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Since we reached an understanding long ago, I have not insulted you, or called you any names. Please tell the truth. You have reverted to form. Not me. Now you and LL have a lovely discussion.
And remember, YOU brought up the FairTax simply to attack me. All I did was ask a simple question, and I further promised NO criticism of the answer. I simply wanted to find out what your idea of an ideal tax system would look like, since we both don't like the current one. We could have had a good, intelligent and civil discussion at that point. I'm sure we could in person.
You can have your civil discussion with LL. He agrees with you. It's easy. It's harder to have a civil discussion with someone who disagrees with you. I was willing to do so. You are not.
Since we reached an understanding long ago, I have not insulted you, or called you any names. Please tell the truth. You have reverted to form. Not me. Now you and LL have a lovely discussion.
Bullshit. You breached any such "understanding," as anyone who read this thread can easily see. I have told you in the past that if you continue sniping at me, you should not be surprised if I rip you apart and ridicule your ignorance and dishonesty. In a fashion evocative of an insecure internet bully, you love to dish it out, but sure aren't very good at taking it!
And remember, YOU brought up the FairTax simply to attack me. All I did was ask a simple question, and I further promised NO criticism of the answer. I simply wanted to find out what your idea of an ideal tax system would look like, since we both don't like the current one. We could have had a good, intelligent and civil discussion at that point. I'm sure we could in person.
You kept pressing again and again for the answer to a question you've asked me many times, and that I've already addressed more than once in the past. When you whined repeatedly that I hadn't responded to you, I simply pointed out that you NEVER answered the questions I posed to you on the FairTax.
You can have your civil discussion with LL. He agrees with you. It's easy. It's harder to have a civil discussion with someone who disagrees with you. I was willing to do so. You are not.
There's a big difference -- like me, Lustylad has a curious mind and is interested in actually learning something from these discussions. I suspect he agrees with me that we should all be lifelong students. You, however, have your mind made up and have endeavored to learn nothing at all about economics, finance, or tax policy, as is obvious to anyone who has participated in this forum over the years. You're here mostly for all the name-calling and all those juvenile "who's the biggest dipshit" threads. Very sad.
If you were actually interested in civil discussions, you would have apologized for having falsely referred to my earlier post as "bullshit," and would have promised to knock off that sort of behavior when addressing my posts in the future -- especially when you can't even articulate why you think what I posted was in any way incorrect! But you didn't, so you're not.
I even said I had no intention of criticize it, regardless of what you brought up. That was because I thought we had reached an understanding long ago to be civil.
Why would you not want to criticize it? That's how fallacies are exposed and truths are validated. You can criticize and be civil too.
Quote:
Originally Posted by CuteOldGuy
You can have your civil discussion with LL. He agrees with you. It's easy.
I agree with Cap'n? On what? Be specific. I just tried to inject some numbers into the discussion and explain where they came from. That way there is less reason to get personal. We can focus on the numbers and/or methodology and discuss why they are accurate or flawed. That's what economists do.
Ooops! Look what I found – sometimes the Cap'n doesn't agree with me!
Quote:
Originally Posted by CaptainMidnight
I appreciate your comments, but am afraid we'll just have to agree to disagree here.
You're a limpdick effete snob, Cap'n. Don't forget to sniff the, er, cork... COG and I will have fun insulting the fuck out of you while you're gone! Lol.
You're a limpdick effete snob, Cap'n. Don't forget to sniff the, er, cork... COG and I will have fun insulting the fuck out of you while you're gone! Lol.
WTF?? You two nancy boys have to gang up and double-team me? Lame!
Neither of you has the balls to take me on mano a mano?
I mean, who the fuck do you little pussies think I am, Ndamukong Suh?
A chance to discuss policy with someone who won't start attacking and insulting me if I criticize someone's pet tax system!
My only pet requirement for any tax system is that once it is implemented, the government can't come back for more later. The leeching bastards have to STFU and live within their allowance, barring an emergency.
1) If presented honestly, the tax rate is actually about 30%, not 23%. The reason is that, in order to make it sound better, FairTax promoters decided to pitch the plan by disingenuously presenting the tax-inclusive rate, unlike the manner in which sales taxes are normally described. Let's say that something with no sales tax would cost you $100. The FairTax is designed to make it the case that AFTER you add the sales tax, the percentage of the after-tax price is 23%. Adding about $30 to the $100 pretax price does just that. To anyone else, that sounds like a 30% tax. But to a FairTax advocate, it's 23%!
Yeah, that's definitely a 30% sales tax. If anyone calls it 23%, they're just fucking around with reciprocals and being totally dishonest. Implementing such a huge mark-up all at once would be a giant jolt – like forcing the US economy to take the “ice bucket challenge”. My quick and dirty revenue calculation goes up to $3.8 trillion (versus only $2.9 trillion for a 23% tax) - but of course that's before deducting for exempt sales and “leakage”. I don't have a reliable way to estimate the latter (which you refer to as transactions “making a detour around the cash register”). But the incentive to cheat is obviously greater at 30% than at 23%. I suspect that, due to this leakage problem, the extra revenues generated by each percentage point increase in the tax diminish at higher rates.
2) All of the studies I've seen on broad-based consumption taxes seem to suggest that revenue expectations fall far short of the back-of-the-envelope number you get if you simply figure the product of what is purported to be personal consumption expenditures and the tax rate applied to that base. I recall, for instance, that the aforementioned Robert Barro has written several times that a well-designed, broad-based consumption tax in the US could be expected to raise 0.5% of GDP for each percentage point of the tax rate. European experience with the portion of the VAT that's not exempted for necessities indicates the same thing after adjusting, of course, for Europe's lower levels of consumer spending relative to the US.
Then the Barro rule of thumb (assuming the 0.5% applies to the entire GDP, not just the consumption component) would suggest revenues of only $2.7 trillion from a 30% levy. But given the propensity for more leakage at higher rates, I don't think the relationship is a linear one. And I would question how instructive the European experience is, given the differences between VAT and sales taxes. The last time I checked, most European VAT rates were “only” 20% - or one-third less than the proposed FairTax.
Also, when the Bush Treasury Department hired some consultants to look into this idea and similar consumption tax plans back around 2005 (at more or less the same time they tried to promote Social Security privatization), they gave up on it after concluding that the tax-exclusive rate would have to be a little more than 30% just to replace the income tax, and to make it revenue-neutral, you would have to leave the payroll tax in place. The only economists I've seen dispute analyses such as these are people like Laurence Kotlikoff (a Boston University professor who moonlights as a well-paid shill for the FairTax).
The Treasury consultant studies sound credible, since their conclusions were probably not what the Bushies were hoping to hear. If going to 30% only lets us replace the income tax (and not eliminate the payroll tax), what's the point? We end up taxing BOTH income and consumption, instead of switching entirely to a levy on consumption only. And of course, the liberals wouldn't stand for it, since we would wind up with two “regressive” taxes and eliminate the one that soaks the rich.
Another point, even though I haven't examined either Barro's or the Bush Treasury studies in detail: Current federal tax revenues are $3.2 trillion a year. The Barro rule of thumb suggests a 30% broad-based consumption tax would raise only $2.7 trillion, thereby widening the budget deficit by $500 billion. The Bush Treasury studies suggest such a tax would raise even less – around $2.2 trillion (since payroll taxes currently make up 1/3 of federal revenues).
3) Although one must always consider the dynamic effects of any tax policy change, I have serious concerns about major disruption of certain key industries. What would happen, for instance, if you suddenly slapped a new 30% sales tax on new cars and light trucks? Obviously, the market for vehicles would be hyperstimulated in the run-up period before the tax was implemented, but would be depressed for quite some time thereafter. Same thing for the housing industry, as the FairTax would apply to new homes (but not pre-owned ones).
Agreed. Again, it's like asking the US economy to take the ice bucket challenge. I'm not sure how we might cushion the shock either. And I have serious concerns about putting a permanent crimp into consumer spending, which has always been our leading growth engine since it accounts for 70% of GDP.
4) I think one reason the negative impact on revenues would be very high is that evasion would be at least as large a problem as it is today. Note that income tax collections fall well short of what analyses of effective tax rates, brackets, and US personal income as estimated by most economists would suggest. Although an aggregate estimate of unreported income is anybody's guess, I don't think many people doubt that it's several hundred billion dollars per year. And there's no reason to expect that it would be any less under the FairTax. Large portions of the incomes of small business owners and service providers would no doubt take a detour around the cash register if you imposed a 30% sales tax.
We already have a huge underground economy. The fact that so much under- and unreported income never gets taxed is one of the arguments for switching to the FairTax (or something like it). Supposedly all the income that currently escapes the tax net would be nicked when the earners spend it. But if you are right about leakage not being any less under a FairTax than it is under our existing tax system, there is little compliance advantage to switching. The IRS wouldn't be abolished - it would just need to be retrained to audit differently.
5) FairTax supporters are loathe to release any data supporting their claims involving "embedded taxes," and I think it's pretty easy to see why.
For starters, although this may in some instances, of course, depend on elasticity of certain labor markets, economists seem to be in virtually full agreement that the incidence of the employer portion of the payroll tax falls wholly, or at least almost wholly, on the employee, not the employer. If that's true, and I believe that it is, one may expect that in the event the payroll tax were completely eliminated, most workers' paychecks would settle at an amount approximately equal to their current gross pay, less both the employee's and employer's "side" of the former payroll tax. Thus the employer's cost of hiring a worker would remain constant across the transition.
You were doing fine until the last sentence. Rather than staying constant, don't you mean the employer's cost of hiring would go DOWN by the combined amount (15.3%) of the former payroll tax? If so, the next question is - would employers pass along the full amount of such savings in the form of lower prices, thereby cushioning the shock of the FairTax?
Although it's been a while since I was involved with VC and private equity deals, I believe the average taxable profit margin across a broad range of industries is more like 6% rather than 10%. Of course, it's higher in a few industries and much lower in others. As a very rough guess, and assuming a 17% average corporate effective tax rate, I doubt seriously that "embedded" corporate income taxes amount to more than about 1% of gross sales. And that doesn't take into account the obvious fact that costs attributable to "embedded taxes" borne by many service providers are little, if any, greater than zero.
Your numbers are anecdotal. I think we could extract more accurate percentages by looking at national income and actual corporate tax data. I'm too lazy to attempt this but I think it is easily doable and would yield a more reliable estimate. I do agree that the savings from eliminating these “embedded” corporate income taxes would be small.
If there are significant savings to be reaped (and potentially passed along in terms of lower prices), they would come from eliminating: 1) payroll taxes 2) personal income taxes and 3) the high costs of complying with our existing Rube Goldberg tax code. Arguably these benefits could percolate through the entire economy. A business would save not only on its own reduced costs but also on lower costs for parts and materials it purchases from other firms enjoying similar savings. Trying to predict and quantify all of this with any degree of accuracy looks like a dubious undertaking, however.
Another thing to remember here is that the FairTax features a "prebate," which FairTax supporters describe as a payment to every household designed to reimburse lower-income families for the tax levied on basic necessities such as food and clothing. (I suppose we're supposed to forget the obvious fact that they also claim that prices won't go up after the 30% tax is added on, since all those "embedded taxes" now disappear, and that the "prebate" should therefore be completely unnecessary!)
I'm too lazy to go look it up in one of their tables, but I think the annual "prebate" averages something like $6K for a typical family, and varies according to the number in your household. That suggests that the prebate alone would run somewhere around 3.5% or 4% of GDP.
So the “prebate” would be tantamount to rebating between ¼ and 1/3 of the estimated FairTax gross revenue intake. It also means employers would still have the burden of filing payroll information with the IRS so the feds would know who qualifies for it.
Assuming that the estimates offered by Robert Barro and others are in the ballpark, one may reasonably expect that the FairTax, as presented by its supporters, would raise about 15% of GDP, and perhaps 11 or 11.5% after subtracting the "prebate."
For an $18 trillion economy, that translates into $2.7 trillion gross and at best $2.1 trillion after deducting the prebate.
Doesn't sound very "revenue-neutral" to me!
Nope. Methinks it would blow up the deficit. Even more so if its implementation tipped us into a recession.
Hey, that's a lot of bandwidth wasted on dissecting something that's never going to happen!
