Fix the debt, Drop income tax...

[MilwaukeeMike]

It is more than apparent the United States cannot continue to run huge budget deficits and spend like drunken sailors in Washington. I have a solution that has been proposed throughout the Accounting circles for eons with little political dialogue. My plan is simple; eliminate income taxes on state and federal levels across the board, eliminate state and county sales taxes, and eliminate property taxes. I know this may sound absurd but think about it for a minute.

You institute a countrywide sales tax; something like 15% to 20% (whatever the IRS feels is right) on all items except essentials such as bread, milk, and basic clothing sold inside U.S. territory. This sales tax also would cover personal property sales. Of course capital gains taxes, low income credits, and the corporate tax structure would remain. In addition to other taxes such as estate and death tax. Obviously there are millions of minute details that would need to be worked out but in theory I believe this would have a multi pronged affect.

A. This would tax individuals only on what you buy that is not essential for sustaining life, and in essence promote national savings which has been on a huge decline increasing U.S.A wide credit debt.

B. Eliminate tax shelters and other tax avoidance methods that the wealthy use bringing in more revenue.

C. Is the most fair tax you can put in place, wealthy people spend more = they pay more; poor people spend less = they pay less.

I am obviously generalizing immensely; anyone that has studied tax, such as myself, understands the extreme complexities in the tax code and knows this would be no easy switch. And this would not limit or control spending in Washington, that must be solved on it’s own. But what do you think of this idea. Let me know

[Darth Rotor]

Originally Posted by MilwaukeeMike

It is more than apparent the United States cannot continue to run huge budget deficits and spend like drunken sailors in Washington. I have a solution that has been proposed throughout the Accounting circles for eons with little political dialogue. My plan is simple; eliminate income taxes on state and federal levels across the board, eliminate state and county sales taxes, and eliminate property taxes. I know this may sound absurd but think about it for a minute.

You institute a countrywide sales tax; something like 15% to 20% (whatever the IRS feels is right) on all items except essentials such as bread, milk, and basic clothing sold inside U.S. territory. This sales tax also would cover personal property sales. Of course capital gains taxes, low income credits, and the corporate tax structure would remain. In addition to other taxes such as estate and death tax. Obviously there are millions of minute details that would need to be worked out but in theory I believe this would have a multi pronged affect.

A. This would tax individuals only on what you buy that is not essential for sustaining life, and in essence promote national savings which has been on a huge decline increasing U.S.A wide credit debt.

B. Eliminate tax shelters and other tax avoidance methods that the wealthy use bringing in more revenue.

C. Is the most fair tax you can put in place, wealthy people spend more = they pay more; poor people spend less = they pay less.

I am obviously generalizing immensely; anyone that has studied tax, such as myself, understands the extreme complexities in the tax code and knows this would be no easy switch. And this would not limit or control spending in Washington, that must be solved on it’s own. But what do you think of this idea. Let me know

Possible unintended outcome: greater "cash economy" growth in order to evade taxes.

By having a single tax, one makes tax evasion simpler, not harder.

IVA tax (aka VAT = Value Added Tax) tax in not uncommon in Europe, but so is a much higher gasoline tax.

Ross Perot for fifty, Alex.

My two centavos

DR

[MilwaukeeMike]

Originally Posted by Darth Rotor

Possible unintended outcome: greater "cash economy" growth in order to evade taxes.

By having a single tax, one makes tax evasion simpler, not harder.

IVA tax (aka VAT = Value Added Tax) tax in not uncommon in Europe, but so is a much higher gasoline tax.

Ross Perot for fifty, Alex.

My two centavos

DR

How does it make it simpler to evade taxes. Right now the simplest way to evade taxes is to not file and hope the IRS doesn't find you. Or find elaborate ways by offsetting income with passive losses, fake depreciation charges, fake or over exaggerated business expenses, fake gift transactions to family members, death bed gifts, falsity in FMV estimation; the list goes on and on.

With a flat sales tax, business must simply follow the same procedure they already are doing for local and state sales taxes. I just don't see how there would be more tax evasion. And what do you mean by a "Greater cash economy," that doesn't even make sense. Please explain yourself more.

[Ziggurat]

Originally Posted by MilwaukeeMike

You institute a countrywide sales tax; something like 15% to 20% (whatever the IRS feels is right) on all items except essentials such as bread, milk, and basic clothing sold inside U.S. territory.

Would this tax be applied to every sale? If so, it would introduce fantastic inefficiencies into the economy, by creating artificial incentives to prohibit redistribution of goods through resellers. If not, if you only want to tax end users (as current sales taxes do), it becomes very easy to cheat on.

Originally Posted by MilwaukeeMike

How does it make it simpler to evade taxes. Right now the simplest way to evade taxes is to not file and hope the IRS doesn't find you.

Most people work for companies which file W2's. If the company files W2's, the IRS knows you exist, knows how much you got paid, will know if you don't file, and have already taken a big chunk of the taxes you owe without you doing anything.

Quote:

Or find elaborate ways by offsetting income with passive losses, fake depreciation charges, fake or over exaggerated business expenses, fake gift transactions to family members, death bed gifts, falsity in FMV estimation; the list goes on and on.

Sure, but those methods tend to be elaborate (as you said), which makes them unattractive and dangerous to practice. Furthermore, you can be required to present documentation of such deductions.

In contrast, cheating an end-user sales tax is easy. All you need to do is mischaracterize the purchase as being to a non-end user, and no sales tax is paid. The government cannot expect companies to track who they sell everything to (again: trying to do so would produce massive inefficiencies which would offset any possible gains), nor can they require citizens to tally all their purchases to prove they paid sales tax on each (for the same reason) so there is no record. The only way to catch a cheat is to catch them in the act. And that's not good enough to prevent massive cheating.

Quote:

With a flat sales tax, business must simply follow the same procedure they already are doing for local and state sales taxes. I just don't see how there would be more tax evasion.

Most people don't bother avoiding sales tax when the cost is low, but they damned sure will if it represents their entire (and substantial) tax burden.

[Darth Rotor]

Originally Posted by MilwaukeeMike

How does it make it simpler to evade taxes. Right now the simplest way to evade taxes is to not file and hope the IRS doesn't find you. Or find elaborate ways by offsetting income with passive losses, fake depreciation charges, fake or over exaggerated business expenses, fake gift transactions to family members, death bed gifts, falsity in FMV estimation; the list goes on and on.

With a flat sales tax, business must simply follow the same procedure they already are doing for local and state sales taxes. I just don't see how there would be more tax evasion. And what do you mean by a "Greater cash economy," that doesn't even make sense. Please explain yourself more.

1989, marijuana was a one billion dollar cash crop in California by most sober estimates. (Part of the brief we got on the War on Drugs missions we got stuck doing. ) That is an example of "cash economy." What it amounts to is non-traceable money. If you can't trace it, it's hard to tax.

Off the books labor is another part of the "cash economy," but I don't have a number on the estimate of its current volume.

Another argument against is that the current income tax method allows for significant deductions that encourage home ownership, which your IVA model would not.

DR

[Ziggurat]

Originally Posted by MilwaukeeMike

Let me know

You need a few other options on your poll. Such as "keep an income tax but rewrite it from the ground up to simplify", and of course, "On planet X, we don't need taxes".

[brodski]

Increasing sales taxes will make people more likely to save than spend, and so will probably also depress your economy as demand falls away.

[Crossbow]

Ummm, I do not think that one could raise enough money through a VAT to replace Income Taxes.

In Europe where they have a VAT, they also have Income Taxes.

Is there a European JREF Member that can speak to such a thing from personal experience?

[Ziggurat]

Originally Posted by Crossbow

Ummm, I do not think that one could raise enough money through a VAT to replace Income Taxes.

A VAT is also different than a sales tax. It is not an end-user only tax (so avoidance is not so trivial), and the amount charged at any one step can be quite small, meaning there is not a strong incentive to cheat at those steps.

[brodski]

I pay VAT on all "non essential" goods, at 17.5%, I also pay income tax at 22% on (most of) my income, as well as other taxes.

To abolish income tax would require VAT rates well above 17.5%

[drkitten]

Originally Posted by MilwaukeeMike

C. Is the most fair tax you can put in place, wealthy people spend more = they pay more; poor people spend less = they pay less.

This statement is simply out-of-the-box wrong; sales taxes are the classic (textbook) examples of a regressive tax that hits the poor harder than the rich. (One key reasons is that the rich buy a much larger percentage of untaxed "services." For example, if I can afford to have someone cut my lawn for me, I pay wages to him -- but if I have to cut it myself, I instead have to buy the lawnmower and gasoline.) And since savings are untaxed, the people who can afford to save pay less tax than those who can't.

Given this fundamental misunderstanding about the nature of the sales tax, I see no need to analyze the rest of the post in detail.

[Solitaire]

Originally Posted by MilwaukeeMike

It is more than apparent the United States cannot continue to run huge budget deficits and spend like drunken sailors in Washington. I have a solution that has been proposed throughout the Accounting circles for eons with little political dialogue. My plan is simple; eliminate income taxes on state and federal levels across the board, eliminate state and county sales taxes, and eliminate property taxes. I know this may sound absurd but think about it for a minute.

You institute a countrywide sales tax; something like 15% to 20% (whatever the IRS feels is right) on all items except essentials such as bread, milk, and basic clothing sold inside U.S. territory. This sales tax also would cover personal property sales. Of course capital gains taxes, low income credits, and the corporate tax structure would remain. In addition to other taxes such as estate and death tax. Obviously there are millions of minute details that would need to be worked out but in theory I believe this would have a multi pronged affect.

This resembles The Fair Tax, that has perhaps a million people behind it now. Plus side it no IRS forms to file, minus side the Fair Tax turns government into a expense.

Aside: By this I mean big business such as Wall*Mart see the tax as an expense or a competitive disadvantage. In other words, by cutting the tax they can either raise profits or attract more customers through lower prices. Thus they will go to washington to lobby for smaller government. This creates conflicts between big businesses lobbying for big government and the lucrative contracts that enrich their bottom line. This creates disharmony in Capitol Hill as the two sides battle out the budget.

More Aside: The income tax is better because most people work for the bottom line, not the top line. From the worker's point of view, the employer pays most of the tax. From the employer's point of view, the worker pays the tax. Neither side takes responsibility for the tax and this creates harmony on Capitol Hill because neither side lobbies against the income tax. Of course if income taxes go up the worker will ask for more money resulting in inflation. Or if the employer cannot afford it, unemployment of the worker. Or perhaps a little of both in the form of a little stagflation.

[Crossbow]

Originally Posted by brodski

I pay VAT on all "non essential" goods, at 17.5%, I also pay income tax at 22% on (most of) my income, as well as other taxes.

To abolish income tax would require VAT rates well above 17.5%

Thanks much for the information!

[Tricky]

So for poverty-level people who pay little or no income tax, their tax rate jumps as much as 300%? Yeah, that's fair.

It is real easy to see who the flat tax benefits by seeing who is supporting it. I can assure you, it ain't the poor.

Legalize and tax drugs and prostitution, tax churches, tax gas-guzzling cars if you like, but the flat tax is a recipe for disaster.

[casebro]

I've got a Better Idea (tm)

Lets abolish capital gains tax.

That ought to get some attention. But we'll replace it with property tax instead. Here's the way it would compare:

Now: buy $1,000 worth of stock. Do good picking, make 20% this year. Pay no tax at all. Not intil you sell or transfer, then pay 28% of 20%, or about 5%. Someday Later, much later. If you can't find any tax dodges in the ensuing years.

Property tax option: Make 20% on your $1,000, pay a 2% tax on $1200 RIGHT NOW. No time for tax dodges, creative accounting. 2% PERIOD. Send it in. Next year, 2% on $1400, next year 2% on 1600.... no alternative minimums, no depreciations, no phoney incorporation schemes.
Why should stock/bond/etc investment be taxed differently from my real estate investment?

Raise the rates a bit, and it would be more than fair to the low income folks- no investments, no tax.

Current stack market value in the U.S. is $16 TRILLION , capital gains paid in 203, 45 billion. Thats all of .3 percent.

[Ziggurat]

Originally Posted by casebro

Raise the rates a bit, and it would be more than fair to the low income folks- no investments, no tax.

There's a problem with this too, though. For example, let's say I own a business, and I buy a fleet of cars to make deliveries. Those cars represent capital, or property, for me. I can pay the tax, because I'm getting a return on my investment in this capital that's larger than the tax rate.

But let's say my neighbor is poor. What if he buys a car? It's property, just like my fleet, so it would have to be taxed. But he needs it for the basics of life - like getting around, doing grocery shopping, having a life. Because he's poor, he may not be able to get a "return on investment" from buying a car. But he'll be taxed on it anyways. This tax, in effect, discourages the accumulation of wealth if you cannot use that wealth to create more wealth. That's not a bad incentive to give to businesses, but it actually could hurt poor people (who are often poor because they aren't good at turning wealth into more wealth) more than it hurts the wealthy.

This would also make long-term high-risk investment even riskier. For example, suppose you had some idea for a new technology which you expect to take about 5 years to develop, and which would require significant capital investment to perform the research. You go to a venture capitalist, raise the money, buy the equipment, and get working on your research idea. But you have to pay the taxes on all that equipment you own, despite not having any income yet. A minor 2% tax has actually increased your capital costs by a full 10%, essentially from the start. The venture capitalists who funded your project may be willing to swallow that cost, if the prospects are still good, but that also means they don't have as much money to invest in other things.

Lastly, of course, there's the problem of property flight. If you're rich, the last thing you want to do is retire in a country with property tax on all forms of property. You retire to a country with an income tax but little property tax. That flight is good for the country recieving the rich people, but bad for the country they're fleeing from.

On balance the idea of a pure property tax has some merit, but it's not unambiguously better.

[MilwaukeeMike]

Originally Posted by Ziggurat

In contrast, cheating an end-user sales tax is easy. All you need to do is mischaracterize the purchase as being to a non-end user, and no sales tax is paid. The government cannot expect companies to track who they sell everything to (again: trying to do so would produce massive inefficiencies which would offset any possible gains), nor can they require citizens to tally all their purchases to prove they paid sales tax on each (for the same reason) so there is no record. The only way to catch a cheat is to catch them in the act. And that's not good enough to prevent massive cheating.


Most people don't bother avoiding sales tax when the cost is low, but they damned sure will if it represents their entire (and substantial) tax burden.

Come on, you are telling me that Wal Mart doesn't track every single item they sell. Its called RFID tags and barcodes. They have been doing it for years. How do you think companies put just in time inventory programs in place. Most high volume retailers have been tracking their inventories for years.

The whole point of the sales tax system is to decrease the taxpayers responsibility to file, which reduces errors, government size, so on.

[MilwaukeeMike]

Originally Posted by Darth Rotor

1989, marijuana was a one billion dollar cash crop in California by most sober estimates. (Part of the brief we got on the War on Drugs missions we got stuck doing. ) That is an example of "cash economy." What it amounts to is non-traceable money. If you can't trace it, it's hard to tax.

Off the books labor is another part of the "cash economy," but I don't have a number on the estimate of its current volume.

Another argument against is that the current income tax method allows for significant deductions that encourage home ownership, which your IVA model would not.

DR

The elimination of property taxes would induce me to buy a home.

[MilwaukeeMike]

Originally Posted by brodski

Increasing sales taxes will make people more likely to save than spend, and so will probably also depress your economy as demand falls away.

In theory the increase amount of money the tax payer has from not paying income taxes, property taxes, or state and local sales tax should offset that.

[drkitten]

Originally Posted by MilwaukeeMike

Come on, you are telling me that Wal Mart doesn't track every single item they sell. Its called RFID tags and barcodes.

Well, I'll tell you that.

All they care about is that the item sold -- they don't care to whom. They don't even care whether or not the item actually sold (as opposed to simply walking off the shelf), since they explicitly off-load the risk of "shrinkage" onto the suppliers by essentially leasing them shelf space.

[drkitten]

Originally Posted by MilwaukeeMike

In theory the increase amount of money the tax payer has from not paying income taxes, property taxes, or state and local sales tax should offset that.

Not if they don't spend that money..

[MilwaukeeMike]

Originally Posted by Crossbow

Ummm, I do not think that one could raise enough money through a VAT to replace Income Taxes.

In Europe where they have a VAT, they also have Income Taxes.

Is there a European JREF Member that can speak to such a thing from personal experience?

I think you are forgetting that the corporate tax structure, capital gains, and so on remain the same.

[Ziggurat]

Originally Posted by MilwaukeeMike

Come on, you are telling me that Wal Mart doesn't track every single item they sell. Its called RFID tags and barcodes. They have been doing it for years.

No, they don't track every item they sell, not in the sense of knowing who they sold it all to. They don't know, because 1) they don't CARE, they only care that they sold it (which is what the bar codes provide), and 2) they don't actually have a way of automating information on who they sold to, and there IS no possible way of automating it that the public (at least the US public) would accept.

Quote:

The whole point of the sales tax system is to decrease the taxpayers responsibility to file, which reduces errors, government size, so on.

That may be the point, but if the rate is high, the EFFECT will be to create massive and widespread fraud. Why pay 20% sales tax, when the vendor could pretend you're a reseller and waive the tax in exchange for you giving the vendor a 5% under-the-counter cash kickback? No responsibility to file is indeed correct: there is no way of tracking or preventing such abuse either without creating a responsibility to file.

[MilwaukeeMike]

Originally Posted by drkitten

This statement is simply out-of-the-box wrong; sales taxes are the classic (textbook) examples of a regressive tax that hits the poor harder than the rich. (One key reasons is that the rich buy a much larger percentage of untaxed "services." For example, if I can afford to have someone cut my lawn for me, I pay wages to him -- but if I have to cut it myself, I instead have to buy the lawnmower and gasoline.) And since savings are untaxed, the people who can afford to save pay less tax than those who can't.

Given this fundamental misunderstanding about the nature of the sales tax, I see no need to analyze the rest of the post in detail.

How is this out of the box wrong. "The rich buy a much larger % on untaxed services." I think that's a generalization you have no room to make unless you have a statistic to back that up. How in the world can you know that. The whole point is that people WORKING are getting more money out of what they are doing, hopefully lifting some people out of poverty. And necessities would not be taxed. If you have a huge lawn that needs mowing once a week you are probably not under the poverty line. And it for sure doesn't hit the poor harder; how many working mothers with four children, working at McDonalds are buying 50 inch plasma screens. Its just not a reality. It hits the rich spending $100,000 on a car; selling their $1 million dollar homes. Not the factory worker buying bread and milk.

"Given this fundamental misunderstanding about the nature of the sales tax, I see no need to analyze the rest of the post in detail"

Dont be an arrogant prick. You have brought assumptions and generalizations without any backup proof.

[MilwaukeeMike]

Originally Posted by Tricky

So for poverty-level people who pay little or no income tax, their tax rate jumps as much as 300%? Yeah, that's fair.

It is real easy to see who the flat tax benefits by seeing who is supporting it. I can assure you, it ain't the poor.

Legalize and tax drugs and prostitution, tax churches, tax gas-guzzling cars if you like, but the flat tax is a recipe for disaster.

Under a countrywide sales tax you would be taxed on buying an SUV and 50 gallons of gas a week. I just don't see you're argument. The poor would get more of their paychecks back. The poor are not buying big ticket items and other luxuries that would cause them to be taxed. All this while still retaining their tax credits against any income they do report (capital gains if they are fortunate enough to have)

[MilwaukeeMike]

Originally Posted by casebro

I've got a Better Idea (tm)

Lets abolish capital gains tax.

That ought to get some attention. But we'll replace it with property tax instead. Here's the way it would compare:

Now: buy $1,000 worth of stock. Do good picking, make 20% this year. Pay no tax at all. Not intil you sell or transfer, then pay 28% of 20%, or about 5%. Someday Later, much later. If you can't find any tax dodges in the ensuing years.

Property tax option: Make 20% on your $1,000, pay a 2% tax on $1200 RIGHT NOW. No time for tax dodges, creative accounting. 2% PERIOD. Send it in. Next year, 2% on $1400, next year 2% on 1600.... no alternative minimums, no depreciations, no phoney incorporation schemes.
Why should stock/bond/etc investment be taxed differently from my real estate investment?

Raise the rates a bit, and it would be more than fair to the low income folks- no investments, no tax.

Current stack market value in the U.S. is $16 TRILLION , capital gains paid in 203, 45 billion. Thats all of .3 percent.

Now there is a tax benefit that the poor can use. Im sure all the bums by the mission near my house would be excited when their 10% stake in GE goes up $1.

[MilwaukeeMike]

Originally Posted by Ziggurat

There's a problem with this too, though. For example, let's say I own a business, and I buy a fleet of cars to make deliveries. Those cars represent capital, or property, for me. I can pay the tax, because I'm getting a return on my investment in this capital that's larger than the tax rate.

But let's say my neighbor is poor. What if he buys a car? It's property, just like my fleet, so it would have to be taxed. But he needs it for the basics of life - like getting around, doing grocery shopping, having a life. Because he's poor, he may not be able to get a "return on investment" from buying a car. But he'll be taxed on it anyways. This tax, in effect, discourages the accumulation of wealth if you cannot use that wealth to create more wealth. That's not a bad incentive to give to businesses, but it actually could hurt poor people (who are often poor because they aren't good at turning wealth into more wealth) more than it hurts the wealthy.

This would also make long-term high-risk investment even riskier. For example, suppose you had some idea for a new technology which you expect to take about 5 years to develop, and which would require significant capital investment to perform the research. You go to a venture capitalist, raise the money, buy the equipment, and get working on your research idea. But you have to pay the taxes on all that equipment you own, despite not having any income yet. A minor 2% tax has actually increased your capital costs by a full 10%, essentially from the start. The venture capitalists who funded your project may be willing to swallow that cost, if the prospects are still good, but that also means they don't have as much money to invest in other things.

Lastly, of course, there's the problem of property flight. If you're rich, the last thing you want to do is retire in a country with property tax on all forms of property. You retire to a country with an income tax but little property tax. That flight is good for the country recieving the rich people, but bad for the country they're fleeing from.

On balance the idea of a pure property tax has some merit, but it's not unambiguously better.

Ok first you need to go and read the tax code; if you own a business and have a fleet of cars you already get loads of credits and can recognize capital losses from depreciation. Besides, I explained that this plan would the leave the corporate structure in place.

2nd, your neighbor under the current system is already playing two different sales taxes, registration fees, and cannot recognize a loss or depreciation for personal property. You can never recognize a gain or a loss on personal property under the current system.

[MilwaukeeMike]

Originally Posted by drkitten

Well, I'll tell you that.

All they care about is that the item sold -- they don't care to whom. They don't even care whether or not the item actually sold (as opposed to simply walking off the shelf), since they explicitly off-load the risk of "shrinkage" onto the suppliers by essentially leasing them shelf space.

As if its insanely coordinated logistics system, biometric payment system, and (potential) RFID shelving weren't eerie enough, America's largest retailer is taking consumer voyeurism one step further with the use of infrared technology. In an apparent attempt to avoid the taboo "RFID" flavor of intrusion, Wal-Mart is hoping to sneak an IR system into its stores to gauge the effectiveness (and elicit more advertising dollars, of course) of its various promotions. Dubbed Prism, the arguably dodgy system was crafted by Coca-Cola, Kelloggs, Kroger, Procter & Gamble, Walgreens, and Disney in order to "track shoppers' movements around the store" and correlate them with actual sales in order to judge display effectiveness.

http://www.engadget.com/2006/10/03/w...rs-promotions/

They care very much who buy's what.

[MilwaukeeMike]

Originally Posted by drkitten

Not if they don't spend that money..

Yes that is good. We want people to save and invest more. That was one of my positives from this whole idea.

[MilwaukeeMike]

Originally Posted by Ziggurat

No, they don't track every item they sell, not in the sense of knowing who they sold it all to. They don't know, because 1) they don't CARE, they only care that they sold it (which is what the bar codes provide), and 2) they don't actually have a way of automating information on who they sold to, and there IS no possible way of automating it that the public (at least the US public) would accept.



That may be the point, but if the rate is high, the EFFECT will be to create massive and widespread fraud. Why pay 20% sales tax, when the vendor could pretend you're a reseller and waive the tax in exchange for you giving the vendor a 5% under-the-counter cash kickback? No responsibility to file is indeed correct: there is no way of tracking or preventing such abuse either without creating a responsibility to file.

A correct rate must be determined so that it stimulates growth yet brings in more revenue. As I stated I generalized a complex issue. That is a complex issue.

[Ziggurat]

Originally Posted by MilwaukeeMike

Ok first you need to go and read the tax code; if you own a business and have a fleet of cars you already get loads of credits and can recognize capital losses from depreciation. Besides, I explained that this plan would the leave the corporate structure in place.

Um... I was responding to casebro's plan in that post, not yours, so I don't see how you already explained anything about his plan.

[MilwaukeeMike]

Originally Posted by Ziggurat

Um... I was responding to casebro's plan in that post, not yours, so I don't see how you already explained anything about his plan.

Sorry for the confusion

[Ziggurat]

Originally Posted by MilwaukeeMike

A correct rate must be determined so that it stimulates growth yet brings in more revenue. As I stated I generalized a complex issue. That is a complex issue.

No, actually, it's pretty simple: end-user sales taxes are easy to avoid. Nothing complicated about that, really. A "correct rate" need not even exist for a tax where cheating is both easy and massively profitable - it becomes, in effect, a way of punishing the honest. When cheating is easy and profitable, lots of people will do it. And it WILL be profitable, because rates MUST be high (relative to current sales taxes) in order to raise sufficient funds, even assuming total compliance. If rates are raised above that level to compensate for the fact that people are cheating, cheating will increase further. Because enforcement can only really occur at the time of sales, it will become capricious and, most likely, corrupt. These aren't just details that can be swept under the rug, they are fatal flaws.

[MilwaukeeMike]

Originally Posted by Ziggurat

No, actually, it's pretty simple: end-user sales taxes are easy to avoid. Nothing complicated about that, really. A "correct rate" need not even exist for a tax where cheating is both easy and massively profitable - it becomes, in effect, a way of punishing the honest. When cheating is easy and profitable, lots of people will do it. And it WILL be profitable, because rates MUST be high (relative to current sales taxes) in order to raise sufficient funds, even assuming total compliance. If rates are raised above that level to compensate for the fact that people are cheating, cheating will increase further. Because enforcement can only really occur at the time of sales, it will become capricious and, most likely, corrupt. These aren't just details that can be swept under the rug, they are fatal flaws.

Is the 23% FairTax revenue-neutral rate higher or lower when compared to income and Social Security taxes people pay today?

Most people are paying that much or more today – much of it is just hidden from view. The income tax bracket most people fall into is 15 percent, and all wage earners pay 7.65 percent in payroll taxes. That’s 23 percent right there, without taking into account the 7.65 percent employer matching! On top of that, you have to add in the business taxes and associated compliance costs passed on to consumers in higher prices.

Effective tax rates vs. stated tax rates
Because the 23-percent FairTax rate of $0.23 on every dollar spent is not imposed on necessities, an individual spending $30,000 pays an effective tax rate of only 15.5 percent, not 23 percent. That same individual will pay 17.3 percent of his or her income to federal taxes under current law. See effective tax rates for a family of four at various spending levels in Figure 2.

http://www.fairtax.org/fairtax/faqanswers.htm

[MilwaukeeMike]

Why is the FairTax better than our current system?

Our present tax system is one of the reasons that people are finding it so difficult to get ahead these days. It is one of the reasons the next generation may not have a standard of living as high as this generation. Cars replaced the horse and buggy, the telephone replaced the telegraph, and the FairTax replaces the income tax. The income tax is holding us back and making it more difficult than it needs to be to improve our families’ standard of living. It makes it needlessly difficult for our businesses to compete in international markets. It wastes vast resources on complying with needless paperwork. We can do better and we must.

http://www.fairtax.org/fairtax/faqanswers.htm

[MilwaukeeMike]

How does the FairTax protect low-income and lower-middle-income families and individuals?

Under the FairTax plan, poor people pay no net FairTax at all up to the poverty level! Every household receives a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax. Those spending at twice the poverty level pay a tax of only 11.5 percent – a rate much lower than the income and payroll tax burden they bear today.

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, thus harming low-income people 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 rebate, 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.

http://www.fairtax.org/fairtax/faqanswers.htm

[Ziggurat]

Originally Posted by MilwaukeeMike

Is the 23% FairTax revenue-neutral rate higher or lower when compared to income and Social Security taxes people pay today?

I'm not sure your point. Are you claiming that a 23% sales tax rate is all it would require, and that this rate is small? You've provided evidence for the former, but not the latter. A 23% sales tax rate is huge, for a sales tax. It would spawn massive fraud, and you have yet to indicate how such widespread fraud can be avoided. Your posts regarding the merit of such a system, under the assumption that it will work, are irrelevant when the point of contention is whether or not it will work to begin with.

[drkitten]

Originally Posted by MilwaukeeMike

How is this out of the box wrong. "The rich buy a much larger % on untaxed services." I think that's a generalization you have no room to make unless you have a statistic to back that up.

As I said, it's a standard -- textbook -- example. Open any book that defines "regressive tax" and see what they use for the example (and the stats that they cite).

You literalliy have no *****' clue what you're talking about. Usually I need to talk to 9/11 truthers to get this level of disconnection from reality.

[MilwaukeeMike]

Originally Posted by Ziggurat

I'm not sure your point. Are you claiming that a 23% sales tax rate is all it would require, and that this rate is small? You've provided evidence for the former, but not the latter. A 23% sales tax rate is huge, for a sales tax. It would spawn massive fraud, and you have yet to indicate how such widespread fraud can be avoided. Your posts regarding the merit of such a system, under the assumption that it will work, are irrelevant when the point of contention is whether or not it will work to begin with.

Does the FairTax rate need to be much higher to be revenue neutral?

The proper tax rate has been carefully worked out; 23 percent does the job of: (1) raising the same amount of federal funds as are raised by the current system, (2) paying the universal rebate, and (3) paying the collection fees to retailers and state governments. Unlike some other proposals, this rate has been independently confirmed by several different, nonpartisan institutions across the country. Detailed calculations are available from FairTax.org.

Since business purchases are not taxable, how does the FairTax keep individuals from pretending to have a business so they can buy things tax free?

The FairTax has several features that make it difficult and very risky for persons to have a scam business in order to purchase items tax free. First, in order for any person to purchase items tax free for business purposes, the business has to be a registered seller and possess a registered seller certificate issued by the state sales tax authority. Registered sellers are expected to file monthly or quarterly sales tax returns with the state (depending on sales volume). The certificate enables the business to purchase tax free from wholesale vendors, but the vendor must retain a copy of the registration certificate to justify not having collected tax on the sale. When a business purchases items for business use from a retail vendor, they have to pay the tax on the purchase and take a credit against the tax due on their monthly sales tax return. They must keep invoices/receipts to document what they purchased and the amount of the purchase. They might also make note of the purpose of the purchase on the invoice.

Also, as registered sellers, they are subject to the possibility of being audited by the state. During such an audit they will have to produce the invoices for all the “business purchases” that they did not pay sales tax on, and will have to be able to show that they were bona fide business expenses. If they cannot prove this, then they will have to pay the taxes that should have been paid when the items were purchased, plus interest and penalties. The probability of being audited will be much greater than it is under the current system with its over 140 million tax filers. Under the FairTax, there will be less than 20 million businesses that will be filing sales tax returns and thus subject to the possibility of being audited. Thus the probability of tax cheats getting caught will be much greater than it is today, making tax evasion riskier than it is today. Additionally, while the FairTax has much stronger taxpayer rights than does the current tax system, the FairTax legislation provides for a number of fines and penalties for noncompliance. It also authorizes a mechanism for reporting tax cheats and obtaining a reward. An example would be 1-800-TAX-CHET.

Another potential scam would be to have a “fake” family business in order to buy things for family members tax free. The FairTax has a specific provision to prevent this. Although it does not prohibit businesses from providing taxable property or services as gifts, prizes, rewards or as remuneration for employment, the gift, reward, etc. is considered to be the conversion of property or services from business use to personal use and is therefore taxable. Likewise, there is a similar provision to prevent abuse of employee discounts. Under the FairTax, employer-provided employee discounts over 20 percent are taxable. The term “employee discount” means an employer’s offer of taxable property or services for sale to its employees or their families for less than the offer of such taxable property or services to the general public. If the employee discount amount exceeds 20 percent of the price to the general public, then the sale of such taxable property or services by the employer to the employee is considered the conversion of property or services to personal use and is subject to tax. The taxable amount is the amount by which the discount exceeds 20 percent of the price to the general public.

http://www.fairtax.org/fairtax/faqanswers.htm

[MilwaukeeMike]

Originally Posted by drkitten

As I said, it's a standard -- textbook -- example. Open any book that defines "regressive tax" and see what they use for the example (and the stats that they cite).

You literalliy have no *****' clue what you're talking about. Usually I need to talk to 9/11 truthers to get this level of disconnection from reality.

Is the FairTax fair?

Yes, the FairTax is fair, and in fact, much fairer than the income tax. Wealthy people spend more money than other individuals. They buy expensive cars, big houses, and yachts. They buy filet mignon instead of hamburger, fine wine instead of beer, designer dresses, and expensive jewelry. The FairTax taxes them on these purchases. If, however, they use their money to build job-creating factories, finance research and development to create new products, or fund charitable activities (all of which help improve the standard of living of others), then those activities are not taxed

How does the FairTax protect low-income and lower-middle-income families and individuals?

Under the FairTax plan, poor people pay no net FairTax at all up to the poverty level! Every household receives a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax. Those spending at twice the poverty level pay a tax of only 11.5 percent – a rate much lower than the income and payroll tax burden they bear today.

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, thus harming low-income people 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 rebate, 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.


That is how it protects low income people.

http://www.fairtax.org/fairtax/faqanswers.htm