Talk:FairTax

This is how I feel about the FairTax. ŖєuĻєux^{say wнäτ?} 17:59, 16 January 2008 (EST)

Don'cha love the States? --Linus^{(plot evil tech)} 18:29, 16 January 2008 (EST)

Argument by editing undone

This edit had a lot of info, but was essentially "arguing" with what was written in the article. Perhaps it should have been done as a side-by-side, but the way it was done was a mess. Sorry to remove so much, but at the same time, a BoN adding so much to every section of an article should probably do some discussing first. ħuman 22:26, 4 March 2010 (UTC)

FairTax is fair

The rich not only buy more stuff, but also buy more expensive stuff. By revitalizing small business we can get rid of the black market. I will say that lying about the percent is a poor move.Talsley (talk) 15:57, 25 April 2012 (UTC)

Sweden

I have heard it being said Sweden collects most of its taxes through sales tax. Somebody less lazy might want to address that. --81.175.225.92 (talk) 10:46, 21 August 2013 (UTC)

Discussions before editing

I find the "criticisms" section here to be significantly lop-sided and mis-informed. Or more specifically, I find that while it includes criticisms that are often made, they have little legitimacy.

Wanted to open this up for discussion before I make any edits.

Examples:

23% vs 30%.

It's easy to proscribe this to skulduggery, attempting to make a number seem much smaller by moving the goal-posts. And when dealing with a sales tax, people normally do assume it to be an exclusive rate. However, the Fairtax exists in the context of the plan it's replacing, which is a number of inclusive income taxes. For the purpose of comparison and discussion, inclusive and exclusive tax rates are difficult to transition between. For the purpose of discussion and comparison then, it makes sense to deal with an inclusive rate. Alternatively they could say "30% exclusive rate" and people would criticize them because "its not easy to compare inclusive and exclusive rates". If they have to present it one way or another, and would be criticized for both, they should choose the one that facilitates discussion once the barrier to understanding is made clear. To do anything else is irrational. For introducing somebody to the concept, it can mislead people. But in return, when discussing the merits and faults of the idea with those same people, the discourse is improved and streamlined by getting to make apples-to-apples comparisons.

Letting the Rich off the Hook

This one as written takes a very limited view in trying to explain how a progressive tax is regressive because 'rich' people don't spend enough of their money. Money doesn't make people rich. The limousine, mansion, yacht, caviar, and servants make someone rich. Little green slips of paper, or a bunch of digits on a bank account don't make somebody rich. If a 'rich' person isn't spending their money, they're not actually rich. The rich under this system can use their untaxed bank accounts to invest, and get bigger and bigger bank accounts (assuming the risk pays off), and that's a valid point to bring up. But to pretend that they avoid taxes indefinitely by never spending money makes the irrational assertion that having a big pile of money is the end-goal rather than a means to any end.

The question is who do you consider rich?: The guy with $2 million in a chest at the bottom of the Mariana Trench, or the University President who officially only makes $1 a year, but lives in a big house, eats lobster every night and flies first-class to golf retreats every month?

Considering the currently written criticism, the Rich don't get off easy because whatever fortunes they had - which they had to originally pay income tax on already - are getting double-taxed. If they want to enjoy any of their wealth, they must pay the tax. Alternatively, if they give the money away to charity, or to family members, it is certainly tax-free to give it away. But then when that charity buys $1 million in blankets and beds, or that family member spends $5 million on a solid-gold toilet, the money gets taxed there. The tax is paid at the point of consumption by the consumer.

The point is that money is itself intrinsically worthless - and if you want to get anything of worth out of it, you have to spend it and therefore pay tax. The criticism as it stands doesn't complete the thought, acts as though large sums of money are an end unto themselves, and neglects the fact that that money will eventually be spent by somebody, at which point it will be taxed. To refuse to follow the money trail to the end is deliberate ignorance which implies a different reality than the one in which we live, and the criticism relies on suggesting others adopt the same ignorance. In a phrase, it is an irrational criticism based of half-thought and double-think.

There are others, but these are the two most egregiously invalid and irrational criticisms currently on the page. I'd submit they be changed to not give credence to irrational criticisms, or at least to present the criticism and dispute it, so they don't detract from the legitimate criticisms of the idea.

You make a fair point about the reality of 23/30, but the way it's explained to many (my mother, for example), they understand it as if it were smaller than it is. The issue of 23/30 is about the rhetoric used to sell the fair tax. As for who's rich, I disagree completely. "Rich" is like potential energy, ready for use at any time. "Spending" is depletion of richness. Today's high earners would pay less total tax and today's not-high earners would pay more. The high earners gain the choice to pay taxes now (by spending) or later (by saving) while the not-high earners just have less left over after necessary expenses. But, yes, this fair tax may look fair in the sense that everyone pays the same proportion of their consumption, but that's not the only metric for fairness and not the metric I personally prefer. MarmotHead (talk) 19:56, 14 May 2014 (UTC)

I don't disagree that quoting a tax-inclusive rate for a sales tax, that people hear the "sales tax" and not the "inclusive" part. It's certainly not ideal. Like I said, there is no good way to actually describe it. They just chose the less bad way, and so I feel the criticism is unearned and lacks relevance. Because once you get over the hurdle, that 23% inclusive means 30 cents on top of every dollar, then you can get into the discussion of the merits and faults, and compare apples to apples with an asymptotically approaching 23% rate vs whatever effective rate people pay now. Though perhaps the root of my beef is that the page provides a quick general synopsis, and then specific, targeted criticisms. So there is nothing for a viewer to do but automatically agree with the criticisms, because they don't have the information at hand to dispute it. That's the main reason why I want that criticism, and ones like it, amended. They provide more disinformation than valid criticism when presented in a vacuum.

On the second criticism, I don't want to go on like a broken record. But you don't seem to have addressed my point. What do you define as being "rich"? Why is assembling huge piles of money an inherent bad? They still can't DO anything with that money without paying the taxes. And I don't particularly find it a bad thing that the government doesn't get to enjoy the fruits of a person's work until that person does. Your complaint about having "less left over" seems to imply "its bad that people that make less money have less spending power." as a general idea. And your goal here seems to be more punishing productivity rather than administering equitable taxation. Please correct me where I'm wrong on that - I've done a lot of assuming here. Null Hypothesis (talk) 20:17, 14 May 2014 (UTC)

OK, we're not too far apart on 23/30. I don't have a well thought out point about the merits of that particular rate so I'm happy to believe we've both been heard on what we can cover. If you have a proposal for covering the 23/30 issue, I won't shut you down (not promising for others). If I'm quick and inspired, I'll provide a start and see how it works with you.

As for "rich", I may not have addressed your point directly and may, instead, have addressed your definition of rich. It's very different than mine and, thus, is hard for me to see past. There's nothing wrong with being rich; it's a malady (mild sarcasm, not venom) I'd like to suffer more from. I understand how a person could see my apparent view as punishing productivity. I don't feel that, but it's a criticism I can't avoid. As I see it, those of us who earn well beyond basic needs (I'm near the bottom of that range), live in a society constructed in such a way that we benefit more than average. I feel we should pay a larger share of that societal benefit than those who can barely scrape by. Yes, it's a hard-to-measure view and, yes, it's nowhere near as clear as a Fair Tax idea, but it's what I feel: we should pay a higher price if we're in society's VIP room than if we're just with the rest of the rabble. Also, yes, I'm a bit of a utopian, hopefully one who can talk about it, even if I can't easily be persuaded from it. MarmotHead (talk) 20:34, 14 May 2014 (UTC)

That's great. And also, the merit of the percentage rate really isn't the point of the Fairtax. It's just the current calculation of what is "revenue neutral" meaning that rate should generate roughly what the government takes in now - because "how much do we collect" and "how do we collect" are two different questions.

And I'm happy to have a discussion about it. First I want to know - do you understand what the 'prebate' does to effective tax rats? Assuming you have a good handle on that, lets jump to the heart of the disagreement. What difference is there, if any, for somebody doing a job where they get paid $1 Million/year, versus someone doing that same job for only $400,000 a year? What difference in behaviors are there, and how much 'richer' is the first guy, and why? Null Hypothesis (talk) 20:57, 14 May 2014 (UTC)

Prebate? That sounds like an expanded version of the current EITC (analogy, not literal truth). It's a simple, two-level regressive tax structure. OK, I don't want to get too drawn into a formal debate, but I'll bite ... the higher earning guy has $600K more choices she can make above and beyond sustenance and, thus, is richer to me. Both are doing quite well, though, in earning power. If either wanted to trade paychecks with me, I'd agree very quickly, even if I paid an ungodly amount of taxes. MarmotHead (talk) 21:06, 14 May 2014 (UTC)

That's fine, I don't want this to get over-long either. Just let me know when you want to round it off. But first, the prebate isn't a tier system and it's an important facet. The Philosophical idea is: "Everybody should pay the same rate" coupled with "nobody should pay taxes until their family is taken care of". Spoken another way, you could say that it IS a two tier system, with a 0% tax on necessities and a 23% tax on everything else [luxuries]. But who gets to decide what's a necessity and what's a luxury? So the idea is to just describe a $ amount as the necessity, using the poverty line. That's the idea anyway The functional application of that is that you combine a flat % rate on everything, including food, medicine, housing, etc - with a flat $ amount given to everybody, rich poor or in-between. This creates an anonymous, yet progressive sales tax that is simple to administer. In other words, those making [spending] at the poverty level (say $30k for family of 4) pay 0% effective rate. Those making [spending] at twice the poverty level, say $60,000 for a family of four, pay an effective rate of 11.5%. Those making 4x poverty level pay ~17%, and the effective tax rate continuously and asymptotically reaches the top rate of 23%. Those making $1 million pay an effective rate around 22%.

The point of our dispute and discussion (finally get back on topic, sorry), is that the above effective rates assume people spend everything they make, which is the point of our disagreement. So back to my hypothetical. Now tell me the difference between the same two guys (whom I agree we'd both happily trade places with), except the guy that makes $1 million annually has a psychotic girlfriend who takes $600,000 a year and sets it on fire. Now who is richer? Assume that the poor sucker has spending habits below $400,000 annually, so he doesn't notice his absent funds or modify his behavior. Null Hypothesis (talk) 21:49, 14 May 2014 (UTC)

I mispoke saying "regressive" when I meant "progressive". Thanks for not slamming me! In any event, yeah the prebate makes this more appealing, but it doesn't change my metric preference (more societal benefit, more taxes). Still, if the Fair Tax came in, I'd be STRONGLY in favor of an appropriately set prebate. And, yes, I see how the prebate makes effective rates progressive even while marginal rates are flat. That's not bad, but, for me, isn't enough. In other words, I get your point and understand it's appeal, but I remain friendly and on the other side.

The psychotic girlfriend gambit? That's way too relevant to my recent past (it was my fault, too). I still say the larger earner is richer, but isn't benefitting any more which, yes, leaves a debatable hole in my logic. The higher earner has an opportunity to benefit more, but, instead, is benefiting a lucky nutcase.

Look, if you can edit this article by a) adding some of your points and b) preserving the existing points, there's a fair chance some of your points will remain after you grow tired of any editing back-and-forth. I suggest caution. The crowd here likes facts/evidence, but also has a preferred point of view with a dose of goat. You're apparently not a raving lunatic, so that helps!

"Not a raving lunatic"

Day 1. They haven't caught on yet...

Been fun talking with you. And sorry about the girlfriend.

Thanks for the challenges! Thanks, too, for disagreeing conversationally. Also, the girlfriend thing: we're both better off having been together and better still being apart so it'll be good. Besides, I now get a chance to be a little richer (your definition) or feel a little richer (mine).

"And also, the merit of the percentage rate really isn't the point of the Fairtax..." Actually, it's a rather important point. If you have a look at the page's external link, you'll see that since the FairTax taxes government expenditure, a "revenue-neutral" rate will produce huge deficits due to the increase in expenses. A rate high enough to replace current taxes in terms of cash flow balance would be more like 60% exclusive (with an optimistic estimate - the most pessimistic one cited could go as high as 150% exclusive). Since the rate affects taxpayers' real income, the required rate determines whether they would be better or worse off from a move to the FairTax. The difference between the 23/30% rate usually talked about and that 38/60% rate (let alone that 60/150% rate) is large enough to make a big difference for most people.

And speaking of that reference, it runs the FairTax through the wringer in a way that I think could flesh out the Criticisms section. Things like the superiority of a VAT and the difficulty for even a VAT to apply the rates required. 192․168․1․42 (talk) 05:36, 16 May 2014 (UTC)

There's a good amount of stuff I have to address there, so I apologize that my response will be long, and a borderline rant. Taxpof has repeatedly shown a deliberate failure to take the Fairtax as-presented. Rather than go to the supermarket and analyze an apple, as an alternative to the orange we have now (current tax system) he decides that an apple can't possibly work with its red skin and poisonous seeds, so he finds a pineapple instead, evaluates it, and reports on the Fairtax's inedible skin and citrus flavor. This has been a consistent pattern among many detractors of the Fairtax - to refuse to carry scenarios through to their full conclusion, and instead report only their initial effects. This shows either a poor understanding and general ignorance of the plan in its entirety, or a reliance on readers' general ignorance of all parts of the tax scheme to fail to spot the fallacies. I'll explain one such absurdity next - the diminsihed buying power, and another after - namely those projected percentages.

"Revenue Neutral" means that it produces enough money to replace the income lost by removing all the other forms of taxation, PLUS cover the annual rebate expenditures, PLUS administer the remittance to states for collecting the tax.

Giving the government goods and services tax-free would distort the system [too much] unnecessarily. (And they pay taxes on goods now anyway - more on that later.) The government's spending power is technically reduced by 23%. So will the government need to collect an EXTRA 23% of its current revenue? No. Where does that tax money go? Right back to the government. They're spending power isn't reduced, because they'e picking their own pocket. It's reduced on the first iteration, but next month when the government goes to spend money, it will have its tax income, PLUS the tax income from its own expenditures of the previous cycle. True there is a slight loss in higher-order terms, as that recycled money also gets diminished by 23%, which is recycled and diminished again ad infinitum, but that recursive loss eventually reduces spending power by less than 5% at worst.

As for the claims of 60% to 150%, you can prove those to be irrational and absurd by a simple thought-experiment. We have our economy. From the products of the economy, we pay taxes. Taxes essentially diminish our buying power - as we have to either pay the government say, 1 out of 5 widgets we create (income tax), or buy the government a widget for every 4 widgets we buy for ourselves (sales tax). The government extracts an amount of the GDP out every year - and our tax system has to collect that in some way and reflect it.

So tell me, are we paying the government roughly $1 out of every $10 we spend? Or out of every $4 we spend? or out of every $2 we spend, like a 60% sales tax on everything would require? Or do we pay the government $1 for every $0.60 we spend, as a 150% rate would suggest? You see how absurd those numbers are? In the end, whatever X% is precisely revenue-neutral, including covering any diminished buying power and the cost of the prebate, the government would extract THE SAME AMOUNT THEY DO NOW (not shouting sorry, don't know how to do italics). Unless you want to argue that the government currently taxes between 1/3 and 2/3 of our entire GDP, then you can't be serious. This is an example of what Taxprof, and what other detractors argue. What they do is make assumptions like: "Nobody will ever allow sales taxes on food or medicine, or x or y or z. The Fairtax can't possibly tax them. So we'll remove that half of the economy and recalculate the necessary rate and claim the Fairtax needs a 60% rate." See what I mean by substituting a pineapple for an apple? And then criticizing it? Look into how they calculate those huge percentages, and see if their methodology evaluates the plan as proscribed - my guess is you'll be surprised. If you identify a revenue-neutral rate, for whatever new scheme, then the same money should be extracted from the economy, and people's effective buying power won't change (except where the tax-burden itself is shifted around). That is a simple, but general truth to guide evaluations of required sales tax percentages.

As to what you were saying about the VAT - VAT's are a clever taxing device, and they're superior (on their own) to income taxes for economic growth. However, one of the Fairtax's main points is that an ideal tax system should be 'transparent'. This is [one reason] why, corporate tax, capital gains tax, and FICA taxes, among others, are all removed. Corporations don't pay taxes - only people can pay taxes. Ultimately what these taxes do is embed their cost in the price of products - so nobody, not even the government, has any idea what the cost of the Federal Government truly is. (Relevant to the above points, the government ALSO currently pays those embedded costs when they buy things from companies currently - corporate taxes diminish their buying power.) A VAT likewise conceals and embeds the cost of the government within the price, rather than showing it separate. Consider this for a moment - what if Taxprof's criticisms are RIGHT, and we really would need a sales tax of 60%, because the Federal Government alone takes up over a third of our money? We can't definitively say that's not true. I'll argue its likely not that high, but no one truly knows the cost of the Federal Government. If it really is equivalent to a 60% tax on everything, then the people should be made aware of it - out in the open and every day at the register, so they can better decide if we're getting our money's worth from Uncle Sam.

I'll suggest you read the Fairtax in its entirety, and make your own evaluations of any criticisms (and praises) offered. The Fairtax isn't perfect by any means. But I see few ways to improve upon it for all the goals it seeks to accomplish - those being Efficiency, Transparency, Potential for Cronyism, Economic Growth, and Individual power. There are many valid criticisms out there. But they are hidden in with a lot of people who want to discredit it for various alternate reasons. Most of the discredit comes in the form of manipulating assumptions, and otherwise only selectively applying aspects of the Fairtax to scenarios, and then reporting on the horrendous consequences of said hypotheticals. The 60%-150% claim should have been obviously false to you - I'll caution you against similar illegitimate criticisms you may find, as there are many. Null Hypothesis (talk) 20:35, 18 May 2014 (UTC)

Since my own response is rather long and involved, I took the liberty of bolding parts of your statement to help readers keep track of what I'm responding to.

Taxpof has repeatedly shown a deliberate failure to take the Fairtax as-presented. Who's Taxpof? Anyway, can you identify specific examples of that relevant to this conversation? Because pointing out and evaluating deviations from a plan that are likely in implementation is a valid form of criticism. Consider Communism. Like the FairTax, it works great on paper, but like the FairTax, it runs afoul of real-world factors that prevent it from operating very effectively.

"Revenue Neutral" means that "Revenue-neutral" literally means that it doesn't change the revenue. Rhetorically, other things can get lumped in with that, but let's look at a simplified example to show what I meant above. No prebate, no complicating factors, just a switch from a universal income tax to a universal sales tax. Initially, the government takes in and spends $X. There is a national consumption base of $Y, which happens to be such that a 23% sales tax would produce $X revenue. Therefore, switching to a 23% sales tax would be "revenue-neutral". The problem is that government consumption makes up part of the national consumption base used to calculate the 23% rate. Because, as you pointed out, the government's taxation of itself doesn't alter its net cash flow, the sales tax it collects from itself increases gross revenue, but it doesn't help balance the budget. The example government now has a deficit because the tax caused expenses to increase while maintaining revenue. The upshot of this is that in order to calculate the sales tax rate required to be "net cash flow" neutral, the consumption base used must exclude government consumption, reducing the base and increasing the rate required (resulting in both higher revenue and expenditure than before). On its own, this increases the rate required by about 20% (a 36% rather than 30% exclusive rate) because federal government consumption is around 19% of national consumption.

As for the claims of 60% to 150% You need to keep in mind the distinction between income, consumption, and tax base. The federal government currently gets most of its money from income taxes (gross domestic income is equal to GDP), while the FairTax is a consumption tax (private consumption is about 70% of GDP, and only about half of that is retail). Federal income taxes currently collect around 15% of GDP (a little over a seventh of income, though the individual burden varies). Any reduction of the tax base increases the rate required for a given revenue. As the link explains, the main reasons for the estimates of high required rates are accounting for the base reductions associated with government consumption and tax evasion. Evasion in particular is a big unknown. As the link also explains, retail sales taxes tend to experience significant evasion at rates well below even the 23/30% ideal, and no one has tried such a rate because it's obviously a bad idea. As such, there is significant uncertainty in projecting its effects. If evasion and such reduces the FairTax base to just a few trillion dollars, it's entirely reasonable that it would have to collect most of that in order to balance the budget. However, in that situation, it's more likely that the tax would simply fail to collect enough money. The linked document specifically addresses this (See "Compliance Problems", starting on page 1250). As you said, if the rate is revenue-neutral (or net cash flow neutral, rather), total purchasing power will remain the same. However, the tax burden will have shifted. For a retail sales tax with a prebate, people with low and high incomes will win, and people in the middle will lose, with the specifics of the plan determining the boundaries between low, middle, and high and how badly some people lose. Note that the current income tax system is not fully progressive, but that it peaks for high wage earners and declines as investments account for more earnings. The FairTax would accentuate that curve.

Also, you do italics by enclosing text with double apostrophes, like so. Or, if you have JavaScript enabled, you can select text and press the I button at the upper left of the editing box.

As to what you were saying about the VAT Perhaps you're unfamiliar with how a VAT works, but some of its main advantages over a retail sales tax are transparency and accountability. A VAT involves a paper trail from manufacturer to final purchaser with information on every exchange involved, which auditors can in principle check. The only FairTax documentation is at the point of sale, and the proposal disbands the IRS. With evasion so easy, no one (at all, anywhere), would know exactly how much of a retail price reflects sales tax and its influence on the supply chain, same as current income taxes* (note that income taxes' effects on income are clear). Also, an X% VAT means that (100X/(100+X))% of the purchase price goes to tax, same as an X% sales tax; it's just collected differently.

As for corporations, perhaps you haven't been paying attention to the Supreme court lately, but corporations are people too. More to the point, the entire purpose of a corporation is to have a legal entity that functions as a person for legal and economic activities like buying, selling, contracting, liability, and yes, paying taxes.

• Your assessment of corporate taxes is incorrect. Since only profit is taxed, corporate taxes are not embedded in the prices of goods. However, the personal income tax does get embedded somewhat, so your criticism is still sort of valid. I would point out, however, that all taxes period have ripple effects through an economy, so such a criticism of a particular tax would have to involve the degree of ripple effects, and some forms of income tax are exceptionally good at avoiding ripples (e.g. estate tax).

I'll suggest you read the FairTax in its entirity I actually had a close look at the FairTax a few years ago when it was in the news. I read the information provided by proponents (some of which I linked above), and found it to be deeply flawed, to the degree that it's unworkable as proposed. So therefore, I suspect that its main purpose was to influence the environment for contemporary budget disputes, similar to my view of Paul Ryan's original budget.

To go through your goals:

The efficiency of a tax is how well it collects revenue without causing deadweight losses from market interference. The most efficient taxes are those that are highly progressive with respect to income (e.g. estate tax). Flat taxes and consumption taxes are typically less efficient, though specific ones can be used to correct for externalities in particular markets and thereby improve efficiency indirectly (e.g. taxes on pollution).

The most transparent taxes are those with understandable rules, thorough paper trails, and oversight. The FairTax is simple and understandable as proposed (keep in mind that the income tax was as well at one time), but seems designed to minimize paper trails and oversight. It's just horrible at that. That should be obvious, but I can explain if you want. A VAT would do basically the same thing while being much better in this regard.

If you're referring to cronyism between legislators and special interests, that's a vulnerability of all taxes, and the FairTax does nothing to reduce it after its one-time disposal of existing tax code. If you're referring to cronyism involving evasion of collection mechanisms via shady business deals, the Fairtax is far more vulnerable to that than current income taxes. Evading the FairTax for a shared gain of 23% of legal cash flow just needs two people on opposite sides of a retail transaction willing to fudge reporting, and people form black markets and crime organizations for a lot less than that.

The effects of taxes on economic growth are complex, but relate to the efficiency goal above. Why do you think the FairTax would be preferable in this regard? Be sure to distinguish the effects of the tax itself with those of the prebate, which is an enormous welfare program that mostly goes to the people who spend the largest share of their income on things that cause economic growth.

I'm not really sure what you mean by "Individual Power" there. The point of a tax is to provide the funds needed to run government activities, so in order for that to work, individuals don't usually have much say in the matter at collection time. With the current income tax, decades of lobbying have left us with a complex system of deductions and tricks that people with complex finances can use to get out of a lot of tax, but somehow I doubt that's what you have in mind.

Keep in mind that taxes on goods were a normal source of major revenue until the modern era when governments took on more roles in society, and they needed more money than could be effectively acquired through existing taxes, leading to the income taxes which perform much better in most respects. There are sometimes good reasons why things are the way they are. 192․168․1․42 (talk) 08:43, 20 May 2014 (UTC)