Well, there you go–the system as set forth in the OP stipulates that groceries are exempt from sales tax, as are housing costs for the bottom-valued/rented 20th percentile of residences (which one assumes are going to be housing the poor) and the associated utility costs for said residences. So your 10K guy (who DOES have taxes withheld, just gets it back at the end of the year sans interest) should still see a net increase in standard of living, even without an enhancement in income. Even if he doesn’t, he’s no worse off than he is now, he still lives paycheck to paycheck and spends most of his money on food and shelter.
What I like about this is that individuals can make the decisions regarding their own lifestyles that will dictate their tax burden. I could elect to make my own clothes, keep luxury items to a minimum and use that extra money I save to do something I really want–instead, a lot of my paycheck goes away and I don’t have any say in how it gets spent and I can’t change that in any way. Somebody who wants to blow all their money on sillyass name brand overhyped and overvalued products can do so, likewise someone else who prefers to do some research and goes for lower priced, higher quality item can reduce their tax burden by doing a little research. I like the element of control this type of taxation schedule would give.
Much less? Hardly. Remember, the increased rate is only on the money you make in the new bracket. During our national nightmare of peace and prosperity I jumped brackets like crazy, and didn’t mind paying a higher rate on a whole bunch more money one little bit.
So, how is the drug interdiction thing working for you? This is the same philosophy that thought prohibition would keep people from drinking. There was an active smuggling pipeline from low ciggie tax states in the south to high tax states in the North - might still be active for all I know. Is destroying respect for the law really a good idea?
Barter makes no sense for a 9% tax, but it would make a lot of sense at 30% or more. First, I’ve seen over 30% quoted as the fair tax (be sure to use the base cost as the denominator, not the cost + tax as the dishonest fair taxers tend to.) Second, you’d have to add in state taxes, which aren’t going to go away.
The retail industry thinks this is an awful idea, since any products that aren’t total necessities are going to see a tremendous drop in sales. Wouldn’t you buy fewer clothes and books if they cost 30% more. Sure people will theoretically have more money, but my reading in behavioral economics makes me think it very unlikely this is going to make them ignore the difference in prices - especially those with low tax rates.
He doesn’t sound libertarian to me. By saying that a “system [that] taxes people proportionately to what benefit they’re deriving from the system that taxes them” is one where you are taxed on everything you buy, he seems to be giving the government a lot of credit that I don’t think they deserve.
No way. The rich would see a giant tax cut in this system. Why would they move to a place with a reasonable tax rate? If they even cared about the tax, they have the resources to get big ticket items smuggled in. Sorry, kicking the rich out of the country is not an advantage of this plan. In fact, I bet the rich from other countries would move here. We’d be up to our asses in McMansions.
This is a thorough criticism of the fair tax which is basically what the OP is proposing. For one thing the tax rate required would be 34% or even more depending on the assumptions you make. This kind of tax tends to help the rich and the poor and leave the large majority of taxpayers: those making 15,000-200,000 worse off. Needless to say that isn’t politically viable.
I was talking about the general issue of sales tax vs income tax rather than focusing on one particular proposal. If you add in extra details like the one described in the OP you just make it easier to game the system (once you start making exceptions to some items not being subject to taxation, you’ve opened the door to everyone fighting for their favorite exception). And the OP talked about the disincentive of people having their taxes go up a percent or two if they earn a higher income - what would be the effect of having a taxation divide at 20% where people who cross it suddenly go from zero to 35 percent?
The bottom line is that some people live a paycheck-to-paycheck existence. They earn money and spend it on the basics - they live at a 100% spending level. Other people have a higher income and are able to put money aside for investments and savings - they live at a lower spending level. A sales tax puts the people in the first group at a 100% taxation level (all of their money gets hit by taxes) and has the people in the second group paying a lower percentage of taxes. So you’ve created a system that’s inherently regressive.
Every advocate of a national sales tax includes the argument , it would abolish the IRS. I think not. The IRS would just switch from collecting income tax to collecting sales tax. Businesses would still be submitting forms and have audits done.
(But if you’re only going to read one rebuttal I suggest readingthe one by Kotlikoff, written in response to another attack on the FairTax. It covers most of the usual objections to the FairTax.)
Factcheck.org is basing that number on work by the “President’s Advisory Panel on Tax Reform”. The consumption tax plan they worked with was not the FairTax.
You can find a paper on the proper FairTax rate here: http://www.fairtax.org/PDF/Tax%20Notes%20article%20on%20FT%20rate.pdf [pdf] . “As calculated here, the effective (tax-inclusive) FairTax tax rate that would permit the federal government to maintain its real expenditures is 23.82 percent.”
I’ve yet to see any specific, relevant, objections to this research.
Yikes. Even the factcheck.org hit piece is more optimistic than that. It admits that it “is possible that the FairTax would make most people better off”.
As I understand it the FairTax has the states collecting the taxes on behalf of the federal government. (And getting paid for it, obviously.) The federal IRS as you know it will be gutted and reorganized.
Government tax collectors will have little reason or ability to meddle in the life of the average American. Retail businesses (and maybe their suppliers) will still be audited, and will still have to submit forms. But since the FairTax is so simple compared to the current system the effort involved (on both sides) will be much smaller.
At least it’s realistic. Trying to take from where there is nothing to take would not be good system. I think.
How does a sales tax account for the benefit the buyer derives from the system? It does not. The buyer pays tax to pay for schools the same whether he has kids in school or not. A sales tax taxes people only on account of how much they spend, not on any benefits they may derive from the system.
Defining “basics” is not going to be easy.
Groceries. Including $200 bottle of wine, $200/lb cheese, caviar, Champaign. Restaurant meals too? Or do we have a whole book of rules specifying what is taxed?
Why is new clothing taxed? Seems pretty necessary to me.
This is just nuts. Totally unfair and unworkable. The person who wrote this has not thought this through. Let’s see. The city needs to have a list of what every residence is paying either in rent or mortgage. People who own their residence outright pay no tax. What if 40% of residences are owned free and clear? People who have mortgages but put down greater downpayment will have lower mortgage payments so can get into the lower 20% and be exempt. People can restructure their mortgage so the payment is lower and try to get down to the lower 20%. They can take out a personal loan or pay the mortgage over a longer period so the monthly payment is lower. There will be serious competition to get down there. Owners and renters will collude to declare lower rent and share the tax they now do not have to pay. A house which was rented out for $1000 to four students can now be rented out as individual rooms at $250. The county or city will have to reassess the list continually so you never know if next month you might owe the tax or not. The whole thing is unworkable and beyond stupid.
So now the suppliers of these services need to be told who to tax and who to not tax. If I own my house free and clear and do not pay tax I can resell electricity / water / internet at a profit to my neighbor who is forced to pay tax.
Good luck with that because evasion would be rampant. The first thing you would need to do for enforcement to be efective is to use a Value Added Tax rather than a simple sales tax. Also, “vendors” includes owners who rent out residences and similar non-businesses.
Hmmm. that’s what a mortgage payment is. We need to refine this.
So the purpose of your tax program is to promote savings? Money does not mean that much to me in and of itself. I work my ass off in order to have money to buy and do things with. I don’t have children, and I can’t take it with me. I have some savings, but most of it is spent. Why should the person who wants to keep a number in a column get a break because their hobby doesn’t involve moving around goods and services? I’m at least doing something with my money. Maybe it can’t be always considered investment, but it’s not always hookers and blow, either (Which probably wouldn’t be taxed anytime soon, anyway, so if the “Fair” tax gets enacted, I’ll probably take up those as hobbies, instead)
I may have changed my mind on this one. One of the things I’ve always detested about the withholding tax is that it ensures that the average wage-earning American doesn’t really have a feeling for how much income tax he or she is paying. Sure, there’s a number on the paystub, but that’s really just an abstraction - the money represented thereby never gets to the worker.
However, suddenly this money is in the paycheck, and then into the taxpayer’s hands. But now when anything is purchased a BIG chunk of it is yanked right back by the government for taxes. The wage earner suddenly realizes just how much this benevolent government is costing him. And what will be the reaction when a $100 restaurant tab overnight becomes a $125 (or, maybe even a $135) tab? Or a $16,000 auto suddenly costs $20,000? I predict that either we’ll have a tax revolt that makes Shay’s Rebellion look like a picnic, or folks will really clamp down on discretionary spending, and we’ve got another Great Depression on our hands.
If the government ever lets the taxpayer see how much it’s taking, it will be one of the worst mistakes they could possibly make. Let’s try it.
Do you advocates of the Fair Tax realize that the US already has one of the lowest tax burdens in the world? We are stll slightly higher than Mexico, so maybe we can emulate their economic miracle by cutting taxes further.
Haven’t read all the comments in the thread (in fact most just read the OP), but this sounds like a VAT or FairTax proposal (ironic that it was on DailyKos). Off the top of my head the problems I foresee would be that even though you are exempting ‘necessities’ (and you will get into some issues trying to define that as folks lobby for THEIR products to be included in any exemptions), it will still be a bigger burden on the poor than the rich, so you will essentially be shifting the burden of taxation to them and away from the rich (somewhat), in real practical terms (if not in over all monetary terms…i.e. the poor aren’t going to have a huge impact on over all taxes if you shift the burden their way, but it’s going to make their lives more difficult).
The other problems I see would be a shift away from purchasing items on the list of non-exempt products and services. When I lived on the East Coast I had a lot of friends who lived in Virginia at the time. I used to hear them complain all the time about the luxury tax they had there…and hear about what they would do to get around it. One of the things folks would do is lease cars (boats, planes, etc) instead of buying them. I think that if you made the VAT high enough to compensate for no income tax you would see a major shift away from people buying big ticket items and instead trying to lease them. If you closed the lease loophole then they would find some other way to get around it.
My suggestion would be a flat income tax (say 20% with exemptions below 30k…the standard stuff) coupled with a VAT tax on all non-essential things (you’d have to be careful parsing this list for obvious reasons). That way the government would have a basic revenue stream they could count on and so you wouldn’t have to make the VAT so high that most people would want to get around it. It would be a balancing act, but I think you COULD make such a system work.
Of course, we COULD just stick to the system we have now with some small modifications and tweaking.
In fact, I bet the rich from other countries would move here. We’d be up to our asses in McMansions.