Problems with the 'Fair Tax'/Coast April 15,2015

[136 or 142]

Just so nobody says 'stick it in politics', I've put this in the politics thread.

1.Total consumption spending was around $12 trillion in 2014, 25%  (23%) of that is $3 trillion.  Total direct federal revenue in 2014 was $3.2 trillion http://www.usgovernmentrevenue.com/total, so even without adding in the cost of the 'prebates', a 23% sales tax rate would not be enough for the tax to generate enough revenue to make up for the loss of existing federal taxes.  Quoting Arthur Laffer to say that the cost of federal tax compliance is around $1 trillion a year is simply not credible to me. In the first year, it would mean that retail businesses (there are around 23 million small businesses in the United States) would have to retool their computer systems and their cash registers to set up receiving the tax.  If the 'fair tax' were to be 'hidden' as opposed to 'paid at the cash register' it would also mean they would have to change all their prices.  Both of these would have very high costs, although they would be 'one time things' as long as the rate of the 'fair tax' didn't change.

2.I had an english instructor once who would write "MNS" on papers (I received it once, I believe). At the beginning of the year, she handed out a guide that explained what her acronyms meant.  "MNS" meant "makes no sense".  The guest's responses to how a 23% sales tax would somehow lead to lower prices or, at most, would barely raise prices and, even more so, the response to how the huge increase in sales taxes wouldn't lead to a massive black market "MNS".

3.I agree with the idea of eliminating corporate income taxes, partly because, as the guest said "corporations don't pay any taxes" but mainly because corporations should receive an incentive to reinvest their profits.  So, I would increase dividend taxes to the 'normal rate' to partially make up for the loss of corporate taxes.  Other than that, I would get revenue by shifting to pollution taxes and possibly increasing the capital gains tax rate. I would also increase pollution taxes so much that I'd have the ability to significantly decrease, if not eliminate, the corporate share of payroll taxes. Business payroll taxes certainly have a negative impact on job hiring (though how big I have no idea), as corporate income taxes are 'after profit' their impact is probably minor, though obviously they discourage investment. Of course, very few large corporations likely even pay the effective 35% rate anyway.

4.The idea that switching from the present tax system to the 'fair tax' would increase GDP by "10% in the first year alone", is ridiculous. One of the first things taught in macroeconomics is that in the long run the only way to increase real GDP per capita is by increasing productive capacity (new plant and equipment, better infrastructure, better education...).  Even if eliminating income and other taxes did spur growth, the idea that productive capacity would increase significantly in the first year is laughable.  Eliminating corporate income and payroll taxes likely would lead to greater growth, but it would occur over many years.  Eliminating other income taxes and personal payroll taxes would likely have little impact, if any, on growth rates.

5.The guest promoted his 'prebates' but left out that lower income people already pay little to no income taxes and that even a great deal of payroll taxes are paid back to low and lower middle income earners through the EITC.

6.Switching to a 'fair tax' would not eliminate the IRS.  To be sure, it would be smaller, but there would still be a need to ensure that businesses sent on their 'fair tax' remittances as well as an agency to fight the newly hugely expanded black market. There would also need to be an agency to hand out the 'prebates' and, more importantly, to prevent what would likely be massive fraud with the 'prebates.'  I believe that the IRS also handles state income taxes, so, implementing a 'fair tax' would likely force states to eliminate their income taxes and move to sales taxes as well (or maybe increase property taxes).  Many counties (and I believe cities) also use sales taxes as well.  So the full effective sales tax rate (the nearly 30% the federal sales tax would have to be to achieve the same amount of revenue) as well as state, city? and county, would likely approach 50%! in many states.

The French Finance Minister and early economist Jean-Baptiste Colbert famously said: "The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing."  While having as many different taxes as possible increases compliance costs, it keeps tax cheating and fraud to a minimum.

7.The guest said that a paying sales taxes are a 'choice'.  This, is, of course, for everybody but the 'back to earthers' ridiculous.  He also said that the effective rate on the 'flat tax' goes 'up and up.'  This is simply not true.  Many of the wealthiest save or invest a great deal of their income rather than spend it.  None of that would be taxed. It is most likely that the middle class, or the slightly upper middle class would end up paying the highest percent of their income in 'fair taxes.'

8.The Fair Tax would almost certainly not eliminate lobbying and claims for 'deductions'.
Charities would certainly get a lot of sympathy if they argued that sales tax payers should be able to send in tax receipts and receive money from back from the government equal to a percentage paid to the charity.  There are many other worthy tax deductions and credits, for instance those that benefit the physically and mentally challenged.  Again, it would be hard to imagine these people not receiving subsidies to equal what they presently receive in tax deductions and credits.  The fair tax would not eliminate lobbying, it would merely shift the demand from credits and deductions to direct subsidies.

9.Finally, and possibly most importantly, which sadly nobody called the guest up about, a 'fair tax' would result in a huge increase in taxes paid by middle class seniors.  Seniors earn most of their income from their 401k (RRSP in Canada), from social security and from other savings/investments.  Other than interest income on savings and dividend taxes, at present, none of this is taxed.  While poor seniors would likely pay no 'fair tax' thanks to the 'prebates' of income up to around $20,000 or so, a senior making more than that would start paying taxes whereas they pay very little now.  The only way around taxing seniors who have, presumably, already paid taxes all their (working) lives would be to exempt seniors from the 'fair tax.'  This would mean: 1.An agency be needed to determine who the seniors are, 2.The 'fair tax' would have to be even higher for everybody else.

Edit: It seems Spillane's also lowered the amount of the 'prebates.' In a previous post I wrote on this on another board, he had proposed 'prebates' of $6,400 for everybody, this time he said $2,300.

[PaulAtreides]

Withdrawals from most 401(k) accounts are taxable as most were funded with pre-tax dollars.

[Gd5150]

The consumption tax will never happen because it would literally cost the country millions of jobs in accountants and lawyers and other tax related careers. The tax is code is also where our noble saviors get their power by changing it, directing money to different parts of the economy without warning, and thus causing different sectors to crash, real estate bubbles etc...Congress will never give up this power.

The idea of a consumption tax is good in that it taxes everyone from top to bottom more equally based on how much they spend. Right now those in the top few % make no income. They're either trust funders or they own the company etc...and pay themselves 1 cent per year. Both may pay some taxes via capital gains but no where near their income tax bracket. Those in the bottom also need to pay something, otherwise they vote to screw everyone else because they don't have to pay for any of it. Thanks to the Bush tax cuts those in the lowest brackets pay zero income tax. The government does tax them though and quite heavily, go to any convenience store on a Friday afternoon and you'll see how, cigarettes, booze, lottery.

So what ends up happening is those in the shrinking middle class who do the most the work, and receive the least benefits, can't afford to pay someone to help them walk the IRS mine field to avoid taxes so they carry the load.

Add to it the stranglehold Obamacare has placed on business and individuals and you see the middle class shrinking and their wages going down the crapper. Hence the 25 million less full time jobs, and the overwhelming majority knowing the economy is still in recession 6 years into Obama's presidency.

[VtaGeezer]

This snake oil has been pushed by Chamber of Commerce types for 20 years to get non-analytically minded working stiffs to buy into a "fair-y" tale tax structure that would effectively exempt high income recipients from most taxes.  Modern marketing is effective and the moneyed are gradually herding the workers back into a robber baron economy where middle class means you can afford meat for Sunday dinner.

[GeorgieForPresident2216]

In addition to the above, I presume much of the GDP or consumption spending, or whatever measure you want to use, comes from government spending.  The government taxing its own purchases would make no sense so that would seem to necessarily push the flat tax up even more from 23 percent or 25 percent to perhaps closer to 30% (I'm just pulling numbers out of the air to make the point).  Of course, the government currently collects income and corporate tax from its employees and contractors which may be the same thing.  I assume those recursive taxes are calculated into federal revenue.  My brain isn't quite big enough right now to understand whether the government charging itself sales tax would be the same as the government collecting income tax on itself.

I'm not sure how raw materials are calculated into this plan.  If an engine manufacturer had to pay a 23% premium on the steel it bought it would have to add that to the price of the engines.  That manufacturer would then have to charge the automotive manufacturer more for their engines, plus a 23% tax on top of that.  The Auto manufacturer now has to charge the dealers more for its cars, plus another 23% in tax.  By the time it gets to the consumer, the addition of all those taxes must be exorbitant.  Is it only the final consumer product that is taxed, or is the elimination of corporate taxes supposed to make up for these 23% premiums?  I presume employees won't be required to take a pay reduction even though they aren't being deducted for income tax.  I'm sorry if I don't understand the full concept.

If someone with very little or no income is now forced to pay an additional 23% on groceries when they already couldn't afford to eat properly, they will increasingly choose the cheapest, most nutritionally depleted foods they can.  This will result in lower overall health of society, consequent lost productivity, and increased medical costs.  Even the middle class will be feeling enough of a pinch that they will probably be forced to make worse food choices.

In general, no one will want to pay 23% taxes even if they can afford it.  It is a psychological reality that people will do more to protect what they have than they will to increase their earnings.  People will buy fewer luxury items and chose to downsize.  When they buy necessities, they will increasingly go to the cheaper quality products produced in China and sold in Walmart.  This plan seems like it can only degrade consumer spending habits and crash the economy.

I will be glad to have someone point out where I went wrong.

[Gd5150]

In general, no one will want to pay 23% taxes even if they can afford it. 

This cracks me up. No one wines when they pay 10% sales tax, but 23% is just way too much! People pay 80% in taxes now over the lifetimes, but since it's hidden its ok. God forbid they know they're paying taxes, they might actually try to avoid paying them.

This really is the key to taxes, as long as the government can keep taxes hidden they're fine. By deducting ones income tax before they're paid, and the payroll tax the business pays, and healthcare costs and taxes, and medicare, and medical, and social security, and unemployment, and sales tax, and business tax, and hotel tax, and gas tax, and taxi tax, and snack tax, and property tax, and alcohol tax, and the lottery which is 90% tax, and the alcohol tax, and tax tax, and yada yada yada.

Again the flat tax would crush government's power to manipulate the ignorant, and that alone makes it worth exploring.

[Quick Karl]

The problem with tax reform is that the all of the people living off of other people's taxes will always find a reason to oppose any tax reform - their answer is always "raise taxes anyone that can pay," period. As is always the case, they put themselves first and curse you when you don't want to feed them...

This includes Social Security recipients as well as Welfare parasites - and you know who you are.

[136 or 142]

Withdrawals from most 401(k) accounts are taxable as most were funded with pre-tax dollars.

Yes, as are RRSPs in Canada.  My bad. Thanks for the correction.

[136 or 142]

In addition to the above, I presume much of the GDP or consumption spending, or whatever measure you want to use, comes from government spending.  The government taxing its own purchases would make no sense so that would seem to necessarily push the flat tax up even more from 23 percent or 25 percent to perhaps closer to 30% (I'm just pulling numbers out of the air to make the point).  Of course, the government currently collects income and corporate tax from its employees and contractors which may be the same thing.  I assume those recursive taxes are calculated into federal revenue.  My brain isn't quite big enough right now to understand whether the government charging itself sales tax would be the same as the government collecting income tax on itself.

I'm not sure how raw materials are calculated into this plan.  If an engine manufacturer had to pay a 23% premium on the steel it bought it would have to add that to the price of the engines.  That manufacturer would then have to charge the automotive manufacturer more for their engines, plus a 23% tax on top of that.  The Auto manufacturer now has to charge the dealers more for its cars, plus another 23% in tax.  By the time it gets to the consumer, the addition of all those taxes must be exorbitant.  Is it only the final consumer product that is taxed, or is the elimination of corporate taxes supposed to make up for these 23% premiums?  I presume employees won't be required to take a pay reduction even though they aren't being deducted for income tax.  I'm sorry if I don't understand the full concept.

If someone with very little or no income is now forced to pay an additional 23% on groceries when they already couldn't afford to eat properly, they will increasingly choose the cheapest, most nutritionally depleted foods they can.  This will result in lower overall health of society, consequent lost productivity, and increased medical costs.  Even the middle class will be feeling enough of a pinch that they will probably be forced to make worse food choices.

In general, no one will want to pay 23% taxes even if they can afford it.  It is a psychological reality that people will do more to protect what they have than they will to increase their earnings.  People will buy fewer luxury items and chose to downsize.  When they buy necessities, they will increasingly go to the cheaper quality products produced in China and sold in Walmart.  This plan seems like it can only degrade consumer spending habits and crash the economy.

I will be glad to have someone point out where I went wrong.

1.As Spillane explained on the show, the tax would be like a GST where only the final retail sale is taxed.  Businesses buying from retailers would likely get their money back via an 'input tax credit' as is done in Canada that would reduce their sales tax remittances (A simple subtraction of sales taxes paid from sales taxes owed).  This is simple but clearly a new agency (if the IRS is eliminated) would be required to ensure no cheating. Businesses buying inputs from wholesalers would not be taxed.

2."In addition to the above, I presume much of the GDP or consumption spending, or whatever measure you want to use, comes from government spending."
GDP is comprised of 4 components: G+C+I+X-M
G = Government spending (On goods and services, not on wages)
C = Consumer Spending
I = Business Investment
X-M is the difference between exports (X) and imports (M)

Consumer spending has tended to be between 65-70% of total GDP for the last 25 or so years.

[PaulAtreides]

This includes Social Security recipients as well as Welfare parasites - and you know who you are.

I paid into Social Security for over 40 years.  I'll keep my benefit (which is taxable) thank you very much.  But I'm certain you can find a way to steal from widows and orphans - it's the Republican way.

[VtaGeezer]

But I'm certain you can find a way to steal from widows and orphans - it's the Republican way.

and don't forget how they efficiently keep the supply of widows and orphans up with their never-ending wars.

[Gd5150]

But I'm certain you can find a way to steal from widows and orphans - it's the Republican way.

You forgot to mention how they take school lunches away from starving kids living in mud holes and want to feed old people cat food. Those evil Republicans!

[PaulAtreides]

You forgot to mention how they take school lunches away from starving kids living in mud holes and want to feed old people cat food. Those evil Republicans!

They really are a bunch of evildoers.  I believe we should round them all up and give them a new home more consistent with their values, say Mississippi or Alabama.  Or even Texas as long as we could build a wall around it to keep them from escaping.

[VtaGeezer]

They really are a bunch of evildoers. 

The shame is that they didn't used to be...not until Limbagh put his ass-print on American conservatism.  The GOP today is full rightwing radical, and headed for the other f-word.  Reagan today would repeating his famous line "...my party left me!"

[Quick Karl]

I paid into Social Security for over 40 years.  I'll keep my benefit (which is taxable) thank you very much.  But I'm certain you can find a way to steal from widows and orphans - it's the Republican way.

Social Security was never meant to be "lifestyle insurance" - it's supposed to be a safety net for the folks that didn't have retirement plans instead of telling them to eat shit, as you are telling the young folks of America with your guilty response. Folks like you that have bought into the take-what-you-can-get-plan are one of the greatest problems America has to endure.

Why don't you give that social security check to the poor or donate it to a school lunch program?

[Gd5150]

The shame is that they didn't used to be...not until Limbagh put his ass-print on American conservatism.  The GOP today is full rightwing radical, and headed for the other f-word.  Reagan today would repeating his famous line "...my party left me!"

The shame is you actually seem to believe this. Fortunately there are very few posses your level of ignorance so we can all laugh about it. The right consistently out donates to charity by miles over the left. It's not even comparable. The left is great at helping others as long as the money is taken from anyone but themselves. They're great at regulating other people as long as the rules don't apply to themselves. If Obama had only been elected in 2000 we could be enjoying our 15th year of recession instead of 7th. Oh well maybe Hillary will win, she's probably got a great plan. maybe shell double down on the Obama doctrine and kill another 25 million full time jobs.

Note: last Friday was Rush Limbaughs 25th annual cure a thon. An annual event in which he uses his program to raise money for cancer research. The host kicked off this year by donating $600,000 of his own money to the Leukemia and Lymphoma Society. By Monday he and his listeners had raised millions for the cause this year alone. In the 25 years Rush and his greedy heartless Republican listeners have donated over $40,000,000 (that's million) to the Leukimia & Lymphoma Society.

[VtaGeezer]

Note: last Friday was Rush Limbaughs 25th annual cure a thon.

Am I supposed to be impressed by that display of gross sycophancy?  $600K is nothing to The Fat Ass; an insignificant investment to convince his gullible toadies that he's such a wonderful guy...while ranting daily that society has no obligation to help anyone, and ridiculing those in need of help from others.  Many celebs who make far less than he give far more. $40M total in 25 YEARS??  With his following??  You and the other millions of dittoheads should be ashamed that you're so f'ing cheap.  Limbagh is the face and voice of conservative malevolence and resentment; your posts are plain evidence of the impact his cynicism and antagonism on America.

[FightTheFuture]

Am I supposed to be impressed by that display of gross sycophancy?  $600K is nothing to The Fat Ass; an insignificant investment to convince his gullible toadies that he's such a wonderful guy...while ranting daily that society has no obligation to help anyone, and ridiculing those in need of help from others.  Many celebs who make far less than he give far more. $40M total in 25 YEARS??  With his following??  You and the other millions of dittoheads should be ashamed that you're so f'ing cheap.  Limbagh is the face and voice of conservative malevolence and resentment; your posts are plain evidence of the impact his cynicism and antagonism on America.

El Rushbo is doin` your wife. Has to be....

[VtaGeezer]

El Rushbo is doin` your wife. Has to be....

Nah...not his type; she's over 12.

[136 or 142]

In a slightly longer period of time, the Terry Fox Foundation has raised $700 million for fighting Cancer, mostly from Canadians.

[Gd5150]

Am I supposed to be impressed by that display of gross sycophancy?

Thank you for putting your ignorance on display for all to see. Like most on your side charity is a word you are unfamiliar with. I'm sure it's nothing compared to the jack squat you do for anyone but yourself. It's true 600k this year alone for 1 charity is nothing really. Plus the fact he dedicates an entire program every year to the cause. In the interest of fairness and to help educate you, lets compare this to some others you're very familiar with:

Rachell Maddow - oh sorry she and her program do nothing.
Chris Mathews - Whoops I guess his 40 years in media and having his own programs haven't afforded him this same charitable   ability.
Anderson Cooper - Well he does do the new years eve ball drop with Kathy Griffen which raises a whopping zero dollars for charity.
John Stewart. - Yes the #1 source for pretend news for all liberals, every year for the last 16 years he's dedicated a total of no programs to raising money for charity.
Bill O'Reilly - 7 million books sold, all profits, proceeds donated to charity.
Hillary Clinton - 14 million dollar book advance, 1st week to break even it had to sell 300k copies. In 10 months, it's sold less than 200k copies. How much donated to charity? Zero.

Take a guess which of the above is not a left-winger? I'll give you a hint, its the one who donated over 10 million to charity. It's not one of the 5 who did nothing but yap. Clearly they're in touch with the lefts strategy of doing nothing to help others. Lockstep with their foreign policy philosophy.

[VtaGeezer]

Thank you..

Take a break, fanboi.  You're embarrassing yourself. You can't put any numbers by the evil lefties' names because they don't use it as self-promotion like Limbagh, O'Reilly and the rest of the stars of the braying right.

[Zetaspeak]

I always respect the quiet charity givers, than the grandstanders who really want to make sure everybody knows how amazing they are.

As for the fair tax. I am always very suspicious of anything that's given an obvious "gimmick" name. Like "Fair Tax" or "Patriot something" etc etc

[Quick Karl]

Everything that needs to be said about the democrat party, the left, and liberals...

https://www.youtube.com/watch?v=9kry_VfFSh4&feature=player_embedded

[136 or 142]

I'm not sure how this thread drifted from the 'Fair Tax' to charity other than if the 'Fair Tax' is ever implemented it will likely lead to a sharp decrease in charitable donations.

Jon Stewart: http://www.mnn.com/lifestyle/arts-culture/blogs/jon-stewart-offers-daily-show-guest-spot-for-charity

Chris Matthews: Kathleen Matthews is active in charitable causes, sits on many non-profit boards, and with Chris, co-chairs a capital campaign for D.C. Catholic Charities.

Hillary Clinton: Clinton Foundation?

[Gd5150]

You can't put any numbers by the evil lefties' names because they don't use it as self-promotion like Limbagh, O'Reilly and the rest of the stars of the braying right.

Hard to raise money when someone doesn't use their media power via their program to actually raise money. Yes I'm sure they all do it behind closed doors. Just like the rest of the left who lags far behind the right in charitable donations. It must be be hard to be you when reality is so far from your ignorance. Please keep posting, keep the belly laughs coming. 

[Gd5150]

Jon Stewart: http://www.mnn.com/lifestyle/arts-culture/blogs/jon-stewart-offers-daily-show-guest-spot-for-charity

Props to Stewart for donating 5 minutes of his show so someone could raise money. And how did you come across this info? Oh a press release, got it. 

[136 or 142]

Props to Stewart for donating 5 minutes of his show so someone could raise money. And how did you come across this info? Oh a press release, got it. 

Maybe the network won't allow them to.

[albrecht]

Sales taxes work just fine in states/cities that have them. I would like a national sales tax. Full stop and that is it. Sure there will be fraud but there always is fraud- and likely less fraud than in the current system (and less legal fraud in that the uber-rich and large corporations can make Congress write themselves benefits into the tax code.) It would also capture money from the illegal aliens, drug dealers, etc because even criminals buy things. I would exempt certain items from the tax, as opposed to this "rebate," to help poor people and those on fixed-incomes. (For example no tax on basic foodstuffs and also (like we do here) a tax-free weekend 2x a year where basic clothes and work clothes could be bought tax-free. Also would have exemptions (like what happens now in places with sales tax) that charities, churches, etc don't need to pay it.

Also think of the opportunity costs of all those clever lawyers, accountants, lobbyists, auditors, compliance officers, etc currently involved with writing, exploiting, processing, and punishing the bloated tax-code. All of that time, talent, and effort could be brought to bear in actual beneficial economic activity!

ps: I love it when the pro-tax and pro-large government types are so frequently caught cheating on the taxes they love so much!
http://www.politico.com/blogs/media/2015/04/msnbcs-melissa-harrisperry-owes-in-delinquent-taxes-205646.html