The Tulsa Forum by TulsaNow

From KTUL (http://www.ktul.com/news/stories/0309/602483.html)

I assume they meant to say that it would eliminate the tax by lowering it by half cent increments over 7 years. As it is now, it's saying after 7 years the tax would be half a cent lower.

Regardless, he may have better luck but that seems TOO long of a phase in.

I'm against it.

The next fight will be what counts as a grocery (my apologies to people who have read this rant before).   Is pop (largely responsible for obesity)?  If pop, what about beer (healthier than pop)?   Junk food like chips and cookies? What about a pumpkin sold as a decoration and not as food?  Gum? 

If you by a ham sandwhich from the deli it is taxed, if you buy 2 slices of bread, 6oz of ham, and 2 slices of cheese it is tax free.  What about frozen meals?  If those are tax free can I buy a frozen burrito from QT and not microwave it to save 8%?

Then if food, why not drugs?  People need drugs.  Of course, people also need cloths, so no tax on cloths.  But only cloths you really need (state decides that I guess). 

Bah!  I'll cut it short.  You've all heard the rant before.   It is not more unfair to tax food than anything else we "need."

Most states don't tax unprepared food, I think we can figure it out too.

I thought the lowering of the top income tax rate over the last few years was a joke, but this is something we should do. It's wrong to tax basic foodstuffs and hits the poor and elderly disproportionately hard.

I'm not sure this is the right time to do with the state facing a potential budget crisis. But. With oil already going back up the state should soon be flush with oil money again and if the right side of the isle wants tax cuts, this is the right place to make them. It would put money back in everyone’s pockets and make the poor and elderly more food secure.

And if the state wants to keep cutting taxes I would also be in favor of the state giving a half a cent or so of it’s remaining sales tax to cities and counties so that they would also be able to give up taxing groceries and giving up a few cents of the gas taxes to local governments for local roads.

Clothes are basic items we need (or do we not tax cloth and you can make your own? Which leads to most peoples ability grow vegetables).  We also need fuel to heat our homes and to drive.  We need prescription drugs.  We need eye glasses.  All are basic items that are taxed.

And it doesn't disproportionately tax anyone.   You pay tax on what you buy.  The "poor" are using food stamps and WIC so they are not paying anything.   If you remove the tax entirely you are subsidizing George Kaisers need to eat Lobster everyday to the tune of 9%.  Proportionally, you would save rich people more money on taxes than poor people (aforementioned poor people using government programs and poor people spend MUCH less on groceries than rich people).  So why is it more fair to tax me on my clothing than it is to tax me for food?

Additionally, do you think the state is going to just forgo this revenue?  Do you think they will cut spending to offset it?  Of course not.  They will simply raise taxes somewhere else.  I'm against taxes in general.  I think the government misuses hordes of money and takes it out of the economy in ways that are not related to the use (tag fees going to schools instead of roads).  But if you are going to have a sales tax, just have it be a blanket sales tax.

Odds of someone sticking in provisions that make [insert ridiculous thing here] legally a grocery item?  Seriously, is pop a grocery item?  Then why not "non-intoxicating" beer? 

You are exactly right as usual CF.  "Use" taxes are the only fair taxes.

If I buy all of my groceries at Petty's I'm going to pay a hefty amount of tax.

If I am poor or elderly and buy only the basics at Wal Mart I am going to pay very little. 

If I am on Government assistance, I am going to pay nothing.

Other forms of taxation hit the poor and elderly much harder.  For instance when the government increases income/corporate taxes, the cost of doing business increases, and those expenses are passed directly to the consumer. 

This is a timely discussion because I have a small interest in a food manufacturing operation, and we recently got hit by a price increase from our main supplier in anticipation of the new tax structure.  So what did we do?  We raised the price of our product to cover the expense.  We are now hearing from some of our other ingredient suppliers that they will be raising their prices as well, so we will probably raise the wholesale price again in the next few weeks.

Our retailers don't even blink at this, they simply raise their retail price.  The only person affected is the consumer.  You see Swake, "evil" companies don't pay taxes, people do.

One more thing, then I'll shut up on the issue:

Sales taxes and tolls are the most unpopular taxes.  Even though they are a minimal percent of tax revenue.  Why?

Simple:  the government is smart enough to know that money taken directly from your paycheck doesn't count as a tax in your head.  You never see it, it's just gone.    Property taxes are generally out of an escrow account or otherwise part of the expense of owning a home. 

Sales taxes are right there.  You know that 9% of every dollar you spend goes to the government.  It prompts people to ask what that money is going towards and if it is being used wisely, if only for a second.

If the sales tax is raised .33% people notice.  If your income tax went up 3% and no one told you, most people wouldn't even notice.  The money just disappears.  FICA, Medicare, State, Federal, insurance premiums, IRA contributions . . . what's another 3% out of your check?

I want taxes to be as up front as possible.   Eliminating this tax and sticking it in somewhere else won't help that cause either.  For that matter, having an income tax AND a sales tax seems ridiculous.  You tax my money when I earn it, then again when I spend it?  What the hell.

Sales tax is visible because it shows as a line item on your receipt.  If it were included in the price on the shelf, you wouldn't pay any more attention than to your income tax.

Ah, flat taxers.

You all need to consider the economic impact of a 20%+ VAT (or however else you want it applied) on the economy. It discourages the purchase of everything and will drive large parts of the economy underground. It places the entire tax burden on wage earners (do you really think companies are going to pass tax savings on to workers or consumers?) and is a completely regressive model in that it shifts the tax burden largely to anyone that lives paycheck to paycheck, which today is nearly half the population and after the dramatic increase in the cost of goods in this model that number will grow to way over half.

If the rate is 20%, then the poor will pay 20%, the middle class 20%, upper middle class with some savings and investments? 15-20% and the wealthier you are and the lesser percentage of your income you spend the less you pay. It's going to flip the tax burden first entirely to people from companies and then from the wealthy to everyone else.

It will destroy the middle class and transform this country quickly into a third world like nation of haves and have nots.

And I simply don't buy the 20% rate. The average tax paid on income alone is about 13%, if you replace corporate taxes and all the fees the federal government charges you are likely up to 25%-30% sales tax with the flat tax, and that's before the 8.375% local tax we have here. Taxes on goods sold would approach 35% and you still would be taxed with a %12.4 medicare and SS payroll tax (but only on the first $102,000 of income) and any state income taxes (5.25%).

The wealthy would end of paying far less, companies would pay nothing but the rest of us would end up paying 35-40% on everything after paying an income tax of about 18%. Combined anyone making under something like $100,000 a year would pay a total tax rate of 50-60% of income.

That sounds great.

And none of that takes into account the regressive impact of the tax on the economy because it stifles commerce.

It's a bad, bad, bad idea.

Regressive?  Tax burden on the lower and middle income?  Nope.

The FairTax actually eliminates and reimburses all federal taxes for those below the poverty line. This is accomplished through the universal prebate and by eliminating the highly regressive FICA payroll tax. Today, low and moderate income Americans pay far more in FICA taxes than income taxes. Those spending at twice the poverty level pay a FairTax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today. Meanwhile, the wealthy pay the 23 percent retail sales tax on their retail purchases.

Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow and frustrates attempts at upward mobility through hard work and savings, thus harming low-income taxpayers the most.

In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free.

How can the FairTax generate lower net tax rates for everyone and still pay for the same real government expenditures? The answer is two-fold. Firstly, the tax base is dramatically widened by including consumer spending from the underground economy (estimated at $1.5 trillion annually), and by including illegal immigrants, those who escape their fair share today through loopholes and gimmicks. In addition, 40 million foreign tourists a year will become American taxpayers as consumers here.  Secondly, not everyone's average net tax burden falls.  For households whose major economic resource is accumulated wealth, the FairTax will deliver a net tax hike compared to the current system.

Consider, for example, your typical billionaire, of which America now has more than 400.  These fortunate few are invested primarily in equities on which they pay taxes at a 15 percent rate, whether their income comes in the form of capital gains or dividends.  In addition to having the income from their wealth taxed at a low rate, the principal of their wealth is completely untaxed either directly or indirectly.  Assuming they and their heirs spend only the income earned on the wealth each year, the tax rate today is 15 percent.  In contrast, under the FairTax, the effective tax rate is 23 percent.  Hence, the very wealthy will pay more taxes when the FairTax is enacted. In a nutshell, those who spend more will pay more but low, moderate and middle income taxpayers will benefit from the greatest gains in reduced tax liabilities.

Also does a few other good deeds.  The wealthy pay more and the poor pay less because much of the spinning wheels are eliminated.  It would cause much distress for accounts and attorneys that rely on the complexity of the current system for their income.

    * Enables workers to keep their entire paychecks
    * Enables retirees to keep their entire pensions
    * Refunds in advance the tax on purchases of basic necessities
    * Allows American products to compete fairly
    * Brings transparency and accountability to tax policy
    * Ensures Social Security and Medicare funding
    * Closes all loopholes and brings fairness to taxation
    * Abolishes the IRS

That’s a bunch of hooey. The federal poverty rate is something like 22k for a family of four. But a family of four making a paltry 50k now is going to pay almost a fourth of their income in federal taxes alone? That is the definition of killing the middle class.

As for making up the difference by taxing spending by foreign tourists, first that’s ludicrous that there’s any real amount of money to be taken in there. And if this country had a 30% sales tax rate (or whatever the local rate plus your 23% would end up being, here it would be 31.375%) WE WOULD HAVE NO FOREIGN TOURISTS SPENDING MONEY.

Next, good lord. Illegal immigrants? How much do you think illegal immigrants make, aren’t they already are poor? And for that matter, hasn’t the complaint been that they send CASH back to their home country and it doesn’t stay (and get spent) here? If they are making $8 bucks an hour how much would they possibly pay after sending half of it back to Mexico? For that matter, why should they be more legal in paying taxes when buying or selling goods as they are in paying income taxes?

As for the billionaire argument, lets do some really simple math. Let’s say, for your arguments sake a person has a billion dollars in equities taxed at a 15% rate. If that billion dollars earned a 10% return for the year and they paid only 15% on that it would be $15 million in paid taxes. That would mean that at the claimed 23% “fair tax” rate that billionaire would have to spend over $65,000,000 dollars in a year to get the same return on taxes. Even Michael Jackson doesn’t spend $5 million a month. Reality is, even a billionaire on a spending spree isn’t going to pay nearly as much, if he were to buy an $8 million house and a few $300,000 cars and spend a couple of hundred grand a month on other crap he would only pay $4.42 million in taxes.

And what if that billionaire wants to buy a company? Does he get charged taxes on the sale? If not you have all sorts of new “rich only” loopholes, if he does you have killed business investment.

As for your “underground” economy, a flat tax would drive MORE of the economy underground. More barter, more paying people under the table. And how do you even collect it all? If you pay a kid to mow the lawn, does he collect sales tax? How does he remit it? How do you catch him if he doesn’t? Taxes become easier to avoid and cheat on, not less. You increase the underground economy.

And I still don’t, at all, buy the 23% claimed rate because you only get there by failing 3rd grade math, as detailed above.

The only good outcome would be the reduction in complexity and removal of the IRS. But that really should be possible anyway by simplification and automation of the tax code. A complete change from a progressive to a regressive tax structure is not required for that goal.

LOL Yes you are correct you can get there with 3rd grade math.  That's the beauty of it.  Nothing idiotic like our current system.

As the FairTax gains more national attention, questions have again arisen about whether the FairTax rate is 23 percent or 30 percent. In the toxic environment that often accompanies public policy debates, FairTax.org has even been accused by some of misleading the public, even though full descriptions of "tax-inclusive" and "tax-exclusive" calculations abound on our Web site. We hope the following explanation puts all such questions to rest -- at last.

Let’s use an example to illustrate the difference between tax-inclusive and tax-exclusive tax rates.

Assume there is a worker named Joe who earns $125 and spends all of his earnings. Let’s further assume that the government requires him to pay $25 in taxes.


Let’s use an example to illustrate the difference between tax-inclusive and tax-exclusive tax rates.

If the government put a tax on Joe’s income, he would earn $125 before tax and would have $100 after tax to spend at the General Store. Thus, Joe has to earn $125 to have $100 to spend. Joe would also have to file an income tax return.

If the government put a tax on what Joe spends, he would earn $125 and would have $125 to spend at the store. Of the $125 paid by Joe to the storekeeper, $100 would be for the goods he bought at the store and $25 would be taxes that the storekeeper would send to the government. Joe would not have to file a tax return, as the storekeeper sends the tax in to the government.

Either way, Joe pays $25 in taxes and the government gets $25 in taxes. With a tax on income, Joe pays the $25 directly to the government, and with the tax on spending (sales tax), he pays the $25 in taxes indirectly when he buys something from the General Store. The General Store sends the tax that Joe paid to the government.

You also feel that evasion and underground spending will be rampant.  More than 80% of all tax returns are eliminated under the FairTax--every individual filing. What remains are retail outlets collecting the FairTax. Of these, 80 percent of all retail sales now occur at large retail chains like Wal-Mart. The point is oversight will still reside under the Treasury Department but the government's responsibility will be over a far smaller "universe" of tax collection points making compliance oversight far less costly and far more effective than the current system which costs $265 billion a year in compliance costs and still comes up $350 billion a year short of what is owed.

But this debate has already happened.  I understand that the relative simplicity of the system is far to threatening to many people, usually people with a stake in the current system, so I will end this debate here. 

You are correct, the current system is far superior.  We should stick with it.

I'd far more favor an across the board 1% to 1 1/2% CUT in State Sales Tax, to 3% from the current 4.5%. The State's taking way too much as it is on everything.

That would also free that amount up for local jurisdictions to potentially use for local benefit, should the people vote to do so.

Every time I realize the State gets 4.5% ( 1.5 x Tulsa's take) on everything sold, I shake my head and wonder how it is that happened.

You know the 'Fair' Tax started out at 14%, rose to 17% directly, then suddenly became 23% in recent discussions. Did I hear 30%?!

Nope. 

Been 23% since 2003.  When the bill was authored in 2005 it was set at 23%.  Never changed. based on research.

http://www.fairtax.org/PDF/Tax%20Notes%20article%20on%20FT%20rate.pdf

Research like how much that billionaire was going to pay in taxes?

For three months before their benefits run out. (Except in the case of families with kids, of course, or if the state is kind enough to use one of its exemptions on you)

Then there are the large number of people who refuse for whatever reason to apply for benefits and therefore don't get them.

Wow, like, congratulations. You’ve just totally logically proven that if someone has $125 and is going to pay $25 of it in taxes, how the $25 is going to be paid doesn’t change the amount paid because you already stated the tax was going to be $25.

Totally.

How about the fact that the top 1% of wage earners make 19% of the nations income but pay 39% of the taxes. Even if they would pay 19% of the taxes under the flat tax (which they wouldn’t even come close to because they don’t spend all their income, by far) the tax burden on the rich would fall 20%. And that difference in money is going to have to come from somewhere.

Also, consider that in 2007 American and Foreign companies paid the equivalent of 2.7% of U.S. GDP in federal taxes or about $373 billion dollars. Do away with that tax and it has to be paid by someone. Can you feel that 23% rising already?

Totally.

If you are going to continue to hammer the same talking points without reviewing the information i've posted than I can do no more.  The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars $358 billion more than the taxes it replaces.

YES IT BENEFITS THE WEALTHY.  IT BENEFITS ALL INCOME BRACKETS. IT BENEFITS THE POOR, THE ELDERLY, AND EVEN THE STUPID.  Over time, the FairTax benefits all income groups.  Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system.

It seems you are simply looking for a system that punishes the wealthy, no matter what that system is or how disgusting and complex.  As long as the wealth of the country get hammered you are content.  We will never agree on this so if that's the stance for your debate than we are done here.

You have already won.  You have the system you desire.

From KOTV (http://www.newson6.com/global/story.asp?s=9985475)

Initial response to the last post:

Swake, you made a logic error in your final post.

39% of taxes paid does NOT mean they paid an effective rate of 39%.  The portion of taxes they paid as a percent of total revenue is NOT their tax rate.  Similarly, making 19% of the income is not correlated to the 39% of taxes paid.  NEITHER is indicative of the effective tax rate.

Thus, "39% of all taxes paid" - "19% of all income paid" != 20% tax savings at a 23% effective tax rate.  It is a totally illogical statement.   You are not adding and subtracting like figures, and even if you were - you can't do direct math on percentages.  


Originally drafted response (had to write over a long period, sorry) . . .
- - - -  -
Swake, I appreciate your arguments.  You are raising logical concerns.  Issues I had before I looked into the idea myself.  Let me try to "show you the light" by explaining some of the basics and then going over your concerns.  I'm sorry in advance if I revert to argument, it is my nature...

First, you appeared confused on the basics of the tax.  A flat tax would replace the income tax, social security, medicaid, all that junk.  You would not pay a 23% flat tax, 18% income tax, and 11% FICA.  Second, a prebate would be given at a set level - effectively establishing a minimum level of income before you are taxed at all OR you end up being paid to exist.  Finally, the net receipts from the Federal Government would not change and the effective tax rate of most Americans would go down.

In the simplest form:  all purchases of new assets are taxed at 23%.  Each citizen over the age of 18 get's a prebate of $500 monthly to offset the portion of their earnings below the poverty line that would go to Federal taxes.  And that's it.

End user annual consumption in the USA is around $12 trillion.  23% - rebates = the federal budget.   Really, it's that easy.  
- - - - - - - -

1) Company TAXES are currently built in.

Currently the taxes "the companies" pay are built in costs in the products they sell.  Companies don't just eat losses from taxes, they of course pass the cost along (D'oh!  I forgot about taxes.  Guess we lose money again this year).  Remove the taxes on the back end and put them on the front end.  The biggest change would be the method of collection and an increase in efficiency that results.

The buyer would continue to actual pay the tax as they currently do.  The notion the companies pay taxes is a misnomer.  And of course, when you say "companies" you are really referring to small business owners, pensioners, 401K holders, and anyone with an IRA.  Very few companies are owned by the Robber Barons some people want to believe in.

Anyway, the net result could be reduced prices on efficiency gains.  More than likely, it would be near level prices IMHO as efficiency gains are leveled by a shift in employee contributions to the price of goods.  But employees would then have said money in their pockets to cover any increase... so that aspect would be a wash even if prices increased (these are of course NET prices we are talking about, with tax).

2) A flat tax would have no negative impact on commerce.

The taxes are already built in.  Unless you argue that companies do not foresee taxes and adjust prices to cover them,   which is of course absurd.   Furthermore, the additional tax built in would be already paid as income tax or FICA.   There would be no net change in taxation.

The same amount of money would be taken out of the economy.  The government gets their share of the pie either way, about 12% of GDP is taxed to the Federal Government.  The net effect on commerce would be positive via efficiency gains: how much time is spent trying to figure out tax compliance and enforcement (tens of billions), how many layers of tax repeat the same process, how many mistakes are made (any system that 2 attorneys, a couple experts, and a Federal Judge can't figure out is a bad system)?

3) Entire burden on wage earners?

Actually, as it now stands wage earners pay more taxes than non-wage earners.  If I was lucky enough to have a trust left to me I would pay almost no Federal taxes.  Under the current system, the wealthiest citizens who consume the most have the lowest tax rates.  If regressive taxation is your muse, I'm not sure why you are defending <20% tax rates for the rich and 35% rates for the middle class (the poor have a negative tax rate).  

Or are you pretending that corporations are paying taxes?  The $20,000,000,000 that Exxon paid in taxes last year came from your 401K, the workers IRA's, and union pension funds.  Corporate income is both derived from and owned by people.    More importantly, corporations don't eat their tax burdens (oh crap, more taxes.  I guess we lose money now), the cost is passed on to consumers.  

The notion that anything would shift a tax burden "from companies" is an easy concept to buy into, but it really makes no sense at all.  To believe it you have to assume corporations accept taxes as an unforeseen loss that is not built into the price AND you have to ignore the ownership interests in companies by individuals.

Now you argue that then COMPANIES make more money!  Which of course means that the people behind the company are making more money, which is a good thing.  But in reality when their tax burden is lowered competition will kick in.  If they can lower prices, they will sell more product, which will make more profits.  So their competitor will offset any savings they have with lower prices . . .

and once again, the tax is already built into products.  It is currently paid by companies, who pass the cost on to customers.  Who are the wage earners you are worried about.  

4) Regressive tax?

If properly structured the middle class would have exactly the same or a lesser tax burden. The lower class would continue to have a negative tax burden (making money from the state).  Simply prebate the set level of taxes - don't think the first $40K should be taxed?  Then prebate 40K x tax rate.  If you were frugal or simply don't have the money to spend, you are now living off the state.

It would only be regressive if people earning less income were spending more.  Which would seem to be a behavior we would want to discourage anyway.  If someone in "the projects" is spending more money than a middle class family - why shouldn't they be taxed as much as a middle class family?  Presumably they are living as good of a life as the middle class family and somehow deriving as much income OR living beyond their means.

5) Tax rate, estimates say 23%.

The best estimates done say 12% of the cost of all products is attributed to taxes.   Add in 11% for FICA (et a) and you get the 23% range.  The government is going to need to same amount of revenue no matter what the tax structure.    No more money would be taken out of the economy with flat tax than with any other form of taxation.

6) The BILLIONAIRE!

Your primary fear appears to be that ultra rich people will make billions of dollars and never spend it.  Thus, the government will not be able to tax it and you will have to shoulder the burden.  I have three primary problems with this:

a) The richest person in the world saw an effective tax rate of 17% in 2008.  Warren Buffet paid 17% taxes on money earned in 2008.  That money has already been taxed, there is minimal tax revenue from it to be transferred to the Federal Government.    17%.  I did not make millions, let alone billions, and saw an effective tax rate higher than that.  

Under a flat tax he is allowed to earn whatever money he wants.  When he spends it, it will be taxed at the same rate normal people are taxed at.  No special lower tax rate for being really, really rich.

True, we would be giving up a share of the revenue NOW to get a larger share of revenue in the future.  But in the long run, the Federal Government would have a higher effective tax rate on the earnings of the billionaire.   If taking more money from rich people is your goal, this would be a means to that end.

b) The counter argument appears to be:  what if he never spends it!  What an illogical notion that is.  His wealth may persist for a very, very long time - but the point of wealth is the ability to expend it.  The Astors once owned 10% of the United States GDP, and while some remain wealthy they don't hold a significant amount of the nations wealth just several generations down the road.   The money has been spent (here it is worth noting that the Jacob Astor paid no income tax, his legatees don't pay income taxes either on their trust proceeds... but would have to pay sales tax).

The fear that rich people would simply horde money and cease spending is a fallacy.  Eventually the money would be spent, and eventually a higher tax rate would be realized.    Most people/business would see it as a good investment to forgo 17% today to get a 35% increase (to 23%) in the future.

Conversely, if we want to assume that the money is NEVER spent - then we have encouraged legacy capital investments.  Which are the basis for start up business, mortgages, expansions, and most other economic activity.  Unless the fear is the money will be stuffed in a mattress, which really would serve to hinder inflation (essentially removing funds from the monetary supply) if it was a significant enough amount of money to care about.

c) Standard of Living

A consumption tax would essentially tax your standard of living.  If you are poor and living beyond your means, you will be taxed higher.  A rich person living very frugally will be taxed lower.  What's wrong with that?

As I mentioned above, eventually the money will either be spent and taxed at a higher rate - or it will serve as capital supporting our economy.  Either way, we win.  I simply don't by the "they have it, we need to take it" argument of taxation.  

If my neighbor lived as I do, I'm satisfied if he is taxed as I am.

7) Family of $50,000.

A family of 4 making $50,000 has 2 adults.  Using your scenario lets see how it works out:

Currently:
Federal Tax rate:  15%.   (full deductions, HOH for single wage earner, 2 dependents, effective rate ~5%)
Payroll Taxes: 15.3% (of the first 106K.  12.4% FICA, 2.9% medicare)

Total Federal Taxes paid: $15,150

Flat 23%:

Federal Taxes Paid - $11,500 (spending every penny on taxable new items)
Prebate - $6,000

EFFECTIVE TAXES:  $5,500

Bump it up to 30%.  40%.  Still doing better.  And that ignores other advantages like pre-tax mortgage, tuition, charity, etc. etc. etc. AND assumes a paltry 5% effective income tax rate.

Saving the middle class $10,000 a year.  I would argue that is very good for a middle class, not detrimental to it.  

8) Tourism.

In 2006 Tourists spent $107,000,000,000 in the United States.  The bulk of that was for food, travel, room and board.  Some went to souvenirs and some to significant purchases.   Tourism would not have a major impact on the tax collection IMHO.

However, I do not believe it would be reduced very much.  Recall that taxes are already built in to the price of goods and thus they would likely NOT increase a tremendous amount.

9) Barter/underground economy

Barter would probably be a concern.  However, the amount of the economy that can/will function on barter would probably not change significantly from what it is today.  Most things in the modern world just do not work well on barter.  

However, illegal activities currently avoiding income tax would be largely unable to avoid a sales tax.  Sales taxes are one of the most collectible taxes because a retailer is required to registered and remit the taxes for the government.  Not residents.  QT, Walmart, Braums... they are much more likely to accurately report sales than Joe the Plumber on his income taxes.    

Similarly, people who do not report income would have no way around the system.   How many tips, cash payments to attorneys (you'd be surprised how many retainers for criminal defense are cash), independent contractors, illegal immigrants, drug deals, ebay sales of used goods, garage sales etc. etc. etc.  The cash economy would be effectively taxed.  

I'm sure there would be issues that evolve to avoid the tax.  23% is a strong incentive.  But as strong or stronger incentive exists as is to avoid many taxes.  And taxes on new goods would be simpler to enforce than the complicated "income" system we currently use.

10) Loopholes, favoritism, complication, privacy.

Tax loopholes, favoritism, cheaper effective rates for ultra rich or certain sources of income . . . all this would go away.  The primary reason this would never happen is because the government would lose a significant tool in controlling people.  Groups that get non-profit status are essentially Federally subsidized to the tune of 25%, if it is denied your group may fail.  Industries can lobby for favorably tax treatment.  Super rich get loopholes added to the tax code.  Currently the Federal Government can use the tax code to encourage or dissuade any behavior it wants to.

Likewise, the tax code is a great way to keep tabs citizens.  How much did you make?  Where did you spend it?  What charities or political groups did you support?  All the information is mandatory given to the government.

And finally, the tax code is not understood by anyone.  My father is a tax expert, it's what he does and has done for a living for decades.  He doesn't pretend to understand everything in the tax code.  I've had a hand in tax matters...  as the controller of a company (J.D., accounting/finance degree) with our tax expert and a tax attorney we had trouble figuring out some issues.  A call to the IRS will get you no where since they don't really know the law.

The tax code as it stands is horrible.  Something needs to change.

CF, Sometimes you make me feel like a 16 year old boy fiddling with his date's bra strap.

 ::)

Very well put.

We can all agree on that, even if we can't agree on how it must be changed.

A "pre-bate" as you call it would eliminate the largest of my concerns regarding a national sales tax, namely the sales tax's nearly punitive regressiveness. That said, I am fully in favor of progressive taxation. IMO, if we are going to go to a national sales tax, purchases of goods over a certain dollar amount (say $10,000 or $25,000, or even $100,000) ought to be taxed at a higher rate.

Sorry, I just think the more money you make, chances are you got more benefit from society to make that kind of money and should probably pay a higher proportion of your income than those who haven't had the same luck do.

One big question is would it be structured like VAT in Europe (or GST in Canada) where when one business sells something to another for resale that sale is taxed, or would we keep the current sales tax structure where businesses only pay sales tax on the items they purchase for their own consumption?

In any event, as I mentioned at the beginning, I think the current system is difficult to administer and difficult to understand. How we fix it? That I'm not sure about.

Of course, what we really need is a way to make it less attractive to base your entire industry (here's looking at you, finance!) on gambling. That's a far more pressing issue at the moment, IMO.

I love it when people use that word.  Like wealthy and successful people won a lottery or something.  It exposes the disdain just under the surface.

99% of the wealthy (people who make over $250,000 a year according to our current admin.) worked very very hard to get to that point.  They built companies, went to school 2,3,or 4 time longer than most of us, or went through the arduous task of pushing new and unique concepts through a sea of detractors.  They worked late nights and got to the office early in the morning.  Success is their reward, but not for a game of chance, because in this country everyone has a chance and a choice.

But you are correct there is that fraction of a fraction of a percent that DID win the lottery!
(we tax them 55% already  ;D)

Funny you put that 55% remark 2 or 3 posts down from the fact that Warren Buffett has an effective tax rate of 17%.  On Cannon_Fodder's comment, I think you are overestimating the spend that will occur for "rich" people.  The US is one of the best places to make money in the world.  So you have your money, spend $100,000 a year on your house and what not.  Invest the money in the market.  When you turn 50, cash out, move to a nice island somewhere and retire paying 0 taxes.  What else are you going to do with a flat tax tell you that you can't move out of the country if you want?

Nothing's stopping them from doing that now.

55% is the gift tax on monetary gifts in excess of $10,000.  If I give Warren buffet a Christmas present of $20,000 cash, he will have to pay it too.

First, I am proud that most of the posts are target at the merits of the case.  Good logical questions and concerns.  Even if we disagree, we can advocate positions on the merits.  I THINK I'm right, but I'm not necessary correct on that.  ;D

Nathan:

The Fair Tax, as proposed, is a tax on end user consumers of new products.  New cars, new houses, restaurant items, computers . . . you name it.  If you buy it from a retailer, it is taxed.  Business to business purchases are NOT taxed (VAT).   TO be honest - I have not significantly studied the effects of a VAT in comparison to the Fair Tax, so I can't really speak intelligently about it.

Dragon from Strongbad:

(nm, Gaspar covered it)

CF, I think it's a little disingenuous to use Buffet to argue for a "Fair" Tax.  

He's been an outspoken advocate (http://www.timesonline.co.uk/tol/money/tax/article1996735.ece) for resetting the capital gains rate.


This isn't a guy who wants everybody to be treated "fairly", this is a guy who understands thoroughly that the rich can AFFORD to pay more.  There's nothing fundamentally (or morally) wrong with a progressive tax.  Yeah, pols have screwed up the capital gains tax, but Buffet's the first to admit that.

Sorry, but you are the one with the logical fallacy. I never assumed a 39% tax rate in this argument, I assumed a flat tax rate. If you earn 19% of the income with a flat tax you should pay 19% of the taxes. Currently the top 1% of wage earners make 19% of the income and are paying 39% of the taxes. I am making no statement of rate what so ever. In a flat tax, no matter the rate, they should pay the same rate as everyone else. All money is taxed at the same rate, therefore whatever their percentage of income vs the whole, they should pay a corresponding percentage of the total taxes. Rate doesn’t come into the argument because we would all pay the same rate.

Anyway you cut it this is a massive change in the burden of the cost of government. You can't maintain a level amount in tax revenue when you cut the taxes on one group by half without raising it somewhere else.

Well if you want to gift $20k to buffett then go ahead!  And when people make money in the United States through an employer or through stock sales unless there is some sort of off shore shill going on you are at least taxed on that income.  What I am talking about are highly rich people who are frugal with their money never having to pay tax on any of it and then just move it out of the country.  At least when it is taxed when earned you at least get a hit at some of it up front.

It has nothing to do with disdain and everything to do with exposing the reality of the situation. More people who do try to make it fail than succeed. Granted, it goes against the mythos of the USA, the only place in the world where you can work hard and get ahead, but that's just how it is. A large part of success is being in the right place at the right time, knowing the right people, or just plain gambling and beating the odds.

It's sad that most people just can't grasp that simple concept.

Hard work is necessary, but you can work your donkey off your entire life and never get anywhere. Not that most people (Buffett excluded) believe that there are other people out there working as hard as them who haven't had the same measure of success. It doesn't fit with the puritanical worldview that everybody gets only what they earned, nothing more, nothing less.

NO. . . Everyone fails.  Most fail miserably, and more than once.    ;D

Success comes after the failures, and sometimes in between.

You want fair, and all I can say is that fair does not exist.  Never did, never will.  Doesn't give you the right to steal from one person because you were unlucky. The advantage we have, is that people in this country who really "try to make it" succeed more often than they fail, it's just that few people really "try to make it".

So basically you're saying that everyone who isn't successful is lazy. Got it.

Perhaps you should stop socializing only with those who have already 'made it.'

Either that, or I should stop socializing with rational people who have 'made it,' and acknowledge that a large part of their success is mere luck and spend more time in the company of those who have made it and refuse to acknowledge that.

Oddly enough, the latter tend to be the ruthless pricks, while the former tend to act like normal people who just happen to have a lot of money.

Note that at no point did I say hard work wasn't a prerequisite (unless you know the right people, of course), only that it is not the only ingredient in success.

Simmer down.  All I'm saying is that too much emphasis is put on luck, and virtually no emphasis is ever given to hard work.  Simple as that.

Few, if any, refuse to acknowledge the role of hard work in amassing a fortune. Many, however, refuse to acknowledge the role of luck in that process.

Similarly, few acknowledge the role of a stable government that provides basic infrastructure in that process.

I think the assumption that super rich people would get anywhere close to the taxes they are paying from a consumption tax is very flawed.  Not every person spends it like the people on MTV cribs.  Especially those that didn't hit the lottery.  If bill gates was 10 years younger I doubt he would be as rich ad he is now.  He might be making 200k a year though.

Who is "stealing"?  As Buffet notes (http://www.washingtonpost.com/wp-dyn/content/article/2007/06/27/AR2007062700097.html), we need to "do a better job in evening out the field for those who had drawn the unlucky tickets in life".  They call it humanity, and there's room for it in our daily lives, and even in our government.

And I think you're absolutely right.

As long as financial success and wealth are exponential, and financial risk is effectively subsidized and socialized under both political parties... progressive taxation is appropriate, especially in time of war.

Those of you that feel a progressive income tax rate is appropriate and desirable, what marginal rates would you propose at what income levels.  Keep it simple for now, no single vs. married, capital gains vs. direct income etc.  A brief thought as to why a particular level, say 50%, is more appropriate than perhaps 40% or 60%.  Just a few percent difference would be insignificant.  Historically, marginal rates have been as high as near 90%.

I could support either a flat rate income tax with a basic deduction for living (Which is actually somewhat of a one step progressive tax for everyone.) or the so called fair tax with prebates for the basic cost of living.  Levels would need to be set to provide the government with the required income.  I don't know exactly where those levels would be.

Personally, I think amounts over, say (this is pretty arbitrary) $5,000,000 should be taxed punitively to encourage people to invest the excess in productive enterprise or donate it to charity to avoid the tax man from getting it. How exactly that would be implemented I leave to the experts. (Perhaps taxing dividends and capital gains more relative to the corporate income tax to encourage longer term investment and leaving profits in a business would be enough)

I also think that given the history of the income tax, the current top end is pretty darn low (as is the level at which you start paying the top rate). Middle income people are taxed far more than they used to be, while high income people are taxed far less than they used to be.

Originally, the income tax didn't even impact a person making an average wage.

I do think that a national sales tax is pretty enticing from the standpoint of reduced paperwork for most people and increased compliance.

I also think that FICA, as it stands, is very regressive.

FICA.. Yeah, people forget that the 39% bracket isn't going to be paying the 12% FICA tax.  Thus making the 25% bracket adding another 12% for 37% tax rate vs a 39% higher tax rate.  I mean overall the difference between somebody making 110k a year and somebody making 500 million a year % wise isn't going to be that much different.  Throw in a couple million a year in dividends at 15% and you might end up lower.

Shall we try to refine the issues?

1)  Do we all agree that the current system sucks?

Ignoring if it is too progressive, to regressive, or otherwise . . .  it is to complicate.  Too many loopholes ,extra taxes, disproportional taxes, and subsidies.

2) TO those that disagree with the "Fair Tax" (I realize the absurdity of using that name while debating the issue):

a) Do you disagree with it if the math holds as proponents argue it will? 

That is to say a 23% tax, with a prebate to make it a progressive tax system and eliminate poverty level taxes and cost neutral net wffect (taxes already built in today).  Which would mean you disagree with the math on the idea, not the concept and therefor don't think it will have the desired effect?

b) or do you disagree with the concept as a whole?  If so, what is a better system or what is wrong with it as outlined?
- - - -
ON to responses!

3) Chicken Little:

I used Buffet because he was the wealthiest man last year and his effective tax rate is well known.  Not to hold Mr. Buffet out as a conservative or even someone who scams the system to save tax money.  He just plays by the rules and that is what the rules allow.  Thus, he works as a good example.

And I'm not stopping him from paying more taxes.  If he thinks he should be taxed more heavily, there is a box on your income tax return to donate money to Uncle Sam. While I agree with his sentiment on it not being fair for ultra rich to be taxed less than Joe Blow, it is a but disingenuous for him to argue that people should be forced to pay more when he refuses to do so voluntarily.    (Not that I would do any different, of course.  Just sayin')

4) Unlucky

Luck has something to do with various levels of success.  But most people that are really successful are so on the merits.  While Buffet had opportunities at education, no one else who had the same or even better opportunities achieved as much as he did. 

Shaq was lucky enough to have genetics that made him a monster.  He then worked hard to develop basketball skills, not get convicted of rape, and otherwise manage his career well.

And for each one of those examples there is someone who has done well from the bottom.  And there is someone who had every opportunity and screwed it up because they were lazy, pompous, greedy, or some other fatal flaw.

And of course, there are plenty of people who start off at the bottom and don't do anything to change it.  There are those that start off near the top and do just enough to stay there.  There always has been, and always will be those situations under any system (look at the full fledged communists.  Where the ruling party is most hereditary, top level military posts, etc.).   All we can do as a nation is maximize the ability for those that start off lower to pull themselves up, which I believe we do a decent job of.

Mandatory education to the 12th grade.  Free community college in most cities.  Federal Student loans for everyone who applies for them.  Grants for lower income people.  Free rides for minorities.  If a student wants to work hard, there is no reason why someone can't go to college.

NOW, I understand it is unlikely that a kid will do so if their parents don't care and their community is telling them being educated is selling out.  But I am unable to come up with an acceptable solution to those problems at the governmental level.  I think that is the root of perpetual poverty in some communities.

5) Nathan:

FICA is only regressive if you don't consider benefits paid out.   No matter how much you pay in to your FICA, benefits are limited.   Joe Blow paying FICA on $35,000 will get the same benefits as Big Daddy paying on $105,000.   So while Big Daddy isn't taxed FICA on the other $1mil he made that year, he still pays significantly more for the same benefit that Joe Blow did. 

If you pay $12,000 more per year to get the same thing as someone else, I can't really call that regressive.  Clearly Big Daddy's money will be used to subsidize the benefits of Joe Blow and several other people.  The point of FICA is to provide a "safety net" not to subsidize the nation.

(ignoring the entire discussion on ss and medical being totally screwed in this country)

6) Red Arrow / Punitive Taxation:

I despise that concept.

It is not my concern how much money someone makes or what they chose to do with it.  The idea that they should be punished for succeeding is truly offensive to me.   I am not raising an argument against progressive taxation, but simply raising taxes as punishment because in someones judgment the person has been too successful. 
 - - - - - - -

Overall I struggle with the concept of progressive taxation.  On one token, taxing people more simply because they are more successful is a punishment for being successful.  Everyone has an equal stake in the government and we each have one vote.  Odds are the person making more money is contributing more or has worked harder to get there (not always the case, of course).

HOWEVER, it is also true that a ultra rich person can truly afford to pay a higher percent of earnings.  A working class family paying 25% in taxes will have to give up fairly basic goods and services to afford that.  An NBA star making $5mil a year might have to give up a second Bentley that year.  And there is an argument that the nation has somehow enabled the rich person to do better and thus they OWE everyone else something (not always the case, of course).

Which is why I think I like the fair tax.  if you live the lifestyle of a wealthier person, you will be taxed more.   If you are frugal, buy second hand items, save or invest, you will actually be subsidized by the government.  It is your choice, not on how successful you are or how much you contribute to the economy - but on how lavish a lifestyle you lead.

Add in the transparency and simplicity of the tax structure, and I'm sold.

I start with the basic concept of how do we pay for what we are spending now (and by that I mean 12 years ago).  Being an almost completely consumer driven economy, making it such a draw to hoard all your money isn't going to get us to near the tax revenue or job creation that we need.  When Buffett goes from paying millions a year in taxes to paying $75,000 a year that is going to make a dent.  Why throw more money into business if you don't have anybody to buy what you are selling.  Convert the jobs over to manufacturing export and get more of our business away from shuffling money around and making a profit on it.  Then maybe we will have a strong enough economy to make this work.  Until then, hoarding money = depression.

I will say that today I pay a lot more than 23% federal tax. I can plainly see where with a flat tax retail sales based plan that people making more money than I do will have their tax rate go way down and everyone agrees that the total amount of tax revenue will have to be at least what it is today so I can plainly see that while a rate of 23% is claimed, it defies logic and math and so 23% will quickly have to become 30% or 40%. I fear that it means that I will be paying far more than I pay today in order to make up the difference from the revenue lost from taxing the wealthy so much less. Plus, you are going to stop taxing corporations, who already don’t pay nearly their share and now that too will be coming out of my pocket. Hell, 40% might be too low a rate to remain revenue neutral.

Worse than that, from an economics standpoint a punitive level of tax on consumption is going to drive down demand and badly hurt the economy.

I understand your argument that 23% of GDP is all we need. But it’s not that simple. A lot of GDP is derived from exported goods. Are we going to tax good sold overseas just like domestically sold goods? Because if so, you have just destroyed our export market. So bumps up that 23% about 2% (about 10% of GDP is related to exported goods)

What about goods sold to government? Government is a huge component of our economy. Do we tax a tank sold to the military? Do we tax medical services provided to soldiers? If so, then taxes are going to have to go up to overcome the difference. If not, then the 23% of our GDP that is related to federal government activity (yes that same 23%) is not taxed and the 23% is now 29% if we are to remain revenue neutral.

What about taxes on local and state government? Do we tax goods and activies related to local and state governments? If we do then local taxes have to increase to be able to pay the taxes, if not, then we remove that component of the GDP from the total and the rate goes up again.

And another biggie, medical care. Private or public, it’s about 10% of GDP and is largely untaxed today. Are we going to tax that? You are either going to drive up the cost of medical care by 23% (or really a lot more than that) or you are going to carve another 10% of GDP out of your taxable amount.

Let’s see. The federal government is about 23% of GDP, local and state government numbers were hard to find, but let’s guess them at half the size of the fed or about 11% of GDP. Medical Care is 10% (and rising) and exports are another 10%. So, suddenly 54% of GDP isn’t taxable. Plus there’s all the GDP that goes into savings. Currently at 5% of GDP, and money invested, are we going to tax that? Probably not, let’s say that’s 5% of GDP too (probably WAY low).

Now you are down to taxing 36% of GDP, not 100%. That 23% just almost needs to triple to remain revenue neutral.

That’s what I’m afraid of.   

Well, this thread has degenerated into the realm of national income tax dogma, instead of about taxing groceries... parting shot:  how many industrialized nations have a flat tax on annual income? 

Sales tax on groceries are considered regressive, yet most people could save about the same amount by clipping coupons... when I lived in Illinois as a starving artist on a Ramen noodle budget, the few dollars of savings on every grocery bill made a difference... I^m sure working moms and fixed income folks would also notice the difference... WIC already specifies specific foods--so the food stamp folks get to buy their junk food in cash... a reduction/elimination of sales taxes on groceries should not be used as a big brother-style manipulation of behavior, most groceries should qualify...

Me too. That was Nathan's response to my questions.

Red Arrow

Groceries should not be taxed.  The money produced by that tax should either be 1) cut from the budget or 2) get it from another tax.

Swake:

So you primary hold up is the math.  Then I suggest you read up on where the math is derived from.    It is not pulled from thin air and your points are repeatedly discussed.  I appreciate the concern, but I believe it is well covered on several levels (including:  you save 36% in taxes, so who cares if the tax rate is 36%?  It would be a wash to you).  But in retort to your comments:

1) I again point out that CORPORATIONS DO NOT PAY ANY TAXES.  Every tax every paid ever from any corporation anytime anywhere in the United States is always recouped from consumers, ALWAYS. I'm not sure how to be more clear.

Thus, if you take away taxes from the corporation you removed that cost from the good.  Taxing it on the back end as a sales tax will not significantly alter the price of the good.   Especially when you consider the billions in savings a company like GE would have in tax compliance.

Cost of goods sold - corporate taxes - tax compliance costs <= Cost of goods sold + sales tax.

I'm not trying to be an donkey, but you keep repeating that line about corporate.  You see unwilling or unable to either recognize or understand the concept that the cost is passed on to consumers.  As if companies just eat tax losses without realizing it.

2) Why would demand fall?

First, there would be minimal effect on net prices.  As mentioned above, most of cost would be made up by shifting the burden from the back end cost of goods sold  (corporate taxes) to sales tax, any remaining difference would be made up by the added money sitting in your pocket from your paycheck.  You would have 36% MORE MONEY in each check (I believe you gave that as an effective tax rate).  So even if the tax rate was 36% you would break even on the deal - and we'd still gain efficiency and simplicity in the system.

Second, the argument that people would just stop spending money when they realize how much money the government is taking from them is nonsensical.  Do people earn less money because taxes go up?  Of course not.  Would people simply stop buying things because of taxes?  No, there is then no point in making money.

They might more seriously consider new purchases.  They might be forced considering recycling or reusing assets or even buying higher quality to make it last instead of throwing it away and buying a new one.  But to me, that sounds like a good thing. 

You are assuming that a company who produces something for a cost of $100 a unit with a $30 tax bill will then sell it for $70 when the tax is removed.  I would sell it for $90 and the blame the rest on the government because it has such a high tax rate.  People will be happy to get $4.50 cereal instead of $4.99.

you didn't answer any of my other points about what is and what isn't a potentially taxable component of GDP and how that impacts your predicted tax rate.

Nor did you answer this:
Your plan, according to you will basically eliminate all taxes on the poor, and by my math would at least cut in half the taxes on the wealthy (and that’s if they spend every dime they make, which they won’t) and would end corporate taxes.

So, If:

X=total taxes collected
A=corporate taxes
B=taxes on the wealthy
C=taxes on the poor
D=taxes on the middle class

So today A+B+C+D=X, but you want to prove that (0)A+.5B+(0)C+D still equals the same X, then D is going to grow like a biotch


And if you think that companies are going to pass income tax savings on to consumers you are very, very naive. They are going to collect it as profits which will largely go back to shareholders, who are again, mostly the rich.

1. Yes. The current system definitely sucks. A national sales tax isn't bad in theory, presuming that prices at retail are posted inclusive of the sales tax.

4. As I said before, both are a component. There are plenty of people who work hard and don't make it, just as there are people who don't work very hard, but still make it and people who work hard and do make it. A large part of becoming wealthy is being in the right place at the right time. Sometimes that has to do with an individual placing themselves there. Often it has more to do with happening to know the right people in college.

6. So you have a problem with the current tax system's encouragement of certain behavior (charity, homeownership, farming, etc.)? I think we need to do something to encourage productive investment over gambling (long term investment over day trading and watching every little dip in a company's stock price) and rebuilding our own manufacturing base, green technology, and so on. Generally speaking, someone earning millions of dollars a year will be investing most of that money anyway, so what's wrong with encouraging them to do it in a way that benefits society. Given the history, I don't think a 40 or 50% income tax on income levels over a certain amount is a terrible thing.

Not being an expert, I can't say that that's the best way to achieve that goal, but the impact on folks who are already investing their money productively would be minimal.

And on preview: Swake, stock isn't owned mostly by the rich these days. Most of us have a 401k or an IRA from which we invest retirement funds or participate in a pension plan that owns a bunch of stock. That's not to say the rich aren't the ones that own large enough blocks of stock to actually have some say in how a company is run, though. (and as it stands, most companies are run in an incredibly short sighted way)

Well swake, he basically said that based on other people's work on the subject that included those factors into their % estimation that his figure was accurate.  He did not come up with the concept or the numbers so his ability to argue on what is or what is not considered into the % would take up too much time for somebody who isn't getting paid for it to be worth it.  I personally do not believe that any number of financial models can accurately predict the % needed to keep the U.S. Government operating at only a trillion dollar deficit.  What will end up happening is the great Oh **** moment when you realize that things are quite working out the way you thought (see most investment accounts).  

Sorry, but that’s just simply not true. The top 10% of wage earners in the United States control 70% of the wealth.

What’s more, for most people their net worth is tied up in a house. 69% of Americans (by and large the wealthiest 69%) own their own homes. And for half of that 69% half or more of their total net wealth is their house. And a lot of that net worth outside a person’s home is either in small business or in a 401k, IRA or mutual funds. Stock is owned on your behalf, you don’t vote and you have no control over your ownings other than to sell it.

The rich still control and profit from large business.  I’m not saying there is anything inherently wrong with this, but the idea that the average consumer if they don’t get a price break on a product not being taxed will somehow realize a similar increase in net worth through stock ownership due to that company’s increased profitability is just plan false.

1)  Prices would come down.

If all companies saw a savings of 23% (whatever the number), then at least ONE of those companies would lower their prices to attract more consumers.  That price would be undercut by someone else, and so on.  Until they were at a competitive price again.  

That is how competition works.  That's why most products don't have a large profit margin on them.  To believe this massive savings across the board would be treated any different defies market theory.  It assumes that all actors will act in as a cartel to protect profits - it simply doesn't happen.

If existing companies thought they could just add 23% to their profit margins and sit on it, new companies would start up and sell their product for 23% less.  Forcing the cartel to drop their prices.  The argument that companies would refuse to lower their prices pretends that there is zero competition in the marketplace, which isn't true for many products.  It also assumes that demand is inelastic and the company would have no incentive to encourage additional sales by dropping the price, which is also not true.

The only scenario in which your argument is sustained is a product for which there is no competition, no elasticity in demand, and extremely high barriers to entry into the market.  Even the most successful cartel, OPEC, doesn't have that kind of power and deals with a unique commodity.  Certainly you can see how it wouldn't apply to nearly any product on earth.  

2) End user consumer spending is a taxable component of GDP.  

The gross tax base for the FairTax would be about 81% of base GDP.  Which as I mentioned before Fairtax Base * .23 = revenue requirement.   Believe it or not, the equation balances:

For detailed mathematical models, examples, statistical data, and the like see:
http://www.fairtax.org/PDF/TaxingSalesUnderFairTax.pdf
Pages 666-668 are most relevant to your concerns.

I am happy to address arguments.  But it is pointless for me to just repost the detailed math and economic studies that have been done.   The Fairtax group has had these numbers audited by several other nonpartisan groups without flaw.

Honestly, if you have a problem with the math look it over.  Tell me where they went wrong.  I thought the 23% was ridiculous also, until I look over the figures.

Your fears about excess taxation on the poor are well intentioned.  But the intent is misguided.  Please look over and try to understand the math involved before you claim it is too good to be true.  
- - -

TROGDOR:

You are absolutely correct.  I have not repeated the work of the Treasury Department nor the Federal Reserve in calculating the GDP or expenditures.  Nor do I see value in that.  I am happy to rely on other peoples work.

Nor did I draft a 700 page document going over in detail all the change in tax code would entail.  Nor did I pay auditors to go over the numbers in that document to ensure they are correct.  I am happy to rely on other peoples work.

I have also never viewed human cells.  Never seen a virus.  I have not been to the moon.  I have never seen a U.S. soldier die in Iraq.  I rely on other people and to show me those things are real.  I am happy to rely on other peoples work o prove that after reviewing it with skeptical eye.

The GDP numbers for the nation are pretty sound.  We know how much money is spent by consumers, by governments, and in general what that money was spent on.  We know how much each portion of the economy makes and spends.  We know what revenue the Federal Government makes.

So while I agree that there would have to be a transition period to fine tune it and allow the economy to adapt, the number is more than likely very close.  Unless you believe that the Reserve GDP, the BLS, treasure and every other statistic is off base. In which case the current projects for revenue and collections are also worthless so we would be no worse off.


BETTER YET:

The best part would be, if we had a $1,000,000,000,000 deficit one year, we could EASILY up the revenue the next year by going to 24%.  You want a war in Iraq?  Fine, but it will cost an additional .5% per year.  You want a stimulus package in 2009?  Ok, but from 2015 to 2020 we wil have to add .75% to the revenue stream to make up for it.

Dear god.  We would be able to have a tax system that is transparent, simple, efficient, and readily adjustable.  Allowing our government to plan for the future?  
 - - - - - - -


As always, I welcome your questions.  I really think people that are against the system just don't understand it.  It seems too good to be true.  If something is pointed out that shows me that, I'd turn on it in a second.  So while I see things that are not 100% with it, I see nothing that indicates the current system is better.


(ancillary replay after I started posted:

Joe Blow will does see an increase in net worth when corporations see an increase.  Just like they lose money when corporations lose money.  They do not have the control or the stake that the super rich have - they do not gain as much or lose as much.  But with 401Ks, IRAs, pensions, health savings accounts, and real estate markets all tied to company success or failure - I would argue the notion that we all benefit is overly simplistic (in that the rich gain/loss more) but not patently false.)

What CF said. Most folks, aside from the truly poor, have at least some stock market investments. They don't have the stake that the rich have, but they have some investment in stocks.

Wealth is held in all kinds of ways, much of which has nothing to do with the stock market, so saying the top 10% control 70% of the wealth isn't very illuminating in this instance. The wealthy also often have large checking accounts, bigger and/or more houses, more expensive autos, boats, airplanes, small businesses, and so on.

The Annenberg Foundation looked into this and found that tax payers making between 40k and 200k would end up paying more and that the 23% is a sham.

http://www.factcheck.org/taxes/unspinning_the_fairtax.html

http://money.cnn.com/2005/09/06/pf/taxes/consumptiontax_0510/

Diggen deep.

This thread is getting sad now.

Economists v.s. Journalists

Do continue...