Fair Tax

[nonlnear]

What is my cost of living? You're the government and I'm the person you're sending the prebate to. How do you know how much should be given to me? Right now it's as easy as the government not taking any money in the first place (I don't pay income tax since I have no income). Under your Fair Tax idea, the government gives me money based on how much they think I'm going to spend? I want you to try doing this. Honestly guess what my living expenses are. If you can't do it, then the government probably can't do it right either.

Wow. You do realize that a similar analysis goes into the determination of the standard deduction, and the cutoffs for the tax brackets, right? And no, it's not based on how much they think you are going to spend. It's based on the exact same kind of calculation that goes in to the current system: they pick an income point at which one's tax liability ought to be zero. It's not rocket science, but it sure seems like some people see it as such.

So your suggestion is that the government should somehow be able to monitor what goes in and out of my bank account in order to determine which money is savings and which money is not savings? That's really the only way this could be done.

Are you really this daft? There is NO monitoring necessary because savings and investment are NOT taxed.

If they're not monitoring my bank account and I'm not filing taxes to explicitly tell them what I'm earning and spending, how do they know when I'm spending my savings and should be given a tax rebate for this amount?

Because they collect it at the cash register when you spend your money. Who knew simplicity could be sooooo complicated!

Now for my declaration of neutrality: I'm not picking a side in the discussion of the merits of Fair Tax. Just pointing out the bleeding obvious facts so that the people interested in discussing it can have a hope of sensible dialog. I'm starting to think that hope might be a precursor to disappointment...

 

[Hacp]

Wow. You do realize that a similar analysis goes into the determination of the standard deduction, and the cutoffs for the tax brackets, right? And no, it's not based on how much they think you are going to spend. It's based on the exact same kind of calculation that goes in to the current system: they pick an income point at which one's tax liability ought to be zero. It's not rocket science, but it sure seems like some people see it as such.

The difference is here, your tax liability can be zero already. If you grow and hunt your own food and are self sufficient, you can get away with paying zero tax. Plus, they give you a 400 dollar check every month along with other entitlements for making zero income. I can see a lot of bums getting rich off of this.

Thats why the prebate is such a bad idea. If they do do this, no prebate. Just the regular tax. No one gets special treatment.

 

[ShawnD1]

Wow. You do realize that a similar analysis goes into the determination of the standard deduction, and the cutoffs for the tax brackets, right?

If you've ever checked what the cutoffs are, you'd realize the government sucks at estimating these. For the 2010 tax year, US federal income tax of 10% starts at $0. Yep, people working part time at Walmart still need to pay income tax. That is completely fucked. Now you're expecting these same government tax people to estimate my cost of living? They'd probably estimate that my entire month of expenses would be $20; that's how horrible they are at doing this.

Now for my declaration of neutrality: I'm not picking a side in the discussion of the merits of Fair Tax. Just pointing out the bleeding obvious facts so that the people interested in discussing it can have a hope of sensible dialog. I'm starting to think that hope might be a precursor to disappointment...

I'll do the same by clearing something up from post #121

The bill in the house is HR25. The tax rate is 23% inclusive. This means when you purchase an item priced for $1.00 you pay $1.00 and 23% or 23-cents goes to the government

This post is worded in such a way that you're supposed to think the Fair Tax would be 23%. That's not how sales tax is calculated. If you have a 23% sales tax, it means you add 23% of the cost of the item; it does not mean that the total cost is 23% made of tax. The correct way to calculate Fair Tax would be like this:
23 cents tax / [(100 cents total) - (23 cents tax)] * 100 = 29.9% sales tax

The item itself was only 77 cents. The tax on that item is 23 cents. 23 is roughly 29.9% of 77.

 

[nonlnear]

If you've ever checked what the cutoffs are, you'd realize the government sucks at estimating these. For the 2010 tax year, US federal income tax of 10% starts at $0. Yep, people working part time at Walmart still need to pay income tax. That is completely fucked. Now you're expecting these same government tax people to estimate my cost of living? They'd probably estimate that my entire month of expenses would be $20; that's how horrible they are at doing this.

I hav no faith in the government's ability to make reasonable estimates of anything. I'm with you on that one!

I'll do the same by clearing something up from post #121

This post is worded in such a way that you're supposed to think the Fair Tax would be 23%. That's not how sales tax is calculated. If you have a 23% sales tax, it means you add 23% of the cost of the item; it does not mean that the total cost is 23% made of tax. The correct way to calculate Fair Tax would be like this:
23 cents tax / [(100 cents total) - (23 cents tax)] * 100 = 29.9% sales tax

The item itself was only 77 cents. The tax on that item is 23 cents. 23 is roughly 29.9% of 77.

It's easily misrepresented, but it is making an important point. The point is that a 30% sales tax is equivalent to a 23% income tax. When people compare the tax rates in terms of the familiar percentages that we're used to it skews the picture of how large the actual tax burden is.

It's definitely a point that warrants care.

 

[wiseoldowl]

What is my cost of living? You're the government and I'm the person you're sending the prebate to. How do you know how much should be given to me? Right now it's as easy as the government not taking any money in the first place (I don't pay income tax since I have no income). Under your Fair Tax idea, the government gives me money based on how much they think I'm going to spend? I want you to try doing this. Honestly guess what my living expenses are. If you can't do it, then the government probably can't do it right either.



So your suggestion is that the government should somehow be able to monitor what goes in and out of my bank account in order to determine which money is savings and which money is not savings? That's really the only way this could be done. If they're not monitoring my bank account and I'm not filing taxes to explicitly tell them what I'm earning and spending, how do they know when I'm spending my savings and should be given a tax rebate for this amount?

Again, please study the FairTax before you make any more comments. Go to FairTax.org and read the questions and answer section. The prebate is determined by taking 23% of the poverty level income. Even though you may have no income, you still spend money. It doesn’t matter what your actual income is; poverty level income is the basis for determining the prebate and is designed to cover spending up to that level. It is a fixed rate that everyone will receive regardless of income. It is determined by family size. Current poverty level income for 1-person is $10,830, $21,600 for a couple, $25,400 for a couple with one child, and $29,100 for a couple with two children and so on. This increases with each additional child up to a total of seven which would be $47,840. If you are single you would receive $208 each month. This means the prebate will offset the tax you pay on the first $903 you spend each month.

With the FairTax the government doesn’t need to monitor anything other that purchases of goods and services. Until you make a purchase of goods or service, no tax is paid so it doesn’t matter how much money goes in and out your savings account, checking account or any other investment vehicle. The tax is collected and paid by the business you purchase goods or services from. If you purchase an item for $100 the merchant will send 23% or $23.00 to the government.

 

[BlahBlahYouToo]

The difference is here, your tax liability can be zero already. If you grow and hunt your own food and are self sufficient, you can get away with paying zero tax. Plus, they give you a 400 dollar check every month along with other entitlements for making zero income. I can see a lot of bums getting rich off of this.

Thats why the prebate is such a bad idea. If they do do this, no prebate. Just the regular tax. No one gets special treatment.

are you fucking kidding?
hunt and grow your own food? where are you going to get your seeds? what about hunting equipment and permit?
are they going to make their own bows and arrows from branches and stones?

you seriously think people will get "rich" off prebates?

 

[ShawnD1]

you seriously think people will get "rich" off prebates?

ATOT also thinks people get rich from having children. Kids don't cost money and they actually generate money every time they break shit.

 

[Siddhartha]

What effect would the "Fair Tax" have on consumption? How much would the economy contract?

 

[werepossum]

What is my cost of living? You're the government and I'm the person you're sending the prebate to. How do you know how much should be given to me? Right now it's as easy as the government not taking any money in the first place (I don't pay income tax since I have no income). Under your Fair Tax idea, the government gives me money based on how much they think I'm going to spend? I want you to try doing this. Honestly guess what my living expenses are. If you can't do it, then the government probably can't do it right either.



So your suggestion is that the government should somehow be able to monitor what goes in and out of my bank account in order to determine which money is savings and which money is not savings? That's really the only way this could be done. If they're not monitoring my bank account and I'm not filing taxes to explicitly tell them what I'm earning and spending, how do they know when I'm spending my savings and should be given a tax rebate for this amount?

You're missing the point of the FairTax; it does not differentiate at all. Your income is untaxed, your savings are untaxed, your spending IS taxed.

Admittedly, those who have saved a lot of money and are now spending it relatively quickly get hosed, effectively getting taxed twice. (Capital gains are similar now - get taxed on the money, invest it, get taxed again.) Those who save a lot of money and are now spending it relatively slowly, at or below the poverty line, actually pay no additional taxes on it because the prebate refunds the FairTax costs before you incur them. But college students perforce live cheaply; as wiseoldowl pointed out, the prebate (which pays all the FairTax at the poverty level) would likely mean you are out little or nothing, as you probably aren't spending above the poverty level. I know I didn't, when I was in college. For future college students, the FairTax would be bloody brilliant - you work, save money with no taxes on your savings, then spend it slowly while you're in school. Your tax at a public university would probably be zero, if not a net gain.

Hacp, the reason for the prebate is that the working poor currently pay almost 14% in payroll taxes but little income tax. Placing a flat tax sufficient to fund the government would be a major tax increase on these people, making it not worth their while to work at all. Most people agree that a tax system should be progressive on at least the very poorest workers. There are two ways to do this, one being prebating the entire cost of the federal sales tax at the poverty level. The other way is to exempt the basic necessities of life - rent, food, medicine, take your pick. This offers the least overhead, and some flat tax proponents prefer this. The framers of the FairTax decided that the most fair and least gamable (by Congress) way to make a flat tax progressive was to prebate the cost at the federal poverty level to each household based solely on its size.

Siddhartha, the FairTax is designed to stimulate the economy by removing the current high of tax code compliance (thus freeing that labor for more productive purposes) and by making American companies more competitive by effectively reducing their level of taxation as compared to their competitors. Therefore the economy should expand in theory as non-productive labor can become productive labor.

 

[wiseoldowl]

What effect would the "Fair Tax" have on consumption? How much would the economy contract?

What makes you think the economy will contract under the FairTax? The FairTax will encourage investing thus creating more jobs; thus improving our economy; thus increasing consumption.

 

[Siddhartha]

What makes you think the economy will contract under the FairTax? The FairTax will encourage investing thus creating more jobs; thus improving our economy; thus increasing consumption.

A tax on consumption is the same as raising prices on goods. The demand of some goods in inelastic but for other goods demand is elastic meaning that demand is tied to prices.

In the model that everyone is talking about in this thread:

1. Tax consumption
2. Which encourages saving money.
3. Which means that people, where they can, are going to be spending less.
4. A decrease in spending means a contraction of the economy.

 

[wiseoldowl]

A tax on consumption is the same as raising prices on goods. The demand of some goods in inelastic but for other goods demand is elastic meaning that demand is tied to prices.

In the model that everyone is talking about in this thread:

1. Tax consumption
2. Which encourages saving money.
3. Which means that people, where they can, are going to be spending less.
4. A decrease in spending means a contraction of the economy.

First of all, with the elimination of all the embedded taxes and compliance cost, prices will not substantially increase. The fact that Americans will be receiving their gross pay with no substantial increase in prices, there will be more available cash for investing. Savings creates investment capital that may be loaned for expansion; creating more jobs; creating more spendable income.

 

[nonlnear]

A tax on consumption is the same as raising prices on goods. The demand of some goods in inelastic but for other goods demand is elastic meaning that demand is tied to prices.

In the model that everyone is talking about in this thread:

1. Tax consumption
2. Which encourages saving money.
3. Which means that people, where they can, are going to be spending less.
4. A decrease in spending means a contraction of the economy.

Two magic words: ceteris paribus. Without them your initial premise is shot to shit. After that everything is irrelevant. I'm disappointed but not surprised to see somebody who apparently knows about elasticity enough to use the term competently but doesn't understand the importance of always checking the underlying assumptions.

 

[Deudalus]

What effect would the "Fair Tax" have on consumption? How much would the economy contract?

Expand if anything.

As of right now our economy is based largely on consumerism.

With the Fair Tax there is no more capital gains taxes which encourages more savings which means more investment.

 

[Siddhartha]

I have read the hand waving about how increased investment and savings are a benefit of taxing consumption.


But
1. How does taxing consumption not have a negative effect on consumption?

2. How does reduced spending not cause a contract of the economy?

3. Would taxing consumption lead to the growth of a criminal culture of underground economies of people avoiding taxes by buying and selling off the books? Consider how Prohibition lead to the growth of Organized Crime, and anti-drug laws have lead to violence.

Just writing "you are wrong" is not enough. What is the economic model?

 

[wiseoldowl]

I have read the hand waving about how increased investment and savings are a benefit of taxing consumption.


But
1. How does taxing consumption not have a negative effect on consumption?

2. How does reduced spending not cause a contract of the economy?

3. Would taxing consumption lead to the growth of a criminal culture of underground economies of people avoiding taxes by buying and selling off the books? Consider how Prohibition lead to the growth of Organized Crime, and anti-drug laws have lead to violence.

Just writing "you are wrong" is not enough. What is the economic model?

1. How does taxing productivity not have a negative effect on productivity? Under our current system, if I work harder the government will take a larger percentage of my income; so why should I work harder?

2. Spending will not decrease under the FairTax because more people will be working. People don’t spend money when they are out of work. By eliminating corporate and payroll taxes and the compliance cost associated with these taxes, US corporations will finally be able to compete with foreign corporation; thus creating more jobs. Knowing they will be exempt from taxation, foreign corporations and investors will flock to the US. A survey was done in Japan and over 500 corporations said they would open branches in the US; and 50% of these corportations said they would move their headquarters to the US if the FairTax became our tax system.

4. Any off the books buying and selling under the FairTax will be peanuts compared to the tax revenue lost under our current system. Currently those profiting from the underground economy and illegal aliens pay no taxes. Under our current system the IRS estimates that over $300-Billion is lost each year because of tax cheats.

 

[nonlnear]

I have read the hand waving about how increased investment and savings are a benefit of taxing consumption.


But
1. How does taxing consumption not have a negative effect on consumption?

2. How does reduced spending not cause a contract of the economy?

3. Would taxing consumption lead to the growth of a criminal culture of underground economies of people avoiding taxes by buying and selling off the books? Consider how Prohibition lead to the growth of Organized Crime, and anti-drug laws have lead to violence.

Just writing "you are wrong" is not enough.

It is enough to demonstrate the flaw in your argument. I was only pointing out that your conclusion does not follow from the premises. I was not arguing that one specific set of outcomes is an obvious effect of moving to a Faritax policy. That is a much more complicated proposition...

 

[piasabird]

What about all the state and local taxes? You have to add that up also.
State tax
County tax
City Tax
Federal Gas Tax
Federal Alcohol and Tobacco taxes
State Gas Tax
Heaven forbid you have the New York Tobacco Tax?

So what happens when businesses move to Mexico and we order goods from Mexico?

 

[piasabird]

Just cut out a lot of spending that would be easier.

 

[wiseoldowl]

What about all the state and local taxes? You have to add that up also.
State tax
County tax
City Tax
Federal Gas Tax
Federal Alcohol and Tobacco taxes
State Gas Tax
Heaven forbid you have the New York Tobacco Tax?

So what happens when businesses move to Mexico and we order goods from Mexico?

I agree we have too many different types of taxes. We have so many we have no idea how much of our hard earned income ends up in governments’ hands. At least the FairTax would eliminate corporate and income taxes, payroll taxes, estate and gift taxes, and capital gains taxes. Unlike our current system that results in embedded taxes in every thing we buy, with the FairTax there will be no embedded taxes and you will know exactly how much tax you are paying.

With the elimination of corporate, payroll and capital gains taxes, businesses will move back to the US rather than moving to other countries such as Mexico. I use to work for American Standard. At one time they had 8 or 10 factories in the US. They now have all their factories in foreign countries, one of which is Mexico. They didn’t move offshore just because of cheep labor, they also moved because the US has one of the highest corporate tax rates in the world. Eliminate this tax, as with the FairTax and companies will flock to the US.

 

[Fern]

A tax on consumption is the same as raising prices on goods. The demand of some goods in inelastic but for other goods demand is elastic meaning that demand is tied to prices.

In the model that everyone is talking about in this thread:

1. Tax consumption
2. Which encourages saving money.
3. Which means that people, where they can, are going to be spending less.
4. A decrease in spending means a contraction of the economy.

I don't understand the criticizism leveled at your post? I share your concern about the effect upon our economy.

Those who say prices won't go up much baffle me. Common sense dictates that if we pay basically the same price for our goods, but have no personal or corporate income tax, have no SS taxes, the federal government is going to be getting less money. Mathematically, it sounds an awful lot like we're just keeping (or slightly raising) the embedded taxes and dropping everything else.
-----------------

I've got to wonder if the FairTax would be Constitutional. The 16th Amendment allows for the non-apportionment of INCOME taxes only. The FairTax is not an income tax, and would therefor otherwise need be apportioned.

Amendment 16 - Status of Income Tax Clarified. Ratified 2/3/1913. Note History

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Fern

 

[wiseoldowl]

I don't understand the criticizism leveled at your post? I share your concern about the effect upon our economy.

Those who say prices won't go up much baffle me. Common sense dictates that if we pay basically the same price for our goods, but have no personal or corporate income tax, have no SS taxes, the federal government is going to be getting less money. Mathematically, it sounds an awful lot like we're just keeping (or slightly raising) the embedded taxes and dropping everything else.

Your statement baffles me. Yes, if we eliminate personal income taxes, corporate taxes, payroll taxes, estate taxes, gift taxes and capital gains taxes, you are correct, the government will be receiving less money; they would not receive any money. But the FairTax replaces all these taxes with a single, fairer, more transparent tax. The government won’t be receiving less revenue because the 23% is designed to equally offset the amount the government collects from all our current taxes. Since the FairTax would be included in the price, it is an embedded tax, but your sales slip will show the 23% consumption tax. Unlike our current system, this will be a transparent embedded tax that everyone will pay along with the addition of all illegal aliens, tourists and all those profiting from our underground economy.

 

[wiseoldowl]

[QUOTE
-----------------

I've got to wonder if the FairTax would be Constitutional. The 16th Amendment allows for the non-apportionment of INCOME taxes only. The FairTax is not an income tax, and would therefor otherwise need be apportioned. [/QUOTE]

The 16th Amendment doesn’t say it can only tax income; it simply state that it can tax income. If the government can only tax income, how are they allowed to tax gas, alcohol and tobacco? These are consumption taxes.