my original post when I said I am convinced retail prices include hidden taxes, so the double-taxation implied was not evident.
The FairTax view of the current PIT/Payroll Tax system is that the burden of business taxes and compliance costs fall on the consumer. I accept this as a working assumption in my proposal.
This means that under the current system, ALL income that is spent is being taxed twice -- once by the PIT/Payroll paid by the individual and again by the hidden taxes in the retail price of goods and services.
So under the CURRENT SYSTEM the non-deferred-account money has only been taxed once until it is spent. At that point it is taxed a second time.
Under the CURRENT SYSTEM, the deferred-account money has not been taxed at all yet, but will be taxed twice by the time it has been spent -- once when withdrawn, and again when it pays for the hidden taxes in the goods or services purchased.
Under the FAIRTAX SYSTEM, the non-deferred-account money has been taxed once under PIT, and it will be taxed a second time at purchase.
Under the FAIRTAX SYSTEM, the deferred-account money has not been taxed at all yet, and it will be taxed only once when used to purchase goods and services because there are no longer hidden taxes embedded in the price.
So the benefit to the deferred-account holder is a windfall compared to the CURRENT SYSTEM, whereas the non-deferred-account holder is not penalized compared to the CURRENT SYSTEM, but he does not receive the windfall.
A good post. And, yes, tax-deferred investments as you describe DO get a one-time windfall compared to the contrasting investment.
Perhaps the thing to do is to invest such an amount (if you have any) under the FairTax and resist using it for consumption so that you can earn even more from it (since the windfall works in your favor).
With the non-deferred amount, though, the taxes already gone are - gone. Unfortunately there is no way (directly) to get them back. But under the FairTax you DO have a better investment climate with expanding economic activity and control of whether or not you consume - and when. Perhaps this will allow you to make up some of the taxes paid for the former failed tax system. It's not worth crying over spilt milk, though.
There are worse problems to have I guess.
I suspect that by the time the FairTax becomes law, the revenue-neutral rate might very well be 19% rather than 23%. As time goes on and economic activity expands, the rate will probably decrease even further.
That does not mean we shouldn't conceentrate on reducing goveernment spending ... 'deed we should. It's way too high but when people finally see what "their" government costs, they may take a bigger interest in doing just that.
OOPs ... "19% rather than 23%"
Well, actually, Karen Walby's most recent analysis shows the revenue-neutral rate to be 19%. But that is because we are running a deficit. A 19% FairTax would also result in a deficit if enacted today.
Whatever the rate is, it could be lower by tapping the PIT on deferred accounts that people were already expecting to pay.
The lower the rate, the easier passage of the FairTax would be. The fewer points of "unfairness", the easier the passage. Those that have converted to Roth's are going to be irate.
So the question is: Do we generate more good will thru a lower rate than we squander by eliminating the windfall on deferred accounts ? After all, that money was earned under a PIT system.
If the windfall generates more support than the lower rate, then fine. I would vote (if given a chance) either way. My concern is that the higher rate may prevent passage.
My concern is not for myself and my deferred accounts. I figure I am already paying an AVERAGE rate of 40% if I include the embedded taxes, so 23% or 19% makes little difference. My focus is on making the FairTax agreeable to the largest number of people.
You comments are both understood and appreciated. I haven't any doubt that that will rightfully be some of the discussion when the bill is marked up in Congress. It has no doubt already been discussed within the FairTax organization but I'm not privy to their thinking.
The revenue-neutral requirement does not account for a deficit or lack thereof but merely attempts to provide the same level of funding as at present - it is not a spending or deficit reduction measure.
Thanks Pigdog.
I am not privy to the strategy within the AFT either. I am sure they expect there to be some wrangling, and if the deferred-accounts windfall gets bargained away, I won't cry about it.
I said I had several issues that I am not entirely happy with in the FairTax as written.
Second issue: The Prebate.
The Prebate structure is somewhat at odds with the basic assumptions of the FairTax. On the one hand, it's purpose is to make sure nobody pays the FairTax up to poverty-line spending. On the other, a basic assumption of the FairTax is that prices will fall so that adding the FairTax back on will restore prices to where they are now.
So why would anyone need a Prebate ?
If prices fall, then nobody's purchasing power has been hurt. The only purpose of the Prebate in that case is to create "Progressivity", or to "help the poor". Another way to describe a "progressive" tax system is to say there is a "success" tax to fund welfare programs.
I understand the ideological debate of limited government and income redistribution is a separate issue from tax reform. And I applaud the FairTax as a valuable first step in at least making people aware of the cost of government. But ... the Prebate is effectively a welfare program where those at the poverty line will realize an improvement in their standard of living at no cost to themselves.
The AFT panders to the liberals by saying "we will completely untax the poor". Why ? When something is "free" to a person, that person does not value it, and they are more likely to waste it. Government should not be a "free" good.
The person living at poverty level will have no incentive to fight against a rise in the FairTax rate. Because it would actually mean a higher Prebate check for them, and if they are not spending all their income at retail, it means an increase in the tax rate actually benefits them.
Maybe this is a necessary evil to bring in support from liberals, but I think the Prebate is a bad idea.
Here's a thought about "progressive" and "regressive" taxes in general:
"Progressive" means poor performance is rewarded and good performance is punished.
"Regressive" mean poor performance is punished and good performance is rewarded.
Doesn't a "progressive" tax system, by definition, encourage poor performance ?
The FairTax is less steeply progressive than the current system (on paper). Meaning it should offer less encouragement for poor performance. That's a good thing.
"If they did read it, then I have to conclude that the purpose of this cmte is purely political. I am not opposed to people coming up with better ideas. I just haven't seen one."
You haven't seen a better idea than the Marxist progressive income tax that now runs in excess of 60,000 pages (according to CCH) and that handicaps US producers in the global economy?
Are you serious?
"Is the fairtax the only alternative?...Some people on the Presidents commission don't think so."
No, it is just the most thoroughly researched and politically viable of the options. The President's Commission has been tasked with evaluating all the options. As Treasury Secretary Snow said back in March (when YN was saying that the sales tax was no longer under consideration), all options are on the table. As a FairTax supporter, I think that is healthy. We need a public debate and this will further that.
It is pretty clear that the Fairtax has moved into the lead during this process. That is why so many of the status quo groups have attacked it. It is by far the biggest threat to the status quo apple cart. Of course, that is also why you have been attacking it for the past few years, isn't it?
"The Fairtax is the only viable alternative."
"That would be one opinion."
Apparently, it's a fairly widely held one, given that the SQLs have spent more time attacking the FairTax on FR than all other tax reform proposals combined.
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