Threats to Wealth Creation

[Perchoutofwater]

I got into a discussion with my neighbor about this yesterday and really think it could be great. The biggest argument about it is the fact that the lowest incomes would be hit the hardest by it since they, by nature, have no choice but to spend all their income on stuff. Of course, you could just offer rebates to those below a certain income level and presto. Problem solved.

 

Like you said, money gained illegally gets taxed.

 

I suppose it would trigger an increase in black market trade however.

 

If you read the proposed "Fair Tax" then you would know that they do offer rebates to everyone to cover the cost of living. I like you don't shed a tear for the brass at Haliburton, but I do realize that the taxes on that corporation affect the stock holders many of which are retired and own Halliburton in their 401K's. In addition, I'd be willing to bet that the vast majority of those in both the top 1-10% are small business owners, who employ most of America. If we really wanted to be fair with taxes, and stimulate the economy we should either go the the fair tax, or keep the income tax, get rid of all loopholes, tax everyone the same percentage on all income over $20,000. That would keep people above the poverty line, and would make them think twice about what we allow our representatives spend money on.

[TheShiznit]

forget about income if you will....wealth, for those who have it, has always been measured in net worth. Income is a means to accumulating wealth...it is not wealth. The problem, as I see it, is not that the tax code is this or that...it is the fact that the top 5% of the wealthiest in this country....OWN upwards of 82% of the wealth. Not income mind you...but hard assets...real estate....bank deposits....stock investments.....WEALTH. 5% own 80%. That leaves the rest of us 95%'ers to chase 20%.

 

You want to make this country fair....then tax property and assets. I do not believe in income tax at all...a man's labor is the only thing that is his that he should be able to sell without tax. However, land is finite and therefore should be taxed. You do not have to own a house. Assets should be taxed...at much higher rates than they are now. You say...well this would discourage savings...YEP...there would be a hell of alot more spending and lots more jobs and fluidity to the economy if money weren't parked in trust funds and banks for years upon years. Go pick up Henry George and give it a read. Will this ever happen...NO!

 

Not to mention this will make our economy based upon true free market capitalism. There will be no incentive to horde assets. The incentive will be to spend...therefore every generation will have the same level playing field to start from.

Edited April 14, 2008 by TheShiznit

[wiegie]

forget about income if you will....wealth, for those who have it, has always been measured in net worth. Income is a means to accumulating wealth...it is not wealth. The problem, as I see it, is not that the tax code is this or that...it is the fact that the top 5% of the wealthiest in this country....OWN upwards of 82% of the wealth. Not income mind you...but hard assets...real estate....bank deposits....stock investments.....WEALTH. 5% own 80%. That leaves the rest of us 95%'ers to chase 20%.

 

You want to make this country fair....then tax property and assets. I do not believe in income tax at all...a man's labor is the only thing that is his that he should be able to sell without tax. However, land is finite and therefore should be taxed. You do not have to own a house. Assets should be taxed...at much higher rates than they are now. You say...well this would discourage savings...YEP...there would be a hell of alot more spending and lots more jobs and fluidity to the economy if money weren't parked in trust funds and banks for years upon years. Go pick up Henry George and give it a read. Will this ever happen...NO!

 

Not to mention this will make our economy based upon true free market capitalism. There will be no incentive to horde assets. The incentive will be to spend...therefore every generation will have the same level playing field to start from.

I agree that wealth inequality is more important than income inequality (if you are inclined to be concerned about this sort of thing at all).

 

I must point out, however, that your rant against saving is, uh, how shall I put this... ill-informed.

[westvirginia]

I agree that wealth inequality is more important than income inequality (if you are inclined to be concerned about this sort of thing at all).

 

I must point out, however, that your rant against saving is, uh, how shall I put this... ill-informed.

 

Thank you wiegie - the voice of reason.

 

And who is this character millerx? Good post, dude!

 

When people really sit down, talk about these things and THINK about it (really read the posts above), they make the best case for the fair tax there ever was...

 

Oh, and it eliminates the IRS, and all of the wonderful government excuses for snooping into bank deposits, etc. You buy, you pay tax. Not to mention that it encourages savings/investment.

[Ursa Majoris]

Thank you wiegie - the voice of reason.

 

And who is this character millerx? Good post, dude!

 

When people really sit down, talk about these things and THINK about it (really read the posts above), they make the best case for the fair tax there ever was...

 

Oh, and it eliminates the IRS, and all of the wonderful government excuses for snooping into bank deposits, etc. You buy, you pay tax. Not to mention that it encourages savings/investment.

Everyone wants a taxation system in which they will pay less. That's pretty much the only reason changes in the tax system are supported - all the supporters think they'll pay less. Not one of them thinks they'll wind up out of pocket and not one concerns themselves with either those that will pay more nor the consequences for the country itself.

[Big John]

And who is this character millerx? Good post, dude!

Less frequent poster

 

And also lives in the ATL area.

Edited April 14, 2008 by Big John

[Perchoutofwater]

Everyone wants a taxation system in which they will pay less. That's pretty much the only reason changes in the tax system are supported - all the supporters think they'll pay less. Not one of them thinks they'll wind up out of pocket and not one concerns themselves with either those that will pay more nor the consequences for the country itself.

 

The main reason I'd support the Fair Tax is that it would get rid of all the loop holes, get rid of the bureaucracy that is the IRS, and would limit the need for CPA's. If you rebate everyone with enough to take care of basic requirements, they you are really only taxing wants, not needs. The state of Texas does gets it's revenue from a combination sales tax and property tax, so and it does pretty well for itself.

[AtomicCEO]

Would fancy gold rims be rebated? A man has to live.

[millerx]

Thank you wiegie - the voice of reason.

 

And who is this character millerx? Good post, dude!

 

When people really sit down, talk about these things and THINK about it (really read the posts above), they make the best case for the fair tax there ever was...

 

Oh, and it eliminates the IRS, and all of the wonderful government excuses for snooping into bank deposits, etc. You buy, you pay tax. Not to mention that it encourages savings/investment.

Thank You. The Fair Tax is just something I firmly believe would fix a lot of our economic issues ,while at the same time, limiting the size and corruptness of Gov't.. I also like the idea of getting rid of the IRS (as your contribution wisely pointed out). Individual rights and their ability to govern themselves is all I'm looking for.

 

Less frequent poster

 

And also lives in the ATL area.

Thanks for linking one of the posts I used one day just to go fishing because I was bored. (It's not a shining moment in my posting history)

Anyway, as Big John said, I'm a less frequent poster who checks in from time to time (and on occasion drops in a post or two) because I find the intelligence and conversations on the site to be well above average and informative. I try not to side with one group of posters or another, but rather try to keep an open mind on most topics and sometimes offer an opinion on threads that interest me. So their you go...

[westvirginia]

Everyone wants a taxation system in which they will pay less. That's pretty much the only reason changes in the tax system are supported - all the supporters think they'll pay less. Not one of them thinks they'll wind up out of pocket and not one concerns themselves with either those that will pay more nor the consequences for the country itself.

 

Actually, I have no clue what I'd pay under the fair tax. Haven't ever thought about it. I just want to kill the IRS, and get the gov't out of our lives to the largest extent possible, and this would do it. No longer could the tax code be used by special interests. No longer could it be used to foster "good" behavior or discourage "bad" behavior. The tax code is for raising revenue, NOT to be used as an instrument of social change.

[millerx]

Actually, I have no clue what I'd pay under the fair tax. Haven't ever thought about it. I just want to kill the IRS, and get the gov't out of our lives to the largest extent possible, and this would do it. No longer could the tax code be used by special interests. No longer could it be used to foster "good" behavior or discourage "bad" behavior. The tax code is for raising revenue, NOT to be used as an instrument of social change.

Well said.

 

One great thing about the "FairTax" is its simplicity. It would be a 23% tax on anything and everything you would buy embedded into the cost of the item or service. On your receipt it would show 23%. It's up to you on how much you pay based on how much you buy or spend. It would be revenue neutral and put a HUGE dent in lobbyists' special interests and take away the ability to use it a weapon from politicians

 

The Fairtax.org is trying to get people to sign a petition to hand into Congress tomorrow on April 15th, for the obvious reason that it is the tax deadline. It would show them that people are ready and wanting to change and are sick of the current tax code. Can you imagine not having to have an April 15th deadline ever again? No more wasting time, energy, and money in tax preparation? No more worrying whether or not you understood the tax code or getting audited? No more IRS (gov't) being able to interpret their own version of how the tax code should be applied?

 

If you are interested in helping send the message, go to Fairtax.org research it yourself and sign the petition. Thanks.

[CaP'N GRuNGe]

My admittedly limited understanding of the fair tax is the middle class would pay more than what they pay now under the income tax. If you think about it, if the top 1% or 10% or whatever pay a hugh majority of the tax then by making it "fairer" (which is a pretty subjective term by the way) would put more of the tax burden on those in the middle.

 

So, are you willing to pay more in order to give the poor wealthy people a break?

 

PS - It seems to me that many of those that lobby for the fair tax might be doing so for their own selfish purposes just like those handful of extremely wealthy families that spend millions of dollars every year lobbying for the repeal of the estate tax. The estate tax for example does not affect that many people, but the propoganda put out there by those for it's abolition would lead you to believe otherwise. I just wonder if the fair tax advocacy is also not simply rooted in a similar biased way...

Edited April 14, 2008 by CaP'N GRuNGe

[CaP'N GRuNGe]

The Fair Tax Act (HR 25/S 1025) is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes (including Alternative Minimum Tax, corporate taxes, and capital gains taxes), as well as payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes with a national retail sales tax. The FairTax would be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to all households of citizens and legal resident aliens (based on family size) as an advance rebate of tax on purchases up to the poverty level.[1][2]

 

So the US Government is going to send a check out in the mail every month to every household in the United States. I'm sure the conservatives love that concept.

[Perchoutofwater]

The Fair Tax Act (HR 25/S 1025) is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes (including Alternative Minimum Tax, corporate taxes, and capital gains taxes), as well as payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes with a national retail sales tax. The FairTax would be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to all households of citizens and legal resident aliens (based on family size) as an advance rebate of tax on purchases up to the poverty level.[1][2]

 

So the US Government is going to send a check out in the mail every month to every household in the United States. I'm sure the conservatives love that concept.

 

I consider myself a conservative, and I like it. It is compassionate to those who literally can't afford to pay taxes, but at the same time it is fair, in that once the basics are covered everyone is taxed at the same rate.

[yo mama]

There will always be a system of tax collection: the IRS isn't going anywhere. 16th Amendment, and all that. And while I despise the invasive nature in which they get into our personal and professional business, and generally act poorly towards honest taxpayers, I give them very high marks for collecting a ton of revenue without costing much money to operate.

 

I've said it a million times before, but our system of revenue collection isn't really the problem. Our national spending is out of control, and merely redistributing the responsibility for who pays tax is akin to rearranging deck chairs on the Titanic. Formulating a plan that includes some combination of INCREASING total tax revenue and LESS spending is the only viable long-term economic decision that needs to be made. The Fair Tax doesn't address either.

 

As far as high taxes on rich taxpayers being an impediment to wealth accumulation, I say hogwash. All my clients are wealthy ($5mm to a billion+). They all pay a ton in taxes and there's always a ton of money left over. While many of them hate paying high rates of tax, none of them is willing to trade down just to get into a lower tax bracket. Plus, about 75% of America's "wealthy" people are self made; only about 25% is attributable to inherited money. We also live in an unprecedented era of multi-millionaires. So I do not believe being in the highest tax bracket is really stopping anyone from achieving wealth: if anything, its the ultimate litmus test that you're already there.

 

In reality, the biggest impediment to achieving wealth is the decision to be someone else's employee.

Edited April 14, 2008 by yo mama

[millerx]

My admittedly limited understanding of the fair tax is the middle class would pay more than what they pay now under the income tax. If you think about it, if the top 1% or 10% or whatever pay a hugh majority of the tax then by making it "fairer" (which is a pretty subjective term by the way) would put more of the tax burden on those in the middle.

 

So, are you willing to pay more in order to give the poor wealthy people a break?

 

PS - It seems to me that many of those that lobby for the fair tax might be doing so for their own selfish purposes just like those handful of extremely wealthy families that spend millions of dollars every year lobbying for the repeal of the estate tax. The estate tax for example does not affect that many people, but the propoganda put out there by those for it's abolition would lead you to believe otherwise. I just wonder if the fair tax advocacy is also not simply rooted in a similar biased way...

I understand. I'm skeptical by nature, and had many questions myself. Here is just one of many answers to questions like your from the website:

 

"The FairTax is regressive and shifts the tax burden onto lower and middle income people"

 

The truth: The FairTax actually eliminates and reimburses all federal taxes for those below the poverty line. This is accomplished through the universal prebate and by eliminating the highly regressive FICA payroll tax. Today, low and moderate income Americans pay far more in FICA taxes than income taxes. Those spending at twice the poverty level pay a FairTax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today. Meanwhile, the wealthy pay the 23 percent retail sales tax on their retail purchases.

 

Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow and frustrates attempts at upward mobility through hard work and savings, thus harming low-income taxpayers the most.

 

In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free.

 

How can the FairTax generate lower net tax rates for everyone and still pay for the same real government expenditures? The answer is two-fold. Firstly, the tax base is dramatically widened by including consumer spending from the underground economy (estimated at $1.5 trillion annually), and by including illegal immigrants, those who escape their fair share today through loopholes and gimmicks. In addition, 40 million foreign tourists a year will become American taxpayers as consumers here. Secondly, not everyone's average net tax burden falls. For households whose major economic resource is accumulated wealth, the FairTax will deliver a net tax hike compared to the current system.

 

Consider, for example, your typical billionaire, of which America now has more than 400. These fortunate few are invested primarily in equities on which they pay taxes at a 15 percent rate, whether their income comes in the form of capital gains or dividends. In addition to having the income from their wealth taxed at a low rate, the principal of their wealth is completely untaxed either directly or indirectly. Assuming they and their heirs spend only the income earned on the wealth each year, the tax rate today is 15 percent. In contrast, under the FairTax, the effective tax rate is 23 percent. Hence, the very wealthy will pay more taxes when the FairTax is enacted. In a nutshell, those who spend more will pay more but low, moderate and middle income taxpayers will benefit from the greatest gains in reduced tax liabilities.

[TheShiznit]

I agree that wealth inequality is more important than income inequality (if you are inclined to be concerned about this sort of thing at all).

 

I must point out, however, that your rant against saving is, uh, how shall I put this... ill-informed.

 

I am glad my rant against savings is ill informed....I am sure you will point out how. In a true free market, there would have been a level playing field to start from. if you tax ownership and not income or say purchasing goods....this will encourage non-ownership and people will spend what it is they earn. Obviously, there will have to be some sort of concession in regards to retirement savings and what not. So, you can own...you will just pay more tax...call it a usage tax...call it whatever you will....Henry made the case better than I could.

[TheShiznit]

I understand. I'm skeptical by nature, and had many questions myself. Here is just one of many answers to questions like your from the website:

 

"The FairTax is regressive and shifts the tax burden onto lower and middle income people"

 

The truth: The FairTax actually eliminates and reimburses all federal taxes for those below the poverty line. This is accomplished through the universal prebate and by eliminating the highly regressive FICA payroll tax. Today, low and moderate income Americans pay far more in FICA taxes than income taxes. Those spending at twice the poverty level pay a FairTax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today. Meanwhile, the wealthy pay the 23 percent retail sales tax on their retail purchases.

 

Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow and frustrates attempts at upward mobility through hard work and savings, thus harming low-income taxpayers the most.

 

In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free.

 

How can the FairTax generate lower net tax rates for everyone and still pay for the same real government expenditures? The answer is two-fold. Firstly, the tax base is dramatically widened by including consumer spending from the underground economy (estimated at $1.5 trillion annually), and by including illegal immigrants, those who escape their fair share today through loopholes and gimmicks. In addition, 40 million foreign tourists a year will become American taxpayers as consumers here. Secondly, not everyone's average net tax burden falls. For households whose major economic resource is accumulated wealth, the FairTax will deliver a net tax hike compared to the current system.

 

Consider, for example, your typical billionaire, of which America now has more than 400. These fortunate few are invested primarily in equities on which they pay taxes at a 15 percent rate, whether their income comes in the form of capital gains or dividends. In addition to having the income from their wealth taxed at a low rate, the principal of their wealth is completely untaxed either directly or indirectly. Assuming they and their heirs spend only the income earned on the wealth each year, the tax rate today is 15 percent. In contrast, under the FairTax, the effective tax rate is 23 percent. Hence, the very wealthy will pay more taxes when the FairTax is enacted. In a nutshell, those who spend more will pay more but low, moderate and middle income taxpayers will benefit from the greatest gains in reduced tax liabilities.

 

They will pay more in percentage...but not necessarily in number. Do you really think that Warren Buffet consumes what he brings home in dividend and capital gain pay? There would be a massive shift in overall percentage of taxes paid coming from more middle to lower class income earners and less on the uppermiddle to wealthy....they just cannot consume as much as they earn....unless you can show a relevant statistic to refute my claim. That said, I like the idea of the fair tax....I wish it were tweaked though.

[SuperCharger]

One more thing:

 

When was the last time a pay raise that would extend total income into the next higher tax bracket was refused? Just because the rate is ~35% on the last few dollars of income, do people decide those dollars aren't worth having?

 

I renegotiated my last raise to be less then what they wanted to give me because it put me just barely into a new tax bracket which would have resulted in a net increase just barley over what I currently made. After negotiations we settled on a salary that put me $1 under the tax bracket.

[yo mama]

I renegotiated my last raise to be less then what they wanted to give me because it put me just barely into a new tax bracket which would have resulted in a net increase just barley over what I currently made. After negotiations we settled on a salary that put me $1 under the tax bracket.

I think you hurt yourself.

 

Let's say $100 is the cap before you hit the 28% federal income tax bracket. Let's say you earned $101. Only that last dollar gets taxed at the 28% rate. The tax liability attributable to your first $100 dollars is unaffected by whether you earned $100 or $1000 that year.

 

So by accepting $100 a year, instead of $101, all you accomplished is walking away from $0.72 (i.e., what was left over after applying the 28% rate of tax on that last dollar you could have had, but elected not to earn).

 

Now, you certainly do hit certain phase outs for various deductions once your income gets to a certain level, and that can have an adverse impact on how much of the $0.72 is left over if the extra dollar puts you into a phase out situation. But there is absolutely no event in which earning $100 nets you more than earning $101, after taxes are factored in.

Edited April 14, 2008 by yo mama

[TheShiznit]

I renegotiated my last raise to be less then what they wanted to give me because it put me just barely into a new tax bracket which would have resulted in a net increase just barley over what I currently made. After negotiations we settled on a salary that put me $1 under the tax bracket.

 

Why? You only pay that percentage on the money in that bracket...not your whole income.

[millerx]

I think you hurt yourself.

 

Let's say $100 is the cap before you hit the 28% federal income tax bracket. Let's say you earned $101. Only that last dollar gets taxed at the 28% rate. The tax liability attributable to your first $100 dollars is unaffected by whether you earned $100 or $1000 that year.

 

So by accepting $100 a year, instead of $101, all you accomplished is walking away from $0.72 (i.e., what was left over after applying the 28% rate of tax on that last dollar you could have had, but elected not to earn).

 

Now, you certainly do hit certain phase outs for various deductions once your income gets to a certain level, and that can have an adverse impact on how much of the $0.72 is left over if the extra dollar puts you into a phase out situation. But there is absolutely no event in which earning $100 nets you more than earning $101, after taxes are factored in.

or... you wouldn't have to even make these calculations (and possibly make a wrong move) if you simply paid a consumption tax on something you bought.

[Azazello1313]

Actually, I have no clue what I'd pay under the fair tax. Haven't ever thought about it. I just want to kill the IRS, and get the gov't out of our lives to the largest extent possible, and this would do it. No longer could the tax code be used by special interests. No longer could it be used to foster "good" behavior or discourage "bad" behavior. The tax code is for raising revenue, NOT to be used as an instrument of social change.

 

agree with that completely (well, almost....you'd still need an IRS because there would still be tax cheats to sniff out). the goal of taxation should be getting the necessary revenue while doing the least damage to the economy and the least amount of snooping around in and tinkering with peoples' spending habits. as far as I can tell, by far the best way to do this is by taxing consumption rather than income. wealth redistribution is not, in my mind, a legitimate exercise in government power. nor do I see why it is the government's business how much money a person makes. at present, the tax code is more about social engineering than it is about getting the most revenue bang for the buck, and that is dumb not only from a pragmatic standpoint, but also troubling from a personal freedom standpoint.

[westvirginia]

They will pay more in percentage...but not necessarily in number. Do you really think that Warren Buffet consumes what he brings home in dividend and capital gain pay? There would be a massive shift in overall percentage of taxes paid coming from more middle to lower class income earners and less on the uppermiddle to wealthy....they just cannot consume as much as they earn....unless you can show a relevant statistic to refute my claim. That said, I like the idea of the fair tax....I wish it were tweaked though.

 

Does a Benz or Bimmer not cost more than a Corolla or Focus?

 

No, Buffet does not spend his whole income. But the guy making $30K a year and rearing three kids pays zero or next to it after the prebate. By the same token, that guy gets an incredible percentage of his taxes completely refunded to him. And Buffet's percentage refunded is a pittance comparatively. I would think those engaged in wealth envy would love the fair tax. It only really hits hard for big purchases.

 

You're also forgetting something very simple - corporations don't pay taxes. They simply pass those costs along to consumers, or shareholders. When that goes away, all products in the marketplace cost less. And that helps the little guy with his toothpaste, groceries and vacation a lot more than the big guy with his $1MM+ house and $100K car.

[CaP'N GRuNGe]

Consider, for example, your typical billionaire, of which America now has more than 400. These fortunate few are invested primarily in equities on which they pay taxes at a 15 percent rate, whether their income comes in the form of capital gains or dividends. In addition to having the income from their wealth taxed at a low rate, the principal of their wealth is completely untaxed either directly or indirectly. Assuming they and their heirs spend only the income earned on the wealth each year, the tax rate today is 15 percent. In contrast, under the FairTax, the effective tax rate is 23 percent. Hence, the very wealthy will pay more taxes when the FairTax is enacted. In a nutshell, those who spend more will pay more but low, moderate and middle income taxpayers will benefit from the greatest gains in reduced tax liabilities.[/b]

 

So those ultra wealthy simply spend their money overseas to avoid the Fair Tax. And those foreigners stop buying goods here in America to avoid the Fair Tax as well...