Not Sold On The Fair Tax? Sell Me The Current Code

[djAdvocate]

Jul 21, 2011 15:23:51 GMT -5 safeharbor37 said:

i don't understand how changing the collection mechanism makes a system more efficient, at all. moreover, i don't see how one can draw a basis of comparison without assuming that they are equal.

It doesn't. Change can be either for the better or the worse. However, there is more to tax policy than the "collection mechanism."
It is the belief of many that the government uses tax policy to control. reward and punish those they choose. It is also their belief that that is not an appropriate government function. It is their belief that the private sector can more effectively create wealth if the government stops interfering with their operations and concentrates on performing legitimate government functions.
I repeat; transparency is the major criterion of an improved tax policy.

i see. so if you are fundamentally of the mind that the government should be able to influence people to, say, behave in a way that would lead to economic growth, then "fair tax" is not your cup of tea. is that correct?

[Angel!]

Jul 21, 2011 15:23:51 GMT -5 safeharbor37 said:

It is the belief of many that the government uses tax policy to control. reward and punish those they choose.

But, do you honestly believe this won't continue? How long before certain items have higher tax rates or reduced tax rates? Say, corn for whatever reason doesn't sell highly in the new market at a price the farmers profit, do you really think the govt won't be heavily lobbied & pressured to provide an extra subsidy for farmers or reduce the tax rate on corn?

How long before they start making more welfare adjustments to replace EITC?

The new system could easily become as complex & controlling as the current system.

[Angel!]

I just started thinking about our local sales taxes - where I live there are 4 different entities that receive sales tax. They all have different tax rates & apply to different items. The state doesn't tax food, the city taxes certain foods, I believe the county taxes most foods & then also taxes the businesses for food related purchases (but not the food) - example McD has to pay a sales tax when buying cups to sell drinks in & then we pay a city & county tax when buying the drinks. When you go shopping at walmart you end up paying like 2-4 different tax rates because each item is subject to different entities taxes & some stores break it down by rate/others just show you the overall tax you pay.

If you think this really provides any sort of clarity to people, let me tell you it doesn't, it is beyond confusing. You see on your receipt that you paid 2.47 in taxes at the 7.4% rate & another 3.54 at 2.9% & you don't have a freaking clue which items were taxed at which rate or who is taxing those items.

I know there wouldn't be different entities involved, but a national sales tax could easily become just as convoluted & confusing.

[safeharbor37]

i see. so if you are fundamentally of the mind that the government should be able to influence people to, say, behave in a way that would lead to economic growth, then "fair tax" is not your cup of tea. is that correct?

I'm "fundamentally of the mind" that the private sector is more efficient in stimulating economic growth than is the government. I'll refer you to Hayek's Road to Serfdom for explanations with which you may agree or disagree, but at least you'll understand the idea.

If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion.
Friedrich August von Hayek www.brainyquote.com/quotes/authors/f/friedrich_august_von_haye.html

Government is coercive by its very nature and government power is the road to totalitarianism. Capitalism can be regulated by government, but who regulates government?

Perhaps the fact that we have seen millions voting themselves into complete dependence on a tyrant has made our generation understand that to choose one's government is not necessarily to secure freedom.
Friedrich August von Hayek

Or perhaps not. [Or perhaps the generation that understands is being replaced with one that does not.]

[djAdvocate]

Jul 21, 2011 16:19:25 GMT -5 safeharbor37 said:

i see. so if you are fundamentally of the mind that the government should be able to influence people to, say, behave in a way that would lead to economic growth, then "fair tax" is not your cup of tea. is that correct?

I'm "fundamentally of the mind" that the private sector is more efficient in stimulating economic growth than is the government

i didn't ask you that. i said that "if you were of the mind that government SHOULD be able to influence (markets)", THEN you are not a "free tax" person.

yes or no?

[djAdvocate]

Jul 21, 2011 16:19:25 GMT -5 safeharbor37 said:

I'll refer you to Hayek's Road to Serfdom for explanations with which you may agree or disagree, but at least you'll understand the idea.

i have read that book. i have also read Smith's work, Marx's work, Lippman's work, and Locke's work. i find Hayek's work to be somewhat simplistic in that it dismisses concepts such as "social value" and "community", treating such ideas as quaint and old fashioned. but to each their own.

[safeharbor37]

i didn't ask you that. i said that "if you were of the mind that government SHOULD be able to influence (markets)", THEN you are not a "free tax" person.

Did you really mean to use "..."free tax" person." ? I don't think that government should try to influence markets [through taxes or otherwise], but rather should facilitate them. I don't see "fair tax" as related to the government's influence on the (markets) except as the current system allows the government to "influence" the markets ~ then blame the private sector when they screw up.

We must face the fact that the preservation of individual freedom is incompatible with a full satisfaction of our views of distributive justice.
Friedrich August von Hayek

i find Hayek's work to be somewhat simplistic in that it dismisses concepts such as "social value" and "community", treating such ideas as quaint and old fashioned. but to each their own.

You can take Hayek's work as "simplistic" if you like, but I think if you consider his ideas carefully you will find that he addresses social value and community through his ideas. What some would call social values and community, Hayek would describe as totalitarianism and communism which, although they have a certain appeal, tend to ultimately destroy freedom [see above quote].

[djAdvocate]

Jul 21, 2011 16:40:25 GMT -5 safeharbor37 said:

i didn't ask you that. i said that "if you were of the mind that government SHOULD be able to influence (markets)", THEN you are not a "free tax" person.

Did you really mean to use "..."free tax" person." ? I don't think that government should try to influence markets [through taxes or otherwise], but rather should facilitate them

again, you are not answering the question, and yes, i meant fair tax. never mind. it is not that important. i think that it is possible to support the fair tax and still be supportive of Keynsian economics, for example. how the government uses resources has little or nothing to do with how they collect them.

[djAdvocate]

Jul 21, 2011 16:40:25 GMT -5 safeharbor37 said:

i find Hayek's work to be somewhat simplistic in that it dismisses concepts such as "social value" and "community", treating such ideas as quaint and old fashioned. but to each their own.

You can take Hayek's work as "simplistic" if you like, but I think if you consider his ideas carefully you will find that he addresses social value and community through his ideas.

that might be true. the same can be said of Ayn Rand. but she also said that altruism is evil. and i think Hayek would have largely agreed with her

What some would call social values and community, Hayek would describe as totalitarianism and communism which, although they have a certain appeal, tend to ultimately destroy freedom [see above quote].

i would argue that aggregation of wealth has the same end. but again, this is for another thread at another time. we are drifting far astray of "fair tax".

[2kids10horses]

Angel,

THere have been all sorts of white papers that discuss the FairTax's effect on housing. You can research that on your own.

Your continued defense of the EITC and Child Credit is getting annoying. These programs are welfare. If someone is so destitute as to need government assistance, they should just go and apply for government assistance (welfare) to get it. It should not be buried in the tax code.

[Angel!]

Jul 21, 2011 17:46:50 GMT -5 2kids10horses said:

Your continued defense of the EITC and Child Credit is getting annoying. These programs are welfare.

Interesting that you find my comments to be a defense of these credits & that they annoy you. I am merely pointing out that changing to fairtax will shift a much bigger burden on to the lower/middle class people that currently receive these credits. I see that to be a factual statement & worth noting when discussing issues surrounding fairtax.

What did I post that came across as though I was defending these credits? Or is pointing out the impact to lower/middle class folks the same as defending the credits?

[fairlycrazy23]

Elimination of the payroll taxes and prebate are supposed to provide enough relief for lower income.

You can call the prebate welfare as well, however, I would not, it is specifically to offset federal taxes paid on the necessities, in an ideal world the 'system' would know you are still paying for the necessities and not even charge you taxes, however that would require a tremendous amount of overhead, so the solution was to create a prebate to cover this cost.

Also, I believe it is a mistake to say that ALL products and services would remain the same price, there are probably many products that would increase in price, primarily these will be imported products.

However, with elimination of income tax, payroll taxes ,embedded taxes and the addition of the prebate most people should see there tax burden remain roughly the same.

There has already been a large amount of research into the fairtax and it seems to be very good, if we could get large bipartisan concensus that we need to replace our tax code with something vastly simpler maybe we could get more people looking at it and help to explain or improve it.

Flat tax of course would be far better than what we have now, but one of the primary benefits of the Fair tax is elimination of taxes on business (taxes are an expense like anything else and is passed on to the consumer) and since it is a consumption tax, the individual is allowed some control over how much he is taxed.

[Angel!]

Jul 21, 2011 17:46:50 GMT -5 2kids10horses said:

THere have been all sorts of white papers that discuss the FairTax's effect on housing. You can research that on your own.

Here, I found one that was put together after the housing market began to crash. I find that to be more realistic given how different the economy & housing market was back in 2006.

www.nahb.org/generic.aspx?sectionID=1081&genericContentID=90964
Some tidbits from the study:

TPA found that it would need to be higher than the rate specified in H.R. 25: 27.7% (38.3%) to 26.1% (35.3%) depending on the year.

In the year of the change, after-tax wages are on average 17.4% higher (notice that because the average income tax rate is 21%, this estimate reflects a before-tax wage decline).

Before-tax prices of non-housing goods fall due to the FairTax. In the year of the reform, prices are on average lower by 0.2%. (meaning the after-tax price is increased by approximately 30%)

After the reform, non-housing related assets prices fall by 14.6%. After five years, there is some offset but pre-reform assets are still worth 12.1% less in real purchasing power terms.

Due to the adoption of the sales tax, the user cost (the ultimate cost of owning including tax benefits and expected appreciation) of owner-occupied housing increases by 4.6% five years after the reform.

Lower demand implies lower average housing prices. The TPA model finds that prices are on average lower 10.1% in the year of reform. Over time, this price decline dissipates because of higher after-tax income due to the FairTax. The TPA model predicts a six-year transition for this to occur.

In the year of the reform, investment in owner-occupied housing falls 18.6%, a decline of $94 billion in home building economic activity. After five years, investment in owner-occupied housing is still lower by almost 2%.

Due to the sales tax on new housing sales, sales fall by 18.6% from 1.053 million in the baseline to 857,000. Sales remain lower 5 years later, with total volume equal to 1.006 million.

The sales tax also has strong negative effects for owners of rental housing. Due to the sales tax on rental payments, the before-tax price of rental housing falls due to declining housing demand. In the year of reform, before-tax rents fall by 0.2%. After five years this price is lower by 0.5% and it continues to fall thereafter.

The value of existing rental housing business is among the worst hurt by the move to the FairTax. The average value of rental housing businesses falls by 25.7% in the year of the reform. After five years, the value of these businesses remains lower by 21.8%. However, the investment in rental housing – home building for rental property –increases as a result of the tax policy change. In the year of the reform, investment in residential rental property increases by 12.9% and is 10.5% higher after five years.

The homeownership rate declines due to the move to a NRST. In the baseline the homeownership rate is 68.8%. Due to the reform, the rate falls to 68.6% after two years and to 68.1% after five years. In the theoretical long run, the rate falls to 67.7%. This is a function of the relatively higher user cost of owner-occupied housing. The decline in the homeownership translates to a less favorable market for new home sales.

[2kids10horses]

Interesting stff, Angel.

Although I don't understand the "lowered housing demand". People will still need a place to live. Sure, kids stay home and live with parents, singles pair up with roomates, etc, but those effects are temporary.

I can see a negative on the new home construction, since it will be taxed. But, I would also think that purchasing an existing home would increase: no sales tax on that, and there would be sales tax on rent. My gut feel is that folks would rather own tax free rather than rent and be taxed!

Maybe that's just me.