Our Current Tax System - Upgrade or Replace
 

Regardless of your political persuasion, I would guess that most of us here believe that our current system of taxation is in dire need of a change--replacement or otherwise.

So.....we have something that is broke....how do we go about fixing it? Do we repair it or do we replace it?

Here is my stance:

I throw my support 100% behind a consumption-based taxation system using the following parameters:

1) I am still playing with the numbers, but a rate in the 15-19% area is where my support falls. I have seen a few proposals of lower and a few proposals as high as 30% (I hear about higher proposals, but I haven't seen any). The obvious hope is that the rate will be reduced over time as gov't revenue increases.

2) The first $18,588 (poverty level) of spending is tax free for everybody.

3) The following taxes are abolished: Income taxes, Capital Gains Taxes, Estate Taxes, Gift Taxes and some excise taxes.

4) The IRS is gone. Management of the system happens at the state and retailer level, with reimbursement for management costs being paid by the fed.

Advantages? Well, in my opinion (I am writing a white paper on the topic), the advantages are many. The two biggest being a simpler system and how hard it would be to avoid (i.e. tax evasion and the undergound economy). I also think that there would be a huge influx of money into our economy from companies moving their headquarters to this new tax haven (some would be new and some would be returning). In an effort to be concise, I will stop here. The list of advantages could easily go on for pages. I will respond with more if the need desires. I did not post links because the above information came from my head. Yes, I used a lot of different sources to formulate my opinion, but none of them directly relate to my personal opinion of the idea. I found that The Cato Institute had many good articles going over the pros and cons of such a system.


What is your opinion? I welcome any comments from people that are against a consumption tax, because it helps with my research. However: First, tell me if you think the current system is broke or not. Then, give me a possible solution. Believe me, I have read many, many cases made by people that are against such a system so I am familiar with their points of contention (i.e. Pelosi and McIntyre). In other words, I would like to hear more than criticism of a proposal, tell me your ideas.

I believe that the sysytem is broke and a national sales tax would help, but would enjoy it if you posted more information supporting the switch.

What would happen if we simplified it to the most extreme level, and made the national sales tax the only tax? I honestly don't know much about tax law, but I would like to know why making the NST our only source of revenue would be a bad thing.

I would keep the IRS, but rename it to the Internal Return Service. Their job would be to provide the poverty level returns to people, as well as returns for charitable donations. People would like them a lot more, and it would continue to encourage donations to charitable organizations.

I think it sounds good

I'm becoming more and more a fan of the Fair Tax proposal. This is a consumption based tax that addresses many of the concerns of those who are affraid that a consumption based tax would be too regressive. In 2003 it was H.B. 25.

You can find more info at: www.fairtax.org

The current system is broken. Maybe it can be fixed, maybe not.

Replacing it with a consumption tax is out of the question. First, I have read some analysis of such a tax system that demonstrates the rate would exceed 30%. Second, and more important, it does nothing but shift the tax burden to the lower-middle and lower classes. There are certain things in life that everyone purchases or are essential requirements. Low-mid and lower classes spend most of the income on these things. Upper class spend essentially none of their income of these things. Lower classes will then be able to afford less of these essential items while the upper classes will simply export their purchasing of high-ticket items, shelter those purchases in a business, or transfer ownership via some new loop hole.

Change the exemption level to somewhere around $100k or $200k and maybe you'll have something.

A progressive tax system is an absolute requirement in a capitalistic country due to the inherent money-based power structure of the political system (money buys you power - in other countries, we call that bribery, but since we're "great" we call it lobbying). The rich require higher taxes.

I hate the common man as much as the typical Bush supporter, but even I think a consumption based tax system is a little to much ;). Seriously, it's highly regressive as the higher your income, the lesser percent of your income you actually spend, as the poster above pointed out. I might check out the fairtax site, but I have yet to see an economically feasible consumption-based system.

edit- I read over the site, and checked out the FAQ, and from what I could tell, it is still very regressive. They haven't adressed the fact that somebody making $500,000 per year could easily pay the same in taxes as somebody making $100,000. Also, people might not bother doing grocery shopping in foreign countries, but I could easily see the very luxury goods they describe as being what rises the consumption of weathier people being bought out of the country. And since it seems from their description that they implement the tax at point of sale, it would be hard to keep track of such purchases. For instance, I live in MIchigan, if I'm buying a new car, I have no reason not to buy it in Canada, where it would be substantially cheaper. Same if I were to purchase the jewelry or filet mingnon they mention on the site. Honestly, the tax code might need some work, but I don't see this being the way.

Before we can propose a more fair tax system I think it is important to understand how much taxes we are paying now. The following was asked in another forum a while back and was never answered as far as I know:

As far as folks objecting to a national sales tax or VAT. Don't we pay something like those already? Doesn't all the income tax that people pay show up in the price of goods and services already?

How much of the price of a loaf of bread (or any other good) is there because of taxes?

Income and other taxes are levied on all the following and added to the bread's price:

The farmer, all the equipment he buys, etc.., the farm worker, the shipping company and employees, the dock workers, the baker and employees, the packaging company and employees, more shipping company costs, the warehouse and employees, the grocery store and employees, etc...

After all these folks add the taxes they pay to the prices they charge, how much of it shows up in the price of bread? I would guess that we are already paying about a 90% (sales type) tax. I could be way off, and would be interested if anyone has run the numbers on something like this.

While our current tax system looks good on paper, in reality the rich pay a fewer percentage in taxes now than the middle and lower class because the current tax code has "loopholes" designed specifically for the wealthy. The wealthier someone is the less percentage of their income they actually pay. Everyone [well poor and destitute Democrats anyway] always wants to soak the rich and since most of our elected federal officials fall into that wealthy class you can bet your ass they engineered loopholes to benefit themselves. Currently you are able to shelter big purchase items in a business so nothing would change unless we remove that loophole.


Automobiles could easily be taxed at the licenses branch or whatever it is your state actually calls the place where you transfer ownership and purchase tags, much like it is currently. In addition if there was a huge penalty added, an import tax, it would discourage this type purchasing behaviour. You might be able to smuggle some small items such as jewelry or groceries but big ticket items could be easily taxed properly.

The current tax code sucks but it won't be changed simply because the rich would actually pay more taxes than they do now. As I stated above the people making our tax laws are considered wealthy and changing the tax code would cost them money.

Scout's quote-
The current tax code sucks but it won't be changed simply because the rich would actually pay more taxes than they do now. As I stated above the people making our tax laws are considered wealthy and changing the tax code would cost them money.

How true that is - Not unless it is at threat of revolution. Anyone ready to take this to the streets?

I prefer a flat tax for individuals. Allow a certain amount of money per household member, for basic living expences and above that tax every dollar earned - get rid of 90% of exemptions and all loop-holes.

As great a problem (or even greater) is government spending. Over a ten year period cut spending 25% across the board - including payroll and expenditures.

If the rich don't spend their money, why should they be taxed on it? What's the point in having money if you can't spend it? It's just pieces of paper that is worthless unless you can do something with it.

Stealing from the rich to give to the poor is a sure-fire way to ensure that there's large-scale animosity between the classes. And a man's hands do not belong in another man's pocket. It's also a recipe for disaster, in that the people realize that they can vote themselves "largesse from the public treasury".

Who cares if they buy it out of the country? In order to bring it into the country, they'd still have to pay the customs tax, right?

This is false, as well as grammatically incorrect.

If we took away automatic withholdings on taxes (so you had to write a check), and had tax day on Nov 2, you would see a tax revolution in this country the following day.

The 20% national sales tax in lieu of income tax plan is being floated around in the media to see how people will respond. It seems like such a flawed plan, but one that I might personally be able to benefit from. A national sales tax would be a boon for the black market and a death knell for several established markets. Ebay and other internet commerce would see the most immediate effects, suddenly there would be no real advantage to ordering online--except for the true hermits and handicapped. Bartering would become commonplace--there's no effective way to tax this. I would also expect to see an influx of foreign currency into our everyday usage. Ready to figure out Euro denominations everyone?

Obviously there will still be tax shelters for the wealthy, but also there are people-like myself-who would altogether disappear from the tax rolls. I'm fairly certain that I could live off-the-books, could you?

What a lot of people, especially conservatives who are deathly afraid of the t-a-x word (shhhhh!), dont realize is that when the Republican congress and president decide to raise the national debt ceiling they are in effect raising taxes. National debt is directly tied to inflation, so the money we earn is now officially worth less, thank you Republicans!

If you have a comsumption tax, that will be on top of the sales tax, right? Will states then change their income tax to a consumption tax? 25% national, 8% sales, 6% states, 1% local--it starts to add up--of course we are all paying it already. With this system, how do you exempt a certain amount of income? Is it diff. for single, married, number of dependants, charitable giving?

What kind of information would you like about the switch? Are you looking for information about how the current system is taken down and replaced or do you want more reasons supporting the consumption tax itself?

The idea behind the consumption tax (and pretty much most NST proposals) is that it replaces almost all taxes (see the list of exactly which taxes are replaced in my original post).

In my opinion it wouldn't be a bad thing at all. It would be much more simple and has the potential to take in more revenue than our current system does (by the way, our current system is against the founding ideas of this country in that all people are not created-or treated- equally).

I disagree with keeping anything resembling the name IRS as the connotations regarding it are way too negative. There will have to be overseeing departments, but they wont even be remotely the size of the IRS.

Give me a little more specifics as to what you are looking for and I will post back.

This represents the classic opposition points that you will see against these type of proposals.

First, the 30% or higher number is bogus, in my opinion. I haven't found one shred of evidence to support this. The only time numbers this high come up is when a wacky plan is introduced (which means that the proposal won't even be considered) or in opposition to this plan (note: I already mentioned Pelosi and McIntyre which have published articles stating the exact points mentioned above). There are about 3-4 proposals being looked at seriously right now. Of those proposals, which ones have rates exceeding 30%?

Also, the main cruxt of the plan is that the rate will go down considerably over time because, in theory, more money will be brought in.

And, no, the poor and the middle class won't be hurt more on this plan. The numbers completely contradict any assertions like this. Changing the "free" number to $100,000 or over would completely negate the idea of this plan. That thinking is classic redistributionist and not a school of thought I even remotely belong to.

This is an excellent point regarding the switch to a consumption-based tax system.

Right now, out tax system hinders savings, at the personal level and at the corporate level. The rate of saving and economic growth are closely tied together. We need to remove the stumbling blocks to ensure a healthy future for our economy.

One of the ideas behind a consumption tax system is that you don't get taxed until you actually spend the money. Contrary to popular belief, money that is saved is not stuffed under matresses, it is put somewhere; stocks, bonds, accounts, IRA's, etc. or re-invested in a company to buy more land, more buildings, more people, etc.

Removing the components of our current system that hinder savings and investment will do nothing but help our economy. Not to mention the "new" money that companies and individuals will have because they are not spending time/moeny on tax compliance.

-6.1 billion man hours are wasted each year for tax compliance activities. This represents a true net loss to our economy. Anyone care to guess what this figure equates to in dollars?

Current estimates put our "total" tax rate at or near 50% or our income. This includes income tax, rocking chair, medicare, sales tax, property taxes, etc., etc., etc.

Yes, we already pay many consumption-based taxes. The idea behind this plan is to pretty much only have consumption taxes. As posted in the beginning, the following would be abolished: Income/Capital Gains/Estate/Gift/Some excise, etc.

The theory is (and it is only a theory because it hasn't been tried yet) is that the price of bread will go down on a NST or consumption tax. First, it should be noted, that most people don't pay taxes on bread. Second, you have to account for all of the money saved by a company not having to pay millions/billions of dollars on tax compliance. If costs go down, more than likely prices will go down, our economic system pretty much demands that this happens.

Look at it this way, using the loaf of bread as an example:

Cost of bread: $1.00
Taxes: $0.20 (using a number I am pulling out of my ass)

Remember: Your income will automatically go up once the plan is put into action, probably in the neighborhood of 18-22%. Also, the cost to make the loaf of bread could very feasibly go down because the manufacturer is wasting man-hours and money on tax compliance. Also, since they have "new" money, it could also be feasibly spent on machinery that will make the bread faster, cheaper, etc.

So:

In relative dollars, the new cost of the loaf of bread (including the consumption tax) could stay at the rate of $1.00--no real cost increas/decrease felt.

Also, your first purchases of $18,588 are tax free. That means, averaged over the whole year, the real cost of the bread could be less than $1.00--a decrease that would be felt by all consumers.

This should be done regardless of the tax system we use or implement.

I would like to see a Tax-Payer Bill Of Rights (TABOR) plan introduced where gov't spending is capped at a pre-determined rate. Unless tax revenue goes up, the spending cannot be increased. In other words, a spending increase by the government would, by law, equal the increase felt by the government in revenues--no increase in revenues, no increase in spending.

This is how most of us live, the gov't should do the same.

KMA, you're talking out of both sides of your mouth. First you say that we are already paying a 50% tax rate because of all the "hidden" taxes. Then you say that a 30% consumption tax would be way higher than what the govt needs and in reality it would be under 20%? Right. Unless there is some drastic spending decrease it isn't going to work.

The man-hours spent on tax compliance are negligible when compared to raw materials, labor, and equipment costs.

The ideals progressive system are perfect. The implementation of it has been flawed. Once we close the loopholes that allow the rich to escape liability it will work much better.

The "free" tax level is set at the poverty level, which is different for individuals and families and already set: I think for individuals it is around $9K.

Here is an example, based on the levels where I live:

Current Sales Tax: 7.1%
Proposed Consumption Tax: 16%

Total tax: 23%

Understand, however, that while this looks like an increase in spending on your part of 23%, it really isn't. First, costs will go down, followed by price. Second, real income will increase dramatically, instantly.

The "real" increase felt by most consumers will not be much more than is already being paid out--and nowhere near near the level we are being taxed at right now. This is actually a tax decrease, as roughly 50% of your income won't be spent on taxes as it is the case right now.

As the plan takes effect and begins to bring in more money, the rate would go down, probably to the 10-12% neighborhood.

I don't understand this at all.

Why shouldn't the rich be taxed on money they receive but do not spend? There's nothing stopping them from spending it. If it's just pieces of paper that are worthless (which is nonsense, it's called collateral), they shouldn't have a problem handing them back to society.

I love how supporters of the consumtion tax supporters say it isn't shifting the tax burden to the poor and middle class. Look at what it eliminates:

Let's look at these taxes:
Income: Under a progressive system the more you make the higher your tax rate is. Who stands to gain the most: The person who currently pays 15% or the one who pays 30%

Estate:
The only people who have estates large enough to really be hurt by this are very wealthy. Poor people are NOT splitting up $2M between their kids.

Capital Gains:
Poor people are not affected by capital gains taxes.

Gift:
Poor people do not give gifts over 10k. Rich people do.

Sure, we want to make it "fair" for the poor people. We've heard it before. No thanks.

Nonsense. 

Um, no I am not. I never said that the consumption tax would "be way higher", I said it would bring in more money. I am working my ass off to portray real information in a factual manner. I am also being very diligent to point out when I am asserting opinion or when I am referring to theory.

Note: see my previous post regarding spending, I completely agree with you there.

The 50% number is based on: income
Consumption tax is based on: consumer spending

Two different base number from which to draw percentages. It is not "talking out of both sides of my mouth" to say that the money brought in now (at the roughly (50% rate) would be less than the money brought in under a consumption tax.

Yes, the gov't will get more money by taxing spending than it does by taxing income.

The main reason: It is much harder to evade a consumption tax than an income tax (it is posiible, but harder).

Our current system does not and cannot collect revenue from tax evasion and the undergound economy (estimated to be over a trillion dollars). Consumer spending is roughly $7.7 trillion dollars.

Net revenue felt by our government right now would be less than the net result felt by the government by a consumption tax system. Plus, in theory, the amount of revenue felt by the gov't would gradually increease year after year as more companies expand, more companies move to the US, more jobs are created, "real" income goes up, spending is increased, etc., etc.

Hey Manx, thanks for your thoughtful and insightful post!

As I stated in my original post, show me don't tell me. I don't want to hear "nonsense" followed by nothing. What purpose does that serve? Answer: "nothing"

Let me try over:

I am telling you that your argument is false. I have posted the numbers to back up my claim.

Spouting out that "families will get hurt", the "poor will bear the burden" etc., are examples of the many, many points of opposition to this type of plan. You are not the first to see this, every redistributionist in the country says the same exact thing. Why? Because it goes against their beliefs. The problem is that they are bullet points and talking points without anything to back them up. I would be more than happy to post links to some of my information (not all of it is online), but it would be a very, very long post, with nothing but links. Nobody would bother to read it as it represents hundreds and hundres of pages of reading.

If a specific point is being refuted, I will post where I got the information (if it is possible) along with page numbers and paragraph numbers so that the information could viewed easily.



Anyway, your post was not accurate, in my opinion. If you have something more to add than "nonsense" I would love to discuss it. As I mentioned earlier, I would love to hear thoughtful opposition to this proposal. I do not want to hear regurgiatation of fear tactics that are based on nothing.

If there is real points of contention to this proposal, I want to discuss them and have asked to.

I did show you. Your response was "No". Without any refutation. I responded to that in kind.

Based on the 2004 Federal Budget, the govt spent 2.3T. In order to get 2.3T out of 7.7T consumer spending, the tax rate would be 29.8%. That is if you tax EVERYTHING.

You still said nothing about how all of the taxes that would be repealed affect the rich way more than the poor. I wonder why.

Without a progressive tax system and inciting class envy how could the modern democratic party survive as anything but a marginalized party?

As such any change in the tax system would be fought with the same half truths, and outright lies that fuel their political campaigns. The tax cuts for the rich mantra would be repeated add-nauseam and the laughable concept that somehow the poor are going to pay for the government spending will be put forth as fact, with said facts unchecked by a main stream media which has been laid bare as a spin machine instead of a news outlet.

The concept of a fair tax system for ALL Americans is foreign to the thinking of the left, and while they claim to target the 'mega-rich' such as John Kerry, in reality it is the people attempting to get rich who suffer in such an atmosphere of fiscal repression.

Regarding people who avoid taxes by recieving cash, the amount of taxes they avoid is insignificant compared to the amount of taxes taken in as a whole. The majority of these people are tipped employees and day laborers. These people don't make much more than $30k/yr. 95% of the money the govt gets comes from people who make over 120k.

Sure, the party that make a killing with the "tax and spend liberal" bashing would lose nothing.

All right Manx, I'll bite.

In my original post, I stated that spending equal to the level of poverty is tax-free.

You stated that the poor and middle-class get hurt on this plan.

I then said no, rather than repeat what I had said already.

So, that being said, how do the poor and middle-class get hurt as per year claim, taking into account the information that I have already posted?

Kutulu - I am responding to all three of your posts next, so hang on a minute.

Manx, I will probably respond to your assertion in a little more detail next as some of your points match Kutulu's.

Indeed. Close the loopholes on the rich and corporate tax. And then we can lower the tax rate across the board.

I suspect that the current taxes we pay are a lot higher than 50% when you factor in the amount of hidden tax added to the price of all the goods and services we buy. Every business involved in getting that bread to the store is taxed and those taxes are passed on up the ladder until the consumer buys it at the grocery store (and then we pay a sales tax on top of that). That's where the saying (businesses don't pay taxes, people do) comes from.

So the current estimate of 50% should be added to the additional cost of goods and services we pay because of the taxes being passed on to us and added to the price. If the amount of that hidden tax is 75% (my wild guess) of the price and if you buy $20,000 worth of goods each year you would be paying an additional hidden tax of $15,000 on top of the 50%.

That's why I asked how much of the price of goods is included there (in the price) because of all the taxes added in by all the businesses involved.

O.K., this is going to be a long one as there is a lot to respond to:

How are 6.1 billion man-hours negliglble? Not only is this a huge economic loss for EVERYBODY, the future economic reprecussions are huge taking into account the opportunity cost of tax compliance. It is a huge waste of time that benefits nobody and costs all of us millions and millions of dollars. I would argue that tax compliance activities are hardly negliglible on any scale.

Closing the loopholes will leave over a trillion dollars untaxed--the underground economy. Closing the loopholes will not help a broken system that hinders savings, investment and growth--true variables when considering economic growth of today and the future.

Why are corporations moving their headquarters overseas? Reason: taxes. We are losing millions and millions of dollars because companies cannot afford to prosper in our economy. I guarantee you that with a consumption-based taxation system, you will see a sudden influx of capital from companies moving their headquarters back to the US and new companies seeking the tax shelter our system would provide. That represents real money in terms of new business, new jobs, more money, etc., etc.

The first $18,588 of spending is tax free, for everybody. How many poor people spend more than $18K a year? If they do, they aren't poor they just aren't reporting their income correctly.

How much more than $18K does an average middle-class family spend a year? On consumer items, not too much more than $18K (I have no facts for this, I am guessing based on total spending averages for the middle-class, minus spending that wouldn't be taxed). For arguments sake, let's say that the average middle-class family spends around $26-28K a year.

1 - The first $18,588 is tax free, so that drops the tax burden to $8-10K a year.
2 - With the implementation of this system, take home wages for middle-class people will instantly in crease around 20%. That is 20% more in their pocket, right away. On average, that will equate to an additional $5-9K of additional money in the middle-class' pocket.
3 - If spending stays the same, the poor will continue to pay in taxes what they are already paying - nothing. The middle-class will probably pay close to or less than they were.

Unless my math is wrong or my information is wrong, how do they get hurt? How is this shifting the tax burden? I just don't see it.


O.K. What did the government bring in? $1.95 trillion (this number includes all forms of taxes received by the government), gross, not net. In other words, we spent WAY more then we received from taxes. Especially since the $1.95 trillion number is gross--I haven't found a good source for net revenues yet, without doing a ton more research than I already have.

Granted, the first few year of this system, we would continue to run deficit spending. Given enough time, the benefits of the system would be seen and we would no longer take in less than we spend (as long as spending is capped--we have to control spending first, no tax system can maintain the kind of spending sprees we have seen over the last several decades).

Also, with the influx of money and jobs into our economy, the "poor" people that want to do better, can. Maybe some of these people will no longer be counted in the "poor" column.


Conservative estimates of the underground economy (which includes the people you reference) is over a trillion dollars, with some estimates considerable higher. I hardly think waitstaff and day laborers make up any sizable portion of this estimate. The unique thing is that people that are receiving money un-taxed (i.e. thieves, drug dealers, contractors that work "under the table") would be fairly taxed under a consumption system. Our current system has no way of doing that, other than by spending millions of dollars on prosecution and then settling for pennies on the dollar.

Anyway, what percentage of waitstaff and day-laborers earn more than $18K? They won't be taxed under this system, so they won't be hurt. In fact, they will bring home more than they are doing not.

A consumption tax (with the floor set at $18K) is ideal, because everybody spends and everybody spends according to their means. A millionaire spends much, much more than I do, so they would pay much, much more than I do on the consumption tax. A poor person spends a fraction of what I do and their burden would be 100% less than mine, i.e. zero.

The trick is to not hinder growth by being anti-savings and anti-investment. Savings and investment are key to our economy doing better as a whole. Without it, we will dwindle to nothing.



First, you must understand where I come from. I am not "redistributionist" in any way, shape or form, nor am I rich. Our country was founded on the idea that all people are equal. How is taxing one person more than the next equal? It isn't. If you are a redistributionist, then this tax plan will not appeal to you as it doesn't serve your purpose.

However, based on the evidence and the studies, a consumption-based taxation system could work and it could work very well. And, in a sense, it promotes your ideals because the burden of the "poor" is either zero or negligible. Granted, there is no "free money" for them under this plan (i.e. EIC).

Also, there is a very good possibilty that our economy could flourish under a system like this. This will help the poor, the middle-class and the rich. I don't want to give anybody hand-outs. I want a system where a person can make more money and be more properous, based on their motivation level.

Assuming 40 hour work weeks, that is about 2.93M people or about 1.5% of the population. If you assume only half of the people work in the county it's still only 3%. I'd say 3% is neglibible compared to the other 97%.

Another thing, do we want to put 3million people out of work? Not just losing their jobs but having their primary skill set made completely obsolete?

I'll get around to the rest when I can.

Good points. That is why I think the overall effect of a consumption tax would be less of a burden than the current system places on us.

It would be hard to prove, but one could theorize that the price of goods would go down as much or more than the rate of the consumption tax. The real effect could be that we pay a higher tax on lower priced items, equalizing the equation.

I don't see how income would rise. On the fairtax.org site, they were stating that prices would most likely remain neutral. This being the case, why would businesses bother to raise wages? Many large companies are currently opperating with excessive capital, and to my knowledge not one of them has decided to increase the workers' wages. Microsoft is one I can think of who have had excess cash for awhile. Instead of raising pay, they gave it back to shareholders in the form of dividends. They also have put forth a plan to buy back approx. 3 billion shares of stock in the next 3 years in an effort to raise the value of their stock. Remember, corporate decisions are based upon whats good for the shareholder, not the employees. Most businesses would likely consider the lower taxes on wages offset by lowering the price of their product (so that when the NCT kicked in the point of sale price is the same) to be enough of a benefit for consumers/employees.

O.K., I will give you your point. However, the man-hours wasted on our current system is just one of the many arguments for abolishing it.

Here is another one:

Money magazine compiled 46 tax professionals for a test. The test was for each "professional" to individually prepare a hypothetical return for a hypothetical middle-class family.

The results?

46 different responses from 46 different tax professionals with the dollar amounts ranging from $34,240 to $68,912

-Source: Joan Caplin, "6 Mistakes even the pros Make", Money, March 1998.

And another one:

The GAO reports that more than half a million taxpayers lose more than $300 million per year because of incorrectly filed tax forms.

Source: GAO, "Tax Deductions", April 2001, http://www.gao.gov

Income would rise immediately because the money previously being withheld would be returned to the taxpayer in each and every paycheck. I am guessing that the average increase would be around 20%--but I have nothing factual to back it up, it is merely an educated guess.

In terms of an increase in salary after the initial bump, I theorize (note the word) that it would. There is no concrete evidence to support this, it is merely a belief.

I believe this because I think it would be demanded, if the workers were educated enough to understand what is going on and demand the increase. I don't think that it would happen automatically.

Prices vs. income. Once again, I think the market would cause a decrease in prices. All it takes is one company to lower their prices a smidgen and the rest would follow or lose business/revenue to the first company. Any company with a brain would realize this potential for increased revenue without a corresponding decrease in profit. The first ones to do this would be the short-run winners (i.e. following the kinked demand curve).

But as I mentioned before, most information and ideas presented here are theoritical. Since it has never been done here, there is no evidence to say 100% one way or another. All I know for a fact is that the current system is failing miserably. We can be pre-emptive and fix it early, or wait for it to get worse (which it does every year).

Sorry if i missed the answer in here somewhere, but how do you exempt a certain amount of income? If two people go and buy a couch, don't they pay the same tax? If one is low income and won't have to pay the tax, how do we figure that out? Say you don't know until the end of the year how much you will make? Is the exemption based on consumption or income? If income, then don't we all have to do some form of taxes anyway?

It just seems to me that most companies would just pocket the payroll tax, or use that money to offset the loss of profit due to lowering prices. Again, the company isn't obligated to return the cash to the workers.

I don't work for Microsoft, but by reading the papers I found out about their cash surplus and what they were planning on doing with it. Why weren't workers there arguing for higher pay? Relying upon workers to force the hand of a business is rarely effective. Most people don't currently understand that businesses have to pay approx. double of their pay in various payroll taxes, why would they understand not having to pay it? At best, I could see it forstalling some layoffs, but I think even that is doubtful.

Again, a consumption tax might work in a true free market system, but that isn't what we have. Honestly I don't know of anyplace with a free market system. One of the most important things necessary for a free market economy to work efficiently and hold up to many theories is perfect information for all participants. And that is one thing almost always lacking, which gives those with more information (and usually higher income/money) more power in dealing with those without all the information.

aliali -

First, income isn't related to it all. The first $18K for a family, $9K for an individual is tax-free; everyone gets this credit.

The current proposals seem to revolve around two different ways of handling this: rebate or prebate.

One proposal has a prebate being sent out at the beginning of each month. The rebate proposal shows the rebate amount being first applied to other payroll taxes (i.e. rocking chair, medicare) and the balance being paid back at the end of the year.

Does that answer your question?

I guess there are a couple of ways to look at this.

First, our populace needs to be as educated on this issue as possible. Not an easy task, but a necessary one regardless of the type of tax system in place.

I would also assume that some "rules" would apply. Not every company would increase salaries because of the new found money, but some would. The companies that recognize this and increase salaries would then be the "hot" companies to work for. Competing companies would then have to "shit or get off the pot." All it takes is a few companies to recognize this and the ball would start rolling. And, I honestly believe that some companies would do this and start the trend.

As to the free market idea. Philosphically speaking, there is no such thing as 100%. Using that argument, there is no such thing as a totally free market. The best we can do is to try and achieve free market status and I think the U.S. is ahead of the curve on this. In terms of the availibility oif information, I see that trend changing dramatically every day.

Edit: there seems to be many different ways of defining "regressive tax".



That being said. Is there no one else to chime in? I would like to hear as many opinions as I can. If you are for it, why. If you are against it, why? If you are against it and think the current plan is failing, what do you recommend that we do?

Thanks,

I'm starting to get it. The exemption is only on consumption. A family can spend 18k without federal tax, right?

Prebate doesn't seem to make much sense. Sending out checks all the time would breed fraud and you would never know how much to send (can't predict consumption) and what happens when someone dies, moves, goes into a coma, leaves the country for a semester, etc. Too much hard work.

If you have a rebate system, then lower wage people have to pay the tax and wait for a refund. The Gov't wouldn't know how much to refund unless a record of the consumption is provided.

Or does the country simply send out checks assuming the consumption levels to be 18k per family and give each family X% of 18k in monthly or yearly installments? If this in the case, are we really going to have the gov't send JFKerry and GWBush checks? Aren't there real fraud concerns here? How old to you have to be to get your check? Do you have to be a citizen? Do visitors get rebates? If not, what is this going to do to tourism? If you fly into any big city, you already pay extraordinary taxes on your hotel room and rental cars, does 20-odd% get added on top? Can you work overseas and get a check? What about servicemen stationed abroad? What about foreigners on student visas?

Since this will be the primary source of funds for the gov't, will there be a crackdown on compliance that will accompany the million and six different ways people try to get around this--in kind transfer, garage sales, ebay, etc.

What are the other economic implications of assuming a minimum level of consumption for all citizens and rebating a check in that amount to everyone: rich, poor, sick, healthy, monk, priest, new yorker, arkansan, old, young, family of 3, family of 13?

As bad as the current tax code is, I'm terrified at the thought of our current leaders rewriting it. It will favor the rich, pure and simple.

That's not the way they'll present it, of course; we'll hear that simpler = better, flatter = fairer, calculated rephrasings like "death tax," claims that the new system will help grow the economy and allow the elimination of the IRS, etc.

The end result will be that the middle class will be screwed. Politicians will remove taxes on things the rich enjoy, such as capital gains and dividends. They'll allow corporations to pay less, maybe even nothing. The poor will be protected by some threshold or rebate. The only people left to tax will be us in the middle class.

And my fellow Americans will take the bait. They'll swallow the arguments and embrace a regressive tax that will end up costing them money. How do I know? Because they believe so many other false claims made by this administration, such as "we invaded Iraq as part of a war on terrorism."

Well, at least there is a little more discussion on this.

A few questions to you:

1) If it is broke, who gets to fix it? Politicians as a whole fall under the "rich" category, Republican or Democrat. If the "current leaders" cannot be trusted to do it, who can? Congress is the one to propose and implement a plan, and their status won't be changing much over the next several election cycles.

2) How does this plan hurt the middle-class more. I am, by definition, middle-class. I took a very long look at the numbers and I will be better off under a consumption tax. I hear this argument over and over, but I haven't seen anything to lend credence to it (i.e. show numbers).

It should be obvious that I have gone to great lengths to understand my side of the argument. Why can't anybody come back with something more than talking points? You say I will be hurt more, but how? If I am missing something here, I would like to be made aware of it.

Here is an example of the opposition points that annoy me. I want details. I want to hear more than "what", I want to hear "why". So far, the only person remotely doing that is kutulu.

Editorial Masquerading as a News Article

I really, really want to discuss this, with anybody. I don't want to seem like I am trying to knock everybody down, I am trying to pose my side of the argument with in-depth analysis and understanding of the topic. I have said this over and over, but if there are "real" points of contention, I would like to be made known of them.

In other words, I need more than talking points.

i.e. - The middle-class will get hurt under this plan followed by an understandable example, preferably with some numbers (since this is a topic of numbers) to back-up the claim.

Well, I'm not paid to do this, and I have a hell of a lot of other things to do in my real life. But you want some reading material? Fine:

Falling Flat: The Dubious Case for the Flat Tax
http://www.epinet.org/Issuebriefs/fallingf_ib_1996.pdf

Many Middle-Class families Will Wind Up as Net Losers From the "Middle-Class" Tax Cut Legislation
http://www.cbpp.org/9-21-04tax.htm

The Decline of Corporate Income Tax Revenues
http://www.cbpp.org/10-16-03tax.htm

The Ultimate Burden of the Tax Cuts
http://www.cbpp.org/6-2-04tax.htm

Well, I was hoping for an argument posed in someone's own words, not links to articles written by someone else (I don't do this for a living either, it is merely a "hobby").

Of the links, only one dealt with tax reform and it doesn't deal with the type of plan I am proposing. The other links are articles I read some time ago denigrating tax cuts. Tax cuts are not the argument here. Plus, the articles are devoid of some very important information relevant to the argument they are making, which is a totally different topic than being discussed here (in other words, they won't fly with me - case in point, article #3, referring to declining corporate tax revenue compares pre 9/11 to post 9/11. It completely ignores any mention of a recession or of any of the economic effects--of which there were many-- of 9/11. It also fails to mention that personal income tax revenue has gone up considerably--anyway, as I said, a different argument)

The best part about the first link is that it mentions that there isn't any empiracle evidence to support a "flat tax". Well, duh. There isn't a similar system to use as evidence, so, obviously there isn't any empiracle evidence. What kind of evidence did we have in 1908 when the current system was put into place? Or after WWII when it was enormously expanded? But we did it anyway, didn't we?

Let me try again, maybe someone else will answer:

If the plan I am referring to will hurt the middle-class more than they are being hurt now, how will that be? As I have stated before, I used myself as an example (and no, I am not posting the numbers--I did, however, post hypothetical numbers that are similar to mine) and have come out on the positive side in this argument. Since I am solidly middle-class, how will I get hurt?

If there are serious problems or things that need to be considered regarding a consumption tax, I really, really want to hear them.

Please make your argument specific to the points I mentioned and please make the argument in your own words, backed up with links if you so desire. Anyone can post a link, I would like someone to join this discussion that has thought about this idea and has a well-formulated opinion about it.

My initial thinking is that a national sales tax (consumption) or possibly a flat rate income tax may be fairer to most of us. However I don't know how to evaluate them because I don't know how much the current tax system is costing us now or how much the consumption tax would have to be to make things revenue neutral.

How can we possibly evaluate a new tax system when we don't know what the existing one is costing us now. Please see my posts #35 and #38. I don't think anyone else knows either or at least no one has come forward with an answer. If we got rid of all other taxes and replaced them with a consumption tax, it may have to be as high as 300%.

So I will ask again. How much of the current price of goods and services is included because of all the businesses involved passing the taxes up the ladder until the consumer eventually pays them all (indirectly) because they are included in the final price? Add how much a typical middle class family pays in indirect taxes this way to your estimate of 50% and we will have a starting point to evaluate from.

I have searched the net to no avail and was hoping a business major or tax pro could answer this. Surely they cover this kind of thinking in business schools.

You weren't asking me specifically, but I'll answer these two questions anyway.Two words: Oh Well. I most certainly have no expectation that a bunch of politicians are going to "fix" the tax system. They'll change it anyway they can according to what they want. In the case of Republicans, what they want is lower taxes for the wealthy + corporations because they have an incorrect perception that the wealthy + corporations are being treated "unfairly" and because the people that will vote for them agree with that wrong perception. In the case of the Democrats, what they want is higher taxes for the wealthy + corporations because because they know that the people that support them do so because those people agree that the wealthy + corporations are not presently being treated "unfairly". Both sides will attempt to help their buddies as much as humanly possible without hurting their chances of reelection.
I honestly don't understand why the fundamental tax burden shift is not obvious to you.

Let's take two people. Person A makes $50,000 and Person B makes $500,000.

Under the current plan, A takes home approx. $40,000 a year and B takes home approx. $450,000 a year (considering B funnels his income through a corporation to decrease his tax base - i.e. a loop hole).

Under your plan, A takes home all $50,000 and B takes home all $500,000. Meanwhile, A spends $35,000 on consumption-taxable goods, minus the $18k free-zone, that leaves $17,000 in taxable money - at the very conservative 20% you have suggested, that means $3400 in taxes. Or, a 7% tax rate.

B, on the other hand, spends about $100,000 of his income on consumption-taxable goods, minus the $18k free-zone, that leaves $82,000 in taxable money - at the very conservative 20% you have suggested, that means $16,400 in taxes. Or, a 3% tax rate.

Welcome to regression.

I question that "A" spends $35,000 on taxable goods under this plan. The plan that I am referring to uses retail spending as a base. I don't see "A" spending 70% of his/her income on retail spending. If that were the case, they wouldn't be able to afford a house, let alone a roof over their head.

Also, when I made $50,000/yr, my take home was less than $40,000.

I see where you are getting at, but I am not too sold on the numbers being used.

The problem, KMA, is it's complicated to do. But I've got 25 minutes while Simpsons is on, so here goes.
I'm going with a 4 person family where only one parent works, both children are under 17, the worker makes 40K, putting 3K into tax-deterred retirement plan, neither of the children has expensive orthodontia and the family doesn't give anything to charity...you see the problem. I agree that taxes as they are needlessly complicated (the manual for preparing your 2004 return is three hundred and twenty two pages) but that makes it difficult to analyze whether a national sales tax is better for the average family.

With taxes dropping so much under this plan, the government would be bankrupt in a few years.

I pulled numbers from thin air, as we seem to be doing in this thread - it's more philosophical.

I believe you may get the point: the more money you make, the less of it as a percentage you will spend on consumption-taxable goods. It's built-in regression.

O.K., I see your point.

However, doesn't one spend more if one makes more? Obviously there is no way to prove this, i just look around to emphasize my point. I shop at Wal-Mart and they shop department store. I justify this plan by thinking that the more money one has, the more one is likely to consume.

I know I would if I had more disposable income; in my dream world, I would be the perfect consumer for this type of plan.

So, with that thinking, it may not be regressive, if the consumption is enough (which, as I mentioned, there is no way to prove).

Certainly, people spend more if they make more - but not proportionally to the increase in the amount they make. That's why we have things like the stock market and 401k's and mutual funds and venture capitalists and various other forms of investment. Because the millionaire doesn't use as much, proportionate to their income, in toilet paper as the 25 thousandaire. They both use about the same amount. After the essentials, you have the "fun" stuff - TV's, cars, boats, etc. The millionaire is going to pay more for high-ticket versions of these things, but not enough more to come close to keeping pace with the disparity in incomes.

It's much easier to spend a million bucks than it is to make a million bucks. And a millionaire knows that. Their lifestyle will not be 20 times greater than someone making 20 times less. It'll be somewhere around 5 times greater.

(Again, I'm making up numbers to demonstrate the point.)

Well Manx, we are going to differ here because I don't know of any rule that says how much someone should pay in taxes. With either the current system, my proposal or any other proposal I have seen; the rich will always (b) make more than me and (b) pay more in taxes than I do. And "fair" is impossible to define in this realm. The rich person is always going to have more money than me, before and after taxes. So the question is, how much a burden should the "rich" have? Once again, there is no rule. I am not a redistributionist, so I am not in favor of the "rich" paying for me, I am in favor of me paying for myself. We could run in circles for hours about how much a rich person should make, and never, ever come to a conclusion. My bottom line: will the proposed system bring in enough money?

I looked at it back to front first. First, how much money do we need to take in? Then, where can we get that money that would be simpler and possibly more effective.

This system does just that, plus it gives a free ride to the poor--they will have no burden.

And, using my figures, the middle-class will pay less as well--a definite bonus in my book.

Add that together with a system that could (and these are assumptions): (a) be more succesful (b) Be much simpler (c) be harder to cheat (d) be more "fair" than our current one (e) and be beneficial to our economy as a whole which is beneficial to anyone that wants to do better with their lives.

I don't consider higher taxes on the rich as "paying for me". I consider it to be their paying for the priviledges they have gained in society.

I also do not know how much the rich should be taxed. I do know that they should be taxed at a higher rate than someone making less money.

As for the figures - I do not believe that eliminating the majority of the infrastructure we currently use to enable our tax system, will we gain enough savings to lower everyone's taxes - but even if that were true, I certainly oppose lowering the taxes of the upper class to something lower than the middle and lower classes.

1) What about the advantages we get from the rich? Who starts companies? Who invests in new technologies? Private enterprise always does a better job than gov't funded enterprises. Also, don't forget about the rule of first consumers, we all benefit, every day from that one.

2) With this system the lower classes pay nothing, so there is nothing to bitch about there (unless you are a redistributionis, which I suspect you are). The middle-class tax burden goes down, who cares how it compares to other income brackets, it went down. How can anyone complain about that fact?

I suspect that the root of these oppostions fall heavily into the socialistic realm, which I will never enter, let alone consider.

So far, from what I have seen, the advantages of such a system measurably outweigh the disadvantages. And they blow any possible advantages of our current system out of the water.

However, if you are coming from the belief system that I suspect that you are, no tax reform will be acceptable to you unless the "rich" pay marginally more in taxes than they are doing now.

I don't throw my support behind a system using those ideals. My checklist is much more specific and devoid of ideals. It's more of a "works or doesn't work" kinda thing.

Those are not advantages afforded the non-rich. Those are supposed to be equal trades - a rich person gives work to a non-rich person, in exchange, the rich person collects most of the profit for the labor of the non-rich person. What I am referring to are true advantages - things that rich people are able to do that non-rich people are not, and in the process only the rich person gains. Most specifically I am referring to political power. Money buys political power (in the U.S. we mainly call it lobbying, in other countries we call it bribery - that way we can pretend that we are not, in fact, the most corrupt nation in the world). The political system of this country is managed by rich people, because they can afford the costs of "membership". In exchange, the non-rich people are given a "voice" via the lowest-common denominator producing election system. Non-rich people are given a choice of vicariously electing various rich people (now, there is the rare occasion where a non-rich person becomes elected to a position of ample power, but this is the exception, not the norm). The rich people then set the agenda, enact the regulations of the society and produce the media that the non-rich people consume to determine the "facts" they use to elect another rich person. This incredible power disparity is not effectively offset by higher taxes for the rich, but this power disparity must be included when discussing what is "fair" and what is not in regards to paying for our society.
For all of the above. And additionally, I do not see the overall mechanism by which all taxes would drop - you have mentioned various assumptions of explosive growth eventually rising from a consumption-based tax system. I am not sold on those assumptions. So, I see the system as nothing more than an almost 1 to 1 shift of taxation - $1 goes back into the rich man's pocket while almost $1 dollar comes out of the non-rich man's pocket. But even if we make your assumptions on growth, that still does not address the power disparity brought about by the progressive wealth structure of a capitalist society.
I would be open to addressing the power disparity of capitalist systems via other methods besides a progressive tax system. If there is some way of muting the power disparity while also flattening taxation, I would be all for it. I firmly believe in working hard to earn your way through life. But since the cards are stacked in favor of the rich - beyond simply the money aspect - I cannot ignore it by focusing solely on the financial aspect. If you are closed to investigating deeper into the needs of a socialistic remedy to power disparity, then there is not much more to discuss.
In that case - what we have now has been working for decades. Maybe with some minor tweaks here and there it will be fine for decades and decades more. Why throw it all away if all you're looking for is the success we have already proven?

First, I have yet to see anyone back up the claim that our current system is fine and fixable by a few tweaks. The data arguing this point is huge and backed up by pretty much anybody.

What I don't understand is that you point out problems that we have under our current system and then say it is fine. The disadvantages claimed by you were created, or at least allowed to grow, under the system we currently have, so I don't get that argument at all.


Also, for the record, a consumption tax is NOT a REGRESSIVE tax. It would be a proportional tax if it didn't have the rider in it for lower incomes. Since it does account for lower incomes and provide for "free spending", it is, by economic definition, a progressive tax. By this I mean, the rich will pay more than the middle-class, the middle-class will pay more than the poor. Proportionately, the rich may pay a lower percentage of their income, but that fact does not come into play when defining a tax as "regressive", "Progressive" or "Proportional". (yes, non-economically speaking, it may be similar to the definition, but that definition is not accepted in economic circles).

/silently wishes onetime2 was around, sometimes his input is invaluable, but I understand the absence and wish him the best of luck

I'm not suggesting it is fine - I'm a proponent of an idealistic solution (as in all things, I am a perfectionist). You discounted idealism and stated you were only looking for "what works".

Well - what we have works. So I don't understand why you would want to implement such drastic changes unless you view it from your own idealistic perspective.

As I have pointed out, I disagree.

I can say that my ideals do not come into play when I say that the current system is broke dick and in need of replacement.

When every attempt to simplify the system makes it more complex.

When thousands of taxpayers lose out on millions of dollars because they don't understand the system.

When 46 tax professionals come out with 46 different answers, with a difference being more than $30,000....for the same tax return.

When the gov't itself admits that nobody understands the system.

When the amount of taxpayers increased 12%, but the number of calls to the IRS for help tripled.....even with the advent of custom software to prepare taxes.

I say the system is broke and broke bad (poor english on purpose).

On that same argument, I will also admit that there is no "perfect" tax system that will please everybody.

I then sacrifice some of my ideals for a system that would at least be an improvement to the one we have rather than give up and accept a monstrosity.

This system is so simple that only the people that need to pay attention to the warning label on a chainsaw that says "don't stop chain with hand" could be confused. Hell, even a flat tax would be an improvement over what we have now.

With a consumption tax, there is no more worrying about how the forms are filled out, were the correct deductions included, will the gov't accept this deduction and not this one, etc. Everytime you shop, you take a bite out of your tax burden. And the best part is that it would be a smaller bite than the one currently taken, for virtually all people.

Simplification for the sake of simplification is not a solution.

Although there are an assortment of real problems with our tax system - we are still the wealthiest nation in the history of the world. It does work.

It may not be simple, it may not do all that is should - but it works.

Maybe a complete overhaul is necessary to make it work and make it simple and have it do what it should do. I don't see that in the consumption tax plan. Primarily because it no longer does what it is a major piece of what it should do: target the wealthy.

Ah, I see you are up late too.

I highlighted this because it points out a fundamental difference between us, one that more than likely, cannot be breeched.

If you have read any of my other posts you should know that I would never subscribe to this philiosphy, nor would I propose or lend my backing to a plan that had the basis of "target the wealthy." Ironically, I am not even remotely rich, yet I do not lend credence to this thinking. By my own definition, I am a conservative economist who will someday be rich (yeah right, eh?).

It seems, my friend, that we have reached an empass.

I described my reasoning for targetting the wealthy in the first section of post #62.

I haven't had many people attempt to argue those points with me - typically, a conservative will stick with the common "fairness" aspect as it applies exclusively to money. (And, typically, a liberal will not attempt to argue those points, whether they understand them, agree with them, or not.)

Maybe someday someone will discuss it in the proper and full context: power.

Until then, yes - we have reached an impasse.

A very nice conversation it was. Thank you for broaching it and in the manner you did, KMA.

You know what's funny.

I knew I was spelling "impasse" wrong, but I couldn't even find the correct spelling at dictionary.com (empass and impass returned nothing, I forgot the damn "e" at the end).

See, a minor thing, but I am the wiser for it.

Enjoy your evening, or what is left of it. As my work for the day is now finished, I start my cocktail hour (early training for when I am good and rich).

Empass didn't look right - so I dictionary'ed impass first - got the same acronym listing. ;)

My evening is only getting started - gotta finish up some work here - early training so that I am good and rich.

Enjoy!

KMA,

Manx' definition of regressive tax (his example to you) was the definition I learned in my social inequality courses. That's the definition that social scientists use.

A regressive tax is understood to occur when a person's tax liability (as a proportion) decreases as their income increases.

I also double checked various internet definitions to see if there were common parlance usages. I couldn't find any that differed from the 'academic' definition.

Where did you learn your definition? Is it based on what you think regressive means (as in 'unfair') and progressive (as in 'fair')?


I used to speak to an economist when I ran his student lab. He was always talking about how to fix the tax situation in Oregon (it doesn't have a sales tax). He claimed that the best solution was to raise the groce receipt taxes. I can't remember if he was talking about grocery receipt taxes, but I think so.

If I have more time and can remember all the details, I can return and flesh it out. But I'm supposed to be working on my Master's right now!


There is strong historical evidence that capitalists will keep their wealth, not spend it. They need to invest it, first of all, in a capitalist society. Those are the rules of the game in order to keep the pie growing. They have to capitalize their profit. I don't want to remake the wheel, so if you happen to be in a library grab Empire by Hardt and Negri. They do a quick rundown of how this plays out. If you happen to grab that book, the pages are p. 222-228. I'll try to scan them later if I have time.


Also, how I define fairness in taxes is by how much resources one consumes. So I think people should pay taxes on the percentage commensurate with their wealth--not income.

I have posted in another thread explaining how I view the use of resources and infrastructure.

Briefly, workers subsidize the owners, not the other way around. This operates even outside the issue of infrastructure. For example, you asked about a number of things. The government uses public money to support private corporations. We call it subsidies or bailouts. This occurs when they want to do ventures, research drugs or many other technologies, and when they end up stealing from consumers (as was the case with S&L and energy scandals).

What I find interesting is that I have no problem with loaning or incentivizing corporations to research and develop. But once they hit something good, the public coffers should get a percentage of return. Either through straight repayment of capital invested, or via royalties. This is what any private lender does, so I don't see what the issue with that would be.

I would also like to see a particular tax on wealth that would urge reinvestment of the liquid capital. I believe this is the foundation for property taxes, to urge people to use the land productively and not just sit on it. And I don't think our society has a moral or fairness issue with property taxes as long as they aren't putting people out of home. So I think our public would be willing to come to terms on a wealth tax on the same premise.


Philosophically, or theoetically, we should encourage people to invest, but not punish them if they choose to consume. We need consumers to keep the pie of capitalism warm. Taxing on consumption seems to penalize consumers for what we need them to do.

I'm not convinced that we can restructure our tax code to reduce taxes for everyone. Some things I've read make me doubt that to be the case, but mainly I just don't want to risk a shift that large without some positive evidence.

I would consider meeting part-way, however. For example, if we used a self-sufficiency standard instead of the current poverty threshold, I would be amenable to a consumption tax to see how it pans out for temporary. That would mean that in Orange County, you would agree to exempt my first $38,000. That is the researched figure that I would need to meet my basic needs: housing (2 bedroom for a family of 4), food, clothes, transportation, & etc, That amount doesn't allow me to go hog wild out on town. Housing wacks about 24K right off the bat. So you can start thinking to yourself how far the other 14K would get me--especially if you want me to save for my healthcare and retirement each month (and childcare hopefully). Whatever disposable income I have left would be spent on necessities.

All this so I can continue coming in to work each day. And the less stressed I am, the more productive I am liable to be. Given that I create the profit, making compromises like this seems to be in their long-term interests, as well.

From Roger Miller, economist

granted, this definition refers to a Flat Tax, not an NST. However, if we read further down:

The social security tax is an example of a regressive tax, because it is capped at, I believe, somewhere around $80,000 of income. After earning $80,000-something, you pay no more. That is a regressive tax, this one isn't. A consumption tax doesn't neatly fit into either category, but it most closely resembles a progressive tax as there is no cap, and the more you earn, the more you pay.

/yes, happy hour is extending late tonight

First, you have to re-do your numbers to match the plan I am referring to, as housing would not be included. I believe that healthcare would be exempt, but I will have to check.

So, I think that the $38,000 number would be a wee bit high. Anyway, the idea behind any threshold is to be more "fair".

By the way, I was wrong about housing:

Here is more on the regressive concept, from the same site:

Source

It's nice to say it requires a different analysis of regressivity because it is a different paradigm, but that doesn't really mean a whole lot.

In the example I gave above, Person A/Person B, the 7% and 3% tax rates are not real tax rates, the real tax rate is 20%. The 7 and 3 are comparative tax rates to the income-based tax system. In essence, we look at how much consumptive tax is paid by each person and view that as a percentage of the income. It certainly is an analysis along the lines of our current system applied to an entirely different system. But at the same time, the result of the analysis is applicable as a comparison to our current system.

As your source stated, consumption spending does not increase equivalent to an increase in income, which I have mentioned a few times now. It offers a remedy of adding in an essentially arbitrary number (poverty level) to bring back some of the progressivity it had eliminated. The effect is nothing more than an artificial crutch for the failings in the consumption-based tax plan. Maybe there's a term for it, but if you think of a curve on a graph, the arbitrary number simply levels out, flattens, the first segment, then the curve continues on it's way, unadjusted. (The curve being the regressivity of the tax system.)

Maybe smooth's suggestion of localized cost of living would be more applicable than poverty level - but it would still be an artificial crutch for the system.

Speaking of this arbitrary number - where did they come up with the poverty level as the number that would be appropriate? If the system is based on consumption, why is the "fix" to the flaw in the system a number based on income?

Adding sales taxes to houses and rentals would be terrible. Real estate is one place where prices will not go down. All of a sudden your amount financed goes from 200k to 240k.

To make things worse it would only apply to people who purchase a house AFTER the tax goes into effect, meaning first time home buyers and current renters get screwed the hardest. The only way to remedy that would be to retroactively add a tax to all currently owned homes. As if that would happen.

Keep in mind that it isn't the "more you earn, the more you pay," but rather the "more you spend the more you pay."

My main point about the poverty "fix" is that the current threshhold is artificially low. I don't like the plan you are outlining, but if it were to work in any way, the poverty threshhold would have to be reevaluated.

Diana Pearce is a sociologist on the faculty of the School of Social Work at the University of Washington. She created the Self-Sufficiency Standard when she was Director of the Women and Poverty Project at Wider Opportunities for Women in Washington DC. If you google her name and "self sufficiency standard" you'll get a lot more info on this aspect, which I hope you'll find interesting and illuminating.

Here is an exploration of the NST issue from the other side of the aisle:

---http://www.ppionline.org/ndol/print.cfm?contentid=1398

KMA,

do you see why Manx and myself understand the NST to be a regressive taxation structure?
Do you agree with us?

The article you provided doesn't dispute the regressive nature of the NST, but rather attempts to patch it to reduce the regressivity within it. It's important to note who the audience of that position paper is directed toward. The assumption made before the model was created is that someone is paying too much tax. So the model attempts to answer the question of how do we reduce the tax burden on that particular payer and implement a more fair system.

The attempt is not to reduce taxes for everyone. I didn't see it in that paper, but hopefully CATO didn't say it would--because that would put them in a pretty untenable situation. I was surprised when you asked how this would negatively affect the middle class. Restructuring the tax burden is not going to lower taxation for everyone; instead it will move that burden around because it is a discussion on where, not whether, the burden should fall.

When I say something like that study came from CATO or this one comes from the Progressive Center, I'm not asserting one should reject one in favor of the other based on that information. But one must evaluate the assumptions the authors are operating under and who their target audience is. Neither the CATO position nor the Progressive Center's position is attempting to solve an objective problem. They are both trying to solve a problem for their respective audiences.

Without knowing your specific income situation, I can only guess whether you are the intended audience of the CATO Institute. Have you taken all your receipts from the past ten years (including housing ;))? That average would give you a more clear picture of your expected burden. But if you don't have those figures, at least roughly figure the past few years before deciding that you wouldn't be economically harmed by this shift.

If you find that you are not, it's important to realize that the goal of this position is to reduce the tax burden on the wealthy. If your taxes are reduced and/or remain stable, but the wealthy taxpayers' burden is reduced, then we need to add a new phenomenon into the equation: where does the government make up lost revenue.

The historical answer has been to increase fees. So this means that if you like to go to national parks or go gaming or other recreational activities, you might pay $60 dollars for your fishing license instead of $24. Park entrance rises from $10 to $30 per day, for example. These costs need to be figured into your share of the burden of the cost of government services.

Another part that needs to be figured is how state's will receive money. Will they charge a per usage fee for police assistance, or will they just raise overall rates?

Now, it's important to watch where the position claims loss of revenue is going to come from. They may claim that there will be no loss of revenue. That is, maybe the market will produce enough to make up for the loss. But we can look at the historical record to interrogate the probability of that. The important thing to note is whether the position gives a good enough account of where the increase is going to come from. Even if the position believes the market will make up for the decrease, it ought to provide an alternative scenario in case the market doesn't adjust or provide enough. If it doesn't, why not?

Abolish the IRS and break all ties with the Federal Reserve Bank for starters.

Here's a few sources to view the different angles.

1

2

3

Sun Tzu beat me to it. The more I slowly learn about the Federal Reserve system, the more disturbed I become.

The bottom 50% of the income scale in this country already pays no income tax!

How many people should the "rich" be saddled with supporting? And while we're at it, what's today's definition of "rich?"

Because so many jealous people want it.


You've come to the wrong place. My estimation is that 75% of the people here think they're entitled to the money of anyone who makes more than they do. There's no shortage of comments in this "Politics" area of the desires for, and plans for, other people's money.


"The state is that great fiction by which everyone tries to live at the expense of everyone else."
-Frederic Bastiat

He died in 1850, but a lot of people today still don't understand that concept.

Although I won't swear it isn't an urban legend, I once heard of a company that got so pissed that it began paying its employees in cash.

They would line up, receive their cash, and as they moved down the line, they would have to put their taxes into different boxes (Federal, State, Local, Unemployment, Disability, Social Security, Medicare, etc.).

As the story goes, the employees raised such an uproar that the IRS demanded that the company knock it off.

If it didn't happen, it should have.

I already mentioned that in another thread. The answer I got was that "things are different now."

Haven't you heard? A couple of years back, they directed us to make the checks out to "US Treasury." I assume it was because the IRS was exposed in all its glory during the abuses hearing.

That's exactly what happened under Reagan. Unfortunately, we were unable to limit spending increases to 5% a year, so the deficit went up.

That's where we differ. "Gain" is inaccurate when it means I get to keep more of MY money. "Who gets to lose less?" would be accurate.



As far as the "No thanks" comment. May I assume that you're declining anything that means less of other people's money winds up in your pocket?

I am impressed with the homework you've done. I'm also certain that no one who receives other people's money is going to listen to anything that might eliminate their free ride.

Here's something that backs up a lot of your points:

http://www.townhall.com/columnists/j...20040809.shtml

JACK KEMP COPLEY NEWS SERVICE
It's time to scrap the U.S. tax code

August 11, 2004

In the last few weeks, talk of President Bush's soon-to-be unveiled second term economic agenda has shifted, for the first time in a long time, to a discussion about fundamental tax reform.

First there was the release of House Speaker Dennis Hastert's new book in which the Illinois Republican explains that taxes account for 23 percent to 27 percent of the cost of our goods and services, putting our corporations at a competitive disadvantage with our trading partners. Thus, he argues, "For us to return capital and jobs to the United States, we're going to have to change our present tax system and adopt a flat tax, a national sales tax, an ad valorem tax, or VAT." I agree we need to fundamentally reform the tax code, however, I have always worried that a VAT is too easy to increase, which we have witnessed in Europe.

Later in the week, Sen. Sam Brownback, R-Kans., said that President Bush is committed to a growth platform, and that "you'll start hearing him talk about a flat tax, really getting the tax code out of so much impact over peoples' lives."

Alan Murray wrote in The Wall Street Journal that the Bush administration is taking another page from the Gipper's playbook – tax cuts in the first term, tax reform in the second.

If fundamental tax reform becomes the issue, and I believe it to be a huge issue, it is important that we clearly articulate what exactly that means. By 1986, Ronald Reagan succeeded in bringing the top marginal tax rate down from 50 percent to 28 percent. But, the mistake made was increasing the capital gains tax rate to 28 percent and treating capital gains as identical to ordinary income. The result: capital gains tax revenue, which was greater than $165 billion in 1985 dropped precipitously to $116 billion in 1992.

In 1996, the last time fundamental tax reform received a concerted public hearing was when I chaired the National Commission on Economic Growth and Tax Reform – the Kemp Commission. We ultimately decided the income tax system was "impossibly complex, outrageously expensive, overly intrusive, economically destructive and manifestly unfair" – in short, we concluded the best course of action was to scrap the code altogether and tax all income, but tax it only once – this would radically simplify taxation and create the conditions for long-term robust economic growth.

Since the Kemp Commission, capital gains tax rates have been reduced twice, in 1997, and again with the 2003 tax rate reductions, thanks to President Bush. Individual income tax rates have also declined as a result of the Bush tax cuts, but the current top rate of 35 percent is still well above the 1986 level of 28 percent. What's worse, the pro-growth elements of the 2003 tax cuts are set to expire, with some provisions expiring at the end of this year.
Moreover, we still have a tax code that begins with an overly broad definition of taxable income. As a result, we have been forced to create a number of deductions, credits, exemptions – what John Kerry would deride as loopholes – to try to ameliorate some of the perverse disincentives from such an ill-conceived cradle-to-grave, redistributionist, social-engineering-focused tax system.

The system is still impossibly complex, outrageously expensive, overly intrusive, economically destructive and manifestly unfair, and we should still scrap the code.

If we cannot scrap the code outright, then we should, at a minimum, make permanent the 2001 and 2003 tax rate reductions; we should continue to reduce the double and triple taxation of savings and investment; we should reform the increasingly destructive alternative minimum tax; we should bring down the individual income tax rates to at least 1986 levels; we should reduce our level of corporate taxation to become competitive internationally; and we should enact National Enterprise Zone legislation to demonstrate the powerful economic impact of fundamental tax reform.

Surely the first objections of deficit hawks in both parties will be that we can ill-afford another round of tax cuts. To them I would say, listen to the sound advise of John F. Kennedy who argued in 1960, "It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget, just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records."

My question is why isn't John F. Kerry listening to or at least reading John F. Kennedy?

Once again, KMA-628, my compliments on a well-thought out post, which generated a great deal of discussion.

However, I only had to read the title to think "You'll talk a dog off a meat wagon faster than you'll get our redistributionists to agree to keep their hands off other people's money."

As Abraham LIncoln said, “You can never build a man up by tearing another man down.”

to everybody, thanks for the input, I took a few days off for the holiday (with another break coming up for my son's b-day on Sun.)

I have not had a chance to check out any of the links posted, but I will as soon as I can.

Smooth -

I read your post, but haven't had time to draft an appropriate response.

Sob -

Thanks.


A couple of quick things:

1) I had a talk with an old "friend" who is an economist in the academic sense. I don't really talk too much to the guy because we differ on many different aspects of the economy. Anyway, I asked for his opinion regarding the "regressive" idea of a consumption tax. His answer, and he is a decidedly liberal economist, is that regardless of how it looks, the low income riders make the plan progressive. The theory behind it is that most affluent people will always pay a higher proportion of their taxes because of the free ride that the lower incomes would get. A half of a percent would still be higher, propoertionally, to zero percent.

I kind of look at it this way: if it looks like a duck, walks like a duck, quacks like a duck, it must be a penguin.

2) As is obvious, I am in favor of taking strong looks at any proposal that involves replacing our current system. The evidence is just too vast against giving our system another "chance". At the onset of my research, I would have to say that I leaned towards the consumption tax as opposed to the "flat tax". I think my biggest reason had to do with the potential of the IRS to be abolished; that made any proposal look good in my mind.

That being said, after several discussions over the holiday with some extremely bright, but very liberal family members, I think that the "flat tax" needs to be looked at closely as well. I am wondering if it would be an easier transition as compared to a consumption-based system.

Anyways, it is better to be openly discussing the options rather than to be silently accepting a system that is flawed down to its very core.

Also, I found a couple of studies related to potential economic benefits. The numbers looked very good and I will post the study info when I have more time. The only problem I had with the studies is that they were not very current (i.e. pre-recession and pre-9/11).

Oh yeah, one more thing:

Smooth -

I only keep receipts related to my taxes, nothing else. The (what seems like) daily trips to Wal-Mart get discarded once I see that nothing needs to be returned.

On that note, I would like to look into maybe getting a research grant to do a long-term, in-depth study of the idea. I would like to have a cross-sampling of people who's finances would be scrutinized (over, maybe, five years) to see how they would be affected by (a) the current system, (b) a consumption-based system and (c) a flat tax.

I did want to respond to this one directly.

This may sound harsh, but it doesn't really matter, unless the screamers make for a significant majority.

I look at it this way:

Nobody likes taxes or the theory of taxation, but most understand that some means of taxation must exist.

There isn't any proposal that I could make or someone else could make that would be accepted by everybody. Regardless of the plan, somebody is going to have a problem with it.

When our country moved from mainly excise taxes bringing in the revenue to the beginnings of the system we have to day, there were people that screamed, kicked, moaned, griped, etc. about it.

Just to reiterate so we aren't talking past one another:
Your initial source was claiming that flat taxes weren't inherently regressive. They are, however, and that's why patches need to be implemented to make them resemble a progressive tax structure.

Once those patches are in place, even liberal economists (and perhaps some of us other social scientists ;))can be mollified. But the riders make it so, not the structure itself. So a couple of things:

a) I agreed that if we were to implement this new kind of structure, I would compromise in the following way--by making sure our measurement of low income people was accurate. That is, a self-sufficiency standard rather than our current outdated poverty threshhold.

b) we need to be watchful that those riders are swept out from the bill in its last implementation and/or taken out in the future when the public isn't paying attention and the code can be changed. Because the tax is regressive, but the riders correct it.

You may not have all your receipts, but the article I posted from the Progressive Institute claimed that even $75K families would benefit. If you're married and making dual income or something, you probably fit around there somewhere.

I would be concerned if I made between 18K (current poverty threshold for family of 4), 38K (self-sufficiency standard for my area), and 75K. My guess is a lot of people fall in the $30K to $75K income bracket, but I haven't looked it up on the census data.

I thought I'd bring this one back up, since the book by talk show host Neil Boortz and Congressman John Linder is now out and selling pretty well.

I've read it, and while I was already inclined to believe that replacement of the current tax on income with a tax on consumption was a fairer way to raise money (so long as there were rebates to insure the poor were not hardest hit), I'm even more in favor of it now. Many of the objections raised by critics are addressed, and I'll touch on a few here.

1. The rich won't pay as much is cited as an objection. Well, if they spend, they will, but let's say they save and invest instead of eating more than at the poverty level. The saved money will be available to be lent to someone that IS spending, buying machinery or equipment and paying the tax on the purchase. Or maybe it will be invested in adding help, thus creating more jobs and thus more wager earners to spend the money.

2. The problem with the home mortgage and chartiable deductions disappearing is really no problem at all for anyone that has thought it through. Those deductions, as well as virtually all others, are deductions or credits against INCOME, lowering the amount of INCOME tax being paid. Since there is NO income tax, there is nothing to deduct against.

3. It will drive up prices is a fallacy. Yes, there will be a 23% tax on goods sold at the retail level, but there already IS an embedded tax on everything we buy in the store anyway. Take chicken soup, for example. The grower of the bird is taxed on his income when the bird is sold. The maker of the can and label is taxed. The soup maker is taxed when it is sold to the supermarket, and the supermarket is taxed as income when the can is sold. All those taxes along the chain drive up the cost of the goods by about the same 23% we'd be paying under a national sales tax. Remove the taxes from every step in the production chain and the prices go down at the retail level.

4. The idea that some will cheat a new system is advanced but is laughable, given the lengths that folks go to now to avoid and evade paying taxes. A national retail sales tax will be more efficient, since Target and Best Buy are already collecting a sales tax in most states, and they aren't going to collude with a taxpayer--a customer--to cheat, since they get a small percentage of what they bring in for collecting it.

That's enough for now. I don't think the FairTax is a perfect system, and probably can't defend all objections to it, but I will be willing to see if a specific objection is covered in the book and try to address it here.

How in the world do you plan on tracking this?

Strangely, all of my large-budget shopping will consist of me giving a Gift to someone, who happens to give a Gift back that is roughly equivilent in value.

Oh look, I just avoided taxes! *gasp*

Secondly, Estate Taxes are an attempt to make the people with large amounts of financial power in the USA be those who earned it in their lifetime, as opposed to people who inherited it. Unlimited inherited power is a cancer on society.

I propose replacing the current income tax with a flat 1% income tax! Look, the number is small, only 1%!

=p~

Making up a bogus low number does not make your proposal more viable.

Thus, in order to pay for the current Federal government, you need to tax 29% of the current economy.

Demonstrating what the massive tax upheval would do would be tricky, and not something you have gotten anywhere close to.

Right now, the Federal Government takes in roughly as much as it spends. It takes this money in in taxes.

Numbers which, as far as I can tell, have no basis in reality.

I do not believe you. There is every reason to believe that if you increase the portion of taxes that the poor and middle class pay, they will be hurt more by the plan. Consumption of goods/services tends to be higher, as a portion of their income, in the poor and middle class.

You might want the poor and middle class to carry more of the tax burden. That is fine. But claiming that making the tax burden regressive won't hurt them at all seems dishonest.

Secondly, income disparity itself causes harm to a society. It doesn't take a genius to notice the correlation between income disparity and crime.

Honestly? I'd suspect the democratic party would find another niche. And there would be bloody revolution in the streets.

The US has been close to bloody revolution in the past. Machine guns where used by the government on people who protested the distribution of wealth.

There is a name for a society in which the power and wealth are monopolized by a handful of families. It is called feudalism.

So, from what I can tell, your plan is:
1> Implement your system
2> Expect HUGE AND MASSIVE MIRACLE ECONOMIC GROWTH!!!!!!
3> Pay for your system

Just so we can be clear? In other words, without step 2, your system does not work?

I do not understand. Do you expect a drug dealer to pay taxes on the drug sales he makes? A theif to pay taxes on the goods he steals?

There are two transactions.

1> The worker in the illegal industry earns money (illegally)
2> The worker in the illegal industry spends money (legally)

The transaction <1> is not taxed often, because the illegal worker does not declair his income. (note that some criminals pay their income taxes, in order to avoid tax evasion charges)

The transaction <2> is often taxed, because the reciever pays income tax and sales tax on the goods.

I do not see how your system changes any of this.

I'm assuming your consumption tax is rebateable if you later resell the good?

I'd be all for consumption based tax.

I rarely spend my money. I'd love to save save save and dump it all into Roth IRA.

God that'd be amazing...

Doubt it will happen though.

You're kidding, right? Please tell me you don't really believe that.

Let's make it simple. The govt gets X dollars in taxes each year. Y comes from people directly through income, estate, etc. and Z is the hidden taxes. The price you pay for goods is equal to the cost (A) plus the 'hidden taxes' (Z).

The fair tax isn't some magical system whereby the people pay a sales tax and suddenly the hidden taxes aren't needed anymore. They aren't getting it from business, so it falls to the people. Therefore, even though the prices look lower, they still cost you just as much.

Of course that also assumes that when business costs fall by the amount Z that they pass ALL of that savings over to their customers and do nothing to hook up their investors. In reality they will take a portion of Z and add it to A to make them happier. Good news, now the people pay more taxes (unless you are one of the few that don't live paycheck to paycheck) and the cost savings are partially offset by increased investor income.

Great system. Only the truly dense can love the fair tax.