Stop the Consumption Tax Myth!

[mcerise]

Cutting income tax and raising consumption tax would make our tax system more regressive not progressive. By taxing consumption more, the government would thereby encourage savings. But think about this- rich people generally save more while poor people spend most of their income on stuff just to live comfortably. So please understand that if we advocate this tax system, then we're advocating subsidizing the rich on things they might do anyways while additionally taxing people who need money the most.

Edit: to clarify

[aquart]

1. Saving would NOT be encouraged.

The rich have huge amounts of surplus, they don't need to "save"anything. The middle and lower classes would have to spend everything to maintain standard of living. Thus, no possibility of saving.

What would happen, is that spending would be DISCOURAGED (even though saving would still not be possible) and our remaining industries would be destroyed.

What a brilliant idea all around.

[mcerise]

6. Of course it'd be encouraged (only for the rich though)

Rich people do everything they can do evade taxes. They're also the ones with the most elastic demand (or more freedom to do whatever they want with the money). So if saving cost you nothing and buying stuff cost you a % of your income, then won't you rather put your money in the bank to accrue interest so that you'd have more money to spend in the future?

Since rich people do most of the savings anyways, having them save more would increase saving in general in the economy. I'm just saying that such a plan would hurt the lower/middle class the most since as you said they have to spend almost everything to maintain a standard of living, and we should be aware of it.

[gottalickbush]

32. Hmmmm

I have to respectfully disagree with you. Everyone gets breaks on taxes. Low/middle income get breaks such as EIC, Child tax credit, along with the other breaks for home ownership, contributions to charities, etc. Theoretically setting the scenario of being able to get back more than they pay in. To say that the rich get all the breaks is a statement that I can't agree with. As far as loopholes, let me know where they are, lol, cause I haven't found them yet. LOL

[tx_dem41]

33. Yet the poor pay full social security....

why the rich don't pay a cent after about 90,000 dollars. That is hugely regressive.

[gottalickbush]

36. You're right

The whole system needs to be overhauled. Why do I have to pay the AMT? We need to have serious talks about how to make it fair for everyone. Not just tax the rich more. To me it seems that everyone just wants to throw it on the rich just because they're rich. They haven't come up with a legitiamte reason other than they can afford it. To me thats not right. But we need a system that is fair for everyone, regardless of income.

[MacCovern]

86. needs an overhaul, but not regressive

Social Security is more like a mandated insurance policy than
a regular tax.

Payments that can be received by S.S. are capped at a certain
limit. That is why there is a maximum earning level of the
$90,000 that you mentioned.

Even people that have contributed very little to S.S. receive
a minimum at retirement that could be way out of line with what
they contributed. How is that regressive?

The big winners in Social Security are white women who live to
a ripe old age. Since they have such long life expectancies,
the average white woman will get a far better return than white
or black men. See, as a guy, I'm the one being cheated in the
Social Security system.

[tx_dem41]

87. Please read what Mankiw and Greenspan are talking about....

SS is a tax with no guaranteed payout. That has been made very clear now.

[MacCovern]

88. It's not a whole life policy

Yes, it is a tax, but just as with just about any life insurance
policy, unless you buy whole life, there will not be a payout.
For me, I just associate it as a mandated insurance policy.

Unfortunately, I received survivor benefits from S.S. after my
father died before I turned 18, and S.S. offers disability
benefits also. There's more to it than just retirement benefits,
but it certainly needs to be overhauled.

One thing I would be in favor of would be increasing the maximum
income level from $90,000 to something more like $150,000 or more.
This would generate more money for the system, and the higher income
earners would never miss the extra percentage of money they are
putting in.

[tx_dem41]

90. Under present execution, it is solvent until 2042

Don't we have bigger fish to fry?

[serryjw]

108. That is a JOKE...isn't it?

no way is this true.

[tx_dem41]

109. Not a joke at all. Recent government actuarial studies show this

to be true. Its even cited in this article from yesterday.

http://www.truthout.org/docs_04/120404L.shtml

[serryjw]

110. That article is the biggest Republican BUSHIT I have ever read!

By 2042 ALL boomers will be dead........So we gaven them all SS with out any problem while taking a portion of the next generations SS and invested it in the stock market, paid for 2 wars, a spiriling deficit which Bushit plans to cut by 50% in 10 years....WHAT KOOLAID ARE YOU DRINKING? I want some.

[chicagiana]

35. Go read "Perfectly Legal" ...

Go read "Perfectly Legal" by David Kay Johnston. He explains the numerous loopholes in great detail.

[gottalickbush]

38. Ok

But like I said before, we need to have serious talks about overhauling the tax system. Not just tax the rich because they're rich and can afford it. To me, thats just penalizing people who worked to get where they are.

[chicagiana]

48. They're rich ...

Of course the rich can fucking afford it!!!!

The fact is they're NOT paying their fair share right now. Like I said, go read the book and you'll find out whats REALLY going on.

[gottalickbush]

51. I said I would

But respectfully, in that case why not make it so that you can't get back more than you pay in, also? I'm not rich, and I know that they can afford it, but is that the only excuse? Because they're rich? Contrary to popular belief, most people that are considered rich did work to get there. Granted you do have a select few who managed to get "daddy's money", but in my experiences most people that are considered rich earned their money. Please read "The Millionare Next Door". Its a good book.

[gottalickbush]

52. Thank you

Thank you for the discussion. I need to run out for a little while. I'll get the book and do more research. DU is great for discussion.

[tx_dem41]

54. Quite frankly, the economy depends on the poor spending money

When they and the lower middle class do not, we have a depression. They make up over 50% of the population. That is why we have things like EIC. Harsh but true.

[Ando]

59. agreed

I agree. A proper definition of "equal" and "fair" would be appropriate to this discussion. The two terms get thrown around a lot and I at least know they don't mean the same thing. My question is this: How is a flat tax "regressive"? If everyone pays the same percentage of income in taxes, is that not "equal" taxation? The next question is this: Is that "fair" taxation? Also, why does wealth require punishment? People talk as if being rich was the key to happiness and great quality of life. That's a crock, rich people are more depraved, depressed, and generally less happy than most of the "poor" people I know (that's my opinion based on observation and nothing else). Why do we think rich people have this great advantage over everyone else? And yes, I'm a fiscal conservative, meaning I save as much as possible and don't spend a bunch of money on stuff I don't need. That attitude may eventually turn me into a "rich" person, requiring that I be treated differently because of my wealth. I see a lot of "poor" people walking around in clothes and shoes that they certainly shouldn't have bought, but many poeple want me to think that these people have an oppressive tax burden and have no opportunity to save or invest money. I'm just tired of ignoring personal responsibility in relation to financial matters. Everyone can afford to save, the same way everyone can choose to not have more children, buy expensive shoes, eat at expensive restaurants, etc. Sorry for the rant, it's just hard being a fiscal conservative in the current climate of the Democratic Party.

[tx_dem41]

62. When one takes into consideration the incredibly regressive SS

and sales taxes, the overall tax system is much flatter. You do take those into account as well don't you? A true flat income tax would establish quite a regressive overall tax structure.

And your statement, "Everyone can afford to save" shows that you might be a little out of touch. What percentage of people make at or slightly above minimum wage. That's about 10-15K dollars a year. Could you save money on that little, and provide for a home, food and medical care for 2 kids?


Now, enough of my bleeding heart. Who says a tax system has to be "fair" and "equal". I want my tax system to adequately fund the government and support a good economy. Raising taxes on at least 70% of the population (via a flat tax) would send this economy crashing. What is your definition of fiscal conservatism. If its keeping taxes low, you might not be one.

[Ando]

64. understood

Your points are well made. I was a being a bit simplistic in my analysis, that's true. As for "fair" and "equal", my contention is that these are not the same thing. "Equal" means "the same", in terms of taxation it's a mathematical concept. "Fair" involves a moral judgment as to the justice of a given system. Thus, the so-called "Fair Tax" is not an equal tax, but a system judged by its authors to be just, or "fair". I don't completely agree, I think many wealthy people would not pay enough tax under the fair tax. That's not a value judgement, it's a numbers thing. However, the Fair Tax proposal is probably the best thing that could happen to your family of four living at the poverty level. One, all payroll taxes are abolished, no S.S. or medicare taken out of your paycheck. Two, you get a rebate on the amount of tax that would be payed on essentials based on the poverty levels for your location. Three, the price of goods remains largely unchanged due to embedded taxes. How is this a bad scenario for a family at the poverty level? They are paying NO taxes whatsoever. If they paid anything in taxes, that would require them to be making more than the poverty level. Again, I dislike the Fair Tax at the higher end of the spectrum, but it's certainly a big help to those at or below poverty level (actually, if you're below the poverty level, the government is giving you extra money as a rebate). I'm all for helping out people in need, but what should be seen as a blessing is quickly becoming a crutch. That's my basic disagreement with current Democratic fiscal policy. We need elections about ideas, not who has the biggest Goody-Bag for me.

[tx_dem41]

65. Link to your specific Fair Tax proposal? n/t

[Ando]

71. Link

I was referring to the www.fairtax.org proposal. There may be others, but that's the only one I'm familiar with.

[tx_dem41]

72. Thanks...now one more favor....

where is the actual plan on the site??? I would hope to be able to link to it from the home page.

[Ando]

73. Sorry

Sorry, I guess there isn't a link to the legislation on that page, it contains commentary on the proposal but not the proposal itself. That's pretty stupid. The actual proposal is H.R. 25, I believe it's called the Fair Tax Act of 2003. Just put that in Google and I'm sure you'll find it.

[tx_dem41]

74. Thanks Ando!

I will get back to you on my thoughts.

[mcerise]

78. The problem is this:

We have all these programs that we want in this country such as national defense, social security, Medicaid/Medicare, etc. All of these cost $$$ to run. So how are we going to get that money is the fundamental question. I really don't care how people got rich because it doesn't make sense to treat people who worked for their money and people who inherited their money differently doesn't make much practical sense. The point is, we have to tax something and the rich are the ones who could afford it. It may sound unfair, but we're not on the other side of the laffer curve yet :)

[SharonAnn]

58. No, we need to prosecute those who evade taxation

and close stupid "loopholes" like companies being able to have their headquarters off-shore and avoid paying taxes but operate in the US and get huge government contracts.

[Telly Savalas]

80. Thanks for the book recommendation!

:)

[mcerise]

77. What you say is true

I'm not denying that the richest people in this country pay most of the taxes, and there are a lot more subsidies for the poor some of which include EITC (Earned Income Tax Credit) and Medicaid. So what we have right now is a pretty progressive tax system. By progressive, I mean tax/income goes up the more income you make. My point was that if we switch to consumption taxation system and reducing the income tax, our system now would become more regressive.

Also, all the breaks you talked about except for EIC (is that the same as the EITC?) both poor and rich people get, and most likely rich people take advantage of these breaks more. So they (except EITC) don't make our system anymore progressive.

As for the loopholes, some examples are:

- Taking advantage of the lower capital gains tax, so you can pay yourself with stock instead of income.
- Setting up a trusts to avoid paying the estate tax.
- Saving your money in IRA's to accrue interest

[tx_dem41]

82. EIC == EITC

Do you really believe that there are more subsidies available for the poor? Isn't one man's subsidy another man's loophole? Isn't that just semantics?

If it is just semantics, the lower capital gains tax (isn't it 20% vs 35% in the highest tax bracket), can pretty quickly outweigh even the max that the EIC provides (which is $4300 for a family of four making about $15K).

[mcerise]

92. I'm not sure I understand you

The reason we have these subsidies for the poor is because the government feels that we need to transfer money from the rich to the poor. This may give people more incentive to be poor, and that's why we have all these debates on welfare and national health care. So I guess it could be considered a loophole but maybe it's a loophole we want available like the "loophole" of subsidizing charity giving.

I'm not sure what you mean by "outweigh even the max that the EIC provides".

[tx_dem41]

94. You're right, I wasn't that clear

What I am saying is that there is no difference between a subsidy and a loophole. The loopholes that you cited in your post, "cost" the Government a lot more money than the EIC. There are many people saving a lot more than 4300 dollars due to the capital gains tax reduction. No one is "saving" more than 4300 dollars from the EIC.

[mcerise]

95. Right

So do you think that we should increase capital gains tax to offset the money lost through the loopholes?

[tx_dem41]

96. Loopholes have a purpose..sometimes.

They can be used to target areas of the economy. Home ownership deduction is a prime example of that. IMO, the EIC has a prime purpose too, and it is not charity. Its to put money in the hands of the poor (sadly a significant percentage of the population) so that they will spend that money in the local economy. My guess is that if you got rid of the EIC, many local businesses that cater to lower income families would go out of business.

As to your question, I would increase the capital gains tax back to where it was pre-Bush.

[RaleighNCDUer]

103. True -- cancelling the EIC would hurt WalMart almost as much

as it would hurt the families that receive it.

[Quill Pen]

105. Yabbut...

As a childfree person, I'd agree with you. Certainly the child-related tax breaks are discriminatory. I wish parents would literally put their money where their mouths are, and use that money to fund education.

But the real-world experience of low-income families that receive EIC and child tax breaks is much worse than you allow for. They're not "lucky duckies" getting all these breaks, and when they buy taxable necessities i.e. clothes, car tires, soap, etc. they pay a much higher percentage of their disposable incomes in sales/VAT taxes than middle or upper class families do.

Low-income families do not own homes, generally speaking. They also have added expenses that middle-class families don't. When's the last time you had to bring a $10 roll of quarters with you to do your laundry, for example? And since super-saver, bulk-buying "big box" stores are not located convenient to urban low-income neighborhoods, they do not buy taxable necessities as cheaply as middle-class families do, to begin with. Let's not even get started with the extra costs the impoverished pay for lacking health insurance, or for simply being poorly connected in general. (Who gets to fly for free? People with frequent flyer miles. How do they get them? By flying a lot. If you fly a lot, generally speaking, you could probably afford to pay for your own plane tickets. But you get cut-rate perks anyway. An example of being "well-connected," if you'll allow.)

Ask yourself, the next time you see a poor person at the grocery store using food stamps or WIC, or the next time you hear of a poor acquaintance who has received a whopping tax refund, if you'd want to be in their shoes, despite their apparent windfalls of entitlements. I bet 99% of the time, the answer is "hell no."

[LSdemocrat]

2. It's also a massive tax hike on the poor

Many of the poorest Americans don't pay income taxes now because they don't earn enough income. If a consumption tax came into place that would all change. The poor would face 25-30% increases in the cost of living from the implementation of a consumption tax.

[mulethree]

3. not neccessarily

If you don't tax food, rent, mortgage, school, child care, mass transit.
If a poor person spends 66% on these basics, and the tax is 30%, then
he is paying .3*.33 = 10%. Subtract some if he managed to not spend some of the 33% (save).

Not too bad - IF you simultaneously eliminated payroll taxes, the nearly 8% he's paying on FICA.
The 8% his boss pays ? a raise? another employee? of course the bosses pocket is a more likely destination.

There was a tax policy roundtable on - cspan I think - the other day.

The best plan I saw worked like that. No payroll tax, general VAT tax excluding essentials like I mentioned, and an income tax at incomes over some threshold like $100K.

I'm not too clear on the workings of the VAT tax in regards to imports though. If it's all US made then you tax the ore, the steel, the motor made from it, the fan that uses the motor and then the sale of the fan. If you import that fan are you only paying tax twice instead of 5 times?

[mcerise]

4. payroll is another story

if we reduce payroll and increase the tax base from about $87,00 to something higher, then we'd be able to have something revenue neutral. reducing the payroll tax would probably be a good idea.

however, being able to deduct all these things (mortgage, school, etc) would create tax wedges as well as more inefficiency due to the added complexity to the tax system. I'm not sure what you mean by VAT... if we keep income tax for people over $100,000 per year, are we going to eliminate the loopholes in the system that rich people use to evade tax? The way I see this system, you have loopholes below and above due to many tax wedges generated in more places. this plan could really backfire if we want to generate enough revenue to continue funding programs we want.

[mulethree]

21. I'm not sure what you mean tax wedge

In europe the tax wedge is the payroll taxes. Did you mean something else? There are no payroll taxes in this.

As for efficiency, businesses collect and pay the tax. With a VAT tax they are paying and accounting the tax all along the production chain instead of just at the final sale. So basically you pay it like a sales tax, businesses have an extra expense to track for taxes and you eliminate most of the IRS and eliminate all IRS forms for most people.

As for loopholes - hell I'd get rid of nearly all of them. If it's being used just to avoid taxes and not serving a social purpose then trash it. In my simple model below, real incentives are not shown, they are the difference between a "list price" income tax rate and the effective tax rate - whats shown is the effective rate.

[mcerise]

79. tax wedges

Tax wedge means taxing two similar things differently, which creates distortion in behavior aka. Dead Weight Loss (DWL) in econ101.

For example, buying a home and renting a home should cost you the same. Eg. rent you pay=monthly down payment. However, you get an incentive to buying a house because of the tax deductible interest.

[chicagiana]

37. Added complexities ?????

How do you propose we could possibly make it ANY MORE complicated????

The fact is that tax breaks are like retail rebates. They're a pain in the ass, but if you want your money, you do it.

BTW, I think we should have MULTIPLE tax brackets above the $250,000 some odd top bracket we have now. More added complexity you say??? You're kidding. You don't think a $70/hr tax attorney can use a fucking tax bracket chart????

[mulethree]

55. try this

Look at where income comes from for people up at $250K+.
The higher you go, the more comes from capital gains, dividends and interest.

They give special rates to gains and dividends like 21% instead of the regular-income rate. (38%? or was that before the bush cut?)

If you took off the special rates, then the $250+ crowd would pay >30% more taxes than they do now. Without changing the income portion of the tax bracket.

[LSdemocrat]

7. One minor quibble: many poor people don't have access to mass transit

Outside of the Northeast, many cities (not to mention poorer rural and suburban areas) don't have access to mass transit systems.

[gaia_gardener]

81. Or if they do, they aren't workable for having a job

I looked into taking mass transit to get to work. I would have to walk about 1.5 miles on either end (in heels?) on streets with no sidewalks and it would take 1 hour to get there. The earliest the bus ran was 7am, so I'd get to the drop off (1.5 miles from the office) at 8am - when I'm supposed to be at work.

I also was required to changed buses and walk several blocks for that change (or run really, since the drop off and pick up times were within minutes).

My office is almost exactly 10 miles from my home. I can drive there in 20 minutes in rush hour traffic.

I've spoken with other people that use mass transit and they said their work day is generally 8 hours from the time they leave their home until the get to work. They work about 6 hours/day (parttime). They said the only reason it works for them is that they don't have to be at work until 10am and they specifically looked for jobs on the busline. They generally make minimum wage because while they have the skills to get a better job, they can't make the bus system work with a "real job" work schedule. A car would dramatically change their lives. If I had the money I would give them $5k to buy and maintain a car for a year. After that first year, they would be easily making $10-20k more than they are currently making.

[mulethree]

104. In NYC commuter ladies where sneakers on the street

and have a pile of shoes under their desks.

But yeah I live in suburbia now and have to deal with the no-sidewalks crud; the drivers aren't real friendly to bicycles either :( And of course the industrial and commercial areas are intentionally segregated from residences.

[AP]

8. So many people go in debt year over year. Even if you exclude those things

you'd still be increasing their costs above what they make. Even if you're just adding 17% to only 50% of their expenses, that's still 17% that goes on the credit card and which you finance at 17.5-21.99%.

And you're almost definitely not going to raise enough money by cutting FICA, getting rid of income tax and then taxing only 33% of the things the middle class buys without destroying the economy.

I'm not sure if this answers your question about VAT, but few state tax anything other than the retail sale of a good. Business-to-business sales aren't taxed.

[mulethree]

22. The idea is

That the necessities are exempt, so the poor would be buying/paying
bills of which 66% exempt/33% non exempt, but the middle class would be buying more non-exempt things - say 40% exempt/60% non exempt.

The more you're spending 'disposable' income, the more your tax rate rises.

Right, the VAT includes business-business sales with taxes-paid being deductable from taxes collected. Buy wholesale for $100 and you pay $112 which includes $12 taxes, then sell it retail for $150 and collect $168 which is $18 taxes - the business ends up sending in the difference which is $6 in taxes.

[American Tragedy]

12. There is no way you could generate enough revenue if you did that

[mulethree]

20. Sure you could

Gnp                 10000  (Billions)
VAT Tax Base          50%            
VAT rate              12%                 
VAT Revenue           600        600

Personal Income      2500             
PI tax                24%               
PI Revenue            600        600

Corporate Income     4000              
CI rate               24%
CI Revenue            960        960

Other Tax and Income          
Excise                 75
Estate                 24
Customs                22
Misc                   36
Other subtotal        157        157
                         
Total                           2317

Which is just about, a balanced budget!

VAT base is the precentage of goods/services which are taxable
under VAT. 
Personal Income is the taxable income of people with incomes
over $100K - minus a $100K exemption. 

Now you have to tweak the VAT tax base to match your social
objectives.  Then tweak your effective tax rates.  Its been
suggested that VAT + state sales tax should end up in the
arena of european VAT tax rates - 15-22%, so set the VAT rate
to, say 12% and the effective personal income rate and
corporate rates to 24% or so. 

Effective meaning - after incentives.  If you give lots of
corporate breaks then you may end up with a "list
price" corporate tax rate of, say, 30% to yield the
effective 20% rate. 

Only 2 problems : 

Lower incomes, those who pay only the VAT tax - all incentives
need to be translated into the VAT Tax Base, or else they end
up needing to file a tax return to get a refund.  If you can
keep it defined in terms of taxable/non-taxable then 90% of
americans have no tax paperwork = 80% of IRS goes away. 

Second problem is HUGE, but really beside the point -
Medicare.  In 30 years it will be as big as Social security
and the military combined.  It needs fixing more than social
security does.  

[tx_dem41]

18. Wow...the world is wonderful where you live....

You need to check your numbers. They don't come close to being revenue neutral. If you exempt all of what you propose, I imagine that tax rate will be close to 75-100%.

[mulethree]

23. Wouldn't want revenue neutral

We've got deficits, revenue-neutral doesn't pay down debts or eliminate deficits.

Borrowing costs are going to go pretty darn high soon, we'd better be in position to redeem bonds without issuing new replacements.

[tx_dem41]

25. Then I amend my last post.....

If you want to eliminate the deficit, the rates would be well over 100%. Unbelievably regressive, and I'm sure since it well massively raise taxes on at least the poorer 50% of Americans, it will send the economy spiraling down.

I don't buy it.

[ProfessorGAC]

41. Seems Simple On Paper, Huh?

VAT's all over Europe have always turned out to be regressive. While the plan may be attractive to you, (i saw that roundtable too), the presentation tried to cover it as revenue neutral. However, it's only revenue neutral if the people who make under $60k per year pay EXACTLY the same as what they pay now. That means that 70% of the working population gets no break.

Wonder where the break goes? It's to those who spend less than 10% of total income on living expenses. If you make $100k, can you live on $833.33 per month? Didn't think so.

One issue with the presentations like the one you saw is that they are based upon archaic economic theory that SHOULD work. But, all one need do is look at the actual data from countries that have done it to see that it DOESN'T work the way the theory suggests. Ergo, the theory is provably false.

A proposal based upon a provably false theory is rejectable, out of hand.

Also, the notion of a revenue neutral tax proposal when the gov't is running $450 billion deficits is laughably simpleminded.

So, on its face, this plan may look good, but it's a solution in search of a problem that won't actually work the way it's proposed.

Last point: Look at the crowd that was on that roundtable. Cato, Rand, Fairtax, and one of Grover Norquist's minions. Not exactly a "fair & balanced" set of proposals.
The Professor

[mulethree]

50. Yeah sure does

See post#20

It's too easy. Any ideas why that little model looks easy?
Maybe its from simplifying the VAT tax base as 50% of GNP? Or perhaps 24% effective income tax rates are much higher than the rates actually paid on corporate and income taxes?

Thanks

[ProfessorGAC]

57. Thus, The False Dichotomy

The tax base is more like 20% of GDP, not 50%. Most of the hyperventilating tax reformers are convinced that anytime the tax base exceeds 20% of GDP, it's bad. No explanation of why, just BAD!

Problem is, in the growth of the 60's, 80's, (despite what Reagan's mouthpieces say), and the 90's the total federal tax base exceeded 20%. So, three periods of massive growth, low unemployment, rising wages and moderate to almost non-existent inflation occurred when gov't revenues were higher than 20%.

So, once again, the data doesn't support the theory. In fact, it refutes it. Once again, the theory is provably false.

The reason it looks good on paper is that they run a smoothed out average of overall consumption and make assumptions about that continued behavior when prices jump 20% or more. While it's true that people will have that income tax deducted at payroll back in their pocket, the assumption that sticker shock will not alter consumer behavior is laughably naive. If suddenly, the VCR i can buy at Target goes from $80 to $100, the $20 may cause me to think twice.

Any assumption that the change in price will be consumer neutral is simple minded. If one operates on simple minded theories and simple minded assumptions, the net result will be a simple looking proposal. It will be wrong, but will look simple.
The Professor

[AP]

5. And if, like almost half of Americans, you spend more than you make,

you'd be paying taxes on money you never see, and then paying interesting on your tax bill, which would just keep accumulating.

Crazy!

[OneTwentyoNine]

28. Figure in the retired also,Bush never discusses that angle...

My dad receives about 16K per year off of pension and SS. He files taxes but most years never pays anything. Well,he needs to buy the same necessity's that Limbaugh needs just to live and would get slapped with a 23% sales tax on those items. Combined with our current State sales tax it would be almost 30% here in Kansas.

Yeah,thats the ticket...shift the tax burden to 81 year olds like my dad so Pillboy no longer has to pay taxes on his $24 MILLION per year income.

[gottalickbush]

30. From what I've read

It wouldn't be 2 taxes. It would be just 1. It wouldn't matter how much you made. The other part is that you would get a check from the government estimating how much you spend on necessities. E.G.- its progressive, if you make more, you don't get as much back. If you make less, you'll get more back. As far as saving, I've saved ever since I started working. It's not impossible. The current tax system does need to be overhauled though.

[durablend]

34. Government isn't going to give you anything back...

It's crazy to even think they would...any rebate you'd get from the government would almost certainly be set arbitrarily low (if not obscenely ridiculous)...much more than a loaf of bread and a can of soup would be considered luxuries.

[gottalickbush]

42. really?

Is that a fact or just theory? I don't trust this government anymore than anyone else, but, if they are wanting to push a tax overhaul, then they would have to make it appealing to people. They can't set it too low or it'll get shot down-- cost of living, etc. Bottom line is the whole system needs to be redone.

[Liberaltarian]

45. why?

you say that the whole system needs to be redone...why?

[gottalickbush]

49. Loopholes

To get rid of loopholes, to make taxes not as cumbersome on the lower/middle classes, but not just tax the rich more just because they are rich. Make the system simpler. Make it so it doesn't take 4 hours or paying someone a few hundred dollars to do your taxes. Right now unless you take classes on the tax codes, its downright confusing to sit and figure it all out. Why not make it simpler?

[tx_dem41]

53. I have saved too.

And those savings are after-tax money (i.e. this money is already been taxed). And now, you want to go to a consumption tax that will again tax this money when I spend it in my later years. Thanks a lot.
:(

[gottalickbush]

76. Actually

I could be wrong about this, but, the way I understood the tax system was you taxed twice on the money anyway. I.E state, fed taxes. When you buy the goods now, its taxed at the state and fed level. Look at the receipt. Under the fair tax, you wouldn't have any taxes taken out. If you make 1000/week, you take home 1000/week. There wouldn't be any "after tax" money. Like I said I could be wrong.

[tx_dem41]

85. What is the proposed Fair Tax rate? n/t

[chicagiana]

40. "Fell off the truck" economy ...

Such a taxation system would simply create a black market to avoid the taxation.

With high punitive cigarrette taxes in some areas, we're seeing black markets that circumvent high local taxes by trucking goods in over state lines.

[tritsofme]

9. Not to mention the double taxation of current savings

If you have saved money your whole life out of your income, and paid your income tax on that money and saved what's left over, if this plan is now implimented, wouldn't you be taxed again when you purchase goods and services?

[AP]

10. Money gets taxed a little eveywhere it changes hands.

And that's not a real problem.

"Double taxation" is a little bit of a red herring. Consumption tax isnt' a problem because it's a "double tax." It's a problem because it would end up effectively taxing rich people much less than a progressive income tax, and poor people much more than a progressive income tax.

It shifts the tax burden down to people who spend most of what they make and off of people who save most of what they make, ie, off the rich and on to the middle class.

[tritsofme]

11. What I'm saying

is if you're retiring on your savings, and you already paid some 20% marginal tax rate on that money, it would make your savings worth much less if you now had to pay something like a 30% federal sales tax.

[AP]

14. But the problem isn't being "taxed twice" -- it's being taxed outrageously

the second time when you have low or no income, and someone with a huge income who spends a tiny fraction of is paying an effective tax rate (as a % of income) that is much much smaller than your effective rate.

It's the relative burdens and the shifting of tax off the wealthy and on to the poor that is crazy.

[chicagiana]

43. If we only taxed money ONCE ...

If we only taxed money ONCE, we could only tax EVERY unit of value ONCE during a fiscal year. Ergo, the treasury would be 100% broke!!!

Tax policy is like a giant web thats designed to catch all the tax cheats. When a section of the web breaks, the bugs start flying there.

Without, tax tax tax tax tax tax tax (as Arnold would say), most people could simply sidestep taxes altogether (as opposed to just the rich). So it's advantageous to have MULTIPLE small taxes at most points in the economy so that no one strategic move could effectively evade taxes.

[American Tragedy]

13. I don't see why people seem to struggle with the progressive tax system.

Libertarians especially, and even some people on DU, don't seem to understand that taxes are not something that the government made up in order to just punitively take everybody's money and "punish people for working". A staggering amount of money is needed in order to run, sustain, and defend our country, particularly if you have a massive military-industrial complex and engage in costly foreign interventionist experiments abroad. You actually have to pay for that stuff. So, from whom is this money most equitably extracted?

In my case, I have more, because my family has profited more successfully from the benefits endowed by this country. I have been exceptionally fortunate. Therefore more of the money that the federal government needs should be drawn from my annual income, so that some poor person doesn't have to sacrifice everything, and can continue to participate as a consumer. Believe it or not, the economy does not benefit when everyone is encouraged to buy less.

If I may invoke the usual trite adjectives employed by flat-tax advocates, I think that is both simple and fair.

[eyepaddle]

100. And if I could add a litle to that

These folks (Taxpayers League, etc.,) talk about taxes as if once they are collected the money just disappears down a hole and is never seen again. A very large amount of that gets spent into the private sector. Their friends over at Halliburton (famously) don't seem to have any moral qualms about accepting the cash.

My (non-defense related) employer does a LOT of business for the government--in my office it's a majority of our revenue--and my friend happens to be a right-wing nut, and our salesman. When the state budget was balanced without raising taxes lo and behold our blessed private enterprise revenue to a whomping hit. I point out the inconsistencies of his position (railing against all taxes and bitterly lamenting his lost bonus) but you can imagine how well it goes.....

[UdoKier]

15. DUH. I'm pretty sure we have 90% agreement AGAINST sales and cconsumption

taxes here.

I favor bringing the top marginal income tax rate back up to 38% personally.

I would be willing to give up some of my earned income credit too, if the budget bloat was brought under control.

[tedzbear]

16. I say we should have a flat tax starting at income of $75,000 a year.

Plus raise the ceiling on the Social Security tax from the current $80,000 up to $1 million so that we will have an even bigger surplus.

There's no reason we can't have this voted in. After all, the majority of voters in this country make less than $75,000 a year. If we supported candidates that would implement this policy, the rich couldn't stop us.

We are the majority. It's time we started acting like it.

[tritsofme]

17. But 55% of voters make over $50k

And a lot of those people in the $50k-$75k area believe that someday they too will make over $75k, as evidenced at least partially for this group's strong support of bush in the election.

That's the problem with these kind of issues, people think they're going way up, but chances are that they will stay right where they are.

[Blue Wally]

19. Raising the ceiling on FICA

Is periodically done. Unfortunately, it gives you only a short term windfall of income because eventually you will have to pay it out in the form of higher benefits. The size of your SS benifit is based on your "average contributions" (with some skewing in favor of low income benificiaries) which is currently capped by the top cap (which has grown from $2,4000 over the years).

[tedzbear]

107. Raise the ceiling but cap the benefits.

There. Now that was an easy solution (that the rich won't like).

[mulethree]

24. Once you raise your social security ceiling too high

Then the richer people don't want to pay it any more. Then Social security gets canned. Or else you end up raising the benefits for people who ar up above the current ceiling. So if it pays $860/mo to someone who pays the $86K ceiling now, you'd pay $10,000/mo to someone who pays the new $1mm ceiling?

If not, then they balk since its not a good investment for them. The rich people pass a little note to their congresscritters with their donation check, and - phfft

[chicagiana]

46. The FICA scam ...

The BIGGEST scam in tax policy right now is all those FICA dollars that are SUPPOSED to go to social security are in fact being used to subsidized other portions of the government.

THIS is what increased revenues during the Reagan administration. The Democrats got conned into raising FICA taxes on their prime demographic (the poor) supposedly to shore up social security. But all that money is being looted for other programs!!!!

If FICA monies were constrained to social security and a "lock box" I would support the FICA cap. But the way FICA works right now, it's just a regressive tax on the poor!!!!

[SharonAnn]

60. Right. That way the rich get services but don't have to pay for them.

They use our Social Security money to pay for those services.

BTW, this is also true of corporations who don't pay their fair share.

[Blue Wally]

66. It was the Democratic reps in Congress

That came up with the idea to roll social security into the overall budget instead of being in a separate "hands off" budget. Even if the socail security excess was being used to buy government bonds, there would still be an accounting trail. Social security and medical care need to be two separate budgets totally separate from the federal budget.

[Blue Wally]

67. True

But that is why social security has held up over the years. It is a benefit for everyone. Once you start "means testing" social security, the consensus for it dissappears.

[chicagiana]

44. Flat tax is a red herring !!!!

The Republicans tried this before. They got flack because it was too regressive to the poor. So they started adding deduction for various income levels. At that point, it devolved back into a progressive tax scheme (albiet a poor one).

[AliciaKeyedUp]

26. I don't get this

How is some sort of VAT tax considered bad when Europe and Canada do the exact same thing? I am not trying to be disrespectful, I really don't get it.

[Bridget Burke]

27. Somehow, I don't trust any *new* tax system proposed by Bush & co.

I don't feel they're proposing it for everybody's best interest. Why?

Just look at everything else they've ever done.

[AliciaKeyedUp]

106. I agree with your skepticism

But much of the liberal world has a similar system.

[JanMichael]

29. They use Value Added Taxes in Europe, PLUS income taxes.

The created them to pay for increased services, or deficit reduction, not just maintaining old services or a reduced safety net/social services.

The rethugs are likely to push for a single VAT of some 23% for everything.

This is a completely different situation.

[mulethree]

47. Congressional math

One proposal - sounds like what you're referring to :
Fair Tax Act of 2001
"the rate of tax is 23 percent of the gross payments for the taxable property or service."

spend $100 add $30 tax = $130 (130 is the gross payment)

23% * 130 = 30 ..... in congressional-math

[mcerise]

93. I was just talking about the consumption tax

The VAT is another story.

It does sound attractive in principle, but in practice the VAT levied in most other developed nations has become the kind of complicated tax system similar to our income tax system. VATs in other nations typically have multiple rates and various complicated exemptions and cost no less to administer. In Britain, the standard VAT rate is 17.5% but is reduced to 5% for home fuel and power. Certain necessities face no VAT. VATs may also have compliance problems that can approach or exceed the income tax gap in the US.

[bleedingheart]

31. Bullcrap...

Countries that have this type of tax system end up having a healthy black market and a thriving barter system.

Think of cigarettes and the taxes on them....the mob makes a killing selling under the counter cigs...

As for the rich...don't you think that they will have "loopholes"...that they won't have special exemptions from this tax?

[Ando]

39. Example?

How would a rich person find a loophole in a consumption tax? Let's give some good examples rather than just toss hypotheticals around. The sad part of post-modern debate is that image is everything. If you can throw enough mud at an idea, people will believe the image without investigating the facts. The fact is that the tax code needs to be streamlined (that's an understatement). Way too many loopholes for the rich (or smart people for that fact, the only way the majority of rich people take advantage of loopholes is to hire SMART people to find loopholes). Let's debate pros and cons and avoid demonizing ideas because Mr. X came up with them.

[Killarney]

56. Um, it happens every day already.

I know people that buy their jewelry under the table at a store that won't charge them the state sales tax because they are frequent customers.

And this is just to avoid a 5% state sales tax. Imagine if the tax were 27%? There would be more fraud, under the table deals, and black markets than anyone could imagine.

[Ando]

75. I see

I understand your point, but I was referring to legal loopholes. Your scenario is not a loophole, it's a crime. I was just saying that the Fair Tax leaves no legal loopholes open. The rest is a law-enforcement issue, not a Tax Code issue.

[RaleighNCDUer]

84. Here's a simple one --

A company gives its execs the use of company luxury cars. The exec doesn't buy it, saving his tax. The company buys it, but it is a business expense and is written off.

The same logic could be expanded into housing, with next to nothing being paid on million dollar houses. You think the cashier at WinnDixie is going to get a free car, free housing?

[Ando]

89. Crooked

That is a good example of an unfortunate situation, but irrelevant to the discussion in terms of tax. Under the fair tax corporate exemptions don't exist, there are no tax "write-offs". The company would pay the tax on the car. While it stinks that the Exec would not be paying the tax, the tax on the car (or house, boat, etc.) would still have to be paid by someone, in this case the company.

[tx_dem41]

91. Fair Tax Rate question

Under the Fair Tax Bill...if I spend a 1.00, how much will I be taxed?

[Ando]

97. Tax Rate

The current proposal is 23%. I need to do some more research, but I've heard that current embedded taxes average around 20%, so you're looking at about a 3% change in consumer prices in the long run.

[RaleighNCDUer]

98. There will be corporate exemptions. Have no doubt about that.

Particularly with * 'in charge', letting the corporations write their own rules.

It makes no difference what your "fair tax" suggestion might be, with the corporations in the mix, there will be corporate exemptions.

You are deluding yourself if you think otherwise.

[Ando]

99. How?

This is how good legislation gets trashed. H.R. 25 was introduced fairly quietly a while back and Bush had to get a quick education about it on the campaign trail in order to TRY and talk with any authority on it (of course he never did so). Bush was never behind the Fair Tax until it became a campaign issue. Go and read the legislation (H.R. 25) and tell me how corporations will get their exemptions. Let's not debate what may get attached to the bill or how each side will try and get certain provisions attached, let's debate what we have now versus what has been proposed. It's way too easy to say "Republicans like it, therefore it must be bad." Actually read the document and then we can discuss pros and cons.

[RaleighNCDUer]

102. Then interpret this for me --

`SEC. 102. INTERMEDIATE AND EXPORT SALES.

`(a) IN GENERAL- For purposes of this subtitle--

`(1) BUSINESS AND EXPORT PURPOSES- No tax shall be imposed under section 101 on any taxable property or service purchased for--

`(A) a business purpose in a trade or business, or

`(B) export from the United States for use or consumption outside the United States, if, the purchaser provided the seller with a registration certificate, and the seller was a wholesale seller.

`(2) INVESTMENT PURPOSE- No tax shall be imposed under section 101 on any taxable property or service purchased for an investment purpose and held exclusively for an investment purpose.

`(3) STATE GOVERNMENT FUNCTIONS- No tax shall be imposed under section 101 on State government functions that do not constitute the final consumption of property or services.

`(b) BUSINESS PURPOSES- For purposes of this section, the term `purchased for a business purpose in a trade or business' means purchased by a person engaged in a trade or business and used in that trade or business--

`(1) for resale,

`(2) to produce, provide, render, or sell taxable property or services, or

`(3) in furtherance of other bona fide business purposes.

`(c) INVESTMENT PURPOSES- For purposes of this section, the term `purchased for an investment purpose' means property purchased exclusively for purposes of appreciation or the production of income but not entailing more than minor personal efforts.

-----------

Sounds to me like the corporations have some major exemptions, just as I suggested above.

[straight shot]

61. tax them when they buy a yacht !

Right now the wealthy avoid taxes by investing in tax free municipal bonds, like Teresa Heinz does. She had 5.5 million in come last year, but paid $750,000 because 3.5 of it was from tax free municipal interest. I say the best way to raise taxes is to tax the wealthy when they buy their mansions and their yachts, not let them avoid taxes on income.

As far as accumulated net worth, a simple phase in/out of income tax over 10/30 years on accumulated wealth that earns income and dividends would even that out. Every consumption tax proposal I have seen covers this issue.

[trotsky]

63. They already buy their yachts offshore to avoid taxes.

You're all upset about THK's taxes? I urge you to take a close look at your buddies Bush and Cheney's tax returns. But then you're not interested in right-wing hypocrisy, are you?

[Blue Wally]

68. Yeah, i did that once

Early this year, i signed on as a temporary deckhand to help a captain friend of mine deliver his owner's 72-ft yacht to the Bahamas. The new owner, the broker, and the banker flew out to meet us. The Bahamanian lawyer met them at the plane and drove them to the marina. After the closing, the lawyer drove the captain, the banker, and myself back to the airport to fly home while the new owner and the broker took the boat back to FL. I asked the lawyer how many of these "closings" he handled and he said about three a month. When you are talking in the multimillions, those 6% FL state sales taxes sure add up.

[Blue Wally]

69. Come down to Florida

Most of the &3 million and up uyachts are registered in the Bahamas, Grand Caymans, Jamaica, or other Carribean place. They avoid sales taxes and registration fees and they can import deckhands and maids from other countries without worrying about immigration. So long as the employees live on the boat while it is in the US, they are exempt from local labor laws and taxes and are only subject to the labor provisions of international maritime law.

[trotsky]

70. Now hold on a minute, Blue Wally!

Are you trying to tell me that rich people DON'T necessarily have the best interests of others at heart? That they will cheat and steal whenever possible, no matter who gets hurt or how?

Gosh, I'm shocked, I tell ya! :eyes:

[rinsd]

83. I don't support the consumption tax for selfish reasons....

It shifts the burden to businesses to collect the taxes which is the government's job.

Sales tax isn't hard to pay persay but it's a pain in the ass to figure out in CA. You have to break your sales down by county and sometimes by city because everyone has a different sales tax rate above the state rate.

It is the governmet's job to collect taxes and further shifting the burden is abdicating its reponsibilties to the people.

[kentuck]

101. It would be the final nail in the coffin for our economy.

This would be the greatest tax break of all time for the wealthy. Imagine if the poor and middle-class had to pay 24% tax on nearly everything they bought. That's like a 24% pay cut for the poor. The wealthy, who would no longer pay income taxes, would pay very little in consumption taxes. Most of their money is invested.

The worst part of the idea is that if the economy were to slow down and people stopped spending, then the government would have less spending just when they need it the most. The revenues would be very unpredictable. A terrible idea.