Question 7. How do the welfare gains from EFFICIENT TAXATION OF INCOME compare with gains from consumption taxes? Answer: EFFICIENT TAXATION OF INCOME would have a larger impact than a Proportional National Retail Sales Tax and twice the impact of the popular Flat Tax proposal. Here are the numbers: EFFICIENT TAXATION OF INCOME $4.90 trillion Hall-Rabushka Flat Tax $2.06 trillion Progressive National Retail Sales Tax $3.32 trillion Proportional National Retail Sales Tax $4.69 trillion ****
I do not see why he would prefer his proposals to the much greater simplicity of the Fair Tax Act.
The FairTax (NST) would encourage Economic Growth
The FairTax would significantly enhance economic performance by improving the incentives for work and entrepreneurial activity and by raising the marginal return on savings and investments. Entrepreneurs and small business owners would be given greater access to capital, the life-blood of a free economy. Investments would rise, the capital stock would grow, productivity would increase and the output of goods and services would expand. The economy would create more and better paying jobs for American workers and take-home pay would increase considerably.
Although the magnitude of the economic growth generated by a single rate, neutral tax system causes lively debate among economists, virtually all agree that the large marginal tax rate reductions with a national sales tax combined with neutral taxation of savings and investments, would have a powerful positive effect on the economy.
For example, Dr. Dale Jorgenson of Harvard University conducted a research analysis (1997), which showed that a national sales tax would produce a 10.5% increase in Gross Domestic Product, a 76% increase in real investments, and a 26% increase in exports in the first year of a national sales tax enactment. Those increases would level off at 5%, 15%, and 13% respectively over the succeeding twenty-five years. Nothing promotes the competitiveness of US businesses more than growth in our national economy, more dollars to grow our businesses, and a level playing field for selling our products and services to other nations.
AGI under his proposed plan is STILL handled as at present and it is STILL an income tax with all the classification and definitional defeciencies thereof - and all of the horrible economic inefficiencies and exorbitant non-productive costs thereof (including an expanded IRS).
Calling the scheme "efficient" is a sick joke as is the present tax system. Dale should stick to economic projections and leave defining plans of taxation to experts that have advabced degrees in Taxation and actively work in that field (as do those who originated the FairTax).
Herman Cain is right on the money.
Little Willie was "The Worst President In American History".
Here is what Jorgensen says re the comparative benefits of various reform proposals
I do not see why he would prefer his proposals to the much greater simplicity of the Fair Tax Act.
One should be careful to note the particular characteristics of the "Progressive National Retail Sales Tax" he models in his actual paper on the "EFFICIENT TAXATION OF INCOME" does not comform to the provisions of HR25 the Fair Tax Legislation.
It is an NRST limited to the same taxbase as his HR Flat Tax simulation (about half that of the FairTax), and is required to fund state & local revenues as well as Federal doubling its rate.
The "Progressive National Retail Sales Tax" he simulates is an adhoc example, with an base rate set to make it equivalent to the Hall Rebuska and Armey Shelby flat tax variants he analyzes. Further he assumes that state & local tax systems are included within the federal tax system and added the state/local rates to the test examples.
The result is a progressive NRST which is a test scenario, having little to do with the Fair Tax proposal replacing Federaltax revenues alone.
Thus even the results in his {Efficient Taxation of Income" study are substantially skewed relative to what the results would be in a true simulation of the FairTax provisions as was done in '97 in actually modelling the FairTax provisions.
| http://post.economics.harvard.edu/faculty/jorgenson/papers/BURDEN_web.pdf EFFICIENT TAXATION OF INCOME Page 31. In order to develop alternative plans,we first construct a prototype sales tax and a prototype labor income tax. The labor income tax is based on the HR Flat Tax proposal. The sales tax is a Flat Tax rate with personal exemptions. We set the proportion of total exemptions in retail sales equal to the proportion of total exemptions in HR,which is 0.3516. Assuming that the federal sales tax rate is 17% as in Aaron and Gale (1996), table 1.1, we estimate that the corresponding average tax rate is 11.02%. In order to represent the current sales taxes,used mainly by the state and local governments,we add a Flat Tax of 5.8% to the progressive tax system we have derived. At this point,we have a progressive NRST with a marginal tax rate of 22.80%and an average tax rate of 16.82%
Page 32. In Plan 1, a progressive NRST replaces the capital and labor income taxes. Since the revenue requirement is very large in relation to the sales tax base, we start with tax rates twice as high as those of the prototype, that is tC =2 *(0 .17 +0 .058)=0 .4560 , and taC =2 *(0 .1102 +0 .058)=0 .3365 , tmL = taL = 0 , where tC is the average marginal tax rate and taC is the average tax rate. These sales tax rates serve as the starting values for our simulations and will be adjusted to meet the budget constraints of the government sector. |