The Fair Tax, for better or worse?

[US27inKS]

Originally Posted by ssneade

actually the proposed tax is only 23% rather than 30%. a huge misconception put out by the left and other opponents of the fair tax...

It really depends on which way you figure it. If I made $130 and was taxed 23% I would have $100 left to spend. If I bought $100 item and were taxed 30% I would spend $130. Either way it would take $130 in earnings to purchase a $100 item.

[gumbeau]

Originally Posted by US27inKS

It really depends on which way you figure it. If I made $130 and was taxed 23% I would have $100 left to spend. If I bought $100 item and were taxed 30% I would spend $130. Either way it would take $130 in earnings to purchase a $100 item.

The key is you don't HAVE to spend the 130 bucks and can avoid paying the tax if you so choose.

Avoiding the income tax isn't so easy.

$130 in a savings account is always better than $100

[ssneade]

Originally Posted by US27inKS

It really depends on which way you figure it. If I made $130 and was taxed 23% I would have $100 left to spend. If I bought $100 item and were taxed 30% I would spend $130. Either way it would take $130 in earnings to purchase a $100 item.

that is true kansas, but the embedded taxes are removed from the manufacturing process, allowing the product to be produced at a much lower cost to the manufacturer. raw goods are not applicable to the tax, as i understand it. taxes on raw goods are just some of the embedded taxes the public cannot see. now in theory, if producers of finished goods have a reduced manufacturing cost, then they are able to sell their product at a lower rate. and in order to compete, other producers of finished goods will lower their prices to remain competitive.......

[US27inKS]

Originally Posted by ssneade

that is true kansas, but the embedded taxes are removed from the manufacturing process, allowing the product to be produced at a much lower cost to the manufacturer. raw goods are not applicable to the tax, as i understand it. taxes on raw goods are just some of the embedded taxes the public cannot see. now in theory, if producers of finished goods have a reduced manufacturing cost, then they are able to sell their product at a lower rate. and in order to compete, other producers of finished goods will lower their prices to remain competitive.......

I completely agree. There is no doubt that our overall tax bill will be less because of removed hidden taxes. I just wanted to make sure everyone knew why there are 2 different rates being talked about. Fair Tax supporters claim 23%, detractors claim 30%. Both tax rates are correct depending on how it's calcualted.

Since everyone gets the prebate, the actual tax rate for most people is actually lower than 23%. For example, annual income for my wife and I totals about 95K. Assuming no deductions (fair tax has no deductions), we would pay approximately 19.7% with the fair tax instead of 25% plus hidden taxes with our current system.

[sck5]

"(fair tax has no deductions)"

dream on. this is the usa. politicians love handing out tax breaks like junkies love heroin. it would take about 3 weeks for them to start doing it if it even took them that long

[US27inKS]

Originally Posted by sck5

"(fair tax has no deductions)"

dream on. this is the usa. politicians love handing out tax breaks like junkies love heroin. it would take about 3 weeks for them to start doing it if it even took them that long

If we had the fair tax in place, there would be no deductions. Politicians could easily exclude certain goods or services from taxation, but since there is no individual income tax or income tax return, what would we deduct from?

[ssneade]

Originally Posted by sck5

"(fair tax has no deductions)"

dream on. this is the usa. politicians love handing out tax breaks like junkies love heroin. it would take about 3 weeks for them to start doing it if it even took them that long

what really sux is that we keep voting them in......

[jgsteven]

Originally Posted by wind_magic

Whatever we do we have to stop penalizing earners and savers.

True, but if you replace our current tax code with the fair tax, you produce exactly the opposite problem -- savers are rewarded while consumers are punished. As much as this sounds like a better situation than we are in now, excess savings (ie: under-consumption) can lead to recession/depression just as easily as excess consumption.

The main problems with taxes are (1) the distort individual incentives, and (2) the government wastes a huge chunk of the money. Neither of those problems is fixed by the fair tax (although I admit it is more 'fair').

The only solution I know of for (1) is a tax on 'the unimproved value of land' ala Henery George ( Henry George: The Concise Encyclopedia of Economics | Library of Economics and Liberty ) -- and as for (2), I don't think any person or country has found a solution for that one yet.

Originally Posted by someone

The Fair Tax plan would encourage saving even more because there is no tax paid until you purchase goods or services.

Thats exactly its problem. Savings are great because they are invested and thus increase productive capacity, but someone eventually has to consume what is produced or it doesn't do anybody any good. The US has acted as the world's consumer for many years for other countries, but there is no clear replacement to act as *our* consumer of last resort so we can export our way out of economic trouble.

Any new taxation system that doesn't address the creation of bizzare, distorting incentives for individuals and firms is just going to land us in the same hole we are in today.

[wind_magic]

Originally Posted by jgsteven

True, but if you replace our current tax code with the fair tax, you produce exactly the opposite problem -- savers are rewarded while consumers are punished. As much as this sounds like a better situation than we are in now, excess savings (ie: under-consumption) can lead to recession/depression just as easily as excess consumption.

I can't really argue against this because it is a valid criticism and it is internally consistent, but I will say this - I think human beings (remember those ?) are more contented when they are not working every day just to get by, when they have some savings to support themselves with in an emergency, and I think it is worth the hit we take in consumption so that we have more overall happiness and people have some measure of individual financial satisfaction. People simple aren't built to struggle every single day of their lives just to get by, and that is what our current tax system promotes. Is it more productive ? Yes. Does it make happier people ? No.

[US27inKS]

Originally Posted by jgsteven

True, but if you replace our current tax code with the fair tax, you produce exactly the opposite problem -- savers are rewarded while consumers are punished. As much as this sounds like a better situation than we are in now, excess savings (ie: under-consumption) can lead to recession/depression just as easily as excess consumption.

The main problems with taxes are (1) the distort individual incentives, and (2) the government wastes a huge chunk of the money. Neither of those problems is fixed by the fair tax (although I admit it is more 'fair').

The only solution I know of for (1) is a tax on 'the unimproved value of land' ala Henery George ( Henry George: The Concise Encyclopedia of Economics | Library of Economics and Liberty ) -- and as for (2), I don't think any person or country has found a solution for that one yet.



Thats exactly its problem. Savings are great because they are invested and thus increase productive capacity, but someone eventually has to consume what is produced or it doesn't do anybody any good. The US has acted as the world's consumer for many years for other countries, but there is no clear replacement to act as *our* consumer of last resort so we can export our way out of economic trouble.

Any new taxation system that doesn't address the creation of bizzare, distorting incentives for individuals and firms is just going to land us in the same hole we are in today.

Then the political battle becomes how to value the land. The US govt owns 30% of the land right now, and if we divide the remaining land area by our expected tax receipts, that means we owe an average of $1590 per acre. Once you start adjusting for the value of the land though, the owners of the majority of land will pay almost no taxes per acre, while city dwellers will pay through the nose. As fewer people are able to afford to own their homes due to the taxes, we will become a nation of renters beholden to a few very rich land owners. This system sounds like an incentive against land ownership.

I agree that our economy need consumers, and lots of them. We also need more savers than we currently have. We already have tax incentives to save that people don't take advantage of. While I would hope that the fair tax would create more savers in the US, I doubt that it would slow down consumption enough to crash our economy.