The Fairness Doctrine

Fred Thompson arrived in Texas last week for one of his iconic meet-and-greets—put on a cowboy hat, sling some words, dodge a 9/11 Truther, take the next flight home. During the scrum one of the Fair Tax campaigners (the people who want the IRS toppled and replaced with a 23 percent sales tax) asked Thompson "If the House and Senate pass the Fair Tax bill do you feel right now that you would sign it? Here's what he said.

You can't write it off as a presidential candidate making nice with a goofy group because five other candidates have said "yes" to that question and stuck by it: John McCain, Tommy Thompson, Tom Tancredo, Duncan Hunter, and Mike Huckabee. (Huckabee has proposed a "fair tax" and some loopholes to make the whole system "family friendly" in a shameless bid for the barefoot and pregnant vote.) Frankly, I'm not inclined to write it off because we need some sort of debate about tax policy. Six of the eleven GOP candidates want a national sales tax and a seventh (Ron Paul) wants to abolish the IRS? Why are we wasting debate time asking these guys "what you most dislike about America?" or "what you think of Bill Clinton being back in the White House?"

Oh, and it's yet another Thompson blunder that the campaign could have answered or killed off days ago and is instead leaking into a slow news cycle. You might want to stick with your Rudy Giuliani stock.

Comments

[P Brooks]

I couldn't bring myself to watch the youtube show on CNN; were there any questions on tax policy? If there were, nobody has been talking about it.

[Michael Pack]

23% !!Thats a fair tax.By the time you add state and local you'll be at over one third the gdp.I'm good with 15%.

[Dan T.]

It's true that most Americans don't consider tax policy to be that big an issue, which tells me that even though we grumble about paying tax we generally see our current system as being about as fair as it's going to get.

Side question: even if you want to change the way taxes are assessed, what would be the point of abolishing the IRS? Wouldn't you just have to turn around and create a new one? Somebody's gotta collect taxes.

[iih]

Michael Pack:

You pay 15% in sales tax? Are you in Canada? Quebec and Ontario have 15% sales taxes, is there any place in the US that charges 15% for sales tax?

[MP]

what would be the point of abolishing the IRS?

I believe that holders of this opinion are simply looking to abolish Federal and State intrusion into personal financial matters. They're realistic that a tax collection agency still needs to exist, but if you aren't collecting income taxes, it would run differently than the IRS.

[Dan T.]

Fair enough, MP. But wouldn't any sort of tax collection require the government to be somewhat involved in personal financial matters?

[iih]

Another side question Re taxes:

As a non-citizen I pay taxes but do not get a right to vote. I know that taxes are paid for public services, but shouldn't (a) I pay less taxes for not being able to elect the government of my choice, or (b) get a right to vote because I pay full taxes just like everyone else?

[P Brooks]

With a sales tax, the merchant collects the tax; I would give the audit/ oversight job to the GAO.

[Michael Pack]

No,what I'm saying is the feds do not need more than 15%.They were talking about a US sales tax to replace the current system.

[iih]

MP:

Okay, I guess I misunderstood you.

[P Brooks]

I had not given it much thought previously, but one cannot deny that a 23% sales tax is sufficiently large as to create a powerful temptation for avoidance. It would be quite educational for Americans at large to get real feel, on a daily basis, for the cost of their government. I consider that a major benefit of the idea.

[Max]

As a non-citizen I pay taxes but do not get a right to vote. I know that taxes are paid for public services, but shouldn't (a) I pay less taxes for not being able to elect the government of my choice, or (b) get a right to vote because I pay full taxes just like everyone else?

At least you don't have to pay taxes if you leave the country, unlike citizens.

[Dan T.]

Another side question Re taxes:

As a non-citizen I pay taxes but do not get a right to vote. I know that taxes are paid for public services, but shouldn't (a) I pay less taxes for not being able to elect the government of my choice, or (b) get a right to vote because I pay full taxes just like everyone else?

I think there's a case to be made that you "should" be given one of these considerations. But if you're like me, and consider taxes to be the price of living in a society, then you'd have to say that you can either accept the terms as they're offered to you or find somewhere else to live.

In other words, "shoulds" rarely factor into price.

[Fluffy]

Pack -

A tax on 23% of the purchases I make would probably end up being a lot less than a tax of 15% of my income.

[Depending on whether or not a mortgage payment was a "purchase" - and I would assume not; if debt payments were considered purchases every purchase made with a credit card would be taxed twice.]

[MP]

Fair enough, MP. But wouldn't any sort of tax collection require the government to be somewhat involved in personal financial matters?

Only if you were self-employed. Otherwise, it's a business issue, in which there is typically a high wall between the business' financials and an individual's financials. And even then, it's strictly overseeing sales records, not operational records (ex: no reason to access payroll information in a Fair Tax regime).

Disclaimer - I don't buy into the arguments that the Fair Tax is less intrusive than the Income Tax. They both suck.

[Ayn_Randian]

Dan T., if we were dependent on your brains for electricity, we'd have to bring back the server squirrels just to hear your inanities.

[MP]

Depending on whether or not a mortgage payment was a "purchase" - and I would assume not; if debt payments were considered purchases every purchase made with a credit card would be taxed twice.

Why would they tax your mortgage payment? If it's to be imposed, it would be at Point of Sale (i.e. your closing in the case of a house purchase). Of course, then you'd have people screaming for an exception...which would happen...as would 100,000 other exceptions.

[tarran]

Dan,

You've nailed the big flaw in the Fair Tax proposal:

Any time you want transactions to be taxed differently depending on who is doing them, you need a tax collector who pokes his nose into other people's business.

The Fair Tax differentiates between sales to consumers and sales to resellers. The same sale can be taxed differently depending on who is buying the good. So, you will have auditors looking at not only the amount of money that changed hands, but where the purchased item went and how it was used. No intrusion there.

There are also schemes one can come up with to "game" the tax; two parties can collude to pay a small tax on a nominal sale and get lots of money one the sale of the now "used" product.

As theory, the idea sucks too - what is an income tax but a sales tax on labor?

In the end, the Fair Tax would be a blow to small businesses. It would provide vertically integrated corporations with a huge advantage over small mom-and-pop shops (to be fair the current system does this to a lesser extent too). It still requires auditing, and intrusive auditing too. The IRS will still be around, it will just focus its harassment and intrusions on people who make their money in other ways than selling their labor to some company.

[joe]

iih,

IMHO, you should either have the right to vote in the country where you are a citizen - you've gotta be a citizen of somewhere, right? - or you should be able to become a citizen of the U.S.

[iih]

Max, Dant T.:

Yep, good points. I guess if taxes are unfair to me, they are already unfair for everyone else.

[iih]

joe:

🙂 But I haven't been to where I am a citizen for nearly 7 years now, but if I vote there may tax money is being spent here! So my vote over there does not dictate how my tax money is being spent here!

[Cesar]

I'd only before a sales tax if food and clothing is exempted.

[Dan T.]

Yep, good points. I guess if taxes are unfair to me, they are already unfair for everyone else.

I'm saying that taxes are neither inherently fair or unfair. Like any price, you either accept them or you don't.

[Michael Pack]

I like the plan Steve Forbes put forward years ago.A 20% tax on all income starting at 25,000.No other deductions.

[Dan T the Jingo!]

I'm saying that taxes are neither inherently fair or unfair. Like any price, you either accept them or you don't.

FUCK YAH!! AMERICA...LOVE IT OR LEAVE YOU LIBERTARIAN SWISS LOVERS!! IF YOU DON'T LIKE THE 'PRICE' OF OUR GREAT SOCIETY, WELL, YOU CAN JUST GO SOMEWHERE ELSE? HOW ABOUT THAT...HUH???

[iih]

Dan T.:

But what if someone does not accept them, what then? This is really not a matter of price negotiation that is based on the consent of the two parties, unless the view is that through the representation of elected officials, the tax "negotiation" takes place. And we are back to my original question, if I do not have someone in congress, whom I get to elect, who will negotiate on my behalf?

[Dan T the Jingo!]

I MEANT FOR THAT QUESTION MARK TO BE THERE!! IT'S A TEST FOR TAX-HATING TRAITORS!!

[SIV]

Side question: even if you want to change the way taxes are assessed, what would be the point of abolishing the IRS? Wouldn't you just have to turn around and create a new one? Somebody's gotta collect taxes.

Dan T. Stopped clock.....twice a-day.

[sage]

...even though we grumble about paying tax we generally see our current system as being about as fair as it's going to get.

I really don't see it that way. I think most people see "net pay" on their pay stub and don't even really pay attention to what they're paying in taxes. Make that small change, where people get their entire salary on payday and have to pay one tax bill each year, and a hell of a lot less people will see it "as fair as it's going to get."

[SIV]

iih,

Parts of Louisiana are at %10 sales tax. Tennesssee is over 9. Tires, gasoline, tobacco, alchohol exceed %15 when you count the excise taxes.

[James Ard]

I own a small business, and I am already complying with local and state sales taxes each month. I don't see much hardship in adding one more monthly form. Seeing my local Gyro shop owner sent to jail for bribing the sales tax agent is enough to keep me from cheating. And to keep me from eating whatever that meat is on his skewer.

[iih]

Every state I have lived in so far had at most 6.25% sales tax. I did not know it could as high as 10 and 15% in the US. These are really surprising rates.

[sage]

In the county I live in (in Western Washington) it's currently at about 9%.

[MP]

NH - 0% baby.

Oh...and Income Tax...0% baby.

It won't last must longer though without a Constitutional amendment. But that's a snooze'o'rama topic.

[crimethink]

Holy cow, 23%?! I'm not a fan of "progressive" tax schemes that aim to soak the rich, but I'm even less a fan of "regressive" taxes (like sales taxes) that place a disproportionate burden on the poor.

How can a gigantic sales tax be considered a "Fair tax" in any sense of the word?

[New WorldDan]

How about a flat tax of 5% on all stock market trades (for both buyer and seller). The NYSE alone could pay the entire federal budget that way. It would be progressive in that poor people don't have money in the stock market to begin with.

[Cesar]

Why not a luxury tax? That way necessities wouldn't be taxed but things like Hummers and fur coats would be. It would also encourage the rich to save and invest instead of consumer.

[JasonL]

There has to be a better way than taxing productivity like the income tax does. Two things that seem stupid to deter through taxation are productivity and investment.

Maybe a very low income tax combined with an offsetting fuel tax of some sort? I dunno.

[Mo]

The problem with a sales tax is that there are studies (can't cite them off hand) that show that sales tax avoidance increases significantly at rates above 15% or so. In order to make up for the shortfall, the tax rate will go up, meaning honest people will be punished. Like Michael Pack, I like the flat tax with a single deduction. This also eliminates the need for the IRS.

[tarran]

Crimethink,

Under the Fair Tax proposal, people would get "rebates" from the govt for a portion of their taxes.

Let's say the govt decides that each adult needs $10,000 to live for a year, and each child needs $5,000.

Then a family of four would need $30,000 to live for a year. The govt would then cut checks every quarter that would equal the tax paid on that $30,000, approximately $7,300 per year.

Of course, this brings up another avenue for fraud. If I claim to have 6 children, I could live off of these rebates. Thusthe notIRS would probably be demanding social security numbers and the like and checking records to see which child lived with whom.

[SIV]

How can a gigantic sales tax be considered a "Fair tax" in any sense of the word?

It might be in "Fair Tax-topia". Any real world implementation wouldn,t be. Congress and the multitude of lobbying interests would give us a VAT.

[Seitz]

I had not given it much thought previously, but one cannot deny that a 23% sales tax is sufficiently large as to create a powerful temptation for avoidance.

In practice, these proposals tend to understate the rate of the tax. For example, most of us hear about a proposed 23% sales tax, and think that it's 23% tacked on to whatever the purchase price is. But that's usually not how these are designed or calculated. The tax is calculated after the purchase, and taken out of the entire price, which forces retailers to bump prices up to make up for the tax.

For example, any normal person who is accustomed to paying sales taxes would look at a purchase for $100 and figure that the price, after tax, would be $123. But that's not the way these are written. They've already factored in the tax. They consider the 23% to be the percentage of the total price attributed to the tax. So a "23% Tax" is really more like a 30% tax in practice. I don't love using Wikipedia as a source, but here's how it's described there: The sales tax rate, as defined in the legislation, is 23% of the total register price (23? of every $1 - calculated the same way as income taxes), which is comparable to a 30% traditional state sales tax (30? on top of every $1).

In other words, the way most people think about sales taxes, something that costs $100, subject to a 23% tax, would cost $123. But under the "fair tax" take something that costs $123 after tax. The price of the actual good is $94.71 ($123 x 23%). So the actual amount of tax on that purchase isn't $23, it's $28.29, which almost 30% on top of the $94.71. But it's a lot tougher to sell a 30% sales tax than a 23% sales tax, so they play games with the numbers.

Oh, and that doesn't include state and local sales taxes.

[Seitz]

Every state I have lived in so far had at most 6.25% sales tax. I did not know it could as high as 10 and 15% in the US. These are really surprising rates.

I work for a tax consulting firm and I specialize in sales tax (just left a Big 4 firm after about five years). No state + local rate approaches 15%. I also live in Chicago, and I haven't run across any location with a higher combined tax rate than the City of Chicago, which is currently over 9%. No one in this country pays 15% in sales tax. There are transaction taxes that approach that amount (things like Hotel Occupancy Taxes), but not sales taxes.

[SIV]

Oh, and that doesn't include state and local sales taxes.

Or the revenues collected by State income tax.

[Seitz]

And as SIV noted, there are particular items subject to excise taxes that push the rate closer to 15%.

[Dan T.]

Dan T.:

But what if someone does not accept them, what then? This is really not a matter of price negotiation that is based on the consent of the two parties, unless the view is that through the representation of elected officials, the tax "negotiation" takes place. And we are back to my original question, if I do not have someone in congress, whom I get to elect, who will negotiate on my behalf?

Admittedly, you don't have a whole lot of leverage here, but that's true of many business arrangements. If I want to buy an item from Wal-Mart, I can either accept their price or shop elsewhere.

The US government says "if you want to live here, it will cost you this much". By living here, you are agreeing that it's worth the price, even if you wish the price was lower.

[mediageek]

How about a flat tax of 5% on all stock market trades (for both buyer and seller). The NYSE alone could pay the entire federal budget that way. It would be progressive in that poor people don't have money in the stock market to begin with.

I call bullshit. Even when I was making less than $7/hr, I managed to squirrel away money in a Roth IRA.

[jh]

joe said: IMHO, you should either have the right to vote in the country where you are a citizen - you've gotta be a citizen of somewhere, right? - or you should be able to become a citizen of the U.S.

And that, in a nutshell, is statist thinking "you've gotta be a citizen of somewhere" aka "you have to be the serf of some gang of politicians -- can't have anyone opting out of governments and arranging for private providers of roads, schools, security, etc."

Re: the so-called Fair Tax proposal: note that they're not talking about reducing the government's take -- 23% of sales is allegedly just as big a bite of our money as the IRS takes -- rather, they're proposing taxing consumption rather than income, which redistributes the tax load more onto the backs of lower-income people and less onto the backs of upper-income people. If the proposal was to eliminate the IRS and whatnot and impose a 5% or even 10% sales tax in its place, then that would be a more libertarian approach I'd endorse. But mainstream politicians proposing a reduction in OPM (Other People's Money) they can spend -- not.

If Fred was balking at the 23% part, and considering a lower figure, then perhaps he'd be taken more seriously here. But it looks more like he's trying to have it both ways here.

[Dan T.]

Re: the so-called Fair Tax proposal: note that they're not talking about reducing the government's take -- 23% of sales is allegedly just as big a bite of our money as the IRS takes -- rather, they're proposing taxing consumption rather than income, which redistributes the tax load more onto the backs of lower-income people and less onto the backs of upper-income people.

Right, and I think the main reason the Fair Tax has no chance is because for the most part people are going to assume that any new tax plan championed by Republicans is going to help the rich, regardless of whether they call it "fair".

[adrian]

The fair tax will not raise the price of goods by 23% (or 23% minus your current rate). The plan eliminates many other taxes on businesses, suppliers etc. Things may go up slightly but most people will be far better off with just a sales tax than sales + income tax. Also as people have stated earlier in earlier comments, rebates would be given to lower income individuals, and (basic) food would not be taxed.

please spend 5 minutes reading up on it, i know neal bortz(sp?) has a good book out on it, and you don't have to agree with the rest of his ideas to like this one.

adrian

[Seitz]

Parts of Louisiana are at %10 sales tax.

Actually, there are some locations where it's over 10% (barely). Louisiana is one of four states that have a relatively low state rate, and higher local rates because the parishes administer the tax themselves. Colorado and Arizona are like this too. It's hell when it comes to defending audits.

Another issue with a "fair tax": don't count on buying that computer or anything else you might purchase online tax free (of course, you're supposed to self assess use tax on those things, but no one ever does). Engagement rings, too.

[MP]

please spend 5 minutes reading up on it

Because clearly, those of us who think it's just a horizontal change haven't bothered to read anything about it.

Piss off.

[Garth]

A high sales tax is hardly fair:

1) It is terribly regressive.

While I agree that rich people should (presumably) pay more in taxes overall under this scheme, it remains a fact that poor people consume a much higher percentage of their incomes and would, therefore, pay a higher effective rate of taxation. Politically, this should prove to be a very hard sale.

2) It would be economically distortive.

Different goods and services have very different price elasticities. In some cases a 23% sales tax added on to the price of a good will have little impact on the demand for that good while in other cases it may lead to a sharp decline in demand. This is particularly true for low-priced good where margins might also be low and therefore sellers unable to absorb some of the price increase through smaller profit margins.

While I do not think that it is a make-or-break issue, is it not likely that there will be calls for certain goods to go untaxed, such as food-stuffs and clothing? Is it also not likely that politicians (and interest groups) will demand higher rates for luxury goods? Is a complicated sales tax all that much preferable to our current income tax system?

What we need is a tax on consumption (somewhere in the neighborhood of 20%) after an automatic exemption on the first $20,000 in spending per person regardless of age. This would encourage savings, potentially be "progressive" and would be very very simple. Click my linked name for an example of my version of a simplified tax form.

[P Brooks]

"But that's usually not how these are designed or calculated. The tax is calculated after the purchase, and taken out of the entire price, which forces retailers to bump prices up to make up for the tax."

In other words, the tax is supposed to be invisible to the taxpayer. Thanks for the heads-up, Seitz.

[x,y]

Even if we did change tax systems (for lack of a better phrase), the powers that be would insist that the new system be revenue neutral. You know, no talk about decreasing the size of the state. Just tinkering with the process.

[x,y]

Also, the powers that be have an interest in keeping taxes as hidden as possible. That's why federal and state income taxes are deducted automatically from our paychecks. Even if we changed the system, the new system would obscure the state's take as much as possible.

[jh]

Admittedly, you don't have a whole lot of leverage here, but that's true of many business arrangements. If I want to buy an item from Wal-Mart, I can either accept their price or shop elsewhere.

The US government says "if you want to live here, it will cost you this much". By living here, you are agreeing that it's worth the price, even if you wish the price was lower.

If I don't like the price Wal-Mart is charging, I can go to another retailer in town, or buy a lesser quantity of the item than I planned on, on not buy the item at all.

If I don't like the price the U.S. government is charging, I can quit my job and sell my house and move to another country, which will still charge me for government services, even if I don't want those services at all. I can't opt out entirely. I can't take my business to the competing libertarian U.S. government store, or any other competitor. I have to pay monopoly prices for services I don't want, or I'll eventually wind up in jail. Wal-Mart can't do that to me.

These two situations are not at all comparable, Dan T.

[Seitz]

In other words, the tax is supposed to be invisible to the taxpayer. Thanks for the heads-up, Seitz.

Well, yeah. But the point is that a 23% tax isn't a 23% tax, at least not the way most people think of a sales tax. It's a 30% tax.

[Seitz]

And to finish the thought, the thing that's really supposed to be invisible (if you're a Fair Tax supporter) is that extra 7%.

[mediageek]

I don't understand why you people continue to chase after the chum Dan T. throws into the water.

[Dan T.]

If I don't like the price Wal-Mart is charging, I can go to another retailer in town, or buy a lesser quantity of the item than I planned on, on not buy the item at all.

If I don't like the price the U.S. government is charging, I can quit my job and sell my house and move to another country, which will still charge me for government services, even if I don't want those services at all. I can't opt out entirely. I can't take my business to the competing libertarian U.S. government store, or any other competitor. I have to pay monopoly prices for services I don't want, or I'll eventually wind up in jail. Wal-Mart can't do that to me.

These two situations are not at all comparable, Dan T.

Listen, you're correct that moving out of the country is a much more severe and difficult option than shopping at a different store. The Wal-Mart example was an analogy.

But the fact is that's the way it works. Sorry you can't get the benefits of living where you do for free.

I mean, you're still basically saying that even though you wish the price of living here was lower, it's not so high that it's worth leaving.

[Dan T.]

I don't understand why you people continue to chase after the chum Dan T. throws into the water.

Because some people like their points of view challenged. Some don't.

[BURRNNN!]

jh,

Fuckin a... how does it feel to be pwn'd by Dan T?

[adrian]

MP: So you'd say this is no better than the current system we have in place?

[John Kindley]

"I like the plan Steve Forbes put forward years ago.A 20% tax on all income starting at 25,000.No other deductions."

This plan would be far more acceptable if it was a 20% tax on all income above the average U.S. household income (last I checked I think this was around $60k per year). This is because, per Adam Smith, economically it is absurdly inefficient and unjust to tax people on the necessities of life (with necessities of life conceived by Smith more broadly than bare subsistence to comprise what is necessary for a decent lifestyle in the society in which one lives).

Other taxes that would be far more efficient and just than our current income tax or a national consumption / sales tax are land value taxes on the unimproved site value of land (i.e. the Georgist "single-tax), inheritance taxes and gift taxes.

[iih]

Dan T. and jh:

I agree with jh on this. There is no analogy between the Wal-Mart situation and taxing.

But let me take jh's argument further by saying:

1. If you "shop" for other countries with taxes you think are preferable to you, this country is subject to possibly loose possibly valuable human resources and assets. So the "government" (technically "us" -- "we the people") has an interest to lower taxes. Admittedly, the US tax rate is much better than in other developed countries, though we can certainly do better.

2. Again, there is indeed a negotiation that should be going on. I elect an official who will push for the interests of his/her constituents' needs -- in this case a specific tax code. So, unlike the Wal-Mart case, there is actually a direct negotiation of tax rates going on (albeit at a terribly slow pace, if not stagnant, through a bunch of pretty lousy and corrupt politicians).

[x,y]

Dan T. -

What if I don't want the *benefits* the state provides? What if buy an off the grid farm in Montana?

[P Brooks]

"And to finish the thought, the thing that's really supposed to be invisible (if you're a Fair Tax supporter) is that extra 7%."

Agreed.

[iih]

Dan T., jh:

And yes the way things work now is that in my "contract" with the US government (i.e., the American people), the agreement is that I pay taxes even if I do not get to voice where my taxes ought to go. I accepted the agreement. But that does not mean that we can not make things more fair. And to the fairness doctrine we return!

[MP]

So you'd say this is no better than the current system we have in place?

No, I'd say that it's no better than the Hall/Rabuska Flat Tax (and it's variants). Neither tax scheme would ever be implemented in its pure form because of special interests.

And because it's no better, I see it as pointless as implementing a whole new regime. In fact, I see the most likely outcome in taking the "Fair Tax" road as having both a Federal Sales and Income tax on the books.

[NAL]

Two other points about the fair tax. 1) It would repeal the Income Tax Amendment (sorry, I can't remember the number of that amendment). 2) It would eliminate payroll taxes as well.

For those balking at the 23%, keep in mind that you are now paying, at minimum, 15.3% of your income on payroll taxes. No matter how little you make, if you earned it via wages, you paid at least 15.3% to the government (don't be fooled by the 7.65% taken out of your paycheck...your employer is forced to match that which means they have to add that to your labor cost and factor that in when setting wages, figuring raises, etc.)

What we need is a tax on consumption (somewhere in the neighborhood of 20%) after an automatic exemption on the first $20,000 in spending per person regardless of age. This would encourage savings, potentially be "progressive" and would be very very simple. Click my linked name for an example of my version of a simplified tax form.

What you described is essentially the fair tax. The exemption you mention is effected with the "prebates" that every household gets (rich or poor).

[P Brooks]

Selling the tax code line by line (viz, "loopholes") is an extremely lucrative business, if you are a Congressman or Senator. Simplification, much less wholesale replacement, of the tax code is doomed, as far as I can tell.

[adrian]

MP: Agreed. It is fun (depressing?) to dream though.

[Seitz]

For those balking at the 23%, keep in mind that you are now paying, at minimum, 15.3% of your income on payroll taxes.

Don't you mean at a maximum?

[Ron]

MP and Adrian: Good comments on this thread. Shifting slightly to the topic of "tax reform" generally, I've always thought that the first debate should not be about whatever "new system" is proposed, but what we intend to achieve with it. If the goal is to reduce government intrusiveness, but still collect the same amount of tax, I think we are in never-never land. People in this camp need to focus on reducing government spending if they want to make headway on that goal. If the goal is to distribute the tax burden more equitably, the issue of the tax gap needs to be addressed, and as far as I can tell a combined income tax and VAT comes closest to getting you there. If the goal is to change the effect of the tax regime on the economy, there needs to be agreement on what that economy would look like. Right now, we have a tax system that encourages borrowing and consumer spending; a sales tax might push in the direction of encouraging saving, which may or may not be a good thing. Thoughts?

[MP]

Ron,

You left out tax simplification, which is the most prevalent force behind tax reform. Secondary to that is intrusiveness, which can only be solved by shrinking government. No amount of tax reform (as you implied) will accomplish that.

As for optimizing both tax burdens and impact to the economy, arguments can be made towards those points, but they're useless when trying to sell a tax reform package to the voters. They're better suited for topics at a convention of Economists.

[Ayn_Randian]

Seitz, that would be the minimum because of FICA. Now, granted, it's technically seven-some-odd-percent, but employers simply make the other half up by depressing wages, which is in effect a cost to you.

[Ron]

MP: I've always been a little mystified about "simplification" as anything more than a selling point. None of the proposed systems I reviewed 10-15 years ago when this started to be a hot topic appeared to be even remotely "simple" except at a very superficial level. As to the politics of the situation, we both know that that is very simple: an informed and motivated taxpayer will simply ask their accountants to prepare a hypothetical tax return using the proposed new law with last year's numbers on it, and they will vote based upon what the bottom line is. The Forbes proposal got traction solely because it was sold to taxpayers as a tax reduction for them, and an increase for somebody else. Problem was, it didn't raise anywhere near the revenue of the current system.

[Garth]

NAL,

Umm.. No. Read the rest of my comments. Your Fair Tax (sales tax) is a much poorer choice than mine. Your pre-bates do not address all of my concerns

[MP]

Ron,

People look at the tax code and go OMFG. Then then try to do their own taxes and they go OMFG. Then they hear stories about how even the IRS can't figure it out and they go OMFG.

I disagree with your analysis of why the Forbes proposal got traction. The populist appeal of the Flat Tax was always the postcard size filing. The populist appeal of the Fair Tax is that there is no filing, as more often than not it becomes someone else's problem. The problem with both ideas is that political realities make any reform effort doomed to end up back where we started (OMFG!).

[Brandybuck]

the people who want the IRS toppled and replaced with a 23 percent sales tax

Don't you mean the people who want to enact a new massive consumption tax without any guarantee that a new income tax won't be enacted the very next day? First repeal the 16th amendment, then we can talk.

[x,y]

Brandybuck,

You could make the new system effective only upon repeal of the 16th Amendment.

[Seitz]

Seitz, that would be the minimum because of FICA.

Right, but for social security taxes, you stop paying after hitting a certain income limit (90k or so), which is why some making 50k/yr pays a lot more (by percentage of income) in FICA taxes than someone making 150k/yr. So the maximum you pay is 15+%, but it's possible to pay a much lower percentage of your income in payroll taxes, and many, many people do.

[rm2muv]

Time for a Wealth Tax. A 1% tax on the net worth of all individuals and corporations could easily replace the income tax and would be equally fair to all.

[Ian]

First, "fair use" excerpts from . . .

Where is the outrage over sky-high taxes, regulatory costs?

by Steve Higgins

7/15/07 - New Haven (CT) Register

"Reports last week from two nonprofit groups should serve as a wake-up call to Americans to start agitating for tax reform . . .

"On Monday, the Competitive Enterprise Institute reported that the cost to consumers of complying with federal regulations exceeded $1 trillion in 2006 . . . almost 10 percent of the nation's gross domestic product. It's nearly half the amount of government spending.

"Even more worrisome, the cost of complying with these multitudinous regulations exceeds the amount of individual income tax paid in 2006, about $998 billion, as well as corporate incomes taxes of $277 billion.

"According to the Washington, DC-based advocacy group [ Americans for Tax Reform ], the average American had to work through July 11 this year just to pay all federal, state and local taxes, as well as regulatory costs including workers' compensation and unemployment benefits.

"Congress should take one of two paths: Either cut tax rates and government spending drastically, or adopt the FairTax, an innovative proposal that would involve abolishing the Internal Revenue Service and its income tax and replacing it with a simple national sales tax."
--(End excerpts)--

. . . The U.S. income tax system and the U.S. economy are inter-related, and are in DIRE trouble. If we, the citizens of these United States, do not act aggressively to spread the FairTax plan with family, friends and associates - our "nest eggs" stand to be devastated through a coming economic meltdown (Summary with podcast: "Laurence J. Kotlikoff on Long-Term Fiscal Problems in the U.S.").

Politicians are putting demogoguery and pandering above responsible governing - and they're able to do it because Americans do NOT understand - at the "get go" - politicians' / bankers' hunger for ever-increasing shares of the working person's bi-weekly paycheck; Americans do NOT understand the totality of taxes they pay. The FairTax shines the "light of day" on this, putting citizens back in charge to forcefully demand spending reductons.

YOU AND I MUST ACT to mobilize public opinion, and get the FairTax enacted, because the signs point to a probable devaluation of the dollar (reissuance of an "Amero" ? - under a U.S.-sovereignty-busting North American Union ?).

[ NOTE: Does this help clarify your understanding of what's going on globally? a) Bush's persistence on rewarding illegal immigration? b) the North American Highway now under construction in Texas (to stream cheap labor into the covertly-planned North American Union marketplace designed to compete with 21st-century China market? c) the gradual increase in value of the Chinese yuan by China corresponding to China's economic growth? (This will result in the dumping of dollar-denominated debt as its manufacturing economy grows stronger - which guarantees devaluing and ushering-in of the Amero.) ]

Keep in mind, this NAU strategy - supported by the "super-rich" (member-owners of the Fed) - together with their politician buddies who want NOTHING to do with FairTax - runs contrary to simply making the U.S. a "tax free zone" for business under the FairTax. Politicians and bankers lose power when the U.S. is returned to a "savings-driven economy" from a "debt/interest-driven" economy).

Powerful "elites," members of political and monied-interest "clubs" reaching into the halls of power in Washington, depend on keeping you and me uninformed of their plans. It is up to YOU and ME to ACT - and not live in a state of denial - based on what we now know is clearly happening to our financial futures.

After you consult the Kotlikoff interview (above):

? (If you're a member of your State FairTax organization) Contact your state or local FairTax Director to learn what you can do.

? (If you're just learning about the FairTax bill) Join FairTax.org here: Scrap The CODE, NOW !

[Son of a!]

Time for a Wealth Tax. A 1% tax on the net worth of all individuals and corporations could easily replace the income tax and would be equally fair to all.

Suddenly, after ten years of diligent saving and frugal living, I feel the urge to reverse course and get back into a massive hole of debt. I'm pretty sure I can return to a negative net worth in a matter of days.