Yes, it is time for the United States to drastically shift its tax policy. Progressive taxation over the last 6 decades has failed to establish the United States' economic hegemony in the world. I certainly see the value of change.

As Daniel Mitchell so elegantly pointed out, we need only to look so far as the global economic powerhouse that is Eastern Europe for tax reform policy. Russia, Latvia, Estonia... these are the future super-economies because of their aggressive taxation reforms. Move over EU, America, and Japan, here comes Lithuania.

What started this entire debate? When did people decide the American tax system was broken? Did I miss something?

Please stop posting this useless ranting.

This Blog stinks!!!!!

An essential point of debate with respect to this "Fair Tax", which is just one of a number of proposals to shift our system to a consumption tax rather than an income tax, is how the tax burden would be distributed. In one sense, a consumption tax is more fair than our current graduated system because everyone would pay the same tax on everything they buy, and you could control your tax burden regulating how much you choose to buy. Spenders and wasters would pay more, and savers would pay less, thereby creating an incentive to save and hopefully solving some of our future retirement issues. Under the current system, income tax rates rise with higher incomes, so that not only do those with higher incomes pay more total taxes, but they pay at higher rates than do those with less income. Whether or not this is fair is really unanswerable, and depends on whether you think the rich have an obligation to help subsidize the poor by shouldering more of the country's revenue needs. What needs to be pointed out is that a shift from the current graduated, or "progressive" rate, system of income tax to a consumption tax is that the effect is going very far in the opposite direction. A flat income tax would tax all income at one rate, so that the rich pay more total tax, but they would pay the same total percentage of their income in taxes as would the very poor. Under a consumption tax, the poor would pay a much higher percentage of their income in taxes than would the rich. Even with an exemption/rebate for true necessities, the poor will necessarily spend a larger portion of their income on "non-essential necessities" such as moderate entertainment expenses, gifts, travel, etc, than would the rich. Someone making $500,000 might spend $25,000 a year on travel and lavish gifts for family, while someone making $20,000 might need to spend $2000 on a trip to a relative's funeral and birthday gifts for a large family. The rich person has spent and been taxed on 5% of his income while the poor person has spent and been taxed on 10% of his, receiving much less in return. Emily's comment about a consumption tax being regressive is on the money, and even with the rebate, while it wouldn't be literally regressive from an effective rate point of view, in terms of the marginal utility of the taxed money, the poor would carry a much higher burden than they do currently. I think most people would agree that if the tax burden has to be skewed one way or the other, it is better for the country to skew it towards the rich. However, a more fair system would be something along the lines of a flat income tax, which would tax more income, with fewer deductions and other special provisions, at a lower but uniform rate.

Tax policy is a serious issue that I don't think we pay enough attention to. Saying we want lower taxes, or need to raise taxes to pay for the programs we want, is missing the point; those are revenue questions. We need to improve the way the revenue is raised from both a fairness and an efficiency standpoint. And we need to pay what we owe--the link above to whether we need to pay at all points a ridiculous argument, which unfortunately, some people are willing to believe, probably because they would prefer to. I also think we should feelsome civic duty to pay what we legally owe to keep our country running--I know way too many otherwise honest people who seem to feel absolutely fine about cheating a little on their taxes. Doing so is stealing from the honest people who then have to pay more, through the higher rates needed to raise the necessary revenue. I'm not sure why this is, but somewhere along the way we are failing to educate and remind people that taxes are an obligation and one of the costs of living in our wonderful society. We talk about patriotism and the importance of voting and other civic duties--I can't think of anything more essentially a civic duty than paying our fair share for our government. It doesn't mean they should be higher, it just means we should all pay what we really owe--if we all did that, everyone would have to pay less.

Sorry for the long rant, but taxes always get me going!

Man, the brilliance of some of the above posters.

Will - you are absolutely correct sir. What is the point in U.S. citizens debating the government's tax policy? Foolishness really! Is your point that it is perfection and above comment and criticism, and heaven forfend debate? Have we distracted the public discourse away from Jessica Simpson and Angelina Jolie for too many precious seconds?

Lonemule. Really, Lonemule? Amazing powers of analysis and debate there. You, my good friend, have convinced me of the error of my ways in reading this blog.

(Not really.)

It seems to me that taxation policy should be equitable in the sense that people with 1% of the wealth should pay 1% of the taxes, and so on and so forth. However, for a variety of reasons this has never been a simple thing to do, so instead we have things like progressive income taxation (which is not the same thing as wealth taxation).

Taxes like the estate tax, capital gains taxes, etc., are attempts to move towards an equitable system of wealth taxation but it seems like we are a long way from it-- and, thanks to current Republican policy, moving further away by the week.

It seems as though a "fair tax" (which is a nice example of branding but doesn't really capture the goal of the tax) would be yet another step away from not simply progressive taxation but equitable taxation as well.

I would welcome hearing an argument for why corporations and people should not pay taxes in proportion to their wealth (again, as opposed to their income). My belief in this principle is mostly based on my attempt at a common-sense philosophy.

benny-

Absolutely not, benny. I think a fair discussion of taxation is utterly vital. My sarcasm should be interpreted as a historical inquiry as to where this tax debate started. I was not under the impression that progressive income taxation was so broken. When was it deemed broken and by whom? Is this not a fair question? Fair taxes and Flat taxes are not minor changes to the tax code... they are radical ones. Are the problems facing income taxes radical enough to warrant radical solutions? Is that also not a fair inquiry?

Maybe I am unusually resistent to change, but I have to assume that the people producing fair tax and flat tax plans have agendas of their own. Isn't a frank discussion about those agendas as important as the discussion of changes to the tax code? The above fair tax plan is regressive. Since regressive taxes burden the poor dispraportionately more than the rich, isn't it fair to ask why someone would be interested in a regressive tax?

Maybe my first post was too cynical. I apologize.

That was a great reply Will and I also apologize for the harshness of my initial criticism.

Even the author of the blog admits to reservations with the Fair Tax proposal (which I would sum up with one word: dumb). However, there are several interesting points (and entertaining ones, like the history of dissent regarding the federal income tax).

Even if one agrees that a regressive tax is the way to go (and few don't think that), can there be more tweaking of the system? Where should it occur - on the private or corporate level? What about state (county and even municipal) taxes? Are they fairly and equitably levied?

It's all debatable.

Here is a short defense of the Fair Tax which is useful for thinking about the debate (I am no expert, so I am using another's argument here):

Right now, people say we have a progressive income tax, that the rich people pay more. But in reality the working stiffs of America end up bearing the brunt of taxation. Most of the money collected in the income tax comes from brackets $50,000 & below, from working people My proposal gives them back control of their money. Until they decide how to spend it, the government doesn't get to tax it, and if they spend it on the basic necessities of life, people who are poor wouldn't have to pay taxes.

Other people who are maybe saving for the down payment on their house would be able to give themselves tax cuts just by controlling the pattern of their consumption. So, it puts everyone-poor and working people-back in control of their own economic life.

A 'fair tax' will never see the light of day, at least not any time soon. Not because it wrong, right, or anything in-between, but because it is progressive and different, requiring REAL change.
Real change and progress are not at all popular in America. The political class and the rich want to preserve the status quo, and the electorate is too complacent and inert to differ from what the political class wants.
It would be great to have a real debate about a fair tax, but, since a fair tax just isn't going to be enacted in our lifetimes (if ever), I kind of wonder what the point of debating it is... perhaps to give us some false sense about Americans somehow being progressive-minded? Sorry, but the fact of the matter is that Americans blindly cling to tradition and won't abandon such until their entire world comes crashing down around them. Since a fair tax ISN'T tradition, the idea of it will be ignored by the vast majority of American citizens.

If such a tax were passed, I would imagine that the busses bringing shoppers from Canada to the border area malls in Michigan would start delivering shoppers in the other direction.

ErrinF describes this tax as progressive, when it seems to me it is fully regressive. We're going to not tax stock dividends and instead raise the tax people are paying at Wal-Mart. Any economist can tell you that something called an "Engel Curve" shows that the share of income dedicated to consumption declines as one's income increases. Calling this a "Fair Tax" is like Bush's "Clear Skies" legislation: it's fully bogus naming. This scam is nothing but another way for the rich (who generally claim a larger share of government revenues) to take more out of the pockets of the poor.

Hi. Merry Christmas, posters. Interesting topic...I agree with ErrinF that it`s unlikely we will see the " Fair Tax " in our lifetime, hyperbole aside. According to 2003 figures,(the the most recent available from I.R.S. data) the current system is congenitally unfair but manages to akwardly flop along its way. Check these tables out at the Tax Foundation web site.
http://www.taxfoundation.org/taxdata/show/250.html

The top 1 percent earners paid over 1/3 of total income tax revenues in 2003 with an average tax rate of 24 percent.

The top 25 percent of earners paid about 84 percent of total income tax with an average personal tax rate of a bit over 15%.

The top 50 percent of wage earners (including that top 1%) paid 96 percent of income tax collected.

The bottom 50 percent earners paid about 1/25th of the burden with a tax rate of around 3 percent.

I also found it interesting that of 132 million tax returns filed, 42 million people got every dime they paid in 2003 income taxes back - and over half of those folks got a check from the gov`t on top of that.

Uh, that comment wasn`t meant to be anonymous. Posted by bender.

Here`s some more info. http://www.treas.gov/press/releases/reports/factsheetwhopaysmostindividualincometaxes.update.pdf

Pretty good article Emily and mostly fair but you missed one vital point when you wrote, "Housing could be hit especially hard -- can you imagine a home costing 23 percent more than it does now?" Because everything is taxed already, there is approximately 23% EMBEDDED taxes in the cost of the materials used in building houses so homes would NOT cost 23% more but approximately the same. This applies across the board. And for all those naysayers who claim it will never come up, you can count on this being a big debate before the 2006 elections and lawmakers should educate themselves before that time or they will be made to look ignorant and will pay the price at the polls. The "Fair Tax" gets rid of the IRS, taxes the $550 Billion underground economy (which pays no taxes now) and saves companys another $500 Billion no needed to track withholding and income tax reporting. 45 States already have the mechanism for collecting sales tax in place. It's a wonderful idea whose time has come.

Emily,
You seem to have an especially poor understanding of the "Fair Tax." Might I suggest you actually read the book, rather than some slanted "Cliff Notes" version that you are obviously using. If that proves too much a burden, might I suggest you contact the authors for a tutorial, or let them make their case in an article. Your inaccurate description of the proposal does little more than muddy the water in this debate.

Remember the law of unintended consequences when trying and entirely different taxation system. Omit words like 'fair' and 'equitable' as these words have different meaning to different people. Ask instead who the winners and losers will be, and is that what we want? Ask what will people do in response to the tax changes, and see if that is the desired outcome. Lastly, what is the probability of success in getting the revenue that the government needs.

There is no such thing as a fair tax. Under present conditions no one with a business pays adequate taxes, there are just too many dodges, both legal and semi-legal. Very few really wealthy people pay a fair share of taxes. And what is a fair share? The same % for everyone? A graduated tax?

And what about those who disagree with the way taxes are spent? Should they have exemptions?

Taxation is by nature unfair. It would be better to keep what we have -- knowing it is unfair -- than to innovate and get something even less likely to be fair.

VAT has been used in Europe for years. There are some major problems with it including lots of cheating. Also, what will probably happen is that we get a VAT and in a few years the income tax returns (small at first) and we still have the VAT.

Perhaps we could implement the concept of taxing consumption incrementally by imposing greater taxes on certain items. For example, we could impose an import duty on imports of oil from OPEC countries sufficient in order to pay for the military used to patrol and protect oil producing those countries. That would make those who depend upon oil from those countries pay the cost of safeguarding and stimulate North American production of oil and/or alternatives. If we need more resources at the border to protect against terrorists slipping in nukes, then charge an additional inspection fee per container to pay for it rather than either dipping into the general Treasury or letting the job slide. Charge a withholding tax on commercial intellectual property profits, such as trademark royalties, franchise fees, and copyrights on music, fiction, drama or anything non-technical that does not advance "knowledge or the useful arts" (the constitutional standard): After all those are government created monopoly rights, why shouldn't the government get a cut.

The best fix is a variable national sales tax. However, for now, a big fix would be extending the payroll tax to all earned income to infinity, since even the very wealthy seem to want to collect social security in their senior years.

It is important to realize that the 23% figure is really just 7.7% since they are removing the 15.3% payroll tax in their plan. (7.65% each for both employee and employer)

Any change that would eliminate the need for an accountant to prepare a return for an average person would be a good change. A person who doesn't even declare exemptions. Or whose only exemption is a mortgage. An elderly lady who lives on social security and some saved money shouldn't have to pay someone to fill out the form. That is what a friend of mine has to do.

The above comment about "embedded taxes" comes close to the biggest error the "Fair Tax" writers make--a form of double counting.

The price of a good currently includes things like the income taxes and payroll taxes paid by the workers. There are two possible things that could happen under a consumption tax system:

(1) Wages stay the same, people see more money on their paychecks, pre-tax costs/prices of goods and services stay the same, and actual point-of-purchase prices go up by the amount of the tax, or

(2) Wages go down so take-home pay remains the same, pre-tax costs/prices go down because wages go down, and actual point-of-purchase prices stay about the same.

The authors of the book double-count by using argument (1) with respect to income (your new salary will be your current salary without the government bite taken out of it) and argument (2) with respect to prices (reduced taxes reduce the cost of production, so no increase in point-of-purchase prices).

And, like any tax system, there will be complicated questions of what is taxed. (Real estate? Shares of stock? Services? Is a consumption tax charged when you put a buck into a slot machine?) I mean, even the "income tax on a postcard" proponents skip over the much more complicated question of what gets added in to the number called "income".

The headline of this piece is about the Fair tax fixing the budget mess.

The budget Mess is a much if not more about the spending in congress as the collectoin of revenues.

If there is to be a "Fair Tax" then all taxes should be on the table. Income Tax, Social Security Taxes, Telephone Taxes, Gas Taxes yada yada yada.

All of the statistics on who paid what on income tax might be more relevant if you included Social Security. This is another tax on income that has been financing the defeceit for a long time.

The reality of the income tax mess is that congress loves to use special provisions for both individuals and companies to buy votes. The recent defeceit reduction (ie budget Cuts) was more than offset by Tax cuts.

How is the Fair Tax going to change this behavior?

If change is to be in the offing then it probably should include the mechanisms of spending as well as all taxation. The goal at the start might be for a balanced budget. Opps we had that when The republicans controlled congress and the Democrats the White House. I hope the republicans might listen more to Mr. Gingrich and his Contract with America.

May all have a Merry Christmas and a Happy New Year

What is the goal of taxation? Is it to pay for essential services? Social services? Reallocation of wealth? Protective? (tarrif) Persuasive? ("sin tax") These questions need to be answered before you set tax policy. The answer to these questions will tell you if you feel the VAT, flat tax, progressive tax or what have you will be a fair tax.

We also need to address with any reform, particularly one that will eliminate or simplify income tax, the impact on philanthropy. To what extent will donors donate if they do not get the tax advantage?

Having said that our tax policy has to address the ability to pay as a part of the equation. A flat tax or value added tax is regressive in any form you put forward regardless of the exemptions for necessities.

I think someone needs to explain who the winners and losers are in a frank way that the rest of us non-tax experts can understand.

Somehow, the above responses indicate that the fair tax is both better for the poor and worse for the poor. It cannot be both.

Either the poor are asked to shoulder more of the tax burden, or they are not. When Gideon says:

"But in reality the working stiffs of America end up bearing the brunt of taxation. Most of the money collected in the income tax comes from brackets $50,000 & below, from working people My proposal gives them back control of their money."

How can this be true AND it is true that the richest 50% of America pays 96% of the income tax? Presumably most of the country does not make $50,000.

Does a fair tax shift the tax burden to the poorer or the richer? This is a simple question with a simple answer that would be very telling to both the motives of fair taxers and to the future action of voters who support/fight the fair tax plan.

The majority of Americans are not wealthy. If you sneak a plan by them using rhetoric like "fairness" and "put their tax decisions back in their hands" and "simplify taxation", without explicitly admitting that all these measures require they pay more of the income tax burden, is immoral.

Similarily if the purpose of the fair tax is to shift the burden more towards the rich, than say so. But be explicit and describe why. Tax systems will have winners and losers, and a change in our tax system is going to shift the burden one way or the other. Which is it? I'd like to know and I can't make an informed decision about the fair tax without that information.

All federal taxes on income, including payroll taxes, should be eliminated. They generated $1,803.6 billion in 2004--almost 17.6% of the same year's National Income. A superior tax base exists in debits to demand deposits at commercial banks. These debits were $452.5 trillion in August 1996, when the Federal Reserve ceased reporting them. In the unimaginable event that debits to all institutional depository accounts (securities and commodities brokers, mutual funds, and savings banks) were no greater than they were in 1996 at commercial banks alone, a debit tax rate of four tenths of one percent (0.4%) would have sufficed to replace the $1,803.6 billion that would have been lost from the elimination of taxes on all income in 2004. Households disbursing $50,000 from a bank account would pay a debit tax of $200 and no income or payroll taxes. Financial institutions would collect debit taxes and remit them directly to the U.S. Treasury. The debit tax would end the filing of income tax returns and the IRS.
Read the details at: http://www.americancrisis.com/

Interesting paper. It'd have some good points (easier for individuals, increased savings) and some bad points (see below). It'd get rid of a progressive income tax and a regressive payroll tax to produce a slightly progressive sales tax.

But this would kill the economy short term. The psychological affect of seeing a 23% tax on every purchase would cause a slow down in spending...even if the initial price was reduced because the intermediary hidden taxes were removed.

Long term, the reduced tax on the top 1% (reduced income and estate taxes) would just speed up the entrenchment of a national aristocracy.

Another issue is that this does have the appearance of a giant tax break to non-individuals (e.g. corporations). Lavish, Dennis Kozlowski-esque corporate parties would be untaxed while a family buying a loaf of bread would be taxed. Imagine the news reports! One suggestion I would make to rectify this inequality is that, to be fair, corporate rights (and the rights of any non-individual organization (unions, etc.) should be reduced (no longer covered under the equal protection clause, no political contributions allowed, etc.) It'd require a constitutional change but since we'd need to get rid of the 16th amendment to make this palatable anyway...

Yes, a universal excise tax on the retail sale and disposition of goods and services is the best methodology for taxation as it allows for the manufacture and creation of such goods and services absent the burden of cost accounting for taxation in their manufacture and disposition to the public, and corporate and individual income taxes could then be repealed entirely. In order to work however, the universal excise tax would have to be imposed at a 25% rate or higher; and if one wanted to also repeal the burden of employment taxes on business (which would be beneficial to stimulate hiring), the tax rate would have to be at least 30%: Both income and employment tax ought then to be immediately repealed once an universal excise tax has been enacted.
Excise taxes are the only tax methodology that makes any sense economically as such taxes don't interfere at all with actual process of manufacturing and delivering of goods and services to the general public.

Someone asked "who started this whole debate?" That would be the Bush administration, which appointed a group of far-right folks to "fix" the tax system by simplifying it. Legislation has been introduced (see S-25 and HF-25). The panel can be found at www.taxreformpanel.gov and their more rabid supporters at www.fairtax.org.

For the truth about how the national sales tax would HURT everyone but the very rich, see a September 2004 report by the Institute of Taxation and Economic Policy called "The Effects of Replacing Most Federal Taxes with a National Sales Tax: A State-by-State Distributional Analysis" at www.itepnet.org or www.ctj.org. To quote from the report "...on average the 80 percent of Americans in the middle- and lower-income ranges would pay 51 percent more in sales taxes than they now pay in the federal taxes that the proposed national sales tax plan would replace. In contract, the best-off one percent of all taxpayers nationwide would get average tax reductions of about $225,000 each per year." Bye bye progressive taxation; hello two-tiered have/have-not society.

The IRS would be abolished, as would corporate, social security and Medicare tax collections. The retail industry would become the government's tax collection agency. Only new goods would be taxed, so if you bought a used home, for instance, it would not be subject to the tax. (See any harm here to new home construction?)

This idea is another attempt at shifting virtually the entire tax burden to those least able to pay, the same folks who are and will be hurt by further efforts to reduce the deficit by cutting funding for social programs and education.

John P. Rice-

I am intrigued by this http://www.americancrisis.com/Social%20Security%20and%20Tax%20Reform.html

Can an informed non-advocate tell me why this doesn't make sense?

While I did not have time to read all of the above, those that I reviewed overlooked the two greatest advantages of the "fair tax".

First, the tax would be far less regressive than reported. The elimination of corporate income tax, income tax on schedule C proprietors and the elimination of employer's payroll taxes would vastly reduce the costs of bringing products to market. The reduction in market price would nearly offset the sales tax charged.
Some would argur that businesses would not pass the savings on in lower prices, that greed would cause entrepeneurs to keep additinal profits for themselves. At first blush some might be so inclined, bur my experience with big business indicates that the greatest greed is manifested in gaining market share through lower prices. The pressure of this form of greed would offset the former.

The second point often overlooked is the posture of America in the world marketplace. We presently import far more than we export. The reduction in market price of American produced goods would aid in making us more competitive in the world economy. By the same token, the sales tax added to the price of imported goods would make them less attractive in the american economy. This would facilitate us in bring jobs back to our country.

Here's a link worth reading someone mentioned above. I you support the fair tax plan you are going to have to address the conclusions in the following link:

http://www.itepnet.org/sale0904.pdf

the consumption tax idea does not take into account the double taxation created when an individual spends money that has been already taxed in the current system as income, saved, then spent. this could have a terrible effect on after tax retirement savings that would be spent years later and subject to taxation a second time when the savings are drawn out to spend in retirement.

Wow, some really interesting comments here today. I empathize with both taxpayers who are employees and those who are business owners, since I belong to both groups. The current tax maze we wander through took a long time to develope, and I doubt anyone can say for sure what the result of taking a chain saw to the labyrinth would be. It`s fun to debate, though. What is certain? Division of opinion will remain regardless, and Americans will survive and thrive.

Forgive my lack of knowledge, but wouldn't this have an effect much like that of the VAT many European countries use: economic stagnation. Of course, I could be wrong. I'm no economist.

I do not believe that a tax based on what one spends is fair. Unless one were to tax purchases of stocks, bonds, and other investments. Why not tax everyone the same rate on what they earn. Earnings should be defined as ANY income or money recieved, period.

Will, and Others,

I should have posted the link from which I took the quote promoting sales tax as a replacement for income tax. The author is Alan Keyes, and the site is here:

http://www.issues2000.org/Celeb/Alan_Keyes_Tax_Reform.htm

Again, I'm no tax expert, but I find Keyes's perspective useful for thinking about the arguments on the side of the sales tax.

Here's another useful site for that position:

http://speakout.com/activism/issues_budget/

Good link, Gideon. Keyes entertains some wild concepts. I like this one.

"For a certain length of time - a generation or two - [the Roman Empire] exempted the damaged city from taxation. One possible plan for reparations might be to exempt African-Americans of slave heritage from paying federal income tax since slavery resulted from "an egregious failure on the part of the federal establishment."

Lol. Isn`t that the same now-defunct empire that fed slaves to lions? I like these, too.

"But in reality the working stiffs of America end up bearing the brunt of taxation."

Duh! Who else will pay our taxes? Unemployed Ukranians?

"Most of the money collected in the income tax comes from brackets $50,000 & below, from working people"

Easily disproven and patently false.

is there anybody out there that would like to be in the bottom 50% rather than be in the top 1% and pay a disproportionate share of the income tax as a memebr of the top 1%? i rather doubt it.

Gideon-

Thank you for the link, it is an interesting perspective that requires rebuttal. Here is what I have to say to Keyes:

"The income tax is a twentieth-century socialist experiment that has failed. Before the income tax was imposed on us just 80 years ago, government had no claim to our income. Only sales, excise, and tariff taxes were allowed."

I would point out to Mr. Keyes that in those 80 years of progressive redistribution the United States, under a Keynsian demand-side economic model, has risen as the unquestionable economic global hegemon.

His assertion that sales tax would be more progressive than income tax, which you directly quoted without specifically attributing it to anyone, is just a bold faced lie. Currently the poorest 50% of the nation pays less than 4% of taxes. Intuitively his math just doesn't add up.

Fortunately we need not depend on my intuitive hope. Here is the competing claim from http://www.itepnet.org/sale0904.pdf

While I do not expect you to read the entire thing (which you should, because it is far more specific than Mr. Keyes often times vague and unscientific pronouncements) just scroll down to Central Findings:

"In virtually every state in the union, the bottom 80 percent of taxpayers would face much higher taxes under a sales tax. Nationwide, these tax increases would average about $3,200 a year."

"[On] average the 80 percent of Americans in the middle- and lower-income ranges would pay 51 percent more in sales taxes than they now pay in federal taxes that the proposed national sales tax would replace."

"[The] best-off one percent of all taxpayers nationwide would get average tax reductions of about $225,000 each year."

If Mr. Keyes thinks this is what progressive taxatin means, than he is not an authority on the matter.

Alan Keyes: "Abolish the income tax and spend money responsibly" another misleading statement, as if the two are only possible in conjunction. Couldn't we maintain the current tax code and spend more responsibly? He fails to offer any substantive reason why changing the tax code would necessitate more responsible spending. I quote Keyes:

"Q: What would you do about taxes?
A: If you need a tax cut today, all you'll need to do is change your habits of consumption. You'll be back in control of your own destiny. That is the tax approach that I recommend. Radically different from what they're all talking about. They want to remain the gate keepers of your money. I want to put you back in charge of that money. Abolish the income tax."

It seems the claim he is making is this: If we are taxed on what we spend we have control over how we are taxed, namely, we can choose to purchase or not-purchase goods at our leisure. While this no doubt will affect government REVENUE, it's unclear why it would make a particular individual any more empowered over the national BUDGET which is decided by politicians, not Americans buying loaves of bread.

He closes his argument with a bunch of non-substantive rhetoric. The government are "gate keepers" who have control of your money only because income tax prevents Keyes from putting YOU in charge of your destiny. Bla bla bla...

I appreciate that you've offered a link with a differing view, but frankly I find it lacking in substance and overcome with rhetoric. He repeats the same banal defenses of sales tax; somehow it empowers the individual over the government, it forces government's to spend responsibly (how?), "Income tax is a failed socialist experiment", ad nauseum.

Just my humble opinion. I urge everyone else to check the Keyes links and draw their own conclusions. I think differing opinions are important, but Keyes stifles thought with trite slogans and vagueness.

Hey, hey now....what is wrong with trite slogans and vagueness? They spark debate...they invite thoughtful retorts.

"If it doesn`t fit, you must aquit!"
-Johnny Cochran...classic.

"Read my lips. No new taxes!"
-Pres. Bush Sr.

"Bring it on!"
-John Kerry

"Humpty Dumpty was pushed!"
-Author unknown

ibcracker
Why should you carry on with your obnoxious remarks on Emily's knowledge of "fair tax"? if you happen to disagree with her then please debate! why not stating your opinions on this subect and tell us a little about what you know. Im terribly interested since im a seventeen year old female wanting to learn from a highly obstinate commentor. Because right now- Emily has a debate blog with her name, picture, and everything... I do believe sir that you have a problem with females who hold a higher level of importance. Wouldn't you say so? oh and while your soaking up knowledge from your "book" of which you read, why not sending her a copy so maybe her knowledge will equal to yours and note the increase with which her salary has already peaked by posting this debate. Merry Christmas!

I believe a fair tax is which every one
pays the same amount on their true gross
income. No deductions , No special exemptions. A person or persons in need of
a helping hand would be assisted by their
local governments through their hard times
and never have people become dependent on
permanent welfare.

good comment 17 y/o female. real good comment.

I am sorry to use algebra, but I am a mathematician and that is the way I think. Pick any year among the last 50 (you may need to restrict this to 40). Call it A. Pick a latter year. Call that B. Pick a small percentage like 10%, or 1% or .1%. Call that R% for rich. Pick a large percent like 90%. Call that P%. For year A compute the percent of the wealth of the country owned by the upper R%. Call that RA%. Similarly let PA% be the percent of the wealth of the country owned by the bottom P%. Define RB% and PB% similarly. For almost every choice of A,B,R%, and P%, you will have RB%>RA% and PB%

My last post got truncated somehow. Let me try again.

I am sorry to use algebra, but I am a mathematician and that is the way
I think. Pick any year among the last 50 (you may need to restrict
this to 40). Call it A. Pick a latter year. Call that B. Pick a small
percentage like 10%, or 1% or .1%. Call that R% for rich. Pick a large
percent like 90%. Call that P%. For year A compute the percent of the
wealth of the country owned by the upper R%. Call that RA%. Similarly
let PA% be the percent of the wealth of the country owned by the
bottom P%. Define RB% and PB% similarly. For almost every choice of A,
B,R%, and P%, you will have RB%>RA% and PB%

Can't understand why my post keeps losing words. Must be that the blog hates math.In the unlikely event that anyone cares here's are the corrected lines:

For almost every choice of A,B,R%, and P%, you will have RB%>RA% and PB%

Damm it! It is still cutting the line off.

...and PB%

Will,

Thanks for your point by point response to the position of Keyes. I've read your response and the report you cite. To repeat my other posts, I am far from an expert on this subject, so I won't attempt a serious debate. But thanks.

If you want to look at it from a pure equity standpoint consider this. First don't look only at income tax,because the bottom half of the country pays almost no income tax but pay a huge percentage of their income in all other taxes and fees, including payroll and state taxes. So we should look at all tax revenue.
In Clinton's last year under the tax code the top either 20 or 25% (I can't remember which) accounted for about 77% of all taxes paid. They also accounted for about 75% of all income. That seems pretty fair, they earned about 3/4 of the money and paid about 3/4 of the federal taxes. Once you add in all the other taxes like state which are regressive the rich probably ended up paying their fair share of taxes. Now with Bushes cap gains, dividend, and tax rate cuts, my guess is that the rich are now paying less than their fair share compared to the income they earned. The right will tell you that the rich are actually paying a higher percentage of income tax than they did under Clinton, and they'd be right, but only because they ignore all the other taxes paid by people in particular payroll taxes. Someone making 25 grand a year would be paying a higher tax rate than someone making millions that was getting most of their income via investments. That is the goal of the right wing. to tax income received by doing labor and getting rid of taxes from investments.

One thing that the Flat taxers and the consumption taxers always ignore is the effect such a new system would have on housing prices. Without the mortgage deduction in place, home values would immediately fall by 10 percent or more. This would kill the middle class, since most of their houses are their main investment vehicle.
The fair tax people talk about the rebate for poor people. The truth is a preponderance of poor folk are poor from a lack of education. How many won't get the rebate because they don't know how to file for it? Also, you'll have to prove that you qualify. It seems silly that the only people that would have to file tax returns would be the poorest.
Also, a flat tax would hurt the economy. Consider how nay high paying jobs depend on the tax system. From tax accountants, to H.&R. Block, to the software developer that writes, and updates things like turbo-tax. These are good high paying jobs that we as Americans don't need to lose. Likewise, getting rid of the estate tax will eliminate a niche industry that provides good jobs and gets rich people to spend money. There are many many consequences that both a flat tax and this fair tax will have that its supporters ignore.
The truth is that the rich (people that start and run their own businesses that actually employ people are not included) are really bad for the economy from an efficiency standpoint. Our economy is consumer driven, and although the rich may be extravagant at times, they spend very little in proportion to their income when compared to evryone else. What happens to the extra income? The right contends that the rich invest it creating economic growth. The reality is that the richer you get the more conservative your investment portfolio becomes. Rich people invest in blue chip companies and utilities, and other companies that provide stable stock prices, and good dividends. The problem with such companies is that they don't grow. Instead, they do things like merge, or buy other companies. Then, after those actions, they actually cut jobs to reduce redundancies. So the rich don't spend enough, and invest in things that don't help the economy as much.
If the goal is a simpler tax system, that would be easy to do. Set 3 or 4 tax brackets, the first being zero for say the first 20 grand of income, and ending with around 30 percent for the top. Make sure nobody pays more than 35 % of their income on taxes, this includes payroll taxes. Give tax deductions for mortgages (with a cap on the total dollar amount, college tuition, again with a cap per child, and on charitable giving. Also, eliminate the fake charitable deductions like giving a museum a piece of art or jewelry etc. (because those are total scams) Finally exempt any cap gains from selling your house as long as you buy another house within a year. This can only be done on your primary dwelling. Everything except cash from lawsuits, and child support, is considered income. How much simpler do you need? The only reason that taxes are complicated is that rich folks keep lobbying for more deductions. If those deuctions are eliminated, then calculating what your taxable income is would be simple, and having multiple tax brackets would not be even a little confusing.

I'm a little late to this but looks interesting.

Patience ----- The estate tax is a form of wealth tax; but applied only on the occasion of the death of the wealth owner. Capital gains are a transaction tax on the net income from a property exchange, a form of income tax. The so-called "Fair Tax" would presumably replace it with a tax on the transaction value, a sales tax.

Why not a wealth tax? Let me count the ways.........
Is your "wealth" the value of your assets or is it the value of your assets net of your liabilities (i.e. the value of your home or just your equity in it)?
Who assesses the value of your wealth, by what method, and how often?
How about the cash you keep under the mattress, is that part of your wealth?
How about the land you own in Argentina? That too?
Do we really want the government keeping track of everything we own? Wouldn't that be even more intrusive than the IRS?
What about the poor farmer who just wants to farm and not sell his land for a fortune to a developer? Are you going to tax him out of business?
How do you measure a corporation's wealth? The value of its physical assets? How about the value of its brand, of its intellectual property, its royalty rights, its contracts? Net or gross? Or maybe you just use its market capitalization? Having taxed the corporation, are then going to tax the holders of its stock? That is hitting the same wealth twice.

And so on.

I like your characterization of "Fair Tax" as a brand. It reminds me of the Fox "Fair and Balanced" BS. It is just incessant marketing.

Lench --------- Thank God for mathematicians! I do think these various proposals would be more enlightening if we could see them in mathematical form applied to real actual data taken over say, the last 10 years.
As to your point about wealth distribution, I would argue that the richer folk benefit disproportionately from a strong nation, from the security, both external and internal, it affords them. Clearly, they have far more to lose from either an external or internal breakdown. The rich need stability even more than the poor, in order to stay rich. From that point of view it is not unreasonable that the richer folk should bear a larger relative share than the poorer folk of the cost of maintaining that condition. As a practical matter progressive rates become necessary to achieve that imbalance when net income is used as target to which the tax is applied; in no small measure because the wealthy are so very skilled at minimizing or otherwise sheltering their taxable net income. As you point out, graphs of the relations you defined for wealth would take a similar form if applied to income. So if we were to replace income with wealth as the tax target, it is most likely that we would have to have progressive rates for that as well. It would be like going from the frying pan to the fire. For a lot of practical measurement reasons, wealth is an even tougher beast to target than income. Among other things, our entire national administrative system, records, bookkeeping, accounting, reporting, etc. is all geared towards tracking and calculating income, not wealth.

The fundamental problem with a sales tax is that it is usually limited to the sales of "consumables". The richer folk consume a lot less consumables proportionate to their income or wealth than the poorer folk; that is one reason why they get richer faster. So unless your going to define "sales" such that it includes the purchases of things like securities and land and so forth which taps the kind of buying and selling that the rich actually do, a sales tax is inevitably regressive in nature, and as you point out, goes in the wrong direction in terms of wealth and income distribution. Now putting a tax on what are really capital flow transactions has some nasty economic effects and consequences so I'm not a big fan of it. But a progressive sales tax is inconceivable as a practical matter so I just can't see how you make it work without exacerbating the disparity in the distribution of wealth and income.

So I think we are practically stuck with the income tax whether we like it or not, and I don't. My problem with it is not its basic nature, but its complexity. The complexity in personal income taxes comes from using it to achieve unrelated social goals or unrelated economic goals, often very narrow ones at that. It really could be a whole lot simpler and still achieve its basic purpose, so to me it's a matter of reform and restructuring this and social security because the latter is such a huge unfunded liability.

1. Take the ceiling off of SS earnings ........ That will hit everyone, including the rich, with the same payroll taxes. This alone is equivalent to an 8% rise in income taxes on the salary income of the richer folk.
2. Get rid of the mish mash of credits, earned income, Hope, Lifetime education, child credit, whatever.
3. Get rid of itemized deductions, all of them.
4. Tax net long-term capital gains as income, but index the cost basis for inflation, and if you want to favor it by taxing only one quarter, or one half, or two thirds, or whatever of it OK, but not a special tax rate.
5. Tax all dividends as ordinary income.
6. Tax all interest as income, all of it including municipal bonds and other favored scams.
7. Get rid of the esoteric kinds of income shelters dreamed up by the Big 5 (or is it now 4) accounting firms and clever tax lawyers.
8. Create Roth type education accounts for child education funding.
9. Reset the standard deduction structure, indexed for inflation, to a higher value commensurate with covering revenue loss from the median or average tax benefit of current itemized deductions and the child credit. That gets the government out of the business of subsidizing mortgages for the rich folk.
10. Reset the tax rates and associated income levels to produce roughly the same level of revenue we get now over the current income spectrum, and maybe enough more out of the top 50% to repay the money we borrowed from the social security trust fund in order to pretend the deficit was smaller than it actually was.

This would actually have substantive short term and long-term effects. Long term, it would tend to disadvantage excessive home mortgage debt and force municipalities and similar public or semi-public entities to bear the real cost of their financings. You would have to grandfather existing tax advantaged debt securities to avoid a collapse in that market of course. Short term, it would depress the marginal value of work to the working poor, have some negative influence on charitable contributions, and apply a downward pressure on housing prices, especially towards the higher end.

I don't have the real data, so I don't know what the actual answers would be in terms of a rate/income structure, i.e. how progressive it would be but I would not be surprised if the effect of expanding the income subject to tax at the higher end of the spectrum allowed for a lower top tax rate than the current one.

Then there are corporate income taxes, but that is an even bigger mess. It is enough to note that the relative income tax contribution from corporations has been in decline for years even as their income has climbed. This part of the code has long been overdue for feeding to the shredder and starting over.

Sorry not to have any grand schemes, I would be happy if Congress could just keep from fiddling with it to satisfy every passing political fancy or satisfy every special interest group bearing campaign help or cash for the next election.

An interesting discussion here.

1. Tinkering with who gets taxed will not "fix the budget mess". Only matching tax revenue to spending (and interest payments) will fix the budget mess.

2. Income taxes are easy for most "ordinary" people except for small business owners and people who want to save every nickel.

3. The key goal of the Republican tax agenda is to shift more of the burden of taxes from capital to labor, i.e., to tax wealth less and tax work more (and/or borrow the money and make our unborn grandchildren pay our taxes for us). Everything else is just noise.

4. Labor bears a disturbingly high share of the tax burden today, when all taxes are considered. In particular, working people are taxed about $500M per day in surplus FICA taxes, which the government "borrows" to paper over shortfalls in income tax collection: that is the debt that Bush calls "paper IOUs". We run a regressive tax system (worker pays more) all while telling people it is for their own good (the money is waiting for you in the 'social security trust fund').

- Sales taxes are great when you want to discourage consumption. They are great for energy, for example.

My two cents: keep the income tax as it is, roll back the tax cuts, and phase in a $20 per barrel tax on oil to raise $200 billion per year in new revenue. Since the energy tax is regressive, balance things out by increasing rates in the higher brackets and expanding EITC. The new revenue should be enough to pay the $300B per year in interest on the massive debt we have run up over 23 years of Republican politics. And maybe even enough to start paying it down at $100B per year so that we can get this debt burden off our backs in, say, a century. Also, we will need to pay it off: we must cover our debt to the SS trust fund, since our workers are depending on it for their retirement, as promised. That is a $1.7 trillion dollar debt that must be paid as a solemn moral obligation.

Paying down the debt is the only way to fix the budget mess: the interest payments are killing us. That means taxing more. The decisions have already been made: we no longer have a choice.

We will still have to fix our medical/medicare system, but that is a different debate.

Kathernmarie,
My comments were in no way sexist, nor do I have a problem with "females who hold a higher level of importance," although I would argue whether having "a debate blog with her name, picture, and everything" qualifies for "importance." My problem with Emily's entry was that it mischaracterized the whole "Fair Tax" proposal on which she was commenting. If it is her job to make commentary on issues, a professional, regardless of sex, would do a better job researching it prior to commenting. Just as, I am sure, your teachers now and professors in the future will expect at least that basic level of academic rigor from you when you advance a thesis. Thank you for the comment nonetheless, and may you, Emily and all the world have a very Merry Chrismas and a blessed and Happy New Year!

The so-called Fair Tax is extremely regressive and the poor and middle class would end up paying much higher tax rates on their income than the rich. The poor, and even the middle class spend almost all their income, and so they would end up in a 23 percent tax rate. The rich do not spend almost all their income and many would end up on considerably lower rates of tax.

The income tax is a good method. The problem with it is not that it is progressive, but that over the especially the last thirty years it has become less progressive.

But to get back to the the so-called Fair Tax. If we were to have the bulk of our tax derive from a sales tax, here's what I suggest.

No sales tax on food. To keep it simple, (though it is really not all the complicated to tax, say soda, and not fruit juice) we could simply make eliminate taxes on any food.

No sales tax on clothing.

A moderate sales tax on moderately priced housing.

A higher sales tax as the price of the house goes up, so that the rich are paying a hundred times more in taxes than they are for the price of their monstrous mansions.

Double the sales tax on second homes.

Ten time the sales tax on third homes.

A moderate sales tax on a small boat, the kind a person with a moderate income could afford.

A very stiff sales tax on yachts.

A ten million percent sales tax on the super yachts made.

ibcracker

Merry Christmas and happy new year to you as well.

Here's our review of the "FairTax" book from a few weeks ago:

http://www.taxfoundation.org/commentary/show/1131.html
Bottom line: The tax rate required to make up for tax avoidance is likely much higher than FairTax advocates predict.

Hi Everyone,

I would like to question one of the assumptions of this discussion that the rich should pay higher taxes.

In this regard, Cayambe made a comment and I quote her, "As to your point about wealth distribution, I would argue that the richer folk benefit...maintaining that condition."

The argument makes sense but only for those who are in very high income brackets such as Bill Gates, etc. How about families in the bracket of say $50,000-$200,000 (semi-rich range), why should they pay higher than that paid by those earning less than $50,000.

Families belonging to the semi-rich range could have sacrifised many other comforts in order to groom themselves and move into such a range as compared to their poorer counter-parts, like working their way through college, etc. and should infact be rewarded by the system.

As an example, lets consider Emily, she worked hard, surely did good at school, went to college and as Kathernmarie rightfully pointed out, must be drawing a good salary. I fail to understand why she should pay more taxes than say Bob, who had a tough time graduating, and is working odd jobs, makes less than $50,000.

Am I the only one who thinks that we are unfairly penalising acheivers ?

Thanks a lot.
SandS.

Many of you need to read the Boortz/Linder book "The Fair Tax", which offers answers to many of the questions raised in this blog. Many of you are operating without true knowledge of Mr. Linder's proposed changes to the law in Congress and making statements that are completely false. You can get this book from most public libraries and you really should read it so that you don't show your ignorance when commenting on the national retail sales tax. The bottom line is that the proposal is "revenue neutral" -- it keeps the tax revenues approximately the same as they are now -- it eliminates the $550 billion spent anually by businesses having to track withholding etc. -- it gets rid of the IRS, the most un-American of all institutions in the Federal government -- it taxes the underground economy -- and it removes all those below the poverty level completely from tax rolls including the extremely regressive social security and Medicare taxes and it gets rid of all the lobbying in Congress where businesses and people vie for special tax breaks in the present system (sometimes by bribing legislators). I strongly urge all of you naysayers to get on the ball and truly understand the "fair tax" before blowing it off. Do you really want to be in the position of defending the status quo? Of defending the IRS? Of defending all the special breaks given to connected people under the present tax system?

Clay Willis-

Since you've read the book I will ask you a fair question. If the proposed changes under a Fair Tax are revenue neutral, meaning (I think) that if we abolished income and other taxes and replaced them with a sales tax government revenue would remain the same. Stop me if I have this wrong.

If not, please explain who will pay more taxes as a result? Obviously someone's boat will be rocked (because if the new tax system was revenue neutral and distributed the tax burden identically to our current tax, why change?) and I am interested in who that might be. Is it the poor? Is it the rich? Is it the middle class? This is an important question, Thanks.

SandS-

It seems like you are suggesting that a person who makes $45,000 a year benefits the same from society than someone making $200,000 a year. This is demonstrably false.

"Families belonging to the semi-rich range could have sacrifised many other comforts in order to groom themselves and move into such a range as compared to their poorer counter-parts, like working their way through college, etc. and should infact be rewarded by the system."

And these upwardly mobile people did so with a progressive tax system in place which should be very revealing. It tells us, for example, that the weepy wealthy who complain about taxes would still rather pay 35% income on their 1,000,000 income than pay 15% on their 30,000. I wonder why that is?

"As an example, lets consider Emily, she worked hard, surely did good at school, went to college and as Kathernmarie rightfully pointed out, must be drawing a good salary. I fail to understand why she should pay more taxes than say Bob, who had a tough time graduating, and is working odd jobs, makes less than $50,000."

1) Because she can. 2) As was said before she enjoys the benefits of a functioning society more than Bob, and thus has more invested in it, more to lose from its demise, and thus more responsibility to uphold it. 3) Finally, because the Bobs of this country vastly outnumber the Emily's of this country, and we live in a Democracy where (presumably) it's one person one vote. If you continually endorse economic and political policies, no matter how "fair", that overwhelmingly favor the rich and hurt the poor, than at some point those poor people are going to ask: "What gives?"

When they wise up I'll let you tell them to eat cake.

Ahhh the nobility of the "working man". Who can argue that a personal injury lawyer with a Jaguar and a coke habit isn't more valuable to society than a wheelchair bound loser who volunteers her time at a rec center? Our economy doesn't need blind or infirmed people. And while we're at it ... lets just summarily execute anyone on welfare for more than 3 years ... or those with an IQ below 90 ... just to keep the gene pool strong? Thats "fair" isn't it.

Now that I have dispensed an adequate amount of sarcasm ... here's a thought.

Our tax system is complex for a reason. Ever heard of "no taxation without representation"? Why do you think that was a big deal for the founding fathers? They understood that taxation is an important tool for shaping society. Our tax codes are the knobs and levers that get pulled by our representatives to accomplish the greater goals of society. The goals we the people set out.

To think that mere simplification of our tax codes is a useful goal of our society is laughable. Lets not put the cart before the horse.

Will -- You wrote
"Since you've read the book I will ask you a fair question. If the proposed changes under a Fair Tax are revenue neutral, meaning (I think) that if we abolished income and other taxes and replaced them with a sales tax government revenue would remain the same. Stop me if I have this wrong."

That is the meaning of "Revenue neutral".

Will wrote, "If not, please explain who will pay more taxes as a result? Obviously someone's boat will be rocked (because if the new tax system was revenue neutral and distributed the tax burden identically to our current tax, why change?) and I am interested in who that might be. Is it the poor? Is it the rich? Is it the middle class? This is an important question, Thanks."

Will, the only income strata that would immediately be affected directly would be those working people at or near the "povertly level" who would see an immediate increase in "take home" pay as they no longer would have 10% income tax, 7.5% social security and the 2 - 4% Medicare tax deducted from their paychecks.
High income people would still pay the preponderance of taxes as they, by definition, are going to have more money to spend.
Also your neighborhood drug dealer, prostitutes and all others participating in illegal activity would immediately start paying taxes. They pay none now, since (by definition) they can't report their income.
Businesses would save $550 Billion annually by not having to track withholding taxes as well as corporate income taxes.

The average person would find that over a short period, probably a few months, the embedded taxes no longer levied would cause retail prices to fall making the 23% national retail sales tax revenue neutral. Free market economics dictate that prices must fall under these circumstances but most will not see a drastic increase in income immediately although this would be the biggest boost to the economy imagineable.
And we will be rid of the IRS!!

Think man! If you read the Communist Manifesto, one of the first things needed to institute socialism is a progressive income tax like ours. Free markets are the opposite of communism.

All of your esoteric comments about "benefits from society" are the result of the socialist BS that's been taught in our economics classes for the past 70 years.

You really should read the Fair Tax book because our educational system has been greatly remiss in covering the ill effects of a graduated income tax, not to mention the repressive and regressive Social Security and Medicare taxes which take up such a large percentage of lower income wages.

Nik - e - Poo
Our present graduated income tax system has been bought and paid for by various intest groups vieing for tax breaks for them or their "clients".

It is a fact that an "income tax" is expressly forbidden in the U. S. Constititution and that's why the IRS openly admits that it is a "voluntary" tax. Voluntary but enforced by the IRS and backed by the U. S. Court system but still unconstitutional.

The Fair Tax is not Republican nor Democrat -- not liberal or conservative or moderate. It is common sense as you would find out very clearly if you would read the Fair Tax book or wade through some of the stuff you can find with an Internet search engine.

Nailing the underground economy for $500+ billion annually -- which by definition pays no taxes now -- and freeing up another $500+ billion burden on businesses now having to track withholding and payroll and getting rid of the IRS. It's all part of the NRST program.

You might lighten up on the sarcasm and try educating yourself on the first really new idea to come along in a century or so.

Clay -

I see nothing inherent to a use tax that will magically remove tax fraud. Right now ... today ... there are plenty of ways to collect from corporations and wealthy individuals who dodge their taxes ... and all will work under our existing tax structure. It simply requires the will to do so. The reason corporations and wealthy individuals don't pay their fair share ... is because they weild a disproportionate amount of political power. Besides, if you implemented this new tax law at high noon tommorrow, by 12:15, tax evaders would have discovered and deployed their new tax evasion techniques. The way to fight tax fraud ... is to audit and arrest tax evaders. If you want poor people to pay more taxes ... just raise their taxes. If you want people off welfare ... stop paying them.

Use tax is not original and its certainly no silver bullet. Its just a neat simple little package for people to latch on to when they want to oversimplify the world we live in.

And get rid of the IRS? are you nuts? Who would prevent fraud then? Retail merchants?? I think not. Bureaucracies are slow and inefficient and certainly the IRS is unpopular. The one thing bureaucracies have going for them ... is that they are fair. They treat everyone the same. Fill out the form and submit. They do whatever the representatives mandate ... and hey ... thats where the whole representation thing comes in.

Nik E Poo

Obviously you know very little about how taxation works and that has led you to several erroneous conclusions.

The "Fair Tax" -- a national retail sales tax (not a "use tax") -- is not intended to eliminate fraud from the tax system. That will never happen because human nature remains the same no matter what the government does. 45 of the 50 states already have sales tax collection and enforcement systems in place and they are fairly efficient. About 95% of all people pay their taxes with at least some ethical consideration though the present system with all its complexities encourages cheating and fraud.

Without all the "deductions" and "loopholes" built in to a graduated income tax system, the NRST will be much easier to enforce though it will not and does not claim to ELIMINATE fraud.

Now about those "evil" corporations that don't pay their "fair share" of taxes -- Corporations don't pay taxes at all -- they collect taxes from their customers (in the long run that's you and me and everyone who buys their products and sevices). The cost of corporate income tax is built into every product or service they provide. These are called "embedded taxes" and over the whole economic system, they amount to more than 20% of the cost of every good and service in the marketplace. If you don't understand this, let me know, as I am the tax manager for a small one of those "evil" corporations.

Blaming the corporations is a red herring generated by socialists and/or politicians who use class envy to enhance whatever program they're trying to install and it is repeated by ignorant people who have not taken the time to investigate how these things work.

Certainly the NRST will have people who find ingenuous ways to dodge paying taxes -- human nature never changes -- but it will likely be somewhat less than the fraud now in place in the current system since NRST contains no deductions and no exceptions and will therefore be easier to enforce.

I cannot believe anyone in this country would defend the IRS -- that most un-American of all government institutions, with the regulatory ability to confiscate the property of any citizen and hold it until the citizen proves their innocence and with no compensation for the damage done. Add in a bit of internal fraud (human nature, remember?) and the urgings of unethical politicians and you have a system ripe for many violations of civil rights of Americans and a system that is tremendously inefficient.

The sales tax collection system of 45 of the states is already in place and they already have the tools needed to enforce collections and with a little help from Federal law enforcment (not the IRS) they can catch and punish the conspiracy schemes that will arise, just as they do now. The smaller violators will still get away with some just as they do now.

Since a retailer can lose his business license for tax fraud, there will be little cheating on the part of most legitimate businesses, large and small.

Another thing -- the first priority for any bureaucracy is to enlarge its power and financial base. Their very nature makes them corrupt and if you think the federal bureaucracies associated with tax collection are fair and "treat everyone the same", you are either ignorant (not stupid but lacking knowledge) or are incredible naive.

Again, because it is the simplest and most complete form of the information available on the subject, I urge you to read the Boortz-Linder "Fair Tax Book". Your local public library has a copy so it will cost you nothing but your time and I promise you it will be worth it.

Clay Wills-

I am not educated in economics. I ask questions because I want information, not to challenge your authority on the matter. I appreciate your input.

You said-

"Will, the only income strata that would immediately be affected directly would be those working people at or near the "povertly level" who would see an immediate increase in "take home" pay as they no longer would have 10% income tax, 7.5% social security and the 2 - 4% Medicare tax deducted from their paychecks.
High income people would still pay the preponderance of taxes as they, by definition, are going to have more money to spend.
Also your neighborhood drug dealer, prostitutes and all others participating in illegal activity would immediately start paying taxes. They pay none now, since (by definition) they can't report their income.
Businesses would save $550 Billion annually by not having to track withholding taxes as well as corporate income taxes."

Immediately only the poor would benefit? Why is this? Though their take home pay might increase (as would everyone else's no?) won't the price of goods be 23% higher than it was before? If their take home pay was increased less than 23% (you listed 21.5% in taxes they pay) than wouldn't more of their income be taxable since the very poor must spend virtually 100% of their income?

I'm not sure if making prostitutes and drug dealers pay taxes is an important milestone of any tax reform since I tend to hope that law enforcement deals with these people.

Who do businesses pay 500 billion a year to?

If corporate taxes are only raising the price of goods 20%, why should we expect its abolishen to lower the price of goods more than 23%?

I would greatly appreciate if you would check out http://www.itepnet.org/sale0904.pdf to validate their claims. It is a relatively short report that I cannot verify because I am not an economist. It argues that 23% is far too low to generate enough revenue. Can you explain why they might be wrong?

Again, I appreciate your input because I need someone informed to tell me about this matter because I am not informed. I do not have time to go to the library and read the book now, though I will in the future. I have read reports from people who at least claim to have read the book but disagree with its premises.

I think it is poor form to call my "benefits" issue esoteric bullshit. There is nothing dogmatic about recognizing that the very rich are much happier than the very poor, and thus have more to lose from societal collapse and consequently more responsibility to insure that society does not do so. If you disagree, fine, but offer something more substantive than calling me a socialist.

Will,
I'm not claiming any "authority" so you have nothing to challenge. I have long experience in the tax system and will be glad to attempt to answer any questions you ask.

You wrote, "Immediately only the poor would benefit? Why is this? Though their take home pay might increase (as would everyone else's no?) won't the price of goods be 23% higher than it was before? If their take home pay was increased less than 23% (you listed 21.5% in taxes they pay) than wouldn't more of their income be taxable since the very poor must spend virtually 100% of their income?"

The Fair Tax legislation is set up so that every household in America would receive monthly a "rebate" equal to the amount of sales tax at the poverty level, i.e., one-twelfth of 23% times $17,500.00 or about $335.00 at today's level. So the low income people would not be paying any Federal sales tax either besides not paying income, Social Security and Medicare taxes.

Will wrote, "I'm not sure if making prostitutes and drug dealers pay taxes is an important milestone of any tax reform since I tend to hope that law enforcement deals with these people."

Law enforcement dealing with these people on a criminal basis has nothing to do with taxes.

There is an underground economy, drugs, prostitution, illegal gambling and many other areas, that earns about $550 billion a year. They pay no income tax because if they reported that income, they would be arrested. They do however purchase all the necessities of life like all of us and they also spend a lot of that $550 billion purchasing things and they would pay 23% Federal sales tax on all those purchases. This would be a huge increase in the amount of Federal taxes collected.

Businesses pay $500+ billion annually to handle payroll and to track all their transactions related to corporate taxes etc. Under the fair tax, the corporate accounts payable department would simply write a $1,000.00 check to an employee who made $1,000.00 per week, period rather than sub-letting the payroll to a payroll service and paying an outside accounting firm to keep track of all their tax liabilities. Trust me, it is an enormous cost to ever relatively small companies.

Will wrote, "If corporate taxes are only raising the price of goods 20%, why should we expect its abolishen to lower the price of goods more than 23%?"

Don't get caught up in the small stuff -- the 20 percent was written with a "plus" sign because that figure of the embedded taxes is not exact but is more than 20%. What drives the prices down? To put it simply, competition. If they kept their prices at the same level, added on the 23% NRST, some competitor would lower their prices and their sales would drop off until they matched or beat their competitor's prices. It's the free market working.

Will wrote, "I would greatly appreciate if you would check out http://www.itepnet.org/sale0904.pdf to validate their claims. It is a relatively short report that I cannot verify because I am not an economist. It argues that 23% is far too low to generate enough revenue. Can you explain why they might be wrong?"

I have been studying this idea for more than 20 years and I can tell you that all those naysayers are wrong. The Boortz-Linder book explains it in detail and answers all the critics with irrefutable logic. If you'd care to take a specific instance I'll try to deal with that but I would be bored reading the claims these people who don't understand the NRST put forth. I've seen most of them and I've never seen one that was real.

People who are a lot smarter than me have been likewise studying the problem for even longer than I have and the 23% is their benchmark and I see nothing wrong with their mathematics and projections.

The Fair Tax is AT LEAST revenue neutral but I believe it would actually increase Federal Revenues enough that the tax rate could be lowered to about 15% within 10 years and still pay for all existing Federla programs and perhaps getting rid of most of the national debt.

Will wrote, "I think it is poor form to call my "benefits" issue esoteric bullshit. There is nothing dogmatic about recognizing that the very rich are much happier than the very poor, and thus have more to lose from societal collapse and consequently more responsibility to insure that society does not do so. If you disagree, fine, but offer something more substantive than calling me a socialist."

I disagree with your premise that "the very rich are much happier than the very poor" in that you are equating money with happiness, when it has very little to do with happiness. Look at what happens to the great majority of lottery winners -- most of them are miserable and broke again within a few years.

Happiness comes from having a system of ethics and morals that one lives by including finding something that is truly interesting or at least tolerable to do for a living and then working hard, doing one's very best, at that while establishing a family and taking care of them and helping as many other people around you achieve their potential also. All else is empty an vain -- as the great, wise king Solomon wrote, "It is a chasing after the wind."

Our happiness is not dependent on government or society and only those with socialist leanings think so.

This character Willis above is being totally dishonest. There's not a single professional economist in the world of tax policy who believes a 23-percent retail sales tax could possibly be administered. Rates that high are almost unprecedented around the world for retail-level taxes, because it's just too easy not to pay them. The enforcement buraucracy that would be required to collect the fair tax would turn the U.S. into a highly un-free police state.

Fair-tax advocates seem to realize that high excise taxes on goods like cigarettes and alcohol lead to widespread tax evasion, smuggling and black markets. Why are they so dishonest in admitting that a high-rate retail sales tax would suffer the same evasion problems?

Even smart conservatives dismiss fair tax advocates as quasi-religious zealots. The fact that it has attracted such wide support it pretty damning evidence about the low levels of economic literacy in the U.S.

Giving people a financial incentive NOT to spend money seems like a perfect was to stimulate economic growth. Ya.

10,000,000 % sales tax on yachts?

Been there, done that. That was tried by Democrats desperate to soak the rich 15 years ago.

Net effect was to throw tens of thousands of people out of work who built ships and to collect nearly zero tax dollars.

Oops.

> Take the ceiling off of SS earnings ........ That will hit everyone, including the rich, with the same payroll taxes. This alone is equivalent to an 8% rise in income taxes on the salary income of the richer folk.

SS's problem is that its payout as a function of payin is a money loser, so increasing the dollars in only makes things worse. (If you're losing money on every sale, volume doesn't help.)

The only way to avoid that is to cap payouts and not cap payins, and that will erode support. (Right now, the rich can afford to ignore SS. Uncaping the payroll tax will make them pay attention and if they're not getting proportional payouts, they'll go after it.)

Quick little notes on some apparent confusions here.

1) The 23% number is the fair tax as scored as an income tax; the 30% is if it the fair tax is scored as a sales tax.

For example suppose I buy a $1.00 item and then add 30 cents to it. Then I've spent a total of $1.30 of my income where 23% of my income (0.30/1.30) has gone in taxes.

The income based number is emphasized because we're talking about replacing a taxation system based on income so an apples-to-apples number can be compared.

2) Above there was speculation as to where the extra sources of revenue were going to come from. One such source was cited (taxing the underground economy), another is wealth.

Many people love the idea of a wealth tax yet detest the Fair Tax. I guess this is because they haven't thought it through. When a trust fund baby actually spends their wealth now, there is no tax (other than state and local on the sale). But under the Fair Tax, that wealth would finally be taxed.

If you actually want to tax wealth, then an income tax is not the way to go - a sales tax is. Wealth is of little value if you're not spending it...

A third source of added income is from international tourists, who will still be buying things in the US. Before, they weren't significantly contributing to the tax base of the US (other than hotel taxes and state and local taxes), but now every US purchase would capture a portion of tax revenue. As I believe the US is a net beneficiary of tourism, this should also have a positive effect.

3) I count myself as a smart conservative, Dre. Please tamp down on the irrelevant ad hominens if you could...

Some interesting comments.First,to quote Heilein,there is no objective symbol (see Boolean logic) for the term "fair".Secondly,I worry les about the rich not paying enough than about pople in 30 K levels paying nothing.That' an unstable situation,where someone can vote themselves a raise at someone else's expense.
Dre,some smart conservatives,who are Nobel Prize winners,are in favor of "Flat Taxes".Actually,this was the hit shot on Steve Forbes which,famously,lead to Bernard Goldberg getting off the reservation and becoming rich and famous.
But to be fair,you find your sources and I'll document mine.

It's funny how people think they can do economics better than economists. Maybe it would be better to learn first, then speculate.

A poor thief remains a thief. As most of our lower income citizens (many of whom pay no income taxes) have regularly voted to loot the rich, defined as anyone who makes more money than they do, such citizens deserve to pay a larger percentage of their income in taxes. Actually, they deserve incarceration, but I'll accept the first solution.

A note about home purchases - this tax would only apply to new goods, so buying a previously owned home (or car, or guitar, etc.) would not have the tax applied (it would have been collected at the point of original purchase.

We won't be responsible for collecting the taxes on things we sell to each other, and that is what a previously-owned home is.

I like the way a national sales tax allows illegal immigrants to pay taxes.

FYI... I have computed effective tax rate tables comparing the fairtax to the most optimistic (for the poor) possible taxing under the current system. I have also demostrated revenue neutrality.

http://fairtaxblog.blogspot.com/

The folks that claim 30% (23/80 or 28,75%) use the exclusive calculation
which would make the current 28% tax bracket 38.88%. This is pure distortion
and not a factor. The current tax laws are inclusive. Don't switch
one and not the other. This article was ill prepared because it allowed this bogus
claim to be included.

Tax tacked on is not a market place reality. When producers and manufacturers pay 23% less that will reduce the end item cost and the public will wait to see
same when and if the Fair Tax is adopted. Bottom line is the product price will barley change.

Cris

Consumption does not drive the economy. Savings do. If people spend less, which they might under a sales tax, they will save their money or invest it. Which would generate higher economic growth, and in the long run higher incomes than under the current system. It would also help address the nation's savings rate and balance of payments.

The National Retail Sales Tax is the only taxation method currently proposed that would continue to accelerate our economy. Only those who are afraid of the U.S. being a superpower are concerned with our economic success. And for those liberals who rail against the U.S., take heart. China is on its way to being the next economic superpower. We can either compete and get Americans off the government dole, or we can fade into European-like obscurity. The current tax system failed long ago, just as the rest of the tenets of the Communist Manifesto have failed (e.g., government schools). What are you afraid of? Success? Has your indoctrination been so successful and complete that you can only despise yourselves and the land of your birth?
It's time for this change. It's time for government corruption and big spending to stop. Only the proplsed Fair Tax does these.

Repeal of the 16th ammendment will not eliminate the income tax. The ammendment only prohibited the judiciary from declaring the income tax has a direct tax which must be proportionate to the population of each state. The IRS incorrect claims the 16th provides a direct tax on income; it only keeps the tax in the realm of indirect taxes where it belongs. Read Brushaber v Union Pacific Railroad and pay attention to the comment about "the following erroneous conclusions"

One surprising effect of a consumption tax instead of income based taxes is an improvement in the rlative cost of american made manufactured goods. Manufacturers and their employees paying income taxesmust build that in to their priceng but foreign imports don't paythese american income taxes on their workers wages. a consumption tax would fall equally on imports and would not violate fairtrade principles by being discrimanatory. we would no longer be subsidizing foreign manufacture with our tax policy

I'm sorry but the Fair Tax is an almost insane idea. Please, don't get it confused with a VAT. It isn't the same thing at all. VATs are imposed (and credited back) at every stage of the production process. Here in the EU they are generally around the 20% level in total, adding up each and every stage of the system. And we have a large amount of fraud and avoidance of this tax.
The Fair Tax says that the full 23% is collected from the final consumer by that final retailer. Can you imagine what an incentive that would be to play the system? I can think of half a dozen ways to make millions out of it. I mean, you do have people in the US who are willing to cheat on taxes don't you? Criminals and such?

So, set up a shop. Buy in your goods (without the tax because you are not the final consumer). Sell them a little cheaper than everyone else. Skip before tax payment time, having collected 23% in tax. Repeat as necessary.

Think it won't happen? Try it and see!

Think through it for a moment. Each and every retail transaction has a 23% tax on it. Presumably you need a licence, there will be inspectors, audits and so on. So every stall at every Farmer's Market in the country will obey these rules? Every roadside stall selling melons? A kid's lemonade stand?

Built into the cost of everything you buy is not just the taxes that businesses pay, but the costs those businesses must pay to collect and calculate their taxes. I've seen estimates that this combined burding ranges from 20% to 40%, depending on your assumptions and the type of business. So while the fair tax will raise the price of things purchased by 23%, it will at the same time reduce the cost of those same things by a similar amount.

The writer made the same mistakes many make when they say the 23% tax is too high to purchase a house. The price of the house ans wellas everything else would be reduced by 23% when the new tax is enacted because of competition. Therefore the house and all other items would cost the same as before.

As was pointed out before: businesses don't pay taxes-their customers pay them. We should have a business tax rate of zero. Talk about incentive for major corporations worldwide to move their offices, manufacturing plants and the like to the U.S.! Think of the HIGH PAYING jobs that would come with! All goods and services exported pay an effective tax rate of zero and there goes our trillion dollar annual trade deficit. Plenty of capital, positive trade balance translates into low as dirt interest rates here and buying power abroad with the dollar.

While the organized crime aspect of the underground economy has been mentioned there is a very substantial "on the side" component as well. Show me a worker "in the trades" and I'll show you an unreported income somewhere in between a few thousand to tens of thousands tax free.

There is incredible fraud with the EITC. Somewhere in the neighborhood of two in ten I believe. I support the concept of a negative income tax like EITC but from personal observation I can tell you that there are an awful lot of people out there that are driving to the welfare office in a Cadillac and buying steak and shrimp with foodstamps while whipping out a stack of cash to buy their booze and cigs.

For all of you who seem to be so thrilled by a progressive income tax it amazes me just how freely you like to spend other people's money. It ain't yours. You wan