At an appearance in Austin radio talker Neal Boortz revealed audacious plans for the Fair Tax movement in the 2008 primary season.
On Tuesday when I'd usually stay home and make dinner for the family, we all found ourselves heading down to a Barnes and Noble bookstore in Austin for a special event. Well, special for me anyway, maybe not so special for the kids. My wife was late meeting us, so I sent our 14-year-old to the kids' section with her 4-year-old sister and instructions to read her Skippyjon Jones books until further notice.…
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— go to most recent comments76 - esarlls3
Clarification on a couple of issues from a lon time FairTax supporter:
tbgunn is correct on investments.
The FairTax taxes consumption. Investments are not consumption so the transaction of buying and selling stocks/bonds/etc. are not taxed. The fees for providing stock trading services would be taxed.
Education is also not considered consumption, it is an investment in future earning potential. This exempts tuition and some fees from the FairTax.
Only new items are taxed and taxed once to prevent the double taxation and cascading effects we have today. That means a new home is built without taxes and compliance costs embedded in the price. In any market with competition, this will lower prices. Then the FairTax is added. The tax inclusive value of retail prices will certainly fluctuate some but overall prices should stay about the same as the tax is revenue neutral.
There is also a transition rule for inventory built with the Income Tax and sold with the FairTax. This rule provides a FairTax credit to the seller for the amount of the FairTax for materials in inventory on the transition date. Since consumers will know the seller gets a rebate of the FairTax, any seller not reducing his prices by the rebate (FairTax) amount would be avoided.
The SS is a regressive tax that directly impacts the lower income earners the most. The FairTax spreads this tax across all consumption. With this much broader tax base for SS, it will help SS work around the problem of having too many people taking out for the number of people putting in. A portion of the FairTax rate is dedicated to maintain current SS funding levels at transition.
An analysis in Texas (a state without an Income Tax, well we were before the new Business Tax was created anyway) revealed that if the Texas Sales Tax was broadened to include the same tax base as the FairTax, and a similar rebate was instituted to offset the regressive nature of Sales Taxes, the Texas Property Tax could be eliminated.
The FairTax is the ONLY tax reform proposal that eliminates the IRS, untaxes the poor, untaxes exports, and brings jobs back to the United States.
One interesting thing about the FairTax is that it was not designed by congress or lobbyists but by focus group studies with taxpayers.
Keep asking questions and contact FairTax.org / 1-800-FairTax for answers. I was skeptical at first, too. After a few weeks of studying the FairTax, I became an avid supporter.
77 - esarlls3
Additional clarification I left out:
Used items, including used homes, are not subject to the FairTax. They have already been taxed and their value includes the taxes paid.
Profits from sale of appreciated assets (homes, stock, etc.) will be taxed when the profit is spent on consumption.
Under the FairTax, a business will have lower operating costs. No Income Tax, no payroll withholding, no employer "contribution" to SS, no worrying about the tax implications of every business decision. Also, business inputs will now be tax free. Now business and consumers can purchase domestic and foreign goods with an equal embedded tax cost. So what happens now that the business is more efficient? The money has to go in three areas: lower prices, higher wages, or higher value of the business (retained earnings or business investments) which raises stock values. In all cases the money eventually gets circulated and taxed as consumption.
More later.
78 - Clavos
An analysis in Texas (a state without an Income Tax, well we were before the new Business Tax was created anyway) revealed that if the Texas Sales Tax was broadened to include the same tax base as the FairTax, and a similar rebate was instituted to offset the regressive nature of Sales Taxes, the Texas Property Tax could be eliminated.
Also, as I mentioned above, in Florida.
79 - Dave Nalle
Used items, including used homes, are not subject to the FairTax. They have already been taxed and their value includes the taxes paid.
The question here is why are the buyers of new homes penalized? Should there really be a differentiation between new and used homes, and what's the cost to the economy of massively discouraging the building and sale of new homes?
Profits from sale of appreciated assets (homes, stock, etc.) will be taxed when the profit is spent on consumption.
That's a different way at lookking at how capital gains are treated. It essentially makes IRAs and 401Ks obsolete, because if you just reinvest you get equivalent delayed tax benefits, but if you use your profits then you get taxed. Would make my life a lot simpler.
Dave
80 - Clavos
The question here is why are the buyers of new homes penalized? Should there really be a differentiation between new and used homes, and what's the cost to the economy of massively discouraging the building and sale of new homes?
Good questions, Dave, but you seem to be advocating an exemption here, the absence of which you yourself said previously is one of the most positive aspects of the FT.
81 - Dave Nalle
Yes, but there are already some other kind of haphazard exemptions, so the law as it now exists leaves the door open for them.
Right now intangible property is exempted. All they'd have to do is include real property with that, and it would all just be one big exemption.
Dave
82 - esarlls3
The question here is why are the buyers of new homes penalized? Should there really be a differentiation between new and used homes, and what's the cost to the economy of massively discouraging the building and sale of new homes?
Buyers of new homes are not penalized. All consumption is taxed once at the point of retail sale. All used items have the tax included in their value.
Example: New home sold before the FairTax: Price $100,000. (Incudes hidden corporate taxes, payroll taxes & compliance costs). Cost to buyer: $100,000.
New home sold after the FairTax: Price $77,000 (FairTax inventory credit reduces price 23%). Tax charged: $23,000 (~30%). Cost to buyer: $100,000.
Both houses sold as used after the FairTax for zero profit by the seller. Cost to used home buyer: $100,000. No additional tax due.
About the FairTax rate:
When you pay $130 in earnings to purchase a $100 item, you paid a 30% sales tax.
This is a semantics game and a source of confusion, even among supporters. To compare rates with the income tax + social security taken out of your paycheck, you want to consider a tax incusive rate of 23%. To compare rates with what you will expect at the checkout, you want to consider a tax exclusive rate of 30%.
83 - doug-an-luke
Re: Dave Nalle
Good Point.
"The question here is why are the buyers of new homes penalized? Should there really be a differentiation between new and used homes, and what's the cost to the economy of massively discouraging the building and sale of new homes?"
Remember the Fair Tax concept; it is revenue neutral. New homes by definition are taxed because they have not ever been taxed and they are new consumption.
"Used Homes" if produced prior to the Fair Tax already have tax included in their price (today a home has some 23% imbeded tax in the purchase price). A home purchased after implementation of the Fair Tax will cost the same amount as a pre-fair tax home but the tax paid will be clearly listed. A home purchased after fair tax and then resold will sell at a market price which will include the prior owners cost of purchase, i.e. the fair tax. Remember the tax is only paid once. In essence after Fair Tax if you buy a new or used home you pay fair tax directly to the gvt but when you buy a used home you are "refunding" the original buyers tax payment. In the end there is no discrimination between a new or used home or car or boat or plane purchase; just how the tax is identified.
Example: You buy a home today for $100,000 imbeded in that price is some 23% federal tax. After fair tax the same home will list for $100,000 with $77,000 for the building plus a fair tax of $23,000 or $100,000. The market price whether new or used is still $100,000.
84 - jaz
for number 82 - you are again assuming that somehow prices will just magically drop once this proposal goes into effect
a complete fairy tale...
that market price will be the $123,000 and they will justify by saying "well, you are earning more cuz yer keeping all your paycheck, we raised our prices to add the tax in"
you cannot have it both ways, as happens quite often in supply side assumptions, the logic is used that the rise in retail prices will be offset by keeping more paycheck...but here you are talking about an individuals largest purchase
just dawned on me that you also kill the entire home improvement industry...those folks are paying retail for all their supplies...cheaper to get a contractor who will buy supplies at wholesale
more and more holes as is looked at closer and closer....
85 - doug-an-luke
The semantics game.
The tax rate used to describe the fair tax is just like the tax rate used on your IRS forms. Example: At the 15% IRS rate you pay $150 per $1000. The those who want to retain the IRS and not have the fair tax fully understand this "imbeded concept" but when we use the same concept under Flat Tax the 23% imbeded tax per $1000 is $230 they accept it but then take the leap by saying that the actual tax is some 29.8%, that is $230/($1000-$230). Using that "logic" the IRS 15% rate above would actually be some 17.6%. In the end the amount is exactly the same!
Also, in business we use "Mark Up" pricing and Gross Margin (GM). A $77 item marked up some 30% is priced at $100. The GM for this item is $23/$100 or 23%. The mark-up is added to the cost of goods and the GM is "imbeded in the final price. The exact same concept.
86 - Clavos
just dawned on me that you also kill the entire home improvement industry...those folks are paying retail for all their supplies...cheaper to get a contractor who will buy supplies at wholesale
Cheaper for the supplies, true, but you still have to pay the contractor's labor, which is the biggest part of his charges.
But, since HoDep's biggest/most numerous customers are the small "handyman" contractors, it probably won't hurt them and the other Big Box DIY stores much, if at all.
87 - doug-an-luke
Jazz
The free market system works every time it is tried.
Your following comment is very true: "you are again assuming that somehow prices will just magically drop once this proposal goes into effect" You appear to sound like the brilliant classical economist Adam Smith (Wealth of Nations) talking about the invisible hand that makes the economy in a free market system work. Very insightful
Jazz, lets assume you are a contractor you build homes they sell for about $100,000 each, your gross margin is 20% thus you will receive some $20,000 (to pay tax, interest etc.) The total imbedded tax today is some $23,000, you pay some $4,600 tax out of your GM, giving you a GM of $15,400 net taxes, and the rest of the tax, $18,400, is paid by your subs. etc.
Now it is Jan 1, the Fair Tax is passed, and an individual has the opportunity to buy one of your pre-fair tax homes at $100,000 or one of your new post-fair tax homes at $123,000.
If you price the post fair tax home at $123K you are going to double your GM plus you will pay no tax on your GM! You will get $100K after the Fair Tax your subs using fair tax will cost only $61,000 (I assume they follow the market) rather than $80,000 thus you will receive $39,000 a whopping 39% GM with no tax on it. This will never happen because the individual will buy your pre-fair tax home for $100,000.
Also, Your COMPETITION, who I assume understands the market, will price to meet market requirements and you will sit with a $123,000 home for sale that you think you can make a mint on but the market won't accept. All you have to do is reduce the price to market price of $100,000 and Shazam you are back in the game making your 20% GM, $15,400, on your $77,000 price (Sell price less tax) and you don't pay the $4,600 Income or Social Security Tax on the GM.
When I started this I was just supporting market forces with my figures. When I finished the revenue neutral concept came through very clearly in this rather simple example. The GM net of taxes is identical for pre or post fair Tax income events!
88 - esarlls3
doug-an-luke: The GM net of taxes is identical for pre or post fair Tax income events!
Because that is the GM that maximizes profits in a competitive market. The overhead costs of the tax system are being reduced by the same amount for all domestic sellers in the market. So the optimum GM will stay the same.
Note that this is different for foreign competition, where US products include the embedded taxes and compliance costs but have to compete with foreign products that excude these overhead costs. The FairTax will level out this unfair advantage we currently give to foreign producers.
Another area where some benefit more than others is where their businesses are currently at a disadvantage due to the tax code. For many small businesses, the cost of compliance, accounting, etc. is a lot more than the actual tax paid. Under the FairTax, small businesses will be more competitive.
89 - Dave Nalle
Those of you attempting to defend the FairTax penalty on new homes are missing a key point here. The old homes which are not taxed were built under the prior system where neither the materials nor the final price of the home was ever taxed. The only thing ever taxed in their construction was the labor.
And my concern over the tax on new homes is mainly for the impact which it might have on the economy and on the ability of people to actually purchase a home. It will be particularly devastating to people buying inexpensive first homes in new developments who may be priced out of that market automatically if they have to pay an additional 29% on their purchase.
Dave
90 - Dave Nalle
Oh, and both of you have missed the point about the actual rate on the FairTax. Those who are referring to it as a 29% tax are not doing so because they are taking the 23% added value and inverting it to become 29% embedded value. What was pointed out earlier is that the FairTax rate is NOT in fact 23% but more likely about 29% once you add medicare and social security to the tax. In the best case scenario Social Security would be completely privatized and removed from the tax system, but the Medicare rate will almost certainly have to be raised substantially as medicare debt balloons over the next few decades.
In fact, we don't know what the actual rate would be at all, because even the 23% base rate is only an estimate. The actual legislation leaves the rate open to be set by taxing agencies after the bill is implemented.
Dave
91 - esarlls3
Dave Nalle: The old homes which are not taxed were built under the prior system where neither the materials nor the final price of the home was ever taxed. The only thing ever taxed in their construction was the labor.
The old homes were not subject to the FairTax but they were taxed by the Corporate Income Tax. Everybody from mining ore for the nails to timber growers to oil refineries providing stock for plastics. At every stage of production another layer of Corporate Income Tax and payroll tax and compliance costs is embedded and hidden in the cost of their product to the next stage. This cascades at each level and results in about 20% of the shelf price at retail for domestic products.
92 - esarlls3
Dave Nalle: What was pointed out earlier is that the FairTax rate is NOT in fact 23% but more likely about 29% once you add medicare and social security to the tax. ... In fact, we don't know what the actual rate would be at all ...
Actually, you are mistaken. The FairTax rate (23% inclusive, 30% exclusive) does include funding Social Security and Medicare at current levels. For a very detailed and current economic analysis of the rate see this 20-page PDF from FairTax.org:
Tax Notes article on FT rate.pdf
93 - Dave Nalle
No, you're wrong, Esarlls3.
Not only does the legislation itself clearly say that the rate doesn't include social security, the PDF you link to ALSO makes it very clear that the 23% rate does not allow for Social Security or Medicare spending at the current level, much less the increased level which will be necessary to make those systems solvent. Your PDF refers to the rate two dozen times as not inclusive of social security.
What's more, even the 23% rate isn't set in stone. That rate and the additional rate for Medicare and Social Security would be set after the passage of the legislation and subject to further review after that.
Dave
94 - doug-an-luke
esarlls3
This s a great discussion. You are correct pre-Fair Tax productivity is taxed big time. The calculated amount that includes Income Tax and social Security, Cap Gains and dividend, etc taxes comes to a 23% imbeded tax or a 29.8% added tax.
The old addage if it sounds to good to be true, it probably is, does not appear to apply here.
I thoght at first the concept was loonie but I got the book and have read it and discussed the concept with many. The usual reply is that it will never happen because the politicians will loose control of your money.
One question I have is since the Social Security tax is included in the 23% (A rule of thumb is that our Federal tax is 19% of GDP if add 4% for SS you come up with the 23% total). SS payments result in a requirement to report earnings to establish your SS benefit amount. What would prevent an individual, self employed from filing a maximum income report in order to fatten his SS benefit payment.
Some divert attention from the Fair Tax and whine about social Security funding. The SS tax collected under the imbedded Fair Tax will cover the "current program" and not some future SS structure. SS restructuring is a separate problem that the President tried to address a few years ago and the politicians were not interested. First Fair Tax and then when the wheels fall off the politicians may come up with the guts to fix SS. But the SS will get the same funding as it receives today, part of the revenue neutral concept.
95 - doug-an-luke
THIS FOLLOWING QUOTE IS FROM THE FAIR TAX BB AT FAIRTAX.ORG AND HAS BEEN A CONSTANT POSITION FOR THE PROGRAM. IF YOU DISCUSS FAIR TAX USING CHANGED CRITERIA RATHER THE CRITERIA ESTABLISHED FOR THE PROGRAM OF COURSE IT WOULD NEVER WORK. I WONDER WHY MANY ARE SO AFRAID OF THIS PROGRAM? IS THIS THE OLD STANDARD PEOPLE ARE AFRAID OF CHANGE? DO LOOK AND EVALUATE THE ISSUE BASED ON THE TERMS PROPOSED RATHER THAN A CHANGED OR ADDED "SPECIAL" CRITERIA. READ THE BOOK OR GO ON LINE, LOTS OF GOOD AND ACCURATE INFORMATION IS AVAILABLE.
FAIRTAX.ORG:
"The FairTax strategy is revenue neutrality:
Neither raise nor lower taxes so consumer costs remain stable.
The FairTax pays for all current government operations, including Social Security and Medicare. Government revenues are more stable and predictable than with the federal income tax because consumption is a more constant revenue base than is income.
If you were in a 23-percent income tax bracket, the federal government would take $23 out of your paycheck for every $100 you made. With the FairTax, if the federal government gets $23 out of every $100 spent in America, the same total revenue is delivered to the federal government. This is revenue neutrality. So, instead of paycheck-earning Americans paying 7.65 percent of their paychecks in Social Security/Medicare payroll taxes, plus an average of 18 percent of their paychecks in federal income tax, for a total of about 25.65 percent, consumers in America pay only $23 out of every $100. Or about 30 percent at the cash register when they elect to spend on new goods or services for their own personal consumption. And this tax is collected only on spending above the federal poverty level, providing important progressivity."
96 - esarlls3
An apology to those who get lost in the details of economics and mathematical equations. You may continue to the next post if you wish.
Dave Nalle: Not only does the legislation itself clearly say that the rate doesn't include social security, the PDF you link to ALSO makes it very clear that the 23% rate does not allow for Social Security or Medicare spending at the current level, much less the increased level which will be necessary to make those systems solvent. Your PDF refers to the rate two dozen times as not inclusive of social security.
In Table 3 on page 6 the report lists "Social insurance and retirement receipts" of $871B as a part of the revenue required.I'll start with the document I linked.
Starting on page 4 of the PDF it states:
In the equations (from page 7):On Page 8, the authors account for changes in what is taxed and how:The final calculated 2007 rate at the bottom or Table 5 on page 10 of the PDF indicates a rate of 23.8% exclusive, 31.3% inclusive.
The authors then calculate the reduction in non-Social Security spending required to pull the rate back to the 23% original estimate. On page 2 the report concludes: "The most important finding of this report is that only a 2.73 percent cut in non-Social Security federal expenditures would be needed to accommodate a 23 percent rate."
The report often mentions "non-Social Security federal expenditures" not because Social Security is not included in the FairTax but because it is a fixed expense.
97 - STM
"With the FairTax, if the federal government gets $23 out of every $100 spent in America, the same total revenue is delivered to the federal government. This is revenue neutrality."
Sounds great in theory ... but. One of the major problems is the black economy, which sees tradesmen and other service providers paid in cash at a lower rate as a means of avoiding full tax commitments, which means the government misses out on the revenue. Ultimately, that means the people who DO pay the tax are subsidising others who don't. Taxes would almost certainly go up. And with the experience of other developed countries with similar lifestyles to that of the US showing the black economy accounts for about 5-10 per cent of all contractor/trades type services transactions and is very hard to police
without a huge and costly bureaucracy, you are looking at substantial additional cost to taxpayers to fund government spending.
Also, if the government isn't taking 23 per cent of your pay packet, can you trust employers given their track record - without legal safeguards - not to drop wages?
I live in a country that has both income tax and a Goods and Services Tax (around a 10 per cent impost on everything except basic foodstuffs - bread, milk, fruit and vegies, meat, etc), I can tell you my experience is that most governments who do this do it as an adjunct to existing taxes, but in the case of Australia the federal government dropped a number of other existing taxes, and some taxes previously imposed by the state governments were done away with and the GST revenue given back to them for spending on roads and hospitals etc, so the change hasn't been that noticeable.
But the truth is, income tax paid on a sliding scale depending on annual income remains the fairest, most workable and easiest tax to police of all ... that's why it's survived for as long as it has.
98 - Clavos
STM writes:
...income tax paid on a sliding scale depending on annual income remains the fairest, most workable and easiest tax to police of all ... that's why it's survived for as long as it has.
Which, in the USA, is fewer than 100 years.
Plus, we already have seven states with no state income tax; at least two of which (Florida and Texas), are doing very well financially without one.
Actually, I think they are all doing fine, but having lived in those two, I'm more familiar with them.
Also, if the government isn't taking 23 per cent of your pay packet, can you trust employers given their track record - without legal safeguards - not to drop wages?
Easy enough to build safeguards into the legislation to prevent that.
99 - STM
Of course, Clav, as you know ... one of the problems that does arise with income tax is tax avoidance schemes through trust funds and offshore investments, etc, which can on paper susbtantially reduce the income of some very wealthy people who are determined not to meet their full tax commitments.
A case: a high-profile tax investigation combined with a divorce case, where a husband who had hidden most of his wealth - despite still ostentatiously displaying it by wearing Armani suits, $600 Italian shoes and driving a Porsche and a top-of-the-range BMW whilst maintaining a large, waterfront home for him and his new girlfriend - claimed to the courts that his taxable income, and therefore the amount that should be considered for payment of child support, was in the region of $50,000 or less a year. He was, in fact, a millionaire many times over. No one begrudges that, but it shouldn't fall upon those on lesser incomes to meet the nation's tax burden - and it leads to higher taxation in the long run.
The whole thing was patently a nonsense, causing his ex-wife and his children much distress, but he'd done such a good job of hiding it that it took ages to unravel the paper chain.
100 - Clavos
Stan,
You're right, but what you describe is tax evasion, which is illegal.
Tax avoidance, using the tax laws to legally lower your tax rate to the maximum degree allowable by the law, is perfectly legal and is something every sane taxpayer, me included, does every time we file.
Interestingly, (and unfortunately, I can't link it) I have read many times that, for being as "voluntary" as our system is, the US has one of the highest rates of compliance by citizens in paying their taxes in the world.
101 - jaz
the point is, the concept of "a fair go" is paramount...
102 - STM
There's often a very fine line between tax avoidance and tax evasion. Really, they often mean one and the same thing ... there are schemes that people use hoping to exploit loopholes in the law, which while represent the letter of the law, don't represent the spirit of the legislation. Some of these have now been closed here, and they are always looking too. However, every time I file a tax return there are things I can claim (the running costs and depreciation on my car, for instance) that reduce the amount of tax I pay, which either means getting a bit back from the Government or meaning I owe them less at the end of the financial year.
I don't consider those things as tax avoidance - they are perfectly legit tax credits, and not in the same league as the family trust fund, for instance, which allows income accruing to a taxpayer on a high marginal rate to be treated like it had accrued to another member of the family on a low-income rate. That kind of stuff is a rort, and totally undermines the effectiveness of the tax system. Often, it means people on lower incomes paying the full whack are subsidising the avoiders and evaders.
103 - Clavos
Stan,
Perhaps the concepts are slightly different in Oz from what they are here.
Tax avoidance is legally reducing your taxes in accordance with what the tax code allows.
Tax evasion is everything else, and is a violation of the law.
You mentioned offshore accounts. A perfect example of illegal.
Depreciating a rental property which in reality is actually appreciating: perfectly legal, and will withstand an audit.
That's what I meant.
No "fine lines." One's legal; the other's not.
I get everything I can, but I also have no fear of an audit. In a nutshell, that's the difference.
104 - esarlls3
STM: Also, if the government isn't taking 23 per cent of your pay packet, can you trust employers given their track record - without legal safeguards - not to drop wages?
Wages are a free market trade between the employer and the employee. Employers are free to raise and lower wages at any time. If employers feel they can lower wages without lowering productivity, they probably will.
If I'm currently working for $X/hr, I expect to keep working for $X/hr after the FairTax. I'll just get my whole paycheck to take home.
The employer will no longer have to make their "contribution" to Social Security. They will not have to process and submit withholding or W-2's. (Since Social Security is currently based on income, there will be an income report required.)
If employers decide to drop wages, they should be prepared to have employees look for other opportunities, too.
105 - doug-an-luke
STM and Clavos. Good Discussion!
Under the Fair Tax, INCOME is not the focus, SPENDING FOR & CONSUMPTION OF NEW goods and services is. Those $600 Italian shoes mentioned by STM under the current system involve an imbedded Federal tax. That is included in the price because the people who brought the product to the market pay this tax, in the form of business and income tax, remember all spending in the end is income and business and income tax applies.
Under the Fair Tax program the 23% is taken out at time of purchase only. Thus the tax evader and the tax complier both pay taxes when they buy. The Armani suit, $600 Italian shoes and Porsche owner and tax evader (cheat) is using tax free funds just for the basic $600 and the tax complier is using taxed funds some $779 net of tax of some $179 to produce $600 to spend.....plus he is also paying the current imbedded tax!. And this is just for the shoes !
The point here is some in our economy make money under the table in the current system they evade INCOME taxes. Many get away with it. Under the proposed fair Tax they pay tax every time they buy new goods and services just like everyone else. Even money thief will pay taxes if he buys something new.
Today you are forced to pay income tax under threat and legal penalties.
There are actually people in America today who think the Federal Government is great because the government gives them a tax refund when the individual overpays his tax. The government has used the confiscated money from a paycheck, money free of interest charges, and these individuals think the refund is a government good deal! I kid you not! Most of these people I have talked to don’t like the Fair Tax because they want an annual refund! Insane!
This idiocy will go away under the Fair Tax and you will receive all of your pay without federal confiscation. Now once you receive your total pay when you buy something new, you pay taxes, if you don't buy and save your money you receive interest, dividends, and capital gains and pay no taxes! In the end you will pay tax because of YOUR DECISION to buy. And not you will not pay tax because tax is confiscated from your pay because of a GOVERNMENT DECISION to tax your work!
106 - Methuselah
This discussion is hopeless.
You can't discuss economic effects by pursuing anecdotal threads. Real economists deal with the distributed effects of tax policies with differential equations and eigen vectors. But that would take hard work and study, two things which are in short supply among bloggers.
I'm against the "Fair Tax", because it's not fair. It shifts tax burden from corps to consumers, thus enhancing the power and freedom of those frankenstein-like monsters as super-citizens while further reducing the freedom of mere consumers.
107 - STM
Clav said: "Depreciating a rental property which in reality is actually appreciating: perfectly legal, and will withstand an audit."
All those things are similar here, and perfectly legal, and are tax credits - but tax avoidance has a different connotation.
Really, here it means trying to use loopholes in the law (like family or discretionary trusts) to avoid meeting your proper tax commitments. The one thing we don't have is the ability to claim interest on our mortgage payments as a tax credit. I wish.
Still, having top-quality free healthcare offsets that so I guess it all comes out in the wash.
108 - STM
"If employers decide to drop wages, they should be prepared to have employees look for other opportunities, too."
All very well unless you in a job where there aren't other opportunities. Rural employees of small companies would be a classic example of that. You can't do these things without having some embedded protections for workers - otherwise, you are erring towards corporate/business anarchy. Free market forces are great, but when they threaten the wellbeing and living standards of employees, they fall down in a heap.
Life isn't just about free markets, money and the bottom line (although sometimes in America, you'd never guess that). It's about community and looking after each other as well. Happy workers are better workers, and they tend to be loyal as well. A company's greatest asset is really its human resources. Think of all the investment that goes into making a productive worker.Employees need to reap some of the benefits as they are the ones doing all the producing.
109 - Clavos
But that would take hard work and study, two things which are in short supply among bloggers.
Says...a blogger!!
110 - Clavos
Happy workers are better workers, and they tend to be loyal as well. A company's greatest asset is really its human resources. Think of all the investment that goes into making a productive worker.Employees need to reap some of the benefits as they are the ones doing all the producing.
Quoted for truth. (imitation's the sincerest form of flattery, jaz)
And, unfortunately, too few managers realize that.
111 - Dave Nalle
I'm against the "Fair Tax", because it's not fair. It shifts tax burden from corps to consumers, thus enhancing the power and freedom of those frankenstein-like monsters as super-citizens while further reducing the freedom of mere consumers.
Sorry Meth, that makes no sense at all, and shows a profound lakc of understanding of business and economics. Corporate taxes are meaningless. They're just factored into the expenses of the corporation and passed on to consumers. So the net result of any tax placed on corporations is that it IS a tax on consumers.
Dave
112 - STM
So the answer, Dave?
A lowered income tax, abolition of some/most state taxes (except for those on property and motor vehicles) and fewer tax imposts on corporations, combined with a GST-style tax at the cash register of, say, 8-10 per cent? Voila.
But I say this about all so-called fairer tax systems: meet the new tax, same as the old tax (apologies to Do'h and The Who).
113 - troll
power to the people -
under the fair tax an effectively organized boycott of new products could bring the fed to its knees
...gives political action a whole new door
114 - doug-an-luke
Methusala says: I'm against the "Fair Tax", because it's not fair. It shifts tax burden from corps to consumers". HUH!
A VERY IMPORTANT POINT HERE! "CORPS" DO NOT PAY TAX. IN THE END INDIVIDUALS (CONSUMERS)PAY TAXES.
IF YOU ARE AN INDIVIDUAL BUSINESS OWNER OR PARTNER YOU PAY EMPLOYEE AND SS TAXES AND THEN THE EMPLOYEE PAYS INCOME AND SS TAX! ADDED TO THESE TAXES ARE EARNINGS TAXES AND THIS COMES FROM THE BUSINESS OWNER. IF EITHER THE OWNER (AN INDIVIDUAL) OR THE EMPLOYEE (AN INDIVIDUAL) DOES NOT HAVE TO PAY THE TAX IT BECOMES DISPOSABLE INCOME TO SPEND ON GENERAL CONSUMPTION OR INVEST BACK IN THE COMPANY.
THE SAME HOLDS TRUE FOR THE CORPORATION EXCEPT THE BUSINESS OWNERS NOW CONSIST OF INVESTORS (STOCK HOLDERS) AND THEY PAY ADDITIONAL TAXES SUCH AS CAPITAL GAINS TAXES AND DIVIDEND TAXES.
ALL PAYEES ARE INDIVIDUALS! BUSINESS AND CORPORATIONS DO NOT PAY TAX.
DON'T FORGET ALL AGREGATE CONSUMPTION IS SUBJECT TO TAX (YES IN SOME AREAS THERE ARE EXEMPTIONS) AND ALL AGREGAT TAXES ARE PAID BY INDIVIDUALS
115 - doug-an-luke
REF: #108,STM, March 8, 2007, 02:03 AM
STM says" "If employers decide to drop wages, they should be prepared to have employees look for other opportunities, too."
This is true. But, for example,if the market says the productivity of an employee rates $25.00/hour income ($50,000/year) and the under payer employer decides to offer $20,00/hour ($40,000/year) the employee has a choice to stay at the reduced rate or find a different job.
If the market is calling for a $25.00 per hour payment the worker will get another job and the under payer employer will most likely have less qualified employees, if he can find them, working for him.
What will happen here is the less qualified guy will become qualified for the $25 pay rate and seek employment elsewhere. This requires the under payer to be continually retraining new employees, employee turn over is very, very expensive and eventually, if the under payer company survives it will have to go back to the market price of $25 per hour or more (because of under payer reputation)to save money.
The free market works every time it is tried for both the employer and employee; isn't life great!
I HAVE EDITED SMS' REMARKS BELOW (SEEMS WE HAVE A BIT OF GOVERNMENT DIRECTED NON FREE MARKET BIAS HERE)
BUSINESS IS about free markets, money and the bottom line (REAL America KNOWS that). PRODUCTIVE BUSINESS PROVIDES THE ENVIRONMENT THAT MAY ALLOW THE community TO THRIVE and IF THEY CHOOSE TO look after each other as well. Happy workers are better workers, and they tend to be loyal as well. A SUCCESSFUL company's greatest assets ARE really its human resources WHICH CONSIST OF INVESTORS, STOCKHOLDERS, SMART MANAGEMENT AND PRODUCTIVE WORKERS. Think of all DECISIONS AND JUDGEMENTS AND RISK TAKING AND investment that goes into PROVIDING A JOB FOR productive worker.
REMEMBER, COMPANIES ARE NOT FORMED TO CREATE JOBS. THEY ARE FORMED TO PRODUCE GOODS AND SERVICES THAT WILL PRODUCE MAXIMUM RETURN TO THE INDIVIDUAL INVESTOR AND STOCK HOLDER.
A BENIFIT OF SUCCESSFUL FORMATION OF A COMPANY IS THE PRODUCTION OF HIGH QUALITY WELL PAYING POSITIONS OF EMPLOYMENT DEPENDING ON THE INDIVIDUAL SKILLS REQUIRED TO SUCCESSFULLY PRODUCE THE GOODS AND SERVICES FOR THE TARGET MARKET.
THE FAIR TAX WILL INSURE ALL, INCLUDING; INVESTORS, STOCKHOLDERS, SMART MANAGEMENT AND PRODUCTIVE WORKERS ARE ABLE TO KEEP ALL OF THE INCOME THEY HAVE EARNED. A SIMPLE AND JUST TAX SYSTEM HAS BEEN EARNED BY ALL THE AMERICAN WORKERS AND THAT IS WHY THE CONCEPT OF THE FAIR TAX PROPOSAL IS SO VITAL AND IMPORTANT.
116 - STM
Can't say I agree with pretty much any of that edited text of my statement Doug-an-luke ... but then I'm not American, either, so you might be labouring under a gross misconception as to how I arrived at those conclusions.
However, the society I live in has one of the world's strongest-performing economies and is among the top few in overall living standards. Both the monetary success and standard of living has been built on 100 years of workers, employers and governments reaching voluntary accord or thrashing out agreements in the courts.
In other words, the foundation for all this has been legislated, built-in rights and protections for workers that ensure such things as minimum four weeks' a year vacation (plus public holidays. I get 7 weeks, plus holidays), vacation leave loading of 17.5 per cent on top of your normal pay, night and weekend penalty rates of up to 75 per cent extra depending on starting time and hours worked, generous compulsory company contributions to employer superannuation packages(offset against corporate taxes), universal free top-quality medical care, minimum wage of $US10.50 an hour, etc.
While some Americans see these things as government intrusions on free-market trade and citizens' liberties (I can't work out how they get to that conclusion), those who've lived with them see them as the kinds of benefits that companies and governments should be providing to their workers. Interestingly, many corporate leaders and businesses don't disagree.
It's made for a happy and productive group of people and a society where the gap between high-income earners and lower-income earners is nowhere near as drastic as that of the US. Certainly, disposable incomes tend to be a bit lower at the top end and a lot higher at the bottom. The country, probably as a result of all the protections that had been won for workers, has had a very strong work ethic. However, it also places a high value on its leisure time.
I guess it really depends on what you think is important: looking after number one, and taking your chances, or building an inclusive community that has better quality of life for everyone as its primary goal. That is not to criticise the US, because we are very similar socities ... just to point out that people have very different views depending on their backgrounds. Also here, having those views wouldn't have me categorised as a raging "liberal'. It just makes me Mr Joe Average.
117 - Mark Anderson
I hate to have to inform the "fair taxers," but that "23%" tax is really 30%. You see, the plan calls for you having to pay 23 cents in a sales tax out of every $1. That means the transaction without the tax is 77 cents. An additional 23 cent sales tax on a 77 cent transaction=30% sales tax. I think people need to stop learning math from Boortz and Linder.
118 - esarlls3
Mark Anderson: I hate to have to inform the "fair taxers," but that "23%" tax is really 30%.
We discussed this back at posts 82, 83, & 85.
119 - Clavos
Noooo, it means you pay $1.23 for a $1 item...
120 - Dave Nalle
Mark's math is certainly wrong, but as I pointed out earlier, the 23.9% rate isn't set in stone and doesn't take SS and Medicare into account adequately, so the real rate may indeed end up being near 30%.
Dave
121 - doug-an-luke
Thanks for the post. I understand where you are coming from. Spent some 5 years with the Brits and they are similar but the Aussies are a more independent and self sufficient lot, I sadly see that changing. Your Prime Minister, John Howard seems to be a super guy.
You want to bring social issues into an economic discussion, yes taxes impact the society. We have a class of people today, some 50% of workers, who pay no income tax and most receive tax credits so they are living off the efforts of others; a welfare culture. Under the Fair Tax they would receive their pre-bate monthly for basic necessities and, this is missed, the massive demand for new jobs from the resulting economic boom will make it a sellers of work-capital market where the employer will pay premium pay and benefits to attract scarce workers.
In Australia much like Canada and England the rights of the individual are determined by the Government through Parliament.
Here in the US the individual gives government certain power, defined in our Constitution but retains the basic self evident rights of "Life Liberty and the Pursuit of Happiness”. The primary role of our government is to preserve defend and protect our inalienable rights and those clearly defined in the US Constitution. We had to amend the Constitution to add the Income tax in 1913, and life has not been the same since. Income Tax was not in the original plan!
In the US it is the individuals choice in cities, counties and states, on how to interact and form communities. Help to other individuals is not a government function except during major disasters and reasonable welfare programs for those who can’t work and those who won’t work..
The American public through private charities contributes more to disaster relief and the sick and poor around the world than all other nations combined!
Plus, we have very substantial charitable programs run by private and religious organization to help our fellow US citizens (and now sadly some illegals); the government is not involved.
US government financial contributions to world poverty, illness and disasters are unmatched in the history of mankind.
We do all of this privately funded private charity IN SPITE OF OUR GOVERNMENT attempt to tax us to death. The benefit of the Fair Tax is that more funds would be available to the individual to make charitable contribution decisions if they wish.
Your view is a valid Liberal Socialist view as my view is a Capitalist view.
So far in the history of man Capitalism wins over socialism every time it is tried. Socialism must tax the people to retain control, power and create dependency of communities. Sadly, our current tax system reflects this some of this Socialist concept.
Capitalism must produce goods and services for the individual to create a market demand that produces high wages and allow the individual to independently determine what he does with his income. The Fair Tax strongly promotes this.
122 - doug-an-luke
RE: #120 " March 9, 2007 @ 09:53AM " Dave Nalle [URL]
Actually the 23% schedule is at the high end of the scale and the calculated rate including both Income Tax 18% and SS 4% with a total of about 22%.
For: #118 " March 9, 2007 @ 08:37AM " esarlls3 and others:
23% IMBEDDED TAX (GROSS MARGIN) OR 29.9% ADDED TAX(MARK UP)IT IS ALL THE SAME AMOUNT. 23% of $100= $23 and $23/$100-$23 = 29.9%.
The dollar amounts involve are $100-$23= $77.00 cost of goods sold COGS. The "tax mark-up" of 29.9% results in a sales price of some $100. The Gross Margin on this sale (imbedded in the price) is 23% which is determined by:
PRICE $100-cogs $77 / PRICE $100 = $23/$100=23%
Today look at your IRS forms. When it says you pay 10% of the first $6,000 taxable income you will pay $600, however, you can say the tax "mark up" is actually $600/$6000-$600 or $600/$5400 or 11.1% the final amount is the same $600!
NOTE MY PRIOR AUSTRAILIAN POST WAS IN RESPONSE TO:
#116 " March 8, 2007 @ 23:36PM " STM
123 - tbgunn
To Mark in comment #117
Tax Inclusive
$0.23 (fairtax)/$1.00 (Total purchase) = 23%
(Tax Inclusive is how income taxes are stated now, which is why the fairtax states it this way)
Tax Exclusive
$0.23 (fairtax)/$0.77 (Cost of product) = 29.8%
and total purchase is still $1.00
(Tax exclusive is how sales tax is currently stated)
It is semantics. No one is trying to hide anything. In the above example, either way you state it, twenty-three cents of your one dollar is going to the feds.
124 - STM
Doug-am-luke says: "In Australia much like Canada and England the rights of the individual are determined by the Government through Parliament."
Sigh ... a parliament elected in a transparent process that has introduced exactly the same kind of legislation that US legislators do. If I hear ill-informed Americans spouting this nonsense again about them having more liberties in the US I think I'll vomit. If it weren't the case, we wouldn't all have the same rights - and we all do. Indeed, some of us actually have more, believe it or not, which often comes as a huge shock to many Americans. I know, because I've lived in the US and Britain so I CAN compare.
The fact is, while Australia's constitition is a written one, it is also open to change because it is based on Australian Common Law, which is based on English/British common law, exactly the same as the US. It is this common law that gives us our rights and freedoms, just like it does in the US (even the US constitution and the Bill of Rights are based on English Common law).
It is the reason why, for instance, we all have a free press, why the Great Writ (and the right of Habeus Corpus, to petition for the writ) forms the cornerstone of all our criminal justice systems, it is why all our police forces inform suspects ptrior to arrest that they have the right to silence and what they say can be used in evidence and they have the right to a lawyer, and why everyone has the right to a swift trial before a jury of 12 of their peers, etc, (unless you're a foreigner in Guantanamo).
Parliamentary democracy, although Americans will argue the toss and split hairs about it, is in practice no different in its ultimate outcome to the US system of legislating. Arguing the differences comes down to semantics. Any elected Government under a parliamentary democracy has two safeguards: the law, and the people (in that any elected government doing anything untowards will be punted by the people). We have a third, too: the constititional monarch or his or her representative, who in times of crisis MAY be able to exercise discretionary judgement, provided it is backed by the will of the people. In fact, there are more similarities than differences. Please go back to the drawing board Doug-an-Luke if you want to argue with me about the merits of the two different systems. Honestly, I get really sick of the Amero-centric bullshit.
The one thing I do notice about living in Australia, and to a lesser extent Britain, is that unlike people in the US, we don't seem to live in fear all the time. There's gotta be something in that.
125 - STM
Doug an luke says: "The American public through private charities contributes more to disaster relief and the sick and poor around the world than all other nations combined!"
Not per capita, mate, unfortunately ... it is way down the list - although still generous by first-world standards, and ranked among all the usual suspects (including those other three countries you mention - Oz, Britain and Canada - where you say government isn't about preserving life, liberty and the puruit of happiness for its citizens. Hang on while I vomit).
Get your hand off it old boy ... you've already lost the sight of one eye.