The incredible deflation

[bigjohn]

I'm glad this topic has come up because it motivated me to re-educate myself of the issue. Swells: you are argueing against something that you obviously have not studied. Read the bill-I already posted links that will get you all the info you need without having to buy a book. You can actually read the bill. Reading the book is worth it just for the history of the income tax. If you are a democrat (and you arguing like one) you won't like the way that chapter reads, but it is very informative to see how it started and how it evolved. I responded to your comments within the text of your quote in red.

Originally Posted by Swells

Sure, there are some good aspects of Fair Tax, I agree. But some economists have looked into it and are not totally persuaded. People in real estate and housing would greatly suffer, since to buy a house would cost you 30 percent more ... which is contrary to home values losing quite a bit of value in the Great Recession we're having. Mortgage companies and contractors are subject to the current 22% embedded tax too. The price of homes would actually decline! Stop using 30%. The tax is 23%. Using the bogus 30% number after I explained how it is bogus is disingenious at best. And, btw, if you buy an existing home, there is no tax. The fiar tax only applies to new products and services-ending at least some of the double taxation we now endure.

Investors would do great, since income is not taxed. However, the municipal bond market would go down the tubes, since profits on Muni bonds are not taxed (which is why they're now a good market). This could affect towns and cities quite negatively.It isn't a solution to local issues-only to the collection of federal taxes.

Claims that a Fair Tax would reign in the underground economy just don't make sense. People who market illegal cigarettes and dope, for example, would continue to market their wares and not pay any tax, and some actually fear the underground economy could expand with Fair Tax. It isn't a black market bill. What it will do is collect taxes from these people tha currently don't pay taxes because, guess what? They buy stuff-and given that the black market is lucrative, it follows that they buy ALOT of stuff, so they would be paying the 23% tax (not 30%) just like eveyone else.It's estimated that our underground economy rakes in around $2-$3 Trillion a year. What's 23% of that?

The Fair Tax would not eliminate the IRS. It would just shift over to the new game in town, enforcing the 30 percent sales tax. Going after all the sales tax on goods and services would be a massive enforcement effort.The bill specifically abolishes the IRS. Read it. retailers would essentially collect the federal sales tax and send it in just as they do now for state taxes. No need for the IRS. What we won't do is spend $300 billion a year filing IRS paperwork and another $100 billion a year calculating tax implications of business decisions.

Luxury sellers would get hit pretty bad, such as sales of gold jewelry, sports boats, and fast cars. All the sudden they would cost 30 percent more!I'm at a loss why you still want to claim that bogus 30% number-the tax is 23%. And, no they wouldn't take a hit. For one thing, they are subject to that 22% embedded tax too-their prices would decline. Plus people have 100% of the pre-tax money to spend as they choose fit.

Finally, the transition to a Fair Tax would likely be chaotic, at best. This could temporarily erode market confidence, as aspects of Fair Tax is phased-in and the income tax is phased-out, and states play a game of "catch up" with the new federal taxes.Not at all. On jan 1, we'll begin to get our paychecks with no federal deductions. We will see the reatil tax begin on the same day. The fair tax is revenue neutral-no catchup required. One last day day to square up the previous year's taxes and it's done.

Don't get me wrong, I'm open to the idea of a Fair Tax but there is a downside to the proposal, chiefly that the rich investors would all the sudden gain a windfall, while there are doubts that the proposal would help the middle class or not - it might turn out to be a wash for them. Unless you have no understanding of how market forces work, you know that without 22% of embedded taxes, the cost of goods will come down to that level or very near it. The middle class immediately gets more money in their pocket as does every other working person.
sammie

[Swells]

The tax rate is 23 cents on the dollar. What is the rate you are being taxed?

Rate = 1 / (1 - 0.23)

= 1 / 0.77

= 1.2987 (round to 1.30)

= 30 percent more than if you had no tax at all

Simple algebra, man!

-sammie

[bigjohn]

I already explained that fallacy in a previous post. That is a distorted version of the fair tax plan. I'll explain again for the reading impaired:

The Fair Tax is an inclusive tax as opposed to an exclusive tax like you just explained. So if you pay $100 for an item, $23 is tax and $77 is what the retailer keeps. $23 out of a dollar equals 23% no matter what formula you use. The equation you are using is based on an exclusive tx that is added to the price of merchandise after the sale. Income tax is an inclusive tax-it is taken out of your paycheck, not added to it.If you convert the income tax system exclusively; a 25 percent income tax and 7.65 percent FICA tax, a total 33 percent inclusive tax, is equal to a 50 percent exclusive tax.It's the same principle here.

Let me put it another way: for every $100 you buy, your tax on that $100 is $23 and is included in what you actually pay.

Originally Posted by Swells

The tax rate is 23 cents on the dollar. What is the rate you are being taxed?

Rate = 1 / (1 - 0.23)

= 1 / 0.77

= 1.2987 (round to 1.30)

= 30 percent more than if you had no tax at all

Simple algebra, man!

-sammie

[bigjohn]

BTW: 80 economists have endorsed the plan including Nobel Laureate Vernon L. Smith.
The Beacon Hill Institute estimated that within five years real GDP would increase 10.7% over the current system, domestic investment by 86.3%, capital stock by 9.3%, employment by 9.9%, real wages by 10.2%, and consumption by 1.8%.
Economists Laurence Kotlikoff and Sabine Jokisch reported the incentive to work and save would increase; by 2030, the economy’s capital stock would increase by 43.7% over the current system, output by 9.4%, and real wages by 11.5%

[cncman]

BJs right, when people are familiar with the Fairtax like we are we see statements over and over again that tell us the ones we are talking to don't have a handle on the basics. One of those statements is saying prices would go up 30%. That demonstrates a lack of familiarity of the most basic concepts of how the fairtax works. Prices at the register would be the same after the fairtax as they are now. How would the underground economy expand under the fairtax and which experts are saying that? If an item costs $2000 now and $2000 after the fairtax how does that create more of an incentive for an underground economy? Specifically how do they explain that? The other thing is trying to claim the fairtax is a 30% tax increase, BJ brought up the truth that anyone who is saying that is comparing an inclusive tax to an exclusive tax, you have to compare apples to apples. Also, the fairtax is the most researched bill ever seen. It was also developed by business professionals and economists, not politicians. Nobel prize winning economists have given it their OK. The only problem with the fairtax is it is easy to demogogue, if someone doesn't know the facts or doesn't want to know the facts they repeat a lot of what you have said even though those objections have been soundly discredited over and over and over again. Plus it won't be easy because those invested in the current system won't give up their control that easily. Think how many lawyers make millions on tax advice, and the politicians that use the current code for carrots and sticks. If there are real objections let's flesh them out but so far all I have heard is rehashes of disproven arguments that have been soundly demonstrated to be false and based on and ignorance of what the fairtax is.

[Swells]

Hey you sound passionate, emotional, and almost girlie-girlie about the whole thing. Now we know you know absolutely nothing about algebra, at least. I can't believe what Ditto Head dummies you are setting yourself up to be. Inclusive tax, exclusive tax, it's still a stinking tax. I find it very strange that my fellow Republicans would vote for higher taxes, which is what you're promoting. Good luck with your endeavors.
:the finger:

[bigjohn]

I always thought you are a reasonably intelligent guy, but you are starting to make me wonder about that...

Yes-it IS a tax, NO-it is NOT a tax cut. And, NO-it is not a tax hike. It is not a spending bill. It is one thing and one thing only: a more efficient, effective and transparent way of collecting taxes. What you have accomplished during this discourse is act as a shining example of how people get their input from talking heads, form an opinion without bothering to actually read the bill in question, and then continue to insist that their preconceived notions are correct, facts be damned. I have demonstrated twice where your 30% figure is bogus as well as explained how it is not only NOT a tax increase but will bolster the GDP and economy overall. Republicans and even a few democrats are beginning to support the bill-it was an issue in the last presidential campaign.

Here's something to consider: after the initial income tax bill was ruled unconstitutional, dems pushed through the 16th amendment by promising that it would only tax the rich. But income tax was paid at the end of the year in a lump sum and folks got really tired of paying $thousands to uncle sam, so they came up with withholding so only a little was taken out each check-you never see the money. The result: ask 10 people how much money they paid in income tax last year. Chances are one (at best) will be able to answer you. Some of the remaining nine will say they had to pay whatever the check was they had to send in to the IRS and some will say they didn't pay anything-they got money back. See how that works? And this is the smoke and mirrors tax system you want to keep? Under the fair tax plan you get to keep 100% of your paycheck (republicans always talk about how we should keep more of our money-why not all of it?) and you would see your money going out as you spend it.

Originally Posted by Swells

Hey you sound passionate, emotional, and almost girlie-girlie about the whole thing. Now we know you know absolutely nothing about algebra, at least. I can't believe what Ditto Head dummies you are setting yourself up to be. Inclusive tax, exclusive tax, it's still a stinking tax. I find it very strange that my fellow Republicans would vote for higher taxes, which is what you're promoting. Good luck with your endeavors.
:the finger:

[cncman]

Uh, actually, I apparently know more about algebra than you, as the math you did is not algebra, algebra has letters substituted for numbers and balances equations.

Sure it is still a tax I don't recall saying otherwise, and I think the name fairTAX might have been a tip off. But (assuming you want to have an honest discussion) you have to use the math inclusively to compare to an inclusive tax and exclusively to compare to exclusive. What you have done is repeat a dishonest math trick you probably googled written by someone that doesn't like the fair tax to try to muddy the issue. I don't promote higher taxes and the fairtax doesn't promote higher taxes either. In fact after the fairtax is implemented and more revenue comes in it would more than likely go to a lowe rate in the future therefore being even lower than the current tax rate.

I find it strange that a republican would support an abusive federal program that is a drag on the economy, leaves the politicians in washington with all of the power instead of the people and the states, drives trillions of wealth offshore and costs billions in compliance costs and lost production for businesses over a simple system that would fix all of that. If you have real honest questions feel free to bring them up and we can discuss them, but to throw out an outright lie then insults and then walk away doesn't really show you want to learn the facts of the program just try to find an excuse not to like it. If the fairtax is so bad it would seem to me that it would be easy to find a real objection to it not the phony ones that only show an ignorance of the plan. The only thing worse than having an ignorant opinion is expousing the ignorant opinions someone else has, at least do your own work.

Originally Posted by Swells

Hey you sound passionate, emotional, and almost girlie-girlie about the whole thing. Now we know you know absolutely nothing about algebra, at least. I can't believe what Ditto Head dummies you are setting yourself up to be. Inclusive tax, exclusive tax, it's still a stinking tax. I find it very strange that my fellow Republicans would vote for higher taxes, which is what you're promoting. Good luck with your endeavors.
:the finger:

[Swells]

Sorry for the slightly abusive post there, but I am most interested in knowing how Fair Tax could fix the problem with offshoring money in secret overseas accounts. I suppose that unless the money was obtained illegally, there wouldn't be an incentive to hide the money so you didn't have to pay taxes on all that cash. But how would Fair Tax attract all that money back into the States? Now that we have a global economy, it seems not so clear-cut to me, but perhaps you have some ideas there.

I goods are cheaper overseas because of lower sales taxes, wouldn't that be an incentive to keep some secret accounts overseas?
sammie

[dboat]

Swells, I am lurking on this thread until I read more about it.. but if it eliminates corp income tax, then corporations wont have to move money offshore. They would rather keep it here since it is easier to get at. Remember, there are new laws after 9/11 in regard to the movement of large sums of cash in and out of the states. Lastly, we might see overseas money come here since there wont be corp inc tax here which would be lower than most other countries, except a few..

I am not sure how it handles the purchase of a new home though.. esp with all the new materials in it.. although, it might drive a much larger market for recycled items since they would not be subject to this new tax.. hmmm

New home sales are such a huge portion of our economy..

Dana

[bigjohn]

The purchase of a new is handled like any other purchase-with 23% implicit tax included in the sales amount. Remember: since you are taking home all of your paycheck, it should be easier to pay your mortgage. Let's say you make $60K a year, instead on only bringing home about 3.8K a month, you'l bring home $5 K. Plus, you can now save for your new home with pre-tax dollars since there would be no income tax. Money you save is not taxed under this plan. Plus, the fair tax will drive both new and used home sales-remember, used homes are not taxed. This all adds up to being easier to save for your dream home and a thriving housing market which drives unemployment rates downward. The more the economy thrives, the more positive tax consequences we will see instead of all the negative ones we see now. The used materials market will be bolstered since used good aren't taxed and that in turn will lower new home costs. But remember, the actual cost of new material won't increase because of the removal of the embedded tax.

Originally Posted by dboat

Swells, I am lurking on this thread until I read more about it.. but if it eliminates corp income tax, then corporations wont have to move money offshore. They would rather keep it here since it is easier to get at. Remember, there are new laws after 9/11 in regard to the movement of large sums of cash in and out of the states. Lastly, we might see overseas money come here since there wont be corp inc tax here which would be lower than most other countries, except a few..

I am not sure how it handles the purchase of a new home though.. esp with all the new materials in it.. although, it might drive a much larger market for recycled items since they would not be subject to this new tax.. hmmm

New home sales are such a huge portion of our economy..

Dana

[bigjohn]

Here is an important point I haven't mentioned: Under the Fairtax plan, the number of people paying into the system will grow from about 159 million to 300 million-and-this is important-about 50 million visitors from overseas a year because those folks buy stuff too. You won't hear any of the opponents mentioning tha little point.

[cncman]

Its allright, I am used to you by now, heh heh. It's not necessarily offshore secret accounts, but just wealth in general being utilized overseas. Although offshore tax shelters would flow back as well. Under the current penalizing tax system individuals and corporations have to see a large return on investment to overcome the tax burden. Without this burden corporations would invest more of their global resources here to expand their business. More plants would be built, more warehouses, more construction projects and developements. Look at the countries with the least penalizing tax structures, the ones that are the most business friendly, they have billions and billions sitting there. Now make the US the number one tax haven in the world and not only will our wealth come back but foreign investors would park their cash here too. Simply put, businesses and investors want their cash to be working and they want it to be working where they can get the most out of it. The fairtax would make sure that the US would be the best place to keep and use their capital. Assuming that the sales tax in other countries wouldn't change there wouldn't be a difference in the tax here and there anymore than it is now. Again, you seem to keep thinking that there would be an increas in the price of goods after the fairtax. That isn't the case. If you paid $100 before the fairtax for a toaster you would pay $100 for the same toaster after the fairtax. Same goes for the question about new homes. Every new home sold has about 23% in embedded taxes built into the price. this comes from The payroll taxes the contractor pays to employees, the income taxes they pay (remember, businesses don't pay taxes they collect them) the sales tax on the supplies etc etc. So a $100,000 new home before the fairtax would be, guess what? $100,000 after the fairtax.

Originally Posted by Swells

Sorry for the slightly abusive post there, but I am most interested in knowing how Fair Tax could fix the problem with offshoring money in secret overseas accounts. I suppose that unless the money was obtained illegally, there wouldn't be an incentive to hide the money so you didn't have to pay taxes on all that cash. But how would Fair Tax attract all that money back into the States? Now that we have a global economy, it seems not so clear-cut to me, but perhaps you have some ideas there.

I goods are cheaper overseas because of lower sales taxes, wouldn't that be an incentive to keep some secret accounts overseas?
sammie

[bigjohn]

Also, why hide money overseas from income tax if there is none? One of the reasons opponents don't like the idea of the fairtax is because of law enforcement reasons (remember they got Capone on income tax evasion). But the people that are making money illegally will still be making money illegally, but they will be able to bring it back here and invest it legal endeavors, like buying assets and guess what-they will pay tax on those asset purchases. The Fair Tax is not a crime bill. It is simply a more efficient and effective way of collecting taxes.

[Swells]

OK, we know there are some strengths and limitations to the 30 percent tax, which is 23 dollars of 100 - sorry guys, I am right on that one. But have you ever thought about Fair Tax being a massive entitlement program because of those "prebates?"

I look at all the conservative angst about welfare and paying people to smoke crack and sorta scratch my head. The majority of the prebates go to poor families with lots of "who's your daddy" kids. I hate to be harsh about this, but it is something that bothers me. I don't cotton to freeloaders.

Socialism? It's hard to say. But under Fair Tax these poor folks would be getting weekly or monthly checks according to some weird formula. I am not criticizing but am just saying, that's a weird platform. Get prebate money and what???

Being in the construction business for 15 years, I hired a lot of ex-prisoners, the homeless, drop-outs, and anyone who could do the job. Few of them wanted to work or learn but all of them felt qualified for journeyman's wages. The poor white boys from Lubbock were worse than the Mexicans!

Now don't take me as being so nasty or onerous ... maybe there are ways to explain Fair Tax better, so it doesn't sound like a gift to the unmotivated.

The story wouldn't be complete unless I said I got out of construction by working my arse off and going to college at night. That's how I got out of the hole. Nobody paid me a single dang dime unless I worked for it. I paid for my wife first degree and then waited years to do college myself. And I do have some left-leaning sentiments to help eradicate poverty. But this young man has a problem with massive entitlement programs. See what I mean?
sammie

[cncman]

No one said your math wasn't right, it was. The point is that it isn't a true comparison. You can call the 23% tax 30% if you want, but you would have to stop refering to the current 33% tax bracket as 33% but 40% instead. Do you do that? Refer to it either way you want but be consistent. Since the government calculates it that way it is only fair to calculate the replacement fairtax the same way, what is so hard to understand about that? To say that you are going to calculate one system with one standard and the other with another is fundamentaly dishonest. It is just a word game anyway as the actual amount you pay either way is the same. Like most questions this is answered at the fairtax site;

"I know the FairTax rate is 23 percent when compared to current income and Social Security rate quotes. What is the rate of the sales tax at the retail counter?

30 percent. This issue is often confusing, so we explain more here.

When income tax rates are quoted, economists call that a tax-inclusive quote: “I paid 23 percent last year.” For every $100 earned, $23 went to Uncle Sam. Or, “I had to make $130 to have $100 to spend.” That’s a 23-percent tax-inclusive rate.

We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes. That rate is 23 percent.

Sales taxes, on the other hand, are generally quoted tax exclusive: “I bought a $77 shirt and had to pay that same $23 in sales tax." This is a 30-percent sales tax. Or, “I spent a dollar, 77¢ for the product and 23¢ in tax.” This rate, when programmed into a point-of-purchase terminal, is 30 percent.

Note that no matter which way it is quoted, the amount of tax is the same. Under an income tax rate of 23 percent, you have to earn $130 to spend $100.

Spend that same $100 under a sales tax, you pay that same tax of $30, and the rate is quoted as 30 percent.

Perhaps the biggest difference between the two is that under the income tax, controlling the amount of tax you pay is a complex nightmare. Under the FairTax, you may simply choose not to spend, or to spend less. "


The entitlement argument doesn't make much sense when you think of it now. First of all the majority of the prebates wouldn't go to crackhead who's your daddy households. They go to every household in America with SSN's. Are the majority of households with SSNs in the US crackhead with illegitimate chitlins? Of course not. The true entitlement is the current tax credits for people that don't pay taxes. Most of the people you refer to pay little or no taxes right now but this month there are thousands of people that paid no taxes that are getting thousands in refunds from the IRS. Some even get paid with no tax liability through the tax credits. With the fairtax those people would be brought into the tax base everytime they buy something. Plus a single parent with 2 children in the house would receive a monthly payment of just $351. How is even the cheapest deadbeat going to sit back and live off of just that?

Originally Posted by Swells

OK, we know there are some strengths and limitations to the 30 percent tax, which is 23 dollars of 100 - sorry guys, I am right on that one. But have you ever thought about Fair Tax being a massive entitlement program because of those "prebates?"

I look at all the conservative angst about welfare and paying people to smoke crack and sorta scratch my head. The majority of the prebates go to poor families with lots of "who's your daddy" kids. I hate to be harsh about this, but it is something that bothers me. I don't cotton to freeloaders.

Socialism? It's hard to say. But under Fair Tax these poor folks would be getting weekly or monthly checks according to some weird formula. I am not criticizing but am just saying, that's a weird platform. Get prebate money and what???

Being in the construction business for 15 years, I hired a lot of ex-prisoners, the homeless, drop-outs, and anyone who could do the job. Few of them wanted to work or learn but all of them felt qualified for journeyman's wages. The poor white boys from Lubbock were worse than the Mexicans!

Now don't take me as being so nasty or onerous ... maybe there are ways to explain Fair Tax better, so it doesn't sound like a gift to the unmotivated.

The story wouldn't be complete unless I said I got out of construction by working my arse off and going to college at night. That's how I got out of the hole. Nobody paid me a single dang dime unless I worked for it. I paid for my wife first degree and then waited years to do college myself. And I do have some left-leaning sentiments to help eradicate poverty. But this young man has a problem with massive entitlement programs. See what I mean?
sammie

[dboat]

Originally Posted by cncman

The entitlement argument doesn't make much sense when you think of it now. First of all the majority of the prebates wouldn't go to crackhead who's your daddy households. They go to every household in America with SSN's. Are the majority of households with SSNs in the US crackhead with illegitimate chitlins? Of course not. The true entitlement is the current tax credits for people that don't pay taxes. Most of the people you refer to pay little or no taxes right now but this month there are thousands of people that paid no taxes that are getting thousands in refunds from the IRS. Some even get paid with no tax liability through the tax credits. With the fairtax those people would be brought into the tax base everytime they buy something. Plus a single parent with 2 children in the house would receive a monthly payment of just $351. How is even the cheapest deadbeat going to sit back and live off of just that?

Here is my concern. I can hear BOB or another POTUS saying, we are in a recession, we need to prime the pump, so we will increase the prebate to 95% of all American families by $xxxx.xx per year..
There will be an huge push by libs to keep increasing the prebate. They just cant help themselves.. Somehow, it will happen and then when we need to balance the budget or cut back, they will be the sacred cows.

I did at least hear a plan by one of the Repub Congressman to fix SS and Medicare the other day, where those over 55 stay in the current system and those under move to a more 401k type of system. For Medicare you would use the money to buy your own Medicare plan that would be sold by different insurance companies. If we dont move on that issue very soon, it will get really ugly by the time I retire in (hopefully) 12 years.

Dana

[dboat]

By the way, whether we do Fair Tax or not, I do believe that everyone that is above the poverty line should pay some income tax. At least a $1000 on the first $1000 after they move out of poverty.. that is 20 dollars per week. Thats not too much for what they get in return. Roads, Defense, etc.. if they have "skin in the game" then maybe they will pay attention to the talk from all sides about increases in taxes and fees.

Dana

[bigjohn]

Several points here: The tax rate is 23%-period. If you want to figure the tax rate extrinsically, then in order to compare apples to apples you would have to compute the rate based on a $1.00 sale with the tax added on. Intrinsically, the computation is the amount of tax included in a one dollar product, with is 23 cents which is 23%. As CNC pointed out, so long as you compute the tax fairly and equally, the bottom line wioll come out the same-for every one dollar you spend, 23 cents gots to tax.

You are correct that politicians could raise the tax rate, but the bill includes a computation for determining the prebate amount based, so it can't arbitraily be changed. The fiartax dosn't alter politician behavior. We still have to remain vigilant for that, but, unlike the system we have now, it will be much harder to hide tax increases-especially if you consider how easily they can and do hide increases under the income tax.

Keeping any form of income tax is not necessary and counter productive. We still are left with a huge bureaucracy, crazy amount of paperwork, and one more place to hide tax hikes. Since the fairtax is revenue neutral and very possibly better than that, why do we need income taxes? The answer is we don't.

[bigjohn]

You might consider this point: You have been reading a right leaning individual and a left leaning individual promoting this thing. Republicans and democrats are beginning to support the fairtax in increasing numbers since the bill was first introduced in 1996. This can happen.