The Double Trouble of Taxation[Ron Paul]

House.gov ^ | 20 Apr 2008 | Ron Paul

[Smokin' Joe]

No, actually, the effect of taxing part of the total income annually works out to a calculable raw percentage, AKA the tax rate. You can budget for that.

The transaction tax depends on the number of times the money moves in the economy--something which we consider healthy--but it works against it in that the more the money moves, the less of it there is to move. The more it moves, the bigger bite the Government gets, irrespective of how long it takes or doesn't, thus the tax is levied not once per annum, but repeatedly without limit.

[groanup]

Your example assumes that the alternative isn’t taxed. The first $40 was $50 before income tax. When it is spent the one making the profit has to set aside an amount to pay his/her income tax.

[Smokin' Joe]

You may have to set it aside, but you only pay tax once a year as an individual.

Under the fairtax, it would be immediately removed from the economy at the point of sale, at each transaction, and not something which could be deferred to the end of the fiscal year, or at worst the end of the quarter as with the estimated tax.

With the current system, losses can offset profits and the tax might be less than the initial transactions might indicate. With the fairtax, no such offset exists, the money comes out of the deal even if the seller loses money on the sale.

[groanup]

you only pay tax once a year as an individual.

But you must pay it on each and every transaction.

and not something which could be deferred to the end of the fiscal year,

In most cases it isn't. It is removed before you ever see your income.

[Smokin' Joe]

You still have not addressed the problem of a retail sector money supply which diminishes by over 90% in just ten taxable transactions. The highest marginal rate with the current income txa (AMT aside) is 28%. Once in a year. The withholding is done on a projected basis of your gross pay reflecting your annual income, so withheld income tax is just paying the annual amount up front on the installment plan.

By contrast, the consumption tax is levied on each and every transaction, in total, immediately at the point of sale. Kiss that 22% goodbye. It is out of play.

The oft cited example of the $50 wickipedia economy would not function with out an infusion of $18.80 in order fot the farmer to buy the mechanic work, a nearly 40% infusion of funds into the economy from outside.

[groanup]

I think you're not understanding how the velocity of money can allow an enclosed economy (the farmer and mechanic) to have a total of $50 between them and generate $100 worth of transactions. In such a scenario each transaction creates a taxable event either under an income tax or under a consumption tax.

[groanup]

Once in a year. The withholding is done on a projected basis of your gross pay reflecting your annual income, so withheld income tax is just paying the annual amount up front on the installment plan.

That money also is gone, out of play. So under the IT you are starting with a smaller pie from which to tax transactions as many states do. I would think that the states would raise bloody hell about it if, as you say, the money disappears so quickly when transactions are taxed.

[Smokin' Joe]

I think you're not understanding how the velocity of money can allow an enclosed economy (the farmer and mechanic) to have a total of $50 between them and generate $100 worth of transactions.

I think you missed my point. After the first ($40) transaction, do not have $50 between them The total left in the private sector is $42.20, and only $32.20 of that is in the farmer's hands. All of the money in private hands in the economy put together cannot buy a $50 tractor repair.

[Smokin' Joe]

I would think that the states would raise bloody hell about it if, as you say, the money disappears so quickly when transactions are taxed.

I don't think anyone else has mentioned it.

[traviskicks]

bump