The Fair Tax

[mnealtx 0]

Disclaimer: I've not run any numbers against any flat tax or fair tax idea.

I've seen this bandied about for a couple years now, and it certainly does seem like it COULD work. A rate of roughly 23% on goods/services seems to stick in my mind for some reason.

I think a combination of a flat tax coupled with a smaller goods/services tax (both only applicable above the poverty line) would be a better choice.

With all that said, it'll never get passed... too much impact on porkbarrel projects...

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[rehmwa 2]

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IFor example, you could exempt "essential" goods and services (defined however you like, ......(so, everyone would get the "tax exemption vouchers" good for not paying taxes on their first $25,000 per year of "essential" stuff, or exempting $10,000 worth of food, $10,000 worth of housing and $5,000 worth of gas, or whatever else you decided was "essential.")

The problem here with these good concepts is that they won't fly because your exeptions should be applied to every single citizen, but many won't stand for that. They'll want those exemptions, but only for 'thier' special interest group.

I'm in favor of the flat income tax with the first x thousand dollars exempted. It's easy, progressive (in terms of % income) but only in terms of cost of living and not in terms of class envy/punishment legislation, and can greatly simplify the regular man's tax paying and reporting duties. Taxes are about all citizens paying for services, not about 'leveling' the playing field.

I like Kallend's proposal most - politicians shouldn't be allowed to name their own proposals. I call it The Ethical Naming of Legislation Bill. What? if you vote against it you must be against ethics....

Edit: Other potential names are Goodness in Life Bill, Evil is Bad Bill, and the Children are Our Future Bill.

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Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[billvon 3,118]

>Taxes are about all citizens paying for services, not about 'leveling'
>the playing field.

That's in an ideal world. Unfortunately, it is not one we live in.

The primary issue is practicality. One could argue that everyone should pay their share of the federal debt. 200 million taxpayers? Take the debt, divide by 200 million, send everyone a bill. That's the "most fair" way to do it, especially since the poor tend to use more government services than the rich.

Problem with that is we couldn't afford the prisons to put all the people in who couldn't afford a $40,000 bill every year. It's not a practical way to do it.

Next 'most fair' is a flat percentage (of sales or salary, take your pick.) Adjust that percentage yearly to match our debt. Problem _there_ is that that tax rate on the poor will tend to either a) drive them into debtor's prison, or b) slow down their rise into the middle class. And you want them to get there not for social equity reasons, but purely because they can pay more taxes. On a farm this would equate to not working the ten day old oxen too hard; you want him to grow into a bigger oxen who can pull more. That's not "leveling the oxen playing field", that's good business sense on the farmer's part.

So then we get to a progressive tax, where you pay a smaller percentage if you're poor. Do this via exempting the first X dollars spent/earned, or exempt people below X dollars a year, or however. This gets the poor to middle class status a little faster. The taxes on everyone else must be adjusted upwards a bit - but since the poor pay almost no taxes to begin with, it's not a significant change.

There are also social reasons you could use - "give em a break, they're poor" - but that's a different issue. The above is intended to demonstrate merely that there are very practical reasons for progressive tax; you get more money out of a populace that way in the long run. And the way we're spending now, we are going to need more money.

[rehmwa 2]

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>So then we get to a progressive tax, where you pay a smaller percentage if you're poor. Do this via exempting the first X dollars spent/earned, or exempt people below X dollars a year, or however.

I'll assume this is a general response and not one to me since the above paragraph is exactly what I'm for and seems to be what you also are agreeing with.

I don't understand the part about how you think poor people are oxen. But I'm not from California, I'll have to assume it's cultural...

Edit: I think "exempting the first X dollars spent/earned, or exempt people below X dollars a year" can be just one thing if you really look at it. Exempting the first 25000 a year for everyone in fact does exempt completely those that make $25k or less. It also gives the cost of living deduction to everyone equally. I'd still want those 'completely' exempted to give something to instill a sense of ownership in the government. I'd rather the first X dollars be at a small rate, and everthing above x be at a higher rate..... So even if you make next to nothing, you still pay some kind of tax, even if it's just a gesture.

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Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[JohnnyD 0]

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An exemption on the First x thousand dollars of income or spending makes a progressive rate tax structure by definition.

Only if you assume that all people are going to spend every dollar they make. In reality, they will not. This is a horribly regressive tax structure. Percentage wise, as your income increases the percentage of it you will pay in tax decreases. Wendy's example was a good one. People who would be able would drastically change their spending habits under that system. I know I would.

I've always pitched this structure (big exemption up front, constant rate above that point) against income tax, not sales tax. Your point is well put in terms of sales tax.

That is an important distinction to make. You are in favor of a "flat tax" based on income. The "Fair Tax" is intended to be based on sales of new goods and services at a rate of 23%, IIRC. It seems like a nice theory, but there is no way it would even come remotely close to replacing income, social security, medicare, and capital gains taxes at that percentage. It doesn't even address federal and state unemployment and local and state sales tax.
Also, our current system is many things. Among them is effective. I think this would be a very ineffective way for the government to attempt to collect revenue in that the less complex the system is, the less complex the method is required to circumvent the system.

[GTAVercetti 0]

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Among them is effective. I think this would be a very ineffective way for the government to attempt to collect revenue in that the less complex the system is, the less complex the method is required to circumvent the system.

Tell that to the people who either 1) really know tax code well or 2) hire an accountant who knows it well and can work the system. The current setup has so many loopholes and legal tightropes to walk that it is easy for someone with enough knowhow or the money to pay for the knowhow to pay ridiculously low taxes for what they earn.

I see no way that is would be easier to to cheat a flat tax based off of income. Everyone pays X percentage of your income (with a certain first amount untaxed). That is it. A sales tax could be cheated perhaps, but in the flat tax's case, I think the cheating would be less.

Imagine that our current system is a large town. You want to get from point A to the point B. The city puts up signs indicating the way to B is straight down Main St, where they happen to have a toll booth set up. But, thanks to an intimate knowledge of the town, you know some off streets that, while taking longer to get to the other side, will avoid the toll.

Now, imagine a flat tax is also a town, but it is a ONE street town. The ONLY way to go is down Main St.

Why yes, my license number is a palindrome. Thank you for noticing.

[rehmwa 2]

I think the 3 of us agreed there.

Income tax at a flat rate is simple.

Sales tax of any kind, especially when we need to establish exception criterias for various reasons is hard to enforce.

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Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[pirana 0]

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The fair tax will disproportionately penalize people who have to spend a larger percentage of their income simply to survive.

Let's say the tax is 10% on what you spend. These expenses are not realistic, but they serve to illustrate.

e.g.: if you make $1000/mo as a single person, you spend $300 to rent a room, and $150/mo on food if you cook reasonably well. Transportation costs $120/mo.

That's $570/mo. You therefore pay $57 in tax, which is 5.7% of your income, and you have $373 for all other expenses.

Now let's say you make instead $10,000/mo as a single person. You have an apartment at $2000/mo, you spend $500/mo on your vehicle, and $250 on food, and $500 on entertainment.

That's $3250. You therefore pay $325 in tax, which is 3.25% of your income, and you have $6425 for all other expenses.

No one expects the guy living on $1000/mo to live as well as the guy making 10 times as much, including that guy. But it's not an equal percentage of their incomes.

I know I have a lot more money left at the end of the month now that I make more, than when I was making less, even though I was living quite frugally (I was skydiving as a self-supporting college student -- I do understand frugal).

Wendy W.

That's the problem with using %ages at times. So what if the poorer person is paying a higher percent. The richer person is putting 6 TIMES the money into the public coffers. More than fair.

You put dollars in the bank - not percentages.

" . . . the lust for power can be just as completely satisfied by suggesting people into loving their servitude as by flogging them and kicking them into obedience." -- Aldous Huxley

[wmw999 2,588]

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That's the problem with using %ages at times. So what if the poorer person is paying a higher percent.

Well, if you'll read farther in the thread, billvon gives a pretty good explanation.

Basically, the harder you make it for poor people to stop being poor, the less you'll collect from them in the long run.

Make it easier for them to get ahead (realistically, not just the superhuman), and you get more in the long run. The rich will generally keep being rich -- that's not a problem. But the more poor people you convert into taxpayers, or into higher taxpayers, the better off you are in the long run.

For all the same reasons that a 5% salary increase puts more dollars into your pocket when you earn $10,000/mo than when you earn $1,000/mo.

Wendy W.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[JohnnyD 0]

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Among them is effective. I think this would be a very ineffective way for the government to attempt to collect revenue in that the less complex the system is, the less complex the method is required to circumvent the system.

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Tell that to the people who either 1) really know tax code well or 2) hire an accountant who knows it well and can work the system. The current setup has so many loopholes and legal tightropes to walk that it is easy for someone with enough knowhow or the money to pay for the knowhow to pay ridiculously low taxes for what they earn.

Actually, the complexity of the system allows for change. People figure a way around something and the government figures out how they are doing it. Small changes can be made here and there and usually are every year. This allows for a constant updating of the code to keep it up with the times. There is also a cost/benefit to the avoidance of tax liability. It can be an expensive proposition to create the structure and environment that will decrease your tax liability and even when you believe you have everything in place, you may still lose in court.

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I see no way that is would be easier to to cheat a flat tax based off of income. Everyone pays X percentage of your income (with a certain first amount untaxed). That is it. A sales tax could be cheated perhaps, but in the flat tax's case, I think the cheating would be less.

You are correct. The problem is one of tax burden. A flat tax, by definition, is neither progressive nor regressive. Our current system is both, depending on the type of tax. The higher income segment of the country would LOVE a flat tax. Middle income people just want something they understand.

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Imagine that our current system is a large town. You want to get from point A to the point B. The city puts up signs indicating the way to B is straight down Main St, where they happen to have a toll booth set up. But, thanks to an intimate knowledge of the town, you know some off streets that, while taking longer to get to the other side, will avoid the toll.

Now, imagine a flat tax is also a town, but it is a ONE street town. The ONLY way to go is down Main St.

Currently, the wealthiest people in town pay the majority of the tolls. The revenue to the city from the tolls will remain constant, but the middle to lower class will have to shoulder a larger portion of the the total burden than under the current system. It can only work if the total required tolls are decreased. Currently, we are moving in the opposite direction.

[rehmwa 2]

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That's the problem with using %ages at times. So what if the poorer person is paying a higher percent. The richer person is putting 6 TIMES the money into the public coffers. More than fair.

C'mon Don, remember last time we ordered pizza? We ordered, ate, then the bill came and we got out last year's tax returns and compared our incomes and then prorated the dinner bill amongst all the people at the table.
And we also had to buy the pizza at the next table for those people we never met. (note that by that table never having to buy pizza on their own, should, by some theories, make them future pizza purchasers. I think it'll just make them show up for the occasional free pizza more often.)


Just like any normal, politically sensitive, person in the US.

By the way, thanks for the pizza..

Edit: your note is fair, a flat income tax (with the first x dollars exempted) is not only progressive in actual dollars, it's progressive in percentages. I always wonder why this isn't good enough for the left.

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Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[DrewEckhardt 0]

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That's the problem with using %ages at times. So what if the poorer person is paying a higher percent. The richer person is putting 6 TIMES the money into the public coffers. More than fair.

You put dollars in the bank - not percentages.

Right. A flat percentage is more than fair especially when you consider that the two people have an equal say in how the money is spent after its collected.