IAP Political Forum

A FAIR TAX DISCUSSION :o !!!!!!

Alright, with the economy in question, a constantly inflating defecit and looming (however unproven) fear of recession, how would a Fair Tax system react? Is this really the kind of enviroment we want to dismantle and rebuild our tax code in? What are the potential pit falls? What are the potential gains?

While we're at it, let's talk about the fair tax system as a whole.

I won't lie, I'm a fan of it (and so is Ron Paul :D )... and this is coming from a guy who lives in Delaware ("home of tax free shopping").

I tried looking for criticism of the system, but I admit it was hard... and the little bit I found was quite laughable. One guy actually made it sound like a fiscally responcible population (the side effect of a 23% sales tax) was a BAD thing. Yes, I understand the concept. Americans spend and grow the economy... but we spend like CRAZY now, sometimes with money we don't even have, so I fail to see how this will negatively impact the market. Hell, with people KEEPING their entire pay check, they might even be more willing to buy MORE.

Also, he feared the trasition was too drastic. That right before the new system is initiated there would be a ridiculous amount of spending and buying, in an attempt to "beat" the new sales tax. He said buisnesses would be unable to cope and it may negatively impact on the market as a whole. I fail to see this threat either. I simply don't think the new system will come in with the Apocolypse riding on it's back. It seems too... ridiculous.

And last, he criticized the constitutionality of the whole thing... but again, I can't see that as reasonable. I mean, if anything, Congress has the right to levvy taxes as it sees fit... but not impose some hierarchy into your pay check. It interferes with private buisness and your right to your money. I see that as a gross over-reaching of authority.

Anyway, I want to hear criticism of the system. I want to hammer this thing out so *I* can better understand it. I'm becoming a little better on my economics lingo... but I'm still a novice at this, so talk slow and avoid big words.

Alright.............................................. BEGIN!

Abraxas, you say that you have trouble finding reasonable criticisms of the fair tax. Perhaps that's because most serious economists don't take it seriously enough to take the time to criticise it. Really. It's pretty out-there, and not in a good way.

Bruce Bartlett is a conservative economist. He was deputy assistant secretary of the Treasury for economic policy from 1988 to 1993. In other words, for the Reagan and Bush I administrations.

His criticisms are pretty damning: http://www.opinionjournal.com/extra/?id=110010523 (http://www.opinionjournal.com/extra/?id=110010523)

If it was such a good idea, you'd think that the proponents wouldn't have to hide behind smoke and mirrors. The 23 percent figure is a mirage, as Bartlett explains.
The complexity of the tax is mind-boggling, requiring an unprecedent level of record-keeping and the inevitable corruption that will go with it.

I guess I don't see the attraction of it. It would be more regressive, easily as complex as our current system, I would end up paying more in taxes, and the system would doubtless be even more susceptable to corruption. Where's the upside?

Here's another pretty fair (to my predictable, left-wing mind) analysis at FactCheck.org: http://www.factcheck.org/taxes/unspinning_the_fairtax.html (http://www.factcheck.org/taxes/unspinning_the_fairtax.html)

Oh, and Congress has all the authority it needs via the Sixteenth Amendment.

According to FactCheck.org, the net result would be that the very poor and the very rich would pay less tax, and everyone else would make up the difference.

Since revenues from the very poor are tiny, what they're really saying is that the very rich would get a massive tax cut paid for with tax hikes on the rest of us.

(http://www.factcheck.org/demos/factcheck/imagefiles/Image/Fair%20Tax%20Distribution%20Slide%20by%20Income.JPG)

I can respond to this, and I will... after my final on friday.

It would just take a lot of time that I don't have.

I'll keep this reminder in my "Inbox" so I don't forget.

Good luck on your final. I just hope it isn't in finance...

LOL

Ships Statics, USA and Vietnam, Ship Systems 2, Physics 2 and Strengths of Materials.

I'm an engineer... not an economist ;) .

As already mentioned, its actually rather difficult to get anything concrete on the fair tax. Its largely ignored by the academics. You do get stuff like Gale (1999, The Required Tax Rate in a National Retail Sales Tax, National Tax Journal, Vol. 52 Issue 3, p443-457): "This paper examines the required tax rate in a national retail sales tax (NRST). I show that recent proposals, such as one to replace virtually all federal revenues with a 23 percent tax-inclusive NRST, are based on assumptions that real government spending would decline by $480 billion per year and that there would be no tax avoidance, evasion, or political erosion of the tax base in an NRST. Correcting for these assumptions indicates that the required tax-inclusive rate would be over 50 percent and the required tax-exclusive rate would be over 100 percent". Out of interest, what published sources do the fair tax lobby utilise?

We used to have to talk about the negative income tax. That also failed to achieve any significant support from the economic literature, given the required marginal rate of tax would of made the standard work incentive arguments irrelevant

Damnit!

I forgot this.

Alright. It may have to wait till after Christmas, but I WILL get to this.

No pre-Xmas present for me to unravel?

The fairtax sites are mainly low brow tosh. Now I'm sure there is something a tad more hardcore, but my limited research technique has yet to find it. The negative income tax hullaballoo was much more straightforward in terms of the debate it spawned (e.g. the application of labour supply theory to tax)

I just don't have the time.

I have to celebrate 4 X-mas parties with seperate parts of my family cause not everyone gets along... and we're stuck in the middle.

I don't have time (at the moment) to get links and quotes and whatnot.

After X-mas. I promise.

I accidentally deleted the reminder from the last time and I'll just set this one as "unread" as not to forget it.

I ditch the family at Xmas. It makes economic sense!

 ;)

More info from Angry Bear:

http://angrybear.blogspot.com/2003/02/income-and-consumption-so-heres.html
http://angrybear.blogspot.com/2003/02/static-and-dynamic-analysis-of.html
http://angrybear.blogspot.com/2003/02/how-high-would-national-consumption.html

Believe it or not, Mike Huckabee is still touting his "fair tax" idea, which he got from a book and thought it sounded neat.

Think of how this "neat idea" sounds to retired folks:

Retirement savings would end up getting taxed twice. Say you earn $1000 at age 64, pay taxes on it, and then stick the remaining $800 in the bank. The next year you turn 65. Under current law, that retirement money is yours free and clear because you've already paid taxes on it. But if a sales tax is suddenly legislated into existence, that $800 isn't worth $800. It's only worth about $600. Surprise! All that money you've saved for retirement is suddenly worth a whole lot less than you thought it was. Better not plan on taking any of those Caribbean cruises you've been dreaming about.

This is, of course, patently unfair. And you may rest assured that AARP is well aware of all this. --Kevin Drum

Here's a longer take-down by a conservative economist writing in the Wall Street Journal: http://www.opinionjournal.com/extra/?id=110010523 (http://www.opinionjournal.com/extra/?id=110010523)