There are two options: Either WorkerMan gets paid $250 and prices stay constant, or WorkerMan gets paid $300 and prices go up. Monocracy’s example assumed the latter situation. But the drug dealer still breaks even in the former scenario, as shown below:
Pre FairTax
WorkerMan makes $300, pays $50 in taxes. Takes $250 in disposable income and blows it on ganja. DrugDealer makes $250, tax-free, and purchases $250 worth of goods.
Post FairTax
WorkerMan makes $250, paying no taxes. Takes $250 in disposable income and blows it on reefer. DrugDealer makes $250, pays no taxes because sale is not through legal channels, and purchases $250 worth of goods.
Note that DrugDealer gets the same amount of money, and purchases the same amount of goods under both tax plans.
Thus, whether you assume that wages stay constant and prices rise, or wages decline and prices stay constant, the DrugDealer sees no ill effects from the FairTax system.
Please let’s not sidetrack the question. ivylass is adamant that the market will drives prices down. This is an example of Aeschines’ and my arguments that this ain’t so. Foreign made products appear to throw a wrench in spokes of the theory that prices will exactly balance out, but no one has addressed it.
As is seen in our boards as well:
There is a sense of deliberateness here. The explanation of inclusiveness and the first mention of 30% is in FAQ No. 47 of 48. They may try to claim otherwise, but it sure looks like this is being buried in the fine print.
I’m seeing the same deliberateness not only with regard to the 23%, but also in careful wording choices, in what appears to be an attempt to make something sound like it’s cancelling out something else or that we should somehow infer a direct comparison between the two. For instance, in that line you quoted:
While that’s technically true, if you require someone to go wade their way towards the bottom of the large FAQ to figure out how the numbers are arrived at, there is an additional layer of word manipulation going on. You’ll notice that a person has to actually spend the entirety of their capital gains for the statement to pass muster. I’m sure the Fair tax proponents would just call me atypical (I’m not when we’re talking about people who deal with capital gains regularly), but I don’t spend all of the money that I earn, much less all that I gain through interest, dividends, stock sales, etc., so even attempting to draw a comparison to the two tax methods in the above scenario is deceitful. I pay the the income tax whether I spend it, save it, burn it, or stuff it into my mattress. I don’t pay the 30% sales tax if I do any of those things other than spend it, which I’m never going to do with anything approaching the full amount.
This to me is little different from the FAQ response to the claimed “progressive” nature of this tax, where they substitute spending for income, which doesn’t fit any standard definition of a progressive tax, hoping that we’ll be fooled. My main question is whether the proponents here are truly fooled by the FAQ, or are fully aware of the deception, and are passing it on for selfish and dishonest reasons.
I think you have to go back and read my post more carefully. FairTax advocates claim that by eliminating the income tax, the cost of goods and services can be reduced because there will no longer be “embedded costs”:
Note that with a 22% reduction in the cost of goods and services, ([amazed wonderment]In just the first year! It could be higher![/amazed wonderment]) the retail cost for goods and services after the implementation of the FairTax remains at the level it was before the tax system changed.
Of course, for this to happen, WorkerMan’s take-home income has to also remain the same, so he will still only get $250 in his paycheck. That’s irrelevant, though. What really matters is that the cost of goods and services that DrugDealer wants to purchase with his ill-gotten $250 haven’t changed, and so his situation hasn’t changed even though he hasn’t raised the price he charged to WorkerMan.
Now, you could instead claim that, despite what the FairTax FAQ claims, prices will actually go up. In that case, this example breaks down; DrugDealer would have to raise his prices to eventually wind up with $250 worth of goods and services. But if you go back and read through this thread, most “rebuttals” provided by FairTax advocates rely on the premise that prices won’t increase. Fair’s fair, so I’ll assume the same.
Forgive me if this hs been addressed in previous posts, but I see two huge problems with the national sales tax as it is proposed.
First, there is the issues of savings, in fact, net worth, at the time of transition. Assuming that my net worth at the time of transition has been taxed under the current income tax, then I’d need an exemption equal to my previously taxed net worth in order to avoid double taxation.
Example: Suppose I managed to salt away $100,000 in savings prior to the enactment of the national sales tax. This is money that has already been taxed as ordinary income (or capital gains, etc., the point is that it has already been taxed). If I had that money in the bank on December 31 and the new fair tax went into effect on January 1, then I’d need an exemption for $100,000. Why should that money be taxed twice simply because I chose to spend it after January 1?
Second, The Roth IRA has just been screwed over. I’d need an exemption for the entire value of my Roth IRA, because the funds coming out of the IRA are not supposed to be subject to taxes. The value of a Roth IRA goes way down with the fair tax.
Until these two issues are addressed, then the ‘fair tax’ seems very unfair.
[sarcasm]
But that’s not a problem! Through the magical fairy dust that is “embedded costs,” the elimination of income taxes will reduce the base cost of goods such that the new sales tax will make the final cost exactly the same as it is now! It’s a win win situation!
[/sarcasm]
[sarcasm continued] even for foreign goods which won’t benefit from the elimination of income tax. Damn good magical fairy dust.[/sarcasm continued]
But I guess it’s just easier to complain that people don’t understand the magic, rather than provide the answers.