The FairTax Discussion Thread

[CuteOldGuy]

I'll see what I can dig up, but I'm pretty sick right now, so it may be a few days.

[Guest040616]

Originally Posted by CuteOldGuy

I'll see what I can dig up, but I'm pretty sick right now, so it may be a few days.

Just "right now?" Hanoi COG has been a sick puppy for a very long time!

[DallasLavish]

"I think we need to abolish the income tax and go to a national sales tax. Wealth isn't determined by what you make, wealth is determined by what you spend. If a man makes a million dollars a year but lives in a small studio apartment and drives a beat up Volkswagen, he is hardly living like a millionaire and shouldn't be taxed like one. However if he buys a penthouse and a new Mercedes and a yacht, he should be taxed accordingly. The people should decide what they pay taxes on. Our founding fathers envisioned the people being #1 and the government #2, so let's make it that way. "

Stop voting for a political party and vote for Jesse Venura 2016.

[JohnnyCap]

The dude spending nothing is the exact opposite of what the people expecting a boom of spending from the fairtax change want. He should be taxed heavily. Saving is good, hoarding bad.

[bambino]

Originally Posted by JohnnyCap

The dude spending nothing is the exact opposite of what the people expecting a boom of spending from the fairtax change want. He should be taxed heavily. Saving is good, hoarding bad.

If I had $100 million, I'd spend some and hoard the rest.

[Texas Contrarian]

Originally Posted by CuteOldGuy

I'll see what I can dig up, but I'm pretty sick right now, so it may be a few days.

Get well soon.

No doubt there are lots of Wichita women who need to be kept warm this winter, and you need to do your part. Tough work, I know. But someone has to step up!

Originally Posted by DallasLavish

"I think we need to abolish the income tax and go to a national sales tax. Wealth isn't determined by what you make, wealth is determined by what you spend. If a man makes a million dollars a year but lives in a small studio apartment and drives a beat up Volkswagen, he is hardly living like a millionaire and shouldn't be taxed like one...

At least in most people's minds, wealth means net worth -- not income or the accoutrements of a flashy lifestyle. There are plenty of people who live rather high off the hog but have little or no net worth, and whose lifestyle would collapse overnight if they got fired. And you'd be awfully hard pressed to find anyone who doesn't think Hetty Green was a very wealthy woman!

Originally Posted by JohnnyCap

The dude spending nothing is the exact opposite of what the people expecting a boom of spending from the fairtax change want. He should be taxed heavily. Saving is good, hoarding bad.

That statement hits upon one of the most self-evident reasons that most middle-class people would oppose the FairTax.

Many folks seem not to realize how distortive such a radical shift would be. An obvious consequence of the FairTax's implementation is that there would be a powerful consumption mini-boom in the period just prior to the start date of the tax. People would rush to make big-ticket purchases of things like cars and light trucks before the 30% FairTax was added on. But then the hangover would be very painful, and possibly very prolonged.

At the same time, prices for good quality late-model pre-owned vehicles would spike as demand for new ones was getting crushed. Of course, relative valuations would adjust and markets would seek a new equilibrium, but not at a level likely to please manufacturers -- at least not any time soon. The auto industry would mobilize all its resources in an all-out effort to make sure the FairTax was destroyed on its launching pad. The homebuilding industry would obviously do the same. And both have powerful lobbyists indeed.

Remember the "luxury tax" on expensive cars, airplanes, and boats costing over $100K? Along with a couple of other tax increases, it was pushed through during the George H. W. Bush years as one of various small parts of a deficit reduction effort. Ted Kennedy could hardly contain his excitement, gloating that the "rich" would now have to pay a little more of their "fair share." But, of course, what happened was that the "luxury tax" devastated sales of new high-end sailboats and yachts, many of which were made in Maine -- the home state of then-Senate Majority Leader George Mitchell. A lot of people got laid off, so the people who "paid" were middle-class workers -- with their jobs. Congress had to admit what a harebrained idea this was and soon repealed it.

History is replete with examples of poorly thought out tax ideas backfiring and producing all manner of adverse unintended consequences.

[WTF]

May I make a suggestion for ya'lls next civil thread?

How about the VAT?

[TheDaliLama]

Originally Posted by WTF

May I make a suggestion for ya'lls next civil thread?

How about the VAT?

You know......Ever girl I ever meet thinks she has the only pussy in the world.

Why don't we tax pussy? We could get rid of the national debt in 2 weeks at a quarter a shot.

Just think about it...every time a guys gets a nut he has to throw something in the coffer.

Hell...RBJ by himself could pay for a aircraft carrier.

I remember when I was in college we'd go down to the sperm bank and leave a sample for $40. That 7 grand came in handy.

.......I think you would agree with me WTF.

[IIFFOFRDB]

Originally Posted by TheDaliLama

You know......Ever girl I ever meet thinks she has the only pussy in the world.

Why don't we tax pussy? We could get rid of the national debt in 2 weeks at a quarter a shot.

Just think about it...every time a guys gets a nut he has to throw something in the coffer.

Hell...RBJ by himself could pay for a aircraft carrier.

I remember when I was in college we'd go down to the sperm bank and leave a sample for $40. That 7 grand came in handy.

.......I think you would agree with me WTF.

That 7 grand could be perceptual,,, A Win Win.... yea baby!

[Texas Contrarian]

Originally Posted by TheDaliLama

You know......Ever girl I ever meet thinks she has the only pussy in the world.

Why don't we tax pussy? We could get rid of the national debt in 2 weeks at a quarter a shot.

Just think about it...every time a guys gets a nut he has to throw something in the coffer.

Well, that would lend new meaning to the term "embedded taxes," wouldn't it?

[WTF]

Originally Posted by TheDaliLama

.......I think you would agree with me WTF.

I agree with everything you say Lama!

[BJerk]

Originally Posted by CuteOldGuy

I'll see what I can dig up, but I'm pretty sick right now, so it may be a few days.

I will pray for you to feel better.

[Texas Contrarian]

Originally Posted by WTF

May I make a suggestion for ya'lls next civil thread?

How about the VAT?

No need to start a new thread, since comparisons between the VAT and the FairTax come up from time to time. Therefore it's a closely related subject and this existing thread will do just fine. (Of course, I know that some people like to start a whole slew of redundant threads on the same topic, but not me.)

I'm not aware of anyone who's proposed that the VAT replace the existing tax system, but rather that it be added to it so that we can go on merrily ramping up spending to ever-higher levels without running large deficits.

Of course, the VAT and the FairTax are both consumption taxes, but they're applied differently. Supporters of the latter point out the simplicity of collecting the tax at only one point (final sale). The problem with this is that it makes it much easier and more tempting for small merchants and service providers to illegally evade it. Add the 30% FairTax rate to the typical state's sales tax rate, and you've got a fat, juicy, 35+%-of-sales target just begging for some off-the-books business to take place.

Since the VAT is levied on the value added during each phase of raw materials production, manufacturing, distribution, and sale, it's much harder to cheat on a large scale. Transactional records obviously discourage this. International trade rules allow rebating the consumption tax on exports, so nations with differing VAT rates don't suffer from distortive effects arising from rate differentials.

I think it's fair to say that either the FairTax or the VAT is better in many ways, and produces less deadweight loss, than many of the other taxes in out clusterfuckish code. It's just that neither system, standing alone, would pay the bills unless we went back to levels of federal spending as a percentage of GDP that are a lot closer to those of the Harding/Coolidge era.

The VAT has been debated from time to time in policy circles at least since about 1980. Of course, conservatives say they don't like it because it's a big money-raiser, and liberals because it's very regressive. But Larry Summers famously joked about 25 years ago that if the roles were reversed and conservatives started focusing on how regressive it is, and liberals on what a money-raiser it is, it might get passed.

[CuteOldGuy]

CaptainMidnight, are you saying there is a greater chance of tax evasion under the FairTax than the current system?

Of course some people will cheat, but the opportunity does not present itself as readily as in the FairTax. Some small shops may cheat, but a retailer or service provider would not have to get very large before any cheating would become readily apparent. Unlike our current system where multiple BILLIONS are lost to evaders. Every year.

And I'm having trouble finding the actual math discussing embedded taxes, but I think it is apparent that there is a number. This was discussed in the book, and the research was cited. But there can be no denying that a certain portion of the price of everything is tax and tax compliance costs which need to be recovered. And if those expenses disappear, then the business can lower their price and make the same profit. If a tax is levied roughly equal to the embedded tax costs, they will still make the same profit. And the government will receive more actual cash from the transaction, because they will receive amounts previously paid to tax professionals to ensure compliance.

Sure, the prices of some products and services will adjust more than others. It depends on the relative elasticity, but overall, the price level will remain constant. Or it will adjust, and settle, based on market forces, not government favoritism. That is a good thing.

You have made some good arguments, but nothing that really discredits the FairTax concept. I know you don't like the income tax, either. Without considering its political feasibility, what would you support as an alternative tax system?

[Texas Contrarian]

Originally Posted by CuteOldGuy

CaptainMidnight, are you saying there is a greater chance of tax evasion under the FairTax than the current system?

Of course some people will cheat, but the opportunity does not present itself as readily as in the FairTax. Some small shops may cheat, but a retailer or service provider would not have to get very large before any cheating would become readily apparent. Unlike our current system where multiple BILLIONS are lost to evaders. Every year.

I'm not sure whether tax evasion would be greater than under the present system, but doubt that the means, motive, and opportunity would be reduced in any way. Just consider the high rate of tax that would be paid on sales (not net pretax income), and it's hard to believe that a few percentage points of revenue wouldn't just take a little detour around the cash register. After all, some of it does so already. That part wouldn't change!

Now consider just a couple of further points. Illegal tax evasion in the U.S. is actually estimated to be in the multiple hundreds of billions of dollars annually, not just multiple billions. Note that if the FairTax is to be revenue-neutral, as claimed by its supporters, it would have to raise as much (net of evasion) revenue as the present system actually raises, not what it would raise in the absence of evasion. Likewise, the important thing to consider is what a replacement tax system would raise net of evasion. Then note that after the "prebate" is paid out, the FairTax would have to raise about 22% of GDP on a gross basis in order to equal the long-term trend average of the present system (which itself lands well short of covering today's levels of federal spending, but that's another issue). Doing so with a 30% consumption tax not only leaves room for zero losses due to evasion, it assumes a taxable base that's actually higher than aggregate consumption in the U.S. (estimated to be approx. 70% of GDP in recent years). So even with NO illegal evasion and with the wind blowing from exactly the right direction at all times, I fail to see how the FairTax gets to revenue-neutrality.

Originally Posted by CuteOldGuy

And I'm having trouble finding the actual math discussing embedded taxes, but I think it is apparent that there is a number. This was discussed in the book, and the research was cited. But there can be no denying that a certain portion of the price of everything is tax and tax compliance costs which need to be recovered. And if those expenses disappear, then the business can lower their price and make the same profit. If a tax is levied roughly equal to the embedded tax costs, they will still make the same profit. And the government will receive more actual cash from the transaction, because they will receive amounts previously paid to tax professionals to ensure compliance.

The reason you might have trouble finding math supporting the embedded taxes argument in the FairTax book (assuming that you're referring to the Boortz-Linder bestseller) or on the website is that the authors make the fanciful claim that elimination of those taxes would more or less equal the FairTax that would be applied upon sale, so that the final result would be that prices would not rise. And then they move blithely on in the apparent hope that no one will ask any critical questions and just accept all this hocus-pocus at face value. A very brief explanation of how the math works was offered back in post #25:

http://www.eccie.net/showpost.php?p=...6&postcount=25

If you didn't do so before, please consider the points I made and you should be able to see that embedded taxes that would disappear if the current system were replaced with the FairTax are miniscule in comparison with the latter.

Recall also that the FairTax website makes the rather startling claim that every income group would be better off under their plan, while none would be worse off. Again, do you not see a slight problem with this logical inconsistency?

I'm not from Missouri, but I do have a "show me" attitude about this sort of thing. If you take a few minutes to think this through, it should be clear to you that much of the stuff presented in the Boortz-Linder book and on the FairTax.org website is simply sleight of hand.

"TANSTAAFL"