<p>Driver, I have educated myself on national sales taxes and have written articles on the subject. This is not the forum to note all of my objections. If you go to the tax reduction institute web site ( just do a search) and check out the article entitled a “flat tax is a fat tax,” which also discusses the pitfalls of a national sales tax, you will see some pitfalls that aren’t told you by the fair tax folks. Sorry, you will need to do a search for “taxreductioninstitute.” I can’t give out the URL due to CC policy.</p>
<p>Taxguy, nice articles on the flat tax, and estate tax debate. The fat cats know a flat tax or a national sales tax will reduce their taxes and put more of the burden on the middle class. That’s why they want the change. :)</p>
<p>Burdening the middle class…yes, that’s always up there on my list of things to do, along with “rolling back the clock for women and minorities.” I’d settle for equality under the law.</p>
<p>Your version of equality is being taxed at a lower rate than people who make less.</p>
<p>No, my version of equality is being taxed at an equal rate.</p>
<p>Then you don’t support a national sales tax.</p>
<p>The middle class pays a higher share of their income in taxes than the upper class with the national sales tax.</p>
<p>Then you don’t believe that capital gains should be taxed at a lower rate than labor.</p>
<p>I have reproduced my article on various tax reform proposals. Admittedly it was written years ago, where there were some different proposals. However, I think that the arguments made then still apply today:
________________________________________________________-</p>
<p>Flat Tax Means Fat Tax
(An Alternative Opinion)</p>
<p>Senator Tim Hutchinson notes that we should, Toss out the tax code and start over. As his reason he cites the usual Republican partys argument that the tax code is too complicated and too unfair. There are a lot of things, however, that the tax reformers arent telling anyone.</p>
<p>Certainly, simplifying our tax code should be a major concern for all of us. It is needlessly complicated and results in a huge industry for accountants. However, tax simplification and tax reduction doesnt necessarily go hand-in -hand. For example, Congress can really make life easier for all Americans by utilizing a two line tax forms. Line one would say, Report your income. Line two would say, Send it in. This is simple, but I doubt that anyone would like this new system. Similarly, most of the Flat Tax and Consumption Tax and national sales tax proposals have some hidden problems. </p>
<p>First, all Flat Tax and Consumption tax proposals will result in a greater amount of tax for most middle income people. Dont believe me? Consider this: the top tax rate is 39.6% plus various phase outs for itemized deductions and exemptions. According to most studies, there are approximately two million people in this bracket. If we have a flat tax of 17%, who makes up the difference for these two million people who will pay a lot less? Answer: WE DO!! In fact, the Cato Institute and Money Magazine (January 1998 issue) estimates that the flat tax helps those who earn over $500,000 per year and hurts most of those people who earn less. In addition, not only will most taxpayers federal taxes increase, but state taxes will increase as well. Most states piggy back the federal deductions. If we eliminate interest on homes, property taxes, income taxes, charitable contributions, and the states keep the same rates, the state income rates will rise. This would result in a potential double whammy for most taxpayers. This is why many knowledgeable people refer to the Flat Tax as a Fat tax.</p>
<p>Second, we had a flat tax in 1987. We went from thirteen brackets to four, with the top rate being 28%. Ten years later with most of the same deductions eliminated, the top rate is 39.6%. If history tends to repeat itself, this same result would occur with any proposed Flat tax. This means much higher taxes in the future!!</p>
<p>My main problem with Flat Tax or Consumption Tax proposals is that our tax system is integrally part of our economic system. If we make significant tax changes, we see big ripples in the economy. For example, prior to 1987, you were able to deduct all cars in business over a three year period. Since Congress changed the law, automobile sales have died in comparison. Ford Motor published their yearly sales of cars after 1987 and noted that they did not sell as many cars in any one year after the tax law change(1987) as they did prior to the tax law change, costing over 200,000 jobs lost permanently. In addition, with the slight real estate changes, real estate died. Many economists estimate that most of the cause of the two hundred billion bank bailout by the Treasury (which means us) had resulted from the simple tax law change limiting real estate deductions to real estate income. If we suddenly make a major change in our tax system by eliminating our tax code and replacing it with another, it could , not only stop our period of unprecedented economic growth, but could actually put us in a major recession! As one of the Congressmen noted to me recently, no one really knows for sure what the economic implications would be!</p>
<p>Interestingly, Congress could change the Internal Revenue Code to be much more understandable and easier to use. Congress can simply eliminate phase outs, alternative minimum tax, and other complicated provisions. Unfortunately, it would take a lot of courage from our Congressional leaders to do this, and the more entrenched the representative, the less likely they are to make major courageous changes in our tax system.</p>
<p>As to a national sales tax (otherwise now known as a Fair Tax), this would even be a greater mistake than that of a consumption tax. In addition to having the same drawbacks that a flat tax has, it also has some additional problems.</p>
<p>Firstly, it would be much too easy for Congress to raise the rates. Secondly, it would create a great deal of smuggling as occurs in Canada( who also has a national sales tax). Thirdly, it creates tremendous postal problems since the post office will scrutinize all packages for possible sales tax violations. This has caused major delays in delivery of packages throughout Canada. In fact, in Canada, where a national sales tax exists, the post office is extremely inefficient partly because of the sales tax problems. If you know any Canadians, ask them about their national sales tax. They, themselves, will tell you what a disaster it has become. Fourthly, small business has been the engine of our economy since our countrys inception. It already is very difficult to succeed in business as it is. A sales tax would result in increasing the cost of all goods and services incurred by small business by at least 20% before they make any money. This would greatly increase the cost of starting a business that , in turn, would result in fewer successful businesses.</p>
<p>Fifthly, a national sales tax would be a tax disaster for low income and middle class taxpayers. In fact, they would have much more of their income subject to tax than that of the rich. For example, a person who earns one-million dollars a year will probably not spend everything he/she makes; They may only spend $250,000 that would possibly be subject to the sales tax. However, a person earning $60,000 per year will probably spend everything they make and more. Thus, all of their income will be subject to the tax. Thus, middle class taxpayers will pay a proportionately greater share of the tax then the rich would pay. This is why many economists refer to the sales tax as regressive.</p>
<p>Finally, If we have a whopping 30% sales tax on all goods and services( in addition to what the states charge), it is very possible that the public will do everything possible to reduce their purchases of goods and services. This could result in economic chaos such as a recession or even a depression.</p>
<p>In short, we dont need to replace the tax system, we need to replace all Congressmen and Senators with people who are courageous and have common sense. Thus, before you consider eliminating the current tax system and replacing it with one of the other proposals, always remember the words that Fagin used in the movie Oliver, I think Ill think it out again.</p>
<p>
I don’t think that labor or capital gains should be taxed. That’s obviously counterproductive.</p>
<p>And Sandy…taxguy…I visited your website. Nothing personal, but forgive me for being unconvinced by the bona fides of a former IRS agent with regard to this subject.</p>
<p>Driver, shoot the message and NOT the messanger. Moreover, I am no longer with the IRS. In fact, I want to see true simplification.</p>
<p>So you are in favor of the national sales tax?</p>
<p>Dstark, if you are addressing your post to me; no, I am not in favor of a national sales tax.</p>
<p>I think that a consumption tax is better for the economy than one which essentially penalizes the production end. I also dislike the use of the tax code by politicians to steer the economy, as described by taxguy. Yes, it is a current part of our economic system, but it shouldn’t, and doesn’t have to be.</p>
<p>Taxguy, I know you’re not, and what you wrote is correct, former IRS agent or not.</p>
<p>Driver, so do you support the fairtax proposal?</p>
<p>I think the fairtax proposal is interesting and worthy of consideration, although I was unaware of the specific organization’s existence prior to wyogal’s reference. I do think that consumption taxes are preferable to income taxes. Now…why don’t you stop sparring for a second and get to your point?</p>
<p>Driver, my point is it is a regressive tax. People are not taxed equally, because higher income people spend less of their income on consumption. Taxguy is correct. There is no equality.</p>
<p>The consumption tax rate would also have to be much higher than fairtax wants to close the deficit. As a fiscally conservative person, I would like that deficit closed. </p>
<p>Whether you have a consumption tax or an income tax, the politicians are going to monkey around.</p>
<p>Income taxes are not really that high in this country. The federal government is only taking in about 16% of the GDP. This is the lowest amount in my lifetime.</p>
<p>I would like to see tax simplification. I want to see the proposals when they are finally finished.</p>
<p>Well dstark, I’m disappointed in both you and Taxguy. The FairTax is not some off-the-cuff national sales tax that people are just throwing out there.</p>
<p>It is not regressive at all. In fact it is de facto more progressive than the current system. There is a prebate that compensates all households for the taxes paid up to poverty-level expenditures, AND it replaces not only the income tax but also SSI and Medicare taxes, the really regressive taxes which hit the working poor. </p>
<p>The FairTax is revenue neutral, and has nothing to do with spending. It also has nothing to do with state or local taxes. If you want to get rid of the national debt, and yearly deficits, the only way to do that is from the spending side.</p>
<p>Go take a good hard look at it and see if you can come up with a reasoned argument against it.</p>
<p>And taxguy, your response is exactly what the tax panel did–the FairTax is not the same as your sales tax of “years ago.” It’s a carefully constructed and researched tax proposal. Don’t set up a straw-man argument to knock down–you’re better than that. Go read the book. Go read the bill. Go read the studies by the Harvard economics professors who calculated the rate based on being revenue neutral. Go read the studies on what this could do for our economy. I dare you.</p>
<p>Well, if you folks will look at the thread where I posted the IRS numbers through 2003 you’ll see that the average “take home” after federal income and SS tax is essentially flat for all income levels above $30,000 - an average of 72% to 75% . We have a flat tax already. Yet all the changes I’m hearing about would lower taxes on the upper income folks - which (do the math here, kids!) means raising it on everyone else. All of the hoopla about consumption vs. income, “double taxation”, blah, blah, blah, is just a smokescreen. It doesn’t matter which technique is used to calculate the taxes, what matters is the total amount paid by each taxpayer at the end of the year. Whenever I see a “brilliant new idea” of how to generate tax revenue for the government (flat tax was the last fad) it always turns out to be a way for the rich to pay less and everyone else to pay more. </p>
<p>Let me repeat: “Fairtax”, flat tax, “simplified” tax system, you name it - it’s all just a way to shift the burden downhill. The details are just smoke and mirrors designed to conceal that basic fact. If you can justify that, fine. If not, then try to recognize the ultimate function of what you’re actually advocating.</p>
<p>Wyogal, you are FACTUALLY incorrect. Sorry. It is regressive because the more money people make, the less they spend as a percentage of their incomes. Rich people, as a share of income, will see their taxes go down, middle class people, as a share of income, will see their taxes go up.</p>
<p>As a share of income, the rich will pay taxes at a lower rate than the middle class under the so called “Fairtax”.</p>
<p>Rich people will see their TAXES go down. The middle class will see their TAXES go up.</p>
<p>Revenue neutral means in aggregate there is no change. In detail, the middle class gets the shaft, the rich get tax cuts. Some lower income people may benefit. Some may not. </p>
<p>I really don’t care what some economics professors say. Some will support it. Some won’t.</p>
<p>It doesn’t change the bottom line. The rich do better and the middle class does worse.</p>
<p>Why don’t you play around with the numbers and figure it out for yourself? You don’t need a Harvard professor to figure it out for you.</p>
<p>We always read how “unfair” the system and how every new tax proposal seems to benefit the rich. I’d like to go back to the examples provided by Dstark in the thread about the struggle of middle class families in California. As it happens to be one of the states with a state income taxes, it is easy to see that they must NOT be paying THAT much in state income taxes. It is obvious that a concurrent abolition of state income taxes and Prop 13 would be VASTLY more costly. As someone said, it is all relative. In the end, revenues have to come from SOMEWHERE to cover expenses. </p>
<p>And this lead me to my main point: Is the middle class, the one that is supposed to be so heavily and unfairly taxed, really carry their OWN burden?</p>
<p>Going back to the Morning family, how much does the society at-large pay for THEIR lifestyle. Right now, while their contribution -net of social security- is nihil, we can extrapolate that their education costs add up to $30,000 per year. Were they to send their three kids to college, you can double that figure. Is this fair or does it show the negative side of a system that is facing its day of reckoning. Our system -just as our population- is showing signs of a growing obesity and a shrinking head. We are getting fatter and lazier, and not really smarter. Slowly, but surely, are we not walking to a path towards mild versions of socialism, the same system we should have nothing but contempt for. </p>
<p>Our society is based on need and must have. We need this and that, and must have that … especially as others pay for it. We WANT free education, free medicine, a retirement filled of travel and leisure. We NEED the two or three cars per family, and preferably one of those gas-guzzling SUV. Yet, we seem oblivious that we are NOT paying for much else than our own private and current consumption. </p>
<p>In most countries around the world, taxpayers do not have our choices. Their taxing authorities take the money at the source, and leave much smaller disposable incomes to the citizens. On the other hand, we seem to think that our taxes should be set at what WE think we can afford, after paying for all we consider our standard of living. Again, going back to the probation officer, I am wondering in how many countries in the world would such profession allow the purchase of a $600,000 home and a salary of $65,000. I remember Dstark remark about denigrating one’s job, but correctional officers are not exactly having jobs that require a high level of education or extraordinary time commitments. Again in most parts of the world, a salary of $65,000 would land the beneficiary solidly in the middle class. However, one big difference is that the beneficiary would pay a LOT more than $5,000 a year in taxes, and live a more spartan life. </p>
<p>I am ALL in favor of tax reductions -where they truly belong- but I am also realistic that situations like the ones described in the examples are simply untenable in the long run. If we expect the government to continue to support free public education, we will need to pay more taxes. It also seems inevitable that it will have to be in the form of income taxes. </p>
<p>Lastly, I disagree entirely with the negative analysis of a national state tax as being an extra burden to the poor. Similar systems or VAT systems are found all over Europe, Latin America, and Asia. Do we believe that there is less of a middle class in those countries? Do they have fewer poor people? The reality is that our savings account statistics clearly show that we spend almost all we have -and more in many cases. And we do that without much thought about sales taxes! Grasshoppers we are, ants not!</p>
<p>Before rejecting simple and “regressive” taxes, we ought to look at what countries that HAD the choice of punting their old tax codes entirely did. Check the stories of Slovakia and see for yourselves what a simple tax system can do for a country. </p>
<p>Our current system is not much different from a train. We have a few locomotives and many wagons. The longer the train is, the bigger and better the engines should be. However, we prefer to find ways to cripple the locomotives, let more and more people sit idly in the wagons and ride for free .<br>
Every fairy tale does not have a happy ending. </p>
<p>PS Here are the numbers from the old articles. </p>
<p>
</p>