Tax Reform Thread

[scott]

Okay, so I decided to start a new thread devoted specifically to the discussion and philosophy of tax reforms. Specially, I wanted to remove it from any thread that deals with any specific candidate or story. I think this discussion should exist outside of the ideas of Obama and Romney, or anyone else, making it a purely philosophical discussion of what the ideal tax policy should be.

One thing that is critically lacking from the current tax policy debate, and something I've complained about on this forum and elsewhere, is that the debate lacks any objective. What is it we are trying to achieve with our tax policy? Certainly it is more nuanced than picking one objective and going in that direction, but so many arguments conflate arguments based on objectives that are otherwise in conflict with one another.

So, what is the objective of our tax policy? Here are some possible objectives that a tax policy can achieve:

1) Revenue Maximization (which is not necessarily the same as Rate Maximization)
2) Economic Growth
3) Income Equality
4) "Fairness" (I couldn't think of a better word for this - but essentially the idea that everyone should pay the same % of their income in taxes)
5) Fiscal Stability
6) Rate Minimization (which is not necessarily the same as Revenue Minimization)

The problem is that each of the potential objectives carries vastly different approaches for achieving success.

So, what are we trying to do here?

[Clipper Nation]

The most important tax reform we could make is finally reining in inflation - the hidden tax on the middle class, tbh.... inflation devalues our currency, which hurts purchasing power especially for the middle class.... end the Fed, and reinstate sound money...

Also, I think the income tax should be abolished.... I remember reading a while back that by abolishing the income tax and replacing it with nothing, the federal budget would only revert back to the mid-'90s.... Excise taxes, highway tolls, user fees, tariffs, etc. provide plenty of money to fund the government's activities without needing to decide how much we get to keep of what we earned, tbh....

The government has to do their part, too.... simplify the tax code, get rid of the entangled mess of loopholes, and most importantly, stop spending so damn much.....

[scott]

Meh. Nevermind.

[boutons_deux]

:lol

[ElNono]

some of those go hand in hand... for example, income inequality normally stunts economic growth, so you would think you might want to prioritize some of those aspects.

[TeyshaBlue]

Okay, so I decided to start a new thread devoted specifically to the discussion and philosophy of tax reforms. Specially, I wanted to remove it from any thread that deals with any specific candidate or story. I think this discussion should exist outside of the ideas of Obama and Romney, or anyone else, making it a purely philosophical discussion of what the ideal tax policy should be.

One thing that is critically lacking from the current tax policy debate, and something I've complained about on this forum and elsewhere, is that the debate lacks any objective. What is it we are trying to achieve with our tax policy? Certainly it is more nuanced than picking one objective and going in that direction, but so many arguments conflate arguments based on objectives that are otherwise in conflict with one another.

So, what is the objective of our tax policy? Here are some possible objectives that a tax policy can achieve:

1) Revenue Maximization (which is not necessarily the same as Rate Maximization)
2) Economic Growth
3) Income Equality
4) "Fairness" (I couldn't think of a better word for this - but essentially the idea that everyone should pay the same % of their income in taxes)
5) Fiscal Stability
6) Rate Minimization (which is not necessarily the same as Revenue Minimization)

The problem is that each of the potential objectives carries vastly different approaches for achieving success.

So, what are we trying to do here?

I think alot of these objectives can be/are intertwined. Income Equality is often linked to the flat tax "fairness" meme. Revenue Maximization/Fiscal Stability.

If I were the fair, but permanent ruler of Merica, aside from free Teysha Southern Fried Chicken Sandwiches™, I would shoot for Fiscal Stability via approach 1 & 2. Approach #1 could very easily co-opt #4 as a methodology,

[clambake]

"aside from" lol

[Clipper Nation]

:lol

Not VLWC enough for you, B? :lol

Guess I should have proposed an 100% income tax on the rich and no taxes at all for the poor, tbh.....

[mercos]

Historically, my main agenda would be number 5, fiscal stability. Though the problem is exaggerated now, the public debt could become crushing in the future. Taxes should be high enough to cover expenses that the country needs. Deficit spending can and should be used when needed, but not perpetually.

The last 30 years has saw a rapid increase in income inequality, so now I believe number 3 on the list has become equally important when it comes to tax policy. A vast majority of the new wealth created in the last 30 years has gone to the top. Given the importance of fiscal stability (IMO) new revenues should obviously come fro the top, and fund programs that help those on the bottom. The Preamble to the Constitution itself calls for promoting the general welfare.

These two priorities are both important, and fortunately, both can be achieved.

[vy65]

This is probably a dumb question but why is income inequality a bad thing?

[2centsworth]

Not too long ago, like most, I believed federal tax revenue directly paid for federal liabilities and what we didn't raise in revenue we had to borrow. Come to find out I was completely wrong in my way of thinking. In fact, our federal taxes pay for squat.

For example, if u go to the IRS and pay your taxes in cash the irs would shread the money and the federal reserve would just award you "points".
Federal reserve just awards and deducts points every single day. The Fed actually can award as many points as they want. The debt limit is just aan arcaic legislative restriction. US doesn't need to borrow a penny to award "points". We can argue all day about the risk of awarding too many points, but the simple fact is that's how our money works. This is the crux of Modern Monetary Theory (MMT)

Hence, if we are not restricted in our spending by the tax revenue we collect,
what do I believe is proper tax policy?

1. Policy consistent with increasing aggregate demand
2. Policy consistent with controlling inflation


To inrease aggregate demand we need to focus on another technical concept called the velocity of money, which in a nutshell means who will spend the money faster. In my opinion,the people or entities that would spend the money faster are the upper middle class and below. Hence, cuts and incentives should be given directly to those groups.

Now as a matter of fairness, those in the upper classes may feel discriminated against. Let me explain why what I propose doesn't discriminate, but before I do, I do believe those who propose tax hikes on anyone just don't understand how money works or worst want to stoke the flames of class warfare, but I digress. Those in the wealthy classes benefit dearly when those in the lower classes spend money, because those in the lower classes are the customers of those in the wealthy classes. The money usually ends with the wealthy, which supports my velocity of money claim.

As far as government spending, there is nothing slower and less efficient. I rather the money go directly to families.

Inflation is another conversation, but understanding the sovereignty of our money gives us lots and lots and lots of monetary wiggle room.

My 2cents and also using iPad, so forgive me too.

[ElNono]

This is probably a dumb question but why is income inequality a bad thing?

It's not a bad thing, but when it gets severely concentrated on a very small group, you end up having a very tiny group having huge control of the economy. More people with more disposable income means more buyers for goods, a growing economy, more demand, less unemployment and you also get more tax revenue to boot.

There's always going to be some making more than others, and there's nothing inherently wrong with that. The problem is more about the growing gap than inequality in itself.

[scott]

Not too long ago, like most, I believed federal tax revenue directly paid for federal liabilities and what we didn't raise in revenue we had to borrow. Come to find out I was completely wrong in my way of thinking. In fact, our federal taxes pay for squat.

For example, if u go to the IRS and pay your taxes in cash the irs would shread the money and the federal reserve would just award you "points".
Federal reserve just awards and deducts points every single day. The Fed actually can award as many points as they want. The debt limit is just aan arcaic legislative restriction. US doesn't need to borrow a penny to award "points". We can argue all day about the risk of awarding too many points, but the simple fact is that's how our money works. This is the crux of Modern Monetary Theory (MMT)

Hence, if we are not restricted in our spending by the tax revenue we collect,
what do I believe is proper tax policy?

1. Policy consistent with increasing aggregate demand
2. Policy consistent with controlling inflation


To inrease aggregate demand we need to focus on another technical concept called the velocity of money, which in a nutshell means who will spend the money faster. In my opinion,the people or entities that would spend the money faster are the upper middle class and below. Hence, cuts and incentives should be given directly to those groups.

Now as a matter of fairness, those in the upper classes may feel discriminated against. Let me explain why what I propose doesn't discriminate, but before I do, I do believe those who propose tax hikes on anyone just don't understand how money works or worst want to stoke the flames of class warfare, but I digress. Those in the wealthy classes benefit dearly when those in the lower classes spend money, because those in the lower classes are the customers of those in the wealthy classes. The money usually ends with the wealthy, which supports my velocity of money claim.

As far as government spending, there is nothing slower and less efficient. I rather the money go directly to families.

Inflation is another conversation, but understanding the sovereignty of our money gives us lots and lots and lots of monetary wiggle room.

My 2cents and also using iPad, so forgive me too.

Good take.

We've traditionally observed the velocity of money to be relatively constant over time, but is this endemic of the nature of monetary velocity or of our economic policies?

Given the Quantity Theory of Money (QTM) where M x V = p x q;

And then assuming monetary neutrality where changes in M can affect nominal variables in the long run;

We are then left with a conclusion that real GDP growth must be a function of V.

There are, of course, a few criticisms of QTM, namely challenging monetary neutrality and QTM's nature of ignoring the demand for money's influence.

[scott]

This is probably a dumb question but why is income inequality a bad thing?

Great question, and it kind of begs another.

When deciding upon the ideal level of income equality/inequality, what is the object?

Is it some subjective standard like "fairness" or can we apply objective standards?

One approach that I am especially fond of is the correlation between income equality and various quality of life indices.

What we've seen is that there is a happy medium between total income equality and excessive inequality. I don't think this comes as a shock to most people, as we can acknowledge the flaws of total equality where everyone earns exactly the same amount regardless of their skills, talents, abilities, or chosen professions. On the flip side, we all generally agree that the extreme scenario of 1 member of society controlling the vast majority of that societies wealth creates social problems and isn't viable.

The question becomes "where is that happy medium?".

[CosmicCowboy]

Okay, so I decided to start a new thread devoted specifically to the discussion and philosophy of tax reforms. Specially, I wanted to remove it from any thread that deals with any specific candidate or story. I think this discussion should exist outside of the ideas of Obama and Romney, or anyone else, making it a purely philosophical discussion of what the ideal tax policy should be.

One thing that is critically lacking from the current tax policy debate, and something I've complained about on this forum and elsewhere, is that the debate lacks any objective. What is it we are trying to achieve with our tax policy? Certainly it is more nuanced than picking one objective and going in that direction, but so many arguments conflate arguments based on objectives that are otherwise in conflict with one another.

So, what is the objective of our tax policy? Here are some possible objectives that a tax policy can achieve:

1) Revenue Maximization (which is not necessarily the same as Rate Maximization)
2) Economic Growth
3) Income Equality
4) "Fairness" (I couldn't think of a better word for this - but essentially the idea that everyone should pay the same % of their income in taxes)
5) Fiscal Stability
6) Rate Minimization (which is not necessarily the same as Revenue Minimization)

The problem is that each of the potential objectives carries vastly different approaches for achieving success.

So, what are we trying to do here?

You forgot to mention that our tax system has also become a social instrument to stimulate and reinforce "desired" behavior...be it purchasing a house, buying an electric vehicle, caulking your house, subsidizing farmers through ethanol subsidies, etc. Congress is constantly voting in new ones.

[scott]

some of those go hand in hand... for example, income inequality normally stunts economic growth, so you would think you might want to prioritize some of those aspects.

But income equality equally stunts economic growth if you go to far.

My favorite graph is the "too little/too much" parabolic curve that you can apply to just about anything.

In this case:

http://econmonkey.files.wordpress.com/2011/10/notenoughtoomuch.jpg

[scott]

You forgot to mention that our tax system has also become a social instrument to stimulate and reinforce "desired" behavior...be it purchasing a house, buying an electric vehicle, caulking your house, subsidizing farmers through ethanol subsidies, etc. Congress is constantly voting in new ones.

Add it to the list.

7) Behavior modification/incentivizing

[scott]

Sorry for the giant picture above. That's the size of it at it's source and I don't know how to modify here (or if we even can)

[ElNono]

But income equality equally stunts economic growth if you go to far.

Oh, I agree. I was referring to the current situation, where there's high concentration at the top and it's only getting more concentrated.


My favorite graph is the "too little/too much" parabolic curve that you can apply to just about anything.

I saw that from your blog (I think it was yours?). Completely agree. I'm just analyzing it from the current situation.

[CosmicCowboy]

That could be the Laffer curve with different labels.

[scott]

Oh, I agree. I was referring to the current situation, where there's high concentration at the top and it's only getting more concentrated.



I saw that from your blog (I think it was yours?). Completely agree. I'm just analyzing it from the current situation.

Yeah, that's a blog I keep for students.

[2centsworth]

Good take.

We've traditionally observed the velocity of money to be relatively constant over time, but is this endemic of the nature of monetary velocity or of our economic policies?

Given the Quantity Theory of Money (QTM) where M x V = p x q;

And then assuming monetary neutrality where changes in M can affect nominal variables in the long run;

We are then left with a conclusion that real GDP growth must be a function of V.

There are, of course, a few criticisms of QTM, namely challenging monetary


neutrality and QTM's nature of ignoring the demand for money's influence.




I totally believe in the function of V and the problem right now is M is concentrated and sits in banking deposits. With credit as tight as it is, direct payments to the people who would affect V the most is my proposal.

Hence, I favor a steeper cut in FICA taxes and romneys zero cap gains for those under 250k

[scott]

That could be the Laffer curve with different labels.

Absolutely. The Laffer Curve is an interesting animal, because it's often used by folks on opposite sides of the debate to try to prove their point on whether taxes are too high or too low. The Laffer Curve (and the one I posted above) is a beautiful thing because it doesn't actually provide guidance as to the coordinates of any point along the curve. The Laffer Curve simply states that there are some instances in which raising taxes will raise revenue and there are some instances in which lowering taxes will raise revenue (and vice versa). Rarely do we see quantified scientific evidence of where we happen to be on the Laffer Curve (and the Curve is difficult to apply to our country, because our tax structure isn't as straight forward - it's the combination of a lot of different curves existing on different planes).

[scott]

I totally believe in the function of V and the problem right now is M is concentrated and sits in banking deposits. With credit as tight as it is, direct payments to the people who would affect V the most is my proposal.

Hence, I favor a steeper cut in FICA taxes and romneys zero cap gains for those under 250k

So am I fair in saying you ascribe to the Keynesian view (and I don't use this as a bad word - Keynes has lot of great contributions to the world of theoretical economics, and a few that weren't so great) that changes in the money supply CAN in fact have an effect on real variables (in other words, monetary neutrality does NOT hold)?

Because, in theory, if we have monetary neutrality, then the quantity of M will direct affect P by the exact corresponding amount, and thus cannot affect V.

[SnakeBoy]

Add it to the list.

7) Behavior modification/incentivizing

I'd say that's the primary objective of our current tax code mess.

My thoughts on tax reform from a previous thread...




in any form?

why wouldn't getting rid of special preferences and ridiculous complexity in the tax code be worth it, in your view?
It would be worth it but we don't need to eliminate the income tax to do that. A national sales tax would be the most regressive form of taxation, is an unreliable source of revenue, and the most difficult to enforce.


or otherwise, is there some simpler system that meets similar ends without offending your sensibilities?

I favor a flat progressive income tax. Just pulling numbers out of the air I'd say the rate should go from about 6% to 25%. No personal exemptions, child credits, mortgage deductions etc. This would make the tax code strictly a form of revenue collection and eliminate using it as an ineffective welfare/social engineering program as it currently is. It would also require our politicians to actually do their jobs and create effective welfare/social programs.

Short term capital gains would be taxed as ordinary income. Long term gains would taxed from 20% down to 5% depending the length of time with >5 yrs tax at the 5% rate. Earnings from dividend payments would be taxed at or near zero.

I'm sure other forms of taxation need to be revamped as well but I don't know enough about them to support any particular changes. Bottom line is I think the tax code should be simpler but a simple tax code just isn't going to work in an economy as large & diverse as ours. And using the tax code for purposes other than revenue collection is the reason our tax code is so screwed up.

[scott]

I'd say that's the primary objective of our current tax code mess.

My thoughts on tax reform from a previous thread...

Interesting proposal. I like it for it's simplicity and it's "bring everyone into the fold" characteristics while still maintaining a progressive structure.

As far as your objective, what would you classify yours as? You stated revenue collection, but is there an objective to the quantity of that revenue? Or just "set it and forget it" and then adjust spending to match revenue with the occasional debt supplement?

[2centsworth]

So am I fair in saying you ascribe to the Keynesian view (and I don't use this as a bad word - Keynes has lot of great contributions to the world of theoretical economics, and a few that weren't so great) that changes in the money supply CAN in fact have an effect on real variables (in other words, monetary neutrality does NOT hold)?

Because, in theory, if we have monetary neutrality, then the quantity of M will direct affect P by the exact corresponding amount, and thus cannot affect V.

Truly Scott I believe, as most economist do, that most economic opinions are masterbating material. It means jack. I'm more bottom-up focusing on individuals, families and small businesses.


The problem as I see it is people don't have money to spend and don't have money to save. The government can help by mini zing the tax burden, especially since taxes don't pay for anything, but just regulate the economy.

[scott]

Truly Scott I believe, as most economist do, that most economic opinions are masterbating material. It means jack. I'm more bottom-up focusing on individuals, families and small businesses.

I disagree with this notion, unless I'm misunderstanding. I don't think many economists believe that the economic theories in which we've devoted our lives to studying and advancing are "masturbating material".


The problem as I see it is people don't have money to spend and don't have money to save. The government can help by mini zing the tax burden, especially since taxes don't pay for anything, but just regulatebour economy.

I agree with the first part of your statement, but the second sentence you lose me. You are right in that there is an effective "points" system - but to say our taxes don't pay for anything is false. If we had taxes of zero, for example, we could still pay for everything, but you'd quickly find yourself on the road to hyperinflation (which you stated a goal should be to have policies that are consistent with controlling inflation).

Unfortunately, for the most part, there is a trade-off being increasing aggregate demand and controlling inflation.

Back in your original response:


1. Policy consistent with increasing aggregate demand
2. Policy consistent with controlling inflation

You made these two really great policy objectives, but it's important to realize that they are often times in conflict with one another. We could boost aggregate demand almost instantly, but it would be at the expense of higher inflation. This is an important nuance that should be considered when contemplating a fiscal and economic strategy.

[2centsworth]

I disagree with this notion, unless I'm misunderstanding. I don't think many economists believe that the economic theories in which we've devoted our lives to studying and advancing are "masturbating material".

I attended a meeting with a Dallas Fed Reserve member and his words, sort of. His point is most economist are wrong but are paid to have opinions. It's how individuals react to opinions and policies that matter. Not trying to impune your work, because I appreciate economist and join in on the masterbation too:)




I agree with the first part of your statement, but the second sentence you lose me. You are right in that there is an effective "points" system - but to say our taxes don't pay for anything is false. If we had taxes of zero, for example, we could still pay for everything, but you'd quickly find yourself on the road to hyperinflation (which you stated a goal should be to have policies that are consistent with controlling inflation).

Are you saying our so called "debt" tames inflation? Because we are creating "points" using that system, not to mention QE. There's no evidence that a significant increase in our "points" would cause hyperinflation. In fact, evidence suggest it would not in light of our sovereignty. Not to say there isn't a point of dollar revulsion and hence inflation, but I argue we are far from it.



Unfortunately, for the most part, there is a trade-off being increasing aggregate demand and controlling inflation.

I'm more in the John Hussman camp that believes inadequate supply is more inflationary. Hence, the need for increased employment and less underemployment.



Back in your original response:



You made these two really great policy objectives, but it's important to realize that they are often times in conflict with one another. We could boost aggregate demand almost instantly, but it would be at the expense of higher inflation. This is an important nuance that should be considered when contemplating a fiscal and economic strategy.

Not proportional IMO. Far away from demand creating inflation at these unemployment levels. Especially with how productive we can be with the latest technologies. I argue demand hasn't caught up to the productivity of technology advances.

[SnakeBoy]

As far as your objective, what would you classify yours as? You stated revenue collection, but is there an objective to the quantity of that revenue? Or just "set it and forget it" and then adjust spending to match revenue with the occasional debt supplement?

I'm not sure, I hadn't really thought about the spending aspect. I think I would favor something along the lines of tying spending to GDP. I heard Ted Cruz saying he wants to fix spending at 18% of GDP. I don't know if that number is correct but it doesn't sound too far off. Although I think it would have to be structured in a way that doesn't create massive problems everytime the economy slows. Perhaps a range of 16% of 22% (if ~18% is the goal) per decade or so. So in good times the percentage of GDP spending would be lowered and in bad times it could be increased in relation to GDP.

In the other thread my objectives were revenue collection and to promote savings/wealth building. That's the reason for lowering capital gains taxes and eliminating dividend taxes. I don't know if that would work but that was the goal. Perhaps just giving the Fed a minimum interest rate would allow people to accumulate wealth simply by saving rather than risking it in the market.

[vy65]

Great question, and it kind of begs another.

When deciding upon the ideal level of income equality/inequality, what is the object?

Is it some subjective standard like "fairness" or can we apply objective standards?

One approach that I am especially fond of is the correlation between income equality and various quality of life indices.

What we've seen is that there is a happy medium between total income equality and excessive inequality. I don't think this comes as a shock to most people, as we can acknowledge the flaws of total equality where everyone earns exactly the same amount regardless of their skills, talents, abilities, or chosen professions. On the flip side, we all generally agree that the extreme scenario of 1 member of society controlling the vast majority of that societies wealth creates social problems and isn't viable.

The question becomes "where is that happy medium?".

Thanks. I guess the next question is - why is this a matter of tax policy and laws? Why use a set of laws that has been historically manipulated by the rich to concentrate their power to redistribute and, in essence, "enforce" equality? I'm not saying that tax laws can't aid in income equality -- just that they haven't to date. Plus, there's the further complication of translating the "goldilocks" point of just enough income (in)equality into the law itself.

I guess my overarching question is: is it better to use the tax code to enforce an economic equilibrium point or use different laws to check excesses of too much or too little economic equality?

[scott]

I attended a meeting with a Dallas Fed Reserve member and his words, sort of. His point is most economist are wrong but are paid to have opinions. It's how individuals react to opinions and policies that matter. Not trying to impune your work, because I appreciate economist and join in on the masterbation too:)

In the professional ranks I would agree, but I would strongly disagree in the academic ranks. For that reason, I think the co-mingling of the two are dangerous (and this goes with all sciences).





Are you saying our so called "debt" tames inflation? Because we are creating "points" using that system, not to mention QE. There's no evidence that a significant increase in our "points" would cause hyperinflation. In fact, evidence suggest it would not in light of our sovereignty. Not to say there isn't a point of dollar revulsion and hence inflation, but I argue we are far from it.

No, I'm saying the tax revenue (the points) is what tames inflation. If we assumed our taxes don't pay for anything, and then stopped collecting them, we'd have to finance everything through debt, which would inevitably be inflationary.


I'm more in the John Hussman camp that believes inadequate supply is more inflationary. Hence, the need for increased employment and less underemployment.

I agree that inadequate supply can be inflationary (wherever we have a shortage, prices increase to ration that good or service) but higher unemployment and underemployment is not a symptom of inadequate supply. If demand were exceeding supply, then there would be an incentive for producers to employ more.

Of course, supply can drive demand in some instances, as demand is created when people earn wages... so you put people to work, and that kick-starts aggregate demand. I don't disagree with this, but I'm curious as to make this happen. If I'm reading correctly, it sounds like you are proposing by getting money to the lower end of income spectrum to create demand, which will create the need for more supply, which will then create more demand (and so on)? If so, I generally agree with your idea.

[scott]

Thanks. I guess the next question is - why is this a matter of tax policy and laws? Why use a set of laws that has been historically manipulated by the rich to concentrate their power to redistribute and, in essence, "enforce" equality? I'm not saying that tax laws can't aid in income equality -- just that they haven't to date. Plus, there's the further complication of translating the "goldilocks" point of just enough income (in)equality into the law itself.

I guess my overarching question is: is it better to use the tax code to enforce an economic equilibrium point or use different laws to check excesses of too much or too little economic equality?

Another great question, and I don't know the answer. I would ask back - what other laws can we use? To me, tax policy seems an obvious means to achieving such goals, even if that isn't how it's been used in the past (and of course we are only talking in theory here - not practicality).

[scott]

I'm not sure, I hadn't really thought about the spending aspect. I think I would favor something along the lines of tying spending to GDP. I heard Ted Cruz saying he wants to fix spending at 18% of GDP. I don't know if that number is correct but it doesn't sound too far off. Although I think it would have to be structured in a way that doesn't create massive problems everytime the economy slows. Perhaps a range of 16% of 22% (if ~18% is the goal) per decade or so. So in good times the percentage of GDP spending would be lowered and in bad times it could be increased in relation to GDP.

In the other thread my objectives were revenue collection and to promote savings/wealth building. That's the reason for lowering capital gains taxes and eliminating dividend taxes. I don't know if that would work but that was the goal. Perhaps just giving the Fed a minimum interest rate would allow people to accumulate wealth simply by saving rather than risking it in the market.

Thanks for the response. Spending targets are probably a good idea. Of course tax policy does not exist in a bubble so it needs to at some point be reconciled with the rest of fiscal policy. I think balanced budget amendments go a little too far (there are times when you may need to run a deficit - WW2 was a great example) but have the right basic idea. Deficit spending cannot go on the way it has for eternity.

I think the idea of a progressive capital gains tax is a good one too, though I'm not a huge fan of treating dividends any different from normal income, as doing so tends to have regressive effects.

[vy65]

Another great question, and I don't know the answer. I would ask back - what other laws can we use? To me, tax policy seems an obvious means to achieving such goals, even if that isn't how it's been used in the past (and of course we are only talking in theory here - not practicality).

Without doing any research and off the top of my head - anti-trust laws could be used to prevent the concentration of (economic) power within a select group of corporations.

That obviously doesn't deal with individual concentration of wealth - maybe mandatory caps on corporate pay?

On the flip side, I'd think that more robust welfare policies could be useful.

Ultimately, I dunno.

[vy65]

This goes to scott's point - but I think a 100% death tax would do a lot to solve these problems.

[Drachen]

I guess that the point of the OP (without reading the rest so far) is to get a strategic vision for tax policy. I believe Economic Growth should be the goal with tax policy. Not short term (necessarily), but long term.

[2centsworth]

In the professional ranks I would agree, but I would strongly disagree in the academic ranks. For that reason, I think the co-mingling of the two are dangerous (and this goes with all sciences).


My microscopic vote tends to side with policies that make a difference professionally while taking into account what the academics have to say.Btw, economics is more art than science. At least that's what I was taught and believe.






No, I'm saying the tax revenue (the points) is what tames inflation. If we assumed our taxes don't pay for anything, and then stopped collecting them, we'd have to finance everything through debt, which would inevitably be inflationary.
whether the fed just gives points without "debt" or they give points with "debt" money supply is the same. Hence, does "debt" tame inflation?





I agree that inadequate supply can be inflationary (wherever we have a shortage, prices increase to ration that good or service) but higher unemployment and underemployment is not a symptom of inadequate supply. If demand were exceeding supply, then there would be an incentive for producers to employ more. two sides of the same coin. More people working the more supply. More supply equals lower prices. Right now we have a demand problem.



Of course, supply can drive demand in some instances, as demand is created when people earn wages... so you put people to work, and that kick-starts aggregate demand. I don't disagree with this, but I'm curious as to make this happen. If I'm reading correctly, it sounds like you are proposing by getting money to the lower end of income spectrum to create demand, which will create the need for more supply, which will then create more demand (and so on)? If so, I generally agree with your idea.

I like the 250 cutoff for further tax stimulus, such as further FICA reductions and elimination of cap gains, but I disagree with tax increases on anyone right now. Again, taxes regulate and don't pay anything.

[2centsworth]

Thanks for the response. Spending targets are probably a good idea. Of course tax policy does not exist in a bubble so it needs to at some point be reconciled with the rest of fiscal policy. I think balanced budget amendments go a little too far (there are times when you may need to run a deficit - WW2 was a great example) but have the right basic idea. Deficit spending cannot go on the way it has for eternity.

I think the idea of a progressive capital gains tax is a good one too, though I'm not a huge fan of treating dividends any different from normal income, as doing so tends to have regressive effects.

Question, in the post gold standard monetary system, what debt level is inflationary? Japan is over 200% of GDP and still has deflationary pressures. I use the yen because it's sovereign like the us dollar.

[scott]

Question, in the post gold standard monetary system, what debt level is inflationary? Japan is over 200% of GDP and still has deflationary pressures. I use the yen because it's sovereign like the us dollar.

I don't think there is a direct answer to that. Inflation is directly tied to money supply, so debt levels are not inherently inflationary, but tend to eventually be as a crowding out and eventual monetary expansion occurs.

[scott]

whether the fed just gives points without "debt" or they give points with "debt" money supply is the same. Hence, does "debt" tame inflation?

I'm not sure we are talking about the same thing here.

[2centsworth]

I'm not sure we are talking about the same thing here.

What's the difference between issuing a Promissory note to the Chinese while giving "points" or just giving "points"? Does the existence of a promissory Note tame inflation?

Im not suggesting zero taxes because that be would inflationary imo. What i am suggesting is the existence of a tax should only be used to tame inflation and encourage full employment, Not to make believe the taxes are paying for something.

[scott]

Not to make believe the taxes are paying for something.

This is where we disagree. I think you're wrong about your assumptions.

[2centsworth]

This is where we disagree. I think you're wrong about your assumptions.

I'm not. Thats how our fiat monetary system works. I would recommend a honest look at Modern Monetary Theory. A good start is moslereconomics.com

[scott]

I'm not. Thats how our fiat monetary system works. I would recommend a honest look at Modern Monetary Theory. A good start is moslereconomics.com

I guess we will agree to disagree. Good luck.

[SnakeBoy]

I guess that the point of the OP (without reading the rest so far) is to get a strategic vision for tax policy. I believe Economic Growth should be the goal with tax policy. Not short term (necessarily), but long term.

That's pretty vague. Any specific thoughts on how you would acheive your goal?

[2centsworth]

I guess we will agree to disagree. Good luck.

How can you disagree without exploring the other side? Here's a quick interview that gets to the heart of the matter
Hir.Harvard.edu/debt-deficits-modern-monetary-theory

[LnGrrrR]

I know this idea will probably get poo-poo'd (been watching Blackadder lately), but I still think that when we file our annual taxes, there should be a little section that has various categories to check (military, social security, education, etc etc) that would ask the people filing where they would like to see their tax money put to use. I'd think we'd get a better idea of what the public actually wants to fund with something like that. *shrug*

[scott]

How can you disagree without exploring the other side?

That's a rather bold assumption you've made. MMT, otherwise known as Chartalism, is not as modern as the name suggests - it's been around for quite some time.

Chartalism offers a number of interesting ideas, but begins to fall apart when presented in the framework of an open economy. Moreover, it tends to ignore reality.

There is a reason Chartalism has never gained even the slightest bit of acceptance in academia and has been relegated to the world of gentlemen who are trying to sell books. I'll let the reader decide for themselves what that reason is (since you all will anyway).

[scott]

I know this idea will probably get poo-poo'd (been watching Blackadder lately), but I still think that when we file our annual taxes, there should be a little section that has various categories to check (military, social security, education, etc etc) that would ask the people filing where they would like to see their tax money put to use. I'd think we'd get a better idea of what the public actually wants to fund with something like that. *shrug*

Are you suggesting it just as an informative poll, or that our budget actually be dictated by responses on tax returns?

[LnGrrrR]

Are you suggesting it just as an informative poll, or that our budget actually be dictated by responses on tax returns?

As an informative poll... with the knowledge that politicians would use the results, and both sides would use it as a hammer to bash the other about policy anyways.

"Look! 40% of poll responses in New Mexico supported taxes going to military, showing the populace wants to spend money on it!" etc etc

Edit: It just feels to me that what the population wants is somewhat unheard. Policy gets made by the experts and think tanks, politcians have their pet projects, and most polls are probably too limited. But if there were an informal poll on a mandatory requirement, I would assume coverage would be widespread and able to get around sampling size bias.

[scott]

As an informative poll... with the knowledge that politicians would use the results, and both sides would use it as a hammer to bash the other about policy anyways.

"Look! 40% of poll responses in New Mexico supported taxes going to military, showing the populace wants to spend money on it!" etc etc

Edit: It just feels to me that what the population wants is somewhat unheard. Policy gets made by the experts and think tanks, politcians have their pet projects, and most polls are probably too limited. But if there were an informal poll on a mandatory requirement, I would assume coverage would be widespread and able to get around sampling size bias.

Gotcha, thanks.

[2centsworth]

That's a rather bold assumption you've made. MMT, otherwise known as Chartalism, is not as modern as the name suggests - it's been around for quite some time.

Chartalism offers a number of interesting ideas, but begins to fall apart when presented in the framework of an open economy. Moreover, it tends to ignore reality.

There is a reason Chartalism has never gained even the slightest bit of acceptance in academia and has been relegated to the world of gentlemen who are trying to sell books. I'll let the reader decide for themselves what that reason is (since you all will anyway).

Got to go beyond wiki.

Modern Monetary Theory has roots in chartalism and functional finance. Here's the history beyond wiki. From the creator

Moslereconomics.com/2011/08/04/mmt-history-and-overview

[scott]

Beyond Wiki?

How about 14 years of schooling?

[scott]

Call me a shill to the academic establishment if you like, but your insinuations that I haven't gone "beyond Wiki" are insulting. It it were Wild Cobra, Yonivore, Boutons, or the PaulBots, I'd laught them off - but I actually respect you.

[boutons_deux]

"Policy gets made by the experts and think tanks, politcians have their pet projects"


but all of them get paid to "make policy" by the 1% and Corporate-Americans who will profit from the policy. iow, nothing gets done unless somebody benefits financially, and that somebody excludes Human-Americans who have no say in policy making.

[2centsworth]

Call me a shill to the academic establishment if you like, but your insinuations that I haven't gone "beyond Wiki" are insulting. It it were Wild Cobra, Yonivore, Boutons, or the PaulBots, I'd laught them off - but I respect you.

I apologize for the insult. MMT is not chartalism as wiki suggest, but to say you got your info from there was wrong of me. I appreciate your high level thread.


Btw, I wouldn't fight to convince you if the respect wasn't mutual.

[scott]

MMT is not chartalism as wiki suggest



Having studying Chartalism in the past, and having read about (though not nearly in depth) MMT... I fail to see a real distinction between the two. In any event, the same criticisms of Chartalism apply to MMT.

[2centsworth]

Having studying Chartalism in the past, and having read about (though not nearly in depth) MMT... I fail to see a real distinction between the two. In any event, the same criticisms of Chartalism apply to MMT.
Fair enough.
To be continued.... Wifey walking in the door:)

[CosmicCowboy]

Fair enough.
To be continued.... Wifey walking in the door:)

Dude!

Tell her to go make you a pie! You are busy solving the worlds problems on SPURSTALK!

[SnakeBoy]

Moslereconomics.com/2011/08/04/mmt-history-and-overview

It does sound like a book sales pitch tbh.


Modern Monetary Theory (MMT) in a Nutshell

A rampaging mutant macroeconomic theory called Modern Monetary Theory, or MMT for short, is kicking keisters and smacking down conventional wisdom in economic circles these days. This is because an energized group of MMT economists, bloggers, and their loyal foot soldiers, lead by economists Warren Mosler, Bill Michell, and L. Randall Wray are swarming on the internet. New MMT disciples are hatching out everywhere. They are like a school of fresh-faced paramedics surrounding a gasping heart attack victim. They seek to present their economic worldview as the definitive first aid for understanding and dealing with the critical issues of growth, unemployment, inflation, budget deficits, and national debt.

MMT is a reformulated blend of some older macroeconomic theories called Chartalism and Functional finance. But, it also adds a fresh dose of monetary accounting for intellectual muscle mass. Chartalism is a school of economic thought that was developed between 1901 and 1905 by German economist Georg F. Knapp with important contributions (1913-1914) from Alfred Mitchell-Innes. Functional finance is an extension of Chartalism, which was developed by economist Abba Lerner in the 1940′s.

However, Chartalism and Functional finance did not directly spawn this new mutant monetary theory. Rather, Modern Monetary Theory had a hot, steamy, Rummy induced, immaculate conception as its creator, Warren Mosler, has stated:


The origin of MMT is ‘Soft Currency Economics‘ [1993] at www.moslereconomics.com which I wrote after spending an hour in the steam room with Don Rumsfeld at the Racquet Club in Chicago, who sent me to Art Laffer, who assigned Mark McNary to work with me to write it. The story is in ‘The 7 Deadly Innocent Frauds of Economic Policy’ [pg 98].

I had never read or even heard of Lerner, Knapp, Inness, Chartalism, and only knew Keynes by reading his quotes published by others. I ‘created’ what became know as ‘MMT’ entirely independently of prior economic thought. It came from my direct experience in actual monetary operations, much of which is also described in the book.

The main takeaways are simply that with the $US and our current monetary arrangements, federal taxes function to regulate demand, and federal borrowing functions to support interest rates, with neither functioning to raise revenue per se. In other words, operationally, federal spending is not revenue constrained. All constraints are necessarily self imposed and political. And everyone in Fed operations knows it.

[Wild Cobra]

Dude!

Tell her to go make you a pie! You are busy solving the worlds problems on SPURSTALK!
LOL...

If it were only that simple. Even if someone here had a proper fix, we would never come to consensus.

[TeyshaBlue]

Dude!

Tell her to go make you a pie! You are busy solving the worlds problems on SPURSTALK!

Teysha's Southern Fried Chicken Sandwiches w/ the 3 pickle combo! ™

:lol

[Yonivore]

Meh. Nevermind.
:lmao That was fast!

But, here's my two-cents worth:


http://www.fairtax.org/gfx/logo.png (http://www.fairtax.org/site/PageServer)
CLICK THROUGH TO COMMON SENSE TAX REFORM!

[boutons_deux]

:lmao That was fast!

But, here's my two-cents worth:


http://www.fairtax.org/gfx/logo.png (http://www.fairtax.org/site/PageServer)
CLICK THROUGH TO COMMON SENSE TAX REFORM!

highly regressive, as the wealthy who push it intend

[TeyshaBlue]

highly regressive, as the wealthy who push it intend

Regressive? How so?

[TeyshaBlue]

This is the tax plan with the prebate component. Seems to shore up alot of the regressive nature of a flat tax plan.

[Yonivore]

Regressive? How so?
I think that's just the popular word to say when you don't understand or object to a tax reform.

It's not regressive. You only pay taxes on purchases beyond the necessities and that goes for everyone.

[Th'Pusher]

Regressive? How so?

Say a person making $2M a year spends $1M and puts the other $1M in savings. He is taxed on only 50% of his income. Of course the person who spends 95% of his money (say $95k out of $100K) is taxed on 95% of his income. Regressive or not, it will do nothing to address rising inequality and will likely exacerbate it.

[Wild Cobra]

This is the tax plan with the prebate component. Seems to shore up alot of the regressive nature of a flat tax plan.
I would think the lefties would love the prebate aspect of it.

I forget, how much is the prebate? Anyone remember?

[Wild Cobra]

Say a person making $2M a year spends $1M and puts the other $1M in savings. He is taxed on only 50% of his income. Of course the person who spends 95% of his money (say $95k out of $100K) is taxed on 95% of his income. Regressive or not, it will do nothing to address rising inequality and will likely exacerbate it.
So?

[Th'Pusher]

So?

So, I think that extreme inequality has a negative effect on society.

[SnakeBoy]

Regressive? How so?

Using my own finances, my wife and I will make around $320K year or possibly more. We are savers so we live on around 60-65K per year. So if I'm reading the plan right we'll pay around $7800 in taxes. A couple making $82k (and spending it) will pay $9400 in taxes. That doesn't sound regressive?

I never like the concept the Fair Tax so I never looked into it, but now looking at the numbers...Hell Yeah! Let's do it!

[Yonivore]

I would think the lefties would love the prebate aspect of it.

I forget, how much is the prebate? Anyone remember?
If I remember, it's based on the amount of tax that would be paid for necessities each month.

[TeyshaBlue]

Say a person making $2M a year spends $1M and puts the other $1M in savings. He is taxed on only 50% of his income. Of course the person who spends 95% of his money (say $95k out of $100K) is taxed on 95% of his income. Regressive or not, it will do nothing to address rising inequality and will likely exacerbate it.

Ok. So it's not regressive.

[Yonivore]

Using my own finances, my wife and I will make around $320K year or possibly more. We are savers so we live on around 60-65K per year. So if I'm reading the plan right we'll pay around $7800 in taxes. A couple making $82k (and spending it) will pay $9400 in taxes. That doesn't sound regressive?

I never like the concept the Fair Tax so I never looked into it, but now looking at the numbers...Hell Yeah! Let's do it!
Sounds like a personal choice to spend instead of save.

Both of you are pre-bated the amount of tax you would spend on necessities. So, any additional tax is a personal choice made by the taxpayer. I think it would encourage savings.

[Wild Cobra]

So, I think that extreme inequality has a negative effect on society.
I disagree.

If we made everyone equal, then what would people have to strive for to make themselves better?

Stop coveting what others have, and make yourself better and get it yourself!

[Wild Cobra]

If I remember, it's based on the amount of tax that would be paid for necessities each month.
It's more than that. I found it, and it's $214/month for an individual, $428/month for a couple. Add another $76/month per kid.

[TeyshaBlue]

So, I think that extreme inequality has a negative effect on society.

I agree. I'm not sure tax law is the best tool to use to address it tho.

[Wild Cobra]

Keep in mind people.

Even the unemployed get this $214/month.

[Th'Pusher]

I disagree.

If we made everyone equal, then what would people have to strive for to make themselves better?

Stop coveting what others have, and make yourself better and get it yourself!

Who said anything about making everyone equal? And, I am not coveting anything. I personally would fare well under the fair tax proposal, but because I believe there are serious detriments of extreme inequality on our society, I would chose to vote against my own financial interest should one of our presidential candidates actually be supporting this plan.

[Th'Pusher]

I agree. I'm not sure tax law is the best tool to use to address it tho.

I'm all ears for other ideas to address it.

[Wild Cobra]

Who said anything about making everyone equal? And, I am not coveting anything. I personally would fare well under the fair tax proposal, but because I believe there are serious detriments of extreme inequality on our society, I would chose to vote against my own financial interest should one of our presidential candidates actually be supporting this plan.
How does a change in tax system to one that is better, make anything different for people's quality of life?

Do you know what the biggest advantage is if we could achieve the fair Tax? It is that it would take a huge amount of politics away from the taxing system.

Everyone is treated equal under the tax law. No loopholes for the wealthy.

[Wild Cobra]

I'm all ears for other ideas to address it.
Integrity, self respect, hard work, etc. As long as people wait for other to solve their problems, they will not get far in life.

[SnakeBoy]

Sounds like a personal choice to spend instead of save.

Both of you are pre-bated the amount of tax you would spend on necessities. So, any additional tax is a personal choice made by the taxpayer. I think it would encourage savings.

Well it is a personal choice but that doesn't mean there's no regressive nature to the plan.

Encouraging savings is good but would the Fair Tax encourage too much savings?

And there's also the issue of tax avoidance. It's not much of an issue for our country now but seems to me the Fair Tax has the potential to change that.

[scott]

Ok. So it's not regressive.

Actually, it's pretty much the definition of regressive, at least in relation to income.

[ElNono]

If we made everyone equal, then what would people have to strive for to make themselves better?

Not wanting extreme inequality does not equate to wanting everyone equal.

Not sure you can tell the difference.

[scott]

I agree. I'm not sure tax law is the best tool to use to address it tho.

Where else do you suggest we address it?

[scott]

I think that's just the popular word to say when you don't understand or object to a tax reform.

It's not regressive. You only pay taxes on purchases beyond the necessities and that goes for everyone.

A consumption tax is regressive in nature, because we empirically witness a decrease in the relative rate of consumption as income increases. Thus as income increases, the portion of taxes paid relative to income decreases. That is the definition of a regressive tax.

The regressive nature of the tax can be mitigated, at least partially, by exempting certain goods and services (which it appears to attempt - the key becomes what we define as a "necessity") but you can never totally diminish it's regressive nature.

With that said, regressive tax structures are not inherently bad. We utilize a lot of regressive taxes in this country with little debate or fanfare (and several portions of the existing tax code are effectively regressive, and probably not someone of the ones you think). But right off the bat a regressive tax structure will require a lot of explaining.

Another thing with a VAT/consumption tax (which I don't point out to be a disqualifier, but rather something else to consider) is the effects it has on the relationship between supply and demand is more direct, and thus there is a greater exogenous influence on a free market equilibrium.

[scott]

Well it is a personal choice but that doesn't mean there's no regressive nature to the plan.

Encouraging savings is good but would the Fair Tax encourage too much savings?

And there's also the issue of tax avoidance. It's not much of an issue for our country now but seems to me the Fair Tax has the potential to change that.

A fantastic point and another to consider when evaluating a consumption tax. By taxing consumption, and not savings, you create an incentive to save. That sounds like a good thing, and the US does need to be better at saving, but consider what savings is from a different perspective. Savings is the the shift of consumption from the present to the future. While we need more savings in the US, we also need consumption (it's the largest component of our economy). If you OVER incentivize savings (or de-incentivize consumption), you create a drag on the economy.

[Th'Pusher]

How does a change in tax system to one that is better, make anything different for people's quality of life?

:lol I don't think it is better. If you do, donate to the cause, but as with most libertarian ideals, this plan is quixotic and untenable.

WRT a deteriorating quality of life due to increased income inequality - which I believe the fair tax plan would lead to: http://www.ted.com/talks/richard_wilkinson.html


Do you know what the biggest advantage is if we could achieve the fair Tax? It is that it would take a huge amount of politics away from the taxing system.

Everyone is treated equal under the tax law. No loopholes for the wealthy.

You can do that without a national sales tax. There are plenty of other proposals on the table.

[Yonivore]

A consumption tax is regressive in nature, because we empirically witness a decrease in the relative rate of consumption as income increases. Thus as income increases, the portion of taxes paid relative to income decreases. That is the definition of a regressive tax.

The regressive nature of the tax can be mitigated, at least partially, by exempting certain goods and services (which it appears to attempt - the key becomes what we define as a "necessity") but you can never totally diminish it's regressive nature.

With that said, regressive tax structures are not inherently bad. We utilize a lot of regressive taxes in this country with little debate or fanfare (and several portions of the existing tax code are effectively regressive, and probably not someone of the ones you think). But right off the bat a regressive tax structure will require a lot of explaining.

Another thing with a VAT/consumption tax (which I don't point out to be a disqualifier, but rather something else to consider) is the effects it has on the relationship between supply and demand is more direct, and thus there is a greater exogenous influence on a free market equilibrium.
Thanks for that. I stand a little better educated.

In the case of the Fair Tax, aren't the regressive effects mitigated by two factors; 1) everyone is pre-bated the calculated amount of tax they would normally pay on necessities, every month and, 2) the wealthier you are, the more you consume and, therefore, the more you pay in taxes?

Also, you can avoid paying taxes at all if you restrict your discretionary spending, save, and consume fewer necessities than what you are pre-bated the taxes on?

[Yonivore]

A fantastic point and another to consider when evaluating a consumption tax. By taxing consumption, and not savings, you create an incentive to save. That sounds like a good thing, and the US does need to be better at saving, but consider what savings is from a different perspective. Savings is the the shift of consumption from the present to the future. While we need more savings in the US, we also need consumption (it's the largest component of our economy). If you OVER incentivize savings (or de-incentivize consumption), you create a drag on the economy.
I'd be willing to bet that won't be a problem in this country - for the foreseeable future.

[Yonivore]

Well it is a personal choice but that doesn't mean there's no regressive nature to the plan.

Encouraging savings is good but would the Fair Tax encourage too much savings?

And there's also the issue of tax avoidance. It's not much of an issue for our country now but seems to me the Fair Tax has the potential to change that.
Seems to me that's all that's being complained about is how the wealthy are avoiding taxes and not paying their fair share.

How would that be worse in a consumption-based tax system?

[Yonivore]

Where else do you suggest we address it?
The marketplace.

[Th'Pusher]

The marketplace.

Would you mind expounding on how you think the marketplace will address extreme inequality?

[scott]

Thanks for that. I stand a little better educated.

In the case of the Fair Tax, aren't the regressive effects mitigated by two factors; 1) everyone is pre-bated the calculated amount of tax they would normally pay on necessities, every month and, 2) the wealthier you are, the more you consume and, therefore, the more you pay in taxes?

1) yes - you can't completely offset the regressive nature of it, but this significantly does. Again, it depends on what you classify as a "necessity" or "base expenditire".

For example, while a television isn't a necessity, if everyone buys one, then a consumption tax on television becomes regressive. (there exists arguments for why this could be a good thing)

2) the absolute value of taxes paid isn't what makes something regressive or progressive. If the effective tax rate falls as income increases, then it is regressive. If your effective tax rate rises with income, then it is progressive. So the regressive nature of the tax is not offset by this point (though it may not be a concern).


Also, you can avoid paying taxes at all if you restrict your discretionary spending, save, and consume fewer necessities than what you are pre-bated the taxes on?

I would suggest this would not be something you would want to encourage, for two reasons. The first (a practical reason) if people can live on "fewer necessities", then the obvious question is whether they were necessities or not. The second, more mechanical, is that you may over-incentivize savings (or over-de-incentivize consumption) which as mentioned above wouldn't be a good thing.

[scott]

The marketplace.

Inequality is the result of the marketplace.

For a lot of folks, the role of government is to inject where market failure occurs (and the idea that the market NEVER fails is... well, naive to say the least).

Examples: externalities, natural monopolies, anti-trust, etc.

In the case of inequality, there is exists a governmental interest to restrict too great of a degree of inequality insofar as that inequality lessens the total social welfare of that community (be it a city, state, or nation).

[scott]

Outta here for awhile. Later gators.

[Yonivore]

1) yes - you can't completely offset the regressive nature of it, but this significantly does. Again, it depends on what you classify as a "necessity" or "base expenditire".

For example, while a television isn't a necessity, if everyone buys one, then a consumption tax on television becomes regressive. (there exists arguments for why this could be a good thing)

2) the absolute value of taxes paid isn't what makes something regressive or progressive. If the effective tax rate falls as income increases, then it is regressive. If your effective tax rate rises with income, then it is progressive. So the regressive nature of the tax is not offset by this point (though it may not be a concern).

I would suggest this would not be something you would want to encourage, for two reasons. The first (a practical reason) if people can live on "fewer necessities", then the obvious question is whether they were necessities or not. The second, more mechanical, is that you may over-incentivize savings (or over-de-incentivize consumption) which as mentioned above wouldn't be a good thing.
Fair enough. I still think it's better than what we have in place.

It has the added benefit of dismantling a bureaucracy that has been used by politicians to punish and pander political constituencies for decades.

[TeyshaBlue]

A consumption tax is regressive in nature, because we empirically witness a decrease in the relative rate of consumption as income increases. Thus as income increases, the portion of taxes paid relative to income decreases. That is the definition of a regressive tax.

The regressive nature of the tax can be mitigated, at least partially, by exempting certain goods and services (which it appears to attempt - the key becomes what we define as a "necessity") but you can never totally diminish it's regressive nature.

With that said, regressive tax structures are not inherently bad. We utilize a lot of regressive taxes in this country with little debate or fanfare (and several portions of the existing tax code are effectively regressive, and probably not someone of the ones you think). But right off the bat a regressive tax structure will require a lot of explaining.

Another thing with a VAT/consumption tax (which I don't point out to be a disqualifier, but rather something else to consider) is the effects it has on the relationship between supply and demand is more direct, and thus there is a greater exogenous influence on a free market equilibrium.
Thx for the explanation. I see you point regarding the regressive nature of a VAT system. I guess I put too much emphasis on the prebate portion of the plan. It seemed, to me, to address the immediate concerns of an unequal burden.
As for encouraging savings...Ive always thought that was a positive outcome unless its just rampant.

[TeyshaBlue]

Where else do you suggest we address it?

Addressing minimum wage standards is a good starting point.

[Yonivore]

Addressing minimum wage standards is a good starting point.
How about eliminating a minimum wage standard?

[Th'Pusher]

How about eliminating a minimum wage standard?

God bless. Enough with the libertarian bullshit. There is a reason it has never been tried in the real world. I'm going to start calling you Don Quixote.

[TeyshaBlue]

How about eliminating a minimum wage standard?

Foxconn? I'll pass.

[Th'Pusher]

Foxconn? I'll pass.

:lol yoni wouldn't. He'd prefer to continue to puppeteer Adam Smith's visibly dead invisible hand of the market.

[Yonivore]

Foxconn? I'll pass.
You can't get Americans to work for the law-enforced minimum wage, now. What makes you think there'll be a Foxconn if you abolish the minimum wage?

I don't buy it. Most starting wages are now above minimum wage because that's what the market demands. I don't see that changing if you remove a floor on which hardly anyone is standing.

[Wild Cobra]

How about eliminating a minimum wage standard?
God bless. Enough with the libertarian bullshit. There is a reason it has never been tried in the real world. I'm going to start calling you Don Quixote.
Why bother having a minimum wage when you liberals love illegal aliens taking our jobs anyway?

[spursncowboys]

Okay, so I decided to start a new thread devoted specifically to the discussion and philosophy of tax reforms. Specially, I wanted to remove it from any thread that deals with any specific candidate or story. I think this discussion should exist outside of the ideas of Obama and Romney, or anyone else, making it a purely philosophical discussion of what the ideal tax policy should be.

One thing that is critically lacking from the current tax policy debate, and something I've complained about on this forum and elsewhere, is that the debate lacks any objective. What is it we are trying to achieve with our tax policy? Certainly it is more nuanced than picking one objective and going in that direction, but so many arguments conflate arguments based on objectives that are otherwise in conflict with one another.

So, what is the objective of our tax policy? Here are some possible objectives that a tax policy can achieve:

1) Revenue Maximization (which is not necessarily the same as Rate Maximization)
2) Economic Growth
3) Income Equality
4) "Fairness" (I couldn't think of a better word for this - but essentially the idea that everyone should pay the same % of their income in taxes)
5) Fiscal Stability
6) Rate Minimization (which is not necessarily the same as Revenue Minimization)

The problem is that each of the potential objectives carries vastly different approaches for achieving success.

So, what are we trying to do here?
Great thread. Although I haven't read through it yet. I don't know if it got railroaded.

A big idea of taxes IMO for me is that if you take from someone in the name of taxes, it should go to benefiting every citizen, or tax payer.
I disagree with the idea of taking from everyone and giving to a specific group or subgroup

[Th'Pusher]

You can't get Americans to work for the law-enforced minimum wage, now. What makes you think there'll be a Foxconn if you abolish the minimum wage?

I don't buy it. Most starting wages are now above minimum wage because that's what the market demands. I don't see that changing if you remove a floor on which hardly anyone is standing.

If no one is being paid the minimum wage, then why get rid of it? You're suggesting the market already dictated the law ineffectual. Old laws sit on the books all the time. Why do you want to waste government time and resources on abolishing laws the free market has already effective abolished?

[Clipper Nation]

:lol I don't think it is better. If you do, donate to the cause, but as with most libertarian ideals, this plan is quixotic and untenable.
The fair tax plan is hardly a libertarian ideal... replacing income taxes with consumption taxes doesn't solve anything, it just gives the government a different method of confiscating the money you rightfully earned, tbh....

My solution is FAR more libertarian: no income tax, abolish the IRS, repeal the 16th Amendment.... taxes should not be used as a way to punish hard work, and it's not the federal government's place to do that anyway....

[Th'Pusher]

The fair tax plan is hardly a libertarian ideal... replacing income taxes with consumption taxes doesn't solve anything, it just gives the government a different method of confiscating the money you rightfully earned, tbh....

My solution is FAR more libertarian: no income tax, abolish the IRS, repeal the 16th Amendment.... taxes should not be used as a way to punish hard work, and it's not the federal government's place to do that anyway....

Well thats even more quixotic and untenable. Never going to happen. Join us all in 2012. The majority of Americans have evolved past the Madisonian model of Government. We're not going backwards.

[Yonivore]

The fair tax plan is hardly a libertarian ideal... replacing income taxes with consumption taxes doesn't solve anything, it just gives the government a different method of confiscating the money you rightfully earned, tbh....

My solution is FAR more libertarian: no income tax, abolish the IRS, repeal the 16th Amendment.... taxes should not be used as a way to punish hard work, and it's not the federal government's place to do that anyway....
And the federal government operates on...?

[Clipper Nation]

And the federal government operates on...?

Excise taxes, highway tolls, tariffs, user fees, etc.... taxes that exist for a purpose other than simply confiscating what you earned, tbh....

Also, again, if we got rid of the income tax today and replaced it with nothing, the federal budget would only revert back to the mid-1990s..... not too unreasonable, really.....

[Clipper Nation]

Well thats even more quixotic and untenable. Never going to happen. Join us all in 2012. The majority of Americans have evolved past the Madisonian model of Government. We're not going backwards.

Except that our current model of government is a devolution - a bloated, arrogant, corrupt mess that warmongers in foreign countries, steals our wealth and civil liberties, and has no respect for our Constitution..... some people might complain at first that the government isn't doing everything for them anymore, but I think most people would end up loving liberty, tbh.....

[Th'Pusher]

Except that our current model of government is a devolution - a bloated, arrogant, corrupt mess that warmongers in foreign countries, steals our wealth and civil liberties, and has no respect for our Constitution..... some people might complain at first that the government isn't doing everything for them anymore, but I think most people would end up loving liberty, tbh.....

That must be why Ron Paul did so well in the Republican primaries tbh. We have evolved.

[Clipper Nation]

That must be why Ron Paul did so well in the Republican primaries tbh. We have evolved.

Still eligible for nomination in Tampa... Ron bless

[Winehole23]

There is a remedy that fixes profit shifting, adopts a territorial tax, and solidifies tax revenue, by adapting a variation of the corporate tax system already used at the state level.

This approach is called “sales factor apportionment” (SFA). Here’s how it works. SFA would apportion U.S. corporate tax on worldwide company income based upon the ratio of U.S. sales to worldwide sales. Despite the complex name, the principle is very simple. SFA disregards all internal corporate transfer pricing between subsidiaries, so a “sale” to a true customer outside the company is all that matters. In other words, the internal profit shifting in our RGC example becomes not only useless but stupid, as it lacks a business rationale. SFA also achieves the Republicans’ territoriality goal in a way that is good for the country while achieving the Democrats’ goal of eliminating tax avoidance and maintaining tax revenue. In fact, the U.S. states adopted this system long ago, to avoid artificial income shifting from high-tax to low-tax states. So it is hardly an alien concept, because U.S. companies already comply with it.


The U.S. corporate tax rate is indeed high among developed economies, but is so ineffective that it collects less revenue as a percent of GDP than foreign countries with lower tax rates. SFA ends the charade.

http://prospect.org/article/progressive-tax-reform-you%E2%80%99ve-never-heard-0

[Winehole23]

Sales factor apportionment is the only reliable way to eliminate fiction layered upon fiction—because it only considers income from real sales to real third parties from any part of the consolidated company.