Threats to Wealth Creation

[AtomicCEO]

I agree with the economist.

[wiegie]

I agree with the economist.

My only point is that it's not clear at all to me that the "fair tax" is actually "fair". (And when someone goes out of their way to appropriate the use of the word "fair" like this, you should be very skeptical. Why don't they just call it a "consumption tax"? (because that is what it really is).) The BS definition of progressive vs. regressive is a clear indication that something funny is going on here.

 

I also am very skeptical that it will operate anywhere near as smoothly and without loopholes as its advocates suggest. I'm sure when somebody first brought up the idea of an income tax, it seemed like it would be very easy to implement as well.

 

From what I read at the website provided, it seems that the "fair tax" provides no exemptions for necessities. This implies that if somebody gets really sick, they will end up paying more in taxes than a healthy person. Does that seem "fair" to you?

 

It also seems that housing will be taxed. Or at least you will have to pay taxes if you buy a new home, but apparently not if you buy an existing home. This would cause the price of existing homes to increase resulting in a wealth distribution in favor of people who already own homes and away from people who don't yet own homes. Is this "fair"? (Additionally, it seems that renters would have to pay taxes on the rent they pay. But if someone already owns their home, they won't have to pay such a tax--even though both people are consuming housing. Does this seem 'fair"?)

[Perchoutofwater]

You are the only person I have seen laugh (and I'm not sure why you do so). Please explain to me what is laughable about it? Let me give you the simplest example possible about what I am talking about. A farmer who grows his own crops could avoid paying a consumption tax on food simply by consuming what he produces instead of buying his food from a store. For a "Fair Tax" to really be "fair", this farmer should have to pay whatever taxes that normal people have to pay when they consume the same amount of food. How are we going to force the farmer to pay his "fair" share of taxes? Supposing even that the farmer does report the food that he consumed and sends in his tax payments. How can we be sure that the price he charged himself for the food that he ate was the fair market value of the food?

 

How is this any different under the Fair Tax than it is under the income tax? Do you think the farmer sells the food to himself and reports the income from that sell on the food that he bought from himself? IMHO, this is a weak point Wiegie. With any tax system there will be people who will try to cheat it, and some will get away with it. Most won't. The thing I like about the fair tax is it doesn't penalize you for doing well. I also like the fact that it will eliminate the need for Joe Blow to hire a CPA to do their taxes for them, and it should stream line the IRS considerably since now they would only be auditing businesses instead of both businesses and individuals.

[AtomicCEO]

My only point is that it's not clear at all to me that the "fair tax" is actually "fair". (And when someone goes out of their way to appropriate the use of the word "fair" like this, you should be very skeptical. Why don't they just call it a "consumption tax"? (because that is what it really is).) The BS definition of progressive vs. regressive is a clear indication that something funny is going on here.

 

Well then it looks like you agree with me, instead of me agreeing with you.

 

it's even got a handy-dandy Bush-Republican sounding name... "The Fair Tax"... kinda like the "Patriot Act" which any Patriot would have been disgusted by, or the "Clear Skies Act", which rolled back the Clean Air Act to make pollution worse.

[Perchoutofwater]

From what I read at the website provided, it seems that the "fair tax" provides no exemptions for necessities. This implies that if somebody gets really sick, they will end up paying more in taxes than a healthy person. Does that seem "fair" to you?

 

In Texas we have a sales tax, but certain items are not taxable, such as raw food, medicine, etc.... This could be done with a federal sales tax as well. What the people proposing the fair tax have done has simplified it, and rather than having certain items as exempt, they just provide a prebate for lack of a better word to cover these items. The other thing I like about the Fair Tax is that I believe it will free up more money for capital investment, which should create more and better jobs. It frees up more money to expand businesses.

[AtomicCEO]

How is this any different under the Fair Tax than it is under the income tax? Do you think the farmer sells the food to himself and reports the income from that sell on the food that he bought from himself? IMHO, this is a weak point Wiegie. With any tax system there will be people who will try to cheat it, and some will get away with it. Most won't. The thing I like about the fair tax is it doesn't penalize you for doing well. I also like the fact that it will eliminate the need for Joe Blow to hire a CPA to do their taxes for them, and it should stream line the IRS considerably since now they would only be auditing businesses instead of both businesses and individuals.

 

Your argument is the opposite of what other people in this thread have been saying though.

 

They are saying that you wouldn't need an accountant, yet you are saying that it isn't different from the current system that people would try to cheat it. If people are going to try to cheat it, then there will still be audits and people will still need accountants and experts to lead them through it.

 

They are saying it's not going to affect the amounts that poor people pay compared to rich people, and you are saying that it will treat rich people more "fairly".

 

The fact that completely contradictory arguments now exist in this thread is as good a reason as I can think of not to support it. Major reform with ambiguous benefits is not good strategy for me.

[wiegie]

How is this any different under the Fair Tax than it is under the income tax? Do you think the farmer sells the food to himself and reports the income from that sell on the food that he bought from himself? IMHO, this is a weak point Wiegie. With any tax system there will be people who will try to cheat it, and some will get away with it. Most won't.

My point is that there will be loopholes in the "fair tax" just like there are loopholes in the income tax and that wealthier people will be better able to exploit these loopholes than poorer people. The "fair tax" is no panacea to fix this problem like many of its supporters believe it is.

[wiegie]

The other thing I like about the Fair Tax is that I believe it will free up more money for capital investment, which should create more and better jobs. It frees up more money to expand businesses.

This is the main positive aspect of a consumption tax--that it encourages saving (which then becomes investment) which leads to higher long-run economic growth. My main concern with a consumption tax is that it will be regressive and lead to a widening of the wealth distribution. The problem with a widening distribution of wealth, is that with wealth comes more political power and the ability to pass laws that benefit the wealthy at the expense of the non-wealthy. Alternatively, the non-wealthy could respond in a populist way and force politicians to enact laws that would be punitive against the wealthy and that might hinder economic growth the other way. A nice book that talks about these possibilities (although in a technical way) is "Economic Origins of Dictatorship and Democracy" by Daron Acemoglu and James A. Robinson.

[Perchoutofwater]

My point is that there will be loopholes in the "fair tax" just like there are loopholes in the income tax and that wealthier people will be better able to exploit these loopholes than poorer people. The "fair tax" is no panacea to fix this problem like many of its supporters believe it is.

 

I don't think there it is a panacea to fix the problem, but I think it is a whole lot better than the current system. It would cut the government bureaucracy, as only businesses would have to be audited. The 1,662,641 audits performed on individuals would go away. This would surely save the government money. It would also save individuals money as they would no longer have to pay tax professionals. On the flip side, even if you didn't pare down the number of auditors, their focus could be changed to businesses, so you could have more business audits where the money really is anyway, and who under the current system are more than likely to use the loopholes in the current system.

[wiegie]

I don't think there it is a panacea to fix the problem, but I think it is a whole lot better than the current system. It would cut the government bureaucracy, as only businesses would have to be audited. The 1,662,641 audits performed on individuals would go away. This would surely save the government money. It would also save individuals money as they would no longer have to pay tax professionals. On the flip side, even if you didn't pare down the number of auditors, their focus could be changed to businesses, so you could have more business audits where the money really is anyway, and who under the current system are more than likely to use the loopholes in the current system.

this point is well-taken

[Perchoutofwater]

Alternatively, the non-wealthy could respond in a populist way and force politicians to enact laws that would be punitive against the wealthy and that might hinder economic growth the other way. A nice book that talks about these possibilities (although in a technical way) is "Economic Origins of Dictatorship and Democracy" by Daron Acemoglu and James A. Robinson.

 

This has already taken place, as the wealthy are paying a much greater percentage of their income for in large part services that the poor not the wealthy use. The current tax code is punitive, and does restrict investment, which in turn restricts employment. The Fair tax take provisions for the poor by giving them a prebate for necessities. So basically it is only taxing people for stuff that they don't need, but want. If I don't want to pay as much in taxes I buy a 2,000 square foot house instead of a 4,000 square foot house. I by a Kia Sportage instead of an Escalade, etc... So basically it is only taxing the luxuries that our spoiled society takes for granted. How many people on government assistance have you seen driving Cadies and have Direct TV? Around here there are actually quite a few. See while the rich may be better at working the current income tax system and it's loop holes, the poor are better at working the welfare system. Why should a guy that is getting government assistance drive a Caddie or have Direct TV? Under the fair tax, that guy is paying taxes on these luxuries, just like the rich guy.

[Azazello1313]

You are the only person I have seen laugh (and I'm not sure why you do so). Please explain to me what is laughable about it? Let me give you the simplest example possible about what I am talking about. A farmer who grows his own crops could avoid paying a consumption tax on food simply by consuming what he produces instead of buying his food from a store. For a "Fair Tax" to really be "fair", this farmer should have to pay whatever taxes that normal people have to pay when they consume the same amount of food. How are we going to force the farmer to pay his "fair" share of taxes? Supposing even that the farmer does report the food that he consumed and sends in his tax payments. How can we be sure that the price he charged himself for the food that he ate was the fair market value of the food?

 

that is a pretty stupid argument, wedgie. how much corn can one man eat? if the same farmer eats all his corn and doesn't sell any, he also "evades" the income tax...yet I've never heard this mentioned as some terrible loophole that must be closed to make the tax code "fair".

[yo mama]

if the same farmer eats all his corn and doesn't sell any, he also "evades" the income tax...yet I've never heard this mentioned as some terrible loophole that must be closed to make the tax code "fair".

That's because its not income, which would require that he sell or exchange the corn. The rendition of services without consideration isn't income. More importantly, you cannot have a taxable event exchanging goods and services with yourself under current law. Though, query as to whether that would also be true under a consumption tax.

[Azazello1313]

That's because its not income, which would require that he sell or exchange the corn. The rendition of services without consideration isn't income. More importantly, you cannot have a taxable event exchanging goods and services with yourself under current law. Though, query as to whether that would also be true under a consumption tax.

 

and you also can't have a taxable event selling yourself something you grew....I fail to see the difference. this just seems an utterly retarded "loophole" to worry about with a national sales tax. it strikes of grasping at straws for a nit to pick.

[yo mama]

and you also can't have a taxable event selling yourself something you grew....I fail to see the difference. this just seems an utterly retarded "loophole" to worry about with a national sales tax. it strikes of grasping at straws for a nit to pick.

Not necessarily. If the taxable event is merely the consumption of goods, without an exception to the general rule the farmer could be taxed under the Fair Tax but not under the current Income Tax. But I don't know enough about the Fair Tax to say whether it contains such an exception. Though, I think it would silly if it didn't contain one. Because you'd have to audit an awful lot of individuals to ferret that kind of stuff out, and the lack of personal audits is one of the larger selling points of a consumption tax.

 

However, I will point out that a consumption tax will fail to capture otherwise taxable barters between individuals. Those transactions go largely untaxed under the current system, but the Fair Tax would do nothing to fix that.

[H8tank]

A farmer who grows his own crops could avoid paying a consumption tax on food simply by consuming what he produces instead of buying his food from a store.

 

 

 

This is the best you got? A consumption tax is paid on goods you buy. I have no idea how you got to where you are with farmer tom.

 

Your regurgitated scenario before is the same as how Costco or Sams are run today, and they are not exactly illegal. The only people who don't pay sales tax on items are those who buy them for resale, or churches, schools.

 

People pay a membership fee to buy things there because it is easy to buy large quantities of items, or commercial items targat doesn't sell.

 

It was my understanding that the "fair tax" was revenue neutral. If that is the case and some taxpayers pay less in taxes, then by definition, others must pay more.

 

Correct. Drug dealers would pay. Illegals would pay. Tourists would pay. Business would flock to our land to take advantage of the tax savings, the attorney savings, the list goes on and on and on. People who drive beaters like your ugly tercel would save, but the dumbass small peener man who has to have the vet would pay more. He 'chooses' to pay more because of his consumption tastes. A farmer may pay less cuase he likes the tomatoes in his garden, while some metrochomosexual like furd wants to buy them at a farmers market, so he would pay more by choice, not by the gun muzzle of uncle sam.

 

How about this... I'll vote for expanded national health care, you give me the fair tax.

[H8tank]

One way for people to avoid paying a consumption tax is to own the means of production for the product and then "sell" the product to yourself for a very low price (perhaps even $0). For most people, this would not be possible, but the wealthier a person is, the more likely that they could do this. It wouldn't be hard at all for wealthy people to buy ownership into various companies that could supply many of their consumption needs.

 

This is so absurd I can't believe it is not a joke.

[Perchoutofwater]

However, I will point out that a consumption tax will fail to capture otherwise taxable barters between individuals. Those transactions go largely untaxed under the current system, but the Fair Tax would do nothing to fix that.

 

I'm not so sure about that. I'm pretty sure that if I sale you my care in a state that has a sales tax, then the car must be taxed. Now it doesn't make much sense to me paying sales tax on items sold or purchased in a garage sale. Of course like you've already said, these types of purchase or sales are not normally picked up by income tax either, so it really doesn't matter that much when comparing the two.

[H8tank]

My point is that there will be loopholes in the "fair tax" just like there are loopholes in the income tax and that wealthier people will be better able to exploit these loopholes than poorer people. The "fair tax" is no panacea to fix this problem like many of its supporters believe it is.

 

Do rich people buy Mercedes Benz cars?

 

So your stupid example is they are going to become part 'owners' of Benz instead of just paying some stupid sales tax? Can you not see how stupid this is?

 

And Atomoranic, put the tinfoil hat away, so far you have offered nothing substantive against the idea except "conservatives like it so it must be bad"

 

Give it a break or add something that matters Atomoyukonlulu.

[yo mama]

I'm not so sure about that. I'm pretty sure that if I sale you my care in a state that has a sales tax, then the car must be taxed. Now it doesn't make much sense to me paying sales tax on items sold or purchased in a garage sale. Of course like you've already said, these types of purchase or sales are not normally picked up by income tax either, so it really doesn't matter that much when comparing the two.

Cars are different because they have recorded title. I'm thinking more about me trading goods or services with my neighbor for whatever they've got. From the consumers perspective, prices of most things will go up because of the direct addition of more sales tax. That will create additional incentives to barter informally for stuff when you can. Its still a tangential issue, at best.

 

My biggest question is more a practical one: how will government actually collect the tax from sellers. Annually? Daily? Will on-line sellers like Amazon have to start collecting tax from people? Ebay?

[DMD]

However, I will point out that a consumption tax will fail to capture otherwise taxable barters between individuals. Those transactions go largely untaxed under the current system, but the Fair Tax would do nothing to fix that.

 

Not to enter a fray I am not versed in, but isn't that the flip side of working for wages paid under the table? Would the loss from the barter of goods become bigger than the amount of taxes avoided by being paid under the table or as a contractor or a number of other ways to avoid calling someone an employee? There will always be people doing what they can to avoid taxes, but does shifting from income to purchases make it any more likely to be skirted? Barter already avoids sales tax as it is.

[The Irish Doggy]

that is a pretty stupid argument, wedgie. how much corn can one man eat? if the same farmer eats all his corn and doesn't sell any, he also "evades" the income tax...yet I've never heard this mentioned as some terrible loophole that must be closed to make the tax code "fair".

 

 

And in my head I hear that famous line "If my man says he can eat fifty eggs, then he can eat fifty eggs!"

 

Good reading so far.

[yo mama]

Not to enter a fray I am not versed in, but isn't that the flip side of working for wages paid under the table? Would the loss from the barter of goods become bigger than the amount of taxes avoided by being paid under the table or as a contractor or a number of other ways to avoid calling someone an employee? There will always be people doing what they can to avoid taxes, but does shifting from income to purchases make it any more likely to be skirted? Barter already avoids sales tax as it is.

That was my point: bartering currently avoids taxes, and I don't think that would change. But I do think an extra 23% tax on pretty much everything will be a strong incentive to increase barter for many folks, form buying/growing co-ops, and other locally based mechanisms designed to avoid sales tax.

 

Your question regarding capturing taxes from people who are currently working under the table (or otherwise not reporting income under the current system) is a good one. I guess crack dealers will pay more for their baking soda, but its not like their cocaine dealer will be remitting 23% sales tax to the feds on the coke he sells. So obviously some of the black market will stay black market. But at least we get those folks who deal in cash-only on stuff like groceries and gasoline, which is better than nothing. That's the single biggest selling point in my mind.

 

Now ASSUMING the consumption tax on folks who are already reporting income tax would be a tax-neutral switch, I would assume we'd net more tax revenue by collecting tax from those who are currently avoiding the income tax than we'd lose by the increase in barter activity.

 

Question for the Fair Tax gurus: I know it would replace the income tax, but would it also be a substitute for federal gift taxes? Estate taxes? Would it apply to the purchase of things like marketable securities? Educational expenses? Personal services?

Edited April 16, 2008 by yo mama

[Perchoutofwater]

Not to enter a fray I am not versed in, but isn't that the flip side of working for wages paid under the table? Would the loss from the barter of goods become bigger than the amount of taxes avoided by being paid under the table or as a contractor or a number of other ways to avoid calling someone an employee? There will always be people doing what they can to avoid taxes, but does shifting from income to purchases make it any more likely to be skirted? Barter already avoids sales tax as it is.

 

Think of all the tax revenue it would generate from all the illegals that don't pay taxes but have no problem filling up our school systems and E.R.s.

[Perchoutofwater]

Question for the Fair Tax gurus: I know it would replace the income tax, but would it also be a substitute for federal gift taxes? Estate taxes? Would it apply to the purchase of things like marketable securities? Educational expenses? Personal services?

 

I don't know, I'm not really a "Fair Tax" guru, though I know a thing or two about sales tax. I do know if it also replaces gift taxes and death taxes, but if it did, I'd be for it that much more. The marketable securities question is a very good one that I hadn't thought of, and that could have major ramifications.