There is No Such Thing as a Fair Tax
Writes Laurence Vance: Syndicated talk show host Neal Boortz and Congressman John Linder (R-GA) have joined forces to write a book on the FairTax Plan—a proposal to replace the current system of federal income taxes, corporate taxes, Social Security and Medicare taxes, capital gains taxes, gift taxes, and estate taxes with a national sales tax on new goods and services that does not reduce the government's overall tax revenue. They have never been so right and never been so wrong. [FULL ARTICLE]
Comments (485)
"If you have someone over for dinner and they talk about tax fairness, check your silverware before they leave!"
Published: December 11, 2005 2:07 PM
Mr. Vance,
I very disappointed. You must have been writing this article since your last one has lost its authority and has become widely known as misinformation. You start off this article by attacking the authors of the book who had no hand in the creation of the FairTax. Then again you present many half-truths and misinformation in your article.
You are attempting to undermine a proposal that would be eliminate the INCOME TAX and the IRS, eliminate the $250-$500 BILLION compliance burden, would increase the economy's GDP by 10.5% within the first year, double it within 15 years, reverse the trade deficit, and you offer no solution. You are either part of the problem or part of the solution Mr. Vance. Without any proposed solution in your hands you are doing nothing but supporting the current income tax code. Thank you,
Tom Leser
FairTax Volunteer
www.fairtaxindiana.net
Published: December 11, 2005 3:40 PM
In his critique of Neil Boortz, Laurence Vane made this remark:
"... Boortz prefers the national sales tax to be included in the price of each item—so the consumer doesn't realize that he is really paying an extra 30 percent in sales tax, not Boortz's new math amount of 23 percent."
There is a serious problem with statement arising from the fact that consumption can never be taxed. Sales tax cannot be passed onto consumers in form of higher retail prices. If all firms were able to pass their costs forward no business would ever go bankrupt. What prevents businesses to charge these higher prices before such tax is introduced?
Real market prices are formed by free agreements between buyers and sellers. Relative strength of these negotiators determines these price outcomes. When a sales tax is imposed, sellers must still face their current demand and prices, swallow that additional cost, lower their retained earnings, and hope it will not drive them out of business. Therefore, all sales taxes are de facto income taxes.
Boortz's "fair tax" would not be a 30% consumption tax, but rather a 23% income tax. A price increase induced by a national sales tax would only happen with a corresponding drop in supply, and only for those markets in which sellers currently pay lower income taxes.
Published: December 11, 2005 3:49 PM
Another important implication of the "Fair Tax" proposal is the transformation of tax-collecting agents. The "Fair Tax" act states that sellers themselves would become tax collectors and they would even get the government's checks for this service. Since customers do not pay a sales tax (sellers do), this means that firms would get paid to monitor themselves. At the same time, these same firms would have a large incentive (23% of their income) to evade these taxes.
Tax evasions would be much more difficult to control in a national sales tax system. According to the "Fair Tax" proposal only the sellers of final goods would get taxed. Unlike a value-added-tax system in which input producers have a real tax incentive to control and report someone else’s taxes, in a "Fair Tax" world the government would have to only guess about the amount of inputs purchased and the total output of final goods and services. This provides a great opportunity for businesses to save 23% of their income.
Ironically, many positive aspects of the Fair Tax act lie in its ignorance of basic economics.
Published: December 11, 2005 4:39 PM
I am with Ron Paul (R-TX), "The real issue is total spending by government, not tax reform."
Discussing the FairTax is dodging the real debate about government spending and central banking.
Published: December 11, 2005 6:26 PM
I agree that the real issue is total spending by government, but we can't just stay silent to tax-reform propaganda. I am also concerned about the ability of government to plunder our money. If this plundering (taxing) mechanism is inefficient and does not provide enough booty, big government will have to finance itself through deficits and inflation (more sophisticated plunder). But as Austrians know, increased inflation would act destructively and reduce our ability to finance this huge government's spending.
In order to send a convincing message about the evils of government's spending, Austrians have to analyze negative effects that go beyond simple thievery. That's why it's important to understand and explain mechanisms and consequences of different tax types.
Published: December 11, 2005 7:25 PM
"There is a serious problem with statement arising from the fact that consumption can never be taxed. Sales tax cannot be passed onto consumers in form of higher retail prices".
This statement appears to be empirically false. Here are some actual examples:
Massachussets has no sales tax on childrens clothes. A flight attendant friend who lives in LA buys all her childrens clothes in Boston. The price in WalMart is the same. The difference is in the sales tax.
Check out internet stores. Same price nationwide, with the exception that if you live in a state where the company does business you get dinged for sales tax.
Why do people who live in New York buy cigarettes from out of state?
Published: December 11, 2005 7:53 PM
Tom Leser @ FairTax Volunteer said,
"You are either part of the problem or part of the solution Mr. Vance. "
Mr. Leser's statement sounds very familiar. Where have I read that before?
http://en.wikipedia.org/wiki/False_dilemma
Also, I believe Mr. Vance is correct that taxes are not being reduced or eliminated. A visible tax is being replaced with a less visible tax. I prefer the visible tax so I can hopefully avoid it.
Published: December 11, 2005 7:57 PM
Walt D,
Do you suppose I'm suggesting that a single internet company will post same product for different prices, based on geographical location? Aside, from a public outrage, that would constitute illegal price discrimination (because our bright politicians do not understand Aristotle and Carl Menger, and believe that sale's tax will be simply passed to consumers).
Are you suggesting is that in a free market competition, sellers would not drop their prices, even if their going out of business and their stuck with surplus? No comment.
Prices of cigarettes in New York reflect their market conditions. Most of New Yorkers no not buy cigarettes elsewhere, and that's the reason for higher prices there. And many people will travel away from big cities to get their goods cheaper, just like some people move out of Manhattan and buy less expensive houses far away upstate.
----
Siggyboss,
Austrian theory of value clearly explains why a national sales tax would be totally visible to suppliers of final goods and services.
Published: December 11, 2005 8:24 PM
Tom:
We are all disappointed. For not only is Vance undermining a proposal that would do the amazing things you mention. Boortz says it would also
- "send the American economy into warp drive."
- "bring a period of transformation and economic growth to America such as has never been seen before."
- create “Millions of new jobs"
- increase "capital investment … by a staggering 76 percent,"
- cause "interest rates [to] decline by almost 30 percent,"
- "create a financial bonanza for the poor and the middle class."
- "all but eliminate the tax burden on the middle class."
- "give the average income worker a 50 percent increase in take-home pay."
- be "all benefit and no burden [to the lowest income earners]."
- Provide "money left over" for the poor "to invest in their own futures."
How can anyone argue against a tax program with such benefits? And imagine all this will be accomplished without a single reduction in government expenditures or a reduction in its meddling in the economy. As Boortz puts it, “It's simply a plan to change the way Americans fund their federal government.�
On second thought, I’ll have to go along with Vance in this assessment:
“The book should therefore be discarded…�
Published: December 11, 2005 8:42 PM
The article is very bad. Let's look at the lies section:
Lie #1: taxes would be voluntary under the FairTax.
The article is attacking a strawman here. Yes, you would still, at some point, if you want to eat, end up paying taxes. But the point Boortz tries to make is you would have much more control over your tax burden. Imagine if the government shifted all taxes onto Teddy Bears. That tax would certainly be more voluntary because you have more power not to buy teddy bears than not to buy retail items at all. But according to Vance, such a tax shift would be a HORRIBLE idea, because it's still a tax! And the world is black and white!
Lie #2:the FairTax rate would be 23 percent.
Not a lie. The book is very clear that the purpose of quoting the 23% rate is for an apples to apples comparison - it has the same burden as a 23% income tax. Apparently, Vance missed that part of the book.
Lie #3: the FairTax would abolish the IRS.
Okay, I'll grant this is a lie. Someone still has to administer revenue collection issues, and that organization would, effectively, be the IRS. But this ignores the more important point that far fewer people would have to deal with the IRS and be at risk of having to suffer their punishments. Again, looking at things in black and white.
Now, looking at the problems section: The FairTax hides the amount of sales tax being paid.
No, it's printed on the receit. Next?
The FairTax is progressive.
So is the current tax system. Way to use marginal analysis there.
The FairTax is an income redistribution scheme.
The FairTax does redistribute income, as does the present system. It is not a scheme for that specific purpose.
The FairTax creates new tax collectors.
Sure, and it also eliminates some -- all the people who fill out a 1040 but don't personally run a business (that's a lot of people!).
The FairTax creates new taxes.
It creates a new tax; taxes implies specific items being targeted, which they are not. Particularly dishonest is "Want to attend a baseball, football, or basketball game? Better save up a little extra to take care of the FairTax that will be imposed on your tickets." since you pay increases by the same amount.
The FairTax makes it easier for the federal government to raise taxes. All Congress has to do is slightly increase the initial 23 percent rate.
Right, and it could do the same thing with the income tax today.
The FairTax makes it easier for state governments to raise taxes.
And the current tax system makes it easier for states to raise income taxes.
The FairTax has unknown and potentially huge transition costs.
As does any substantial change in laws, including eliminating them. Better for bad laws to persist, right?
The FairTax makes certain exceptions while supposedly having none.
Sure, but it's far fewer than the current code; why not reset the clock?
I could go on, but most of this is just bad, and it keeps making the same error of letting the perfect be the enemy of the good. Sure, Boortz doesn't advocate the abolition of the government, so I guess he's just as bad as the rest of them. Please.
Published: December 11, 2005 9:01 PM
To explain the issue further:
Current level of supply and demand cannot be held with prices above the real market level. When additional sales tax is imposed, some suppliers will not be able to swallow this additional cost and they will be driven out of business due to this income tax. Only in that case we can have an increase in market prices.
If most of New Yorkers went elsewhere to buy their cigarettes (holding their current demand), companies would eventually reduce their supply, driven out of city. A price increase can only occur only when some percentage of suppliers is driven out of business or when some sales are driven out of domestic market. But that's exactly the effect of an income tax.
If we imposed a higher income tax for tobacco earnings in New York, there would be an identical effect to this "sin tax". Some suppliers would be driven out of this market, just like companies are driven out of the USA by our income taxation. Like said before, in case of the Fair Tax Act, those sellers that currently pay lower taxes would have their incomes reduced, have a greater risk of going out of business, and we would have a decrease of aggregate supply in these markets.
It’s just an income tax, wrapped differently.
Published: December 11, 2005 9:08 PM
For libertarians, taxation is theft, and its avoidance, legitimate. Thus, a more visible theft is better than a non-visible theft. Also, it is better to have a tax that is easier to evade.
Those heroes (yes, they are heroes since they are fighting a killing-stealing machine) who avoid paying taxes will have a much harder time doing so under the Fair Tax since there would be a lot less fewer exceptions and loopholes.
If a robber comes to your house to steal your property, I personally would prefer for my stuff to be taken all at once instead of little by little, since there's a better chance to stop it. So, again, the problem is taxation, and not so much how you tax.
Also, this Fair Tax increases central control of government, decreases federalism (whatever that means these days), and is also unconstitutional (again, not that it matters, but since we're playing the "legal" card...). If it was ever possible to be in states with low (or no) income/sales tax, the Fair Tax totally shatters possibility. Moreover, the problem over the last hundred or so years has been the increasing centralization of power. The Far Tax would hegemonize the states into one all-reaching central government. The libertarian prefers decentralization, even, yes, for taxes, if they cannot be avoided.
Published: December 11, 2005 9:12 PM
Person,
Look at this Boortz's claim: "taxes would be voluntary under the FairTax"
Of course they would not be voluntary. Actually, both tax types are similar in their coerciveness. In order to avoid paying or participating in sales tax we have to restrain from purchasing goods and services, and to consume only what we can produce ourselves. Likewise, we can escape paying income tax if we stop selling our own goods and labor services. Either way, voluntary market exchanges of goods and services are forcibly taxed. In order to completely stay out of each "voluntary" tax system one must abandon civilization and live a life of a Stone Age hunter-gatherer.
As far as IRS goes, I explained why a substantial national sales tax would call for even larger machinery of bureaucrats. Call it any way you want it, but a large bureaucratic mechanism will have to exist under a “Fair Tax� proposal. This tax scheme would try to turn almost every single seller of final goods and services in this country into a government-paid tax collector... But at the same time, these new tax collectors have a huge incentive to evade taxes and a great opportunity to successfully do it. This is why a larger control of quasi-IRS would have to take place, to spy on businesses, etc.
Not to mention the fact that every single household would receive a monthly check from Uncle Sam for “poverty-line� tax-expenses. There would also have to be a large control apparatus of this system in place.
I already explained why this tax would make US market less profitable and attractive for both foreign and domestic goods and services.
Even if we follow marginal analysis, the Fair Tax Act is not very good idea for what it tries to accomplish.
Published: December 11, 2005 9:33 PM
Doesn't the transition to FairTax punish savers tremendously? Money in your savings account that you earned under the current system and paid tax on would be taxed again when you spent it. I could see people going on wild spending sprees just before FairTax was to take effect. Like we need more of that.
The FairTax book seems to claim both an increase in the average person's purchasing power and no reduction in government spending. Are these not mutually exclusive? The only real wealth being returned to the individual is the (admittedly, considerable) resources currently wasted on compliance with the tax code. But that will quickly get sucked away again when the lobbyists get done adding exemptions for this and that. Boortz himself has already opened the door for this by granting FairTax exceptions for education and other "investments," loosely defined.
All in all, FairTax struck me as a huge step sideways, nothing to get distracted about either way.
Published: December 11, 2005 9:50 PM
PR,
the transition to FairTax would not punish savers any more than keeping our current income tax would. Again, individuals do not pay taxes on consumption - firms do it in a for of quasi-income tax. Real prices are determened only by our market agreements. Given a same demand and supply, sellers cannot charge above the market price (or what customers are willing to pay).
Only after the income tax effect kicks in (for those sellers who currently pay lower thax than 23%) we would see a drop in supply.
But let's examine one of the Boortz's arguments: "A National sales tax would not tax savings."
The argument fails to consider the very purpose of saving. A person does not save just for the sake of that activity or for the love of our banking system, but to have that money available for the future consumption. Every penny of our savings would be taxed under the “Fair Tax� proposal when we start spending that money, or when our successors spend what is left to them. Since we don't know that taxes will be lower in the future, our saving preferences would not increase as a result of this shift in method of taxation.
Published: December 11, 2005 10:07 PM
Just to avoid any confusion: when I say that our savings would be taxed in the "Fair Tax" system, I don't mean that consumption itself would be taxed directly. It's a price-increasing, supply-decrasing, quasi-income tax.
Published: December 11, 2005 10:25 PM
Seems like anybody can pick a point or two that they don't like and expand on it.
Come on folks, the Fair Tax represents a major step forward. For all you people that pick a point or topic that *offends* you, I dare you to read our current tax code and *not* find less than 50 items that just rub you the wrong way.
Has anybody here taken the time to do that? Has Mr. Vance? Someone already pointed out that perfect is the enemy of good enough.
So lets stop criticizing on the difference between inclusive & exclusive.
You think that the buracracy needed to collect and monitor the sales tax is as large as the current IRS... you're dreaming; the IRS knows it's dealing with disorganized filers. The sales tax gets filed by businesses, on a regular basis. Sure the first few filings will be new, but a bookkeeper will figure out the best way to deal with the new forms in a month or so. And the big boys, Walmart, Target, Stop&Shop, Winn Dixie, Sears, etc. well gee-wiz they have IT departments that know how to implement & collect a sales tax in 45 states right now. Does the fact that they will earn 1/4% of the tax bother you? They earn that now on state sales tax... did you think of that?
I'm going to lay this out for all you complainers. The current system is broken. It's incomprehensible. If anyone out there claims to understand the current tax system, please come forward. Say "I'm the smartest accountant in the USA. I think the current tax code is almost perfect. It can only get better if fewer folks like you understand it. No one can improve on perfection." And sign your name to it. We'll con-call Neal, he's a fun to talk to guy. If you can prove that you're right, he'll even admit it. He'll make a joke of it, but he'll admit it.
For all the rest of you Fair Tax volunteers out there, we have to keep calling & faxing our congressmen. I've been chatting with my guy's office since October. Tomorrow's Monday, time to call again.
Mr. Vance seems bitter, I dunno why. Maybe he makes his $$$ from lobbyists, maybe he's a got a personal interest in a few pages of those millions that make up the tax code... I dunno. What he has done is demonstrate in print his lack of understanding of some basic economic principles. He has called the average Americal too stupid to calculate a percentage. He has ignores entire sections of the book... What he has done is to generate a weak synopsis (20 points) of a book that in a few hundred pages puts forth a plan that replaces the tens of thousands of conditiond & exceptions that are the curent tax code.
One last thing, on which we all agree. Gummint spending is the real problem! The defecit will be the destruction of us all. If the monster isn't tamed... well. We can outgrow "debt", but the defecit will crush us. The Fair Tax doesn't claim to alter spending, neither does the Income Tax. The Fair Tax claims to be fairer than the Income Tax, revenue neutral, and simpler to implement. That's it. If $194 billion (that's $650/person per year) isn't a good enough reason to switch, then you opponents are just too smart for me.
Published: December 11, 2005 11:28 PM
None of this gets at the heart of the matter. The Fairtax will never replace the income tax, even if that's what Boortz et al want. By the time Congress gets done fooling with it, we will have an income tax AND the Fraudtax. Can't you see it?
They will plan their own transition period, where we will have both the income and the sales tax. Just temporary, you know. Then some invented emergecy will come along, and they'll have to extend the transition period. People will gradually come to accept having both taxes, and various wasteful programs will come to depend on the revenue (can you say, "Social security and Medicare are in crisis"?) and Congress will realize they can get away with never repealing the income tax. We will then have two awful taxes, thanks to Neal Boortz and the rest of the Fair Taxers who lent their support. They will all say "This is not what we wanted!!". It will not matter. It is what they will get. Call me a cynic, but this is how politicians operate. The Fair Tax is dangerous and a wasteful diversion of energy. Says me, anyway.
Published: December 11, 2005 11:34 PM
Jim,
Great point! If the 16th Amendment to the US Constitution is not repealed than an income AND consumption tax WILL be "fair" game.
16th Amendment
If anybody has read Crisis and Leviathan by Robert Higgs, they know that the government NEVER goes back to its original level after a crisis.
Published: December 12, 2005 12:05 AM
Ctyankee comments:
"And the big boys, Walmart, Target, Stop&Shop, Winn Dixie, Sears, etc. well gee-wiz they have IT departments that know how to implement & collect a sales tax in 45 states right now. Does the fact that they will earn 1/4% of the tax bother you?"
Oh no, that doesn't bother me at all (that's just some of their own money, given back)!
The problem is in implementation of such tax, because firms would have a much larger incentive to hide these taxes compared to smaller state retail taxes, and they would be able to do so. This would create a need for a massive monitoring agency that would probably make IRS look like a benign dwarf.
As I explained, businesses pay 23% tax - not the individuals. If customers are willing and able to pay, let's say $4,558 for a good or service, seller gets to keep only $3,510, after tax is paid to government. Seller now has an incentive to make a deal with a consumer to only charge him, let's say, $4,000 - but not to report this transaction to government. In that case, both sides are benefiting from tax evasion. And since the Fair Tax Act would make purchases of inputs tax free, government would be clueless about the total output of goods and services that can be sold in a black market. In order to control every single seller, government would have to organize something larger than IRS.
I've seen this first hand in Serbia-Montenegro, Croatia, Bulgaria..., before they introduced value-added-tax. Their governments' collection did not meet their projections and budgets. Meanwhile, black markets flourished, and they had to organize an inefficient, expensive oppressive, and enormous apparatus called “financial police�. On the top of that, they never abolished income tax, because sales tax did not work.
Published: December 12, 2005 12:13 AM
Ctyankee, you state,
I'm going to lay this out for all you complainers. The current system is broken. It's incomprehensible.
It was designed that way. When something is working as designed, it is not broken by definition.
There is only one problem: Government Spending. I don't care if they take my left arm and leg, or my right arm and leg, I object to their taking an arm and a leg!
If you want to be personally offended, you go right ahead. No one is objecting to you. You can spend your time doing anything you want. I object to your spending your time figuring out how to take my money, but in that you're no different than any government bureaucrat. So you might consider yourself in good company.
Published: December 12, 2005 7:18 AM
Jim Waddell has nailed it, and Keith Derrick is right to cite Crisis and Leviathan accordingly. Watch for politicians to get behind the FairTax in the run-up to the fiancial meltdown that gold is already signaling.
Published: December 12, 2005 7:22 AM
I disagree with points in this article. One of his central points is wrapped up in this quote...
{snip}
He claims that the removal of the taxes currently embedded in the price would lower the cost of the groceries to $35.10 (a dubious proposition).{/snip}
It certainly sounds to me like the author doesnt believe that prices will drop when the underlying taxes are removed...that competition wouldnt push the prices down at all. Dubious hardly.
Published: December 12, 2005 8:24 AM
Sasha Radeta stated,
"Siggyboss, Austrian theory of value clearly explains why a national sales tax would be totally visible to suppliers of final goods and services."
I believe you misunderstood my post. The point was the consumer doesn't realize what percentage of the purchase went to taxes easily under the proposed tax reform; as referenced in the article itself. Of course the total price, including taxes, is always clearly visible as a total.
Published: December 12, 2005 8:37 AM
Let me get this straight... a libertarian is excoriating (not just dismissing, but outright calling for opposition to) a proposal to replace a hideously progressive income tax with a mildly progressive consumption tax, because the proposal doesn't call for the abolition of government spending?
How do you get up in the morning and brush your teeth, given that your toothbrushing fails to abolish the government?
Published: December 12, 2005 8:43 AM
Jim Waddell is correct- you would end up with a national consumption tax and an income tax. Seriously, does anyone here really doubt this?
In addition, Sasha Radeta is correct. There is no real difference between consumption taxes and income taxes.
If you really want reform and a smaller government, then there is one really good reform. End withholding. Make it necessary to write a check yearly or quarterly to the IRS. The hidden nature of our taxes is what allows the government to grow so malignantly.
Published: December 12, 2005 9:02 AM
Rothbard: "There can be no such thing as 'fairness in taxation.' Taxation is nothing but organized theft, and the concept of a 'fair tax' is therefore every bit as absurd as that of 'fair theft.'"
Now we have 3 kind of tax:
- standard taxes;
- inflation;
- seigniorage (i.e. the USD cost the US the FACE value instead of only ink and paper).
If the US Treasury retain the seigniorage, there is non need for any tax. It is called 'monetary sovereignty', something the US has lost long, long ago.
Published: December 12, 2005 9:11 AM
The Fair Tax proposal is dangerous and downright scary. When will the American people ever learn their lesson? Don't give the government any new ways of taxing you. They don't and won't replace the old ones, they will be added on top of them. Those misguided do-gooders who advocate this plan are playing right into the hands of the federal leviathan.
If anything I think Vance understated the dangers of the Fair Tax. I am not opposed to it just because it doesn't decrease government spending, I am opposed to it because it makes increases in government spending easier, it produces widespread dependence on checks from the federal government, causes serious problems for firms facing elastic demand curves, and perhaps the scariest thing of all, it elminates virtually all exemptions.
In my mind, anything that decreases exemptions, loopholes etc., and in general makes it harder to avoid paying taxes is BAD. Why can't we take all the hard work, planning, effort and political action that went into the Fair Tax Act, and instead get a serious movement going for REDUCING SPENDING and really lowering taxes overall? To me that just serves to further illuminate the motives behind the whole Fair Tax scam.
Published: December 12, 2005 9:15 AM
I don't know how many babysitters currently pay income tax. The ones I know don't. I'm sure the kids that mow my grass and clean up the trash don't either. I'm sure all the legal and illegal workers paid in cash all file tax returns faithfully. Therefore, since we're reasonably sure they won't collect an additional 23% and send it off to Uncle Sam then we ought to forget about the entire FairTax proposal and declear it useless or unworkable.
Sounds a little lame folks.
Published: December 12, 2005 9:35 AM
"He claims that the removal of the taxes currently embedded in the price would lower the cost of the groceries to $35.10 (a dubious proposition)." Unless Vance has an issue with the exact amount Boortz says prices will drop (through the elimination of corporate income taxes, payroll taxes, self employment taxes, compliance costs, etc.) he leads me to believe he's never heard of a price war before.
"Lie #3: the FairTax would abolish the IRS." True, true, true! HR 25 eliminates the IRS. Defunds it and strikes it from the books. A National Sales Tax Bureau would be set up within Treasury to collect WHAT THE STATES SEND IN. You'll never be dealing with a federal tax man. The states already have systems set up. WHICH IS WHY AMERICA IS NOT LIKE "...Serbia-Montenegro, Croatia, Bulgaria..." We have infrastructure. That is also why tax evasion will be dramatically less under the FairTax than the feds have ever been able to achieve under our inconprehensable income tax code.
Go to http://www.fairtax.org/pdfs/theundergroundeconomy.pdf or http://www.fairtax.org/research.html for more details.
Published: December 12, 2005 9:48 AM
The NSTB (National Sales Tax Bureau) seems ominuous to me... So we lost the IRS and we gain the NST. Thank you! All the energy invested in this new tax would be so much better spent on cutting spendings.
Published: December 12, 2005 9:56 AM
IF....we truly had the Rule of Law, the Fair Tax could Constitutionally only be collected on things that moved in Inter-state commerce, per the Commerce Clause in Article I, Sec. 8., which lays out the powers of the Federal Congress. It could NOT be collected on items produced and sold within a state.
IF....we truly had the rule of law, the general public would be educated to understand that the 16th Amendment gave no new powers to Congress. They already had the power to tax income, BUT NOT PERSONAL EARNINGS ! All the early cases revolving around the 16th Amendment only proved that Congress had before AND after the 16th Amendment, the power to tax the INCOME or PROFITS of corporations. The 16th Amendment gave Congress NO NEW POWER, nor did it overturn the Constitutional requirements for Apportionment for Direct Taxes, nor the long established requirements for an Indirect Tax, i.e., imposts, duties and excises.
What has happened is "income tax" by corruption in the courts via redefinition of the word "income". Compensation for one's Time of Life in laboring was NEVER defined as income or profit. BUT.........when one is in the employ of another, and that employer sells the laborer's work product at a higher price than the cost of labor and resources, then the amount collected above the cost basis (labor & resources) is profit and taxable income.
By ignorance and corruption, Americans have become slaves.
A simple definition of a slave is one who's labor is taxed. Those who held slaves prior to the Civil War taxed their labor product at around 90%, leaving only enough for a subsistance existence.
But the principle is the same. Once your labor is taxed, you are a slave to the tax collector. To the degree or percent your labor is taxed, to that same degree you are a slave.
The question is put more directly as follows:
What could the Black man do AFTER the Civil War, that he could not do before? ? ? ? ?
THE ANSWER: SELL HIS LABOR AND NOLONGER BE TAXED ON IT!
THAT.....is what made him FREE!
There are TWO PRIMARY FACTS that determine whether on not a Nation or Union of States is Free.
They are as follows:
1. The Labor and land owned by the Citizen are not taxed.
2. The People regulate and control the issuance of their own currency.
Lacking these two primary conditions, human beings are NOT Free. They remain in a condition of slavery and debt, being at the whim of those who tax their labor (Life) and fluctuate their currency.
To paraphrase a statement from the movie, "THE GOOD, THE BAD & THE UGLY",
"There are two kinds of people in this world: those with loaded guns, and those who dig."
Those who benefit from taxing labor and manipulating money, do not have to work. They control the courts and police to enforce the modern slavery we find ourselves in. They have the "guns" necessary to perpetuate the ongoing slavery.
As long as the Public at large remains ignorant and their attention diverted away by amusements (sports, TV, video games etc) our Union of states will remain in the present condition of slavery.
Sincerely,
Dave Franklin
Published: December 12, 2005 10:16 AM
IF....we truly had the Rule of Law, the Fair Tax could Constitutionally only be collected on things that moved in Inter-state commerce, per the Commerce Clause in Article I, Sec. 8., which lays out the powers of the Federal Congress. It could NOT be collected on items produced and sold within a state.
IF....we truly had the rule of law, the general public would be educated to understand that the 16th Amendment gave no new powers to Congress. They already had the power to tax income, BUT NOT PERSONAL EARNINGS ! All the early cases revolving around the 16th Amendment only proved that Congress had before AND after the 16th Amendment, the power to tax the INCOME or PROFITS of corporations. The 16th Amendment gave Congress NO NEW POWER, nor did it overturn the Constitutional requirements for Apportionment for Direct Taxes, nor the long established requirements for an Indirect Tax, i.e., imposts, duties and excises.
What has happened is "income tax" by corruption in the courts via redefinition of the word "income". Compensation for one's Time of Life in laboring was NEVER defined as income or profit. BUT.........when one is in the employ of another, and that employer sells the laborer's work product at a higher price than the cost of labor and resources, then the amount collected above the cost basis (labor & resources) is profit and taxable income.
By ignorance and corruption, Americans have become slaves.
A simple definition of a slave is one who's labor is taxed. Those who held slaves prior to the Civil War taxed their labor product at around 90%, leaving only enough for a subsistance existence.
But the principle is the same. Once your labor is taxed, you are a slave to the tax collector. To the degree or percent your labor is taxed, to that same degree you are a slave.
The question is put more directly as follows:
What could the Black man do AFTER the Civil War, that he could not do before? ? ? ? ?
THE ANSWER: SELL HIS LABOR AND NOLONGER BE TAXED ON IT!
THAT.....is what made him FREE!
There are TWO PRIMARY FACTS that determine whether on not a Nation or Union of States is Free.
They are as follows:
1. The Labor and land owned by the Citizen are not taxed.
2. The People regulate and control the issuance of their own currency.
Lacking these two primary conditions, human beings are NOT Free. They remain in a condition of slavery and debt, being at the whim of those who tax their labor (Life) and fluctuate their currency.
To paraphrase a statement from the movie, "THE GOOD, THE BAD & THE UGLY",
"There are two kinds of people in this world: those with loaded guns, and those who dig."
Those who benefit from taxing labor and manipulating money, do not have to work. They control the courts and police to enforce the modern slavery we find ourselves in. They have the "guns" necessary to perpetuate the ongoing slavery.
As long as the Public at large remains ignorant and their attention diverted away by amusements (sports, TV, video games etc) our Union of states will remain in the present condition of slavery.
Sincerely,
Dave Franklin
Published: December 12, 2005 10:16 AM
Aaron S, it does not matter what HR 25 says. Do you earnestly believe it will be passed as it is written at this moment?
"That is also why tax evasion will be dramatically less under the FairTax..." - Yet another reason to oppose the Fairtax.
Published: December 12, 2005 10:22 AM
Dear Aaron, why would dramatically less tax evasion under the FairTax than the feds have ever been able to achieve under our inconprehensable income tax code be good?
Published: December 12, 2005 10:29 AM
"The NSTB (National Sales Tax Bureau) seems ominuous to me... So we lost the IRS and we gain the NST. Thank you! All the energy invested in this new tax would be so much better spent on cutting spendings."
John, the simple fact is that Americans HAVE NO IDEA HOW MUCH THEY ARE PAYING IN FEDERAL TAXES. If an American has no idea that THEY are actually paying EVERY CENT of their employer's matching payroll tax, corporate taxes and all the compliance cost OR they are losing their job to China, HOW can you convince them to cut government spending? If you discard every benifit of the FairTax, from an increase in individual liberty to cutting over $250 BILLION in annual compliance costs to eliminating the punishment for personal and corporate success, you still have an EDUCATION of the American public who has never known how much the federal government was costing them. What better way to do this than printing it on every receipt? Even those at or below the powerty line who end up paying zero taxes under the FairTax will still complain that they are being taxed to high heaven. The FairTax educates where government schools have failed for decades.
Published: December 12, 2005 10:33 AM
Lie #1: taxes would be voluntary under the FairTax.
First we must realize that all of our actions have consequences. If an individual chooses to buy a new luxury car, he/she would have to pay federal sales tax. Section 505 of H.R.25, entitled PENALTIES details the civil and criminal penalties for non-compliance.
Under the Fair Tax, the federal sales tax would be reimbursed up to poverty level spending via the Family Consumption Allowance (FCA). An individual could purchase new food and services and still survive at poverty level spending. After the FCA, the net tax payments would be $0. The individual could spend significant additional sums of money on used items tax free. The individual could work and earn as much money as he/she possibly could—untaxed. If the individual chooses to purchase a standard of living above the meek poverty level, then net sales taxes would be due.
Under the current tax system, an individual, without dependents, is taxed from the first dollar earned at the FICA/Medicare rate of 7.65%. As annual earnings increase, additional progressive income taxes are due. Under the current system, the only option to not pay any federal income tax is to not work. That is not a valid option.
Given the above two alternatives, the Fair Tax provides the only valid alternative. Although the qualifying “Tax Free� situation is narrow in scope, it is possible. For anyone with the means, purchasing a standard of living above the poverty level is voluntary; accordingly the federal sales tax would also be voluntary. The assertion that item #1 is a Lie is false.
Published: December 12, 2005 10:53 AM
I did some simple math. I am a simple consumer. If i know that i bring in 40728.32 gross for the year and i figure my income tax it figures out to 35%.(I think this % includes Matching FICA.) That 35% could be spent in consumer goods. Sure i pay higher taxes but i purchase more goods and i see where my money actually goes. I have control not the government. And sure everyone is addressing the fact that Government spends way too much.
A concerned American.
Published: December 12, 2005 10:57 AM
Scineram and Jim Waddell,
I believe that the FairTax is fair and our current federal tax code is not. This may not be your opinion, but one of the arguements against the FairTax was that it would difficult to enforce. I responded to that point. I think that if the FairTax was a truely unenforceable tax it would be criticized for being uneffective.
Also, under our current tax code, its uncomprehensible factor is harder on the small guy than those with larger resources.
Published: December 12, 2005 11:03 AM
Josh, did you also factor in the cost of the hidden taxes politicans prefer Americans not know about? Or loss of productivity or comliance cost?
Published: December 12, 2005 11:06 AM
A tax is an assault on freedom not an educative tool.
Canadians pay 15% in sales tax and they know it because prices are displayed before sales tax. Do they loathe government for that? No. 99% of the population support socialism. In the Socialist Republic of France, employers do not collect income taxes; every citizen writes a fat check every quarter (at least that was the situation ten years ago). The French therefore know how much government cost them. Still, they beg government to guide them in their lives.
Reforming taxes is at best a loss of time. At worst, it is a cunning strategy to get elected and grow government always bigger. The reality is that Americans are politically socialists. Tailoring a Smart/Fair tax systems is not going to change their mindsets. Cutting government spending and kicking government people out of our lives is the real fight. It is a tough and demanding fight, so please don't lose your time on trivial tax reforms.
Published: December 12, 2005 11:07 AM
Aaron S than says:
"The states already have systems set up. WHICH IS WHY AMERICA IS NOT LIKE "...Serbia-Montenegro, Croatia, Bulgaria..." We have infrastructure."
BUT THEY HAD IT TOO... And it was a much larger and more powerful infrastructure (compared to size of their population). They were forced to expand this inefficient system, simply because sales tax did not work. In such system, government is clueless about the amount of input purchases and it relies on taxpayers to monitor themselves.
Sorry, but I have to repeat myself: "If customers are willing and able to pay, let's say $4,558 for a good or service, seller gets to keep only $3,510, after tax is paid to government. Seller now has an incentive to make a deal with a consumer to only charge him, let's say, $4,000 - but not to report this transaction to government. In that case, both sides are benefiting from tax evasion. And since the Fair Tax Act would make purchases of inputs tax free, government would be clueless about the total output of goods and services that can be sold in a black market. In order to control every single seller, government would have to organize something larger than IRS."
A national sales tax promotes tax evasions and black markets, because SELLERS ("TAX COLLECTORS" UNDER "FAIRTAX") PAY SALES AND INCOME TAX - not the individual buyers. Printing sales tax on a customer's receipt is completely misguided, since customer never pays this tax! Taxes are not embedded in a final market price. Instead, market prices are formed by the agreements between buyers and sellers. Like any other cost or government's regulation, taxes reflect negatively on firms ability to make profit, which drives some firms out of business, reduces the supply and puts upward pressure on prices. But it would be totally incorrect to suggest that customers currently pay a definite percentage in taxes, when they buy their goods and services.
If you suggest that the USA can ignore law of demand and that Americans are different in that respect from Eastern Europe, it's only the evidence that many did not learn anything from the collapse of Soviet block.
Published: December 12, 2005 11:33 AM
Good essay! On the other hand, nothing is "fair" in this world except maybe "My Fair Lady."
Talk about net tax reduction is silly because nothing will stop the transfer from the working class to our owners except armed revolution.
Published: December 12, 2005 11:43 AM
Couple points...
--"For libertarians, taxation is theft, and its avoidance, legitimate... easier to evade."
The two terms are not interchangeable. Avoidance is perfectly legal; it just means using your money in ways that are taxed less than other ways you can use it. Evasion is the illegal bit about doing things that are taxed and then not paying the taxes. Very different, even if you have problems with neither.
--"No, it's printed on the receit."
I haven't read the full proposal, but this right here would be my biggest objection. As others have noted, government taxation is hidden; it comes out of the paycheck before you get it. This is a bad thing. But if the FairTax is as outlined by its supporters here, then how does this change it? My pay stub shows the amount the income tax takes out. Most of my coworkers have no comprehension of how much money the feds are taking, even with this. Printing it on the receipt doesn't change this mind-set.
I'd be more inclined to favor it if it acted as sales taxes currently do. You get the total, then a big chunk is added to the price for tax. That makes it a lot more obvious on just how much Uncle Sugar's tithe is. The same effect could be achieved with much less political problems by simply stopping withholding and requiring everyone to pay their income tax in a lump sum once a year. Watch government spending plunge the year after this is implemented...
Published: December 12, 2005 11:44 AM
If the "Fair Tax" Act authors really wanted to remove all income taxes, they would have stated that a national sales tax will take place only after the 16th amendment is repealed. Instead, we will have to trust government that it would not exercise all its "constitutional" powers, when we know that they already extended their powers far beyond Article I, Section 8 of the US Constitution.
Published: December 12, 2005 11:49 AM
Lie #2: the FairTax rate would be 23 percent.
We are talking apples and oranges here. Anyone who claims that both are just fruit is attempting to mislead and misinform the public. The Fair Tax is presented to replace the income tax. The income tax is an inclusive tax. The appropriate Fair Tax percentage for an inclusive comparison is 23%. Recognizing that some comparisons could benefit from an exclusive tax analysis, the following conversion table is provided.
When making comparisons, the appropriate inclusive/exclusive percentage must be used. Either column can be used, but a comparison of different taxes between columns is wrong. While we are at the comparison game, the following table provides sales verses income tax percentages with the average state sales and income taxes included.
35% Bracket +
Medicare + 4.44%
Ave. State Income Tax 40.9% 94.3%
Any argument quoting a combined federal and state sales tax rate above 36% is only valid when it is compared to a 94% combined income tax rate. The assertion that item #2 is a Lie is false.
Published: December 12, 2005 11:52 AM
Sasha, you have a very valid point that cannot be answered by supporters of the new tax. Evasion gains remarkable incentive.
To counter the increased incentive to evade, there will have to be massive bureaucracy with powers of enforcement at least on par with the worst of the IRS. I expect it would be far more intrusive than the IRS dreams of being, because of those incentives.
For instance, right now if I buy something I might get away from 8% in sales tax if I offer service in trade or money under the table. Suddenly raise that to 37% (don't forget, states, counties and localities still add their % on to the total too!), I am much more likely to go looking for an underhanded deal no matter now otherwise "law abiding" I am.
Published: December 12, 2005 12:10 PM
To the "Fair Tax" Supporters; Your logic is wrong because it assumes to be true something that is not - that it is ok for the federal government to tax people. The 16th Amendment aside, no one I know ever consented to the current level of Federal theft - why should anyone here be forced to consent to it now? As others have argued, this has a chance to pass in exactly the same proportion as it's chances to increase total government revenue.
My predictions about the "Fair Tax":
1) It will get passed when revenues from the current tax regime collapse;
2) It will be "inclusive",meaning we will NOT be allowed to see it on the receipt, making a visible tax into an invisible one;
3) The IRS will be replaced with an even MORE intrusive gang of busybodies-with-guns that WILL make sure babysitting and the like are taxed, and;
4) The 16th amendment will not be repealed, and slowly but surely, income taxation will be reintroduced.
Don't you pro-"Fair Tax" people see - the government will never allow its source of funding to be trifled with? You are opening a very dangerous can of worms here.
Published: December 12, 2005 12:21 PM
It is reasonable that libertarians will disagree about something contentious like a tax system. All you can do is go with what you know:
--Government will abuse any power it gets its hands on.
--If we have a sales tax now, eventually we will have an income tax AND a sales tax ("it's not fair those rich guys can save more by not buying something than poor people")
--It will be easier to raise taxes under a sales tax--imagine our noble government representatives having the ability to tweak one little number half a percent and collect billions more, a little bit from every person every day.
--Keep your taxes where you can see them. The fair tax is even worse than withholding in terms of invisibility once people adjust to it.
I have little doubt that a consumption based tax will be better for the economy over some period of time. There has been alot of quality work done in this area (Cato). But there is no such thing as a "fair tax." Justice means getting what you deserve, and you deserve every penny of what you work for, and full control over its utilization.
A tax reform that simplifies and keeps/makes the burden of taxation highly visible is the only "reform" a libertarian should consider choking down.
A flat income tax with no other taxes of any kind (corp., cap gains, FICA, etc.) that applies to everyone with no exceptions and with no deductions and no withholding is one possiblity. There's nothing magical about it, it just eliminates the games, the progressive elements, and much of the IRS, and makes everyone see and feel the pain of paying taxes--trust me, as someone who makes quarterly payments, it makes it far more real writing that a check out of your account each quarter than when you simply adjust your life to your "net" on a paycheck.
The "Fair Tax" does none of these things. It makes the tax process more stealthy and we will be paying MUCH higher taxes over time as a result of it. KEEP YOUR TAXES WHERE YOU CAN SEE THEM.
All change is not automatically good just because the current situation is bad. On the other hand, it will be one more chapter of excellent Austrian education in the real world to see how bad the unintended side effects are of yet another government program designed to cure its prior mistakes.
Published: December 12, 2005 12:29 PM
Why has no one reacted to Dave Franklin's post.
He nailed it.
I would add:
If. . .we truly had a rule of law the public would not be "schooled" at public expense under government control and might be able to understand what is going on.
Published: December 12, 2005 12:31 PM
Tax reform, Boortz's or otherwise is just another scheme to legitimize government robbery. The title of the article is correct, there is no such thing as a fair tax, because the ones who received the tax benefit at the expense of the ones forced to pay it. What we need is a tax revolt and not another attempt at tax reform.
Published: December 12, 2005 12:32 PM
Oops!
Change that first period to a question mark.
Published: December 12, 2005 12:34 PM
I was glad to hear from someone who is opposed to the FairTax and appears to actually have researched it. It seems that most opposition is from those who are ignorant of what it actually is. However, I can’t agree with him on his overall assessment.
Mr. Vance attacks (among other things) the FairTax because no tax is fair. He is correct in that no tax is fair. The current income tax is not fair. Would Mr. Vance feel better about the FairTax if it were renamed the TaxThatIsMoreFairThanTheCurrentIncomeTax?
It seems to me that most of Mr. Vance’s attack is not against the concept of the FairTax but the writing style and articulation of Mr. Boortz. I too had problems with that.
Mr. Vance tells us that the problem is Government spending not the current tax system. He is wrong. It is both. Maybe, just maybe, if we get one of them fixed then it will be easier to fix the other. But probably not. Because we may never be able to reign in government spending, does that mean we should not simplify our current system?
Published: December 12, 2005 12:37 PM
A consumption tax of anything close to 23% WILL result in an enormous black market. When the gov't fails to derive the anticipated revenues it will attempt to gain more control at the point of sale. One way of doing this might be a transition to electronic only transactions, eventually eliminating coins and notes from circulation entirely, or even making them illegal. When people resort to barter and other forms of "money", such transactions could also be banned, creating a whole new class of "criminals". The IRS could be transformed from a bunch of paper pushers to S.W.A.T trained street enforcers. "Fair Tax"? Puleeeze!
Published: December 12, 2005 12:39 PM
"Because we may never be able to reign in government spending, does that mean we should not simplify our current system?"
Yep, that's exactly what it means. If government spending is not contained, it doesn't matter what forms are filled in or where the money is taken, we are all impoverished anyway.
If government spending were contained, and the IRS took at most 3% from people earning more than $1M, and corporation taxes were in the same scope, we could argue all day about how unfair any tax is but no one would pay any attention because the real burden would be so small.
Published: December 12, 2005 12:51 PM
The arguments on both sides have some merit, but for me, it is time for a change. The staus quo has had enough time to prove it is a failure. For my childrens sake I am ready to try something new.
I don't fear the rate going up because for once we will all KNOW it is going up (or down). No more news bites about how party X is lowering the rate, only to discover later that they changed others areas as well and in fact, your tax bite just went up.
The current system has companies struggling to move work out of America. Chrysler is in Germany now. Why? Better work force? No. Better tax advantages.
My kids will come out of college with huge debts that require they get good jobs. If the trend continues, why should they go to college? Maybe they should just get started in the first of many low paying jobs supplying services to the leadership that runs the companies moving the good jobs to other countries.
I'm ready. Let's change. It may not be perfect but I believe it is better than what I've had to deal with for the last 30+ years.
Gary
Published: December 12, 2005 1:01 PM
ctyankee writes:
"What [Vance] has done is to generate a weak synopsis (20 points) of a book that in a few hundred pages puts forth a plan that replaces the tens of thousands of conditiond & exceptions that are the curent tax code."
Hmm. So Boortz *only* takes a "a few hundred pages" to set forth his plan to replace "the tens of thousands" of clauses in our present federal tax code.
Call me a nervous nellie, but if it takes hundreds of pages to lay out a tax reform, that sounds way too complicated to me. Of course, the original tax code of the US once the 16th Amendment had gone into effect was pretty short too by contemporary standards. There's no reason to think Boortz's, uh, *reforms* won't be similarly corrupted.
Now, some general comments about Boortz's and other similar would-be single-tax substitution reform schemes that some conservatives and libertarians go in for:
(1) Whatever prospective net benefit they may offer, which are always marginal at best, tend to be undercut by the added costs, direct and indirect, of complying with the many changes. These costs will continue for years, as Congress and the revenue bureaucracy then proceed to "fine-tune" the tax reforms.
(2) The political and intellectual resources that go into these marginally beneficial -- if not counterproductive -- reforms are squandered on a fool's errand. How much more productive those voices would be raised against high taxes and spending generally! How useful someone like Boortz would be, focusing his frustrations on this Republican president and Congress, than diffusing his energies on byzantine tax "reform" and promoting ceaseless ill-defined military ventures abroad!
But then, I can't help but think, maybe that's the point: Fool your supporters into accepting and promoting big government via distractions and diversions.
Published: December 12, 2005 1:09 PM
Sasha Radeta, did the other countries have state or provincial sales taxes in place before a national one was implemented?
"My pay stub shows the amount the income tax takes out. Most of my coworkers have no comprehension of how much money the feds are taking, even with this. Printing it on the receipt doesn't change this mind-set."
Again, even the poor will be griping about the amount of taxes they will be paying.
For tax evasion under the FairTax, see http://www.fairtax.org/pdfs/theundergroundeconomy.pdf.
True, but Americans are in a net-income mindset. When they head to the stores and see price tags, then pay and get hit with a 30% sales tax, THAT is what hurts. Suddenly Americans will be eager to talk about the role of government and be open to shrinking it once they realize that the NST they are paying is the cost of replacing personal and corporate income taxes, estate, gift, capital gains, alternative minimum, Social Security, Medicare and self-employment taxes.
Published: December 12, 2005 1:12 PM
Lie #3: the Fair Tax would abolish the IRS.
Laurence Vance debunks this one himself. “The Fair Tax will abolish the IRS in the same way that it will abolish the income tax—by replacing it with something else.� The assertion that item #3 is a Lie is false.
Published: December 12, 2005 1:31 PM
Really? You mean that one hundred years of the welfare-warfare state doesn't show that people support taxation/debt/fiat money/war/unconstitutionality? What more proof do you need? Most people like and want welfare and their inflated lifestyle. Everyone is aware of what they pay and have been paying. People complain about Social Security but no politician wants to get rid of it. Same goes for Medicare, and any tax. No one LIKES what they pay for, but at the same time people don't want to repeal anything. The Fair Tax willl extend that mindset too.
Published: December 12, 2005 1:38 PM
R.P. McCosker says;
"How useful someone like Boortz would be, focusing his frustrations on this Republican president and Congress, than diffusing his energies on byzantine tax "reform" and promoting ceaseless ill-defined military ventures abroad!"
Great idea, R.P., except that can never be allowed to happen. A guy like Boortz only has a soapbox like this because most of what he says is useful to the Republicrats and the Demoblicans. The minute he turned on them, his career would be over.
Published: December 12, 2005 2:04 PM
Bill Rook sez;
"Lie #3: the Fair Tax would abolish the IRS.
Laurence Vance debunks this one himself. “The Fair Tax will abolish the IRS in the same way that it will abolish the income tax—by replacing it with something else.� The assertion that item #3 is a Lie is false."
Bill, your argument is pure sophistry. What's the difference between abolishing and simultaneously replacing the IRS (with an agency that will likely hire all of the former agency's managers and employees)and not abolishing the IRS at all? NONE, as far as I can tell. We will be left with in all likelihood an even more obnoxious, intrusive agency. What difference does it make whether it is called IRS, or NSTS?
Why don't we just agree to call it Murder Incorporated, Larceny Division?
Published: December 12, 2005 2:50 PM
Gary said:
"The current system has companies struggling to move work out of America. Chrysler is in Germany now. Why? Better work force? No. Better tax advantages."
Wrong. Chrysler moved out of America because their business model failed and they were bought by a German company. The company's business model did not fail due to tax advantages or disadvantages, because various other companies in the same industry manage to operate effectively. Now, admittedly, most American auto manufacturers are struggling. But their struggles are not driven by taxation, and any modifications to the tax code will not alleviate their failing business models.
Though the Fair Tax may provide more money for the government to offer those companies subsidies in return for votes and support.
In the end, if the Germans offer a better product that consumers are more willing to buy, who are you to tell them they're wrong?
Published: December 12, 2005 4:16 PM
(Comment on Lie #1) This is ridiculous! Of course there is no way to avoid buying new items. Of course you can’t buy used food. All Neal Boortz means when he says voluntary is that you decide when to pay your tax by deciding when to buy something. As long as you keep your spending under the poverty level, you will pay no tax. Since you have this choice, I would call it voluntary. Mr, Vance states “What happens if someone decides that they don't want to pay any taxes to the federal government? The same thing that happens now: fines and imprisonment.� Again, a ridiculous statement! The only way someone can decide not to pay taxes is to not buy anything. This is not against the law. If you don’t buy anything, you won’t need to worry about fines or imprisonment, you will starve first.
(Comment on Lie #2) I get so tired of FairTax opponents, using their 30% argument. THE QUESTION IS, what percentage of your income will go to the government in the form of federal tax? If you earn $100,000 during the year and you spent your entire $100,000, $23,000 would go to the government. For those of you who needs a math lesson $23,000 is 23% of $100,000.
(Comment on Lie #3) So what is your point. The IRS would be abolished and a different agency will be needed to oversee the FairTax. The big plus is that individuals will no longer be subjected to IRS tax audits. The other positive, it will cost millions less to operate this new agency. There will be millions less returns to audit and it will be a much simpler job. The audit will consist of, what were your gross sales? Did you send 23% of these gross sales to the government?
(Comment on Problem #1) How many average Americans can tell you how much embedded taxes they currently pay when they buy something? If you gave a calculator to the greatest mathematician, he could not come up with the answer. At least with the FairTax, even if someone can’t figure percentages, most of them can tell you that 23% of the price of the item will go to the government. If they just spent $100, most Americans can tell you that Uncle Sam will get $23 of it.
(Comment on Problem #2) I don’t see this as a problem!
(Comment on Problem #3) Again, I don’t see this as a problem. Unlike the Earned Income Tax Credit, everyone will receive the prebate. This is fair to all.
(Comment on Problem #4) My doctor is for the FairTax. He said he would much rather file a Federal Sales tax return than a Federal Income Tax return.
(Comment on Problem #5) Better start to save up a little extra if you want to attend a baseball, football, or basketball game; what a joke! The extra income I will begin to receive when I start getting 100% of my paycheck and a $492 per month rebate will be more than enough to make my house payment plus buy tickets to a ballgame.
(Comments on Problem #6) The FairTax doesn’t create new taxpayers. Churches and other non –profit organizations already pay 22% to 30% in embedded taxes every time they buy something.
(Comment on Problem #7) There is no easier way to increase taxes than under our current system. With all the ways our current system can be manipulated, we can actually have a tax increase and made to believe we received a decrease. How many Americans can tell you all the recommendations the tax panel for reform just presented to Secretary Snow? With the Fair Tax, camouflage tactics will be eliminated. Knowing the exact proposed increase will result in a greater opposition to that increase.
(Comments on Problem #8) When the states see how well the FairTax works, I hope they all follow suit by eliminating all current state taxes an replacing them with a sales tax. A sales tax is the fairest tax, it should be the one used by all states.
(Comments on Problem #9) Yes, there will be a transition costs. It will be about as much as it costs to operate the IRS for one month. Yes, there will be transition problems, but the benefits of the Fair Tax sure out way any transition problems that may take place. Seeing transition as a problem to bring about the FairTax is like liquor companies telling alcoholic not to quit drinking because of the withdrawal problems he will face during his transition to becoming sober. It’s like telling a farmer to not replace his team of horses with a tractor because all the transition problems. You are always going to have problems when you try to improve something; the largest being those who want to keep you from doing so.
(Comments on Problem #10) Two exemptions, wow this is terrible, there are so many exclusions and exemptions under our current system, no one can keep track of them all.
(Comments on Problem #11) There is going to be fraud and criminal activity no matter what system you have. No tax system is going to eliminate this. The question is which system will result in the least amount of fraud? The best way to determine this is to answer these questions: How many drug dealers pay income tax? NONE! How many drug dealers will pay the FairTax? ALL! How many does it take to cheat on an income tax? ONE! (you). How many does it take to cheat with the fair tax? TWO (the buyer and the seller)
The idea of not charging sales tax on used merchandise is to eliminate double taxation. Under our current tax system, double taxation might as well be a part of the code. Under HR25 the term “used� relates to whether or not the sales tax has been paid previously, and not just to whether or not the item has been physically used. If you are going to classify something as used, you better be able to prove that sales tax has been previously paid on that item.
(Comments on Problem #12) Get real! How many 13 year old babysitters will be audited? Oh, I’m going to report Billy. My neighbor paid him $20 to mow his lawn and he never sent $4.60 to the government.
(Comments on Problem #13) The bottom line, our government can do pretty much what ever it wants to when it comes to collecting taxes. The question is which way is the best, which way is the most fair? No mater what, the one thing our government wants is to maintain a strong economy. It just comes down to, what is the best way of doing so? Which way will create more jobs? Which way will stimulate our economy the most? Which way will improve our balance of trade. The answer is the Fair Tax.
(Comments on Problem #14) No, it doesn’t eliminate all other federal taxes. The book doesn’t suggest that it would. It’s designed to replace all income taxes, payroll taxes, capital gains taxes, the alternative minimum tax, corporate income tax, and the estate and gift tax.
(Comments on Problem #15) Taxation and the tax code are two separate subjects. Yes, we need to reduce government spending. One thing the FairTax will do is expose just how much the government does spend. Under our current system, there is so much smoke and mirrors, no one really knows how much of their income ends up in the governments hands. If they did there would be a greater urgency to reduce spending. The FairTax will create this urgency. By the way, Ron Paul is in favor of the FairTax.
(Comments on Problem #16) As stated in comment #15, the FairFax is not meant to reduce the $3 trillion, it’s meant to be a fairer way of collecting taxes and at the same time stimulate our economy. You would probably be in favor of the FairTax if written this way. “The FairTax is a simple tax reform bill that repeals all Federal Taxes. As a result, all armed forces will be eliminated, all potholes in our national highways will be allowed to grow bigger, everyone over 65 must now pay all their own medical bills, and every one on Social Security can visit their local unemployment office to apply for zero unemployment benefits.
(Comments on Problem #17) The prebate is just another way to simplify our system. It is much easer to charge a sales tax on everything and then rebate a determined amount to offset the tax on necessity items. It is much easier than categorizing everything into either a taxable or a nontaxable necessity item.
Published: December 12, 2005 4:28 PM
Sure, we should find the most "fair" way for the government to steal from us? The issue is moot.
Published: December 12, 2005 4:59 PM
I want to thank everyone who sent me their e-mails with valuable comments.
AaronS said: "Sasha Radeta, did the other countries have state or provincial sales taxes in place before a national one was implemented?"
Yes, they did. They had local sales taxes and they used the same infrastructure. But they still had a huge problem with black markets, so they had to activate the notorious "financial police"... And it still did not work. Unless you don't have a value-added tax (which is a vicious and dangerous tax, by the way), you simply have no idea how much output is produced and what amount of revenue should you expect. No way of knowing.
Don't get me wrong... I think it's great that it's easier to evade sales taxes, and black markets are beautiful example of free market inevitability - but like I said, there is nothing to stop the US government adds the income tax on the top of the "FairTax".
ONE IMPORTANT POINT (going back to Aristotle's axioms): sellers are those who pay income tax. Market pricing mechanism is not based on costs of production, but on negotiation process between buyers and sellers. That's why we have those companies that suffer losses and go bankrupt.
AND MOST IMPORTANTLY (connected to previous point): a sales tax is not like a classic income tax that applies to your taxable income (minus all loopholes). Sales tax will simply reduce a seller's TOTAL REVENUE by 23%, regardless of his profits or losses. It could become a 100% income tax, if it wipes out your profit margin in this unpredictable world. Imagine how that would affect employment. While it is true that common workers would not have to pay their taxes on sales of their labor services, their abilities to find buyers (employers) would be negatively affected by this tax.
In response to Steve Keller: NO, "FAIR TAX" IS NOT VOLUNTARY. In principle, itćs the same as income tax.You can avoid sales tax only if you stop selling your own goods and services and if you consume only what you produce or hunt down yourself (back to Stone Age). Likewise, we can avoid paying our current income tax if we stopped selling our labor (services), or if we stop our credit services (banking and investing). EITHER WAY, we are forcibly taxed for market exhanges - or if we try to avoid taxes, we would be forced out of our civilization, and back to Paleolithic era.
Published: December 12, 2005 5:36 PM
What many of you don't seem to understand is that the FairTax Act is not meant to cut government spending, which we all agree needs to be done. The law currently requires that all tax reform bills be "revenue-neutral", meaning they have to produce as much income for the government after the reform as before. The FairTax is just a reform designed to make taxation transparent and simple, which is does. From my seat, the best way to get the populace to realize how much of their money the government takes, and thus to plant seeds of spending reduction activism, is to tell them on every single receipt. The income tax and all other forms of taxation, excepting sales tax!!, are hidden. The FairTax is as transparant as can be.
The FairTax is not perfect because it still feeds the beast, but I've never understood the mentality that if you can't make something perfect, then you shouldn't make it better.
Published: December 12, 2005 5:43 PM
Sasha Radeta,
The FairTax is voluntary in that you can choose when to pay it, if you pay it.
Plant a garden. Barter. Buy a used car. Buy second-hand clothes, etc...
Voluntary doesn't mean that you can go buy new Nikes and choose not to pay the tax.
Published: December 12, 2005 5:47 PM
Brian,
I can choose when to pay, if I pay, income tax - just like a sales tax. Identically!
All I have to do is to stop engaging in market transactions, only to produce goods for my own production (hunt or farm for meet), and never to engage in monetary transactions.
Back to Stone Age in both "voluntary" examples...
And yes, we realize that "FairTax" is not designed to cut government's spending. It's only a bad way for government to impose an additional tax (note that Fair Tax Act does not make a condition that it will be implemented only after 16th amendment is removed), to crate more harm, and to expand government's monitoring of our lives.
Published: December 12, 2005 6:01 PM
Brian,
I can choose when to pay, if I pay, income tax - just like a sales tax. Identically!
All I have to do is to stop engaging in market transactions, only to produce goods for my own production (hunt or farm for meat), and never to engage in monetary transactions.
Back to Stone Age...
And yes, we realize that "FairTax" is not designed to cut government's spending. It's only a bad way for government to impose an additional tax (note that Fair Tax Act does not make a condition that it will be implemented only after 16th amendment is removed), to create more harm, and to expand government's monitoring of our lives.
Published: December 12, 2005 6:04 PM
The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the least possible amount of hissing.
Discounting the hissing on this and a few other blogs, I am inclined to think of the FairTax as a work of art. Mind you, money is not everything. Scrapping the income tax would deprive us of lots and lots of information that is as vital to governing as money is. If it were all about money then we'd be content to abolish taxation entirely and make do with a friendly soul in charge of the Federal Reserve.
Published: December 12, 2005 6:08 PM
A consumption tax of anything close to 23% WILL result in an enormous black market.
I would consider it a highly desireable outcome. The more people feel that government makes criminals out of decent people, the more inclined they'd be to take it down.
Besides, tax evasion reduces ability of the government to pay thugs and bribe fraction of populace, thus reducing its political effectiveness.
Consider me *for* the so-called Fair Tax. Another wrench into the collectivist works, heh.
Published: December 12, 2005 6:47 PM
Interesting article and very interesting comments on this blog. Don't pay attention to what my left hand is doing while you focus on my right hand. This tax and this discussion is just slight of hand. The right is distracting us with triumphalism and the left is distracting us with empty volleys against the right. And this blog is distracting us from the real issue:
We live in a tyranny of the majority.
A lazy, ignorant and envious majority that is pandered to by the power elite who say jump (read pay tax) and the mob asks, how high? (read how much tax can I get the other guy to pay for my benefit?). How we pay the tax isn't important. The important concept is that we want to pay tax so we can be taken care of. We simply want to make sure the other guy pays more for less service than we do. How do we accomplish this? By belonging to a group that has advantages and using the governments guns to rob more from the other guy. As long as we think the other guy is the enemy, we think the government is a neutral tool. And as long as I can keep that tool tilted in my favor then what they take pales in comparison to what I get.
Most people cannot turn over the second, third, etc. stone. Since they cannot see the damage done by any tax and only remember the good feelings of paternal safety they feel, they will continue to support a tax system, no matter what kind.
In this country we tax individual success and glorify collective success. Some of you say that freedom is the price and slavery is the result of taxation. You are wrong and everyone else agrees with me. Why are you wrong? Becuase I will make sure to belong to the group that has the benefits and I know you belong to the group that doesn't, else why would you be complaining.
Moreover, this whole discussion is moot becuase this tax will NOT pass. Becuase my group -- one of the most powerful -- will not allow it. We want people to have disposable income so we can convince them to save and invest it. We want them to have an 'income' tax because we can create vehicles that will delay the pain of the tax to line our coffers. Why do you think we want you, that's right you, you silly little laboring citizen, to max out your 401(k). No, no, my idealisitc friends -- the financial institutions will never let the income tax be replaced or have to compete with an alternative tax (I don't mean the AMT, that's just fine with us). The financial institutions make too much money because of the 'income' tax. So do the lawyers, accountants and numerous other financial services professionals. No this tax will NOT replace the current one, but keep up your academic distraction, er, I mean discussion.
FairTax is an Orwellian shell game designed to get you to feel better about the current tax. It won't happen and it shouldn't happen. of course, neither should this tax, but it has persited for almost a century.
So stop your whining, your anlayzing and go fill out your tax form. If you're lucky you will benefit and if you don't, well that just means you're in the minority and in a Democracy, we don't care about minorities -- this is a tyrany of the majority.
Sic Semper Tyranus!
Published: December 12, 2005 8:14 PM
Averros said:
"A consumption tax of anything close to 23% WILL result in an enormous black market.
I would consider it a highly desirable outcome. The more people feel that government makes criminals out of decent people, the more inclined they'd be to take it down."
I said that too. The only advantage of "FairTax" is in its inefficiency and disregard for basic economics.
Unfortunately, life thought me that this outcome will not be the end of this story. Like I said, black markets are beautiful and they prove that free market will always find a way to emerge, despite all tyrants, price controls, prohibition... But, what do you think that government's response is going to be, when they realize that sales tax revenue is not filling their budget projection and that there is a parallel untaxed economy in this country? What will they do, when they still have a constitutional amendment that allows them to tax income, regardless of the existence of a sales tax? Not only will they probably increase government repression on citizens, to increase potential cost of tax evasion, but also they could implement income tax." What could stop them, when we face the "war on terror", so many internal and external enemies, imminent social security crisis, hurricanes, tornados, earthquakes, floods...?
Published: December 12, 2005 9:06 PM
Another thing about black markets: they were heavily considered when calculating the 23% figure. Linder, et al., are counting on black markets to emerge.
Published: December 12, 2005 10:26 PM
Brian, regarding your comment…
First response of an Austrian economist would be: how can anyone in their right mind claim they know exact response of black markets, to predict it numerically? That's just irrational.
But second response is more important, and again is inspired by works of Aristotle and Carl Menger: those calculations are wrong because they are based on a premise that a national sales tax is consumption tax that seller pass forward to consumers (that's why they want to even send checks to businesses from Washington, DC for this service). What they don't consider is the fact that market prices are formed in a process separate from a company's balance sheet. Our willingness and ability to buy something (known as demand in economics) has nothing to do with some company's costs, but it determines market prices for a given supply.
This means that all revenue from sales of goods and services will be taxed 23%, regardless of profit or losses. This could in fact represent a 100% income tax (with an additional confiscation) for those businesses that don't have a pre-tax net profit margin above 23%. THAT IS A MIGHTY INCENTIVE FOR TAX EVASION THAT CAN NEVER BE NUMERICALLY PREDICTED. How could someone forecast profit margins and all possible business outcomes for every single business - and even predict it for future businesses???
Give me a break.
Published: December 12, 2005 11:03 PM
Sasha,
Assume I'm educated in economics. Defining "demand" is unnecessary.
The incentive to evade taxation exists in our current system. The first example that comes to mind is Dennis Koslowski, ex-CEO of Tyco, Inc. He claimed to have "not been thinking" when he signed a return omitting a $25 million dollar bonus. Do you know anyone who babysits or mows lawns that files a return? Or how about anyone who makes a little cash on the side doing odd jobs for neighbors? Didn't think so. The incentive exists, and it will exist under any form of taxation.
The question here is, is the FairTax an improvement over the current system? From my seat, and after having read countless articles and one book, I think that it is, if for no other reason than it shows the populace exactly how much of their money the government takes and spends.
Published: December 12, 2005 11:29 PM
FairTax is a "point of beginning" to do several things this author apparently does NOT comprehend:
1) FairTax establishes a basis of tax revenue that is comprehensible to the country's payers of taxes - it's citizens. This is perhaps THE MOST IMPORTANT REASON to enact the FairTax consumption tax. (And, by the way Boortz does NOT hide the 30% exclusive tax - he even says that it will be visible on receipts for purchases. This is essential for the very reason that we WANT taxpayers to know EXACTLY what their tax IS. Any discussion of the tax rate will be a discussion about the ECONOMY - not chatter about this, or that, deduction incomprehensible to the state of the economy. With the FairTax, one will be able to rationally discuss a tax rate in terms of GDP - and vice-versa. No more tinkering, manipulation, spinning, and pitting one segment of society against the other. We're all in this together.)
2) FairTax removes the "straw man" of "don't tax him, don't tax me, tax that rich greedy corporation behind the tree." Greenspan stated that businesses don't pay taxes - consumers do inasmuch as businesses pass their costs through in their products or services. Businesses can resume developing business strategies around product research and development and competition (at least in the American market - however, if America goes FairTax, I agree that it will go global. It is the next logical step for new Eastern Bloc democracies who have chosen a Flat Income Tax Rate - including Russia).
3) The "political class" will no longer have at least half the 40,000 lobbyists in Washington daily streaming quid pro quo interactions for income tax credits, and tax deductions. The FairTax will go a long way toward detaching tax policy from social engineering, which - after all - distorts markets and favors sectors at the expense of other sectors, and taxpayers.
4) That 5.2 billion human hours spent complying with complex income tax instructions, and returns, - that Mr. Vance casually glosses over - will increase much-needed family time, giving citizens back their lives from being unpaid tax accountants.
5) Politicians will no longer be able to game the system in concert with business and social-cause Lobbyists in a "quid pro quo" game that guarantees certain tax advantages to certain interests and sectors at the expense of others, all at the expense of the taxpayers.
6) And, MOST IMPORTANTLY, tax revenues will be positively aligned with the fruits of our capitalist republic's production, both in goods and services. It will be properly aligned NOT to punish those who succeed financially. It will be properly aligned to pressure the FairTax rate DOWNWARD with a GROWING ECONOMIC PIE. As the pie gets larger, the "tax slice" gets thinner such that increased revenue is achievable at lower and lower tax rates.
-df
Published: December 12, 2005 11:57 PM
Brian,
assume I'm not educated in economics, but I'm a black market salesman, with some real-world experience of price formation and effect of sales tax. With all due respect to all you economists out there, I found it necessary to define "demand", because even Laurence Vance (the author of this article) completely missed its basic application when he tried to suggest how the "FairTax" is actually 30% and that consumers pay that "hidden tax".
Market prices are formed in a negotiation process between buyers an sellers. Outcomes of these implicit and explicit negotiations result in such arrangement that ensures that sellers are squeezing the most revenue they can get for a given market supply. If they try to go beyond market prices (or if government impose a price floor), they will get stuck with surplus. If they charge below market prices they will have shortages and lost revenue.
Let me try to give you some numerical examples since that is how most of economists are taught to think:
If market price for my supply of goods is $455,800 and government hits me with a 23% tax, there is no way I can increase my price above current market level. If did that persistently for similar market conditions, I would have a large surplus and a total loss for goods unsold. INSTEAD, I would still meet the same purchasing willingness and ability of my customers (also known as demand in economics) and I would have to accept current market price for a supply in this market. It means that I would have to pay 23% of my revenue to government, leaving me only with $351,000. But what if my relevant costs amount to $355,800? I would not only loose all my income as a result of this sales tax (that's what makes it a 100% income tax) - but I would also suffer losses.
In our current system (no matter how broken it is), I would only pay taxes on my taxable income. For simplicity purposes, imagine the same scenario in which I generate $455,800 in revenue this year and all my costs and deductions amount to $355,800. I would only get taxed on this $100,000, which means $14,652.50 plus 28% of the amount over 71,950. In other words: I would get to keep most of my income and I would manage to stay in business.
So tell me what's better for this situation: to loose all your income or to keep most of it?
This is why in case of a national sales tax many businesses would join those who baby-sit or mow lawns - in their tax evasion. It's the only reason many of them can only survive. Like I said, system has no way of knowing about the amount of inputs purchased or goods produced and it makes it easier for black markets to emerge - but don’t cheer too soon. That would only lead us to more government's interventions and oppression.
Published: December 13, 2005 12:21 AM
I forgot to apply Social Security... self-employment tax.., etc. in my example above, but you get the picture. I used a single, sole-proprietor as my example... But I hope you get the point.
Income tax only applies to taxable income. The "FairTax" would hit you with a 23% tax, while you still face some current market price. You would have no choice but to loose 23% of your revenue, regardless of your profits or loss. No loopholes there. Only black markets...
I rest my case.
Published: December 13, 2005 12:34 AM
"The only mention of the Sixteenth Amendment in H.R. 25 is when it reports: 'Congress further finds that the 16th amendment to the United States Constitution should be repealed.' But to repeal [the] Sixteenth Amendment would require a constitutional amendment. Are we to believe that Congress would vote to repeal the Sixteenth Amendment after the passage of the FairTax?"
The 16th amendment, so called, was never ratified at all, unless a bare assertion by the secretary of state is sufficient to ratify. So what difference does it make whether a new tax system is constitutional or not? The 13th before it does not prevent a military conscription whenever congress feels a slave ("conscript") army is needed, and certainly does not prevent taxation (which is slavery) of living, breathing humans.
"Honest Abe" Lincoln demonstrated that scraps of parchment are not as strong as powder & shot, and bayonets.
As long as a substantial minority are willing to earn their bread by riveting chains on their fellow citizens we will have government like it is. The slavedrivers themselves wore collars, and do today.
Slaves can be armed. Union soldiers were amazed to be confronted by slaves armed with muskets. The slaves benefited so much from the current system (they ate, had clothes and had roofs to sleep under) that many did not wish to risk throwing out their entire system of goverment and society for dubious benefits. So the premise of TGTB&TU is not altogether true. Americans are probably the most heavily armed people on earth, yet tolerate heavy taxation and massive intrusion by bureaucrats. The benefits of resistance are outweighed by the costs. Modern day taxes are extracted mostly from the output of machines and energy extracted from the earth, not from human sweat.
Any slave owner benefited by giving his more diligent slaves spending money, and even letting them have little plots of ground to raise specialties on that they could sell and keep the profits from, or even let them have businesses in town. The whip was reserved for those who refused to learn how to obtain his favor, though an occasional pop of the whip might be applied to good slaves to remind them that it was still there. Our modern day slave masters recognize this principle. We today are slaves of an entire system, not of individual slave masters. We get to choose our own foremen (employers). And who gives us that occasional pop of the whip (audits, anyone?).
Published: December 13, 2005 12:35 AM
No time for a detailed comment or good responses, but I'll just say that I believe the FairTax is the very best way to fund the current federal government, as horrific as an amount is neeed to sustain its size. No other plan comes close in my opinion.
The only reason I can say the FairTax is not perfect is because it is forced to be the collection device of an out of control government. But it is the best one.
Published: December 13, 2005 12:54 AM
AaronS,
Since you still hold your position, it would be interesting to read your comment about my previous two posts. I think they explain why the "FairTax" is a recipe for disaster, far more harmful than income tax.
Published: December 13, 2005 1:18 AM
Vince Daliessio writes:
"Great idea, R.P., except that can never be allowed to happen. A guy like Boortz only has a soapbox like this because most of what he says is useful to the Republicrats and the Demoblicans. The minute he turned on them, his career would be over."
Here we're getting somewhere. Boortz is, like Larry Elder, a court libertarian. He pays lip service to what he calls libertarianism, but he never shakes up the political and intellectual establishments, least of all where the fortunes of the Republican Party are at stake. If he was a distinct foe of the Zeitgeist, he wouldn't be a highly visible Cato employee, and he certainly wouldn't have a berth in the MSM.
I don't know how sincere people like that are. But, like the Republican politicians they cheerlead for, they create an illusion of productivity by promoting causes that do nothing more than tweak the system (when not simply promoting more government on behalf of corporativism and the Republican Party):
Fight tax oppression by imposing a single massive sales tax. Fight the socialist school system by putting private schools on federal payola. Fight the government's "Social Security" compulsory retirement insurance system by shifting those tax revenues into government-authorized investments.
This kind of activism amounts to running in place -- and, by misdirection, deluding the grassroots that important reform is happening.
It's actually worse than that. All that pent-up rage at the State is diffused as the grassroots is taught to talk up and contribute to worthless projects. If the grassroots was taught that State power itself is the problem -- and that State power is inherently, inescapably corrupted, unproductive, and oppressive -- then there'd be a chance to mobilize against the growth of the State, if not for the rollback of the State.
But libertarians, or even conservatives, who talk this way make the Establishment feel threatened, and don't get those Boortz-Elder-lapdog radio jobs.
Published: December 13, 2005 2:10 AM
At least, the procedure of collecting tax would become much more simpler, so one would spend less time filling in the forms... I'm for this FairTax Act, it is a step in the right way...
Published: December 13, 2005 3:18 AM
I agree Porko Stado,
It is much easier to simply take 23% of someone’s sales (even if his/her business does not even break-even) than to bother with calculating someone's taxable income or earnings.
And I also agree that this Fair Tax Act is a step in the right way... It’s the right way for those with large profit-margins to monopolize market and force the rest of us into black markets or criminal enterprise.
Published: December 13, 2005 3:29 AM
It is undoubtedly possible that for a given tax burden, some tax arrangements will do even more harm than others in just the same way that there are better and worse ways to run State schools. However, it hardly seems like something that libertarians should devoting their energy to. Our point is not that taxes should be made fairer or more efficient, it is that there should be less or no tax. We should leave arguments about "fair" or "efficient" taxes to conservatives and socialists.
Published: December 13, 2005 5:13 AM
Julius,
Austrian school of economics is the only one that could destroy all this "FairTax" nonsense, if it wanted to do so Libertarians should devote their energy to advocate lower or no taxes. And I think it is hardly irrelevant whether we get our total sales (revenues) taxed, or if we get our incomes taxed... See the difference?
Once these "FairTax" advocates stop with their slogans and phrases without a single supporting argument, I will make some comments about Ludwig von Mises Institute's persistent attitude towards tax issues and I will say something about Carl Menger's great legacy that is often disregarded in this place.
Still, I will not start a "war" with my fellow Austrians, while the "enemy" is still here (although, they seem to be out of live rounds of intellectual "munitions").
Published: December 13, 2005 5:36 AM
Sasha,
The gaping hole in your argument is this: you assume that your $455,800 in merchandise has the same costs associated with it before the implementation as it would afterward, when in fact, this is not true. Many economists have calculated that the price of a good will remain nearly the same as it is now, only after implementation of the FairTax, it will have the 23% tax ALREADY INCLUDED. This is possible because of the number of taxes that *will be* repealed with passage of the FairTax, lowering production costs.
In other words, if the cost to the consumer of your candy bar is $1.00 now, it will cost the consumer about $1.00 after the FairTax, only it will already contain the 23% inclusive tax. You are ignoring, or have not yet realized that your costs will also go down after implementation because anything you purchase for resale from a distributor is not taxed as a final, new sale of a good.
Published: December 13, 2005 7:41 AM
Opponents to the FairTax say it will make it easier for Congress to raise taxes.
Wrong! Tax increases can’t be any easier than they are under our current smoke and mirror system. Can you really say how much of your income ends up in the government's hands? I guarantee you, it is much more than you realize. There are hundreds of ways taxes can be increased without us having a clue as to how much. Plus, every time there is a tax reform, it only affects certain individuals. The president’s panel for tax reform just got do presenting their recommendations to Secretary Snow. If all recommendations are approved, how many Americans will know exactly how they will be affected? With the FairTax, if government needs more money, they can't fool you by cutting a little here and adding more there. With the FairTax, if there is a tax increase, you will know the exact amount and it will affect everyone the same not just a few special interest groups. If there is a tax increase that affects every American, you know what will hit the fan.
Opponents to the FairTax say that a 23 percent tax on an item is a tremendous incentive to buy through the "underground market." The income generated in our underground economy is in the billions of dollars. How many tax dollars do you think we collect on this income? Yes, there will be cheaters, but with the Fair Tax both the buyer and seller must be cheaters.
Opponents argue that instead of tax reform we need to concentrate on reducing government spending. Yes, we do need to reduce government spending. This is even more reason for the FairTax. When the FairTax, removes the smoke and mirrors, and Americans see exactly how much government cost, there will be a stronger push for a reduction in government spending.
Opponents suggest the FairTax will put the major burden on the average income American. A couple of years ago I was talking with one of my neighbors. At that time I was not for the FairTax. He soon changed my mind. He is what I would consider a middle income American. He told me that in 2003 his total tax bill was just over $8500. This didn't even include all the embedded taxes he paid each time he bought something. Just figuring the additional income he would have received by eliminating his income taxes would have been $700 per month. He said that with the $700 plus the prebate, he would have had enough extra income to make his house payment. Boy, the FairTax will really hurt this middle income American.
Opponents also suggest the FairTax will hurt the poor. The FairTax is the only plan that will completely un-tax the poor. If someone is earning the poverty level or less, the prebate covers all his taxes even if he spends every dime he earns. Under our income tax system, even if an individual is exempt from paying income tax, 7.65% is still deducted from his paycheck for S.S. and Medicare. Plus, he pays all the embedded tax each time he buys something.
The bottom line; would you rather let the government take at least 22% of your income before you buy anything and another 20% to 30% when you do. Or would you rather receive 100% of your paycheck, not file a tax return, invest you money anyway you wish without paying taxes on your investments, and pay 23% only when you buy something. And remember, with the FairTax you will receive a prebate at the beginning of each month to cover the taxes you pay on necessity items. If you have a family of four this would be $492 per month.
Published: December 13, 2005 8:24 AM
"(Comments on Problem #12) Get real! How many 13 year old babysitters will be audited? Oh, I’m going to report Billy. My neighbor paid him $20 to mow his lawn and he never sent $4.60 to the government."
The $20 is exempt. H.R. 25 Excerpt:
`(c) De Minimis Sales- Up to $1,200 per calendar year of gross payments shall be
exempt from the tax imposed by section 101 if received--
`(1) by a person not in connection with a trade or business during such calendar
year prior to the receipt of said gross payments; and
`(2) in connection with a casual or isolated sale.
Published: December 13, 2005 8:26 AM
I'm not convinced that you will be able to tell how much FairTax is really costing you by looking at your receipts any more than you can find the total cost of the income tax by looking at your W-2s today. FairTax supporters correctly show that income tax gets embedded in the economy in all sorts of non-obvious ways, but never consider how the same will happen to a sales tax.
As Sasha reminded us, just because an item sells for $100 now doesn't mean consumers will be willing to pay $123 for it post-FairTax. At this point, FairTax supporters sort of wave their hands and claim the reduced compliance costs will bring the price back down to $100 again. This is dodging the issue. A flat income tax would reduce compliance costs without the unpredictable side effects of suddenly switching from taxing income to consumption.
Published: December 13, 2005 10:54 AM
Brian T. Taylor said:
"From my seat, and after having read countless articles and one book, I think that it is, if for no other reason than it shows the populace exactly how much of their money the government takes and spends."
This argument has become tired. For one, the populace already sees how much government takes and spends through both withholding and their yearly tax filing. What makes anyone think that if the tax moves from their paycheck to a sales receipt it will somehow change the attitude of the people being taxed? People already see state sales tax on most of their sales receipts, in addition to a state income tax. How many of them actively track what their local governments are taking and spending?
Additionally, as should be obvious with our current government, there exists a propensity to simply borrow more money if it can't be confiscated through taxation. Taxpayers, regardless of the system of taxation, will not see this. Their central bank will inflate their money supply, for the benefit of the government's spending, robbing the populace of their savings. They have been trained over the last 3 or 4 generations to accept inflation as a fact of life, just as they have been trained to accept taxation as a way of life. Their ideas then become limited to changing the way the current system of taxation works, rather than demanding a real change in their government's free and easy way with the populace's wealth.
And then they fight rabidly for changing the tax system, when their energy could be put to so much better use in actually limiting the amount of money the government needs to confiscate to maintain itself. Taking the number off a paycheck and putting it on a receipt is not going to suddenly spur the taxpayers into taking an interest in what the government does with their money.
Published: December 13, 2005 10:58 AM
Lets get this "inclusive" and "exclusive" tax thing clarified.
23% is the PORTION of the item's acquisition price: Thus, if you have to lay out $130 for a good, or service, 23% of the acquisition cost ($130) would be $30 (actually, $29.90). This "inclusive" (portion) was used to compare with existing prices including "embedded taxes" that are already built-into the price under business income/payroll taxes.
However, a FairTax gets rid of business tax pass-through's (no embedded taxes). So, reduced costs now put the item at $100. Adding ("exclusively") a 30% FairTax brings us to the same figure: $130 - only, we've "cleaned up" and externalized the tax portion.
Will prices go down immediately? No. And there may be transitional gains that accrue to businesses. But not for long. The marketplace should perform better because businesses will perform more efficiently (competitively) - without cash-flow-inefficiency-exacerbating coersion of penalties, interest, business bank account levies, time wasted dealing with IRS directly and through expensive attornies and accountants - all of which are GONE under FairTax. (Yes, it would be nice if we lived in an ideal world where we could simply say that such businesses are a victim of their own BAD management - and deserve to go down - but GET REAL. Most businesses are small with MAJOR dislocations of time, energy. Imperfect as they are, the US relies on small entrepreneurial risk-takers to provide the majority of the nation's citizens with jobs. And with income and payroll tax planning and preparation GONE, management has far less to distract it from the competition and research and developement.)
FairTax is a 30% national sales tax on less-expensively produced goods ($100, or $30 less expensive - 23% - than their former price of $130), yet the price remains essentially the same to the consumer.
Why make the nation a priority creditor to the income interests of each business - increasing risk to those wishing to go into business and causing their goods and services to be more expensive to purchase, rather than as the beneficiary of the entire "post-production basket" regulated by employee-consumer's ability to purchase?
To all these "black market" fear-mongers: The black market will be with us, always - if not on our own soil, then in other lands. Enforcement will always be necessary. Under FairTax, IRS will STOP harassing HONEST, hard-working wage-earners and entrepreneurs and morph into enforcing those DISHONESTLY marketing imitations - which hurt HONEST CITIZENS. As it is now, the IRS criminalizes and enslaves HONEST CITIZENS made victims by a complex tax code and punishing regulations if you don't meet THEIR timetable. FairTax HAS NO TIMETABLE. A person pays whenever they go to the store. How MUCH they pay is determined by the taxpayer. The government ASSISTS the taxpayer - by reimbursing them with a tax pre-bate - in advance - rather than CONFISCATING resources, and holding them up to a year, and forcing every individual to become an UNPAID tax accountant to get their OWN MONEY back - and WITHOUT INTEREST. Is this SANITY?
-df
Published: December 13, 2005 1:08 PM
Mith said:
"For one, the populace already sees how much government takes and spends through both withholding and their yearly tax filing."
It doesn't hurt as much when you never hold the money. Your taxes have already been withheld when you get your paycheck. When you have cash in hand, and you pay 23% more at the register than an item is listed for on the shelf, you think, "Damn, my government takes a lot of my money." It's just a mental thing.
Published: December 13, 2005 1:16 PM
D. Fisher, most states have sales taxes so your $130 item would cost ~$137 (the "acquisition cost"). The $29.87 federal sales tax from this purchase is not 23% of the acquisition cost, it's 21.8%. The is just one of the many issues that arise when using an inclusive sales tax rate (e.g., simple math is impossible with them). There are good reasons no one else uses them.
Published: December 13, 2005 1:21 PM
Now, please be a human being and not a programmed robot for a second, and tell me what tax is worse:
- The FairTax that taxes 23% of your sales even if you don't make any profit - and it drives you out of business?
- Our income taxes, that applies only when you make income?
Again people, sales tax are a dangerous tax that taxes businesses' revenue instead of income. This is what would drive large masses of Americans out of their jobs and straight to black markets and criminal enterprise. Financially strong firms would be able to survive and the rest of us would be sent straight to black markets and become criminals.
And please stop with that nonsense about "FairTAx" costing customers. They don't pay that tax and it is irrelevant whether we would have "FairTax" printed on a receipt. Insisting on these silly quasi-arguments is what Boortz and his crowd wants. Discussions like that, or about tax percentages (inclusive, exclusive) are helping them to mask the fact that they are really proposing a 23% REVENUE TAX FOR EVERY SELLER (even if they are not able to meet their costs) and that this is the way for big business to monopolize our marketplace.
Published: December 13, 2005 1:58 PM
Brian T. Taylor said:
"The gaping hole in your argument is this: you assume that your $455,800 in merchandise has the same costs associated with it before the implementation as it would afterward, when in fact, this is not true. Many economists have calculated that the price of a good will remain nearly the same as it is now, only after implementation of the FairTax, it will have the 23% tax ALREADY INCLUDED. This is possible because of the number of taxes that *will be* repealed with passage of the FairTax, lowering production costs."
WOW!
STOP!
PULL OVER!
What are talking about?
Please tell me you guys are paid to repeat this, even after these arguments are totally destroyed. The reason why "many economists" say what they say is because they never had their own business.
Current prices are formed only by supply and demand conditions, and they DO NOT HAVE taxes embedded in them. Prices are not formed based on someone's production costs. If that was the case, no business would ever go bankrupt.
LAW OF DEMAND AND SUPPLY FOLKS!
Like I explained, with current level of taxes, we have a market supply and some demand. That is what determines prices. Taxes affect supply negatively and put upward pressure on o prices, just like any other cost increase. But this means that some suppliers with low profit-margins or weaker credit are going out business.
Now, please be a human being and not a programmed robot for a second, and tell me what tax is worse:
- The FairTax that taxes 23% of your sales even if you don't make any profit - and it drives you out of business?
- Our income taxes, that applies only when you make income?
Again people, sales tax are a dangerous tax that taxes businesses' revenue instead of income. This is what would drive large masses of Americans out of their jobs and straight to black markets and criminal enterprise. Financially strong firms would be able to survive and the rest of us would be sent straight to black markets and become criminals.
And please stop with that nonsense about "FairTAx" costing customers. They don't pay that tax and it is irrelevant whether we would have "FairTax" printed on a receipt. Insisting on these silly quasi-arguments is what Boortz and his crowd wants. Discussions like that, or about tax percentages (inclusive, exclusive) are helping them to mask the fact that they are really proposing a 23% REVENUE TAX FOR EVERY SELLER (even if they are not able to meet their costs) and that this is the way for big business to monopolize our marketplace.
Published: December 13, 2005 1:58 PM
Mith said:
"What makes anyone think that if the tax moves from their paycheck to a sales receipt it will somehow change the attitude of the people being taxed? People already see state sales tax on most of their sales receipts, in addition to a state income tax."
First of all, Mith, people do NOT see TAX taken from their paycheck. They see WITHHOLDING TOWARD tax. Taxpayers' attitudes will change at such time as gov't wants to RAISE the tax. This becomes a more comprehensible undertaking because of the following, simple idea:
1) Gov't would only RAISE the FairTax RATE IF RETAIL PURCHASING is projected to FALL (measure of significance - whatever that would be).
2) FALLING RETAIL $'s = CITIZEN'S ABILITY TO PAY - in his case, "decreased" ability to pay.
4) GOV'T will be VERY CAREFUL before RAISING FAIRTAX RATE on citizen's RETAIL PURCHASES to fund their pet projects - because PREBATES ALSO go up. So, the pressure will be on GOV'T commensurately LIVING WITHIN ITS MEANS.
On the flip side, TAXPAYERS will become MORE INTERESTED in economy performance. If the ECONOMIC PIE grows, the FairTax RATE should DECREASE (along with the PREBATE).
Mith said:
"How many of them actively track what their local governments are taking and spending?"
This is TRUE! Most citizen's have LITTLE IDEA of what their government spends money on. However, as you can see by the above scenario, gov't will have fewer ways to "game" the system. And citizens will now be able to to realize some tangible compensation from any RAISE in the FairTax RATE in the form of HIGHER PRE-BATES.
However, such moves must ONLY be incremental, because of the synergy between the RATE and the PREBATE.
The (CORRECT) pressure will be on GOV'T to REDUCE SPENDING and REDUCING THE FairTax RATE (and PREBATE) to get the economic PIE growing, again.
Everything is much more straightforward with greatly decreased opportunity for Politicians to deceive.
-df
Published: December 13, 2005 2:03 PM
"When you have cash in hand, and you pay 23% more at the register than an item is listed for on the shelf, you think, "Damn, my government takes a lot of my money." It's just a mental thing."
Do they do that now in the states where people pay sales and income taxes? Does anyone stop before they buy something and say "Geez, this state takes so much of my money, but what do they do with it?"? I don't know about you, but I've not seen anyone react that way when it comes to paying sales taxes.
Even worse, they don't stop and say "Wait a minute, I'm paying tax for both my income AND my consumption?". I expect without mandatory repeal of the 16th Amendment prior to enaction of a NST, you're likely to see the exact same attitude, "Oh well, gotta pay taxes, we need the government. I don't like that it's so much, but what am I gonna do?".
I've not seen any indication from the actions of the majority of Americans over the last century to lead me to believe otherwise.
You want people to worry about how much their government is spending, start removing the welfare programs that consume so much of the money. When people start having to work for their own money rather than using the government to confiscate it from others, maybe people might show a little more concern about what government actually does with that money. While you're at it, eliminate the central bank that robs the citizens of their money through inflation created by printing what the government was unwilling or unable to confiscate.
People are not going to take the time to change a system they already benefit from unless it offers a greater benefit. Unfortunately in this case, personal responsibility and a smaller government are not a big enough benefit to the majority to outweigh the benefits that majority gets from wasteful government programs.
Published: December 13, 2005 2:07 PM
"1) Gov't would only RAISE the FairTax RATE IF RETAIL PURCHASING is projected to FALL (measure of significance - whatever that would be)."
Because right now, they only raise the income tax when income is projected to fall, and lower it when income rises? How big a hand do we need government to play in our commercial sector to work with this tax? Wouldn't it be easier if government just ran all the businesses, and all of the costs of an item beyond production and labor went directly back to the people?
"2) FALLING RETAIL $'s = CITIZEN'S ABILITY TO PAY - in his case, "decreased" ability to pay."
A decreased ability to pay has little or no meaning to a consumer society with so much available credit to be abused. They tack on a 20% or more interest payment every time they use that card, but that doesn't stop them from using it. Nor will an extra 20%, or more, tacked on the sales receipt stop them from buying items or worrying about what government does with their money.
"4) GOV'T will be VERY CAREFUL before RAISING FAIRTAX RATE on citizen's RETAIL PURCHASES to fund their pet projects - because PREBATES ALSO go up. So, the pressure will be on GOV'T commensurately LIVING WITHIN ITS MEANS."
Yeah, because the government wouldn't just sell that as "Hey, because you're such good consumers, we've decided to increase your prebate. But in order to make it fair for everyone, we need to tweak the tax rate just a little bit." Everyone will be so busy cashing their prebate check they won't notice the tax increase. If you want evidence of how this works, please reference the people that file income taxes and get a "refund".
"The (CORRECT) pressure will be on GOV'T to REDUCE SPENDING and REDUCING THE FairTax RATE (and PREBATE) to get the economic PIE growing, again."
If this were true, government would be cutting spending during economic downturns now, as it stands to reason that if the economy is hurting, so are incomes. Additionally, government would be motiviated to keep people off of welfare, because welfare recipients have no taxable income. Yet the number of welfare recipients continues to rise, as does the amount of spending, regardless of the health of the economy. Changing from income to consumption is not going to modify this behavior, especially if the welfare recipients are getting prebates in addition to their welfare check. If anything, it will prompt government to find another method to tax us on top of the NST.
Published: December 13, 2005 2:30 PM
To quote SASHA REDETA:
WOW!
STOP!
PULL OVER!
What are talking about?
SASHA REDETA said: "Current prices are formed only by supply and demand conditions, and they DO NOT HAVE taxes embedded in them."
Businesses must recoup their costs, and make a profit to survive - whether under a FairTax OR the present system. Taxes ARE a part of those costs, and can be considered to be "embedded" every bit as much as the costs for human and other capital required to stay in business.
SASHA REDETA said: "...market supply and some demand. That is what determines prices."
Under ANY tax system, the demand for a product or service must equate to a cost that will permit the company to produce it at a profit. No case here against a FairTax.
SASHA REDETA said: "Prices are not formed based on someone's production costs."
That assumes that all products and services are created equal - which, of course, is non-sense. You can buy the Chevy, or the Maserati. Prices MOST CERTAINLY DO reflect production costs. However, "demand" is the QUALITATIVE FILTER by which the added-expense is VALUED in the marketplace.
SASHA REDETA said: "If that was the case, no business would ever go bankrupt."
That IS the case, yet companies DO go bankrupt because the company's decisions as to invested costs were not attuned to the marketplace's VALUING of such extra costs. Their "research and development" arrived at erroneous conclusions, or the passage of time between decision and implementation rendered such conclusions obsolete.
SASHA REDETA said: "...this means that some suppliers with low profit-margins or weaker credit are going out business."
This is true under ANY tax system. No case against the FairTax here.
SASHA REDETA said: "... sales tax are a dangerous tax that taxes businesses' revenue instead of income." AND "And please stop with that nonsense about "FairTax" costing customers."
Huh?? Alan Greenspan said something to the effect that people, and not businesses, pay taxes. This is BASIC. It is UNFORTUNATE that many citizen's buy into: "Don't tax you, don't tax me, tax that greedy, evil, global-capitalist, big, (expletives ad infinitum) business behind the tree."
Wake up, Sasha. You're trying to hard to support an absolutely self-defeating income tax system that is ON ITS WAY OUT - hopefully, SOONER rather than later.
-df
Published: December 13, 2005 2:38 PM
I will also respond to some comments that didn't have anything to do with economics. First, Steve Keller's comments:
- "Opponents to the FairTax say it will make it easier for Congress to raise taxes."
Wrong! True followers of Carl Menger (the founder of Austrian school of economics) will tell you that a national sales tax would make it harder for government to collect taxes, because 23% sales (revenue) tax would create a large underground economy and reduce the total number of taxpayers (firms pay this tax, not consumers). As I explained, since sales of inputs of productions are not recorded for sales tax purposes, the government has no way of knowing about the production capacity of each business. In addition to this, FairTax proponents believe that sellers would have an incentive to collect these taxes, because they believe that consumers pay them and not sellers.
- "Opponents to the FairTax say that a 23 percent tax on an item is a tremendous incentive to buy through the "underground market."
WRONG! We say that a sales tax of 23% will force many businesses to SELL at black markets, because this "FairTax" will drive them out of business. Like explained, sellers cannot raise their price above market levels (ask those who lived in Soviet Union if you don't believe in this) and they would be forced to give 23% of their sales to government, even if they don't make any income.
- "Opponents argue that instead of tax reform we need to concentrate on reducing government spending."
WRONG! While it is true that many libertarians want to reduce government to fit within the US constitution, some us still want to focus on tax reform. It is not irrelevant whether someone taxes 23% of your total sales or if someone taxes only you income (if you make it).
- "Opponents suggest the FairTax will put the major burden on the average income American."
WELL... True followers of Austrian school of economics will tell you that FairTax will put the burden on most of Americans and that it would benefit only the richest and those who have huge profit margins that can absorb a reduction of 23% in their sales.
- "Opponents also suggest the FairTax will hurt the poor."
WELL... it would hurt the entire economy, because it would reduce aggregate supply of goods and services (upward pressure on prices), reduce legal employment, increase crime...,
- "The bottom line; would you rather let the government take at least 22% of your income before you buy anything and another 20% to 30% when you do. Or would you rather receive 100% of your paycheck, not file a tax return, invest you money anyway you wish without paying taxes on your investments, and pay 23% only when you buy something."
NO! THE BOTTOM LINE IS THIS! Would rather have 23% reduction of your revenue, regardless of your current profit or loss - or would you rather have only a portion of your taxable income taxed? For anyone with knowledge of basic arithmetic the choice is clear, even if one hates any form of taxation.
Published: December 13, 2005 2:38 PM
Isn't it fun, rearranging chairs on the Titanic?
Such a pity that someone with access to the media would waste people's time like this.
Fair tax, low tax, whatever. Unless you're cutting spending we all have to pay for it. Furthermore, the greatest problem with government isn't the taxing as much as it is the spending. Austrian economists are attacking the wrong chimera here. Ludwig von Mises et. al. explained clearly that money isn't itself a magical resource which transforms effortlessly to whatever one desires. Instead it is the saving and spending of money which direct other resources. The real world doesn't eat on money, doesn't drive on money, and doesn't live in money. Our living standards are a result in the particular arrangement of resources, our capital base, which has been eroded by government manipulation largely by spending. This is especially true now, where spending and embezzling (borrowing), not selective taxing or regulation, has become the intervention du jour.
Instead of complaining about the FairTax not being a fair tax, we should be scoffing that tax reform has become the issue at the forefront of liberty-minded people.
Published: December 13, 2005 2:46 PM
D. Fisher said: "Businesses must recoup their costs, and make a profit to survive - whether under a FairTax OR the present system."
THAT'S EXACTLY MY POINT! Not all businesses survive. You can't control market price and it often goes below you costs (which doesn't automatically mean you are out of business)... In market-place you have to accept market price that reflect supply and demand conditions. Bankruptcies occur all the time.
But if you are barely break-even and make little or no income, you will pay little or no income taxes. You will manage to stay in business. But if the "FairTax" gets implemented, you would have to reduce your TOTAL SALES by 23%, regardless of the fact you make little or no profit. That's what would drive you out of business.
COSTS ARE NOT EMBEDDED IN PRICES. They can negatively affect supply and put upward pressure on prices, but you can’t simply pass them on consumers and go above market price, without surplus. And if you are suggesting that the effect of 23% revenue tax would be milder than our current income tax, you simply have some unresolved issue with algebra.
Published: December 13, 2005 2:51 PM
SASHA REDETA said: "...this means that some suppliers with low profit-margins or weaker credit are going out business."
D. FISHER SAID: "This is true under ANY tax system. No case against the FairTax here."
Again, do some math. It's not the same when you pay taxes only on your income and when you pay taxes on your total sales.
Since you suggest that all prices have embedded cost in them, I consider you are a lucky man. It shows that:
a) you never worked in a pure market competition in which market prices often drop below your current cost and ain't nothin' you can do 'bout it.
b) you never owned a business that went bankrupt as the result of a tax or fee that has nothing to do with your income
C) you get paid to advocate against the law of supply and demand, even if you instinctively know your arguments are not valid.
d) all of the above
Published: December 13, 2005 3:01 PM
Anarkhos said: "Fair tax, low tax, whatever. Unless you're cutting spending we all have to pay for it. Furthermore, the greatest problem with government isn't the taxing as much as it is the spending."
That's exactly the impotent attitude of Ludwig von Mises institute: never mind if some "libertarians" are lobbying for the destruction of our economy with a canny scheme that would take 23% of all sales revenues, even if you make little or no income before tax. You just repeat that taxation does not matter - and that government spending does.
Never mind that after a 23% sales tax destroys many businesses, government will perhaps reduce its spending (less tax collection), but it would still keep many of us unemployed and outside of legal economy...
So, keep disregarding Carl Menger and sit idly facing this ongoing “FairTax� propaganda that calls for a dangerous tax increase scheme – and most of Americans don’t even understand it.
Published: December 13, 2005 3:16 PM
But to return to original point: the fact that only those sellers that are able to recover their short-term cost are able to survive, does not mean that prices are formed by passing seller's costs to consumers. That's nonsense!
It's other way around in the real world. Market prices are reflection of demand and supply conditions. Some suppliers are lucky to have more power over buyer, but some of them don't have that power. You have no choice but to accept your market prices. These prices eliminate those who are unable to recover their costs. That's how it works.
But our current system will take only a portion of income that you make with those market prices. On the other hand, the "FairTax" would take 23% of your sales - even if you currently make little or no income. Again, you can't pass cost of taxes to consumers - they don't care about it. They only care about their willingness and ability to buy something at a current market supply.
Published: December 13, 2005 3:39 PM
Sasha
Would you happen to be an income tax lobbyist? I can understand your opposition if you are. You along with 40,000 other income tax lobbyists will lose your jobs.
Sasha, you said “NO! THE BOTTOM LINE IS THIS! Would rather have 23% reduction of your revenue, regardless of your current profit or loss - or would you rather have only a portion of your taxable income taxed? For anyone with knowledge of basic arithmetic the choice is clear, even if one hates any form of taxation.�
Basic arithmetic tells me that there is no way to have a portion of your taxable income taxed. If it’s taxable income, you pay tax on all of it. Basic arithmetic tells me that the 23% would not reduce my revenue because it is not my revenue to begin with. Anyone who considers this their revenue is going to run into problems. Until I retired I owned a retail furniture store. I never considered the 7% state sales tax I collected my revenue. It was not my revenue just like the 23% federal sales tax would not have been my revenue. I had a special checking account just for the sales tax I collected. Each day I deposited the sales tax I collected into this account. I kept it separate from my revenue. It would have been in heaven if there were no corporate income tax when I had my store. If I had all the money I paid in corporate taxes and accounting fees, I could have retired 5-years sooner.
I haven’t read a single legitimate argument against the FairTax. Opponents remind me of a farmer who refuses to give up his team of horses for a tractor. They remind me of a smoker who gives all the reasons why not to smoke then lights up a cigarette.
Tweaking our old worn out income tax code is like patching an old worn out tire. If you don’t get rid of it, eventually it will blow up and you will have a wreck.
If we don’t get rid of corporate taxes, our economy is going to have a wreck. Corporate taxes are destroying our balance of trade and will eventually destroy our economy. If this is the case, why is there a corporate tax? Good old income tax smoke and mirrors is why. If we were to eliminate corporate taxes, individual tax rates would go up 20% to 30%. By hiding corporate taxes in the price of the things we buy, Americans are less likely to complain.
One last point; here is just how uninformed many politicians are. Approximately a year ago Steve Forbes and Gene Sperling, former economic adviser to President Clinton, was being interviewed by CNN. The interviewer asked what their thoughts were on the FairTax. Mr. Sperling made the statement that the FairTax would eliminate deductions for mortgages and health care which would place an undue burden on middle income Americans. Forbes, with a smile on his face, stated "If there is no income tax, there is no need for deductions."
Published: December 13, 2005 4:21 PM
LOL! Steve Keller has a sense of humor but he badly collides with reality and science of economics.
Steve, like I told you, I am a black-market salesman who understands the price formation process. Even Aristotle did, in 4th century BCE.
Like I said so many times, firms cannot pass their cost forward in form of higher prices. Instead, dynamic market prices (forces of supply and demand) will eliminate those who are unable to recover their costs.
Currently, those of us who make little or no profit can still compete in a marketplace, because we only get taxed on income. If you make a small amount of income, you pay small or no amount taxes.
BUT IF THE FAIRTAX EVER GETS IMPLEMENTED (heavens forbid), YOU WOULD HAVE 23% OF YOUR CURRENT SALES CONFISCATED. There is no way you can increase price above the market level (or what customers are currently willing and able to pay). You would have to loose 23% of sales YOU CURRENTLY GENERATE, and hand it Uncle Sam, even if those sales get you only to a break-even point (and no income tax).
HEY! Do you even comprehend this? I currently hardly break-even based on current market prices (created by demand meeting my supply, and my customers couldn't care less about my costs). I pay minimal taxes and I'm able to survive.
STEVEN SAID: "Basic arithmetic tells me that the 23% would not reduce my revenue because it is not my revenue to begin with. Anyone who considers this their revenue is going to run into problems"
WOW!
HOLD ON!!!
So now you're telling me it's not our money - it's government's money, even if that money is generated with sales of my own product. Now I see... you are infected with Marxism.
But even a Marxist would understand how much larger a tax would be if it would apply to 23% of your market-price sales, instead of 10-35% of your INCOME (profits, earnings...). It's a common algebra folks.
Published: December 13, 2005 4:44 PM
Sasha -
Not sure your argument holds here. "Consumers" (neglecting that consumers are not a homogenous group) will (on net) have the same amount of income to spend on new goods as they have now.
The 3% gross margin business would then become a 26% gross margin business, 23% remitted from the consumer to the business to the government.
Clearly there would be a big shift to used goods.
Published: December 13, 2005 5:50 PM
"Like I said so many times, firms cannot pass their cost forward in form of higher prices. Instead, dynamic market prices (forces of supply and demand) will eliminate those who are unable to recover their costs."
Are you HALLUCINATING?
How do you think businesses pay for costs? Growing money? NO, they sell their products at a markup and consumers pay for costs. These market forces you describe exist now, just as they will if we have the FairTax, the Armey FlatTax, or no tax.
Published: December 13, 2005 5:54 PM
TO MAKE IT CLEAR ONCE AND FOR ALL:
I am an anarchist. I am for no taxes. But that also means that I prefer smaller taxes to larger taxes.
If someone advocates taxation in which 23% of your total sales will get confiscated - he/she advocates destruction of American economy. Only few of the riches and most powerful will be able to absorb this tax-attack. And the rest of us will have to resort to black market (because FairTax is stupid and has no way of knowing about the amount of inputs I purchase or the output of my production, making it easier to avoid reporting most of my inventory).
I'll say it again: market prices at their current level DO NOT CONTAIN A SPECIFIC INCOME TAX COST (that don't even exist for those who don't make any income). Taxes reflect constantly changing conditions of demand and supply that are beyond our control. These market prices eliminate those who can't cover their urgent short-term costs, but those of us who survive pay taxes only on income (profits) they make - if they make it.
This means that we all are forced to charge market prices (determined by dynamic supply and demand conditions) - and not based on our individual costs because they have nothing to do with our customer's willingness and ability to buy our products.
Imagine that I’m selling a product that costs me $90 to make. If I am able to convince my customers to pay market-price of only $100, this means I am creating a $10 profit per product ($100-$90), right?
- With our current income tax system, government would take $1-$3.5 of this money - and the rest would go to my own pocket.
- If the FairTax is implemented, Government would take $23 (23%) of my $100 sale. That would leave me without any profit - but not only that... I would suffer a loss of $13 per product.
AND THIS IS WHAT WOULD HAPPEN WITH MOST OF OUR SMALL AND MEDIUM-SIZE BUSINESSES IF "FAIRTAX" WAS IMPLEMENTED.
As you can see, "FairTax" would much more negatively affect aggregate supply in our economy and it would lead us to higher price level, greater unemployment, booming black markets, criminalization of our society and that would lead us to greater government's interventionism and tyranny to "fight" what it created in the first place...
Published: December 13, 2005 6:07 PM
Jim, there is a limit on durability of all used goods (not to mention the effects of a drop in production of new goods). But, sooner or later, we would have to produce and buy any service or new goods. And than, in the case of "FairTax" we would see catastrophic effects of 23% revenue confiscation as opposed to 10%-35% income taxation. It has nothing to do with current income. It is simply a confiscation of 23% of revenue, regardless of your profit or loss.
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Brian, no - I'm not hallucinating. You just have no idea how business works. Many businesses do not recover their costs; even if the federal government does not tax their revenue (they only tax profits - if they exist). That's why we have bankruptcies. Market price drops bellow your cost - and you are out of it. But many of us can still survive, make some income, and keep most of it for ourselves.
In case of the "FairTax", we would loose 23% of our sales revenue, which for most us would be like a 100% income tax, and many of us would be driven out business, due to the "FairTax" stupidity - not based on our customers' will.
Published: December 13, 2005 6:20 PM
Brian,
Actually Sasha isn't hallucinating. He's pointing out that prices are dictated purely by product supply and consumer demand. Costs don't directly enter into the question of price. This is why some firms fail, and others earn above interest returns. However, as Sasha has pointed out, increased costs will eliminate the marginal suppliers from the market, reducing supply and by that route, increasing prices. It's not exactly the way the marginal producers want to see prices increase in their market in response to cost increases from a new sales tax.
On the other hand, for this reason a general sales tax turns out to be the very same economically as a tax on income, because the incidence of these taxes must fall back onto the incomes of the producers (land and labor), rather than on the consumers (except that consumers are also producers).
The proposal is that the tax burden does not diminish, but just that the means of collection will change. For this reason, i would argue that at the very best, nothing will be gained by it. At worst, and most likely, we will end up with income taxes AND this great new tax. People will say "this is not what was supposed to happen" and then they will quietly continue about their business, more impoverished than before, as compliant as ever.
Published: December 13, 2005 6:32 PM
Sasha,
The thing that destroys the credibility of your scenario is your assumption that it still costs you $90 to produce a product after implementation. Assume, as many economists have calculated and predicted, that your costs will go down SIGNIFICANTLY, so significantly that some estimate the market price WILL NOT CHANGE, even after an inclusive 23% tax is figured. Let's pretend, as economists have figured, that your costs will go down $23 per product, and Bingo!, your profit is now still $10, and as a bonus for playing our game, you get to keep ALL of it, as there is now no tax on income.
Published: December 13, 2005 6:33 PM
Brian T. Taylor: "How do you think businesses pay for costs? Growing money?"
NOT ALL OF US ARE ABLE TO PAY FOR OUR COSTS. Businesses cannot simply decide how much revenue and profit they need, and just charge the price they want. That's a Marxist nonsense. It's not even purely Marxist... it's just a nonsense.
Market prices are formed separately from our individual cost (that's why they are called "market" prices). Market prices work similar to natural selection - they eliminate some of businesses. But the government is still not so stupid to tax our revenues, but instead it taxes profits. If we don't make profits - we have no tax costs. Well, not with the FairTax. It would tax 23% of your sales, even if that would leave you without any profit and even drive into debt and bankruptcy.
Published: December 13, 2005 6:34 PM
BRIAN SAID: "Assume, as many economists have calculated and predicted, that your costs will go down SIGNIFICANTLY, so significantly that some estimate the market price WILL NOT CHANGE, even after an inclusive 23% tax is figured"
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That's just a total nonsense. ONLY GOD CAN PREDICT MY FUTURE COSTS. Not some hired quasi-economists. Again, my costs do not include taxes... Prices of my inputs are determined by the prices of final goods or some political restriction of supply of inputs... and final goods prices are created regardless of my costs (and taxes I don't even pay, since I only break-even).
Published: December 13, 2005 6:41 PM
Paul thanks for your great comment. But I have to point out where a Mengerian has a disagreement with many libertarians:
"On the other hand, for this reason a general sales tax turns out to be the very same economically as a tax on income, because the incidence of these taxes must fall back onto the incomes of the producers (land and labor), rather than on the consumers (except that consumers are also producers)."
I ARGUE IT'S NOT THE SAME. There is a fine difference between taxing everyones sales revenue (even taking 23% of sales of those who don't make any profit or net income) - and to tax 10%-35% of someone’s PROFIT ONLY.
I know it's not popular here to argue that income tax can be better than some other method of taxation - but I am only advocating smaller taxes! Income tax is by definition smaller than an equal percentage revenue (sales) tax.
Published: December 13, 2005 6:50 PM
Sasha -- I see your point. The tax comes in two parts (a) a shift from personal income tax to "personal income taxes collected by businesses" -- However, to that extent, it may not have the effect you assert -- and (b) taxes levied on businesses as a proportion of sales revenue (the remainder of taxes that are not personal income taxes) irrespective of the net profit of the business. That would indeed be catastrophic to lower margin businesses.
Essentially, unless a business makes it's normal gross profit margin plus (say) 8% for the portion of taxes not collected by personal income tax, the business will fail. That business failure would cause an "uncollected tax" to occur (no taxing a non-existent business). The business failures may lead to the perverse argument to raise other taxes to pay for the loss in the first place!
I wonder if the proponents have discussed this?
Published: December 13, 2005 6:52 PM
Politics is the Art of the Possible - not the Ideologically Pure!
The issue of Federal Income Tax reform is where I have found the academics and their think tanks (on whom I normally rely on for well-researched information and level-headed perspectives) have been less-than-helpful. It is so easy to find fault with the FairTax plan while cloistered in an ivory tower of high-minded principles and uncompromising truth. But take a close look at history and you will find that evolution towards liberty and justice is often incremental, agonizingly slow, and frequently achieved via a series of small revolutions which usher in a tangled mixture of both bad and good changes. The passing of the FairTax would be one such small, imperfect revolution that will help to nudge this nation closer to the state of liberty and justice that inspired its creation in the first place. That is, unless too many well-meaning utopians trample it into the dust for the sin of being a tax.
Keeping the above observations in mind, I will endeavor to address all the points made in Mr. Laurence Vance’s December 12th posting, “There is No Such Thing as a Fair Tax.�
so-called "Lie" #1: “Taxes would be voluntary under the FairTax.� - OK, under both systems, we will all be forced to pay a federal tax; but I prefer the FairTax system, in that I can make the decision on how much money I spend on most things and whether or not I will buy something new and used, and thereby have some effect on how much I pay in taxes, without having to somehow reduce my income and compromise my ability to save. OK. Maybe I cannot buy "used food," but I sure can buy cheaper food and thereby reduce the total amount of taxes I am paying on my grocery bill. And, I have the benefit of seeing ALL the taxes I am paying in black and white on my receipt! Currently, unless you have the inclination and smarts to go read various economic studies, the average person has NO IDEA of how much money he is paying in federal taxes!!! Yes, taxation is by definition coercive! But how are we as citizens supposed to exercise the remaining freedoms we have left to fight the degree to which the federal government is stealing from us, if most of us are ignorant of how much is actually being taken from our wallets?!
And Mr. Vance is wrong to say that a person can escape federal coercion by not making any income. Even if you make no income, you still must file every year - and can be fined by the IRS for failing to do so. I know it is true from personal experience.
so-called "Lie" #2 “The FairTax would be 23 percent.� – Mr. Vance, as so many of its other opponents have done, point out that the percentage figured as an exclusive rate would be 30 percent. This is a cheap shot, Mr. Vance, and is beneath you. The FairTax is generally expressed as an inclusive rather than an exclusive rate, so as to accurately compare it with the percentage of our wealth we currently lose to the income tax, the rate of which is expressed inclusively, not exclusively. The fact that Mr. Vance will stoop to this level of nitpicking make me suspicious of his motives.
so-called "Lie" #3 “The FairTax would abolish the IRS.� - I should think that the vast amount of personal information that would no longer be handed over annually to an agency like the IRS would be a vast improvement over the situation that we have now. Just ask those individuals who have been the target of the Clinton administration via the tax code. Lessen the amount of private information and confusing regulations and the abuse of power will be reduced. Don't turn up your nose at improvement for the sake of an unobtainable perfection!
Problem #1 “The FairTax hides the amount of sales tax being paid.� - I don't believe Mr. Vance has done his homework. The amount of tax paid on each purchase will be plainly displayed on its own line on the receipt. Currently, in my own state of NC, the amount of state sales taxes is clearly itemized on all my receipts. And this will not be sufficient to make federal taxes visible? Or perhaps Mr. Vance is expressing concern over illiterate taxpayers?
Problem #2 “The FairTax is progressive.� - Yes, those who earn below the federal definition of the poverty level are spared the responsibility of paying their fair share. However, spending below the poverty level is not taxed across the board. The millionaire, just the same as the lowly fast-food restaurant employee, will not pay taxes on money they spend below the poverty level. In that sense, it is fair. Let's face it, doing anything less will never fly politically. But this arrangement is far closer to the concept of “fair� than the one we have now.
Problem #3 “The FairTax is an income redistribution scheme.� - We’ve got that situation now, but under the FairTax this will be reduced. We all know that a lot of income is successfully hidden by individuals who wish to qualify as “poor.� However, the majority of Americans do NOT spend below the poverty level, and so there will be a greater contribution to the federal coffers from the "poor" than you might suppose. In addition, the FairTax may well reduce their numbers, as resources heretofore wasted on complying with our current tax code are instead made free to create jobs; and as expatriate corporations and off-shore bank accounts return to our country, now a tax haven for business.
Problem #4 “The FairTax creates new tax collectors.� – Mr. Vance seems to be getting a little hysterical here. Businesses already collect state sales taxes (AND, in effect, Federal taxes too, the cost of which is embedded in the prices charged their customers). So what's the big difficulty here? And, as for the babysitter scenario: Give me a break! Do state governments who collect sales taxes currently track down those who hold garage sales and demand their cut of the action?
Problem #5 and #6 “The FairTax creates new taxes . . . and new taxpayers.� - Again, federal taxes are already embedded in the cost of heart surgeries, kidney transplants, appendectomies, drugs, and tickets for baseball, football, or basketball games. And these are already being paid by non-profits and churches. Only under the FairTax plan, these additional costs will finally be VISIBLE (i.e., a separate line on the receipt)!!! The final cost of retail items and services will not change significantly, but the consumers will finally know how much they are actually paying in taxes!!! Remember that the most successful thief is the one whose victims are unaware that they have been robbed!
Problem #7 “The FairTax makes it easier . . . to raise taxes.� – How can Mr. Vance say this? It is a hell of a lot easier for Congress to raise taxes now than it would be under the FairTax plan. Currently, the complexity and vastness of the tax code makes it easy to hide tax increases - and also, as different groups lobby for different treatment under the law, politicians routinely use a divide and conquer strategy, pitting different groups against each other (each satisfied with being fleeced slightly less than the others), to raise additional revenue. If everyone pays one rate, we ALL (the millionaire AND the cafeteria worker) are going to be equally concerned when some imbecile in Congress proposes raising it.
Problem #8 “The FairTax makes it easier for state governments to raise taxes.� - Perhaps some states would be stupid enough to add sales taxes on top of existing income taxes. They may soon find that the residents and businesses within their borders will begin voting with their feet, and move to states with the more enlightened tax policies. Changing states is a much easier proposition for most folks wishing to escape excessive taxation than is the option of changing countries.
Problem #9 “The FairTax has unknown and potentially huge transition costs.� - Oh, please!!! Transition costs? Again, more hysteria. I am supremely confident that any figure Mr. Vance could come up with for a transition to the FairTax would pale in comparison to the billions of dollars currently being wasted by private individuals and businesses EVERY YEAR just complying with our current federal tax code.
Problem #10 “The FairTax makes certain exceptions while supposedly having none.� – The author may have a point here: Exempting education from taxes perhaps could open the door for other future exemptions. As no bill can pass through Congress unscathed, it may be best for this part of the FairTax bill to be eliminated, lest it offer justification for further exemptions. However, this is hardly enough of a flaw to tip the scales against the whole plan, in my view.
Problems #11 & #12 “The FairTax has great potential for fraud� and will turn “law-abiding Americans into criminals.� - And people don't cheat now? Worse yet, we are all in danger of being fined, or even prosecuted and jailed as tax cheats, without our having had any intent to do so at all! Almost 40 percent of the public, according to the IRS, is out of compliance with the present tax system, mostly unintentionally due to the enormous complexity of the present system. The difference under the FairTax plan will be that enforcement will be a much easier and less-expensive job, as only retail businesses will be filing. The roughly 90-percent reduction in filers enables tax administrators more narrowly and effectively to address non-compliance and increases the likelihood of tax evasion discovery. To claim that investigating 90 percent fewer filers, all paying the identical rate (with none of the deductions, loopholes, etc., that permeate our current federal tax code) would require "an army of federal bureaucrats that would rival the IRS" is a ludicrous statement to make. Mr. Vance should be ashamed of himself for exhibiting such clumsy thinking.
Problems #13 & #14 “The FairTax does not repeal the Sixteenth Amendment . . . or “eliminate all federal taxes.� – Mr. Vance’s concerns that the 16th Amendment would not be repealed and additional types of federal taxes would remain after a federal sales tax has been imposed are noteworthy objections. It is not difficult to imagine the scenarios he describes occurring. I shudder to imagine this country's fortunes under the double burden of both a sales tax and a re-imposed income tax. However, all worthy endeavors involve risk. And when I think of the widespread support that will be required to make the FairTax a reality - the overwhelmingly high popularity of the idea (and enormous amount of public education) sufficient to overcome the machinations of the politicians, the lobbyists, the moneyed interest groups and unions, etc., who are its enemies - I am confident that such a spectacular grassroots effort would not let Congress get away with failing to finish the job by allowing the 16th Amendment to stand. Revolution is a messy business, and waiting around for a 100 percent guarantee that everything will be won after a single legislative battle is naïve, at best. Imagine if this attitude prevailed among those who fought for equal rights under the law for women and for blacks? Horrible things still happened to women and blacks after the main battle for a change in the nation's law was won, and many believe that the battles for those equal rights continue even today. Is the necessity of subsequent battles (in other words, eternal vigilance) be justification for failing to fight the first one? I think not.
Problems #15 & #16 “The FairTax is not at all about lowering . . . taxes� and “doesn't . . . address the root of the problem.� – Yes, the fact that the federal government claims the authority to tax us IS the root problem. Yes, the fact that the federal government is bloated and has taken on powers well beyond the original limits set by our founders IS obscene. Yes, the level of federal spending is a cancer on this nation that a plan like the FairTax will not cure. These are all problems for other legislation that can only be demanded by a more informed and prosperous population. The FairTax is the system that will eliminate, or at least reduce, a large number of evils endemic to the federal income tax regime under which we toil today. Yes, the fact that we are essentially mugged by Big Brother every day of the year will not change; but under the FairTax, this fact will become obvious to more and more Americans who currently see their tax refunds as a gift from Uncle Sam instead of the interest-free loan they are compelled to make to the government via withholdings.
Problem #17 “The FairTax makes welfare universal.� - The FairTax, complete with its buy-in to the concept of progressiveness (needed to make the concept palatable to the vast majority of its supporters in this country), is merely conforming to what is politically possible right now. However, it will eliminate the more egregious characteristics of the current federal tax system (i.e. the waste, the corruption, the growing drain on our economic well-being, the invasion of privacy, etc., etc.), it will help to chip away at the social and political forces that keep us enslaved. As Boortz would undoubtedly agree, even after the FairTax, a large number of evils will remain, the chief one being the widely accepted myth that there is a fair way for the Federal government to essentially steal the wealth of its citizens and waste it on liberty-destroying programs. However, it seems that Mr. Vance is saying that the only reform that could possibly merit the approval of true liberty seekers is the elimination of all forms of Federal Taxation full-stop. All those who wish to try garnering support for that piece of legislation, be my guest; and good luck to you. I, however, prefer to devote my energies towards gradual, long-term reform measures that actually have a chance of becoming law, rather than high-minded pontificating. Politics is, after all, the art of the possible - not the Ideologically Pure!
Published: December 13, 2005 6:53 PM
PAUL EDWARDS: "Actually Sasha isn't hallucinating. He's pointing out that prices are dictated purely by product supply and consumer demand. Costs don't directly enter into the question of price. This is why some firms fail, and others earn above interest returns. However, as Sasha has pointed out, increased costs will eliminate the marginal suppliers from the market, reducing supply and by that route, increasing prices. It's not exactly the way the marginal producers want to see prices increase in their market in response to cost increases from a new sales tax."
ABSOLUTELY CORRECT! Market prices are determined beyond our direct individual control and they eliminate some firms that can't cover their urgent costs. I can't force my customers to pay $40 for a large Pizza, just because my costs are higher than Pizza Hut's. I have to accept prevailing market reality, expressed in prices.
Input prices are determined by final goods prices. If demand for a product is equal to zero
At the same time, at least government now taxes me only on my small income (when I make any). In case of the FairTax, they would destroy me immediately, because I would loose 23% of my revenue, before I even can think about profits.
Published: December 13, 2005 7:05 PM
Input prices are determined by final goods prices. If demand for some products is equal to zero there's no demand for inputs of those products. Input costs are completely in hands of demand and supply forces, and just like final goods prices, they do not reflect producers' individual costs.
Published: December 13, 2005 7:09 PM
Sasha,
What about these two scenarios: exclusive flat tax on land and labor income of 25% vs an exclusive flat sales tax on all consumables of 25%. I haven't thought it all the way through, but these two scenarios strike me as economically identical. Do you agree?
Published: December 13, 2005 7:17 PM
Paul, not they're not identical. The simplest way to think about is this:
- Income tax applies only on your profits and only when you make them. Income tax subtracts only a percentage of your income, and you get to keep some of it.
- Sales tax applies equals to everyone's total revenue, even if it takes all of someone's income.
Published: December 13, 2005 7:25 PM
Sasha,
Why do you continue to assume your costs will stay the same?
I'll assume you are in the Pizza business, since that's what you've mentioned.
Post-FairTax, you won't pay taxes on your raw ingredients. Your distributor won't pay taxes on the raw ingredients he distributes for the manufacturer. The manufacturer won't pay tax on his profits, the grain, milk, tomatoes, beef, etc.
All of these eliminated taxes at various points in the production process are GONE, thus lowering your "costs" significantly.
Also, you fail to consider that ALL businesses are charged with collecting the same tax, and that all will be faced with changing profit margins.
Published: December 13, 2005 7:26 PM
Paul. No, they're not identical. The simplest way to think about is this:
- Income tax applies only on your profits and only when you make them. Income tax subtracts only a percentage of your income, and you get to keep some of it.
- Sales tax applies equal percentage to everyone's total revenue, even if it takes all of someone's income.
Published: December 13, 2005 7:27 PM
Brian,
I don't pay any federal taxes on my ingredients. Their price is determined by supply and demand forces for my final goods (because, that's how we pizza guys create larger or smaller demand for these ingredients, which in turn determines their prices).
Again, costs would be totally independent of taxes, and I am not able to pass all these costs to consumers, due to prevailing market price - trust me when I say it. I can make some income and pay only a percentage of these profits to government. But a 23% "FairTax" would take all my income and drive me out of business. That will be the case for everyone whose total sales do not exceed costs by more than 23%. A lot of people...
Published: December 13, 2005 7:34 PM
One more time: prices of inputs (cost of my production) do not have taxes or any other costs embedded. Just like final goods, prices of inputs are determined by forces of supply and demand. A producer of my inputs cannot just charge me above the market price, just because his costs are higher. My budget doesn't care about his costs. He is forced to follow prevailing market conditions, even if it means he's going out of business (and many of them do). Demand for my final products determines a demand for a given supply of inputs - and that's what creates prices.
So when my rich competitors succeed in lobbying for the "FairTax" and drive me out of business (together with other "small fish"), they will not only have a larger market share, but they will also have a greater market power over current suppliers, many of whom will not stay in business when we go bankrupt.
Published: December 13, 2005 7:48 PM
Sasha,
Are you aware that there are taxes on everything? You do pay federal taxes on your ingredients. You don't pay them directly, however. They are included in the price you pay for a bag of cheese. If the FairTax were implemented, those taxes would go away, causing your cheese to cost you much less per bag. This would, of course, increase your profit margin. To what, I don't know. But it would increase.
Published: December 13, 2005 7:54 PM
Brian, I don't pay taxes on my inputs, period.
Prices of inputs have to follow the law of demand and supply, just like my prices do. No matter what my costs are, or regardless of amounts I pay on my taxes (you don't pay any if you don't have taxable profit) - prevailing price is what it is... Same goes for sellers of inputs. They also can't hit me with some crazy price for a bag of cheese, just because their cost is too high. We (final goods sellers) cannot afford those crazy prices. That's why our demand and their supply generate dynamic market prices, regardless of costs - and many of our suppliers cannot survive with current market prices of their products - and they don't.
If you abolished income tax, that would not stimulate some suppliers to increase their production. Why? Because, they don't produce inputs just for the heck of it. They do it to satisfy my demands. And if and when this FairTax drives me out of business, there will be no demand generated from my business.
Published: December 13, 2005 8:09 PM
Sasha,
We'll try this from another angle.
Ok, you don't pay taxes on inputs. The farmer, manufacturer, and distributor of your products pay taxes at the various stages of production. They just pass those costs on to you.
Published: December 13, 2005 8:34 PM
This discussion will go on forever if "FairTax" don't realize that prices all goods and services (including inputs) are formed by supply and demand forces that are beyond control of individual firms. These prices eliminate those firms who are not able to meet their urgent bills - and these "poor" firms are not able to pass their costs to consumers by charging above our prevailing market prices.
Therefore, replacement of income tax by the "FairTax" will remove 23% of the total revenue you create with market prices (instead only taking 10%-35% of your profits, if you make any). The FairTax will not positively affect your costs, because prices of inputs are also formed by supply and demand - and not according to producers' costs (they whish)...
Imagine a day on which FairTAx is implemented. Demand and supply will still be the same as the day before, only the government will take 23% of our TOTAL current sales - instead of taxing only our income. This would drive many of us out of business, monopolizing markets and putting upward pressure on prices and negatively affecting all stages of production.
I mentioned how easy it will be to hide our inventory due to tax-free purchases of inputs and we will be driven to black markets. This in turn will provide huge amounts of revenue for Mafia and organized crime, because they're the one who collect taxes and provide forced-protection in underground economy.
Published: December 13, 2005 8:39 PM
Brian,
passing costs do not exist in the real world. It only exist in heads of pseudo-economists. If firms were able to form prices by simply passing costs (and if we were willing and able just to accept that and give them what they ask), no business would ever go bankrupt. I mentioned this, like million times.
Published: December 13, 2005 8:43 PM
"We have sunk to such a depth that the restatement of the obvious has become the first duty of intelligent men."
George Orwell
Published: December 13, 2005 8:46 PM
Resorting to insults is the mark of a futile debate. Either I am an impotent communicator, or you are intentionally obtuse. Either way, this is fruitless. Good day, sir.
Published: December 13, 2005 9:26 PM
I did not mean to insult you with Orwell. It just explains my repetition in this discussion.
At least, I hope you finally understand now that market prices are formed with participation of both buyers and sellers. Sometimes market price is above your costs and sometimes it's bellow.
That's why income tax is less cruel, because it hits you only when you make profit. The "FairTax" on the other hand would tax your revenue, even if you don't make any profits. And again, it would not reduce any prices, because the "FairTax is much larger tax for final products than current income tax (23% of my total revenue is much larger amount than 35% of my profits). And if sales of final products are all of the sudden so brutally taxed and driven out of business, input producers will be in trouble as well.
Published: December 13, 2005 9:43 PM
correction:
And again, it would not reduce any INPUT prices, because the "FairTax is much larger tax for final products than current income tax...
Published: December 13, 2005 9:54 PM
... input producers would still have customers in black-market production. But it would increase their risk and cost.
Published: December 13, 2005 10:00 PM
Sasha said "That's why income tax is less cruel, because it hits you only when you make profit. The "FairTax" on the other hand would tax your revenue, even if you don't make any profits."
The largest percentage of Americans are wage earners not independent income earners. Their wages are their profit and they pay income taxes before they have a chance to spend any of their profit; thus reducing their buying power. With the FairTax their profits would not be taxed until they made a purchase; thus increasing their buying power.
Demand may contorl prices but buying power controls demand. If everyone only earned $20,000 per year, how much demand would there be for Mercedes cars? The greater the buying power the greater the demand, the greater the demand the higher the prices. Income tax reduces buying power; the FairTax increases buying power. Result; the FairTax will increase the demand for your pizzas and you will be able to sell them at a higher price. You will still have your small profit but you won’t be required to file an income tax return.
Published: December 13, 2005 10:55 PM
Sasha,
passing costs do not exist in the real world. It only exist in heads of pseudo-economists. If firms were able to form prices by simply passing costs (and if we were willing and able just to accept that and give them what they ask), no business would ever go bankrupt. I mentioned this, like million times.
Look at the problem from the other direction.
If only the company's part of payroll taxes were doubled, would the prices of its products tend to increase, decrease, or stay the same?
Regards, Don
Published: December 13, 2005 11:29 PM
Steve Keller,
- Most of Americans don't work as independent contractors. If national sales tax strikes businesses with a 23% revenue tax, many of them will go out of business, and their workers will loose their job and paychecks.
- Total wages are not profit. As you well know, you get to deduct from your labor revenue all your associated cost of providing that labor, and that constitutes taxable income. Again, you pay only taxes on your profits. But in this country, you have a free choice whether you will sell your labor services, or you will work for yourself selling products to others. Either way, the FairTax is destroying you... Either by taking 23% of your revenue - or by destroying your employement opportunities.
- If the FairTax was implemented, many employers would not be able to compete and absorb 23% revenue tax. A lot of workers would face lay-offs, which means that supply of labor would exceed demand. Labor-buyers/corporations would now have a greater power, not only over buyers of their product, but also over labor. Only black markets could save the country from a colapse, and they would. But government would fight against it, make no mistake about it.
Published: December 13, 2005 11:34 PM
Don, if company's payroll taxes increase - it still cannot pass its costs to consumers, without their retaliation (and consequent suplus).
When you hit a company with some higher tax, you only reduce its profitability and chance for survival. WHAT A WONDERFUL WORLD WOULD IT BE, if higher costs and higher taxes would, instead, give you a greater ability to increase your prices and suffer no loss.
But that doesn't happen in real life. Market prices have a funny way to disregar sellers cost, wants, and needs. Ain't life somethin'.
Published: December 13, 2005 11:40 PM
Don, if company's payroll taxes increase - it still cannot pass its costs to consumers, without their retaliation (and consequent surplus and loss).
When you hit a company with some higher tax, you only reduce its profitability and chance for survival. WHAT A WONDERFUL WORLD WOULD IT BE, if higher costs and higher taxes would, instead, give you a greater ability to increase your prices and suffer no loss.
But that doesn't happen in real life. Market prices have a funny way to disregard sellers cost, wants, and needs. Ain't life somethin'.
Published: December 13, 2005 11:48 PM
Sasha,
Don, if company's payroll taxes increase - it still cannot pass its costs to consumers, without their retaliation (and consequent surplus and loss).
Have you ever heard of the concept of 'profit maximization'? How about 'marginal cost'?
A company that prices to maximize its profits sets its prices in response to the projected demand schedules of consumers. It must adjust its prices if its marginal costs change.
In a mythical perfectly competitive product market, the profit maximizing price is equal to the marginal cost. Thus the price must follow the marginal cost dollar for dollar up or down.
In a product market under monopoly supply conditions, the profit maximizing price is set so that marginal revenue is equal to marginal cost. This will normally approximately mean that prices must track the marginal cost at a rate of 50 cents per dollar up or down.
Thus, if the company part of payroll taxes were eliminated, this reduction in marginal cost must imply a lower price if profits are not to be left on the table.
The above is straight-forward because the marginal cost effect is known. When the employee part of payroll taxes is eliminated, and the personal income tax is eliminated, the company marginal cost will also be reduced, but the degree of that reduction will depend on the competitive structure of the labor market.
I suspect that the corporate income tax is likely to be only partially characterizable as a marginal cost. To the extent that it is, prices will tend to fall when it is eliminated. To the extent that it isn't, the company will tend to realize an increased profit.
Regards, Don
Published: December 14, 2005 1:31 AM
Don,
You got it almost all wrong. Your Economics 101 teacher did not explain that in real business we use cost curves, PROJECTED FUTURE demand, and PROJECTED FUTURE revenue curves - only as our wild guess about the future prices. No firm has a power to predict market outcomes, let alone to dictate customers' demand (income, wealth, tastes and preferences, number of buyers, prices of complementary items, prices of substitutes, future price expectation...).
Firms do not "set" market price outcomes. They try to predict those prices when they decide to incur a certain cost. Market prices are formed based on dynamic, unpredictable, and in some cases (like with tastes and preferences) immeasurable factors of demand and supply. In a process similar to natural selection, these price conditions eliminate those firms that cannot recover their variable costs of production.
Allow me to use Hoppe's interpretation of Rothbard http://www.mises.org/etexts/hhhonmnr.asp :
"Production, as explained Rothbard, precedes the sale of final products, and production costs must be incurred before consumers can demonstrate their preference for one’s products. Cost curves on the one hand and the demand and revenue curves on the other do not exist simultaneously! The only curves that exist simultaneously with cost curves are entrepreneurially estimated FUTURE demand and revenue curves.
However, in deciding on the quantity of goods to be produced, every producer will always set his output so as to maximize his expected money earnings, ceteris paribus. That is, in the monetary calculations leading to his output-decision, expected price and marginal revenue are NEVER equal to marginal cost. No one will produce anything unless he expects its price to exceed its cost; and no one will expand his output, unless he expects marginal revenue to be higher than marginal cost."
AND THAN COME THE REAL MARKET PRICES! Firms can charge their products any way they want based on their predictions, but it's the customers with their changing, unpredictable tastes and preferences who decide if they will accept this price. Firms never guess it right, but there are prices at which market tend to approach clearing.
FIRM HAS NO CHOICE BUT TO ACCEPT MARKET SIGNALS ABOUT REAL PRICES. Forecasting errors are common, but force of demand is telling us if we produced too much or too little (with product shortages and surplus). So firms can only listen to market prices - and pray to G-d to forecast it accurately enough to survive.
Ergo, market prices can only be forecasted (and costs arranged accordingly), but customers don't really care about our forecasts and they have a final say about market price. And we have to accept it.
---------------------------------------------
- Therefore, firms have no mystical power to somehow make customers pay more - if our costs go up. Elimination of payroll and income taxes would only be followed by introduction of much harsher revenue tax. Since you can't control market-price at certain supply (customers do), a firm is forced to actually loose 23% of its revenue (instead of only loosing some of its profits. One set of marginal costs is replaced by much worst costs! As a result, some sellers would be forced out of markets and prices would only than go up.
---------------------------------------------
Don also said: "In a mythical perfectly competitive product market, the profit maximizing price is equal to the marginal cost. Thus the price must follow the marginal cost dollar for dollar up or down.
In a product market under monopoly supply conditions, the profit maximizing price is set so that marginal revenue is equal to marginal cost."
You got this wrong, even from the mainstream perspective. Price is never "set" - not even by a monopolist. Why? Because a monopolist can try to get to the point where marginal revenue equals marginal cost (even though he can really only guess about that point)- but that will not determine price! Instead, a monopolist will have to take this produced quantity to marketplace and let it intersects with "demand curve" that is only in G-d's hands!
Same goes for theoretical "pure competition". Marginal revenue curve that needs to be forecasted when you incur costs - actually equals to a horizontal demand curve (because firms are price takers, no matter what quantity you produce). Suggesting that a firm can control or predict the market price, would actually suggest that all existing firms have some kind of unified control over people's destinies and preferences.
PS
I don't have time to get to Armen Alchian and explain why "profit maximization" is impossible in uncertain world in which we have a distribution of potential outcomes. Next time...
Published: December 14, 2005 4:32 AM
Sasha is right, and everyone trying to argue that a 23% (30%) price hike can be passed on to the consumers is engaging in a futile enterprise.
When I buy something, my willingness to pay a certain amount is entirely disconnected from the input costs of a good. If I'm willing to buy a pizza for $20, no tax can magically make me willing to pay more.
If your firm produces any good, that good will inevitably be the market's equilibrium price where the number of buyers willing to pay equals the supply. Businesses cannot just set any price, because they end up with surplus goods and less profit.
On Dec. 31st, the market price of a pizza might be $20. If Fairtax is instituted on Jan. 1, the market price of a pizza (what buyers are willing to pay) will still be $20. The 30% tax will not magically make pizza buyers willing to pay $26. That means pizza parlours will have to give $4.50 from each pizza to the State. Many pizza parlours who were barely turning a profit will find themselves unprofitable and have to close down.
In the *long run*, once enough pizza parlours have gone bankrupt, the pizza market will shrink enough that there won't be enough pizza to sell at $20. Only once the market shrinks can the market price of pizza go up — reducing both the number of people making pizza and the number of people able to afford pizza. The net result: less income for the producers, and less wealth for the consumers. The resources that would have gone into pizza production in a free economy are diverted to less productive means or not developed at all.
It's certainly true that the government will be diverting and wasting the same resources in either tax scheme. Fairtax would simply introduce a major shock the economy as businesses viable under the income tax system went bankrupt from sales taxes.
Published: December 14, 2005 6:41 AM
Sasha,
Surprisingly, I think that I agree with virtually everything you say except for your interpretation of what I said.
My use of the word 'set' is only meant to have the power of affixing a price label to a good on a shelf, or printing a catalog price, for example. It doesn't mean that a customer will necessarily actually buy at that price. You may have overlooked the fact that I used the phrase 'projected demand'.
The bottom line is whether after-tax prices will be lower than the old prices times 1.30. The answer is that they will have to be if sold quantities are not to drop off the table. If the tax were simply added without any reduction in manufacturer costs for new production, most manufacturers would withdraw from business. However, the elimination of the various existing taxes produce real cost savings in both labor and other factor prices when filtered through the appropriate markets, allowing the manufacturers to remain in business. The manufacturers' revenue WILL fall, but so will his costs.
Regards, Don
Published: December 14, 2005 6:59 AM
Maybe I didn't explain my disagreement well enough.
Don, let's put the factor of time in consideration, and make example as simple as possible:
At the moment of the FairTAx implementation:
- Firms hold products for which they already incurred costs. So these costs include all taxes already paid for workers who participated in production.
- They face some market prices they have no control over. They will have to accept those prices, even if they made a forecasting error building up too much or too little inventory.
- Instead of paying only tax on income, now they will loose 23% of their revenue - which would totally erase income for many companies. Like a 100% income tax, plus some more variable cost that some firms will not be able to recover.
So we would face instant elimination of many businesses, which would lead us to drop in aggregate supply and higher prices.
And what would happen when those who survive need to make next output decision... Situation as following:
- Surviving firms will have to accept new demands and market prices (higher prices reflecting lower supply)
- They no longer face their part payroll taxes of 7.65% - good news.
- They will have to face 23% tax which would be deducted from the price of each good sold, or in other words: 23% marginal revenue tax, regardless of your profit or loss - bad news.
What will be the net effect of drastically lower supply, no payroll taxes, but instead the presence of ruthless 23% revenue tax that applies to every good sold, even if you can't recover your average variable costs... It will be the effect of a great wall that will keep out much of potential competition.
Published: December 14, 2005 7:30 AM
Sasha,
Do you consider the ~7% state income tax you collect right now as a 7% loss of revenue?
Published: December 14, 2005 8:26 AM
Sasha said "Most of Americans don't work as independent contractors. If national sales tax strikes businesses with a 23% revenue tax, many of them will go out of business, and their workers will loose their job and paychecks."
This is ridiculous! When a business goes belly up it is usually no fault but their own. They either picked the wrong location, they offer an inferior product, they did not give quality service, they started the business with too little working capital, or they chose to represent a product with no demand.
With the FairTax every business will have a 23% revenue tax so the playing field will be equal. If your business goes belly up it sure won’t be because of a revenue tax. Let's say you currently can generate a profit by selling a product for $1.10 that costs $1.00; everyone who sells that product will have a 23% revenue tax. At first you will need to ad the 23% to the selling price to maintain the same margin of profit. If there is a demand for this product, you could add a 50% revenue tax to the price and people will still buy it. As old inventories are replaced with new the cost of this item will drop to around 75-cents and the selling price will revert back to around $1.10 giving you the same profit margin.
Many Barnies are located in the food court at a mall. Most every location in the food court sells coffee at half the price of Barnies'. Why then is there always a line at Barnies? They sell a great cup of coffee. If Barnies coffee shops added the 23% revenue tax to a cup of coffee, people would still buy it. We have at least 10 restaurants in our little town that serve pizza. The restaurant that sells the most charges twice as much as any one else. Why? They have the best tasting pizza, they have a great location, and they deliver within 30 minutes.
Published: December 14, 2005 8:30 AM
First, just a comment of this Don's statement: "Thus, if the company part of payroll taxes were eliminated, this reduction in marginal cost must imply a lower price if profits are not to be left on the table."
Again, it's slightly different here at my pizza joint :-). Rothbard was right when he said: "in deciding on the quantity of goods to be produced, every producer will always set his output so as to maximize his expected money earnings, ceteris paribus... no one will expand his output, unless he expects marginal revenue to be higher than marginal cost."
That deals with the issue of uncertainty. Firms are trying to play it safe where marginal revenue is above marginal costs, and not to base their output shooting for some uncertain point. Than market prices act like agents of natural selection, weeding out those who did not happen to be close to this optimal point. Unpredictable force of determines if some firm positioned itself at the right place.
When firms see their marginal costs dropping, they don't say: "let's reduce our prices in order to make a profit-maximizing intersection with marginal revenue, so we can maximize profit at our projected demand (which is impossible to guess)".
It happens differently. We don't know about exact demand conditions. Lower costs (higher profitability) actually stimulate overall supply by attracting more competitors, which in turn put downward pressure on prices. Firms don't drop their prices as their reaction to their own drop in costs - they do it reacting to changes in supply.
Published: December 14, 2005 8:42 AM
Steve Keller said: the truth.
Thank you for saying what I couldn't find the words to express.
Published: December 14, 2005 8:43 AM
Brian T Taylor asked me: "Do you consider the ~7% state income tax you collect right now as a 7% loss of revenue?"
I don't collect any taxes. And no, state income tax of 7% is not 7% loss of revenue (sales). It's 7% loss of profit - and there is a fine distinction there.
Published: December 14, 2005 8:47 AM
Sasha,
Do you live in a state without a sales tax?
Also, how is the sales tax a loss of profit? It is paid over and above your menu price and simply remitted. Owners actually get to keep a small portion as an administrative cost.
Published: December 14, 2005 8:54 AM
Steve Keller said some more nonsense.
"This is ridiculous! When a business goes belly up it is usually no fault but their own."
YEAH RIGHT!
If I am currently able to make profit, pay taxes on that profit, and keep myself business, in spite of the fact that US Government took a good chunk of my profits. That means that I am capable of survival in our markets. It is the customers who decided that!
But if all of the sudden some "Einstein" implemented sales tax of 23% on my market-prices, I would loose almost 1/5 of my total sales - and I would be driven out of business. Not by the free will of Americans - but brutal plunder. In order to survive this, you'd have to have either a financial empire or double-digit profit margin. Give me a break! Not everyone is Microsoft or Wal-Mart.
Another funny statement: "If there is a demand for this product, you could add a 50% revenue tax to the price and people will still buy it."
LOL!
You'll kill me with this Boortzonomics.
Law of demand :-) You must have skipped it in school.
Quantity demanded must drop as the price go up. If people were indifferent to prices, there would be no drop in sales if Neil Boortz's book cost $1 or $1 million. Do you realize what you just suggested???
You are now openly advocating that all of us who create jobs, wealth, and pay taxes - should simply be driven out of business if we don't have large enough business to endure 23% revenue confiscation!!!!! And now you preach that once these monopolies are established, that prices would stabilize"
Yeah right... At least, now they openly admit what's this all about.
Published: December 14, 2005 9:03 AM
Sasha,
The problem of already produced products with embedded historical tax costs is a transition issue. If the new sales tax is blindly and abruptly applied to such products, this would indeed be a mistake.
- They no longer face their part payroll taxes of 7.65% - good news.
But this is not the only good news. The savings due to the elimination of income and payroll taxes on the employee will be split between the employee and the company as determined by a competitive market for labor.
Try the following thought experiment.
1. Only eliminate the income and payroll taxes and don't add a retail sales tax.
Do you have any doubt that retail prices would fall due to market competition and the self-interested actions of all the players involved?
2. Add a retail sales tax of 0.001%. Is there any doubt that most final after-tax prices would still be lower?
3. Increase the retail sales tax rate as desired.
It is a logical necessity that some rate exists for each good that will cause the after-tax price to return to the original price. Whether the add-on 30% rate is any approximation to such a rate for most goods is an empirical question, but some such rate must exist.
Regards, Don
Published: December 14, 2005 9:11 AM
Sasha, Your attitude is showing me that the truth is beginning to hurt. You must not serve the best pizza in town.
Published: December 14, 2005 9:14 AM
Brian: "Also, how is the sales tax a loss of profit? It is paid over and above your menu price and simply remitted. Owners actually get to keep a small portion as an administrative cost."
I explained this so many times, but for some strange reason, you expect a different outcome with same attempts.
- FairTax can even be a 100% loss of my revenue, because I can't change my current market prices and I'm forced to absorb this tax as my new cost. This in fact would represent 23% confiscation of my revenue, regardless of my profit-size.
- My menu prices are not same as the market prices. Menu prices will be artificially mandated and created after my current market price is reduced by approx. percentage of sales tax (amount that government plunders, driving many out of business).
- Collection fee is the evidence of the FairTax stupidity. I get paid to monitor myself! At the same time, I am buying inputs government knows nothing about - and I'm creating black market product - tax free! Sellers and customers can benefit from this tax evasion, and they will.
Published: December 14, 2005 9:16 AM
"Sasha, Your attitude is showing me that the truth is beginning to hurt."
It hurts me from laughter, once I realized your ignorance of law of demand.
Published: December 14, 2005 9:18 AM
I always get a kick out of economists and others who, when thrown a few numbers or statistics, will go back and forth with scenarios ad nauseum on how their number is right and the other one is wrong.
The crucial point in this debate is not about numbers.
Here we have a radio shock jock who never saw an unworthy US military engagement - and the billions of dollars that each one represents - suggesting that we revamp the tax system for efficiency and less coercion. Have a look at the cost counter of the Iraqi/Afghan fiasco, http://www.projectbillboard.org/ticker.html and then consider whether Mr. Boortz's 23% or 30% really matters.
How any sane man could even consider a monetary proposal from a warmongering, feckless radio entertainer is beyond belief.
Published: December 14, 2005 9:28 AM
Heather Chapman said:
"And, I have the benefit of seeing ALL the taxes I am paying in black and white on my receipt! Currently, unless you have the inclination and smarts to go read various economic studies, the average person has NO IDEA of how much money he is paying in federal taxes!!!
. . .
Currently, in my own state of NC, the amount of state sales taxes is clearly itemized on all my receipts. And this will not be sufficient to make federal taxes visible? Or perhaps Mr. Vance is expressing concern over illiterate taxpayers?"
Currently, you can see how much income tax you're paying by looking at the withholding line on your paycheck and adding to it whatever you pay when you file your taxes at the end of the year. Every paycheck I have ever received has my federal, state, local, social security, and medicare withholding on their own separate lines. I've not worked for a lot of different employers, so maybe this is different from one employer to the next. That's really none of my business; that's between the employee and the employer. The point is, if people are currently unwilling, unable, or simply don't care to read this, why do proponents think they'll read the sales tax line on their receipts?
How often do you total up all your income and consumption taxes over the course of a year and stop to think "Golly, I wonder what my government is doing with all this money I keep giving them?"?
Published: December 14, 2005 9:32 AM
Lawrence Vance has written a gem of a dissection of the so-called "Fair Tax". "Liberty" is a term a lot of people use but few comprehend. The argument over the "Fair Tax" is case in point. Opening a new revenue stream to the Federal Government, is like giving a drunk a gift card to the new liquor store. What historically cognizant person could possibly believe that the "Fair Tax" will result in fiscal restraint?
The only reason that the bureaucracy now opposes the "Fair Tax" is because of the monstrous difficulty in collecting it. Once they realize that it opens a new revenue stream from internet transactions, they will acquiesce. In fact, I believe and Neil Boortz seems to confirm that taxing internet transactions is one of its prime purposes.
The bottom line is: "Its the spending stupid!!!" Until that problem is addressed, it doesn't matter what the method of taxation is. As such, I prefer the devil I know to the one I don't.
Published: December 14, 2005 9:36 AM
Sasha,
My mistake. This time, I was referring to the current state income tax of ~7%. I figured mentioning it in the paragraph immediately above the one you quoted would be indicative enough.
Published: December 14, 2005 9:43 AM
Don,
"The problem of already produced products with embedded historical tax costs is a transition issue. If the new sales tax is blindly and abruptly applied to such products, this would indeed be a mistake."
If new sales tax is applied at all it will be a mistake. As I explained, it's a 23% revenue tax, instead of our current tax that only taxes income.
"But this is not the only good news. The savings due to the elimination of income and payroll taxes on the employee will be split between the employee and the company as determined by a competitive market for labor."
No. Just like any other seller, sellers of labor services face the demand for their services and generate certain price a buyer (employer) pays. Employers (buyers) pay them (let's say) $10.00/hour and that market prices is again a reflection of real market conditions - regardless of workers cost (employers don't care about them, just like my customers don't care about my costs). When sales tax is eliminated, there will still be the same demand and supply - and income tax savings will be passed to sellers (workers). You will not be able to reduce their hourly wages, just like prices for my products would not go down if you abolished my income tax.
I'll answer to thought experiment.
1. Supply would go up. Prices would go down. Federal government would be without funds and they would have resort to inflation and economic chaos.
2. Supply would slightly go down. Prices would slightly go up. Federal government would still be without funds and they would have resort to inflation and economic chaos.
3. Increase of revenue tax by 23% will act like a cancer on our economy. It's way different than 10%-35% income tax and that payroll tax participation.
Results: any transition to sales tax would result in chaos. Smooth and long transition would force government to resort to inflation (hidden tax). Sudden transition proposed by FairTax Act (Boortz often talk about waking up one day in that system) would totally cripple our economy and transform us into post-Soviet Russia. Even you realized dangers of this.
Any significant percentage of sales tax would also provide incentive for black-market boom (opportunities for organized crime), which would in turn create "need" for greater government's interventionism.
Published: December 14, 2005 9:43 AM
Sasha, I finally figured out what you are afraid of. With the FairTax, people will have more spendable income. When someone has an increase in spendable income they demand better quality in the products they buy. You are afraid you will loose all the customers who now can afford a good pizza.
Published: December 14, 2005 9:48 AM
David, same goes for state sales taxes - except they're smaller in magnitude, so their effect is smaller. It also represents 7% confiscation in sales revenue, which can destroy those who currently meet their AVC, break-even, or create sales that are above cost by 0%
Published: December 14, 2005 9:50 AM
Sasha deduces the beneficiaries of a "Fair Tax";
"You are now openly advocating that all of us who create jobs, wealth, and pay taxes - should simply be driven out of business if we don't have large enough business to endure 23% revenue confiscation!!!!! And now you preach that once these monopolies are established, that prices would stabilize""
Very good Sasha - you have discerned the biggest winners from a national sales tax - national chain retailers. The rest of you scumbag independent retailers can go pound sand, once the US government has imposed a burden that only large-scale retailers can profitably shoulder. A very effective policy to cartellize a whole business sector and eliminate competition.
Thanks a lot, Boortz - you just signed the death warrant for the American mom-and-pop retailer!
Published: December 14, 2005 9:50 AM
Steve, when most of our businesses get ruined by 23% revenue confiscation, not many people will have jobs or much money to spend. They will probably just dig through trash. Not good for anyone.
Published: December 14, 2005 9:53 AM
Vince said "Thanks a lot, Boortz - you just signed the death warrant for the American mom-and-pop retailer!"
Sorry! The FairTax will help mom & pop. My favorit pizza comes from a mom & pop retailer. They currently charge twice as much as Pizza Hut and have twice the business, because their pizza is twice as good. When the FairTax increases everyone's spendable income, Pizza Hut will loose more customers to mom and pop.
Published: December 14, 2005 10:10 AM
Having long been in the movement to repeal the 16th Amendment which allowed a direct tax on the income of the people, I was saddened by Vance’s attack on the FairTax. I certainly agree that no tax is perfect or ever good. However, our US founding fathers and Karl Marx both understood that how we tax affects the power of the state. The Fairtax removes the direct taxation on individuals and all the government snooping, controlling, and jailing that come with it. This fact alone is enough for me.
Other important aspects are the impact on foreign trade, the savings rate and capital formation, the removal of tax incentives for job-based health care to name a few. I also expect that these improvements will allow the American people to be less dependent on the government and this will help decrease the size of government.
Thanks, Bert Loftman, MD
Published: December 14, 2005 11:04 AM
Sasha,
...and income tax savings will be passed to sellers (workers). You will not be able to reduce their hourly wages, just like prices for my products would not go down if you abolished my income tax.
If a worker's take home pay goes up by several thousand dollars due to the elimination of income and payroll taxes, you seem to be claiming that he will quit if the employer insists on being allowed to share the saving with the worker or his replacement.
The fact that the employer must reduce his final product prices if he wishes to maintain sales in the face of the retail tax imposition also implies that the marginal revenue product contribution of the worker must now be smaller. A job cannot be sustained if the cost of that worker exceeds his marginal revenue product. With the elimination of the taxes, both the desire of the worker for more take home pay and the desire of the employer for lower employment costs can be satisfied simultaneously. The exact split of the savings is a matter of labor market supply and demand.
Regards, Don
Published: December 14, 2005 11:07 AM
Don, the worker needs the full amount of the income and payroll taxes that were previously being paid so he can pay the FairTax on his purchases. If he doesn't get the full amount, he is suffering a real wage decrease (prices are going up more than his take-home wage).
The FairTax doesn't change the amount of taxes being collected, it changes where/how/from whom they are collected. The taxes the business paid previously are now being collected through the worker paying a sales tax on their purchases. He needs more money to pay them.
Published: December 14, 2005 11:49 AM
Sasha Radeta,
I admire your persistance, but you are wasting your time with Trayler and Keller.
This actually is very simple. A 23% tax on revenue will require every extant consumer business to have, at a minimum, a 23% profit margin, if it wishes to remain a legal and successful consumer business. All of the comments about how consumers will have more income, or how the costs of input will drop are completely irrelevant in the end analysis. Even if we transition to Fair Tax, new market prices will be negotiated in an ongoing manner. The only way I see for a business in a competitive market to have a 23% profit margin is for there to be extreme, persistant shortages of the good being sold.
Published: December 14, 2005 1:01 PM
T. Adams,
the worker needs the full amount of the income and payroll taxes that were previously being paid so he can pay the FairTax on his purchases. If he doesn't get the full amount, he is suffering a real wage decrease (prices are going up more than his take-home wage).
You are making an invalid assumption. You not only don't know that prices are going up more than his take home wage, but you don't know if prices are going up at all.
If you consider all of the possible sales tax rates between 1% and 100%, still assuming the elimination of all payroll and income taxes, then one of those possible rates will form the threshold between higher and lower after-tax prices. Where does an add-on 30% rate sit? Who knows? I would be willing to bet that a 10% rate would result in lower prices and a 50% rate would result in higher prices.
Regards, Don
Published: December 14, 2005 1:17 PM
Is it possible to settle this argument this way:
We are replacing the income tax, which hits pretty much everyone, with a tax directly paid by the sellers of final consumer goods. In essence, one average rate applied to all income is being substituted with a much higher rate applied to the income a much smaller cohort of payers?
Published: December 14, 2005 1:24 PM
If we are going to keep our ridiculous income tax system, we need to get rid of corporate taxes; if we don’t the good old made in the USA tags will become extinct, and eventually our economy will collapse. Corporate taxes are forcing more and more companies offshore, and imports are taking over. We need to improve our balance of trade and as long as there are corporate income taxes, this will never happen. Consumers pay these taxes anyway, so let us pay them up front. The American people’s personal income taxes will take a 20% to 30% jump, but so what, many of you love our corrupt income tax system anyway. At least if corporate taxes are eliminated, more jobs will be created and our balance of trade won’t self destruct our economy.
Published: December 14, 2005 2:10 PM
"Sorry! The FairTax will help mom & pop. My favorit pizza comes from a mom & pop retailer. They currently charge twice as much as Pizza Hut and have twice the business, because their pizza is twice as good. When the FairTax increases everyone's spendable income, Pizza Hut will loose more customers to mom and pop."
LOL!
Steve has some great sense of hummor. Every single parlour charge twice as much, twice as good... twice as profitable? An if it isn't government will destroy it. Great.
- The "FairTax" would be implemented on certain demand and supplly conditions at a point of time (total prices would stay the same).
-- Firms hold products for which they already incurred costs (including income taxes).
- Firms face some market prices beyond their control. Once the "FairTax" is implemented it would take 23% of everyone's total sales (even if you earn minimal income). Chosen few with strong financial positions and assets - or larger profit margins would be able to survive and monopolize the US markets.
- Since the FairTax Act makes it easier to hide production capacities and purchased inputs, black-market economy would boom. This would be a good excuse for more tirany or even adition of income tax.
Published: December 14, 2005 2:19 PM
"Sorry! The FairTax will help mom & pop. My favorit pizza comes from a mom & pop retailer. They currently charge twice as much as Pizza Hut and have twice the business, because their pizza is twice as good. When the FairTax increases everyone's spendable income, Pizza Hut will loose more customers to mom and pop."
LOL!
Steve has some great sense of humor. Every single parlor charge twice as much, twice as good... twice as profitable? An if it isn't government will destroy it. Great.
- The "FairTax" would be implemented on certain demand and supply conditions at a point of time (total prices would stay the same).
-- Firms hold products for which they already incurred costs (including income taxes).
- Firms face some market prices beyond their control. Once the "FairTax" is implemented it would take 23% of everyone's total sales (even if you earn minimal income). Chosen few with strong financial positions and assets - or larger profit margins would be able to survive and monopolize the US markets.
- Since the FairTax Act makes it easier to hide production capacities and purchased inputs, black-market economy would boom. This would be a good excuse for more tyranny or even addition of income tax.
Published: December 14, 2005 2:22 PM
Stumbled up on your article and was quite amazed by some of your opening statements, which attacked Boortz, Limbaugh, and Hannity on their political biases. To me you began your article with lies. They have all; especially Boortz, criticized the Bush Administration. Boortz only supports the administration stand on terror. Right off the bat, we know where you are coming from.
For the rest of your argument: I have not read the book, I have, however, listened to Neal on his radio program. Why would he lie? To see an idea advanced, to get his fifteen minutes, or be lauded forever for causing a change in America. I am just curious. There is very little argument for him and his colleagues, probably making mistakes, done poor research, not well informed, incorrect conclusions and terrible assumptions: just out and out lies about the things you disagree with and what you think is poor reasoning.
I have heard listeners call his show about things he never even considered, and I have heard him bristle by other caller’s criticism of his book. The point I am making is, I don't see him trying to con the public on this one. Too much at stake. I think the issue is whether you agree or disagree with the idea and the complicatedness or simplicity of the plan.
I would have stated my case by mentioning what I thought was invalid, not very well thought through, faulty conclusions and wayward assumptions about taxes and taxation and economics.
What ever comes out of congress regarding any tax bill, will always have away for congress to control all purse strings, and Neal and his cohorts know this. So is that the lie?
Published: December 14, 2005 2:32 PM
Junior,
Boortz is a dupe. Laurence's analysis is right on, if you take time to read it. Lew Rockwell exposed the "tax reform" scam a while back;
http://www.lewrockwell.com/rockwell/tax-reform-racket.html
Published: December 14, 2005 2:36 PM
Don, T. Adams.
Market price of labor is what it is. There would be no initial change in demand or supply of this labor at the day of FairTax. Firms would have the same amount of desperation for good workers. The fact that government takes something from the employee does not mean that an employer can see this as opportunity to reduce hourly wage of his employee... If any firm tries that, competing demand for labor will make a correction and bring the wage up to current level. It's not on that pre-tax level by accident or in consideration about workers' 401K, FICA, etc. It is on this level based on our willingness and ability to get those employees, competing with others.
Again, it's other way around:
Only eventually will be a change in price of labor, because of inevitable drop in demand once 23% revenue tax is applied on current cost schedules, and there would be increase in supply of labor for existing firms after lay-offs.
Published: December 14, 2005 2:45 PM
Also Don,
If there was no change in demand for labor after the FairTAx, there would no instant increase in labor supply (due to lower taxation). It would only happen over time if demand din't change. But - it would, due to 23% revenue tax that applied to all businesses, regardless of their profit.
But all things set aside...
Even when I pay my cost of labor the way I do (pecuniary and non-pecuniary wages), I still only pay my taxes on profit - if I make it. There is something seriously troubling about the tax that can destroy you if you don't make a 23% profit margin. So, your customers can select you for success, and government destroys if you're not big enough. No matter what we think about income taxation it was never so brutal and unjust. FairTax would not bring down historical costs after implementation and it would change the conditions of market's natural selection (only those largest and richest survive).
PS
Ask someone in Russia why small and medium-size businesses lobbied and succeeded in repealing their national sales tax that was only 7% if I remember correctly. Ask them what kind of tax they have now and how their conditions improved.
Published: December 14, 2005 3:59 PM
Market price of labor is what it is. There would be no initial change in demand or supply of this labor at the day of FairTax.
If workers are paying more in sales tax than they are gaining in take-home pay, their real wage is declining. If their real wage declines they are less likely to supply their labor.
Published: December 14, 2005 4:02 PM
In an open letter to the president, 75 economists, many of whom are from top universities, have endorsed the Fair Tax. Many National organizations also support it including; the National Tax Payers Union, Americans for Fair Taxation, American Farm Bureaus Federation, 60 Plus Association (Senior Group), Associated General Contractors; Association of American Physicians & Surgeons, National Small Business United and many more. Even Alan Greenspan supports a consumption tax. For years Alan Greenspan was in charge of major economic decisions for our country. He of all people is the one we should be listening to. All you, THINK YOU KNOW ECONOMISTS, are looking from the outside. Mr. Greenspan has had years of first hand experience. Why do you think he recommends a consumption tax? Because, he had to maintaining an economy that is suppressed by a monster of a tax system.
Published: December 14, 2005 5:03 PM
Earlier I wrote incorrectly that "…increased costs will eliminate the marginal suppliers from the market, reducing supply…" but I am reminded that this is only true for a partial excise tax that falls on particular goods. In the case of the general tax, as Rothbard points out, there can be very little shifting forward of costs onto the consumer ever, because factors and resource owners cannot escape a general sales tax as they can an excise tax:
"The burden of a sales tax cannot be shifted forward in the same way [as an excise tax], however. For resources cannot escape a sales tax as they can an excise tax: by leaving the liquor industry and moving to another. We are assuming that the sales tax is general and uniform; it cannot therefore, be escaped by resources except by fleeing into idleness. Hence, we cannot maintain that the sales tax will be shifted forward in the long run by all supplies of goods falling by something like 20 percent (depending on elasticities). General supplies of goods will fall, and hence prices rise, only to the relatively modest extent that labor, seeing a rise in the opportunity cost of leisure because of a drop in wage incomes, will leave the labor force and become voluntarily idle (or more generally will lower the number of hours worked).
“…As the retail firms suffer losses, their demand curves for all intermediate goods, and then for all factors of production, will shift sharply downward, and these declines in demand schedules will be rapidly transmitted to all the ultimate factors of production: labor, land, and interest income. And since all firms tend to earn a uniform interest return determined by social time preference, the incidence of the fall in demand curves will rest rather quickly on the two ultimate factors of production: land and labor.
“Hence, the seemingly common-sense view that a retail sales tax will readily be shifted forward to the consumer is totally incorrect. In
contrast, the initial impact of the tax will be on the net incomes of retail firms. Their severe losses will lead to a rapid downward shift
in demand curves, backward to land and labor, i.e., to wage rates and ground rents. Hence, instead of the retail sales tax being quickly and painlessly shifted forward, it will, in a longer-run, be painfully shifted backward to the incomes of labor and landowners. Once again, an
alleged tax on consumption, has been transmuted by the processes of the market into a tax on incomes.�
Quotes are from "The Consumption Tax: A Critique" by Rothbard
http://www.mises.org/journals/rae/pdf/rae7_2_4.pdf
Published: December 14, 2005 5:12 PM
Steve:
"He [Greenspan] of all people is the one we should be listening to."
I read some Greenspan that was written in the 1960's. It was actually pretty good i thought.
http://www.usagold.com/gildedopinion/Greenspan.html
His later stuff doesn't appeal to me as much though.
Published: December 14, 2005 5:22 PM
The notion of a national sales tax was debunked over 25 years ago. The transition alone would wreck the economy. The only fair tax is a per capital tax where every body pays the same amount. However, this is simply not feasable. A flat rate broad based income tax, where every body pays the same percentage of income is almost as fair. Every body pays the same price to ride the bus. Every body pays the same percentage of their income.
Eliminate the Earned income credit, the AMT, the Corporate Income Tax, itemized deductions, below the line deductions, personal exemptions and the standard deduction. If you do this the IRS will be relegated to processing returns and counting money. Only business audits would be required.
Published: December 14, 2005 6:17 PM
Tax is theft
It does not matter how resource, time, property and money is extracted from the victims, taxing them is stealing from them. End of story.
All this talk about altering the WAY victims are plundered evades the core issue Govt. is a plunderer of people's wealth and well being. It makes little difference if the stealing occurs while people are directly aware of it or not. It does not matter if it occurs while people are awake or asleep, standing or sitting, clever or stupid, good or bad, competant or incompetant. It is still theft. The core issue is theft (as in stealing, coercing, defrauding, forcing).
"Fair Tax" is merely a red herring similar in most aspects to all those funny money and weird tax impost schemes that preceded it (for the last century or more). Forget about this conceptual evasion and start by considering the fundamentals. Start from first principles. Taking time, money and other resources from people by coercion and force is wrong. It can't be defended. Taxing is wrong.
Outlaw theft. Outlaw tax.
Published: December 14, 2005 6:22 PM
T. Adams: "If workers are paying more in sales tax than they are gaining in take-home pay, their real wage is declining. If their real wage declines they are less likely to supply their labor."
But they don't pay initially. Final goods prices will stay the way they are, and firms will have to absorb this cost, because you can't ignore current market prices and past the cost. So this would start a degradation process with many of our employers, since they incurred costs in past when income tax was in effect - and now they get hit with a 23% revenue confiscation.
As far as labour supply goes, it would initially get their wages tax-free (facing the same price level), which would in turn increase supply of labor (more hours offered as the cost goes down).
So we would have two simultaneous processes as the result: increase in labor supply and decrease in labor demand. Result will be in unemployment and lower wages. As far as total product goes, we would see this initial drop in production, and than we would have more monopolization of markets and "stabilization". Black market economy would enter the competition.
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Steve Keller, I'm not looking anything from the outside. I'm inside and I'm living economics. This discussion actually proved that many well-educated individuals were clueless about price-formation process, basic applications of law of demand, and common operations of a firm. As far as Greenspan goes, he abandoned science of economics long time ago, and instead chose to kabbalistically follow numerology.
I'm quite impressed with support you gathered for that nonsense called the "FairTax", but you are really not the exception. Couple of years before the collapse of Soviet Union you had many "economists" her praising their system and talking nonsense about their growth.
-------
Sione Vatu,
A libertarian can never be indifferent to size of taxation. A national sales tax idea is dangerous because it is counting on people's ignorance of price formation. We can't just talk about anarchism when some "libertarians" are spreading lies and lobbying for a 23% total revenue tav, instead of 10%-35%+ profit tax.
Published: December 14, 2005 7:37 PM
I am creating a company in Mexico that "uses" all goods and services (if possible) so that they are all "used." Thank you NAFTA.
Under a "Fair Tax" as described by the authors of the book, why would anyone manufacture and distribute a finished good in the United States that is not "used?"
Published: December 15, 2005 2:08 AM
Jarrod, Under HR25 If no prvious sales tax has been charged on an item, it is still considered new. It is considered new even if has been physically used.
Published: December 15, 2005 6:12 AM
W. Baker, I certainly don't disagree with you about Boortz armchair hawkishness, but that doesn't really have anything to do with whether the Fair Tax is viable or not. George Bush name-dropped Ozzy Osbourne, should we stop listening to Sabbath?
Published: December 15, 2005 9:23 AM
From reading your comments, I am led to believe you currently pay little or no income tax. When I hear this, it leads me to believe a person is working for nothing. I feel sorry for anyone who spends all their income on business expenses. It must fell good knowing that you are helping to pay your suppliers income taxes. Did you ever stop to think that our current tax system may be holding you back? If it is not our tax system, what do you believe is keeping you form having a successful business?
Published: December 15, 2005 11:41 AM
"The bottom line is: "Its the spending stupid!!!" Until that problem is addressed, it doesn't matter what the method of taxation is. As such, I prefer the devil I know to the one I don't."
Nice, but I think you've missed entirely the whole point of the Fair Tax system, just like L. Vance. The point is to loosen the gov's grip on our pocket books...it gives more control to the citizenry, and when we become more empowered, we'll then be free to tackle the gov. And if you know the devil or current tax codes, you must have a brain the size of a beachball.
Published: December 15, 2005 11:45 AM
Sasha Sorry! my above question was for you
I will post again.
From reading your comments, I am led to believe you currently pay little or no income tax. When I hear this, it leads me to believe a person is working for nothing. I feel sorry for anyone who spends all their income on business expenses. It must fell good knowing that you are helping to pay your suppliers income taxes. Did you ever stop to think that our current tax system may be holding you back? If it is not our tax system, what do you believe is keeping you form having a successful business?
Published: December 15, 2005 11:45 AM
Sasha
It is important tostick to the core principles at stake. All theft is wrong. That includes tax.
Arguing about the how to tax is like arguing about how to rape. The evil is accepted at the outset. You can't stop a rapist from doing evil merely by telling him he is going about his activity in the wrong way. All you are doing is trying to persuade him to employ "better" means for his rapes. There is no point in doing that and none in telling people about it.
A person who accepts taking money from people by force is supporting an evil. I don't know of any Libertarians around here promoting anything like that. People who promote such things are certainly not fit to be called Libertarians. They are collectivists and socialists. Such vermin certainly are liars.
Fair Tax (a dishonest term indeed) is something thought up by intellectually dishonest people to be applied for a dishonest purpose. It is a waste of time to consider such a scheme any further.
Stick to principle and you won't get caught up wasting effort arguing irrelevances and minute.
Sione
Published: December 15, 2005 1:50 PM
Sione,
Catching and putting the rapeist behind bars is what is important. If we stick with our current system this will be an impossible task. The rapeist has too many weapons. He has you under control, and you have no way to escae. He has 600,000 pages of tax codes, embedded taxes, compliance costs, loopholes, withholding taxes, corporate taxes, payroll taxes, gift taxes, estate taxes, capital gains taxes, alternative minimum tax, self-employment taxes, tax returns, and a few hundred thousand IRS henchmen to hold you down while you are being raped. With the FairTax system the rapeist has one weapon to distroy, a consumption tax. It is right out in the open and it is an easy target. So yes it is important how you are being raped, if you wish to catch the rapeist.
Published: December 15, 2005 3:49 PM
Steve Keller,
The rapist will be caught by giving him permission to rape in a supposedly less violent way? Instead of slapping her down, you slip something in her drink?
You gotta be kidding.
Published: December 15, 2005 7:20 PM
Sam Kelly,
Prices I pay for my inputs do not have any taxes or costs embedded in them. I explained price formation process in my posts. It is true, however, that income tax is negatively affecting supply of my inputs (including my labor), making their prices higher due to smaller competition. But what's the alternative? As I explained, sales tax would be a 23% revenue tax that would drive a lot of us out of business before we even see any improvements in my input costs (anyone who does not make 23% above current costs would be in instant trouble). I think that attack on small businesses is the whole purpose of this tax to begin with, but i don't want to dwell on conspiracy theories.
----
Sione Vatu,
All taxes are theft, but it's not the same when someone takes part of your profit and when someone wants to take 23% of your sales, regardless what you make for your income. Not all theft is the same. All theft is wrong, but I can't be indifferent to magnitude of theft and be silent about a disastrous proposal called the FairTax.
-------
Steve Keller, if I'm going to be raped, I prefer to be raped only when I make profit, and only once a year. I don't want to be raped every day, and left without 23% of my sales - because that much profit is almost impossible to make in a very competitive market. And I don't want a tax that's going to have that kind of prerequisite for a business survival.
Published: December 15, 2005 7:46 PM
This is my last word on the FairTax. Even if everything the FairTax supporters say about the FairTax is true, I still object to the FairTax because I don't think it is fair that the government impose a 23 percent tax on the purchase of new goods and services. FairTax people think it is. I think it is legalized theft. FairTax people think it isn't. We can argue all we want about the method the state should use to collect taxes, but it is all a waste of time as long as FairTax supporters think that the state taking a 23 percent cut on all transactions of new goods and services is a fair thing. I consider it highway robbery. Good day.
Published: December 15, 2005 7:52 PM
Sasha said
"Prices I pay for my inputs do not have any taxes or costs embedded in them. I explained price formation process in my posts."
If you are buying imports direct, you are correct, otherwise you are paying for some embedded taxes. I am in the wholesale clothing business. My corporate tax is a major factor in figuring my pricing. Each year I subtract my corporate taxes from my net income. This figure is my true net profit. If this figure is too low, I adjust my prices accordingly. I'm sure my US fabric suppliers do the same thing. Believe it or not your underwear has some embedded taxes in them. On the other hand, if you bought them direct from China you are probably right.
Published: December 15, 2005 10:23 PM
Sam Kelly,
You made me laugh. Are you suggesting that law of demand applies to Chinese people and not to Americans. That was a good one :)
You cannot adjust prices according to your costs. Prices are determined by market forces of supply and demand. If your "adjusted" price is way above market level (or what buyers are willing and able to pay in the marketplace), your customers are going to laugh at your "adjusted price" and buy elsewhere for a lower price. If they still buy it from you, than my friend – you got the market price by accident :)
Like I said, taxes reduce quantity supplied and drive price up – but taxes are not embedded in price. You may think they are right now - but if your demand goes down (or supply/competition goes up), you will have a harsh reality check. Customers will not care about your costs. That’s how many businesses go out of business. If we were all able to pass our costs to consumers, no one would ever go out of business.
It seems that you get you are clueless about market reality and that you survive just by a mere luck. That's cool. Actually, Armen Alchian preached that role of luck is one of the most important factors in this unpredictable world.
Regards.
Published: December 15, 2005 11:52 PM
"The phenomenon of economic ignorance is so widespread, and its consequences so frightening, that the objective of reducing that ignorance becomes a goal invested with independent moral worth."
Israel Kirzner
Published: December 16, 2005 12:02 AM
Sasha,
You cannot adjust prices according to your costs. Prices are determined by market forces of supply and demand. If your "adjusted" price is way above market level (or what buyers are willing and able to pay in the marketplace), your customers are going to laugh at your "adjusted price" and buy elsewhere for a lower price....
This sounds OK by itself. Let's try a related question.
Forget the sales tax. By a miracle, the government reduces its spending by 95%. All income, payroll, capital gains, etc., taxes are eliminated as per the 'fairtax'.
What do you claim would be the effect on the retail prices of goods and the quantity produced?
Thanks, Don
Published: December 16, 2005 12:33 AM
Don,
I'm not keeping up with the debate, but your question seemed worth working through, so here's my pass at it.
And to further simplify, here's the question
All other things being held constant, by a miracle, the government eliminates its spending and taxing, what would be the effect on the retail prices of goods and the quantity produced in
1. the short term.
2. the long term.
1. the short term.
The general purchasing power of the monetary unit could easily remain the same because the money supply remains constant and the demand for money may not necessarily be changed by this. Since government spending is pure consumption spending by the tax consumers, eliminating this consumption spending and putting that money back in the pockets of the producers means that certainly, saving and investment will now increase. Although the time preference of the producers will not necessarily change, we do know that they will allocate this money according to their time preference which means that some of that money that would have been consumed by government waste, will now be saved and invested. Therefore, the net time-preference of the economy will be reduced (lowering interest rates). This means that prices of some commodities will go up and others will go down, because the money is being spent by a different set of consumers and investors now. However the overall PPM could remain the same.
2. the long term
Because of the reduction in government consumption spending in the economy, and the concomitant increase in savings and capital investment in the private sector, the production structure will lengthen meaning more investment in even higher orders of capital and production. This will result in enhanced productivity of labor, greater production levels in general, a higher purchasing power of the monetary unit, lower prices overall and more wealth across the entire economy.
The key is to keep the government from piddling away our savings on wasteful consumption, and allowing individuals acting in a free market to save, invest and improve their lot in life. Any way you slice it, taxes are theft, fraud and bad for everyone's lifestyle.
Published: December 16, 2005 1:17 AM
Don, I respect you, so you respect me. We both know law of demand and supply, but you had some misconceptions that we hopefully cleared. I already answered your question. It's all in my posts.
The reason why many mainstream economists get it wrong is that they flip the order of action that happens in real world (I wonder why...). They don't understand that cost affects supply - and than prices MIGHT adjust based on demand (often without regards to our wants and needs)... not other way around. Many economists seem to think that only force of supply matters... so if the cost goes up, you just jack up your price expecting a drop in supply and wait for demand to react... But that does not happen in the real world. Here, in reality, we have to check DEMAND before we do anything. And demand always changes and it's unpredictable and not measurable (when we become able to measure people's taste and preferences, I'll let know). In other words, my costs can go up or down, but I will not mess with my prices until my demand (expressed in shortages or surplus) tell me to do so. Why? Because only the will of my customers matters and if I don't follow it and if I, instead, only focus on my desired profit, I'll be in deep trouble.
Oh, another thing... as Rothbard said, when my costs go down, I don't drop my prices immediately. Everyone cheers when that happens and no one is thinking about dropping their prices to "help out" their customers... But unfortunately, some of us get greedy and start producing more at larger profit... and profitability attracts new competition. So eventually supply goes up, prices go down, and natural selection weeds out those who are not close enough to that MR=MC point. But again, we are not dropping our prices first facing lower costs. Actually, even mainstream economists who believe that MR=MC is our premeditated goal should know that we adjust output first if we can, not prices (otherwise, you'd see more volatile price changes around you based on demand).
But we had this discussion before (when I replied about your marginal revenue and marginal cost analysis).
Order of action is crucial here, and that's why economists, especially the "FairTax" proponents, get it wrong.
Regards.
Published: December 16, 2005 1:21 AM
I have no objections to Paul's answer... But what Don was looking for was:
In the long run, supply will go up, prices will go down.
But that has nothing to do with the "FairTax" and I explained why... not even in the long run, when we would have lower supply and G-d knows what kind of prices (mostly depending on size of black markets). Even if I was among lucky few powerful who would survive this tax, I wouldn't like to have a tax like that. If any disruption in prices of input happens (and not everything there is determined by income tax costs - that many of our suppliers don't even pay), you would still have a cruel 23% revenue tax that hits regardless of your profitability.
Don, if you want to make a point about the topic, make it.
Published: December 16, 2005 1:34 AM
Sasha,
Thank you for responding to Paul. I think that you realized that I wasn't interested in the purchasing power of money.
Once again, I agree with virtually everything you say. However, I suspect that you may stop short.
Let's say your storefront has a plasma TV on the floor that has a price tag of $2000, and for which you paid $1500.
If a vandal breaks in and destroys it, what have you lost? Here we need to distinguish between an economic loss and an accounting loss.
Your accounting loss is $1500, but this is in the past and is now a sunk cost.
Your economic loss is your marginal replacement cost, assuming that you are going to remain in business.
It is also this marginal replacement cost that determines your economic gain or loss if it is not destroyed and you sell it. If you sell it for nothing, then the economic loss is the same as for destruction. If you sell it for precisely its marginal replacement cost, then you have broken even in an economic sense. It would normally make no sense to sell it at a price that was insufficient to fund the acquisition of its replacement.
What happens if all income and payroll taxes, etc., are eliminated before you sell the set?
(Remember that for this discussion no sales tax is being imposed).
First of all, we can assume that the $2000 price tag was originally the highest price you could reasonably expect to receive, and that nothing* has changed to induce you to increase your price.
(* - this is not strictly true, but dealing with it now is too complicated).
Has anything happened to induce you to lower your price?
Maybe, maybe not.
What has happened is that the elimination of taxes has reduced your marginal replacement cost. The extent of the reduction is uncertain, but some reduction exists.
If you don't reduce your price, the reduction in marginal replacement cost implies an increase in your economic profit, and this may well be the correct path to follow, as you have consistently indicated.
However, there are two possible reasons that may induce you to lower your price.
First, a competitor that faces the same marginal replacement cost may undercut your price and steal your sale. The reduction in your marginal replacement cost due to the elimination of taxes leaves you new room to lower your price and still realize an economic profit. It may be better to do this before your competitor decides on opening his store.
Secondly, the price elasticity of the demand curve that you face may allow more total economic profit on more units sold if you reduce your price. The possibility of this is enhanced by the reduction in your marginal replacement cost.
While you are quite correct that you can't know with any precision the characteristics of the demand that you face, the possible benefit of an increased profit and higher sales with a lower price should at least induce you to consider the possibility, and maybe make limited tests of
the response to lower prices.
In summary, the reduction of the marginal replacement cost due to the elimination of taxes will tend to result in lower prices and higher sales volumes, although not in all cases by any means.
Conversely, and not to be addressed here, the imposition of the sales tax will tend to increase prices and severely reduce sales volume.
The only fault that I remember about your discussion of this is that your discussion of a 23% margin is subject to where on the demand curve you choose to reside by your choice of price. It may take quite a high price to price the last customer out of the market.
The elimination of taxes and imposition of the sales tax tend to drag prices and sales volumes in opposite directions. For any given good, the net changes may be in either direction.
* - The issue that I passed over was the increase in demand due to the increased take home pay after the elimination of taxes.
Regards, Don
Published: December 16, 2005 7:00 AM
Sasha
I hate to burst your bubble, but if you are buying from an American manufacture that has an after tax profit, you are paying their corporate taxes. My family has been in the wholesale business for over 50 years and our prices do include our corporate taxes. Every American wholesaler must do this. Corporate taxes are a cost just like any other expense. If a company can’t create an after tax profit they are doomed. Fortunately we are still creating an after tax profit, but our breed is nearing extinction. I guarantee you, if we no longer had a corporate income tax; if we no longer had to match our employees withholding for S.S. and Medicare; if we could eliminate the $150,000 we spent last year on compliance costs, our wholesale prices would come down by least 15% to 20%. Our tax system is a virus that is forcing more and more American companies out of business or off shore. And as long as we have people like you who preach backward economics, it will continue to eat away at our economy.
This is why imports are taking over. Most foreign manufactures pay no taxes on the profits of their exports. Many foreign countries have gone to a VAT tax. When a manufacturer from one of these countries exports their products, they are not required to pay the VAT tax on that export.
When I first got out of college, I worked two years for American Standard in their cost department. To determine our wholesale selling price, my department’s job was to cost every bathroom fixture. Included in that cost annalists was a line for previous year’s corporate income tax. The corporate income tax virus is the main reason American Standard now produces most of their fixtures outside the US. The only pottery plant left in the US is located in Tiffin Ohio, and they recently laid off over half their work force and cut the wages of the rest.
If you want our country to continue to be eaten away by our tax system fine; if you want American manufactures to become more competitive, you will be in favor of the FairTax.
Published: December 16, 2005 9:32 AM
I think you just confused yourself. Something like economics overdose. I already spent too much time repeating myself in all comes down to the order of action. That entire introduction - economic profit, accounting profit... makes no difference. That’s irrelevant for the discussion.
- Your scenario in which my competitor facing lower costs lowers price to "undercut" me is unrealistic. Why? We'll get to that in a moment. First I'll say couple of things... Market price here is misinterpreted. Not everyone has the same price and market price is more like an arithmetic median that hardly anyone gets... Some fool cuts price for no reason, some fool keeps it higher; idiots go out of business all the time... Some people have too much stock; some too little... demand differs from street to street... I have my clearing price, you have yours...
But, OK, OK, important thing here is to see the effect of taxes, ceteris paribus! Let's hypothetically assume that both I and my competitor (let's say you Don) sell at market clearing price of $2,000, at exactly same demand and supply condition.
Facing the same demand, and having a market clearing at the price of $2,000, it would be absolutely foolish of you to forego your profit in order to "undercut" me. You can sell your entire inventory for $2,000 and squeeze most that you can get - but you irrationally punish yourself in order to "punish me". Well, you didn't punish me at all. You just create shortages and unsatisfied potential customers - that I'm going to serve at their market price - or what they are willing and able to pay. So I'm hitting what you would call "maximization" or what Alchian call "optimizing distribution of desirable outcomes".
And from this wrong premise, you got the rest of those conclusions wrong. I don't think I have to go into them now in much detail...
Elasticity of demand you just don't know until demand shows up (historical information) - and that knowledge is irrelevant once you build up your inventory. Another economics misconception... Our imaginary goal (of imaginary "united suppliers") is to hit that point of unit elasticity with your supply, but once we build it and missed it - we can only cry about it.
-------------
In conclusion...
Nice try, but I have to say it again - reduction in cost will not dictate you to lower your price if you're still facing same demand and same clearing price. It would be foolish to play Soviet government in those circumstances.
Published: December 16, 2005 9:48 AM
Sam, you're not bursting anything.
Suggesting that every business can simply pass its cost to his customer - and that customer will be willing and able to pay - is actually other way of saying that no business ever goes bankrupt. It's like suggesting that people's demand never drops so low that you can't recover your costs.
Even a five year old knows better.
And you're a living proof of Alchian's biogical economics that stresses the importance of luck and accidental mutations in market's natural selection.
Published: December 16, 2005 9:54 AM
Sasha,
...Let's hypothetically assume that both I and my competitor (let's say you Don) sell at market clearing price of $2,000, at exactly same demand and supply condition...
You've made the wrong assumption here.
If you are clearing the market with a price of $2000, and I come along, I can't sell a single unit at a price of $2000 unless I happen to steal one of your sales. The market demands a given quantity at a price of $2000. It doesn't matter to the market how we split up those sales. No matter how many additional units I may add to supply, I can't sell any of them unless I'm willing to lower the price that I will accept below $2000.
Even though no one can know what the true demand of the market is, it still exists.
Regards, Don
Published: December 16, 2005 10:12 AM
Don,
unfortunatelly for you, market clearing price is the price at which we both clear. It's the price determined by our COMBINED supply and our total demand. And for those conditions market hypothetically clears
There's no zero-sum game. If you could steal customers by cutting prices below market clearing level, than Soviet union would be the only super-power, and our girls would go over there as mail-order brides.
Regards.
Published: December 16, 2005 10:23 AM
Again, by facing equal demand and charging below the market clearing price, you would just got yourself waiting lines. We hipothetically assumed we're facing the same demand curve and two of us combined are forming this aggregate supply.
ECO 101.
Published: December 16, 2005 10:26 AM
Sasha,
You are missing my point, I am saying that our tax system is forcing American suppliers out of business or out of our country. Of course you can’t pass you cost to your customers just because you want to. I’m not saying that. What I am saying is that if you can’t, you will either go bankrupt or you will need to move you business offshore like American Standard has done. Fortunately I still have an after tax profit, but it is becoming more and more difficult for American manufactures to continue to compete with foreign companies that have no tax consequences when they export to the US? The FairTax puts us back on the same playing field with our foreign competition. If this doesn’t concern you; then fine America’s economy will collapse.
Published: December 16, 2005 10:40 AM
I got your point like million times and I know what you said in previous posts.
And you missed what I already said... taxes lower supply of inputs... But the FairTax would not help them. Inputs are not produced just for the sake of it. They are directed by demand for our final product - and we demand those inputs, not vice versa.
As me and Don showed in our discussion, introduction of the "FairTax" would hit us with 23% revenue tax - on the top of all costs we already incurred for those supplies (costs that are higher due to income tax). That would destroy our economy and monopolize our markets... only those large and financially powerful would enjoy its power over suppliers and customers.
Published: December 16, 2005 10:58 AM
Sasha,
market clearing price is the price at which we both clear. It's the price determined by our COMBINED supply and our total demand. And for those conditions market hypothetically clears
Yes, but that's not the condition at hand.
When you are the only supplier, there is a single market clearing price at which the quantity that you are willing to supply is equal to the quantity that the market demands at that price.
If I enter the market with exactly the same supply schedule as you, then the total market supply at the existing price is now twice as great.
However, the total market demand at the existing price has not changed. To clear the market of our total doubled supply, the market price must fall.
This new lower price will reduce the quantity that each of us is willing to supply and it will increase the quantity that the market will accept.
At the new lower clearing price the market demand quantity will equal the sum of our supply quantities.
Regards, Don
Published: December 16, 2005 11:17 AM
Don,
that wasn't our scenario.
If you enter the market, than aggregate supply is increasing and market clearing prices are going down as the result of this. I already said like 100 times.
And why do you state the obvious when you didn't prove YOUR CLAIM that EXISTING suppliers (without any new entrants) would lower their prices when costs are going down? That has nothing to do with our discussion.
Are you sabotaging this topic realizing you got nowhere with your idea? I would love to think that's not the case.
Published: December 16, 2005 11:22 AM
Why are we discussing something I aready talked about? Before waisting anyone's time, first check their old posts:
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Oh, another thing... as Rothbard said, when my costs go down, I don't drop my prices immediately. Everyone cheers when that happens and no one is thinking about dropping their prices to "help out" their customers... But unfortunately, some of us get greedy and start producing more at larger profit... and profitability attracts new competition. So eventually supply goes up, prices go down, and natural selection weeds out those who are not close enough to that MR=MC point. But again, we are not dropping our prices first facing lower costs. Actually, even mainstream economists who believe that MR=MC is our premeditated goal should know that we adjust output first if we can, not prices (otherwise, you'd see more volatile price changes around you based on demand).
But we had this discussion before (when I replied about your marginal revenue and marginal cost analysis).
Order of action is crucial here, and that's why economists, especially the "FairTax" proponents, get it wrong.
Regards.
Posted by: Sasha Radeta at December 16, 2005 01:21 AM
Published: December 16, 2005 11:27 AM
At the moment of the FairTAx implementation:
- Firms hold products for which they already incurred costs. So these costs include all taxes already paid for workers who participated in production.
- They face some market prices they have no control over. They will have to accept those prices, even if they made a forecasting error building up too much or too little inventory.
- Instead of paying only tax on income, now they will loose 23% of their revenue - which would totally erase income for many companies. Like a 100% income tax, plus some more variable cost that some firms will not be able to recover.
So we would face instant elimination of many businesses, which would lead us to drop in aggregate supply and higher prices.
++++++++++++++++++++++++++++++++++++++++++++
I already said this earlier...
EOD
Published: December 16, 2005 11:50 AM
Sam Kelly,
If your concern is the competitiveness, or lack thereof, of American firms due to taxation, then shouldn't your real target be the level of taxation/government spending (all govt. spending, of course, is taxation) rather than the mode? The Fair Tax doesn't propose to lower the level of taxation, which is the real problem that you claim to face.
Published: December 16, 2005 12:12 PM
Correct Yancey.
It does not lower taxes for final stages of production - it increases them. And demand for earlier stages (all the way down to land and labor) depends on this final goods and services markets. There will be no improvements in the US input production, if tons of people who are their customers (the US firms) are driven out of business by a draconic 23% revenue tax that applies to every single seller regardless of size or profitability.
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All of you sales tax proponents: you are intelligent people, so confront all these Neil Boortz-s out there about these issues, because your future is at stake too. Even if you owned a large corporation with a profit margin >23%, there's no guaranty that your forced monopoly is going to last forever. On the contrary... with small and middle size businesses destroyed, lay-offs, black market and crime, what do you think your sales prospects in this powerful market are going to be? Is balkanization your goal? Or something like mafia/tycoon-run post-Soviet Russia?
Think about that and give that AM clown a call about these real issues.
Published: December 16, 2005 1:51 PM
Yancey,
Yes, reducing government spending is something we can all agree on. But the FairTax will make it much easier to accomplish this. But when it comes to competing with foreign imports, the mode of taxation is also very important. Sasha would lead you to believe corporate taxes have no affect on the selling price, but when you have to pay taxes and your competition doesn’t, it sure has an affect on your profit and whether you are able to stay in business.
Sasha,
If you think corporate taxes don’t have an affect on selling prices, give me your take on the following scenario. Let’s assume the following conditions. There are 100 American manufactures that make widgets. These companies have been making widgets for the past 10 years. These widgets are identical in every way. The manufacturing cost is exactly the same for each company; every aspect of the business is identical. The market share is the same for each company because competition over the past 10 years has brought the selling price down to the bare minimum which is the same for each company. All at once the government decides to eliminate all corporate taxes for 50 of the widget companies. What would happen to the selling price once corporate taxes were removed?
Published: December 16, 2005 2:08 PM
Sasha
You seem to like to quote Mr. Rothband; well here is probably the most meaningful quote he ever made. “Taxation is a coerced exchange, and the heavier the burden of taxation on PRODUCTION, the more likely it is that economic growth will falter and decline.� I do believe he would consider corporate taxes to be a coerced exchange. On the other hand, at the manufacturing level, there is no coerced exchange with the FairTax because it eliminates all taxes at that level. Yes on the retail level it is a coerced exchange, all taxes are a coerced exchange, but with the FairTax, you have the choice of making that exchange. With our income tax we have no choice.
You keep saying over and over that the FairTax will cause you to loose 23% of your revenue. Well this will be true for everyone. You like everyone else will need to add 23% to your profit margin. Not at first but within a short period of time, with the elimination of corporate taxes, profit margins will be able to be maintained as prices come down. The fact that the FairTax will add 30% to 40% to everyone’s spendable income, demand will remain the same even at higher prices. The bottom line, the FairTax eliminates all corporate taxes thus giving our economy a tremendous boost both domestically and internationally.
Published: December 16, 2005 5:05 PM
I enjoyed reading your article, Just one simple comment, You say buying used goods you wont be taxed...so if you buy an old or second hand $5 million dollar mansion you pay zilch in taxes, but if you are just a working stiff like me and cant afford a home like that but dont want to rent either so you buy a pice of land and put a new Mobile Home (trailer/double wide) and plan to build your own home over the years you will wind up paying a small fortune on taxes....the mobile home will cost you from $28000-$80000 and you would have to pay 23% or as you say 30% in taxes...how is that fair to the working man..example on a $50,000 mobile home you would pay arounf $15,000 in taxes......thats more than more than most working men pay a year now...so once again the fair tax is just another tax that helps the rich and sticks the working man with paying the federal bill....Fair...I dont think so
Published: December 16, 2005 6:10 PM
oops corection on the above tax on $50,000, the tax on the mobile home would be around $12,000, still way to much seeing how a person buying a used mansion for a few million pays nothing
Published: December 16, 2005 6:21 PM
SAM KELLY SAID: "If you think corporate taxes don’t have an affect on selling prices, give me your take on the following scenario."
How dare you misinterpret my statements like that!!! Shame on you. Is that the only way you can participate in this discussion: by making up my statements and giving responses to your own hallucinations?
I already said that corporate taxes reduce supply, which in turn put upward pressure on prices (if demands stay the same). But if we introduced the "FairTax", producers of final goods would have 23% revenue tax ON THE TOP OF THEIR COSTS THEY ALREADY INCURRED IN PRODUCTION> So they would have two tax-attack and they would only survive if their profit is 23% of their total sales. Consequences would be catastrophic.
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Steve Keller,
first of all, you didn't understand Rothbard at all. I didn't quote him on taxes, because my ideas are inferred directly from Carl Menger's theory of value.
What you suggesting is that some businesses can add 23% above their market price and still survive. It shows your complete economic illiteracy. Not even the strongest and most profitable firms would do that. If charge over prevailing or market clearing price, you would have a surplus and total loss for good unsold. That would be total idiocy.
It happens other way around in the real world. Businesses have to accept current market prices created by demand and supply, absorbing revenue confiscation of 23%. When many firms go out of business based on this moronic tax-attack, those few firms that survive would face less competition and smaller aggregate supply. Only after all this happened, prices would go up (hypothetically by 23% if demand stayed the same).
You obviously skipped the supply and demand lesion in economics. It's so sad, since you seem to be interested in economics.
Published: December 16, 2005 6:25 PM
Steve Keller,
first of all, you didn't understand Rothbard at all. I didn't quote him on taxes, because my ideas are inferred directly from Carl Menger's theory of value.
What you suggesting is that some businesses can add 23% above their market price and still survive. It shows your complete economic illiteracy. Not even the strongest and most profitable firms would do that. If you charge your customers over prevailing or market clearing price, you would have a surplus and total loss for good unsold. That would be total idiocy.
It happens other way around in the real world. Businesses have to accept current market prices created by demand and supply, absorbing revenue confiscation of 23%. When many firms go out of business based on this moronic tax-attack, those few firms that survive would face less competition and smaller aggregate supply. Only after all this happened, prices would go up (hypothetically by 23% if demand stayed the same).
You obviously skipped the supply and demand lesion in economics. It's so sad, since you seem to be interested in economics.
Published: December 16, 2005 6:28 PM
Sasha,
You said, I didn't understand Rothband at all. If that is the case, what do you think he ment when he said “Taxation is a coerced exchange, and the heavier the burden of taxation on PRODUCTION, the more likely it is that economic growth will falter and decline?�
One other thing; if you are such an expert on economics how is it that you are barely getting buy selling pizzas?
Published: December 16, 2005 6:57 PM
Steve
All you are achieving is requesting the rapist change from front to back. That does not even begin to assist a victim.
You are evading the principle and its consequences. The rapist, like the thief, is a criminal. The actions of such criminals are to be opposed immediately and consistently. You will not get anywhere by trying to rationalise a "fairer" way for them to commit their crimes.
Even if "fair tax" was to be instituted there would still be a few hundred thousand henchmen around to enforce the expropriation. They, at least, understand the principle.
BTW do you really think they are so weak that they'd let you gently lead them into your clever trap with some cheap trick? They'll add the "fair tax" to the menu of expropriation tools they already use. Congratulations, you've saved everyone!
As much fun as debating such things as "fair tax" may be, previous experience in Australia and New Zealand and even in Europe, demonstrates the utter futility of promoting and setting up these alternative taxation schemes. They end up getting added to the tax burden. Of course the "fair tax" people will argue that is not what they want and possibly it is not. Trouble is MORE tax is what you'll all get.
If you stick to principle you won't have to waste effort promoting "fair tax" and subsequently arguing that the perfect version of the "fair tax" was not properly instituted. What you need to do is condemn all taxation.
Sione
Published: December 16, 2005 7:12 PM
Sasha,
I have a few questions for you. If you call the FairTax a moronic tax-attack. What would you call a withholding tax that confiscates you income before you have a chance to spend it? What would you call a corporate tax that prevents our American manufactures from competing internationally? What would you call estate taxes that confiscate our income twice? What would you call gift taxes that also confiscate our income twice?
Published: December 16, 2005 7:13 PM
Sione,
Unfortunately we need some sort of tax to support our Federal Government, but it sure should cost a lot less. Unless we have a revolution, the powers to be will never allow that to happen. I personally think the sole purpose for the federal government should be for national security, social security, medicare and environmental protection. All other federal program including other social prgrams should be placed in the hands of the individual states. And any program that could be handled just as well by the private sector should be placed in their hands. We can debate all day long as to which is the best way to be taxes, but which ever side you are on, you think the other side is stupid for believing the way they do; that is just human nature. It is just good to see there are Americans like you, me and even Sasha who care enough to want to make things better. We need to get more Americans involved. We all need to let our representatives know that we are not happy, and that something needs to be done about all the waste.
Published: December 16, 2005 8:01 PM
I thought it would be fun to ask and attempt to answer the next question:
All other things being held constant, after the miracle of the government eliminating all its spending and taxing, and the long term has come, AND THEN a 23% sales tax is invoked, with concomitant government spending, what would be the effect on the retail prices of goods and the quantity produced in
1. the short term.
2. the long term.
1. the short term.
The general purchasing power of the monetary unit could easily remain the same because the money supply remains constant and the demand for money may not necessarily be changed by this. As soon as the sales tax becomes active, immediately the marginal retail firms, being unable to shift forward onto the consumer this new expense, would go out of business. Marginal retail outlets in this case would be all shops with a profit margin of less than 23%.
2. the long term (not that long).
As these shops close, retail prices would start to rise, as the supply of consumer goods and the outlets begins to diminish. From here, the dominoes would fall from both ends of the economy. First, the displaced retail shop owners and employees would seek work in the higher stages of production not hit directly by the sales tax. They would increase the supply of labor in the higher stages of production thereby bidding down labor incomes there. On the other end, the reduction in retail outlets would reduce the demand for the intermediate stages of production, thereby reducing prices of these intermediate products supplied to the lower retail stage. The movement of land and labor factors from retail into higher stages of production would tend both to increase retail prices, and lower prices in the higher stages of production, including prices for land and labor. I believe that this is the mechanism Rothbard is referring to when he says that a retail tax would ultimately be transmitted to a tax on land and labor income. This process of adjustment by the market does indeed sound excruciating.
Finally, since government spending is pure consumption spending by the tax consumers, adding this consumption spending, taking that money from the producers means that certainly, saving, and investment will now decrease. Although the time preference of the producers will not necessarily change, we do know that they would have allocated this money according to their time preference which means that some of that money that would have been invested in the production structure, is now consumed by government waste. Therefore, the net time-preference of the economy will be increased (increasing interest rates including price spreads between stages in production) and investment in the very highest stages of production will be reduced, and productivity of labor will diminish, resulting in further price increases throughout the economy, a reduced PPM, and lower standards of living.
Published: December 16, 2005 11:28 PM
STEVE KELLER: "have a few questions for you. If you call the FairTax a moronic tax-attack. What would you call a withholding tax that confiscates you income before you have a chance to spend it?"
I WOULD CALL IT: PARTIAL TAX-ATTACK. At least, it taxes my profit rather than revenue. Therefore, I'm still better off without moronic "FairTax"
--------------------------------------------
STEVE KELLER: "What would you call a corporate tax that prevents our American manufactures from competing internationally? What would you call estate taxes that confiscate our income twice? What would you call gift taxes that also confiscate our income twice?"
I would call it: better-than-23%-revenue-confiscation-scheme-designed-by-big-businesses-lobyists-in-order-to-destroy-the-US-businesses. At least they currently tax income rather than total revenue.
----------------------------------------------
STEVE KELLER: "Taxation is a coerced exchange, and the heavier the burden of taxation on PRODUCTION, the more likely it is that economic growth will falter and decline?�
PRODUCTION of final goods really matters. Based on production of final goods you get demand for inputs.
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STEVE: "One other thing; if you are such an expert on economics how is it that you are barely getting buy selling pizzas?"
I chose it because it's very competitive market where 23% profit margin is impossible and I can make a good case against a national sales tax.
But if you're such an expert on taxation, how is it that you don't even understan basic concepts of law of demand and supply?
Published: December 17, 2005 3:33 AM
Let me repeat (since it's necessary)
Steve Keller,
What you suggesting is that some businesses can add 23% above their market price and still survive. It shows your complete economic illiteracy. Not even the strongest and most profitable firms would do that. If you charge your customers over prevailing or market clearing price, you would have a surplus and total loss for good unsold. That would be total idiocy.
-------------------------------
Published: December 17, 2005 3:43 AM
Sasha,
You keep calling the 23% your revenue. It’s not your revenue it’s your customers’ taxes that you collect and forward to the government. I suppose if someone asked you to deposit $100 for them at their bank, you would be loosing $100 of your revenue.
Now let me give you a lesson on supply and demand. The demand for any product or service largely depends on ones ability to purchase that product or service. The greater the buying power, the greater the demand and the higher the market price becomes. Yes, if there is a great demand for a product of low supply, prices will go up. I understand all that, but it doesn’t matter what the supply is, if you don’t have enough buying power to purchase it. With the FairTax the middle income wage earner’s buying power will be increased by at least 25%. Take my son for example – In 2004 his gross income was $51,325. His total taxes were $7995 which included withholding for S.S. and Medicare. With the FairTax, his buying power would increase by $13,755. This is the $7995 plus a rebate of $5760. This represents a 26.8% increase in his buying power. I’m sure he will now be able to afford a more expensive pizza. I’m sure he wouldn’t mind if the cost of his favorite pizza went from $12.00 to $16.00. Guess what, you could pay that confiscated 23% and have 32-cents more profit than you had before. If you had no income taxes during 2004, you either cheated on your taxes or your income is below the poverty level. If your income is below the poverty level, you probable can't afford a pizza at all. With the FairTax the rebate alone will represent at least a 23% increase in your buying power. Now you at least be able to buy a one topper.
Published: December 17, 2005 8:39 AM
Sasha said “I chose it (the pizza business) because it's very competitive market where 23% profit margin is impossible and I can make a good case against a national sales tax.
The pizza business is a very competitive market, but you make it sound like price is the only thing involved in competition. Like I mentioned before the best pizza in our town costs twice as much as any competitor’s, and they sell a ton of pizzas. I am sure their profit margen is above 23%. Most people look for quality and service in the products they buy, and the more buying power one has the more quality and service they demand. I figured the the service we offered when we had our furniture business represented at least 10% of my profit margin.
Published: December 17, 2005 8:56 AM
I haven't read Mr. Boortz's book and probably won't.
Can someone tell me if he discusses what would happen under under his tax proposal to intangibles like shares of stock?
If I buy an existing share of IBM, is that "used" and therefore not taxable?
How about a "new" share floated by IBM?
How about the same two questions for bonds?
Published: December 17, 2005 10:24 AM
Chester,
You SHOULD read the book. Email the volunteer FairTax State Director or District Director in your area and they could probably provide you a loaner one if your library doesn't have it. It's less than $20 anyways so it's not very expensive if you just bought it.
The FairTax doesn't tax investments. It's a National RETAIL Sales Tax. Unless it's the purchase of a brand new good, or a service, on the retail level there is no Sales Tax.
------------------------------------------------
Steve Keller,
I believe you should no longer bother and waste your time with individuals who are ignorant and are not willing to listen to reason or even the facts. For every reply that goes out to a brick wall, it would be much better use to write an email to your local political parties, and organizations and tell them about the FairTax (since they will likely listen or at least look into it themselves and form an educated opinion on the factgs) and ask them if they would like a guest speaker to present about it. Then contact FairTax.org and your state volunteers about it and someone will go and speak, or you can do it yourself. Or all these messages could be letters to the editor, emails to members of the W&M committee, etc.
It's actually quite silly. A local restaurant owner is a small business and instantly bears income tax compliance burden at LEAST 30x greater than large corporations. The FairTax eliminates this. The restaurant owner is not paying any taxes! They're not even paying the sales tax on the items put into their food, nor the supplies needed to make the food.
Unless the restaurant owner just a complete self-oriented individiual the likely thing he or she would do (if SO worried about having to increase food costs by 23%) is add up how much money would be saved by not having to pay any income taxes, not having to pay an account, not having to match their employers payroll tax, etc. and maybe DEDUCT these savings from the menu prices!!
These individuals would tell the Harvard Department Economics Department Head that his studies are wrong about the FairTax, and that he or she is more qualified to discuss economics.
Laurence Vance falls into the category as one of these individuals as well. Just look at the last comment he posted in this blog:
"This is my last word on the FairTax. Even if everything the FairTax supporters say about the FairTax is true, I still object to the FairTax because I don't think it is fair that the government impose a 23 percent tax on the purchase of new goods and services. FairTax people think it is. I think it is legalized theft. FairTax people think it isn't. We can argue all we want about the method the state should use to collect taxes, but it is all a waste of time as long as FairTax supporters think that the state taking a 23 percent cut on all transactions of new goods and services is a fair thing. I consider it highway robbery. Good day."
By reading this he suggests that even if EVERYTHING good that would come from the FairTax is true, he STILL prefers the current gargantuan MESS of an income tax system. THAT is what is a fraud.
Tom Leser
www.FairTaxIndiana.net
Published: December 17, 2005 1:58 PM
Tom
I know you are right. I just thought if I hit the brick wall hard enough and with the right ammo, it might eventually come down. I have done and continue to do all the other things you suggest. I have sent numerous letters, faxes and emails to everyone I can think of.; Secretary Snow, President Bush, Vice President Chaney, Ric Keller who is the representative from my district and also a co-sponsor of the FairTax, many members of the Ways-and-Means committee, and members of the tax panel which was hammering a brick wall with a q-tip. I have bumper stickers, coffee cups, and T-shirts to show my support of the FairTax. If all FairTax supporters would do the same, larger offices would be needed to handle all the correspondence. If all supporters would do this, maybe HR25 will have a chance.
Published: December 17, 2005 3:17 PM
Hi Steve,
Yes I know what you are thinking. I have done the same on other forums and if you are continually presenting the facts you may not convince that specific individual but others will in fact see how they ignore facts and reason and come back with the same old misinformed, and non-factual arguments over and over again. I usually end up feeling like that time could have been better spent. I too do those things above, and I guess any talk about the FairTax is better than none! Keep it up! :)
Tom Leser
www.FairTaxIndiana.net
Published: December 17, 2005 6:36 PM
It is obvious that these individuals are brainwashed. They didn't read my responses and they still claim that revenue that the sale of my product generates is not my money... Basically, it all comes down to this Marxist notion that my property somehow belongs to government.
They are incapable to learn that every market exchange price is formed by supply and demand and that notion of "passing cost forward to consumers" exists only in their heads. Since I'm not a neurologist but a businessman, I have no further interest in this.
Published: December 17, 2005 9:26 PM
"It's actually quite silly. A local restaurant owner is a small business and instantly bears income tax compliance burden at LEAST 30x greater than large corporations. The FairTax eliminates this. The restaurant owner is not paying any taxes! They're not even paying the sales tax on the items put into their food, nor the supplies needed to make the food.
Unless the restaurant owner just a complete self-oriented individiual the likely thing he or she would do (if SO worried about having to increase food costs by 23%) is add up how much money would be saved by not having to pay any income taxes, not having to pay an account, not having to match their employers payroll tax, etc. and maybe DEDUCT these savings from the menu prices!!"
Tom Leser
FairTax Volunteer
www.FairTaxIndiana.net
Published: December 17, 2005 9:58 PM
Sasha
You keep saying that the money generated from your sales is your revenue. And I keep telling you that 23% of your sale is your customers’ tax burden. Each time someone buys something, they are depending on you to take their tax money and deposit it for them with the federal government.
I will ask you this question again. If someone asked you to deposit $100 for them at their bank, would you be loosing $100 of your revenue?
Boy, this is like telling someone water runs down stream and they keep telling you it runs up. I will try one more time. Demand is formed by buying power. The greater the buying power, the greater the demand, the higher the prices. The FairTax eliminates corporate taxes, and compliance costs thus reducing manufacturing costs. When manufacturing costs are reduced for everyone, competition will force wholesale prices down. At the same time wholesale prices are coming down the increase in demand will force retail prices up. Even if wholesale prices don’t come down, the FairTax will create at least 25% more buying power for the average wage earner, thus offsetting the 23% FairTax.
Published: December 17, 2005 11:54 PM
I said I'm not going to respond, but if they don't have a decency to stop repeating same nonsense over and over, I don't mind repeating Economics 101 lesion.
At the day of the FairTax, the restaurant owner ALREADY incurred costs that are artificially higher due to lower supply of inputs due to income tax (note, this doesn't mean that income tax is automatically embedded in prices of inputs - if that was the case, no input supplier would go out of business).
So FairTax cannot help to correct these past costs. If the owner doesn't recover these costs he will be in deep trouble. Restaurant owner faces a market price, which he cannot ignore. That price reflects current level of supply and consumers' demand.
If he/she decides to "pass his costs, including 23% sales" to consumers and ignore market price - he will have surplus, loss and higher probability of elimination. If he/she decides to follow our current market price, he will be forced to absorb 23% of his revenue loss.
In other words, only those who currently charge 23% above their variable costs will have a guaranteed survival. After many of our businesses are eliminated by the "FairTax" (what a shameless name), those surviving firms will have more power over their consumers as well as suppliers. That is the whole point of this tax, anyway.
Published: December 18, 2005 12:11 AM
Certainly, buying power will be lower once these firms that cannot recover their PAST costs start to lower their demand for inputs (including labor) and when they start going out of business. Surplus in labor-force and lower demand would put downward pressure on wages - prices of labor (people competing for fewer jobs).
Currently many of our input suppliers (including labor) do not pay income tax, so at least we know that many Americans will never care about this "FairTax" nonsense. And when we consider their presidential panel fiasco, we know that everything they say is politically irrelevant.
Published: December 18, 2005 12:41 AM
I am convinced that Sasha will always believe you need to boil water if you want it to turn to ice. Hopefully all the intelligent people, who have been following our debate, will see the true benefits of the FairTax over our current tax system. I admit, it is not perfect, but compared to our current system it is like a starving man who finally gets to bite into a thick juicy stake. Don’t be like my little granddaughter who says she doesn’t like something before she has a taste. The first time we tried to get her to eat broccoli she said “grandpa that looks yucky and it smells bad.� Once we convinced her to give it a try her opinion changed completely. Now when I ask her what her favor vegetable is she says “green trees grandpa�.
Here goes one last time. With the elimination of withholding taxes and the addition of the prebate, the FairTax will immediately increase the American wage earners’ buying power or spendable income by at least 23%. NOTICE, I SAID IMMEDIATELY! For example; take a family of four with a household annual income of $38,000; even if they have no income tax liability, they still have $2900.00 withheld from their paycheck for S.S. and Medicare. When you ad this figure to their prebate, which will be $5904, you have a total of $8811; this represents a total increase in IMMEDIATE SPENDABLE INCOME of 23.18%. If this same family’s total income was $30,000, they would have an additional $8199 which is an immediate increase of 27.33% in spendable income. This is a fact even Sasha can not disagree with, but then again she thinks water runs up-hill.
Buying power creates demand and demand dictates price; the greater the buying power, the greater the demand, the higher the price. Yes supply also affects prices, but other than availability of raw materials, and forces of nature, demand is what controls supply which in turn controls price. If there was an immediate 23% increase in buying power, prices could be increased at the same rate without affecting demand; providing all other forces remained constant. In other words, if there was an immediate 23% increase in buying power, retailers could raise their prices by 23% without any drop in sales. If the FairTax did not create an immediate increase in buying power, this would not be true.
If a 23% percent won't affect demand, why wouldn’t all retailers increase their prices by 23%? Sasha would tell you that companies with profit margins over 23% would maintain prices to eliminate their competition with margins below 23%. If this is true companies with higher profit margins could do the same today by simply lowering their prices.
With the FairTax, there will be at lease a 23% increase in buying power, thus a 23% increase in price won't lower the demand. If you don't raise your prices accordingly, you are stupid. If your profit margin is below 23% and you don't raise your prices, you are really stupid. It won't be the FairTax's fault if you go out of business.
But we are not done yet; the FairTax will eliminate corporate taxes, and compliance costs. It will take longer to feel the total effects of this because current inventories already have corporate taxes embedded in them. As new inventories are created void of these embedded taxes and compliance costs, competition will force wholesale prices down. As wholesale prices come down, retail competition will kick in and retail prices will drop. With both wholesale and retail prices moving in the same direction, retail profit margins will begin to increase, and our economy will kick into overdrive.
Published: December 18, 2005 2:54 PM
Steve,
...With the FairTax, there will be at lease a 23% increase in buying power, thus a 23% increase in price won't lower the demand. If you don't raise your prices accordingly, you are stupid. If your profit margin is below 23% and you don't raise your prices, you are really stupid. It won't be the FairTax's fault if you go out of business...
You seem to be confusing the effect of higher take home pay with monetary supply inflation.
If the FT is really neutral with respect to government revenues, then its implementation doesn't increase the supply of money or generally reduce the objective exchange value of the dollar.
Rather it partially re-allocates the existing supply of money to wage earners and the demand for new, higher taxed goods to all other goods.
There is no doubt that an increase in the after tax price of 30% will reduce demand. The new demand will be composed of more wage earners than before. However, even the wage earners with their increased take home pay will not value the marginal money unit that much less. Money is the economic good whose marginal utility diminishes with increasing quantity at a lower rate than any other good. This is because it is so flexible in choosing between almost all different goods, both in the present and in the future.
A consumer good is valued by its subjective use-value. Its ranking on an individual's subjective value scale will be little changed by the tax. However, the ranking of a 30% higher purchase price will move well up the scale, making the purchase of the given good, as opposed to something else, much less likely.
Regards, Don
Published: December 18, 2005 5:29 PM
Steve,
I admit, it is not perfect, but compared to our current system it is like a starving man who finally gets to bite into a thick juicy stake. Don’t be like my little granddaughter who says she doesn’t like something before she has a taste. The first time we tried to get her to eat broccoli she said “grandpa that looks yucky and it smells bad.�
We could all learn something from your granddaughter. Maybe if we didn't "taste" The New Deal, Social Security, Medicare, Medicaid, and the 16th Amendment because they smelled bad maybe we wouldn't have as many problems as we have now. Trying the food that "looks yucky and it smells bad� is precisely how government grows in size. Hardly anything is ever repealed. Instead new laws are made to "fix" the old laws. But the policy makers never look at the "real" reason the old laws aren't working. They ask the wrong questions. For example, the government inflated the money supply and created double digit inflation levels in the 70s, and then passed price control laws to combat the very problem they created. Instead of price controls they should have stopped inflating the money supply. Government rules and regulations beget more rules and regulations.
The same is true now with the "Fair Tax" proposal. Yes...the current system is a mess, but how is a new tax going to end up being any better when the 16th Amendment is not repealed?
Published: December 18, 2005 9:50 PM
Steve Keller... read what Don wrote, but go a step further. I know you don't bother to read this, but I'm writing this primarily because of you. Other, more reasonable people will benefit from this discussion.
You got lost in political ideology. Even if you believe that abolishment of income tax (that more than a third of us don't even pay, and most of us don't pay over 23% anyway) would make people go nuts with demand for everything - you can't seriously believe that it would happen instantly and by 23%. What that would suggest is that people's time preference is infinitely high and that our real interest rates are zero (because every additional dollar in our pockets would be consumed and not saved according to your voodoo economics).
But even that set aside - I claim that you would not see any increase in demand as the result of this tax. Demand is composed by people's WILLINGNES and ABILITY to buy something. It is people's wealth that is one of the determinants of demand (not simply the expectation of higher purchasing power in near future). Before consumers' new paychecks show up and pile up, you can't even begin to discuss the effects on demand, because ability to buy does not change immediately and it does not determine 100% of demand...
BUT the negative effects on supply would happen instantly, because firms already incurred past input costs when income tax was still in place. They will have to recover those costs at the moment tax is implemented - but there would be not even a chance for an instant increase in demand. So firms would start suffering losses, and that would start another negative process on demand for labor and wages (prices of labor). Not to mention the fact that used goods are not taxed and that black markets would have a mighty incentive for both buyers and sellers.
With firms suffering instant losses and the expectation of higher future prices, there would be a large negative impact in demand for consumer goods. What about the alleged positive factors stimulating demand... Well, abolishment of income tax and replacement of it by 23% revenue tax (business slaughter) would not even affect many of those who don't pay income tax and whose income tax amount is lower than the extra amount they would spend after the "FairTax" reduces supply and jacks up the prices.
As Don said, a replacement of taxation method will not just add 23% in everyone's pockets, because that is what money printing (inflation) would do. Taxation that aims to take same amount of money out of our pockets only aims to change the distribution of this tax burden. So instead of taxing profits, they would switch to taxing revenues, instantly driving out of business many of those who currently pay little or no income tax (again, the "FairTax" would not help us with past costs incurred during the income tax). Either way, if it is going to be "revenue neutral" it will make some of us worse-off, and some of us better-off. Those with a large financial power and huge profit margins would enjoy the benefits of smaller competition and grater power over their buyers, as well as their input suppliers (including labor).
---------
Don, you were totally right when you pointed out one of the reasons why demand would not simply jump as the result of change in taxation method, but you didn't stress how this “FairTax� price-increase will take place. Again, it all comes down in reduction of aggregate supply, due to the fact that many of those who currently don't make 23% over their costs in sales would face an instant trouble. Due to out past costs, negative effect on supply would be instant, and any effects on demand are expected in future.
As far as your marginal analysis goes, you got it partially right. Yes, it is true that money is the economic good whose marginal utility diminishes with increasing quantity at a lower rate than any other good. You correctly stated that this is due to the fact that money is convertible to almost any good and it represents a loose joint between present and future goods. So the effect on demand would not be as expected by the "FairTax" proponents.
But this is the only part of the story. Now what would happen to the aggregate supply when some wage-earners stop being taxed for their income?
I'll quote Frank Shostak:
"A person with a very meager money income can only afford means that will enable him to just sustain his physical survival. For him to undertake savings would entail a very high cost hence his time preference will be very high. However, as his purchasing power rises he can now undertake various ventures that he previously couldn't afford, which will generate benefits some time in the future. In other words, with a rise in purchasing power his time preference tends to decline i.e. he is likely to increase his savings. Consequently, this will reinforce the lowering of the interest rate in the money market by the central bank."
In other words, those new savers would actually stimulate aggregate supply by saving the portion of their income in our banking system and making available for business loans. That's why your comment regarding marginal utility of money is non-issue here. The issue is that reduction in employment and wages will precede any alleged benefit of the switch in our taxation method.
The real issue here is the order of action and the fact that not all of us can enjoy these tax savings - because government will have to collect its same amount of revenue from someone... It will be accomplished by confiscation of 23% everyone's sales revenue (based on current market prices) - regardless of their current economic performance. This job-killing measure will benefit the few at the expense of many and it would eventually translate into negative movements, first in supply and than in demand (economic stagnation).
.
Published: December 19, 2005 2:04 AM
As I explained before, it will be very difficult for the government to collect this revenue without any idea about the amounts of purchased inputs and the magnitude of output. At the same time, it will be very easy to evade taxes, with both sellers and buyers benefiting from evasion... Used goods are not taxed...
Suma sumarum, a national sales tax always increases a "need" for more government's interventionism and oppression. At the same time, nothing prevents them to act by 16th amendment and apply income tax on the top of this sales tax, if it becomes necessary. Déjà Vu for some of us.
Published: December 19, 2005 2:19 AM
Sasha,
Although it's likely more of a technicality than a really significant difference, the FT has a single transition rule whereby inventory held at the implementation of the FT is credited for the tax over the first year. It sounds as if the existing inventory could be sold with effectively a zero tax rate, or possibly stretched out for a lower tax rate up to a year. Presumably, the full 23% tax rate would be shown on the receipt, but wouldn't need to be remitted in whole or in part.
Regards, Don
Published: December 19, 2005 3:03 AM
From Steve Keller: You keep saying that the money generated from your sales is your revenue. And I keep telling you that 23% of your sale is your customers’ tax burden. Each time someone buys something, they are depending on you to take their tax money and deposit it for them with the federal government.
Steve Keller,
Sasha is completely correct to treat it as his revenue. You and other proponents of the Fair Tax seem to assume that the purchase of an item and the paying of the tax on the purchase are two separate events. This is not reality. If I want to buy a new house under the Fair Tax regime, and the listed price is $300,000, I don't negotiate with idea that I will pay $300,000 or less, but I negotiate with the idea that I will pay $369,000 or less. In other words, the market price isn't the listed price, but is the value transferred to the seller at the closing of the transaction. What does this mean? As Radeta has pointed out multiple times, it means that the vendors of final, new goods must have a margin of 23+% to survive. Any such business that wishes to remain viable and legal must have a 23+% margin of profit. All of the arguments about how the costs of inputs and such will fall due to adoption of the Fair Tax are completely irrelevant to this point. Even if all of the inputs fall in price, the final vendors will have to maintain, indefinitely, a margin of greater than 23%, or go out of business. The point is this: the consumer does not care about the sellers costs, and the consumer does not set his market price without including the amount he "pays" in sales tax. The market price is the amount the consumer forks over at the closing of the transaction. In other words, revenue is the amount of money that a vendor takes in on the sale of his goods and services. A sales tax is a tax on sales.
Published: December 19, 2005 10:10 AM
Mr Vance has written on christianity and the state, so it is only necessary to point out that the 16th amendment stands in contradiction to the 1st amendment. The reason is simple, and is ignored as a way to simply stop paying taxes. Whether you're religious or not, you've got to like this:
Jesus himself, regarding taxes, stated to "Render unto Caesar...." However, he made this answer in regard to a trap set for him, and gave us a strong hint as to his real feelings regarding taxes: He asked for a coin and then asked "Whose image is on this coin?" With that question, he directly connected four important subjects: law, taxes, images, and money.
Was it lawful to pay taxes to Caesar? Certainly not by the second commandment, to which Jesus referred. "You shall not make to yourselves any graven images nor any likeness....neither shall you bow down to them nor serve them."
Does this law pertain to taxes and mo ney? Jesus certainly made that connection.
Under the First Amendment, therefore, we have freedom to simply stop paying taxes, and the Federal Reserve Board cannot claim a monopoly on "Legal tender for all debts". Also, this renders the 16th amendment unconstitutional.
It does not matter if Jesus was expressing an opinion in favor of Caesar(which he would not have done), it matters only that there is a connection between the second commandment, taxes, and money, which gives us freedom under the First Amendment.
Ralph
Published: December 19, 2005 10:18 AM
Yancey,
Even if all of the inputs fall in price, the final vendors will have to maintain, indefinitely, a margin of greater than 23%, or go out of business.
This is mostly correct, but too bleak.
After all the inputs have fallen in price, the 23% tax must be applied. If the inputs haven't fallen far enough to absorb the tax, then the after tax retail price will be higher than it used to be. This will reduce the quantity that can be sold. Since the consumer demand is normally made up everyone who is willing to buy some units at varying prices, there will still be some demand at higher prices.
Whether this lower demand is sufficient to keep the retailer in business is a case by case question. While a given good will produce both less revenue and less profits, this may be able to be made up for by selling a larger variety of goods at lower volumes and lower profits.
Regards, Don
Published: December 19, 2005 10:43 AM
Don,
It really is that bleak. The problem is that market prices and costs are ever changing. Let us suppose that, by some miracle, the costs of inputs drops enough and/or the prices charged are enough to increase margins and to cover the tax. This only solves the margin problem for that instant in time. However, the probability of business failure is related to the required margin, and the tax is not a cost you can reduce legally. Today, theoretically, that margin required for business success is some small single digit % above zero, but under the fair tax, the required margin will be some small single digit % above twenty three. In essence, you are collecting, or trying to collect, the entire federal government's tax revenue at a single point along the production/consumption chain, and trying to collect it from a very small fraction of the population/businesses. It is this very fact that will encourage massive evasion and subsequent governent repression and/or reinstitution of the income tax. Though I like the idea of a tax that is easily evaded, I am smart enough to know that the state will have a repressive reply that I won't like.
Published: December 19, 2005 11:34 AM
Yancey,
In essence, you are collecting, or trying to collect, the entire federal government's tax revenue at a single point along the production/consumption chain, and trying to collect it from a very small fraction of the population/businesses.
This view would seem to have some merit.
Do you want a VAT instead? Something else?
I wonder if the price premiums in convenience stores over supermarkets are not already greater than a 30% add-on tax. Not that it would mean anything by itself.
Regards, Don
Published: December 19, 2005 12:15 PM
I would love to see all taxes disappear, everyone would, but face facts; it’s not going to happen. So what can we do to improve our tax system? I personally think the easiest and best way is to get rid of it and start from scratch. Over the years our code has become so long and complex no one completely understand it. Every time government cuts a little here and adds allot there, it becomes more complicated and more of a burden on the American people. It’s like patching an old leaky roof; eventually it will need replacing.
The most important thing in the design of any tax system is to make it as fair as possible for everyone. I personally think the FairTax comes closer than any suggestions thus far. Everyone will receive the same prebate based on family size, and everyone will be charged the same tax rate; what can be fairer than that? Unlike an income tax, there is no adjusting it with discriminating loopholes and deductions many of which are false. The rich man’s loopholes and self-employed individuals’ personal expenses being deducted as business expenses has made it possible for high and middle income earners to pay little or no tax. This leaves the middle class wage earner holding the bag. Our income tax system aids too many people in getting out of paying their fair share.
I have one question for all you economic expert, FairTax opponents. If the FairTax won’t work, what tax system would you come up with that would be simple and fair to everyone, that eliminates discriminating loopholes and false deductions, that doesn’t control how we invest our money, that taxes the billions of dollars of underground revenue, that cuts down on compliance costs, that reduces government spending, that balances trade, that creates jobs, that increases economic growth, that brings manufacturing companies that have moved offshore back home, and taxes the billions of dollars of underground revenue?
Published: December 19, 2005 12:32 PM
Steve Keller,
If you want a fairer tax than we have today, then a flat, personal income tax is the only way to go, in my opinion. This tax would treat all income, regardless of source, equivalently. The only deductions allowed would be for dependants and personal exemptions. I would eliminate all business taxes. This simply recognizes the fact that all taxes are paid by people not inanimate objects or constructs.
You have understand that all taxes fall on production, ultimately, since the government can only consume production. It is for this reason that libertarians, of which I am not a pure version of, want taxes eliminated
Published: December 19, 2005 12:48 PM
Don,
I don't want a VAT or a national sales tax. However, for discussion purposes, I suspect that a national sales tax would devolve into a VAT for exactly the reasons I and others have discussed earlier. Since the tax is being levied at a single point, the incentive for evasion would be enormous. To counter this the government can either increase the rate (futiley), send in the government agents to watch retailers and service providers 24/7, and/or spread the tax burden over all businesses.
Published: December 19, 2005 12:55 PM
Yancey said "If you want a fairer tax than we have today, then a flat, personal income tax is the only way to go, in my opinion. This tax would treat all income, regardless of source, equivalently. The only deductions allowed would be for dependants and personal exemptions. I would eliminate all business taxes. This simply recognizes the fact that all taxes are paid by people not inanimate objects or constructs."
I agree, this would be better than our current system. When you said you would eliminate all business taxes, I assume you are talking about corporate taxes. You could not eliminate taxes on self employed business owners; otherwise these individuals would pay no tax. When it comes to self employed, a flat tax would be no different that our current tax. You still would need to come up with a net taxable income. Many self employed individuals overstate or use false deduction in figuring their taxable income. This is why many self employed people end up with little or no income tax and are still live in expensive homes. Wage earners end up paying more of the tax burden as a result. A flat tax is not as fair as the FairTax. The FairTax doesn’t discriminate. If you buy a new pair of shoes, the amount of tax will be the same regardless of how much you earn, and regardless of how you earned you income; even if you were a drug dealer or an illegal alien who gets paid under the table, you will pay the same. With any type of income tax, these people choose to be exempt.
Published: December 19, 2005 2:49 PM
Steve,
What I had in mind is that self-proprietors would only pay tax on that income they draw from the business. Any profits reinvested in the business, or held as business assets would not be taxed. This part, of course, has enforcement issues that are as serious as those of the Fair Tax, but the world is not perfect.
Published: December 19, 2005 5:11 PM
Don Lloyd said "It is a logical necessity that some rate exists for each good that will cause the after-tax price to return to the original price."
When you say "for each good", do you mean that the tax rate would have to be different for each good? That would true, I suppose (assuming the good remains in production), but there's no possible way to calculate, or even guess, what the necessary rate would be for any given good (it's essentially the same calculation problem Mises wrote about wrt Socialism). Or how it would vary over time, etc. And the "Fair Tax"ers aren't suggesting a different rate for each and every good anyway, just a flat 30%. Obviously any such thing would distort the order of production tremendously, but nobody can calculate how! For some "economists" to say that prices wouldn't change is just ridiculous!
Published: December 19, 2005 11:26 PM
Yancey Ward,
You're right on the money. People's willingness and ability to buy (consumer's demand) translates into total amount paid at the cash register. If a sales tax is introduced, you would be forced to deduct sales tax rate from YOUR revenue.
So from the moment of the "FairTax" implementation, the basic criterion for survival will be 23% profit margin. Now think about that. My workers who pay little or no income tax will not be affected significantly. Nor will it be my other input suppliers (many of them from the other side of border). My demand will not show instant improvement, as Don and I explained. Someone's saving will improve - at the expense of someone else (it's revenue neutral).
Again... we would first have an exodus of final goods sellers, than a subsequent drop in demand for inputs affecting every stage of production negatively. So if there would be a drop in prices of input, only surviving firms would enjoy them.
Without VAT, taxation of final goods based on 23% revenue confiscation is impossible. I explained why and I don't have to repeat it.
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DON: "Although it's likely more of a technicality than a really significant difference, the FT has a single transition rule whereby inventory held at the implementation of the FT is credited for the tax over the first year. It sounds as if the existing inventory could be sold with effectively a zero tax rate, or possibly stretched out for a lower tax rate up to a year. Presumably, the full 23% tax rate would be shown on the receipt, but wouldn't need to be remitted in whole or in part."
In whole or in part? How specific that? Is that a joke or a specific measure? Well, anyways... It's not my inventory that only matters, it is also my suppliers’ inventory that went through income taxation and therefore is lower in supply and higher in price. And if everything produced before sales tax in all stages of production is tax free for a year, not only would government run out of money and inflate, but we would still have unethical 23% revenue tax that applies to you even if you don't make any income, and same black-market incentives for everyone.
Published: December 20, 2005 12:16 AM
Sasha,
In whole or in part? How specific that? Is that a joke or a specific measure?
That is only my attempted interpretation of what is called a credit. One apparent choice would be to sell the existing inventory at its original price and send the government a notification of the use of the credit instead of sales tax cash. Alternately, you might sell both the inventory and new goods for something between the original price and +30%. This would stretch the use of the credit. In any case, most businesses won't hold more than a month's worth of inventory, so this is mostly a delay instead of a solution.
Regards, Don
Published: December 20, 2005 2:54 AM
OK. It's just a joke. No specific amounts and procedures... and even if it had any serious plan for what we called "transition period", it would still have same problems I listed... 23% revenue tax for all final goods and services sellers is brutal, unjust, stupid, and easy to evade. In other words - it will not work.
Published: December 20, 2005 6:54 AM
Sasha,
You never attempted to answer this question. I guess you don't have an answer.
If the FairTax won’t work, what tax system would you come up with that would be simple and fair to everyone, that eliminates discriminating loopholes and false deductions, that doesn’t control how we invest our money, that taxes the billions of dollars of underground revenue, that cuts down on compliance costs, that reduces government spending, that balances trade, that creates jobs, that increases economic growth, that brings manufacturing companies that have moved offshore back home, and taxes the billions of dollars of underground revenue? Don't say eliminate all federal taxes completely. That is a copout answer. If you say keep the one we have, that is also a copout answer. You are in a league of your own, if you believe it is fine the way it is.
Published: December 20, 2005 10:51 AM
Steve, you wrote so many words, but you didn't say anything. Laws of economics clearly show that a national sales tax of 23% would be destructive, that it would monopolize our markets, create huge underground economy (sources of revenue for organized crime) and that it would hurt most of our sellers as well as consumers. The only one who would benefit from this tax are those who have most financial power and profitability.
Yes, a national sales tax is simpler, because it's easier to take 23% of everyone's revenue, instead of bothering to figure out who actually made profit... But this absurd cruelty of this tax is combined with its stupidity (there would be no tax record for input purchases) making it easy to evade taxes, which is in interest of both sellers and consumers. That's why a national sales tax would not work and it would only lead us to more government control and something much more dangerous than the IRS.
Regards.
Published: December 20, 2005 7:14 PM
Sasha,
"Laws of economics clearly show that a national sales tax of 23% would be destructive..."
Can you tell me exactly which "laws of economics" you are referring to? And why would 81 economists support this plan? http://fairtax.org/pdfs/Open_Letter_President.pdf
That kind of peer review convinces me that the Fair Tax is the best tax replacement plan I've seen. I don't want to get bogged down in technicalities. Let the economists do all that.
"The only one who would benefit from this tax are those who have most financial power and profitability."
I have no idea what that means. I suspect it's rooted in income tax thinking.
"Yes, a national sales tax is simpler, because it's easier to take 23% of everyone's revenue, instead of bothering to figure out who actually made profit..."
Embedded taxes out, Fair Tax in, income tax gone, revenue stays the same, keep your entire paycheck, prices change maybe a little, then you pay 0 taxes up to the poverty line courtesy of money sent to you every month. Sounds to me like everyone comes out ahead.
"But this absurd cruelty of this tax..."
Cruel? How?
"...is combined with its stupidity (there would be no tax record for input purchases)"
Input purchases don't need a tax record. The only records needed are retailer sales income and taxable amount due to the state taxing authority.
"...making it easy to evade taxes..."
Not easy. Sales tax evasion can't be done alone- you need cooperation from the seller. You won't likely get it.
"...which is in interest of both sellers and consumers..."
Under a tax that goes after your paycheck, ok yes.
I wonder what the motivation to evade taxes will be when taxation shifts to spending and leaves our paychecks alone. Should be interesting to see.
"That's why a national sales tax would not work and it would only lead us to more government control and something much more dangerous than the IRS."
Read Federalist #21.
Sasha, what is your proposal for tax reform? You oppose the fair tax, and that's ok. Now tell us what you support.
Regards.
Published: December 20, 2005 8:43 PM
Saha
Telling me what is wrong with the FairTax is not answering my question.
It sure is much easier to criticize than it is to solve, isn’t it?
I will break down my general question. Maybe that will be easier for you.
What tax system would you recommend that would be simple and fair for everyone? (Our current system is 600,000 pages of code that absolutely does not treat everyone equal. It has loopholes that only help the rich. It has deduction that only apply to certain people. And it has tax brackets that discurage success.)
What tax system would you recommend that doesn’t control how we invest our money? (You must consider the tax consequences of every investment you make under our current system.)
What tax system would you recommend that cuts down on compliance costs? (Billions of dollars are spent each year on compliance costs with our current system.)
What tax system would you recommend that would reduce government spending? (With our current system, tax increases can be camouflaged a thousand different ways.)
What tax system would you recommend that would balance our trade? (With our current system companies pay taxes on the profit of their exports, and most foreign companies pay no tax to their government on their export profits.)
What tax system would you recommend that would creates jobs? (Our current system is forcing more and more corporations to move offshore along with our jobs.)
What tax system would you recommend that would increases economic growth? (With a system that is forcing more and more companies off shore, how can their be economic growth?)
What tax system would you recommend that would bring companies that have moved offshore back home? (As long as there is a corporate tax this will never happen.)
What tax system would you recommend that would tax the billions of dollars of underground revenue? (I’m sure if we keep the good old income tax long enough, drug dealers will begin to feel guilty and start filing tax returns.)
Published: December 20, 2005 9:06 PM
Steve Keller writes: If the FairTax won’t work, what tax system would you come up with that would be simple and fair to everyone, that eliminates discriminating loopholes and false deductions, that doesn’t control how we invest our money, that taxes the billions of dollars of underground revenue, that cuts down on compliance costs, that reduces government spending, that balances trade, that creates jobs, that increases economic growth, that brings manufacturing companies that have moved offshore back home, and taxes the billions of dollars of underground revenue? Don't say eliminate all federal taxes completely. That is a copout answer. If you say keep the one we have, that is also a copout answer. You are in a league of your own, if you believe it is fine the way it is.
1) No tax system is simple and fair to everyone; taxation by its very nature (it is theft) is unfair.
2) Why would anyone want to eliminate loopholes and deductions? A sane person wants to have more loopholes and deductions. The more the better!
3) Every tax controls how "we" invest "our" money. You can't invest what is taken away from you!
4) "taxes billions of dollars of underground revenue" -- see #2: I don't want to tax that! I want to reduce taxes, not increase them!
5) "reduces government spending" -- no tax can reduce government spending. (Read that both ways: no method of taxation can acheive that, and "no tax" would indeed achieve it!)
6) No tax can create jobs or increase economic growth. Those things are caused by more investment, which requires not taxing people.
Why is "end taxation completely" a "copout answer"? It's the only economic answer there is. I support anything that will reduce taxes. I support nothing that adds new taxes. The "Fair Tax" is a new tax. That it supposedly also eliminates other taxes is completely irrelevant (even it it would pass as written); it's a new tax, and therefore unsupportable.
Published: December 20, 2005 10:47 PM
Peter writes - Why is "end taxation completely" a "copout answer"? It's the only economic answer there is.
Wow, I thought I would have received a somewhat intelligent response to my questions.
It’s actually not a copout answer; it’s a stupid ridiculous answer.
How many elderly people’s Social Security check will you personally replace? Since they will no longer have Medicare, how many elderly people’s medical bills will you personally pay? How many service men and women’s pay checks will you personally replace?
Published: December 20, 2005 11:48 PM
1) No tax system is simple and fair to everyone; taxation by its very nature (it is theft) is unfair.
The Fair Tax is the simplest and fairest tax replacement plan I've seen. It certainly is more fair and simple than the mess we have now. Taxation is the price we pay to live in this country.
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2) Why would anyone want to eliminate loopholes and deductions? A sane person wants to have more loopholes and deductions. The more the better!
Loopholes and deductions are great for those who can use them. Meanwhile, the rest of us pay more to make up the difference. I would rather eliminate anything that lends itself to gaming the system. That's how we make it fair and simple!
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3) Every tax controls how "we" invest "our" money. You can't invest what is taken away from you!
The Fair Tax doesn't tell you how to invest. You decide that. The current system "takes away from us" and we have no control. It encourages spending and discourages saving. Under the Fair Tax, you have control over when you pay tax and how much.
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4) "taxes billions of dollars of underground revenue" -- see #2: I don't want to tax that! I want to reduce taxes, not increase them!
I want to tax underground revenue- it lightens my tax load. :-)
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5) "reduces government spending" -- no tax can reduce government spending. (Read that both ways: no method of taxation can acheive that, and "no tax" would indeed achieve it!)
That's exactly right. The fair tax addresses how we fund the government. It shifts taxation from earning to spending, where it belongs. If you think government spending is too much (I agree with you there) then complain to your congressman.
Or run for office.
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6) No tax can create jobs or increase economic growth. Those things are caused by more investment, which requires not taxing people.
The Fair Tax will facilitate economic growth by removing the taxes that inflate prices. This will create jobs by making the US competitive and creating a tax haven, which will bring American Corporations and investment capital home where it works for us instead of some foreign economy. We will have untaxed income, therefore more to invest.
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Why is "end taxation completely" a "copout answer"? It's the only economic answer there is. I support anything that will reduce taxes. I support nothing that adds new taxes. The "Fair Tax" is a new tax. That it supposedly also eliminates other taxes is completely irrelevant (even it it would pass as written); it's a new tax, and therefore unsupportable.
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The Fair Tax will replace the income tax, and all associated taxes. It's in the legislation of HR25. It's very relevant. Ending taxes sounds good, but I don't see it happening. I don't even see a grassroots movement supporting that goal. We have to fund the government. Since eliminating taxation is not an option, I vote for the Fair Tax.
Your arguments seem to support your position: ending taxation. I respect that. However, we don't agree; that's ok too!
regards
Published: December 21, 2005 1:37 AM
I want to tax underground revenue- it lightens my tax load. :-)
What kind of argument is that? If you get mugged, you don't say "I want everyone else to get mugged as well" (do you?). How is your statement above any different from: I want to steal my neighbor's credit card - it lightens my purchase load?
(It's not even true: do you really believe you'd be taxed less if other people paid more tax?)
Published: December 21, 2005 5:24 AM
Your arguments seem to support your position: ending taxation.
I'm all for ending taxation, of course, but all I actually said is that I'm against any new taxation.
I respect that. However, we don't agree; that's ok too!
When you say "don't agree"...what don't you agree with? Do you believe it's not criminal to tax people? Because if you don't believe that it makes absolutely no sense to argue in favor of any tax. But if you do believe that, it makes even less sense for you to object to someone mugging you in the street: the only difference between the mugger and the government is that the mugger goes away after he gets your money, and doesn't bother you any more, whereas the government keeps mugging you over and over, telling you what to do and what not to do, etc. The mugger is vastly preferable!
Published: December 21, 2005 5:33 AM
Peter writes “I'm all for ending taxation, of course, but all I actually said is that I'm against any new taxation�
No what you actually said was "Why is "end taxation completely" a "copout answer"? It's the only economic answer there is."
I guess you couldn’t answer my question about you personally helping to supporting our elderly and troops. If we eliminate all taxes and you aren’t willing to help, who do you suggest should?
Peter writes - Every tax controls how "we" invest "our" money. You can't invest what is taken away from you!
The FairTax encourages investing; the more you invest and the less you spend, the less tax you will pay. Plus, the returns on your investments, no mater what the investment may be, is not taxed. You could buy a piece of property today for $1000 and sell it tomorrow for $100,000 and you wouldn’t pay a tax. Compare this to how our current system treats investing. Yes, you can invest in an IRA and put off paying taxes until you make a withdraw. Notice I said "until you make a withdrawal." And if you withdraw before 59 ½, not only must you add the withdrawal to your income for that year, you pay a 10% penalty for what they call early withdrawal. An IRA says I will get you sooner or later and if I get you befor age 59 1/2, I'll get you twice. Wouldn’t you rather have a tax system that allows you to invest any way you wish without any tax consequences? I know your answer will probably be, NO, I don't want to pay any taxes. I jsut want to receive all the benefits of living in the US while someone else foots the bills. If you don't agree with what I think your answer will be, I would like to hear your answer.
Chad writes “I want to tax underground revenue- it lightens my tax load.�
Peter responds – “How is your statement above any different from: I want to steal my neighbor's credit card - it lightens my purchase load?�
If your neighbor received the same benefits as you, are you willing to pay the whole bill? If someone mows both your laws, are you a good neighbor and pay for both? If you don’t believe criminals should share our tax burden, well I guess you must be a ____ (I will let you fill in the blank.)
Published: December 21, 2005 8:53 AM
Sasha
You keep repeating that the Fair Tax will create black-market incentives for everyone.
If this is one of the reason you prefer our current over the Fairtax, you need a reality check.
Having the incentive to do something and accomplishing that incentive are two different ball games.
Under both systems there is an incentive to not pay taxes. Let’s take a look at both systems to see which system offers the least resistance in accomplishing this incentive. With our current system, it’s pretty simple; you just don’t file a tax return or if you do, you miss-state your income or expenses. You can do this all on your own; you don’t need anyone to assist you. If you get caught, you get what you deserve. With the FairTax the only way you can decide on you own, is to not buy anything, and this is legal, otherwise you need to find a co-conspirer. If you do and you get caught, you both will get what you deserve. You may have the incentive to jump off a bridge but which is easier, jumping on your own or convincing someone to push you?
Published: December 21, 2005 11:57 AM
Steve Keller, I already explained why law of demand and supply clearly show that 23% sales tax will in fact be a 23% revenue tax, which will be far more destructive than our current tax system (that only taxes income, if you make any). Austrian school of economics is on my side, as well as most of other schools of economics. Do I have to remind you that the "FairTax" was recently refuted by presidential advisory panel, so your tax plan is not even favored by all of you statists.
As far as tax evasion goes, you obviously ignore logic and economics. Sales tax is much different from income tax, because both sellers and consumers benefit greatly from tax evasion. In income tax scheme, there is no such consensus. Another difference is in total idiocy of FairTax: government has no way of knowing about hte amounts of inputs purchased and it is clueless about our total output. This is not the case with our income tax system or European value-added-tax. Also, I clearly demonstrated that many of our firms would go out of business if they didn't evade taxes, and it would be easier for them to do so.
This is why a national sales tax never worked - anywhere. "FairTax" supporters only have an agenda to defend the interests of big businesses, but they never presented any intelligent case against anything their opponents say (not even on this blog).
EOD.
Published: December 21, 2005 3:31 PM
Sasha writes - Austrian school of economics is on my side, as well as most of other schools of economics.
I can name approximately 80 that are on the FairTax’s side , you named one on your side, If there are many others, please name just 5 more. If you like, I will be happy to name the ones that are for the FairTax. Actually you could go to www.fairtax.org and read the list yourself.
Sasha writes - Do I have to remind you that the "FairTax" was recently refuted by presidential advisory panel,
Secretary Snow along with most of congress wasn’t too happy with their recommendations. I suppose you were. They didn't even come close to following the President's outline. Can you explain how all their recommendations will work? If you can, you are about one out of a million. Government loves the fact that our income tax system can use smoke and mirrors to fool the American people. It sure has done its job on you. If the government needs 23% of all revenue to operate, there is no hiding this fact. If the American people feel this is too much, we will have a better chance of reducing this percentage. With our current system, if government tells you they have cut taxes how do you really know if this is true? With the FairTax if they lower the rate from 23% to 22%, you know there has been a cut. Like I said before you can only patch an old worn out roof just so long.
Published: December 21, 2005 5:20 PM
Sasha
I decided to do a little research on your Austrian school of economics, if you believe what they preach I can understand why you are against the FairTax.
The Austrian School of Economics is a tiny group of libertarians at war with mainstream economics. They reject even the scientific method that mainstream economists use, preferring to use instead a pre-scientific approach that shuns real-world data. Academia has generally ignored the Austrian School, and the only reason it continues to exist is because it is financed by wealthy business donors on the far right. The movement does not exist on its own scholarly merits.
Published: December 21, 2005 5:53 PM
The sincerity with which the above comment was made really made me laugh. Thanks. I needed that.
Published: December 21, 2005 6:09 PM
Steve,
I don't know if wealthy business donors on the far right are funding the Ludwig Von Mises Institute. But since you lack LVMI's income statement, you are making assertions without evidence. Can you honestly tell me what proportion of the funds of LVMI are contributed by wealthy business donors on the far right, rather than by book and merchandise sales or by smaller donations? Didn't think so. So shut up.
"If this is one of the reason you prefer our current over the Fairtax, you need a reality check."
I've heard this type of argument before: if you don't agree with Bush's war in Iraq, then you must want Saddam to remain in power. You are forcing a false choice on us. If I had my druthers, I'd want a flat tax (at least something like Hall-Rabushka) that eliminated all deductions and all other federal taxes (and I mean all). But according to you, I must approve of the current tax system if I don't approve of the FairTax. It would be nice for once if you FairTaxers refrained from telling us what our own views are and restricting our choice to "you're either with us or the (economic) terrorists."
Published: December 21, 2005 10:20 PM
Steve,
Another thing. Maybe "Academia has generally ignored the Austrian School" because most of academia resides in central banks, publicly run universities, or have heavily publicly funded research institutes. With government controlling most of academia, it is hard to get ahead when you advocate less government.
Published: December 21, 2005 10:25 PM
Steve Keller sez;
"The Austrian School of Economics is a tiny group of libertarians at war with mainstream economics. They reject even the scientific method that mainstream economists use, preferring to use instead a pre-scientific approach that shuns real-world data. Academia has generally ignored the Austrian School, and the only reason it continues to exist is because it is financed by wealthy business donors on the far right. The movement does not exist on its own scholarly merits. "
As tiny as the Austrian School allegedly is, you still managed to find the epicenter of it!
I suggest that the only tiny thing here is your mind.
Published: December 21, 2005 11:04 PM
Steve Keller's idea of "research" is apparently to read one nutty socialist website, which he quotes verbatim (http://www.huppi.com/kangaroo/L-ausmain.htm)
Published: December 22, 2005 12:36 AM
Steve Keller,
Unfortunately, you are unable to participate in a serious discussion about economics. You keep repeating like a broken record that some "economists" are supporting a national sales tax - but you are not able to present any of their arguments. Just read your responses to my posts - there is really nothing there. I don't feel like having an intellectual punching bag. We are simply not in the same category, so just walk away...
Published: December 22, 2005 2:41 AM
Peter:
"Steve Keller's idea of 'research' is apparently to read one nutty socialist website, which he quotes verbatim (http://www.huppi.com/kangaroo/L-ausmain.htm)"
Quoting a little-known passage while passing it off as one's own: That's called plagiarism. In the Western tradition, it's a shameful, disreputable thing.
Published: December 22, 2005 4:03 AM
LOL!
He's not able to come up with an insult on his own...
How sad!
Published: December 22, 2005 4:32 AM
"I want to tax underground revenue- it lightens my tax load. :-)
What kind of argument is that? If you get mugged, you don't say "I want everyone else to get mugged as well" (do you?). How is your statement above any different from: I want to steal my neighbor's credit card - it lightens my purchase load?
(It's not even true: do you really believe you'd be taxed less if other people paid more tax?)
Posted by: Peter at December 21, 2005 05:24 AM"
What kind argument is that Peter? I say what kind of argument is yours? So the current Trillion dollar underground economy is BREAKING LAWS including income tax evasion, and because the FairTax has a broader tax base and TAXES this Trillion dollar underground economy when they legitimately buy things (do you think they steal everything?!) you compare this to want someone else mugged or stealing a neighbors credit card? That is a complete irrational argument. One way is making these guys honest, the way your suggesting is creating new criminals.
C'mon guys, please make some rational arguments here unlike Laurence Vance.
Tom Leser
FairTax IN Asst. State Director/FL-15 District Director
www.FairTaxIndiana.net
www.FLFairTax.net (coming soon!)
Published: December 22, 2005 7:34 AM
As far as tax evasion goes, you obviously ignore logic and economics. Sales tax is much different from income tax, because both sellers and consumers benefit greatly from tax evasion. In income tax scheme, there is no such consensus. Another difference is in total idiocy of FairTax: government has no way of knowing about hte amounts of inputs purchased and it is clueless about our total output. This is not the case with our income tax system or European value-added-tax. Also, I clearly demonstrated that many of our firms would go out of business if they didn't evade taxes, and it would be easier for them to do so.
This is why a national sales tax never worked - anywhere.
This is completely incorrect. There would be two difference scenarios for this. One must involve two people conspiring to evade the system, the buyer and the seller. The 2nd would be the mom & pop charging the buyer for the FairTax and then not remitting it back to the state collection authority. When people have lower marginal tax rates (as they will under the FairTax) there is less incentive to cheat! I'm not sure about you, but I'm not a criminal and would not want to keep the FairTax revenue and risk ruining mine and my family's life.
90% of the FairTax would also be collected by only 8% of businesses. These larger corporations are going to find it very difficult to cheat. A sales tax audit would involve asking the company how much they sold that year, and then comparing this with the amount they remitted back to the state. You say this is not the case with the income tax and a VAT. That claim has almost less merit than most of Laurence Vance's in his article. You obviously do not know about the current income tax system. 15,000 revisions of the IRC since 1986, 60,000 total pages, used as a tool by the gucci gulch and Congressional incumbents. The income tax is a HIDDEN TAX. Americans do not even currently know, or think, that they pay taxes. Because they get a check on April 15th they think they didn't pay any taxes but got some back. The Euro-VAT is even worse. The tax is assessed at EVERY stage of the manufacturing process and this creates many more points of taxation, more levels of cascading taxes, and obviously more points for evasion.
If you can speak more favorably about an income tax or a VAT it shows how little credibility you have.
Your last point is wrong again as well. England used a NRST after the Napoleanic wars and experienced one of the greatest economic booms in history. I believe one other European country also had a US States style sales tax but was forced to switch when joining the EU.
Not to mention the 18th and 20th largest current economies in the WHOLE world use a retail sales tax and no income tax.
Tom Leser
FairTax IN Asst. State Director/FL-15 District Director
www.FairTaxIndiana.net
www.FLFairTax.net (coming soon!)
Published: December 22, 2005 7:51 AM
Sasha writes - Austrian school of economics is on my side, as well as most of other schools of economics.
I see you can exchange punches. But can’t answer simple straight forward questions.
I’ll try one more time.
If there are many others, can you name just 5 others? If you can, I hope they’re more credible than the Austrian school of economics.
Since the FairTax will improve everyone’s situation except the following, the opponents in this discussion must fall into one of these categories. Even though they are the minority, they have the power to delay the passage of the FairTax. As more and more Americans begin to see through there lies the FairTax will ultimately save America.
1.They are self-employed business owner who has gotten away with cheating on their income tax for so long they are afraid the FairTax will eliminate this privilege.
2.They are a tax lobbyist who fears the FairTax will force them out of a job.
3.They are an IRS employee who also fears for their job.
4.They are a wealthy individual who has been able to use wealthy only loopholes to either reduce or eliminate his tax burden.
5.They are a foreign corporation who wants to keep American manufactures offshore.
6.They are a congressman who fears the government will lose their power.
7.They are a drug dealer or some other criminal who will no longer be tax exempt.
8.They are an illegal alien who also will no longer be tax exempt.
9.They are a terrorist who want to use warped economics rather than a bomb to destroy America.
10. or they are a concerned American and they have been brainwashed by one of the above.
Published: December 22, 2005 8:00 AM
Who cares what you say...
You steal material from some left-wing lunatic's website. Read my response to Kotlikoff and enjoy.
Bye-bye.
Published: December 22, 2005 9:40 AM
Tom,
Here are a couple of issues surrounding the FairTax from http://www.ucop.edu/cprc/sheffbrf.html:
"Introducing taxation on consumption would impose a one-time additional burden on holders of accumulated assets. This group would be disproportionately comprised of the elderly and the retired. To understand this one-time effect, consider a recently retired worker. This worker has already paid income taxes as he or she worked and saved for old age. Now this worker would face additional taxation on his or her consumption. It is possible, under some tax plans, to reduce this burden by crafting transition rules that effectively exempt taxation on consumption financed from accumulated assets. However, several economists have noted that providing this relief also reduces the increases in savings and economic growth that might be expected from shifting to taxation on consumption."
"Trying to replace the federal personal and corporate income tax with a national retail sales tax or value-added tax would lead to total tax rates on consumption between 30% and 40% -- far higher than anywhere else in the world. The experience of other nations suggests that these rates are unenforceable and would stimulate widespread noncompliance. Countries with higher tax burdens than those of the United States rely on a mixture of income and consumption taxes and avoid extremely high rates on consumption alone."
So your probems are two-fold. While the FairTax is neutral towards savings, it would be yet another tax heaped upon savings already double and triple taxed over the long years. Also, you ignore real-world experience with non-compliance of high rates of retail sales taxes. I qoutoe Bruce Bartlett: "A vast amount of foreign experience indicates that retail sales taxes cannot be collected much above 10 percent without breaking down." Please inform us which country in the world imposes such a high retail sales tax as its only form of revenue. Bet you can't do it.
Published: December 22, 2005 12:11 PM
Steve, I think your list is incomplete. Allow me to help:
11. They are among the few people left in this country with a non-zero savings account balance and do not appreciate having an additional 23% of it stolen by double-taxation.
12. They see through the false dichotomy that one must either support the FairTaxers' pet plan or be a shill for the current system, and they believe that superior, practical alternatives exist.
13. They realize that consumers' willingness to absorb a 30% price increase on a $1 hamburger is a completely different question from whether they'll do the same for a $300,000 house.
14. They know that many Americans regard their yearly income tax refunds as a gift from the government and question the wisdom of making this universal via the monthly prebate system.
15. They find FairTax supporters to be arrogant, evasive, and prone to swing at strawmen when real objections are made to their plan.
Published: December 22, 2005 12:40 PM
Great addition to the list. Regarding #15, I had just thought of an interesting contradiction of some of the FairTaxers. Some of us have been criticized by some FairTaxers that we should not use public choice arguments to criticize the FairTax. Debate it on its merits, so to speak. Else, we are violating the rules of rhetoric. But the whole argument underpinning this whole silly movement is based on public choice theory. If you ask a FairTaxer why we need this drastic change, he will say because the current system is broken. You ask then why cannot we just reform the system, say, with a flat tax. The FairTaxer replies that we tried reform and it failed. Well, why did it fail, you might ask the FairTaxer. The FairTaxer will then say that lobbyists, wealthy donors, and demagogic politicians undid all the reforms. In other words, they are attacking income tax reform by using the classic public choice argument. Your next move would then be to say that if public choice theory explains why income tax reform failed and proves we need to replace the income tax, wouldn’t it also apply to the FairTax reform after it is passed? Wait just a gosh darn minute, the FairTaxer says. Who said that you can use public choice theory to discredit the FairTax? Debate it on its own merits. We live in this la-la land where once our beautifully pure FairTax is passed, lobbyists will be impervious to change it to the benefit of their benefactors. No amount of campaign cash will change its pristine structure. And politicians will not use it to favor home district industries because politicians can be trusted to adhere to sound economic principles. After all, once they see the beauty of the FairTax, we can sing Kumbaya around the campfire, knowing that special interest politics has been snuffed out forever. But remember that if you advocate a flat tax, it will just get worse (you know, public choice theory). And don’t you worry about the possibility of Congress reinstating the income tax. Even though the FairTax bill doesn’t repeal the Sixteenth Amendment before it is implemented, we very sternly tell Congress that they should get around to repealing it later. In the meantime, FairTaxers will wag their fingers at politicians who would like to have both an income and sales tax imposed on this country, and you just know that they’ll listen and rein in their ambition, knowing full well that their actions will have economic consequences.
That’s pretty much all the hogwash you hear out of FairTaxers. Apparently, we can’t use their arguments against them. It reminds me of debating statists who use public goods theory to discredit markets. At least when I point out that public goods theory also applies to government, they will not accuse me of using an inappropriate argument. Only FairTaxers will do that.
Published: December 22, 2005 1:17 PM
Tom Leser says: "So the current Trillion dollar underground economy is BREAKING LAWS including income tax evasion, and because the FairTax has a broader tax base and TAXES this Trillion dollar underground economy when they legitimately buy things (do you think they steal everything?!) you compare this to want someone else mugged or stealing a neighbors credit card? That is a complete irrational argument. One way is making these guys honest, the way your suggesting is creating new criminals."
If they're breaking Laws, arrest them for that; but not that arbitrary legislation invented by politicians is distinct from the Law. "Tax evasion" is not something anybody should consider a crime. Beating people up is a crime. Stealing from people is a crime (i.e., taxing is the crime, not evading tax!). What you are saying is "because I'm being taxed, and that guy over there is avoiding the tax, I'm angry. I want him to be taxed too!". Now replace the word "tax" with a synonym: "because I'm being robbed, and that guy over there is avoiding the robbery, I'm angry. I want him to be robbed too!" You are indeed asking that someone else be mugged. What a disgusting moral position to take!
Published: December 22, 2005 5:37 PM
Logan says:
So your probems are two-fold. While the FairTax is neutral towards savings, it would be yet another tax heaped upon savings already double and triple taxed over the long years. Also, you ignore real-world experience with non-compliance of high rates of retail sales taxes. I qoutoe Bruce Bartlett: "A vast amount of foreign experience indicates that retail sales taxes cannot be collected much above 10 percent without breaking down." Please inform us which country in the world imposes such a high retail sales tax as its only form of revenue. Bet you can't do it.
Hi Logan,
ANY type of tax system will in fact have its inherent problems and any type of tax (taking from somebody vs. the person willingly giving) will cause evasion. The point is that taxing consumption is much more economically sound, and much fairer, than taxing income. On a very high level you're taxing productivity, savings, investment, while taxing consumption is not. Maybe 0.1% of people in this world will CHOOSE to have an income, most people will choose what they spend.
The elderly WANT the FairTax. I have NOT ONCE met an elderly person (in person) who has been against the FairTax. Most people are not selfish. Many of the active FairTax volunteers are senior citizens and I have met very many at all who are younger than I (in my mid-20's). THey want this for their children and grandchildren and their great-grandchildren. These seniors want it to be easier for their descendants and to not have to put up with this current mess.
On a personal note most seniors have a greater purchasing power under the FairTax. They are not being taxed on any spending of essentials nor on used items. Most elderly people are frugal spenders and this very much benefits them. They are also NOT getting a single dime taxed from their retirement income like they currently do. Paying an tax on retirement income is in fact paying a tax, on top of a tax, on top of a tax...
"A vast amount of foreign experience indicates that retail sales taxes cannot be collected much above 10 percent without breaking down."
What experience are you talking about? What history/studies show this? You name a columnist Bruce Bartlett who doesn't like this, there are close to a hundred respected individuals in economics who are ENDORSING the FairTax. Also as I had mentioned before England used a National Retail Sales Tax (more akin to the states sales tax) and experienced a major rise in their economy. Not to mention once again that the current 18th and 20th largest economies in the WORLD raise most of their revenue from a sales tax and do not have an income tax. The fact of the matter is that 45/50 states currently collect a sales tax, they will be doing the same for the FairTax. The rate of the tax does not matter AS LONG AS the marginal rates for most people are less than what they are now. I would gladly go to the store and buy purchase a can of soup for $1.10 or $1.15 instead of the 0.99c it used to be as long as I'm not getting $10,000+ seized from my hard earned income every single year.
The bottom line is that the FairTax is MUCH MUCH MUCH better than any type of system we currently have and will let all you tax haters pay much less or the 0% you so desire. Thanks,
Tom Leser
FairTax IN Asst. State Director/FL-15 District Director
www.FairTaxIndiana.net
www.FLFairTax.net (coming soon!)
Other FairTax websites:
www.FairTaxRevolution.com
www.FairTaxScorecard.com
www.FairTax.net
www.FairTaxBlog.com
www.FairTaxGroups.com (FairTax forums)
www.FairTaxCalculator.org
Published: December 22, 2005 6:10 PM
Peter says:
If they're breaking Laws, arrest them for that; but not that arbitrary legislation invented by politicians is distinct from the Law. "Tax evasion" is not something anybody should consider a crime. Beating people up is a crime. Stealing from people is a crime (i.e., taxing is the crime, not evading tax!). What you are saying is "because I'm being taxed, and that guy over there is avoiding the tax, I'm angry. I want him to be taxed too!". Now replace the word "tax" with a synonym: "because I'm being robbed, and that guy over there is avoiding the robbery, I'm angry. I want him to be robbed too!" You are indeed asking that someone else be mugged. What a disgusting moral position to take!
Peter, that is just a silly argument. Regardless of what you like, paying taxes IS the law. I'm assuming that you still pay taxes even though you don't like it. You contradict yourself quite a bit too, like Laurence Vance does everytime he puts words in writing. You argue that tax evasion is a good thing because a tax is a crime, but you argue AGAINST the FairTax because it will make tax evasion simple? Hmmmm, I'm not gettin it Peter.
You should care about the current tax evaders because 2005 figures shown that the IRS has left a $355+ Billion tax gap. Do you not think that because this $355+ Billion is not collected that us legal taxpayers to have to pick up their tab?! As I mentioned earlier, the $1.5 TRILLION dollar underground criminal/drug economy goes completely income tax free. They would be paying the NRST when making legal purchases. To compare the broadening our tax base so individuals who are actually productive for our country will pay less taxes than previously, and now criminals (murderers, drug dealers, robbers, etc.) will start paying into this system, to us wanting to mugg these people is one of the most preposterous arguments against the FairTax I've ever heard!
Thanks,
Tom Leser
FairTax IN Asst. State Director/FL-15 District Director
www.FairTaxIndiana.net
www.FLFairTax.net (coming soon!)
Other FairTax websites:
www.FairTaxRevolution.com
www.FairTaxScorecard.com
www.FairTax.net
www.FairTaxBlog.com
www.FairTaxGroups.com (FairTax forums)
www.FairTaxCalculator.org
Published: December 22, 2005 6:23 PM
I haven't read Boortz's book, and nor seen this commented on here, but I'm struck how Boortz's proposal -- so far as I can read between the lines -- seems to be a de facto guaranteed annual income program. This may be as significant as the imposition of a massive across-the-board national sales tax.
Every household gets a check from the government for an amount -- not based on income or even documented sales tax paid -- but based on the number of persons in the household. That's a guaranteed annual income for all practical purposes, and the existence of a massive federal sales tax does nothing to change that.
In light of this, in discussing Boortz's plan, oughtn't we be addressing this other, perhaps more, dramatic transformation of our economic system at least as much the part about shifting around the tax burden?
Have I missed something here?
Published: December 22, 2005 10:30 PM
Sasha
If you can't come up with the names of 5 legitimate economists who are against the FairTax; maybe you can come up with 4.
PR added to my list of non FairTax supporters. There is one different in the list I gave and PR’s list. My list won’t benefit from the FairTax but his list will.
PR writes – A FairTax opponent is one of the few people left in this country with a non-zero savings account balance and do not appreciate having an additional 23% of it stolen by double-taxation.
Why do you think there are just a few people left in our country with a non-zero savings account? Did you ever stop to think it might be because of our income tax system that takes your money before you even have a chance to save it. Unlike our income tax system, the interest on our savings will not be taxed with the FairTax. The additional income the FairTax will create will result in more people with non-zero savings accounts.
PR writes – A FairTax opponent is one who sees through the false dichotomy that one must either support the FairTaxers' pet plan or be a shill for the current system, and they believe that superior, practical alternatives exist.
This statement reminds of someone who doesn’t pick up a $5.00 bill lying in the street because they might find $10.00 a little further down.
PR writes – A FairTax opponent is one who realizes that consumers' willingness to absorb a 30% price increase on a $1 hamburger is a completely different question from whether they'll do the same for a $300,000 house.
They my not be willing, but with the additional spendable income the FairTax will generate, they sure could better afford a $300,000 home. As I mentioned in an earlier post, In 2004 my son’s gross income was $51,325. His total taxes were $7995 which included withholding for S.S. and Medicare. If you add the prebate for a family of four, the FairTax would have increased his spendable income by $13,755. This additional income would almost cover his house payment.
PR writes - A FairTax opponent is one who knows that many Americans regard their yearly income tax refunds as a gift from the government and question the wisdom of making this universal via the monthly prebate system.
This really shows how brainwashed some people are. How anyone can refer to a tax refund as a gift is beyond me. The government uses your money all year long. They then determine that they used more than they should have, so they give your money back and don’t even pay you any interest. The prebate comes to you at the beginning of the month before you spend a dime. If you spend less than the poverty level, a portion of your rebate truly is a gift.
PR writes - A FairTax opponent is one who finds FairTax supporters to be arrogant, evasive, and prone to swing at strawmen when real objections are made to their plan.
This is not a reason to oppose the FairTax. What if you needed brain surgery to save your life and the best surgeon in the country was arrogant and said you were an idiot if you didn’t have surgery? Would you go to a less qualified surgeon with a nicer personality.
It just becomes frustrating when you can’t convince someone that a tractor is better than a team of horses.
Published: December 22, 2005 10:57 PM
Steve Keller,
why are saying my name, when you have nothing to say. If you want to talk about sports, music, or anything else, I'm sure you have something to contribute. But in economics, you simply have nothing to offer. Don't be offended - I wouldn't even dare to engage a discussion about neurosurgery. That's why I'm surprised why you still feel a need to continue a discussion about economics, after all of your pseudo-arguments got smashed.
Relax and walk on by. Read my response to Kotlikoff's. You might learn something (although it's doubtful).
Published: December 22, 2005 11:08 PM
Tom,
"The bottom line is that the FairTax is MUCH MUCH MUCH better than any type of system we currently have and will let all you tax haters pay much lessThe FairTax smells like freedom to me. Th or the 0% you so desire."
Well, the ad hominem was not welcome. It doesn't matter if I'm a tax hater or not. I just think the FairTax is a bad idea compared to other reforms. And here you also commit the fallacy of us anti-FairTaxers implicitly supporting the current system by opposing the FairTax. I just happen to think that a flat tax is better than the FairTax. And if anything, more countries are choosing flat taxes over pure retail sales taxes. Hong Kong has a dual system in place that lets taxpayers choose between a progressive tax and a flat tax, whichever is smaller. And when the Baltic states of Estonia, Latvia, Lithuania emerged from behind the Iron Curtain, they all chose flat taxes; not surprisingly, they are achieving growth rates of 5.1%, 6.1%, 6.7%, respectively (Source: 2005 Index of Economic Freedom, Heritage Foundation). They are also the 3 most economically free Eastern European countries according to the index.
"What experience are you talking about? What history/studies show this?"
Actually, I asked you a question first. Let me repeat it: Which country in the world imposes such a high retail sales tax as its only form of revenue?" By high, I mean ranging from 29.9%-39.6% tax on retail receipt totals. I know the FairTax is only a 29.9% tax-exclusive rate, but it can go as high as 39.6% (highest state+local rates are in 30 counties in Tennessee with combined state and local sales taxes of 9.75%). To clarify, by only i mean no income taxes, VATs, or property taxes, which are the big 3 alternatives to a retail sales tax.
"Not to mention once again that the current 18th and 20th largest economies in the WORLD raise most of their revenue from a sales tax and do not have an income tax."
Did you know that in 2000, the world's 7th largest economy collected 42% of its revenues from income and property taxes compared to only 27% from its sales tax? And this is with a punitive federal income tax, payroll tax, estate tax and gift tax lying on top of it. I'll let you guess which state I'm talking about (hint: it's not Indiana).
"...there are close to a hundred respected individuals in economics who are ENDORSING the FairTax...
Ooh, ALMOST a hundred, huh? Now there's consensus for you. I heard that you FairTaxers inappropriately listed Ron Paul, the real friend of the taxpayers, as a supporter for quite some time on the website despite the fact that he doesn't support it. If Tom Delay and Dennis Hastert are supporters of the FairTax and Ron Paul isn't, I know which side is the correct side.
"I have NOT ONCE met an elderly person (in person) who has been against the FairTax. Most people are not selfish."
I'm glad you're using anecdotal evidence to prove a point. It is totally convincing me that old people tend to support the FairTax after you fill their heads full of lies about flat taxes and puff up the FairTax to be like Jesus's second coming for the tax code. By the way, I'm not selfish because I prefer a flat tax over the FairTax. Oh, I remember: you're either a FairTaxer or a selfish scumbucket who hates old people and kittens.
"On a personal note most seniors have a greater purchasing power under the FairTax. They are not being taxed on any spending of essentials nor on used items."
Check out this website: http://www.suddenlysenior.com/seniorfacts.html. Maybe most of the seniors you know are welfare cases (sorry, Social Security dependent), but the cold hard fact is that seniors are the wealthiest segment of our population. I've seen this said many times from many different sources. Seniors are more likely to spend a lot of their dough because they lack mortgage payments, kids, and significant student loan or credit card debt. Sure, essentials and used items won't be taxed. But are you sure Grandma and Grandpa are going to consume only under the poverty limit or buy a used car or boat with this newfound financial freedom? They will live it up to the fullest extent and spend a lot of their substantially higher incomes on themselves and their grandkids. Little Timmy won't be getting Goodwill toys. And when they do spend more than that poverty limit, they will be taxed yet again by your FairTax. But apparently, the FairTax is only fair to seniors who didn't save properly and not to ones who did.
"I would gladly go to the store and buy purchase a can of soup for $1.10 or $1.15 instead of the 0.99c it used to be as long as I'm not getting $10,000+ seized from my hard earned income every single year."
Because when an income tax takes your money, it's "seized from your hard earned income." But when a sales tax does it, it's all voluntary and it's much better to pay 30 cents 33,333 times rather than $10,000 all at once. I completely see the difference. The income tax will chop your hand every April 15, but the sales tax will slowly gangrene your hand all year round until it falls off on April 15. The FairTax smells like freedom to me (or is that my rotting hand?).
"Maybe 0.1% of people in this world will CHOOSE to have an income, most people will choose what they spend."
Oh yeah, because consumption, and therefore the FairTax, is voluntary. If I don't want to ever be taxed, I should never spend more than the poverty line, and if I do, I should buy hand-me-downs from Goodwill and half-eaten McDonalds hamburgers out of trash cans. Of course, the safest way to not be taxed is to not consume at all. I can do that, right?
A quick comment on that wonderful prebate that excludes the essentials. It is unfair to poor people who work compared to poor people who don't work or work very little. I used to work in a grocery store and we had our share of bums who came in to buy beer with money from collected cans or from begging. Some of them also had food stamps also. Under the FairTax, if the poverty level for one person was $10,712 (full-time work at the federal minimum wage), these people would get a monthly check handed to them for about $205. But the poor janitor who works his butt off for $10,712 per year would get the same monthly check. This is inherently unfair. Instead of being an offset for the hard working poor's taxes, it is an unchecked, no-strings-attached check for the most unproductive segment of our society. Heck, at least with food stamps, Medicaid, and housing subsidies you can make sure they are paying only for essentials.
Best regards, Tom.
Published: December 22, 2005 11:53 PM
That should be best regards, Logan. It's been a long day.
Published: December 22, 2005 11:58 PM
Tom Leser: Also as I had mentioned before England used a National Retail Sales Tax (more akin to the states sales tax) and experienced a major rise in their economy.
Google "post hoc ergo propter hoc"
You argue that tax evasion is a good thing because a tax is a crime, but you argue AGAINST the FairTax because it will make tax evasion simple? Hmmmm, I'm not gettin it Peter.
I didn't say tax evasion is a good thing; just that it's not a bad thing. They're not the same. And I don't argue against the "Fair Tax" because it will make tax evasion simple. I argue against it because it is a(nother) tax. I also agree with many of the arguments made by others, I just don't bother to repeat what they have already said. E.g., Sasha points out that it will do terrible damage in the short term. Others have said that the income tax will not go away. Etc.
You should care about the current tax evaders because 2005 figures shown that the IRS has left a $355+ Billion tax gap.
Non sequitur. The government spends too much. How does it follow that more people should be robbed to pay for it?
Steve Keller: If you can't come up with the names of 5 legitimate economists who are against the FairTax; maybe you can come up with 4.
Why? Is something more likely to be true if lots of people believe it? The Earth was flat in the 14th century (OK, I know that's a myth; nobody really believed that, but if they had?) Einstein said "Der Herrgott wurfelt nicht", therefore quantum mechanics must be wrong?
As I mentioned in an earlier post, In 2004 my son’s gross income was $51,325. His total taxes were $7995 which included withholding for S.S. and Medicare. If you add the prebate for a family of four, the FairTax would have increased his spendable income by $13,755. This additional income would almost cover his house payment.
But the Fair Tax is intended to be revenue-neutral. So if your son gains $13,755, who pays it?
Published: December 23, 2005 12:51 AM
This would be a fair tax:
Tax gatherers would volunteer to stand in various common walk areas, perhaps ring bells to gain attention, and collect donations in buckets from passersby. Those who would like to pay a tax would freely and voluntarily do so.
I can think of nothing more fair.
Published: December 23, 2005 1:12 AM
… and than he goes on to explain how income tax functions..
WHAT A LIE!!!!
How dare you talk about my credibility after you say such a lie!
When did I mention anything about income tax in that context??????????????
I only stated that unlike value-added-tax (that I described as a "vicious and dangerous tax") - the "Fair Tax" would leave government clueless about the total output.
Check this out: the government would have no record of any inputs purchased (therefore, clueless about the total output). They would have to rely on businesses to tell them some different sales figure than the one reported to government - in order to find out if they cheated!!!! They would have to admit it - or there is no other way for government to know how much output each firm produces!
Now that's a "bright" plan. Rely on taxpayers to monitor themselves and even pay them to do so. Unfortunately, this stupidity would lead to huge loss in government's revenue that would force the government to implement
And check this out. Tom said this: "Your last point is wrong again as well. England used a NRST after the Napoleonic wars and experienced one of the greatest economic booms in history. I believe one other European country also had a US States style sales tax but was forced to switch when joining the EU."
LOL!
Have you ever heard of "industrial revolution" that started long before Napoleon took power in France? Ever heard of James Watt? Or free-trade revolution of that age? Or British exploitation of their colonies? Suggesting that sales tax had anything to do with the advancement of this age is a total nonsense. You could actually suggest that the stupidity of income tax and impossibility of its enforcement in those old days actually stimulated the economy. You failed to mention what this large rate was! Was it 23%, so people had incentive to evade it? Do you wait for me to tell you what tax rate we talk about?
The flat tax in England in the latter part of the 19th century was actually considered a "winner" tax in the mainstream economics - which, at less than 5 percent of personal income, allowed Victorian England to develop into an economic superpower.
By the way, most of the former communist states had a national sales tax, before joining EU. They all had huge problem with black markets and tax evasion. I already explained negative consequences based on economic theory and practice. I doubt you had a cognitive capability to understand it.
Published: December 23, 2005 2:20 AM
I just read one of Tom Lasser's responses to me (I usually don't read responces of economically challenged individuals), but he actually lied about one of my statements:
"90% of the FairTax would also be collected by only 8% of businesses. These larger corporations are going to find it very difficult to cheat. A sales tax audit would involve asking the company how much they sold that year, and then comparing this with the amount they remitted back to the state. You say this is not the case with the income tax and a VAT."
… and than he goes on to explain how income tax functions..
WHAT A LIE!!!!
How dare you talk about my credibility after you say such a lie!
When did I mention anything about income tax in that context??????????????
I only stated that unlike value-added-tax (that I described as a "vicious and dangerous tax") - the "Fair Tax" would leave government clueless about the total output.
Check this out: the government would have no record of any inputs purchased (therefore, clueless about the total output). They would have to rely on businesses to tell them some different sales figure than the one reported to government - in order to find out if they cheated!!!! They would have to admit it - or there is no other way for government to know how much output each firm produces!
Now that's a "bright" plan. Rely on taxpayers to monitor themselves and even pay them to do so. Unfortunately, this stupidity would lead to huge loss in government's revenue that would force the government to implement
And check this out. Tom said this: "Your last point is wrong again as well. England used a NRST after the Napoleonic wars and experienced one of the greatest economic booms in history. I believe one other European country also had a US States style sales tax but was forced to switch when joining the EU."
LOL!
Have you ever heard of "industrial revolution" that started long before Napoleon took power in France? Ever heard of James Watt? Or free-trade revolution of that age? Or British exploitation of their colonies? Suggesting that sales tax had anything to do with the advancement of this age is a total nonsense. You could actually suggest that the stupidity of income tax and impossibility of its enforcement in those old days actually stimulated the economy. You failed to mention what this large rate was! Was it 23%, so people had incentive to evade it? Do you wait for me to tell you what tax rate we talk about?
The flat tax in England in the latter part of the 19th century was actually considered a "winner" tax in the mainstream economics - which, at less than 5 percent of personal income, allowed Victorian England to develop into an economic superpower.
By the way, most of the former communist states had a national sales tax, before joining EU. They all had huge problem with black markets and tax evasion. I already explained negative consequences based on economic theory and practice. I doubt you had a capability to understand it.
Published: December 23, 2005 2:21 AM
Now that's a "bright" plan. Rely on taxpayers to monitor themselves and even pay them to do so. Unfortunately, this stupidity would lead to huge loss in government's revenue that would force the government to implement more repressive measure to ensure compliance - or to use its Constitutional powers to bring back the income tax.
Published: December 23, 2005 2:24 AM
Sorry about the cut-offs...
Published: December 23, 2005 2:25 AM
Sorry about the cut-offs...
Published: December 23, 2005 2:25 AM
Here's my point-by-point response to dr. Laurence Kotlikoff. Enjoy.
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“Lie� #1 – “The authors were simply saying that the public would have more discretion in the timing and amount they pay in taxes than under the current system. Today, income and payroll taxes are paid as soon as we earn money. Under the FairTax, no tax would be due until we spend what we earn."
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- Dr. Kotlikoff seems to be confused here. Today, we get taxed only when and if we earn income. On the other hand, a national sales tax would confiscate seller's revenue as soon as they earn it - since sellers are always forced to charge a market price and there is no way to "pass costs forward" (otherwise, no business would ever go bankrupt). If the prevailing market price is above your variable costs, you stay in business. If market price does not allow you to charge above your variable costs, you go out of business.
Dr. Kotlikoff's argument about "more discretion in tax payment" with the "Fair Tax" proposal is even weaker. People can avoid paying any tax if they restrain from voluntary, monetary transactions. If we all stopped selling our goods and services for money (including our labor services and credit), no one would pay any income tax. Likewise, you can avoid paying sales tax if you consume only those goods that you can produce yourself, or goods that you obtain in barter. Either way, taxation cannot be "voluntary" and any "discretion" in timing or the amount paid in taxes is exactly the same in all taxation: all you need to do is to restrain yourself from monetary market exchanges, and you will not get taxed. If you want to avoid both "voluntary" tax schemes, you would have to live a life of a Stone Age hunter-gatherer.
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“Lie� #2 – “Vance claims that the FairTax’s rate is really 30 percent. He’s both wrong and right at the same time. The tax-exclusive rate we’d pay at the store would, indeed, be 30 percent, but the rate that matters – the tax-inclusive rate – would be only 23 percent."
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- This is where both Dr. Kotlikoff and Vance fail to apply law of demand and supply. Market prices are formed in a negotiation process between buyers an sellers. Outcomes of these implicit and explicit negotiations result in such arrangement that ensures that sellers are squeezing the most revenue they can get for a given market supply. If they try to go beyond market prices (or if government impose a price floor), they will get stuck with surplus. If they charge below market prices they will have shortages and lost revenue.
Vance's and dr. Kotlikoff's calculations of inclusive/exclusive tax are wrong because they are based on a premise that a national sales tax is consumption tax that seller pass forward to consumers (that's why they want to even send checks to businesses from Washington, DC for this service). What they don't consider is the fact that market prices are formed in a process separate from a company's balance sheet. Our willingness and ability to buy something (known as demand in economics) has nothing to do with some company's costs, but it determines market prices for a given supply. While it is true that taxes and regulations reduce the aggregate supply (ergo prices), it would be completely nonsensical to suggest that business pass their tax costs to consumers.
This means that all revenue from sales of goods and services will be taxed 23 percent, regardless of profit or losses. This could in fact represent a 100 percent income tax (with an additional confiscation) for those businesses that don't have a pre-tax net profit margin above 23 percent. Similar to income tax effect, the incidence of a national sales tax must fall back onto the incomes of the producers (land and labor), rather than on the consumers (except that consumers are also producers).
Dr. Kotlikoff tried to give a bad example of why inclusive tax rate should be used: "Let’s assume taxable income of a sole-proprietor was $72,000, so that that taxpayer pays taxes of 28 percent plus 15.3 percent payroll taxes for a combined tax-inclusive rate of 43.3 percent. Unless Vance wants to refer to the 43.3 percent as actually a 77 percent rate, he really can’t compare that rate to the FairTax."
This analogy does not hold. Dr. Kotlikoff can say that a sole proprietor’s after-tax income increased by 77 percent will amount to his total revenue, but you cannot say that he paid more than 43.3 percent of his taxable income in taxes.
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“Lie� #3 – “Whether or not the tax collection agency retains the initials I, R, and S, it would be completely different from the current enforcement apparatus."
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- This claim disregards the fact that businesses pay 23 percent tax - not the individuals. If customers are willing and able to pay, let's say $4,558 for a good or service, seller gets to keep only $3,510, after tax is paid to government. Seller now has an incentive to make a deal with a consumer to only charge him, let's say, $4,000 - but not to report this transaction to government. In that case, both sides are benefiting from tax evasion. And since the Fair Tax Act would make purchases of inputs tax free, government would be clueless about the total output of goods and services that can be sold in a black market. In order to control every single seller, government would have to organize something larger than IRS to spy on every single seller in this country.
Not to mention the fact that every single household would receive a monthly check from Uncle Sam for “poverty-line� tax-expenses. There would also have to be a large control apparatus of this system in place in order to supervise every single household.
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“Problem� #1 – “Vance claims that the FairTax hides the amount of sales tax being paid. Not so..."
"The complexity of our tax system makes it extremely difficult for any of us to understand the full extent to which we are taxed on working and saving.�
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- This part of discussion is irrelevant, because consumers do not pay consumption tax. They pay market prices based on their demand for a given supply of goods and services. For sellers, on the other hand, both taxes are equally visible. The only difference is the fact that national sales tax takes 23 percent of every seller's revenue, while income tax only applies to those who make taxable profit.
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“Problem� #2 – “So Vance is right. The FairTax is progressive. But this is a plus, not a minus.
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- Vance and dr. Kotlikoff are equally wrong at this point. Since the "Fair Tax" is nothing but a 23 percent revenue tax, it is a regressive tax. Confiscation of almost 1/4 of someone's revenue has the hardest impact on people who earn little or no profit and those who do not have a lot of wealth accrued. And the negative effect on sellers translates into lower demand for all stages of production, all the way down to labor and land owners.
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“Problem� #3 – Vance: “The FairTax is an income redistribution scheme."
Dr. Kotlikoff: "Under the FairTax households with the same demographics will receive the same rebate. But as a share of remaining lifetime resources, the FairTax is progressive, as indicated above."
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- Vance is right here, even though he used wrong premises. The "Fair Tax" is an income redistribution system, since it provides "rebate" to all consumers based on taxes most of them never paid. Since sellers pay taxes and not consumers, this "rebate" program can only be viewed as an attempt to have a welfare program in advance, due to catastrophic effects that 23 percent revenue confiscation must produce.
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“Problem� #4 – “The number of taxpayers will diminish by more than 90 percent. And they will be the same tax collectors as today. In one fell swoop, the FairTax reduces the number of taxpayers at the same time it vests everyone in the tax system, by making the price of government explicit."
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- Totally incorrect. Every single seller of goods and services will become a taxpayer. According to the "Fair Tax" they will even get paid by government to monitor themselves. They are designated to collect these taxes, because the Fair Tax" proponents incorrectly assume that taxes are actually passed to consumers (ignoring the fact that law of demand and supply deny such possibility, due to shortages or surplus problem of any price that does not correspond with market prices).
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“Problem� #5 – “Today, we tax returns on capital, we tax sales of capital assets, we tax labor earnings, we tax estates, and we tax gifts. All of these taxes are eliminated by the taxation of the final retail sale."
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- True. It is much easier to confiscate 23 percent of every sellers revenue (even if sellers do not make any profit and it drives them out of business), than to bother calculating someone's taxable income. For sellers whose profit margins are 23 percent, the "Fair Tax" would actually be an equivalent of a 100 percent income tax. For those making less than 23 percent profit margin, this tax would be an equivalent of a disaster.
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“Problem� #6 – “I hope the 40 percent or so of Americans who pay no income tax today have to pay the FairTax and see that they too are vested in our government. I hope that criminals who have illegally amassed wealth in the past will pay lots of sales taxes when they spend these holdings."
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- Dr. Kotlikoff neglects the fact that most people who pay no income tax are not criminals. They simply don't pay it, because they didn't make any taxable income. Expecting every seller to pay 23 percent revenue tax, even if a particular seller is just breaking-even, is simply sadistic. But it is also a bad idea, since many of sellers who create jobs and wealth will be driven out of business. And since the "Fair Tax" makes it so easy to hide one's output (unlike with value-added-tax, there is no taxes or records on input purchases) they will be lured straight to black markets, where taxes are collected by mafia. That's why organized crime should be the biggest supporter of the "Fair Tax"
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“Problem� #7 – “One key objection to the FairTax is that it is too visible, meaning that it exposes the true costs of the government."
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- Au contraire! The Fair Tax would not expose true cost of government to most of Americans, since sellers are the only people who pay taxes. And even different sellers would have a different perception of magnitude of this cost. If you have a profit margin of less than 23 percent, you would suffer an accounting loss as the result of government's costs. For those people with higher profit margins or great wealth, the "Fair Tax" would be something that eliminates much of their competition and from their point of view, government costs are something great.
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“Problem� #8 – “What Vance ignores is the competition across states in attracting business and workers."
States are actually in deep trouble with their revenues and deficits. So they will really try to find a way to raise more taxes. Whether they will try supply-side (low tax) or classical approach, it's really not up to us to forecast.
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“Problem� #9 – Vance: “The FairTax has unknown and potentially huge Transition costs.�
Kotlikoff: "Saying so doesn’t make it so. There is no reason to expect significant transaction costs. The inventory transition valuation issue raised by Vance can readily be sorted out."
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Dr. Kotlikoff got confused here with similar words with the same prefix. Transition costs are not the same as transaction costs. Transition costs of the "Fair Tax" are huge and even many of its supporters realize that transition process from income tax to a national sales tax would be devastating to the US firms.
Let's put the factor of time in consideration, and make example as simple as possible:
At the moment of the FairTAx implementation:
- Firms hold products for which they already incurred costs. So these costs include all taxes already paid for workers who participated in production.
- They face some market prices they have no control over. They will have to accept those prices, even if they made a forecasting error building up too much or too little inventory.
- Instead of paying only tax on income, now they will loose 23% of their revenue - which would totally erase income for many companies. Like a 100% income tax, plus some more variable cost that some firms will not be able to recover.
So we would face instant elimination of many businesses, which would lead us to drop in aggregate supply and higher prices. What will be the net effect of drastically lower supply, no payroll taxes, but instead the presence of ruthless 23 percent revenue tax that applies to every good sold, even if you can't recover your average variable costs? One word: monopolization.
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“Problem� #10 – “Unlike today, where the tax code is used as an effective second appropriation committee, the FairTax taxes every form of consumption expenditure that can readily be taxed without exception.
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Totally incorrect. The "Fair Tax" taxes every seller with a brutal 23 percent revenue tax. You cannot impose your costs on consumers. It is their willingness and ability that determines if you will recover your cost of supply.
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“Problem� #11 – “ the FairTax reduces the effects of all known factors on fraud. The three factors that economists have shown to affect compliance are marginal rates, likelihood of being caught, and penalties. The FairTax enhances all three"
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Wrong.
1) The FairTax imposes much higher average taxes on all sellers, by taxing 23% of their revenue at certain market price.
2) The likelihood of being caught decreases dramatically when both sellers and consumers benefit greatly from tax evasion and when government is clueless about the amounts of purchased inputs and produced output.
3) The FairTax penalties do not match devastating effects of compliance to 23 percent revenue tax.
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“Problem� #12 – “Thousands, if not millions, of Americans now cheat on their income taxes."
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Many more would be forced to cheat on the "Fair Tax" in order to survive, so the government would be forced to enhance its controlling apparatus. Unless you have a value-added tax, you simply have no idea how much output is produced and what amount of revenue should you expect.
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“Problem� #13 – “The FairTax cannot repeal the 16th Amendment, which has to be done in a separate piece of legislation. So, Vance’s point is that we must live with the income tax? Not so. The FairTax does repeal Subchapters A and C of the 1986 Internal Revenue Code that implement the income tax."
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Here, dr. Kotlikoff had nothing to say, but he went for it anyway. If the "Fair Tax" Act authors really wanted to remove all income taxes, they would have stated that a national sales tax will take place only after the 16th amendment is repealed. Instead, we will have to trust government that it would not exercise all its "constitutional" powers, when we know that they already extended their powers far beyond Article I, Section 8 of the US Constitution.
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“Problem� #14 – “We want to retain some flexibility to tax goods, like cigarettes, the consumption of which can impose significant costs on society at-large, at higher rates. These taxes serve a different purpose than general revenues. They are in effect taxes on externalities."
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If we respected private property rights, we would internalize all externalities. Cigarettes would not be the government's problem if it stayed with its original, Constitutional purpose, and stopped providing charity by picking up medical bills.
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“Problem� #15 – “The FairTax dramatically lowers marginal rates and completely eliminates the double taxation on returns to savings and investment."
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Wrong. The "Fair Tax" is nothing but a masked 23 percent revenue tax. And this is much higher rate that most of us are currently paying. Negative effects of such tax-attack would be devastating and they would consequently reflect on savings and investment.
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“Problem� #16 – “The government has the rights we the people have given it through the Constitution. This, again, is a Vance problem, not an American problem, but he should read the Tenth Amendment of the United States Constitution, which is part of the Bill of Rights�
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I think Kotlikoff should read the Constitution more carefully and less selectively. How about the Fifth Amendment of the United States Constitution that states:
"... nor shall private property be taken for public use, WITHOUT JUST COMPENSATION".
My earned money is my property. Try to explain how the government-run charity provides me a just compensation.
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Problem # 17 – "And nobody is required to pay for the cost of the government until they have met their own needs."
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Oh, really? The "Fair Tax" would take 23 percent of every seller's revenue even if that seller is not making any profit. How's that for justice and consideration of people's needs? Luckily for us, this taxation scheme could never work.
Published: December 23, 2005 3:03 AM
Logan,
There was no ad hominem. We're all tax haters, I just mean the Vance ones that want no taxes or "low" taxes.
On the same token no brainwashing to the seniors I've met and spoken to about the FairTax, just the facts. It's certainly not "Social Security" income seniors who'd benefit from this. But the most seniors:
"According to recent work by Stanford University economist Joseph Kahn, those seniors with a net worth over $400,000 (nearly four times the median) may see a reduction in their purchasing power. The largest decline in purchasing power, about 3.5%, is for those with net worth above about $700,000."
Yes the fact that you can choose your tax rate by the amount you spend is what makes this fair.
I asked about the rates of evasion and data for these European countries that USED an NRST and I wasn't provided with any. It's still an apples-oranges comparison. The STATES here in the US currently collect a sales tax and they would be doing the SAME thing for the FairTax. NO other nation has had this exact same setup that we have where the sales tax collectors have already been doing the exact same thing for many years.
So the 7th largest economy you're talking about is California? AND.....? They could be the 2nd or 3rd or 4th.....etc. largest economy. YOU KNOW that the state has been economically been in trouble for a long time. Their income and sales tax, and you agree that their property tax rates are some of the highest in the nation.
You guys try to say that raising revenue from sales tax with ZERO income tax "CANNOT BE DONE" and "HAS NEVER BEEN DONE BEFORE". The fact is that the 2004 18th and 20th largest economies in the world HAVE done it. And no it's not Indiana.....
Merry Christmas everyone,
Tom Leser
IN Asst. State Director
FL-15 District Director
Published: December 23, 2005 5:02 AM
Tom,
"You guys try to say that raising revenue from sales tax with ZERO income tax "CANNOT BE DONE" and "HAS NEVER BEEN DONE BEFORE". The fact is that the 2004 18th and 20th largest economies in the world HAVE done it."
I never said that. I said that no country has raised revenue solely from a NRST with ZERO income tax, ZERO property tax, ZERO VATs, and ZERO excise taxes. Which economies are you talking about here? Do they impose VATs, property taxes, and excise taxes? Does the fact that 17 countries who don't follow their strategy are bigger economies an argument against relying heavily on a sales tax?
Apparently you had nothing to say about the problem I raised the prebate. I guess you're comfortable with this very unfair portion of the FairTax. But I have another issue with the prebate. It continues the myth that poor people are paying more in sales taxes as a % of their income than rich people. What matters most when talking about tax policy is who is a tax consumer and who is a tax provider. Not everybody who sends a portion of their check to the government is a taxpayer. You also have to factor in the government services and transfer payments received as a credit to every person’s tax.
For example, take Joe and Rich. Joe is poor, earning only $6,978.26 for the year 2004. Rich is rich, earning $1,000,000 per year. Let’s say the FairTax is in place at this point without the prebate. Joe spends all his dough, paying $1,605.00 in taxes, or 23% of his income. Rich saves half of his money, spends the rest, and pays $115,000 in taxes, or 11.5%. At this point, critics would cry “Unfair! The rich person pays less than the poor person as a % of their income.� That’s because it excludes the government services received. According the CIA World Factbook, I estimated FY2004 military spending to be $1,605 per person. If you subtract this amount from each person’s tax liability, we find that Joe owes nothing and Rich owes $113,395, or 11.34%. The correct effective tax rate calculations show this supposedly regressive tax to be quite progressive.
We did not need graduated rates, tax credits, or welfare checks to make this a progressive tax. It became one because government services that are shared (roughly) equally by its citizens will reduce the poor person’s actual liability quicker than a rich person’s. If we wanted to make this even more progressive, we could give Joe food stamps, Medicaid, and subsidized housing, giving him a negative effective tax rate. But the tax system itself does not necessarily need a mechanism embedded in it to ensure progressivity. Rich people will eventually pay the same share of their income in consumption taxes over their lifetime, making the tax even more progressive.
The prebate is just a propaganda tool used by FairTaxers to sell their plan to poor people and people concerned about “social justice.� Taxes that are viewed as regressive by the public are not inherently regressive. The only way you can make taxes regressive is by deliberately making them extremely regressive, like exempting the purchase of yachts and Mercedes for example. It is also unfair to the hard working poor compared to the non-working poor for reasons I have already laid out.
Published: December 23, 2005 9:34 AM
Steve, the purpose of saving is to enable future consumption. So a consumption tax is also a savings tax. My savings, including interest, will be taxed when I spend it. The fact that I have a nominally higher bank balance in between is nothing more than a warm fuzzy. On top of that, my pre-FairTax savings will be mercilessly taxed again when I spend it, a point you completely sidestepped.
I will respond to your other points, but I want a straight answer to this first.
Published: December 23, 2005 9:38 AM
Logan Writes - Check out this website:http://www.suddenlysenior.com/seniorfacts.html. Maybe most of the seniors you know are welfare cases (sorry, Social Security dependent), but the cold hard fact is that seniors are the wealthiest segment of our population. I've seen this said many times from many different sources. Seniors are more likely to spend a lot of their dough because they lack mortgage payments, kids, and significant student loan or credit card debt. Sure, essentials and used items won't be taxed. But are you sure Grandma and Grandpa are going to consume only under the poverty limit or buy a used car or boat with this newfound financial freedom? They will live it up to the fullest extent and spend a lot of their substantially higher incomes on themselves and their grandkids. Little Timmy won't be getting Goodwill toys. And when they do spend more than that poverty limit, they will be taxed yet again by your FairTax. But apparently, the FairTax is only fair to seniors who didn't save properly and not to ones who did.
I’m retired; I’m not a millionaire but income from my investments, pension and S.S. would classify me with an above average income. I guess you can tell from my previous posting, I am most definitely in favor of the FairTax. Being retired doesn’t exempt me from paying income tax, I can speak from first hand experience, and what really gripes me is when I fill out my 1040 and I come to line 20b, taxable portion of Social Security. What a joke, and filling out the form to determine the amount that is taxable is even more of a joke. For those of you who aren’t yet receiving Social Security, let me show you what I mean. Here is what you must do to determine the taxable portion of your Social Security. Enter the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099, enter one-half of line 1 ~ Enter the total of the amounts from Form 1040, lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17, through 19, and 21 ~ Enter the amount, if any, from Form 1040, line 8b ~ Add lines 2,3 and 4 ~ Enter the total of the amounts from Form 1040, lines 23 through 25, and 28 through 34a, plus write-in adjustments you entered on the dotted line next to line 35. Are you confused yet? Well I am only on line 7 of 18. All I know is that when I get done, one half of my Social Security check is taxable. Now, that is what I call double taxation. People, what is wrong with you? The FairTax will eliminate garbage like this.
Next point
Someone in this discussion, I won’t mention who, because they get mad when I expose there mistakes, keeps writing over and over.
If you have a profit margin of less than 23 percent, you would suffer an accounting loss as the result of government's costs. For those people with higher profit margins or great wealth, the "Fair Tax" would be something that eliminates much of their competition and from their point of view, government costs are something great.
Retailers with the smallest profit margins are the largest corporations. I believe Home Depot can sell their law mowers at less mark up than your mom and pop hardware store. So what your are saying is that since mom & pop have a larger profit margin, they will be able to withstand the 23% easier than Home Depot; they might just put Home Depot out of business. You can speculate all you want as to how the FairTax will affect supply and demand, but one thing is for sure, if you don’t increase your prices enough to maintain your current profit margin you will be in trouble. No matter if the net affect of the FairTax is 0% or 23%, if you want to maintain your current margin, you will need to adjust your prices accordingly.
Published: December 23, 2005 10:06 AM
PR writes - Steve, the purpose of saving is to enable future consumption. So a consumption tax is also a savings tax. My savings, including interest, will be taxed when I spend it. The fact that I have a nominally higher bank balance in between is nothing more than a warm fuzzy. On top of that, my pre-FairTax savings will be mercilessly taxed again when I spend it, a point you completely sidestepped.
I will respond to your other points, but I want a straight answer to this first.
Forgive me but I don’t see a question mark. What is your question? Who in their right mind would save just so they can spend it later. Most people save so the earning from their savings or investments will supplement their income when they retire. Income tax takes a big chunk of your savings before you have a chance to invest or save it and it taxes your return even if you don’t spend it.
Published: December 23, 2005 10:19 AM
Tom:
You mentioned that 45 out of 50 states use a sales tax. But only 9 out of 45 (20%) of those states lack an income tax or a significant income tax. Maybe the reason for this is because most states realize that there would be costly evasion by taxpayers, so they trap the rest of the money through an income tax. And none of these states even have a rate above 10%. When the federal government imposes a 30% rate, more than 3 times higher than the highest state sales tax rate, you can bet that evasion will be uncontrollable. Just think of what's happening to the cigarette market in New York. Indian reservations, smugglers, and offshore internet sites are reaping huge profits thanks to the black market created by this huge sales tax (I believe it's $1.50 per pack, a pack now averages $7.50, so the rate is 25%, tax exclusive). So yes, most states have a sales tax, but none will dare charge over 10% and few will dare going without an income tax.
Published: December 23, 2005 11:55 AM
Wow, I'm speechless.
Published: December 23, 2005 12:13 PM
"Who in their right mind would save just so they can spend it later."
The dumbest thing ever said.
Published: December 23, 2005 12:35 PM
Here is a couple of questions for you FairTax opponents. How would our economy be affected if we completely eliminated corporate income taxes? How would consumer prices be affected? How would the balance of trade be affected? How would our government make up the lost revenue?
Published: December 23, 2005 12:52 PM
Steve,
Well, let me see. A cost of business will have been eliminated. So the consequences will be either lower prices, higher wages, or higher returns on capital. These are goods things. But FairTaxers don't seek to just eliminate the corporate income tax. The FairTax will wipe out any gains made by getting rid of corporate taxes. Lower prices will rise after the tax is put on. Higher wages will decrease because they must pay a tax on their purchases. And income accruing to those who own capital will also be paying the FairTax. Income accruing to foreigners who hold capital will increase, but that will be offset by lower demand for products bought inside the US by business travelers and tourists. True, some people will pay less than others, but since the FairTax is revenue-neutral, others will pay more. Demand will go up in some sectors and down in others as the FairTax reorients how much an income earner, whether they be rich, poor, native, or foreign, is subject to the tax. So I would say it's a wash.
As for the balance of trade, it will also be a wash. The prices of imports will rise because foreigners will not see a decrease in costs, only an increase through the payment of the FairTax. Consequently, foreign income will fall as demand falls for their products. Exports to these foreigners will also fall as their incomes fall. But the elimination of the corporate tax will decrease costs, leaving the rate of profit roughly the same.
"How would our government make up the lost revenue?"
Hopefully by cutting spending, but your FairTax is revenue neutral.
Let me know if that works for you.
Published: December 23, 2005 1:56 PM
Steve,
I guess it should be said that government engages in a zero-sum game. It takes all the resources produced by society and redistributes them, with some gaining at the expense of others. So re-arranging how the government burdens us cannot be used to increase welfare for one without decreasing welfare for another. Or as George W. Bush might say, government cannot "make the pie higher."
Published: December 23, 2005 2:05 PM
I'm impressed how nobody seems to care that
Boortz's scheme gives everybody a guaranteed
annual income. Isn't that what the Left has
always wanted? Yet Republican rah-rah boys
like Boortz and Kotlikoff treat it like an
afterthought.
I'm similarly impressed that so many self-styled
conservatives and libertarians put so much
energy into a tax-reshuffling scheme that does
nothing to address the catastrophe of our
mushrooming leviathan federal regime. It seems
these people have a psychological need to grab
at anything so as to feel they're making some
kind of "pragmatic" headway against the monster
State.
Published: December 23, 2005 2:12 PM
Logan,
Can you believe it, some of the thing you wrote, I actually agree with.
When I asked, what would happen if corproate taxes were eliminated, you wrote – A cost of business will have been eliminated. So the consequences will be either lower prices, higher wages, or higher returns on capital. I agree with this, but wouldn’t you agree the ultimate consequence will be lower prices due to competition.
Corporations would love to pass this savings on to their stockholders or employees, but competition will prevent this. This being the case, how can anyone say there are no embedded taxes in the thing we currently buy?
You wrote - These are goods things. But FairTaxers don't seek to just eliminate the corporate income tax. The FairTax will wipe out any gains made by getting rid of corporate taxes. Lower prices will rise after the tax is put on.
Again, I agree with this but what some opponents are saying is for profit margins to remain the same, 23% would need to be added to the current costs as if the elimination of corporate taxes would have no affect on prices.
You wrote - True, some people will pay less than others, but since the FairTax is revenue-neutral, others will pay more.
I agree with this, This is a positive not a negative. One of the main purposes of the FairTax is to even the playing field for everyone. Everyone will pay the same tax rate everyone will receive the same rebate.
This is why I gave a list of FairTax opponents. They don’t want the playing field to be equal. They want someone else to pay their share.
When I asked the question "How would our government make up the lost revenue?"
You wrote - Hopefully by cutting spending.
You know this is not going to happen without a revolution, so what would be the logical answer? Can you agree that individuals would have to make up the difference with either higher income tax rates or reduced or eliminated deductions. Why do you think there is a corporate income tax, it sure isn’t to generate enough revenue. They could do this by eliminating the corporate tax and taxing individuals directly. It sure isn’t to make US products more competitive with imports. It sure isn’t to keep American companies from moving off shore. The reason they tax this way is give you the false impression that big corporations are sharing the tax burden, when in fact you and all outer individuals are indirectly paying this tax burden for them.
Published: December 23, 2005 3:49 PM
Steve,
I'm glad we found some common ground, so let's try to understand each other on our differences.
"The reason they tax this way is give you the false impression that big corporations are sharing the tax burden, when in fact you and all outer individuals are indirectly paying this tax burden for them."
Only socialists and Democrats anthropomorphize the corporation into a taxpaying entity. I am not under the spell of their dirty tricks. But I realize that if we tax business on 23% of the income (Revenues - Purchases of inputs from other businesses - Purchases of plant, property, and equipment), what is really happening is that I'll be paying a 30% sales tax (i.e. 23 cents of tax on a 77 cent item). Sure, the tax is hidden, but it is equivalent to the FairTax. And this is done without having to play with fire regarding the sales tax/income tax political transition and by drastically reducing the number of possible tax evaders (all American citizens vs. all American business entities).
"One of the main purposes of the FairTax is to even the playing field for everyone. Everyone will pay the same tax rate everyone will receive the same rebate."
Totally false. See my post regarding Joe and Rich. Government expenditures inherently reduce tax rates faster for low-income people and make even the most regressive tax or proportional tax a progressive tax. And I've already commented on the prebate being an unfair giveaway to those who choose not to work compared to poor people who do. At least with food stamps, Medicaid and subsidized housing they require you to fill out job applications and go to interviews. The prebate has no strings attached, it will create disincentives for work, and it cannot be targeted so that the receipient actually uses it for essentials. I can't believe I just defended food stamps.
The rest of your post did nothing to convince me that what I said was wrong. What I did was give you a list of things of what would go up with the elimination of corporate taxes and what would go down because of the implementation of the FairTax. The exact businesses who will win or lose is not known, but in the general sense, there will be no gain and no loss. Reread the two first paragraphs and you will see that every gain will be washed by a loss.
Published: December 23, 2005 4:25 PM
I have been following this debate for the last few days. I have been on the borderline for some time now. I knew we needed to fix our tax system, but I wasn’t convinced the FairTax was the best solution. This debate has now convinced me that it is the best alternative. For one thing the opponents only seem to be concerned for themselves; the objections they present leads me to believe they are currently paying little or no income tax and they could care less if they are not paying their fair share. They try to cover this up with objections that really don’t hold water. Maybe there are some real economist who are opposed to the FairTax who could join this discussion, and convince me otherwise. But until that happens, the FairTax has got my vote.
Published: December 23, 2005 10:44 PM
Jim Riley's got it figured out. That's right, we "FairTax" skeptics are just trying to avoid coughing up our "fair share."
Justice. That's what this is all about. Federal sales tax justice. It's essential that we're all robbed equally, to make things square.
Yes, finally here's the opportunity for our well-meaning friends in the federal government to set things straight. Let's give our beloved Big Brother the chance He deserves to force each and every proud citizen to fulfill his glorious tax obligation.
Down with the conniving tax avoiders! Let us all sacrifice equally before the Almighty State!
Published: December 24, 2005 4:07 AM
For some reason, I don't believe these people that say "oh, you convinced me; I was neutral/against the Fair Tax before, but now I'm on side" (e.g., the first post on this topic, and Jim Riley above). They're FairTaxers from the start, pretending to be swayed to make it look like the pro- arguments can convince somebody. How pathetic.
Published: December 24, 2005 5:41 AM
Oops. Sorry, it's not the first post in this topic; I was thinking of the Kotlikoff/Vance one.
Published: December 24, 2005 5:50 AM
RP: right; typical socialists: they don't care if everyone lives in utter squalor, as long as everyone is in equal squalor. Raise the standard of living of everybody by say a thousand time, and of some by an additional 20%, and they'll complain about how terrible it all is, and how much better it was before. Bizarre.
Published: December 24, 2005 5:58 AM
Steve,
Why are you misinterpreting my words...
I repeated numerous times:
If you have a profit margin of less than 23 percent, you would suffer an accounting loss as the result of government's costs. For those people with higher profit margins OR GREAT WEALTH, the "Fair Tax" would be something that eliminates much of their competition and from their point of view, government costs are something great.
-----
I SAID: OR GREAT WEALTH....
Those firms can absorb loss if they incur loss during one quarter. Many small businesses cannot.
Don't be such a sore loser and stop being obsessed with me or my statements.
Published: December 24, 2005 12:58 PM
Don't you think for a second about the fact that none of you "Fair Tax" supporters was able to seriously talk about economics (beyond high-school level pseudo-arguments like: "oh, it's revenue neutral and it collects same amount from private spending, but somehow our entire nation will get more money and demand will go up)?
Since Don realized how dangerous the "Fair Tax" is, I really have no opponent here. It's sad but true.
Published: December 24, 2005 1:08 PM
With the FairTax, and the elimination of corporate taxes, US manufacture supply prices could drop as much as 10% to 15% without hurting suppliers’ margins. Notice I said US manufacture supply prices; imports will not have this luxury. This is good; you may begin to see more made in USA tags. Combine this with a 20% to 30% increase in demand buying power, the equilibrium point of the supply and demand curve can easily withstand a consumer price increase of 23% inclusively or 30% exclusively. Since companies of wealth work with the smallest margins, they will most definitely increase prices accordingly to maintain current margins. Even though they could maintain current prices longer than small companies of lesser wealth, why would they choose to do so? It would not be to force smaller companies of lesser wealth out of business; they could do this under current conditions by simply lowering prices.
Published: December 26, 2005 9:29 AM
LOL!
Nothing but a wishful thinking. That nonsense about demand increases with a revenue neutral tax has already been refuted, as well as that nonsense about drop in prices for merchandise that will be produced before any sales tax is implemented.
Why are you repeating same nonsense? Does it make you feel better if you are the last one who said something? OK, go ahead...
:-)
Published: December 26, 2005 1:25 PM
Sasha "demand increases with a revenue neutral tax"
Where in my last post did I say anything about demand increasing with a revenue neutral tax. If you are coming up with this conclusion, I can understand why you’re not having a clue as to the effects of the FairTax.
I have come to the conclusion that you are hoping your false interoperations of the affects of the FairTax will have some influence on people’s thinking. Good Luck! It’s not working.
Published: December 26, 2005 2:21 PM
Interesting comment by Jim Riley, one of the things that drove me away from the Fair Tax is the fact that I could benefit from it using the rent-seeking techniques I learned so well. I also realized that so many proponents of the Fair Tax are those that plan to use the same rent-seeking tactics. The key to my position on this issue can be found in the revenue neutral claim by Fair Tax proponents, the only reform I would accept for government taxation is one that is revenue negative. Further, any tax 'reform' that plans to put every American on welfare is suspect.
Published: December 27, 2005 1:47 PM
Steve, you said it right here:
"This is good; you may begin to see more made in USA tags. Combine this with a 20% to 30% increase in demand buying power, the equilibrium point of the supply and demand curve can easily withstand a consumer price increase of 23% inclusively or 30% exclusively."
LOL!
What increase in "demand buying power" when exactly the same amount of money would be extracted from private spending from the day one - and given to government (revenue neutrality)?
Since you don't even remeber writing this nonsense that's even more disturbing.
Published: December 28, 2005 5:15 AM
Sasha
There is a difference in demand buying power and demand. You can have an increase in demand buying power but if it is not enough to offset price increases, there will be a drop in demand. Receiving 100% of paychecks and prebates increases demand buying power. Factor this in with a 23% inclusive or a 30% exclusive sales tax the equilibrium point of the supply and demand curve will not be affected. In other words one will offset the other and there will be no change in demand and your small companies of lesser wealth will still be able to remain in business. Maybe you need to go back to economics 101 and study what equilibrium point of the supply and demand curve means.
Published: December 28, 2005 7:47 AM
Steve,
Your argument (and that of the Fair Taxers) assumes that the economy behaves like one big transaction, instead of billions of little ones. Perhaps if it was, we would observe the painless transition to a "Fair" tax that you posit; however reality is very likely to intrude on this scenario.
My guess is that large national retailers will benefit competitively viz smaller firms from a national sales tax, while mom-and-pop operations will face disparately higher costs, lower revenues, and lower profits. Many of these firms will go out of business, leaving national retailers with more pricing power, raising prices for consumers beyond the amount of the tax. Much business will be taken underground. This is bad.
Published: December 28, 2005 11:56 AM
Vince writes - My guess is that large national retailers will benefit competitively viz smaller firms from a national sales tax, while mom-and-pop operations will face disparately higher costs, lower revenues, and lower profits.
How can you assume mom-and-pop operations will face disparately higher costs? With the elimination of corporate taxes; this is just not logical. The only way they will have lower profits is if they don't increase their prices enough to maintain their current margins. Large wealth companies work with lower margins than mom-and-pop so they most definately will raise their prices. This makes it easy for mom-and-pop to do the same without hurting their sales or profit margin.
As for national retailer raising their prices above the tax. This is ridiculous; competition will not allow prices to be raised above the tax.
Besides, with the reduction in wholesale prices, the increase in retail prices can be lower that the tax rate and still maintain the same profit margins.
Vince writes - Much business will be taken underground. This is bad.
Talk about tax evasion; last year’s estimate of unreported income was over 1-Trillion dollars.
Published: December 28, 2005 1:42 PM
Steve, what are you talking about. "Demand buying power" is a nonsense. It's just called "buying/purchasing power".
Anyway - that's a complete nonsense. Revenue neutral tax implies that the same amount of money will be extracted from private pockets and end up in government spending.
Therefore, there would be no net changes in demand or purchasing power of the entire population. Only a brutal 23% revenue tax on all complying sellers. And that's the end of it.
Published: December 28, 2005 5:36 PM
Sasha Radeta is clearly a lunatic. Wise man say: those who talk too much have nothing to say. Vance, Sasha, and the rest of you bunkerdwellers can hunker down and wait for Congress to institute long lasting tax cuts...bring plenty of canned foods, because IT AIN'T GONNA HAPPEN!
"Well I am only on line 7 of 18. All I know is that when I get done, one half of my Social Security check is taxable. Now, that is what I call double taxation. People, what is wrong with you? The FairTax will eliminate garbage like this."
Well-stated, Mr. Keller, well-stated. These fools keep missing the VITAL essence of the Fair Tax...it makes the taxation process transparent, so that when problems present themselves, and they will because nothing's perfect, they can be addressed. Try that with the current convoluted system or any variation thereof.
Published: December 31, 2005 9:35 AM