It’s nice to see that someone besides DMC can make an intelligent argument. You bring up my primary concern - that the FT would reduce consumption enough place us into a deflationary spiral. I have not seen strong arguments against this from FT proponents. There might be an analogy made to the stagnent Japanese economy of the late 80s-90s.
The concept of a consumption tax that is controlled by the Fed to help restrain or accelerate the economy is very compelling and thought-provoking.
Actually there have been a number of intelligent arguments made; I’m not quite sure what it says when you only accept the one that you expected.
Why don’t you think would competitive pressure not drive down wages when the cessation of income tax puts all that extra money in people’s pockets? Why don’t you think that all that extra liquidity in the economy would not drive up inflation and eat the real gains, as it typically does? If you understand those two risks, why do you keep acting as if it’s a foregone conclusion that people will have more money in their pockets? (And I mean real money, not inflated money with the same purchasing power as today).
Let me just say that it was a thoughtless remark that I regret and apologize for. I was a bit frustrated at some of the replies (though that’s no excuse).
I don’t think I have ever claimed that people would have more real money in their pockets. I did work through a simple calculation that showed reduced taxes owed by a hypothetical median family, however, I have stated many times that market forces would act to change both prices and wages, though I will admit that I cannot predict the direction or magnitude for any specific case.
I would be interested/concerned/worried about one thing in regards to the Fair Tax. Let’s say people are fed up with the government, or they’ve been fucked up by a recession, and they simply stop consuming things. They stop with the weekend runs to Wally World and Best Buy and decide to save their duckets.
How does the government get revenue? As the system stands now, bad economy or not, we don’t have a choice in whether we pay our taxes. But it would be totally legal, under the Fair Tax, to not buy anything.
Am I missing something?
Do the people pushing the Fair Tax care about running a massive deficit?
monstro, the consumption tax (FairTax) proponents’ thinking is that if you don’t want your money, you’ll give it to someone who does. Ie, you’ll put it in a bank. The bank will cut interest rates to get this money off its hands, lots of other people will then want to borrow it, they’ll inevitably spend it, and the wheel of economics will keep turning.
I disagree with this thinking strongly. Penalizing consumption to boost saving (and, by extension, borrowing) is the path to stagnation. The only truth in the above scenario is that it’s true the wheel won’t stop turning completely.
I think most economists abandoned the “savings is the only important thing in macroeconomics” ideology some time ago. Nowdays, it’s more the hippies who champion consumption tax because they hate consumerism.
I was trying to find a nice way to say this before, but I cannot help but be incredibly suspicious of a tax scheme that relies on a huge new entitlement (the prebate) in order to make it work – and yet, this proposal is coming from the people who are generally the most vocal opponents of new entitlements or growth of existing entitlements.
I can’t shake the feeling that the fair tax has zero to do with economics or finance and 100% to do with trying to cripple the government.
flex727, do you have any answer for my questions about savings that have already been taxed and the Roth IRA? Your previous answer indicated that these people are the ones who don’t pay enough under the Fair Tax, so it’s not a problem if they pay tax twice. I find that answer absurd for two reasons. First, how can these people be the ones who don’t pay enough under the Fair Tax when we are talking about funds saved before the imposition of the Fair Tax? Second, that answer belies the use of the word ‘fair’ in Fair Tax.
Yes, post #18.
By golly, you’re right, they don’t! After all, we have never had deficits under the income tax system. :rolleyes:
As to the first question, are you saying that the people who won’t pay enough under the FT are overtaxed under the current system?
Apparently, the FT is imperfect. The FT proponents merely claim it is less imperfect than the current system. The FT proponents would also claim that the issue is moot since prices will decline almost as much as the added tax. I find that argument unpersuasive though.
I think this is a good point.
There was once a discussion (somewhere I don’t recall where) that it would be great for a ‘cure’ for sleep…so that people would not need to sleep anymore. One person was adamently against it. His reason? He didn’t want to work 16 hours a day.
His reasoning was much like the quote above.
I am neither a “right winger” nor a hippie - and I champion consumerism (you don’t want to see my credit card bill every month). I came here looking for honest debate about something with which I was undecided on, though was leaning toward. When debating friends and cow-orkers, I would typically get unsubstantive arguments that did little to help decide things, so I turned to the Dope for what I was certain to be an improvement. Turns out I was right. I appreciate the great back and forth, but I think the most persuasive argument was from Alex_Dubinsky in post #56. I think the FT could put us in a situation where reduced consumption would overcome the increased savings and investment and stagnate the economy. If there is a FT proponent that has an answer to that, I’d like to hear it.
No. I’m saying it is preposterous to posit that an unfair situation that occurs due to conditions that exist before the Fair Tax is in imposed is somehow ‘fair’ because these very conditions are deemed ‘unfair’ under the Fair Tax. Your claim ‘that people with large after-tax savings are precisely the people you claim are not paying enough under the FT’ cannot hold true before the Fair Tax is imposed. How can one not ‘pay enough’ under the Fair Tax before it is even imposed? Your argument makes me think that you do not understand my position. Let me reiterate:
An individual earns income today under the current income tax and pays tax on that income. He manages to put that money in a bank and save it. At this point it has been taxed once. The next day, the income tax is abolished and replaced with the Fair Tax. If the individual withdraws his money from the bank and spends it, it is now taxed again under the Fair Tax. He has paid tax twice on this money. It doesn’t matter if he has $1 or $100,000,000 in the bank, he should not have to pay tax on that money twice. If he does, how is this fair?
An individual puts money into a Roth IRA. He has already pad income tax on that money, and the rules of the Roth IRA stipulate that the gain will not be subject to income tax when withdrawn. Subjecting that money to a "Fair Tax’ in lieu of an income tax isn’t in the spirit that of the Roth IRA. How is taxing these funds under a ‘Fair Tax’ fair?
It seems to me that an accounting of everyone’s net worth (that has already been taxed once) and a corresponding credit against the Fair Tax would be in order. For example if I have $100,000 in the bank on the date of conversion to the Fair Tax, I get to spend that $100,000 without paying the Fair Tax on my purchases. Do you agree?
I am pretty sure that the money you pay into social security and medicare is not part of your adjusted gross income.
BTW do you have a link to the FairTax legislation? The Huckabee site and the Fairtax site seems light on details. I am not sure how rent and mortgages and large purchases like homes and cars are treated.
Your adjusted gross income definitely includes money you paid into social security and medicare. If you can find a cite that says it is excluded, I’d like to see it.
I think a link to the legislation can be found at fairtax.org, and I also think DMC provided it upthread.
Not sure about rent, but the thrust of the FT is that ALL purchases for NEW items at retail would be taxed, including big ticket items like houses and cars. However, USED items would not be, including houses and cars.
I wouldn’t be opposed to this modification of the FT. However, there are many unfair situations, like this, in the current tax system. Just one example is corporate dividends. Earnings by a public company are taxed, but when the after-tax remainder is actually distributed to the owners it is taxed again, without any other transaction having taken place.
Hilarious!
-FrL-
Having just done my taxes (correctly) I can confidently say you are wrong about this.
-FrL-