<p>Wyogal,
Do people who make $50,000 spend as large a percentage of their income as people that make $100,000, $200,000, 500,000?</p>
<p>Since you calculated it out you can tell me:</p>
<p>If I make $200,000 and spend $100,000 my tax is?
If I make $100,000 and spend $100,000 my tax is?
If I make $50,000 and spend $45,000 my tax is?</p>
<p>Ok. I will do my own calculations. Married, no children.
If I make $200,000 and spend $100,000 my tax is $18, 598 and my tax rate = 9.299%.
If I make $100,000 and spend $100,000 my tax is also $18,598, but my tax rate is 18.59%.
If I make $50,000 and spend $45,000 my tax rate is 5948 and my tax rate is 11.90%</p>
<p>So we are going to eliminate, social security taxes, estate taxes, gift taxes, capital gains taxes, corporate taxes, and if I buy used stuff I don’t pay the fair tax, and the government is going to take in as much money as it does now? I guess that is why the panel blew this off.</p>
<p>And the rich are really going to pay their fair share?</p>
<p>There’s another problem… As I noted in the other thread, according to IRS the combined percentage of Adjusted Gross Income which is paid to the government in the taxes FairTax is supposed to replace - income and social security taxes - averages between 25% and 28% for all taxpayers above $30,000. Yet FairTax has a “prebate” and 23% limit, meaning that even if you spend every cent you earn, on “Fairtax taxable” items (are mortgage payments and local taxes subject to FairTax? I don’t think so.) your maximum tax rate is going to be less than 23%. And for those who spend less than 100% of their income (a percentage which, generally speaking, drops as income rises) the percentage of income paid in “Fairtax” will be even less. </p>
<p>So, to recap: Now: average tax bite is 25 - 28%.
Fairtax: tax bite always less than 23%. A lot less for very rich people.</p>
<p>Just another thing that doesn’t add up. And by the way - I did check out the FairTax website. Rife with misleading and erroneous statements. That doesn’t make me comfortable.</p>
<p>Look, I don’t mind discussing this with you two, but don’t you think we ought to compare apples with apples and not oranges? You have to let go of “income” as the only yardstick by which things are measured. Who is more “rich”–the just graduated engineer with a new $50K job, or the retiree with $30K in social security, an unmortgaged house, $200K in savings and Medicare benefits? If you’re comparing tax rates, you have to compare rates on the same basis, not some that are gross rates, some marginal rates, some net rates. It doesn’t advance the discussion to include some things to get one rate, exclude them to get another, all to make the outcome fit your conclusion.</p>
<p>Dstark, I don’t follow your math or where you’re getting your figures. The whole idea of regressive vs. progressive taxes has to do with comparing income and/or wealth with a basic amount consumed. Since the FairTax exempts all tax on this amount for all people, one is left with one tax rate for everyone on expenditures over the basic amount. It is neither regressive nor progressive.</p>
<p>Kluge, it’s not reasonable sense to project the revenues produced by a consumption tax by using AGI–you have to compare dollars of revenue to dollars of revenue. AGI says absolutely nothing about consumption. Also, you are comparing income tax rates calculated “exclusively” with the “inclusive” FairTax rate of 23%. The FairTax is a tax on the consumption of wealth, not the production of income.</p>
<p>With regard to the absolute levels of revenue generation, one has to account for the fact that the base upon which the tax is levied is much much larger in the case of the FairTax, compared to the base of our current “income” tax riddled with loopholes like swiss cheese.</p>
<p>The problem that I hear you both expressing is the thought that “the rich” won’t pay enough taxes. You don’t define rich, and you don’t define enough. The rich won’t pay ALL the taxes, that is true, but then that is the case under every system. </p>
<p>And Kluge, if you found a “misleading and erroneous statement” on the website, let me know what it is and I’ll see if I can help explain it. :)</p>
<p>Wyogal, I’m getting the figures from your web site.</p>
<p>No, I don’t want to stop looking at income. That’s what people who will benefit by the switch want others to do. I’m not playing that game. </p>
<p>The tax rates set by fairtax are too low to get the revenues we get now. That’s just simple arithmetic. You don’t have to argue which system is better or anything else. We will collect fewer dollars.</p>
<p>The tax rates are not the same for all people. If I spend less of my income than somebody who makes the same, my tax rate is lower.</p>
<p>Since you have many economic degrees, you know that the larger the income, the more likely some of that income is saved. This results in a lower % of income taxed for those that make more money when you tax consumption. In my example, a person who makes $200,000 and spends $100,000 will end up paying the same tax as somebody who makes $100,000 and also spends $100,000.</p>
<p>How does this work? A contractor builds a house I want to buy. Then I lease it for 6 months. Then I buy it. Is it now a used house and I pay no tax on it?</p>
<p>The same with cars. Why would I ever buy a car? I’l just lease it and never have to pay the tax on the purchase price.</p>
<p>Do I get to buy a big screen TV for my business (because I do need a tv) and pay no tax? Then 6 months later, just ship it to my house?</p>
<p>What’s going to be the definition of new and what is going to be the definition of old?</p>
<p>The fair tax has plenty of holes in a cheese. It’s just a different cheese.</p>
<p>In my examples, every one of those tax payers will probably pay less in tax than they do now. Who is going to pay more to make up the difference so we end up revenue neutral?</p>
<p>In order to really understand fairtax proposals, one should dig into US history and look at the economic circumstances that led to the income tax. Prior to the income tax, our fed. govt. was financed largely by tariffs. If tariffs seem to have a curious relationship to so called consumption taxes, you are on the right track.</p>
<p>In fact, a key issue behind the income tax was progressive taxation. Gee, folks back then, even the leadership, thought it fair that the wealthy pay a greater share, as it was pretty clear they could afford it. </p>
<p>My, how times have changed.</p>
<p>
No, NMD, progressivity had nothing to do with it, as there were only 2 brackets, 1% and 7%, and it was only the highest 1/2 of 1% of income earners who paid the tax. The fact is most people thought they would never be subject to the income tax. They only thought the Carnegies, Mellons, DuPonts, and like would ever pay the tax. I would have to do more research to find out which leadership approved of this, but I can name one luminary: Karl Marx. In The Communist Manifesto, Marx lists 10 conditions for a totalitarian dictatorship of the people, and #2 is a progressive income tax. Oh, and tariffs are not comparable to the FairTax, because tariffs are only imposed on imported goods.
I don’t understand how you come to this conclusion–the amount of the tax base (private and government consumption) is far more than the amount of reported wages/salaries/capital gains/dividends etc. If the income or purchase you are taxing is $10, a 10% tax raises $1.00. If the tax base is $20, the rate which results in $1.00 of revenue is 5%.</p>
<p>The tax base is larger because the underground/illegal economy will be paying taxes on their “disposed of” income, because non-residents will pay the tax, because corporations will no longer have to have foreign subsidiaries to avoid income tax on foreign operations, because there will be no advantage to complicated off-shore income sheltering schemes, because some people consume more than they produce (Paris Hilton 
?), and a dozen other reasons of lesser significance.
This is where there is trouble, because you are comparing marginal tax rates with absolute tax rates, and ignoring the differences in the tax base. </p>
<p>The only way you can say the current income tax is progressive is to compare marginal tax rates. If you ask who pays more in taxes overall in dollars and proportion of revenue, the answer is the same for FairTax and the current tax system, i.e. the rich pay more. The marginal tax rate for the FairTax is fixed, which is not the same as the second question, see:
<a href=“FairTax Volunteer - FAQ 1”>FairTax Volunteer - FAQ 1; .</p>
<p>dstark, I agree that there are details to be worked out, and I don’t know the exact answer to your leasing question. Even the current tax code has 3-4 pages of regulations for every page of legislation. Part of keeping it simple is to keep interpretation of the law simple. To that end, it would seem to me that if a homebuilder is going to lease a house, he should have to sell it to a leasing corporation, which would pay the tax, and can now lease it to you. But that is a good question, and I will try to find the answer for you. I have another problem along the same lines, and I have asked Congressman Linder about it. His answer is basically that these are the sorts of things that are necessarily worked out in Congress. He is concentrating on getting people to understand and accept the principles inherent in the FairTax first. When that is accomplished, we can turn to details and make certain that the implemented system is true to the concept. Unfortunately, the FairTax is only a tax reform measure, it does not address spending reform, government bureaucracy reform, ethics reform, campaign finance reform, or any other sort of reform. We will still have to be more vigilant and more demanding of our legislators than we are now if we really want them to be responsive.</p>
<p>So far, you all have kept me answering questions and explaining the FairTax on the revenue side only. What about the economic impacts of the FairTax? What about the impact of repealing the taxes on savings? About rewarding productivity? About making it worthwhile to work harder and better rather than sneakier or lazier? About making virtually everyone an active participant in the economy and in supporting the costs of government? About levelling the playing field for companies doing business abroad? About the moral equivalency of paying taxes based on voluntary individual choices rather than arbitrary bases defined by the IRS? About lowering the costs of tax compliance?</p>
<p>Any takers?</p>
<p>I would like to answer your questions, but the math doesn’t work, so until it does, I don’t see the point.</p>
<p>The underground economy is estimated to be around 16% of the total economy.</p>
<p>The fairtax is not going to make up the difference. I looked at the web site and it leaves out key numbers.</p>
<p>I would like to know for a certain income level, what is the average consumption rate? If I make $40,000 what is the average consumption rate. $80,000? $150,000? 1 million?</p>
<p>Let me see. I can buy a house like this, buy antique furniture and pay no income or consumption tax under the fairtax system.
<a href=“realtor.com® | Homes for Sale, Apartments & Houses for Rent”>realtor.com® | Homes for Sale, Apartments & Houses for Rent;
<p>You see, the income tax doesn’t capture all income, but the fairtax doesn’t capture all consumption.</p>
<p><a href=“FairTax Volunteer - FAQ 1”>FairTax Volunteer - FAQ 1;
<p>Wyogal, your link.</p>
<p>Those are consumption tax rates, not income tax rates. It’s the old bait and switch. Compare two different ideas but use a different measuring stick for each idea.</p>
<p>Under our system now, we have a slight progressivity when looking at income taxes. </p>
<p>Under the fairtax, not only is that progressivity gone, it reverses because the more people make, the less they spend. The higher income people will be paying less taxes per dollar of income under the fairtax than they do now. Instead of having a slightly upward curving line of progressivity, we will have a bell curve with those at the top end paying very little in taxes compared to their incomes.</p>
<p>Yes, they’re consumption tax rates. That’s assuming there is no income tax, no ssi, no medicare, no nothing based on income. What you are comparing here in this chart is not the rates per se, but the progressivity, compared to the progressivity of the current system.</p>
<p>You know, the 15% income tax bracket isn’t 15%, it’s God-knows-what after deductions, credits, under the table payments, half price tax on capital gains, non-taxable SS payments and so forth, and different for every individual tax return. The dimunition of progressivity is larger the higher the tax rate. This argument about tax rates is just plain ridiculous.</p>
<p>And yes, you could buy a used home and used furniture, so what? The underground economy is 16% of the total economic activity, not 16% of the total reported wages. There is a difference. I will ask for more hard numbers for you.</p>
<p>You say you won’t answer my questions-- I’m not asking you to answer them, I asking you to consider them… These are issues that will have incredible importance to your children, considering how globally intricate the economy is becoming. I’m asking you to stop thinking in a 19th-early 20th century context, for the sake of your children who will be competing with the world in 10 and 30 years.</p>
<p>Get the FairTax book. PM me your address and I’ll send you a copy, gratis.</p>
<p>AS I noted in my post, any sales tax has problems. What is to stop smuggling? If the tax is too high, what is to prevent consumers from cuting back their purchases as much as possible and, consequently, creating a big recession? How about all the other points that I raise on tax reform changes?</p>
<p>Wyogal, I consider these issues more than you know. I’m not into passing tax cuts for the higher income workers because the world economy is changing.</p>
<p>OK. Forget tax rates. Why doesn’t fairtax just tell the truth? Those with incomes over $200,000, corporations, people with large estates, people with large capital gains, will in most cases pay less in TAXES.</p>
<p>“And yes, you could buy a used home and used furniture, so what?”
I don’t know. I guess it is just me, but I like the idea of multi-millionaires paying taxes since the working people in this country have to pay them.</p>
<p>And why do you keep talking about catching total economic activity? We aren’t catching that housing transaction in Ross. We aren’t capturing any used goods.</p>
<p>Since you read the book, what are the answers to my questions in post 88?</p>
<p>Forget every other tax structure.
The tax structure under the fairtax is not progressive. That chart doesn’t show progressivity and it isn’t meant to. :)</p>
<p>OK, the numbers in my post 82 are incorrect. The tax rate on spending on each individual person after the poverty rate is 30%, not 23%. </p>
<p>It matters, but not enough for me to redo the numbers. :)</p>
<p>This is the most wacko discussion I’ve seen in some while. For someone to argue that:</p>
<ul>
<li><p>"progressivity had nothing to do with it, as there were only 2 brackets, 1% and 7%, " is bizarre.</p></li>
<li><p>to argue the fine points of flat tax, consumption tax, whatever and then claim it is fairer to everyone because the wealthy will pay more than the poor, defies rationality.</p></li>
<li><p>to then further obfuscate the differences among total tax rate, marginal tax rate, and overall tax payments is curious.</p></li>
</ul>
<p>And yes, the flat tax does nothing about the underground economy. You think barter will go away? Cash payments go away? Yea, right.</p>
<p><a href=“http://www.taxpolicycenter.org/newsevents/events_trp.cfm[/url]”>http://www.taxpolicycenter.org/newsevents/events_trp.cfm</a></p>
<p>I couldn’t provide a direct link. Click on the above and scroll down to National Retail Sales Tax and click on that.</p>
<p>The fairtax…what a misnomer.</p>
<p>Does anyone ever notice that we always seem to have these big tax reform hearings and discussions in eras where we have large deficits?</p>
<p>When congress refers to “tax reform” or “tax simplification,” these words are completely misleading. They have always in the past been enacted to RAISE MONEY! Anyone who thinks these proposals are going to be revenue neutral with what is currently in place is fooling themselves. Congress uses these names for the “Verns” of the world. Do not be fooled. </p>
<p>There is no such thing as a purely fair tax. Someone’s ax gets gored and someone benefits. Most of the proposals espoused lately benefit the super rich or those who make in excess of $400,000 a year and preferably much more. </p>
<p>Any sales tax is very, very regressive towards the poor or the middle class. In addition, it really hurts start up businesses because they have to pay these high sales taxes without having any revenue. You should really read my article found in post 47</p>
<p>This “wacko” discussion reminded me of a book I read years ago, by George Kennan, “Around the Cragged Hill.” I believe it was his final book, and he described it as “a personal and political philosophy.” Very interesting book, btw.</p>
<p>The part that I was reminded of was the chapter called " Egalitarianism and Diversity." Among his ruminations there, he reminds us of Tocqueville’s concern that liberty and egalitarianism were ultimately incompatible, and he feared that given the choice, many people would, to their eventual detriment, tend to choose the latter.
Kennan then fast-forwarded 100 years and showed Tocqueville’s fears realized in the form of Soviet communism:
A nice, neat summary of the “Progressive” mindset.</p>
<p>I didn’t know those at the top of the income scale were oppressed in this country. So oppressed that they have to have lower tax rates than those toward the bottom of the income scale… So oppressed that they have to come up with tax schemes to screw over the lower and middle classes while lying about the mathematics of their proposals.</p>
<p>I didn’t know those at the top of the income scale were oppressed in this country. So oppressed that they have to have lower tax rates than those toward the bottom of the income scale… So oppressed that they have to come up with tax schemes to screw over the lower and middle classes while lying about the mathematics of their proposals. "</p>
<p>Response: Those at the bottom of the income scale don’t generally pay much in taxes. Thus, they don’t have as much incentive to lie, cheat, or connive.</p>
<p>They don’t have much money either.</p>