Posted on 05/23/2011 6:33:08 AM PDT by SeekAndFind
This seems as good a place as any to ask:
In reading minimum wage threads, I often find people saying that minimum wage was not designed or intended for someone to live on.
In reading tax threads, I often find people saying that nearly half pay no (federal income) taxes, and/or that the bottom half doesn’t pay enough taxes.
So how much, exactly, should someone earning minimum wage pay in taxes? (How much is ‘not enough’ and how much is enough?)
More broadly, people correctly have an aversion to taxes, which for some people distorts their judgment. This distortion of judgment I call Tax Derangement Syndrome, and occurs when people are so driven to avoid taxes that they make financial decisions which are suboptimal.
It’s a lot like people going out of their way to avoid a toll by driving an alternate route...and spending more (gas and time) in the process.
The FairTax, by nature of its ubiquity and its high rate, will drive many to seek to avoid it, resulting in inefficiency (on the part of the avoiders) and loss of tax revenue.
Prices ain’t gonna fall, and not everyone can make more money.\, which means spending has to fall.
If the wealthy were to reduce taxable consumption, that would be great for capital formation and business startups. Except that with consumption taking a hit, there might not be a sufficiently large market for all that new business.
“Prices ain’t gonna fall, and not everyone can make more money.”
Are you sure about that ? As demand falls, you think producers are going to just sit back and sell nothing rather than lower prices ? Economics doesn’t work that way. When the government subsidizes something, it is giving buyers more money to buy something, which causes demand to increase, which causes the price to increase. People should not be confused that the “war on poverty” has been a failure, and resulted in a wider income gap. It is perfectly logical — the “wealthy” producers see the higher demand of the subsidized “poor” and raise prices accordingly. The have higher profits, which are then taken back by the government to redistribute to the “poor”. The “poor” are not really better off, and in fact they look even worse off than before in any income comparison to the “wealthy” producers.
“If the wealthy were to reduce taxable consumption, that would be great for capital formation and business startups.”
But they won’t reduce consumption, they’ll simply consume outside the FairTax zone. Instead of maintaining a household with staff, vehicles, parties, etc. in the USA, their main home will be outside the USA and they’ll simply visit often enough to make those business decision that can’t be made remotely — of which there are very few.
Even if they stayed here and simply saved their money, the additional capital available may grow the economy some, but not enough to make up for the loss in FairTax revenue. The top 1% of Americans earn $2.5T and spend $2T each year, and the FairTax assumes it will collect virtually the entire 23% tax on that spending. If they save rather than spend, then the FairTax receipts are immediately short almost $500B/yr.
The question I’d like answered is why even a minimum wage earner doesn’t pay 10% in income tax. Is a dime out of every dollar earned too much to pay for the Federal government ?
Because the dirty little secret is that if everyone paid 10%, we could eliminate the corporate income tax — making America the best place to operate a business — and income tax revenues would actually be HIGHER than they are now. Total income tax revenues including the corporate tax revenues are generally around 9.9% of all personal income. $1.3T out of $13T personal income according to the IRS and the Bureau of Economic Analysis.
When people claim we need the “rich” to pay a 35% tax rate, what they are really saying is that they need 35% from the high earners so that half the people can pay nothing and the bottom fifth can actually get “income tax” refunds for income taxes they never paid.
Yes, that happens. It is analogous to the man who sells his prized classic car for less than it’s worth just so his wife won’t get it in the divorce. Some call it spite, and some call it principle. It’s a reaction to a feeling of betrayal. It’s their choice to do what they want with their money, and they’d rather blow it than see somebody get it who doesn’t deserve it. The FairTax assumes those people will just sit back and pay and pay and pay even though those people have legal alternatives to skip paying the tax.
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