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Thread: Fair Tax - Revenue-Negative?

  1. #1
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    Fair Tax - Revenue-Negative?

    Is there any indicators that a fair tax would bring in significantly less revenue then the current system?

    Furthermore, how would the fed deal with a recession under a fair tax system?

    As I understand it, a recession results in drops of consumption. Dropping consumption drops sales tax revenues. Big fat problem.
    "You are, of course, free to make your own calls on how much rationality you want to impose upon yourself." - Kronus

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    Quote Originally Posted by obvious_child View Post
    Is there any indicators that a fair tax would bring in significantly less revenue then the current system?

    Furthermore, how would the fed deal with a recession under a fair tax system?

    As I understand it, a recession results in drops of consumption. Dropping consumption drops sales tax revenues. Big fat problem.
    I haven't finished reading about it, but I think it's touted as revenue neutral.

    Regarding recession, I would think there's a decrease in revenue even with the current income tax system. Jobs are lost. Therefore, revenue is lost. Just how much, I do not know.

    Let's ask Neal Boortz!
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    What puzzles me more is that sales taxes are known to reduce trade, which dampens economic growth. It also places a greater tax burden on the poor.
    “When I give food to the poor, they call me a saint. When I ask why the poor have no food, they call me a communist” - Helder Camara
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    Quote Originally Posted by jim's trucking View Post
    I haven't finished reading about it, but I think it's touted as revenue neutral.
    Under a 23% sales tax assuming no cheating (which would be pretty easy), no increase in the underground economy, which IMO is completely ridiculous to assume, and holding the same consumption rates, which IMO are completely insane as they ignore the psychological impact of massive shock to most people. Taxes reduce consumption, that is a basic fact of life. Basic supply side fundamentals that reducing taxes increases activity. Now we're talking about increasing public taxes and it won't reduce consumption? That makes no sense.

    It just seems that the claims of revenue neutral rely upon unfounded and quite unrealistic assumptions.

    Regarding recession, I would think there's a decrease in revenue even with the current income tax system. Jobs are lost. Therefore, revenue is lost. Just how much, I do not know.
    No doubt that revenue drops with recessions. However, if the federal taxes are purely based upon consumption and everyone knows that recessions result in drops in consumption, we could be facing a serious cash flow problem just when the fed needs money to pump money into the system as well as maintain current expenditures.
    "You are, of course, free to make your own calls on how much rationality you want to impose upon yourself." - Kronus

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    The fair tax is not a sales tax in the sense the presidential candidates that I know of mean. The fair tax is pretty much the AMT renamed with some slight changes.

    Personally, I do not favor the idea but it does have aspects of it that are good.

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    Quote Originally Posted by Steeeeve View Post
    The fair tax is not a sales tax in the sense the presidential candidates that I know of mean. The fair tax is pretty much the AMT renamed with some slight changes.
    I suppose that is true. A national sales tax would not allow the few deductions that the AMT allows. It would be AMT on everyone. Hmmmmm
    "You are, of course, free to make your own calls on how much rationality you want to impose upon yourself." - Kronus

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    Quote Originally Posted by obvious_child View Post
    I suppose that is true. A national sales tax would not allow the few deductions that the AMT allows. It would be AMT on everyone. Hmmmmm
    I shoulda been more clear (long flight home) when I said what I said. I meant that I have heard the candidates state a fair tax as what they are for but they are really advocating a flat tax.

    The fair tax is a national sales tax and wouldn't work.

    The flat tax wouldn't either but not a bad idea if you combine with ideas of the fair tax and current tax system.

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    Quote Originally Posted by Jo Bennett View Post
    What puzzles me more is that sales taxes are known to reduce trade, which dampens economic growth. It also places a greater tax burden on the poor.
    With the implementation of the fair tax, whatever income one has, will seem to increase as no income tax will be removed from their paycheck. Success of the fair tax "will" depend on people being responsible with their money. Buying power will be easier to determine as people will have no need to calculate how much of their check they will actually receive. They will receive all of it.
    But, have no fear, the fair tax will never be implemented. It is what the name suggest. Fair. Too many like the convenience of the current system as a way to hide and manipulate.

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    Quote Originally Posted by gman View Post
    With the implementation of the fair tax, whatever income one has, will seem to increase as no income tax will be removed from their paycheck.
    But will they be willing to spend it? Having a 23% sales tax in addition to state could bring in some states sales taxes of 33%. How many people are willing to consume unnecessary products when a $1 value mean jumps to $1.33 or buy a car? 33% sales tax on a car BEFORE other taxes? Yikes. The psychological aspect is enormous. But this would be great for savings.

    But, have no fear, the fair tax will never be implemented. It is what the name suggest. Fair. Too many like the convenience of the current system as a way to hide and manipulate.
    I know that. The fair tax is just as likely to be implemented as a tax on right handed people. Congress needs the money from the current system and they are not going to #### off their contributors by jerking away their hard fought tax loops.
    "You are, of course, free to make your own calls on how much rationality you want to impose upon yourself." - Kronus

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    Quote Originally Posted by gman View Post
    With the implementation of the fair tax, whatever income one has, will seem to increase as no income tax will be removed from their paycheck. Success of the fair tax "will" depend on people being responsible with their money. Buying power will be easier to determine as people will have no need to calculate how much of their check they will actually receive. They will receive all of it.
    But, have no fear, the fair tax will never be implemented. It is what the name suggest. Fair. Too many like the convenience of the current system as a way to hide and manipulate.
    That really depends on your definition of fair. If you look at Adam Smiths ideas of a fair tax system then the "fair tax" is the opposite of fair.

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    I see 2 problems with the so called "fair tax". First, there does not seem to be any ideas about what we are going to do for the 2 years of revenue shortages during the transition. The second problem is that the :fair tax" is not at all fair.

    Our tax system is the way it is for a reason. Wealthy people pay more taxes because they derive more benifit from the system. Wealthy people own congress. They have for decades. They owned congress when they put our current tax system in place as it is. It always seems to be the middle class that argues for the "fair tax". The middle class is not paying much by way of taxes anyway. I will never understand why the middle class is so concerned with the amount of taxes that the upper class pays. Mobility from the middle class to the upper class is virtually non existant, so it can't just be that the are trying to plan ahead for when they, too, are wealthy (in fact, mobility form the middle class to the lower class is at an all time high and accelerating, so if the middle class really wants to plan ahead, they need to plan for when they are lower class).

    Congress is full of wealthy people. Congress is OWNED by wealthy people. If wealthy people decide they are being taxed too severely, they will have their taxes lowered. Fear not.
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

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    Quote Originally Posted by daewoo View Post
    I see 2 problems with the so called "fair tax". First, there does not seem to be any ideas about what we are going to do for the 2 years of revenue shortages during the transition. The second problem is that the :fair tax" is not at all fair.

    Our tax system is the way it is for a reason. Wealthy people pay more taxes because they derive more benifit from the system. Wealthy people own congress. They have for decades. They owned congress when they put our current tax system in place as it is. It always seems to be the middle class that argues for the "fair tax". The middle class is not paying much by way of taxes anyway. I will never understand why the middle class is so concerned with the amount of taxes that the upper class pays. Mobility from the middle class to the upper class is virtually non existant, so it can't just be that the are trying to plan ahead for when they, too, are wealthy (in fact, mobility form the middle class to the lower class is at an all time high and accelerating, so if the middle class really wants to plan ahead, they need to plan for when they are lower class).

    Congress is full of wealthy people. Congress is OWNED by wealthy people. If wealthy people decide they are being taxed too severely, they will have their taxes lowered. Fear not.
    The good argument for fixing the tax system is that the compliance rate is so messed up and in some ways the system is unfair now.

    The problem is people think the complicated part of the tax system is that we have so many brackets. In reality it isn't that hard to take a number and multiply it to a tax rate to get your taxes. The hard part is collecting for those that owe and dealing with those that have complicated tax issues such as a personal business with family members and things like that. Not too difficult for a CPA but for the average Joe it can get up there.

    Seems that if you just removed every deduction and just took what you make by a percentage then you'd have a pretty easy way of getting those numbers.

    As for the rich guys...they certainly aren't paying too much in taxes. In fact, they probably could afford to go up a little bit considering we have a dangerously widening social gap (note to all the liberals: I don't general favor this kind of activity but when it gets too out of whack the government needs to check it or you end up having other social issues).

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    Quote Originally Posted by Steeeeve View Post
    The good argument for fixing the tax system is that the compliance rate is so messed up and in some ways the system is unfair now.

    The problem is people think the complicated part of the tax system is that we have so many brackets. In reality it isn't that hard to take a number and multiply it to a tax rate to get your taxes. The hard part is collecting for those that owe and dealing with those that have complicated tax issues such as a personal business with family members and things like that. Not too difficult for a CPA but for the average Joe it can get up there.

    Seems that if you just removed every deduction and just took what you make by a percentage then you'd have a pretty easy way of getting those numbers.

    As for the rich guys...they certainly aren't paying too much in taxes. In fact, they probably could afford to go up a little bit considering we have a dangerously widening social gap (note to all the liberals: I don't general favor this kind of activity but when it gets too out of whack the government needs to check it or you end up having other social issues).

    Personally I am not a big fian of doing away with all deductions because it is going to hit the self employed VERY hard if they can not write off their business expenses.


    I think there are a couple of other components to the largely nonsensical drive to move towards an ultra simplistic tax system. The first is fear of the IRS. We have all heard the horror stories. I found a long time ago that there is a trick to dealing with the IRS. If you try to rape them, they will get you bad. If you make an honest mistake, or honestly misunderstand something and are civil about it they will usually work with you. Sometimes they will even jsut let it slide.

    The other component I think is the perception that our tax system is complex and difficult to maneuver in. This is true....if you make a lot of money from a lot of different sources. 90% of our tax system does not apply to your average wage earner. You fill out your 1040 and you are done for the year. How complex is that really???? With the electornic filing systems available now it is even easier.

    I went on a little mini crusade during tax season to inform people about the IRS freefile program because I felt it was a good program that was poorly advertised. an hour in front of a computer punching in numbers that were provided by your employer, mortgage provider, etc... and you are done. No big deal.

    Beyond these problems, the only possible justification that I can imagine for the so called "fair tax" is that some people are just pricks and don't think that individuals who live below the poverty line are paying enough taxes. You can't squeeze blood from a stone, and trying to squeeze taxes from poor people is likely to be an equally futile exercise.
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

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    I believe in a small government. I believe in a government that does not control people's lives any more than necessary to maintain order and peaceful living.

    The taxation of income, especially the way it is graduated to punish achievers, is stifling. It is far better to tax consumption. You buy something, you pay tax. The rich (who likely spend more than the poor...duh) would pay most of the tax. The truly poor would pay no taxes at all.

    I know of doctors who take extended vacations, usually after the third quarter because they have made so much money that they are working for pennies per hour after a calculated date each year. They just retract the availability of their services and wait for January 1, when they can start over.

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    Quote Originally Posted by gman View Post
    With the implementation of the fair tax, whatever income one has, will seem to increase as no income tax will be removed from their paycheck. Success of the fair tax "will" depend on people being responsible with their money. Buying power will be easier to determine as people will have no need to calculate how much of their check they will actually receive. They will receive all of it.
    But, have no fear, the fair tax will never be implemented. It is what the name suggest. Fair. Too many like the convenience of the current system as a way to hide and manipulate.
    Not to mention the accountants and lawyers that would lose their major source of income...interpretting and defending the 9 million word tax code.

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