What is the ideal taxation scheme?

[MagisterCultuum]

The Fair Tax prebates would not just be sent to the poor, but to anyone who applies for it and is in the country legally.

IIrc, it would be distributed the same way as social security, but without an age requirement. (Social security checks would essentially be larger than normal prebates.) It does seem rather socialistic, but no more so than many of the government's current programs and I don't think that that alone should scare people away.

It can get away with not being called socialism mostly because most of its supporters are seen as being on the right side of the political spectrum. If they hadn't spoken out early and more loudly than Mike Gravel (who supports the Fair Tax along with Single Payer Public Healthcare) then he would almost certainly be decried as communist because of it.

 

[Cutlass]

I have no idea, how the US tax system really works. But if your income mostly taxable now, and you're in the highest tax bracket, then it would seem to me that, unless the flat tax is even higher than that, you would profit from that.

But if you then start to exclude most of the income of the very rich, then the burden on the middle class gets even heavier.

And that's the point of the "flat" taxes that have been proposed. They do not cover everything. And they exclude a very high portion of the income of the very rich. Warren Buffet, for example, claims he pays about 17% of his income in federal taxes. He also says that he does not attempt to minimize what he pays with all of the possible deductions. Implying that any multimillionaire who maximizes his deductions will pay less than 17% of his income in federal taxes. Yet the federal government takes in around 19% of GDP in all taxes. So clearly someone is paying more.

But I am wondering: This Fair Tax proposal would mean that those below the poverty limit would "pay" a negative effective tax rate. How can this even be proposed in the USA without being decried as Socialism! and Communist!!! ?

The thing about the fair tax is that the poor would probably do ok, But only to the extent that the government did not choose to reduce the prebate as the easiest way to cut spending and balance budgets. Which they almost certainly would at some point. Or just allow inflation to eat it away. But the other thing to keep in mind about the "fair tax" is that it's virtually designed for massive tax evasion. And it would be child's play for the wealthy to avoid a large share of taxes. Much easier than it is now. For one example, there would be ZERO sales of high end jewelery in the US under the fair tax. Imagine a $10,000 engagement ring. $3,000 tax. For $500 or less anyone from New York could go to Montreal, spend the night, buy the ring, and come back in a weekend. And under the fair tax proposal, there's no way the government could catch you doing that.

 

[Bill3000]

IIrc, it would be distributed the same way as social security, but without an age requirement. (Social security checks would essentially be larger than normal prebates.) It does seem rather socialistic, but no more so than many of the government's current programs and I don't think that that alone should scare people away.

Uh, it's not socialist because it's not a highly progressive tax.

 

[Ecofarm]

The thing about the fair tax is that the poor would probably do ok, But only to the extent that the government did not choose to reduce the prebate as the easiest way to cut spending and balance budgets. Which they almost certainly would at some point. Or just allow inflation to eat it away.

That's like the current tax system reducing the deductions and raising the tax rate on the lowest income bracket. Give me a break, that's not going to happen. The poverty line will be calculated the same as it always has.

But the other thing to keep in mind about the "fair tax" is that it's virtually designed for massive tax evasion. And it would be child's play for the wealthy to avoid a large share of taxes. Much easier than it is now. For one example, there would be ZERO sales of high end jewelery in the US under the fair tax. Imagine a $10,000 engagement ring. $3,000 tax. For $500 or less anyone from New York could go to Montreal, spend the night, buy the ring, and come back in a weekend. And under the fair tax proposal, there's no way the government could catch you doing that.

We lose alot more than that in tax evasion and loopholes exploited by the rich under the current system. Fly to Canada to buy something and you pay into our economy anyway, recouping some of the suposedly "lost" tax revenue.

We might also note this:

The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent.

http://www.fairtax.org/site/PageServer?pagename=about_basics_main

Uh, it's not socialist because it's not a highly progressive tax.

Sorry I didn't format this:

Spoiler :

The FairTax preserves the overall progressivity of the federal tax burden.

The FairTax not only lowers remaining average lifetime net tax rates, it also maintains and,
indeed, enhances overall progressivity in the tax system. Consider middle-aged married
households. The FairTax average lifetime tax rate is very low – only 1.5 percent – for the couple
with $20,000 in annual earnings, and much higher – 20.5 percent – for the couple with $500,000
in annual earnings. The reduction in the tax rate is proportionately much greater at the lower end
of the earnings distribution than at the high end. In switching to the FairTax, the $20,000-
earning couple experiences an 86 percent cut in their average tax rate, whereas the $500,000-
earning couple experiences a 42 percent cut.8

The FairTax: A very progressive long-run outcome

To get another meaningful picture of how persons in various income groups fare under the
FairTax in the aggregate, Dr. Kotlikoff models the dynamic macroeconomic and microeconomic
effects of replacing the income tax system with the FairTax.9
His model considers three income classes within each generation. It compares what the
economy is like under the FairTax versus what it would be like if the current system were to
remain in place. This approach gives a realistic view of the impact of America’s aging
population, coupled with high and growing health and pension benefits that necessitate much
higher payroll taxes, with potentially damaging effects on the U.S. economy. The FairTax offers
a solution to this dismal economic future.
The shift to the FairTax raises marginal labor productivity and real wages over the course
of the century by 18.9 percent and long-run output by 10.6 percent. Moreover, the FairTax
reduces by half the long-run increase in the effective rate of wage taxation needed to pay the
Social Security and health care benefits of an aging population. These macroeconomic gains
have important microeconomic welfare implications. In the long run:
• Low-income households experience a 26.7 percent welfare gain under the FairTax
• Middle-income households experience a 10.9 percent welfare gain
• High-income households experience a 4.7 percent welfare gain
This is a very progressive long-run outcome. (See chart below.)
Progressivity also marks the entire transition. Low-income households, which are
initially alive at the time of the reform, whether they are young, middle age, or old, all
experience welfare gains ranging from 8.3 to over 20 percent. Who pays for these gains? The
answer is hardly anyone. The initial rich elderly and rich middle aged, as well as some middle
age/middle-income households are somewhat affected, but their welfare losses are quite small
compared to the welfare gains experienced by the current poor and future generations.
In switching from taxing income to taxing consumption and adding high progressivity via
a rebate, the FairTax introduces many progressive elements into our fiscal system, removes one
very regressive element (the payroll tax), and provides much better incentives to work and save.
Switching to the FairTax raises long-run capital intensity, thus raising long-run real wages by 19
percent compared to the base-case alternative. The reform also generates major welfare gains for
the poorest members of society, including those now retired and those yet to be born.
In short, according to Dr. Kotlkoff’s analysis, the FairTax offers a real opportunity to
improve the U.S. economy’s performance and the well-being of the vast majority of Americans,
regardless of income and when they were born.
The chart below shows that in every age cohort, low-income persons experience the
highest increase in welfare (purchasing power), middle-income cohorts experience a positive
increase in welfare, but one less than the low-income cohorts, and finally that the high-income
cohorts born in 1970 or after experience a positive welfare gain that is less than both the lowand
middle-income cohorts. This is a very progressive outcome.

http://www.fairtax.org/PDF/FairTax-Fundamentals_and_facts-070122.pdf

 

[MagisterCultuum]

The super rich who choose to live simply instead of indulging in luxury goods would of course have their taxes greatly reduced.


Consumption based taxes would greatly encourage recycling, and according to one of my last year's professors (of Civil Engineering Systems, which is mostly about sustainable development) is far more sustainable in populations consisting of more elderly than young people. She seemed to think that income based taxes would work better in the developing world where the majority is under 25, but not in western countries.



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I'm open to the idea of estate taxes that are so progressive that they have negative rates for the lowest brackets, at least enough to pay basic funeral costs. Making it too high though might encourage patricide.

 

[Cutlass]

That's like the current tax system reducing the deductions and raising the tax rate on the lowest income bracket. Give me a break, that's not going to happen. The poverty line will be calculated the same as it always has.

We'll stop it right there. Name a day in recent decades when that hasn't happened? No? Since we acknowledge that it happens every day, what else have you got?

 

[Ecofarm]

I can't say I got more; I'm not an expert. There is a book on this and the website has a ton of answers and resources if someone is interested in a radical tax reform that is already before congress and has modest support among representatives.

 

[civ_king]

And that's the point of the "flat" taxes that have been proposed. They do not cover everything. And they exclude a very high portion of the income of the very rich. Warren Buffet, for example, claims he pays about 17% of his income in federal taxes. He also says that he does not attempt to minimize what he pays with all of the possible deductions. Implying that any multimillionaire who maximizes his deductions will pay less than 17% of his income in federal taxes. Yet the federal government takes in around 19% of GDP in all taxes. So clearly someone is paying more.



The thing about the fair tax is that the poor would probably do ok, But only to the extent that the government did not choose to reduce the prebate as the easiest way to cut spending and balance budgets. Which they almost certainly would at some point. Or just allow inflation to eat it away. But the other thing to keep in mind about the "fair tax" is that it's virtually designed for massive tax evasion. And it would be child's play for the wealthy to avoid a large share of taxes. Much easier than it is now. For one example, there would be ZERO sales of high end jewelery in the US under the fair tax. Imagine a $10,000 engagement ring. $3,000 tax. For $500 or less anyone from New York could go to Montreal, spend the night, buy the ring, and come back in a weekend. And under the fair tax proposal, there's no way the government could catch you doing that.

Part 1) Yep, the remnants of Bush's tax cuts (and Warren+Bill give lots to Charity)

Part 2) yum, Yachts wouldn't be taxed because you have it sent to Canada and get some people to crew it to the US with you on it, you aren't importing because you are on it while milk at the store will be taxed so obviously the rich will have it rough, because as we know, the poor import all the yachts because they are essential items and only the rich buy luxuries like milk and rice right


@Ecofarm: Nice to see you back, quick question- how would the government pay for anything, if the Fair(y) tax happens how would the government pay for social security, medicare/medicaid, schools, the military and tons of stuff I'm forgetting about?

 

[Ecofarm]

It supposedly covers current income needs including cuts in costs compared to the current system.

The website is huge. It's pretty darn honest and open and transparent... it's laid out online and in print (book) with questions and answers and resources, like the healthcare reform was supposed to be.

 

[JollyRoger]

IBut I am wondering: This Fair Tax proposal would mean that those below the poverty limit would "pay" a negative effective tax rate.

A U.S millionaire overseas that didn't spend a dime subject to the fair tax would also "pay" a negative effective tax rate as he would also being gettingthe monthly "prebate" check.

 

[Huayna Capac357]

Something progressive, with those below the poverty line paying negative taxes (they get money)

 

[JollyRoger]

Something progressive, with those below the poverty line paying negative taxes (they get money)

With the earned Income Credit, it is currently more progressive at the poverty level. The flat tax would be less progressive at the poverty level than the current system and become quickly regressive once the poverty level of spending is crossed.

 

[Huayna Capac357]

I don't want a Fair Tax though...

 

[JollyRoger]

Neither do I. I've paid the income tax on money that I have accumulated in my Roth IRA and Roth 401(k). I certainly don't want to pay a 30% consumption tax when I spend it.

 

[Huayna Capac357]

I should have a caveat to my plan: I have never paid taxes.

 

[MagisterCultuum]

A U.S millionaire overseas that didn't spend a dime subject to the fair tax would also "pay" a negative effective tax rate as he would also being gettingthe monthly "prebate" check.

Are you sure?

It seems like it would be rather easy to give them only to those within the country.

 

[Cutlass]

It supposedly covers current income needs including cuts in costs compared to the current system.

The website is huge. It's pretty darn honest and open and transparent... it's laid out online and in print (book) with questions and answers and resources, like the healthcare reform was supposed to be.

Not true. It would be extremely complex and difficult to enforce. maybe not as much as the current system, but certainly more than the advocates claim.

 

[Earthling]

I agree with what Cutlass says above - the proposal itself is fairly honest and straightforward, but that does not mean it would be an acceptable tax system. On a slight tangent I do have to say this is one reason I greatly respected Mike Huckabee as a potential Republican candidate (second only to Ron Paul), even if I did not agree with him, because of his honesty and lack of hypocrisy in committing himself to what he believed was for the good of the nation.

But anyway, here's what I think is the implicit problem with the FairTax - the tax would not be able to fund the government as we know it today. Now, many advocates happen to support a greatly reduced federal government anyway, however, if one realizes this would either not happen or is not realistic, then it is hard to see how the FairTax adds up. A straight tax on all consumption doesn't sound so bad, but there would probably quickly arise situations people wouldn't accept or wouldn't be enforced; for instance, if a person sets out to buy a house, will they really accept a 30% tax on that? Whether on initial price or payments over time...that's still ouch. And even if there aren't really loopholes for rich individuals to avoid taxes for most things, purchasing a few luxury items assumed to not make up much cost, there's still the question of the tax burden on corporate entities and the like. It may seem on the face of things that a business is taxed selling its goods to the public, but this just doesn't work for all sorts of industries, say the financial markets or a good deal of anything speculative. So, I'm not convinced that a consumption tax would be as simple as they make it sound and still be able to provide the same revenue, without also falling into regressive territory, inflation problems, or something else (It's also a concern that the tax could hit the middle class really hard - sure, maybe you get $10,000 or w/e to double the poverty line, but if immediately after that you pay 30% on everything, that's pretty steep). And if the consumption tax isn't the main part, then we might as well just stick with current systems and keep enforcing/closing loopholes on a progressive income tax as is.

 

[Princeps]

Thats what the proportionality principle is for. the property protector is indeed an aggressor if he threatens to shoot or does shoot for simple intrusion. http://mises.org/rothbard/ethics/thirteen.asp

Of course, in a libertarian world, proportionality is meaningless since there's really no one to enforce it (reputation nonsense is not enforcement). And also, it would be a form of regulation and therefore a form of slavery, like anti-discrimination laws. "Proportionality" is the libertarian version of the "velvet obscured fist of state power", which libertarians so frequently "expose".

Even if proportional response exists, control over the wealth and land remains in the hand of a specific individual, coercively restricting others liberties: that remains unchanged. It is still coercion: since the individual consent and recognition isn't demanded: just like in any state policy. Basically, the poor neighbour who subsists on an infertile land, isn't asked whether he is OK with the neighbouring latifundia.

Just because the tax lady doesn't shoot you immediately when you can't pay your taxes, it doesn't mean that the tax regime isn't coercive: likewise, just because the property owner cannot shoot a person immediately in the head just because he is tresspassing through his land, it doesn't mean that owner's entitlement to that land isn't coercively imposed, the coercion is simply obscured in a velvet.

Coercion requires the existance of ownership to be defined. So saying that ownership by itself is coercive, is an absurd statement without meaning.

Incomprihensible.

Regarding the "mixing labour" idea: the reason why libertarians choose it as the cause of property is the Golden rule, see the Hoppe quote in my previous post.

Yes, but it doesn't matter. What matters is that it's an arbitrary rule that is used to justify a coercively imposed regime that doesn't require the individual consent of others affected by it: just like any state policy. Nor does it recognize the existing disparity of wealth and power, and the needs of others, but only seeks to protect the status quo.

It is even worse that modern democratic policy, because it doesn't even require democratic confirmation: libertarians believe in a universal, unalterable constitutional or natural law regime invented by cranks like Hoppe.

 

[Cutlass]

I agree with what Cutlass says above - the proposal itself is fairly honest and straightforward, but that does not mean it would be an acceptable tax system. On a slight tangent I do have to say this is one reason I greatly respected Mike Huckabee as a potential Republican candidate (second only to Ron Paul), even if I did not agree with him, because of his honesty and lack of hypocrisy in committing himself to what he believed was for the good of the nation.

I disagree with the bolded part. One of my biggest objections to the fair tax is the deceptive nature of it. You have the proponents claiming it's transparent, and then the very first thing they do is obscure the rate of the tax. It is not a 23% proposal, it is a 30% proposal. But by disguising it as 23%, which can be mathematically justified, but is still a deception, what they accomplish is to hide the true rate from the majority of the population. If you tack on a sales tax after the purchase price you immediately tell people how much they have been taxed. Both on that transaction, and it is very easy to add up the tax paid over time. Therefor it would have been much more transparent if it was set up as a sales tax. You know how much income tax and payroll tax you pay. It's right on the pay stub. By making it inclusive you gain nothing except to disguise what people are paying. You lose transparency. And quite frankly that pisses me off.

But anyway, here's what I think is the implicit problem with the FairTax - the tax would not be able to fund the government as we know it today. Now, many advocates happen to support a greatly reduced federal government anyway, however, if one realizes this would either not happen or is not realistic, then it is hard to see how the FairTax adds up. A straight tax on all consumption doesn't sound so bad, but there would probably quickly arise situations people wouldn't accept or wouldn't be enforced; for instance, if a person sets out to buy a house, will they really accept a 30% tax on that? Whether on initial price or payments over time...that's still ouch. And even if there aren't really loopholes for rich individuals to avoid taxes for most things, purchasing a few luxury items assumed to not make up much cost, there's still the question of the tax burden on corporate entities and the like. It may seem on the face of things that a business is taxed selling its goods to the public, but this just doesn't work for all sorts of industries, say the financial markets or a good deal of anything speculative. So, I'm not convinced that a consumption tax would be as simple as they make it sound and still be able to provide the same revenue, without also falling into regressive territory, inflation problems, or something else (It's also a concern that the tax could hit the middle class really hard - sure, maybe you get $10,000 or w/e to double the poverty line, but if immediately after that you pay 30% on everything, that's pretty steep). And if the consumption tax isn't the main part, then we might as well just stick with current systems and keep enforcing/closing loopholes on a progressive income tax as is.

It would discourage a lot. Imagine a capital equipment heavy company. They could save 30% by moving over a border. When you add in that US labor costs are pretty high, and that that is already costing us jobs, the incentive to export whole companies and industries becomes overwhelming.