Tax Reform Thread

[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... 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?

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 cons uencies for decades.