Grocery Tax

[swake]

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.   

[USRufnex]

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? 

[USRufnex]

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...

[Red Arrow]

6) Red Arrow / Punitive Taxation:

I despise that concept.

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

Red Arrow

[Cats Cats Cats]

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.

[cannon_fodder]

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. 

[Cats Cats Cats]

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.

[swake]

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 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.

[nathanm]

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.

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ON to responses!

4) Unlucky

Luck has something to do with various levels of success.  But most people that are really successful are so on the merits.  5) Nathan:

FICA is only regressive if you don't consider benefits paid out.

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. 

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)

[Cats Cats Cats]

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).  

[swake]

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)

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.

[cannon_fodder]

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.  
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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?  
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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.)

[nathanm]

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

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.

[swake]

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

[swake]

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