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2004-08-02 Home Front: Politix

REPUBLICANS PLAN PUSH FOR ELIMINATION OF IRS

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Posted by tipper 2004-08-02 10:58|| || Front Page|| [11131 views since 2007-05-07] Top

#1 Wow - a bombshell! And a good one, IMHO! Oh man, I sure hope this is true...

Thx, tipper!

Posted by .com 2004-08-02 11:02:56 AM|| 2004-08-02 11:02:56 AM|| Front Page Top

#2 Is that a terrorist group?

Posted by Howard UK 2004-08-02 11:06:06 AM|| 2004-08-02 11:06:06 AM|| Front Page Top

#3 Lol! The original American terrorists! I briefly tolerated a roommate many many years ago who was an IRS investigator. He was a kind of nasty prick - touchy, carried grudges forever, and very quick to anger. He was incredibly addicted to bennies and meth white crosses. He got lots of promotions. I threw him out.

Posted by .com 2004-08-02 11:12:18 AM|| 2004-08-02 11:12:18 AM|| Front Page Top

#4 They are all good Americans! You may quote me on that and I hope you do. Salt of the earth, loyal, dependable and just.

Posted by Shipman 2004-08-02 11:21:21 AM|| 2004-08-02 11:21:21 AM|| Front Page Top

#5 Ship - Hey, you're anonymous - you can tell the truth, bro, lol!

Posted by .com 2004-08-02 11:23:02 AM|| 2004-08-02 11:23:02 AM|| Front Page Top

#6 This is a joke unless it includes a repeal of the 16th amendment.

Posted by Mr. Davis 2004-08-02 11:23:29 AM|| 2004-08-02 11:23:29 AM|| Front Page Top

#7 That ain't what my lightbulb sez .com.

Posted by Shipman 2004-08-02 11:26:23 AM|| 2004-08-02 11:26:23 AM|| Front Page Top

#8 give em credit for floating the proposal, which must really put a spasm in Teddy Kennedy's colon

Posted by Frank G 2004-08-02 11:29:47 AM|| 2004-08-02 11:29:47 AM|| Front Page Top

#9 I'm sensing some hostility here, folks?

Posted by tu3031 2004-08-02 11:32:44 AM|| 2004-08-02 11:32:44 AM|| Front Page Top

#10 Excellent point Mr D! But it can happen... it just won't be easy. Imagine the Hue and Cry of the Accounting and Tax Prep lobbies! Whew!

I've been googling for the last 20+ minutes looking for some reasonably unbiased info on taxation alternatives - and everybody's offering pure axe-grinding, so far.

If anyone has some links to relatively independent studies on alternative taxation, I'd appreciate it. I've wondered about what Forbes and Armey offered back in the mid-90's - ranged from 17% to 20% with various twists and turns - and it was even harder back then - the 'Net was so much smaller and had so much less content.

Posted by .com 2004-08-02 11:42:35 AM|| 2004-08-02 11:42:35 AM|| Front Page Top

#11 If this report is true, it would be a stake pounded right through the dark, evil, redistributionist heart of the Democratic Party.

Posted by Dave D. 2004-08-02 11:45:06 AM|| 2004-08-02 11:45:06 AM|| Front Page Top

#12 A consumption tax is a lot less regressive than income taxes, and a lot less complex. Talk has been floating around conservative & libertarian think tanks for a while on this ... an interesting proposal for an election year.

It would re-direct election discussion, no?

Posted by too true 2004-08-02 11:47:50 AM|| 2004-08-02 11:47:50 AM|| Front Page Top

#13 How is a sales tax less regressive than an income tax? That makes no sense. A sales tax is just about the most regressive tax you can have. The poor spend the highest as a % of their income on goods and services that would be taxes. Thus their effective tax rate would be highest, followed by the middle class then the rich.

This is an AWEFUL idea. US spending on goods and services is about 7.5 trillion. We raise about 2 trillion from our current tax structure. That means we would have to tax goods and services about 2/7.5 or 26.6% + current state/local sales tax.

This would a) lower the sales of goods and services due to the increased price (supply/demand) decreasing our economy and b) Cause an additional increase in the sales tax rate to make up for the decrease in sales.

Prices due to corporations no longer having corporte income tax would only drop about 3% (we collect about 250 billion in corporate income taxes vs the 7.5 trillion = 3.3%). A decrease of 3% in prices is nothing compared to the 26.6% (probably higher) sales tax required to generate tax revenue.

Couple all of this with the fact that it would lower the standard of living of most americans (since they could afford less due to the regressive nature of sales tax) and it's pretty clear this is a HORRIBLE idea.

Posted by Damn_Proud_American 2004-08-02 12:57:38 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 12:57:38 PM|| Front Page Top

#14 Btw too true, in case your curious... sales tax is often referred to as the PRIMARY example of what a regressive tax is in every economics book that deals in this subject. Income tax is referred to as the primary example of what a progressive tax is in every economics book.

You couldn't have gotten it anymore backwards (being that sales tax is a consumption tax).

Posted by Damn_Proud_American 2004-08-02 1:02:45 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 1:02:45 PM|| Front Page Top

#15 I'm not sure from reading the article if the effort is to abolish the corporate income tax first then the personal tax or the reverse or neither.

However, if we replace the income tax with a value added tax, we will need people to prevent value tax avoidance just as we need people to prevent income tax avoidance.

Posted by mhw 2004-08-02 1:28:20 PM|| 2004-08-02 1:28:20 PM|| Front Page Top

#16 Here's the one that has most recently gotten me curious ...

FairTax.org

The site has some good attempts at trying to spell out how it could work ... especially on how it is less regressive than the current system and how it will generate capital investment, etc.

But I still have a few questions that I think I'll throw at them to see what they think the answer is.

For example, how realistic is it that companies will reduce their product prices as much as the national sales tax will add to those prices? In other words, if companies will see a major savings then I *can* see a 15 to 20 percent drop in their product prices ... but if the FairTax then adds a 30 percent increase ... its a net loss for the consumer.

Also, how would the transition work? Stop paying income tax on 31-December, then start with the sales tax on ... when? 1-Jan -- that will put a hurt on consumers ... Give a 3 or 6 month window before the sales tax starts? That'll mean a loss of revenues for the government. I can see the transition being painful no matter what.

And yet, on top of these questions, I'd really like to see such a thing work out ...

Posted by ExtremeModerate 2004-08-02 1:41:24 PM|| [http://www.mwgames.com] 2004-08-02 1:41:24 PM|| Front Page Top

#17 "What is 'It will never, ever happen', Alex?"

Posted by Raj 2004-08-02 1:53:33 PM|| 2004-08-02 1:53:33 PM|| Front Page Top

#18 ExtremeModerate,

How could companies possibly lower their prices 15-20%... it makes no sense. Right now as a % of revenues the corporate income tax is about 3% of sales for corps... not 15-20.

If they reduce salaries to make it to the 15-20 because there is no longer a personal income tax then the consumers will have less money in their pockets anyway (net same with higher salaries and personal income tax) and they will STILL be paying more for goods and services since the sales tax will increase prices more than the price drop would decrease them.

Posted by Damn_Proud_American 2004-08-02 2:01:21 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 2:01:21 PM|| Front Page Top

#19 My home representative (John Linder R-GA) is one of the biggest proponents of this idea. According to seeing him speak twice now when he's home stomping (he's rated as one of or the most conservative Reps. in the country by Nat'l Journal I think it is), theoretically it makes sense. Here's my take of it, according to him: First, the bill would scrap the 16th Amendment and make this the tax of the land (income wise). Second, there are only taxes on a NEW, FINAL product...in other words, instead of taxing the steel, bolts, plastic, wiring, etc. that goes into your new car, they just tax the car itself at the end (no taxes on USED items). According to him, and they've had many economists study this (Harvard grads, etc.), the percentage of average price of a typical item in the US that is a result of federal taxes is somewhere around 26% (a lot of this is tied up in skirting the rules, paying tax attorneys, paying people & staff for time for filing out IRS paperwork, etc.). Also, according to Mr. Linder, they've interviewed NUMEROUS CEOs of the top 500 firms in the US, and every SINGLE one of them said they'd build their next office/plant here in the US if this passes. Many people don't realize, but US businesses get taxed on profits they make at home AND overseas! This would do away with it. Libertarian here in Atlanta is all over the fairtax and it should (in theory) help this economy BOOM!

Posted by BA 2004-08-02 2:04:31 PM|| 2004-08-02 2:04:31 PM|| Front Page Top

#20 First this seems a bit of a leap for drudge. Just because Hastert puts it into his book doesn't mean Bush will make a plank out of it. Of course he might be watching the dicussions the next week and deciding on the reaction.

If they dumped the income tax and moved to an all sales tax system they would now be able to get taxes from illegal professions such as drugs and prostitution since those people buy things. They would also have to worry about the black market and smuggling that might appear to avoid the tax.

You also put tens of thousands of accountants out of work as well as the numerous IRS folks.

Still, I like the idea and I hope the debate is taken up by the mainstream media.

Regarding the regressive taxation, the FairTax.org fellows suggest that things are only taxed the first time they are sold so used books, used records, used clothing stores, and used cars would not have any taxes. So it would become possible to avoid paying any taxes at all. The richer people are more likely to buy new shiney stuff. I like the idea and would throw all food into the mix as well to ensure that even the poorest can eat.

Posted by yank 2004-08-02 2:04:39 PM|| [politicaljunky.blogspot.com] 2004-08-02 2:04:39 PM|| Front Page Top

#21 A sales tax is just about the most regressive tax you can have. The poor spend the highest as a % of their income on goods and services that would be taxes

You're making a couple of assumptions here that need not be true. For instance, food and some other essentials could be exempted from the tax. Or, there could be lesser tax rates on certain categories of items.

Yes, there would still be a bureaucracy to manage this. And that would cost something. If there are tiers of tax rates, there will be some jousting over what goes where, too.

But DAP's reaction is way overstated.

PS: My MBA from a top-10 B-school was in finance and operations .... I'm familiar with most economic textbook theories LOL>

In any case, I wasn't arguing we SHOULD adopt this tax approach, just that it makes the election debate interesting. And I stand by my point that such a tax has been discussed in the economic / policy think tanks since at least the early 90s. This didn't just come out of the blue .....

Posted by too true (MBA) 2004-08-02 2:04:55 PM|| 2004-08-02 2:04:55 PM|| Front Page Top

#22 DPA ...

How could companies possibly lower their prices 15-20%... it makes no sense.

First, a couple of caviats ... at this point I'm merely curious, and this was the first website that seemed to answer the majority of my questions. I think there are plenty of questions that still need answering, but the FAQ and research areas of that website talk through some of the points you raise. Also, I simply pulled 15-20% out of the air ... I doubt prices will be lowered the same amount as the potential savings that companies will see. (In a way, you re-iterated my point -- the price drop + new tax may likely be a net loss for the consumer.)

BA did a fine job of explaining the additional costs that would be saved by the companies due to having simply to deal with federal imcome and corporate taxes. The savings would be much greater than simply the amount of tax they have to pay.

Also, the idea behind this particular type of tax alternative includes in it a montly payment to every family that would cover the taxes on the basics up to the poverty line. (How well the government could handle producing and mailing this many monthly checks without problems and/or its own abuse is another area that I have concerns about.)

So, in theory, if someone spends at or below what's needed to live at the poverty line, then they should be netting no taxes paid in the end. I would recommend reading through the site's info on it ... I'm sure I'm not explaining it justly.

Posted by ExtremeModerate 2004-08-02 2:16:24 PM|| [http://www.mwgames.com] 2004-08-02 2:16:24 PM|| Front Page Top

#23 BA,

"According to him, and they've had many economists study this (Harvard grads, etc.), the percentage of average price of a typical item in the US that is a result of federal taxes is somewhere around 26% (a lot of this is tied up in skirting the rules, paying tax attorneys, paying people & staff for time for filing out IRS paperwork, etc.). "

I find it amusing that they needed economists and harvard grads to divide 7.5 trillion (US sales of goods and services) by 2 trillion (our current tax revenues) and get 26.6%. I wonder how much money your congressmen wasted on those studies.... he could have just asked a 5th grader. :) The question is how is the tax burden being split up among the population... and how does changing this distribution effect our economic growth.

"Also, according to Mr. Linder, they've interviewed NUMEROUS CEOs of the top 500 firms in the US, and every SINGLE one of them said they'd build their next office/plant here in the US if this passes. "

There is a MUCH better and easier way to get them to do this. Simply eliminate the corporate income tax. That doesn't mean we need to implement this AWEFUL regressive sales tax idea that would slam the breaks on our economy.

too true,

"You're making a couple of assumptions here that need not be true. For instance, food and some other essentials could be exempted from the tax. Or, there could be lesser tax rates on certain categories of items."

So you're gonna go from an income tax system to a system that arbitrarily decides the taxes on hundreds of thousands of different products in the hopes of reaching the goal of the progressive tax system already in place with income taxes... ummm no thanks

"Yes, there would still be a bureaucracy to manage this. "

Unfathomably huge... and unfathomable huge levels of corruption to go with it. Just think about lobbying groups to get the sales tax on THEIR products reduced... ugh. can you say disaster?

Btw, I'm sorry if I came off condescending... I just read what I wrote again and it definitely sounds that way. I know people have been talking about this for decades but that doesn't change the fact that it's a horrible idea ;)

Posted by Damn_Proud_American 2004-08-02 2:25:15 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 2:25:15 PM|| Front Page Top

#24 Whoops, meant divide 2 trillion by 7.5 trillion to get 26.6%.... not the other way around ;)

Posted by Damn_Proud_American 2004-08-02 2:26:25 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 2:26:25 PM|| Front Page Top

#25 ExtremeModerate,

I read through the site. You're right and they're right. You can eliminate income tax and create a sales tax system and then create a rebate system based on income and a bueracratic scaling of sales taxes on different products system to HOPEFULLY, if you're incredibly lucky and there is very little corruption or mistakes, get to a point where you accomplish the progressive tax results of an income tax system. Or... you can just use an income tax system.

Posted by Damn_Proud_American 2004-08-02 2:32:09 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 2:32:09 PM|| Front Page Top

#26 Here's the FAQ page that answered a lot of my initial questions (and gave fodder to a whole *new* set of follow-up questions ;-D):

DPA snuck in: and a bueracratic scaling of sales taxes on different products

Except that they would tax *everything* ... according to them, the monthly rebates (the subject of my own skepticism) would be the only way to "square" the lower income tax question without lending itself to the beauracratic games that would naturally flow.

Quoting ...
Why not just exempt food and medicine from the tax? Wouldnât that be fair and simple?
Exempting items by category is neither fair nor simple ... {snip} ... exempting one product or service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today. Those who have the money will send their lobbyists to Washington to obtain special tax breaks in their own self-interest. This process causes unfair and inefficient distortions in our economy and must be stopped.

Posted by ExtremeModerate 2004-08-02 2:37:30 PM|| [http://www.mwgames.com] 2004-08-02 2:37:30 PM|| Front Page Top

#27 DPA, in most of the suggested implementations, basics like food and utilities are exempted. Such exemptions would obviate the regressive elements of a national sales tax or a VAT scheme. By the way, the national sales tax would be simpler and less prone to exploitation by special interests than a VAT.

Posted by RWV 2004-08-02 2:37:31 PM|| 2004-08-02 2:37:31 PM|| Front Page Top

#28 Whoops ... what happened to the link I gave to the FAQ? (user error, most likely)

Well, here it is again:
http://www.fairtaxvolunteer.org/smart/faq.html

Posted by ExtremeModerate 2004-08-02 2:40:00 PM|| [http://www.mwgames.com] 2004-08-02 2:40:00 PM|| Front Page Top

#29 DPA, I luv ya', but economics is not your strong suit.

To begin with, the corporate income tax is only one part of the cost of doing business in the US. Add in FICA, the hidden tax costs on the purchase of raw materials, the staff and legal cost of tracking and complying with different tax codes in different states, ditto the bookkeeping costs. I could go on and on .... when I had my little consultancy as a Schedule C corporation, it was a ghastly mess to keep up with.

Furthermore, a whole lot of non=productive energy and money goes into planning accounting, payroll, pricing and marketing decisions in light of the tax code. I took a 4 credit graduate level course in this ... and it was only the 1st of several such courses that the specialists took in the subject.

It's nice you can divide, but that's not the hard part .... LOL.

One last point: a sales tax is only one of several flat tax approaches that would greatly simplify our tax code and release a lot of money and energy into more productive approaches. Some of these have strong think tank backing instead of the sales approach.

Note that, in any case, the European Value Added Tax is not what is being bandied about here ... it's precisely the costs of taxing things at every step of the production / sales process that Hastings is not recommending.

Posted by too true (MBA) 2004-08-02 2:40:22 PM|| 2004-08-02 2:40:22 PM|| Front Page Top

#30 ExtremeModerate, Yah I read that on their faq. I was kind of mixing up what you said with what other people said about eliminating sales tax on "neccisity" goods. You're still backing into a progressive income tax equivalent through a regresive sales tax with a rebate system on top. On top of that you're creating a tax system that encourages saving and discourages spending... exactly what will lead to a recession or worse.

RWV,

Once you start exempting individual items you open the door to lobbying groups.

too true,

Actually economics is one of my strong suits ;) Divide is all you need to do because all the details of our tax system add up to the total taxes collected by the IRS (2 trillion). Because part of it is FICA or income tax or anything else is not relevant to the fact that the entire number adds up to 2 trillion. To determine what % of our total goods and services sold 2 trillion is you just divide 2 trillion by our total goods and services sold (26.6%). It is very simple.

I estimate that our current tax system costs the US about 130 billion a year, or 1.2% of our GDP, in adminstration etc. What makes you think the sales tax system would cost any less when you need an IRS equivalent to manage rebates etc. and over look the sales tax and you still need accountants to veryify books for sales tax?

"One last point: a sales tax is only one of several flat tax approaches that would greatly simplify our tax code and release a lot of money and energy into more productive approaches."

Assuming you are going to collect in the end the same revenue for the fed. All the different tax strategies do is breakdown who is paying what % of the total and what the tax strategy provides incentives for (in the case of a sales tax it provides incentives on saving... which is a BAD idea). But in the end a sales tax needs to collect just as much tax from the population as an income tax to provide the same revenue to the fed... the money doesn't just magically appear...

Posted by Damn_Proud_American 2004-08-02 2:53:37 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 2:53:37 PM|| Front Page Top

#31 Abolish the IRS? Works for me. And additionally, I'd support the dissolution of California's Franchise Tax Board too.

Posted by Bomb-a-rama 2004-08-02 3:05:14 PM|| 2004-08-02 3:05:14 PM|| Front Page Top

#32 Assuming you are going to collect in the end the same revenue for the fed. All the different tax strategies do is breakdown who is paying what % of the total and what the tax strategy provides incentives for (in the case of a sales tax it provides incentives on saving... which is a BAD idea). But in the end a sales tax needs to collect just as much tax from the population as an income tax to provide the same revenue to the fed... the money doesn't just magically appear...

In point of fact, it matters a lot how many hands the $$ pass through, and to what economic impact, along the way. Focusing on raw $$ and raw expenses misses the whole economic benefit of this.

Posted by too true (MBA) 2004-08-02 3:07:37 PM|| 2004-08-02 3:07:37 PM|| Front Page Top

#33 "In point of fact, it matters a lot how many hands the $$ pass through, and to what economic impact, along the way. Focusing on raw $$ and raw expenses misses the whole economic benefit of this."

Please explain that thought out more.

Posted by Damn_Proud_American 2004-08-02 3:09:57 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 3:09:57 PM|| Front Page Top

#34 Nor do you necessarily want to collect the same revenue.

Posted by too true (MBA) 2004-08-02 3:10:05 PM|| 2004-08-02 3:10:05 PM|| Front Page Top

#35 "Nor do you necessarily want to collect the same revenue."

That's a completely different discussion. How much revenue we should generate is not relevant to the discussion about what is the most efficient way to generate revenue and promote growth.

Posted by Damn_Proud_American 2004-08-02 3:14:22 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 3:14:22 PM|| Front Page Top

#36 When economists try to measure, say, the money in circulation in the economy, they note that there's a big difference between $100 in a mattress and $100 I use to pay the odd chore guy, who uses it to pay for some tools (which he uses on other jobs), and the store uses it to upgrade the merchandise they carry.

It's that movement of money that creates overall wealth in the economy -- providing the interim uses are productive. If they simply go to overhead costs in a bureaucracy, or to things like regulatory compliance, then additional wealth is not generated, or is generated at a much lower rate.

That is the biggest argument for a fairly flat, consumption-oriented tax. It reduces the times that money is left idle or is used up in non-productive ways. Moreover, if the tax is applied only to finished goods the first time they are sold, there is a tremendous incentive for economic growth (as the comment earlier about purchases of used goods notes).

Posted by too true (MBA) 2004-08-02 3:15:23 PM|| 2004-08-02 3:15:23 PM|| Front Page Top

#37 A flat tax sounds great when it is proposed at, say, 14%. It will suck donkeys when (and I'm not even going to say "if") it reaches 39% or higher.

Posted by eLarson 2004-08-02 3:19:04 PM|| 2004-08-02 3:19:04 PM|| Front Page Top

#38 Re #19 - BA

"There are only taxes on new, final products..."

And who decides what's new and final? If I buy, some wire from Home Depot to move an electrical box, is that new or final? How about repair parts?
If I fix my car is it new and final? How about if I fix your car?

Too complicated, too much bureaucracy, too much room for the lobbyists.

Posted by AlanC 2004-08-02 3:19:18 PM|| 2004-08-02 3:19:18 PM|| Front Page Top

#39 How much revenue we should generate is not relevant to the discussion about what is the most efficient way to generate revenue and promote growth.

Actually, they are closely related (although not identical) issues. At present, a good part of the tax code is written to try to achieve social goals (encourage home ownership and marriage, for instance). Other parts fund things like national defense and the court system.

The question is: what part of our currently collected taxes are needed simply to deal with the complexity of the current tax code and it's unanticipated or secondary side effects?

Estimate that, and you might indeed consider lowering tax revenues to some degree with a flat / consumption-oriented tax.

Posted by too true (MBA) 2004-08-02 3:20:14 PM|| 2004-08-02 3:20:14 PM|| Front Page Top

#40 "It reduces the times that money is left idle or is used up in non-productive ways."

How is that? The sales tax would be paid on a schedule (assume quarterly) like any other tax and thus be removed from the econmomy.

Actually removing the tax on used goods promotes the purchases of used goods instead of newly completed goods. Which in turn decreases our production (lowered demand for new goods) and thus decreases our GDP through less production and also less need for employees. The point the poster was making about used goods was that since the poor would buy used goods and not new goods to avoid taxes this would in fact not be as regressive a tax. Increasing the market for used goods greatly decreases our economy, not increases it.

Rich societies are the ones with the new cars and new DVD players... poor societies are the ones with the cars from 1980... not the other way around.

Posted by Damn_Proud_American 2004-08-02 3:25:13 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 3:25:13 PM|| Front Page Top

#41 "The question is: what part of our currently collected taxes are needed simply to deal with the complexity of the current tax code and it's unanticipated or secondary side effects?

Estimate that, and you might indeed consider lowering tax revenues to some degree with a flat / consumption-oriented tax."

LOL, figure out a way to determine that and you'll win the nobel prize guaranteed.

I gotta run but hopefully we'll continue this later.

Posted by Damn_Proud_American 2004-08-02 3:27:05 PM|| [http://brighterfuture.blogspot.com] 2004-08-02 3:27:05 PM|| Front Page Top

#42 How is that? The sales tax would be paid on a schedule (assume quarterly) like any other tax and thus be removed from the econmomy. Actually removing the tax on used goods promotes the purchases of used goods instead of newly completed goods. Which in turn decreases our production (lowered demand for new goods) and thus decreases our GDP through less production and also less need for employees.

Two quick responses:

First, fewer entities would be setting funds aside for tax payments and others would not be paying at all and therefore would be free to use it otherwise. While large corporations can do all sorts of short-term investments with funds they are saving for tax payments, smaller businesses are on a cash basis and have less safety margin, so that cash tends to get parked until the 8th-ly tax payment date.

Second, your assumption is that price (including tax) is the main reason people purchase products. However, as any marketing pro knows, image, quality and a desire to differentiate oneself from those with fewer means are major inducements for higher income people to buy products.

What a flat/consumption based tax on final goods would do is to make the purchase of good used items easier for the poorest ... and that is as non-regressive as it gets.

Moreover, goods will still be manufactured and purchased, but overall consumers will have a wider range of price, quality and condition to choose from.

Re: manufacturing jobs, those are going away for structural reasons. But the creation of a lot of small businesses that recondition and resell used goods might be a great way for lesser-skilled people to enter the job market.

Finally, when cash stays in consumer and small business hands longer, new jobs are created in response to new leisure and other opportunities. The GDP is not a zero-sum game.

Posted by too true (MBA) 2004-08-02 5:01:07 PM|| 2004-08-02 5:01:07 PM|| Front Page Top

#43 "And who decides what's new and final? If I buy, some wire from Home Depot to move an electrical box, is that new or final? How about repair parts? If I fix my car is it new and final? How about if I fix your car? Too complicated, too much bureaucracy, too much room for the lobbyists. "

The government would regulate that. Stores might have different licence requirements to sell new and used products. The first time the product is sold to a customer it is taxed.

Services such as repairwork wouldn't be taxed because its not a product, but if you put a new carb in the car the new carb would be taxed depending upon where the garage got the carb and if they wanted to eat the tax or pass it along to the end user. It really wouldn't be a concern to most consumers and I think most businesses would quickly find their groove.

Posted by yank 2004-08-02 5:45:00 PM|| [politicaljunky.blogspot.com] 2004-08-02 5:45:00 PM|| Front Page Top

#44 #38: I think yank just explained it. Basically, the way it comes down is that its a tax on FINAL products (to consumers) much like our current (well, at least in most states) sales tax. DPA: I like to keep things simple, too, but if you think about it, there's federal taxes in EVERYTHING we see (direct tax on gasoline for the feds, indirect tax in just about anything you buy for regulatory compliance- think EPA, FDA, IRS, OSHA, etc. But basically (and if you look at your paystubs, you might see something (assuming you still are working), if you ELIMINATE the Income tax, the Medicare tax, the Soc. Security tax, etc. you take out of your paycheck and then compare that to what you spend in a year on NEW goods, it might just pale in comparison (especially if you exempt foods and utilities or things like that up to the poverty line). Then, if you do away with a certain % of production, distribution, and consumption costs (through "hidden" costs with complying with IRS regs.), we just might end up with CHEAPER goods.

Posted by BA 2004-08-02 6:14:21 PM|| 2004-08-02 6:14:21 PM|| Front Page Top

#45 re: 43 Ahhhh..."The government would regulate it..." Isn't that the same problem discussed before vis a vis different rates on different categories of product? If sales tax is charged on every item sold there's no room for favoritism, as soon as the government gets to play God.....well let's just reference unintended consequences. Do you really mean to make used cars tax free? How about reconditioned engines, just tax the individual new components?

I'm afraid that the tax rate on new goods will be stupendous! Then, as previously mentioned, new production crawls to a halt. Might save in land-fill use, but the economy will go in the toilet.

Posted by AlanC 2004-08-02 8:41:08 PM|| 2004-08-02 8:41:08 PM|| Front Page Top

#46 AlanC, the fairtax folks do say used cars would be tax free according to their plan. The tax would be payed the first time the cars sold, after that it can be sold by anyone without a tax problem. Yes the government will have to be involved, but they are involved now in a much more intrusive way by taking a large chunk of everyone paycheck. It would be far easier to track companies that sell finished products than the current system of tracking all sales (for sales tax) and all employed citizens (for income tax) and then sorting through the loopholes.

If you take home your paycheck without that 30% or 40% missing you will have a lot more money to spend. The increased sales tax won't be that big a difference once the shock of the whole thing has passed.

That shock might be tremendous, and unworkable, but in the long run I thought the fairtax system seemed workable and worthy of debate.

Posted by Yank 2004-08-02 8:58:09 PM|| [politicaljunky.blogspot.com] 2004-08-02 8:58:09 PM|| Front Page Top

#47 Sorry but I think I'm missing something here. Lets say you go flat tax scheme or rate or whatever. If you think Congress is going to give up 2 trillion in tax revenue you're crazy, hence whatever plan to replace the IRS comes forward has to make up for at least that much money. So I ask simply how the heck is a sales tax (or whatever other form of flat tax you can come up with) going to come up with 2 trillion bucks unless it is something around a 27% rate on TOP of state and local taxes? I'd like to see some hard numbers here.

Posted by Valentine 2004-08-02 9:08:35 PM|| 2004-08-02 9:08:35 PM|| Front Page Top

#48 DPA I object to your terminology.

In what way is this "regressive"? I see no regression in allowing people to keep their money and see the real full impact of taxes. Why do you object to people realizing that they are in reality paying 30% or more of their purchase price in taxes and related fees? Look at excise taxes, etc that get piled on, but are never noted up front.

And what in the hell is "progressive" about charging people more and more on their income? If anything, THAT is regressive in that it discourages the creation of capital trhough usurpation of the fruits of one's labors.

Also, this was not a sales tax only - last one I heard was a flat tax (and no deductions), along with a sales tax, and tax relief below the poverty line (i.e. those below the poverty line are expmted from both taxes).

If anything this is a more honest tax - far more honest than your dishonest inflammatory wording of the proposal.

Posted by Oldspook 2004-08-02 10:28:40 PM|| 2004-08-02 10:28:40 PM|| Front Page Top

#49 Regressive insofar that Joe Schmoe pays as much in taxes as Bill Gates when he buys toothpaste. On a one on one scenario, it seems fine if not a bit unfair, but what happens is that there a lot more poor people buying toothpaste than rich people, so the poor as a group ends up fitting the tax bill. The fact of the matter is that rich people save a lot more of their income than poor people do so the poor will end up with a disproportionate share of the tax burden. Now if you were to combine this regressive tax with an intangibles/cash on hand tax high real estate taxes for luxury homes and expensive land and buildings, and completely eliminate corporate taxes then we might just have something... :)

Posted by Ol_Dirty_American 2004-08-02 11:36:52 PM|| 2004-08-02 11:36:52 PM|| Front Page Top

#50 ODA why not jsut go ahead and confiscate all private property and all income - and give to each according to his needs adn take from each according to his ability?

Thats the end result of "progressive" policies. Mr Marx and Mr Engels would love that policy.

Fair is fair, and thats what a flat tax and a consumption tax are all about. Everyone above the poverty line pays the same percentage of their income. Anyone below the poverty line gets rebates to bring them up to the poverty line.

If they consume more, they pay more. The rich tend to spend more, so they would pay more.

There is nothing inherently fair about the top 50% paying 95% of the taxes.

Posted by Oldspook 2004-08-02 11:48:09 PM|| 2004-08-02 11:48:09 PM|| Front Page Top

#51 O.S. I agree.

Also, remove the automatic withholding which hides the impact. Make everyone write a check and they will be a lot more concerned about how much taxes they are paying and where their taxes go.

And saying that the 'poor' would pay more percentage as a group of the total tax bill because they are a much, much, larger group is BS. They pay more not because their taxes are more but because they are a much, much, much bigger group. Individually they pay the same percentage-wise as everyone else.

Posted by CrazyFool 2004-08-02 11:58:24 PM|| 2004-08-02 11:58:24 PM|| Front Page Top

#52 CF: Individually, the poor would pay a larger percent of the total tax bill and their earnings through a sales tax because they spend more as a percentage of their incomes. I am not talking about the system we have in place today.

OS:
I am not as concerned about the flat tax rate as long as there are no deductions. From a personal standpoint I think wealthier people should have more of a tax burden than poorer people, I also think from a practical standpoint it is better for the economy because rich people save and poor people spend and as MBA said, you want to keep the velocity of money high. I think an asset tax may be as efficient, if not moreso than an income tax as it is more difficult to hide how much stock you own, etc. I do not think the rate on such a tax should be high however and at the end of the day you would probably need some sort of flat rate income tax.

The real issue to me is waste in government spending and how do we get rid of that. My guess is that, if we could, tax rates could be much lower for everyone and it would not be nearly as big a deal...

Posted by Ol_Dirty_American 2004-08-03 12:17:36 AM|| 2004-08-03 12:17:36 AM|| Front Page Top

#53 DPA: LOL on the Harvard comment :).

I actually find this discussion very enjoyable and my guess is that a lot of others do too. Is it OK to post the same article on today's news as well to continue the discussion, or is that uncool?

Posted by Ol_Dirty_American 2004-08-03 12:27:59 AM|| 2004-08-03 12:27:59 AM|| Front Page Top

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