2004-07-27 19:29:26.665857+00 by Dan Lyke 82 comments
Over at RC3 Rafe called "Where the money went" a "must read". It's a quick look (I'd actually like something deeper) down the gradually declining wages of the past few decades.
[ related topics: History Work, productivity and environment ]
comments in ascending chronological order (reverse):
#Comment Re: made: 2004-07-27 20:36:36.699079+00 by: ziffle [edit history]
It takes two people working now to support the household. It used to take one. Taxes now are so high that one person works to pay the taxes.
Working people pay 50% of their earnings in taxes. Where does it go? to people who do not work. I have a duplex - the lady could not pay her rent. She went to her church who went to the county who gets money from the federales' for this. I got a check from them!
This is the problem. Get rid of all the bs and let us breath again.
If you think this is bad read 'Who Took My Money?' by Robert Kiyosaki. The worst is yet to come. John Kennedy unhooked Social Security from a pay as you go and we are about finally to feel the full brunt of that as the baby boomers ask for thier money in the next few years. $75 billon per month. Who will pay it? The wage earners thats who. Reality will always assert itself. The moral and the practical are the same in the long run.
Ziffle of Mayberry
#Comment Re: made: 2004-07-27 22:45:40.147399+00 by: Mark A. Hershberger [edit history]
I hear this "it takes two" argument all the time.
I don't buy it. During the late 90's, I worked at a private university, earned close to the average income, and supported my wife and daughter.
But, I suspect that my anecdote won't satisfy most people. So let's look at some actual numbers.
The average income for a single earner is $25k. With that amount of money and a $6000 down payment, most banks will give you a loan for a house worth $60,000 This indicates that the bank is willing to take a risk on someone with your income and purchasing power -- they think you can pay off the loan. (Yes, houses are available in much of the country for $60k or less.)
Determined families will be able to support their own family and purchase a house with only a single earner. They might not be able to have cable TV, but that is a luxury anyway.
Am I arguing for higher taxes? No. But I do believe that the reason so many people are convinced they have to have two earners in a household is not necessity or high taxes.
#Comment Re: made: 2004-07-27 22:48:27.477168+00 by: Dan Lyke
Except that if you look at the historical data as a percentage of GDP receipts from personal income taxes are at best only a little higher and receipts from corporate taxes are way down from 1970.
Tax load ain't all of it.
#Comment Re: made: 2004-07-28 04:04:04.136635+00 by: dexev
I don't buy the "working people pay 50% of their earnings in taxes". Especially given the data in Dan's link that FedGov spending around 18% of GDP. Even factoring in state and local taxes at, say, another 10%, that's still only 28%.
I don't have much trust in the original data, either. I don't dispute that average weekly income decreased from $312 to $275, but I do think that those numbers are next to meaningless. There are just too many externalities that can't be adjusted for. I have the same high regard for the concept of "inflation" in general.
#Comment Re: made: 2004-07-28 16:12:05.941148+00 by: ziffle
If we add 18% for SS and medicare, and state income taxes, and so forth its way over 50%.
#Comment Re: made: 2004-07-28 21:42:08.13481+00 by: Mars Saxman
Yes, houses are available in much of the country for $60k or less.
Wow. Studio apartments go for twice that around here. Too bad those are mostly parts of the country you wouldn't want to live in, and couldn't get a job in even if you did....
#Comment Re: made: 2004-07-29 00:20:36.636506+00 by: dexev
ziffle-
using the numbers in Dan's link above, individual income taxes accounted for 8% of the GDP last year. Now, count the entire 15% payroll/FICA tax on top of that -- that's 23%. Now add a very generous 10% for state and local taxes -- thats 33%. We'd have to assume that the 'average working person' pays more than three times the average (25%) in federal income taxes to reach 50% overall. Since most 'average working people' don't even see a marginal tax bracket above 25%, I don't see how their total income tax can be that high.
#Comment Re: made: 2004-07-29 02:45:55.487184+00 by: Larry Burton
Mars, people find jobs in every section of the country. I've been involved with large manufacturing facilites in some of the smallest and remote areas of the south you could imagine. There are houses available within commuting distance of Atlanta that meet the $60k criteria. These houses are small and in need of repair but they are certainly livable.
Dexev, Ziffle wasn't limiting his 50% number to income tax alone. Sales tax in the Atlanta area runs from 6% to 8%. In Chattanooga, where a number of people here have ties, the sales tax rate is at 8 3/4%. Add gas tax, property tax (even renters pay this through their rent) and various sin taxes and you are going to be at the 50% level real fast.
#Comment Re: made: 2004-07-29 02:46:37.846253+00 by: crasch [edit history]
For another perspective on the data, check out Arnold Kling's article: How Much Worse Off Are We?
To quote from the article:
Given these statistics, what explains the fact that, adjusted for inflation, the pay of the lowest-wage workers has not increased much over the past thirty years? There are a number of factors involved, but I suspect that the largest component of the explanation is a shift in the composition of the low-wage work force. In the 1970's, many of the people at the bottom of the wage scale were heads of households. Today, many low-wage workers are providing second or third incomes to families.
The important point to bear in mind is that "the bottom fifth of the wage distribution" does not represent some permanent group of people. Instead, it signifies the earnings of workers who at that time have the lowest levels of skills and experience. My college-age daughters, doing temporary clerical work, are in the bottom fifth. But even if the income of the bottom fifth were to stagnate over the next twenty years, my daughters will earn higher incomes as they acquire valuable knowledge.
#Comment Re: made: 2004-07-29 16:53:30.487715+00 by: dexev
Please explain to me, if total government spending is 30% of GDP (20% federal, 10% state -- see (http://www.cbo.gov/showdoc.cfm?index=3521&sequence=0) and (http://carriedaway.blogs.com/c...way/2003/10/us_government_s.html)) -- how does the "average working person" pays more than 50% of their income in taxes? Also see (http://www.allegromedia.com/sugi/taxes/) for a breakdown of taxes by income bracket (short version -- the top 5% of earners pay 50% of all income taxes).
I agree with ziffle that the level of taxation is too high, but to suggest that it's over 50% is inconsistent with the available facts.
#Comment Re: made: 2004-07-29 17:08:00.495073+00 by: Dan Lyke
I know that my tax level is pretty close to 50% (the income taxes I pay are 40%, my employer pays above that, add in fuel, sales taxes, property taxes (although I'm a renter, so there's arguemnt about where in the stream that comes out) and you're in the ballpark), but I'm also pretty confident that I'm not your "average working person".
#Comment Re: made: 2004-07-29 17:27:48.14893+00 by: ziffle [edit history]
A person with a job![[Wiki]](/adbanners/lookingglass.png){kind=small}
pays the most.
Passive income is not (for the most part for investors) taxed. People who invest in passive income can avoid paying taxes.
The system is set up to screw the employee.
The reason is that if they also screw the investor there will be no investment and the system will collapse. They can screw 'employees' so they do -- because they need the money.
Soon they will screw the employees more to pay for social security for the baby boomers since they spent all the money that was put in to the system the last 40 years. -- they did not save it like we were told.
So if you want to get ahead today you must be an investor not an employee.
Ziffle
#Comment Re: made: 2004-07-29 18:47:46.652821+00 by: John Anderson
I'm not your "average working person".
s/working //, shirley? (Actually, s/working/non-working/ at the moment, eh? 8^>=)
#Comment Re: made: 2004-07-29 21:50:02.312522+00 by: Dan Lyke
John: giggle.
Ziffle: Dang, you and I agree on a lot in principle, less in practice, but I believe you just nailed it. Thanks, that put it in harsh unflinching perspective.
#Comment Re: made: 2004-07-30 04:28:13.871291+00 by: Mark A. Hershberger
The system is set up to screw the employee.
Agreed.
Still, if passive income were taxed the same as active income, why would that decrease investment? Would people move into the labor market because their stocks were taxed too much? Would they take their money out of the market and avoid any income whatsoever? Or, are you saying that they would find ways to make money without paying tax (which, if all income were taxed equally, would be illegal)?
Too bad those are mostly parts of the country you wouldn't want to live in, and couldn't get a job in even if you did....
See, this is exactly the sort of insular attitude I was trying to address.
#Comment Re: made: 2004-07-30 04:54:58.094943+00 by: Larry Burton
Or, are you saying that they would find ways to make money without paying tax (which, if all income were taxed equally, would be illegal)?
This is why I support the FairTax. Eventually people will spend their money. A sales tax is the only fair way to apply a tax.
#Comment Re: made: 2004-07-30 15:12:49.332008+00 by: Pete [edit history]
To pay for lowering taxes on people with a lot of money, the "Fair"Tax raises taxes on people with less money.
Which part of this is supposed to sound like a good idea?
#Comment Re: made: 2004-07-30 16:18:31.428602+00 by: ziffle [edit history]
Mark, the real issue is not how to make everyone pay the same high tax, but how to remove them altogether. Laws against not paying taxes are immoral IMO.
Dan, IMO, If possible always form a corporation ( or LLC) and have your employer pay that. All your expenses become tax deductible, and the amount of tax you pay drops off. If you are an investor to boot you can finesse the system by changing your W2 amounts by paying extra tax and thereby increasing your pay for loan ratio purposes. This of course costs extra taxes but you qualify for higher mortgages which allows more investments.
If you are paying child support a corporation is required because it is not possible to live on what they leave you.
Example: three children, you pay 43% of your NET income to the ex wife. If you earn $70000 and pay 25000 in tax and SS that leaves 45000 which gives you 57% after child support which is 23850. Then you pay health insurance on the three children - say $600 a month - that leaves $1388. Now how far does that go in California or anywhere? Car, insurance rent - and you wind up living in poverty. Try buying a house or anything at that point - the banks will laugh at you.
So having a corporation in that case allows you to deduct everything almost you do, like the childrens health insurance (consult your tax professional as I am not a tax person and do not represent myself that way in any regard) and the car, and the insurance ,and well - let your mind drift ---
All of that BEFORE taxes, and then what you actually pay tax on is much lower - and the 43% of the lower amount is much lower - aahhhh - now the exwifes boyfriend will have to get a real job after all - (face it the children DO NOT SEE THE MONEY YOU SEND --)
So for financial survival a corporation is required, since EMPLOYEES get SCREWED by the government.
#Comment Re: made: 2004-07-30 18:19:35.932465+00 by: Mars Saxman
See, this is exactly the sort of insular attitude I was trying to address.
What's insular about it? People go where the jobs are, and housing prices follow them. If housing is cheap, it's because nobody wants to live there, and if nobody wants to live there, it's usually because there's no way to make a living. I mean, sure, I could buy fifty acres of Nevada desert for twenty grand, but what would that accomplish?
#Comment Re: made: 2004-07-31 14:34:15.187828+00 by: Larry Burton
To pay for lowering taxes on people with a lot of money, the "Fair"Tax raises taxes on people with less money.
Actually the FairTax rebates the amount of taxes on spending up to the poverty level so you are lowering the taxes on people with less money.
#Comment Re: made: 2004-07-31 18:00:43.956282+00 by: dexev
I read the FairTax 'thumbnail' page. It doesn't make much sense to me. As I understand it, there are two big benefits of a consumption tax: one, there's a single tax rate for everybody, and that transparency makes it easier for people to understand; two, administration of the program is cheaper and less intrusive. All of FairTax's 'registered households' and 'poverty level rebates' and 'tax-free business inputs' -- in an effort to throw important constituencies a bone -- remove most of the benefits of the consumption tax.
#Comment Re: made: 2004-08-01 04:09:04.086449+00 by: Pete [edit history]
>Actually the FairTax rebates the amount of taxes on spending >up to the poverty level so you are lowering the taxes on >people with less money
Actually, people now paying the top bracket of taxes (we call them "the people with a lot of money") will pay less in taxes than they do now, with the difference to be made up by everyone above the poverty line (we call them "people with less money"). This lowers the tax rate on the rich and moves the burden to everyone below them but above the poverty line, or (I know this is repetitive to the people that get it, sorry) it raises taxes on the middle class to pay for tax breaks for the rich.
So, again, which part of this is supposed to sound like a good idea (at least to the 95% of people that aren't rich)?
That's the problem with any "flat" tax. This particular version of the "flat" tax has the added charm of taxing those who need to spend all their income to survive at a HIGHER rate than those who are paid more than is required to cover their expenses. That's right, those people just scraping by paycheck to paycheck pay a higher rate than people that have income beyond their expenses. Lovely.
#Comment Re: made: 2004-08-01 14:32:41.769718+00 by: Larry Burton
The only thing money is good for is to spend. People who make the most money will spend the most money and will pay more taxes than people who have less money who spend less money. This being a consumption tax, it has nothing to do with income and everything to do with spending. My dollar spent is not going to be taxed at a HIGHER or LOWER rate than the dollar you spend or the dollar anyone else spends. That is why it is the FairTax. Whether your income is earned or unearned you are going to pay the same rate when you spend.
Since this is a consumption tax money that is spent to create goods and services destined to be consumed is not taxed so those taxes that are passed along to the consumer are no longer there making goods and services cheaper before tax. The FairTax will lower the cost of employment since the employer no longer has to deal with paying half of Social Security and Medicare for the employee. The employee will not only see net wages rise due to the elimination of income taxes, but also gross wages rise due to the savings on the part of the employer.
Because of the nonexistant federal tax burden on manufacturing we will see a turn around in the loss of manufacturing jobs in this country. Foreign companies will be lining up to open manufacturing facilities here while US manufacturers will have less incentive to move manufacturing capacities overseas. Exports will not be taxed and imports will only be taxed when consumed. Think of what that will mean for the global market.
The FairTax is also a true voluntary tax in that you can choose to spend or not to spend. Don't want to pay the consumption tax on a new house? Buy an older home. Don't want to pay the tax on a new car purchase? Buy a used car. Shop flea markets and thrift shops for your clothing and household goods and drop your tax burden even more.
One last advantage I want to mention and then I'll shut up about the FairTax, for now. Because the FairTax eliminates special interest exclusions to the tax it eliminates the ability of politicians to build a constituency based on tax laws. No longer will you have Republicans accusing Democrats and Democrats accusing Republicans of tax breaks for the rich or tax increases on the backs of the poor.
#Comment Re: made: 2004-08-01 20:17:24.498653+00 by: Shawn
Pete; completely outside of the debate over the Fair Tax Larry is championing, I've heard your argument in various flavors throughout my life. What I don't understand is why so many people think it's right to punish people just because they make more money than others.
If somebody has a more fuel efficient car than I do, I don't expect them to be forced to drive a longer distance to work. Why should I expect somebody who makes more money to pay a higher percentage of taxes? If the percentage is the same, they still pay more than I do - proportional to how much more income they make.
#Comment Re: made: 2004-08-01 20:46:52.830849+00 by: Dan Lyke
I'd love to write something longer and well researched, but I've got two things I think are important:
#Comment Re: made: 2004-08-01 20:57:04.709996+00 by: Pete [edit history]
>People who make the most money will spend the most money and will pay more >taxes than people who have less money who spend less money.
This statement is false in terms of taxes paid as a percentage of income. The more money person makes, the more money they have available for savings and investment, and the smaller the portion of their income they need to spend to get things, and therefore the smaller the percentage of their income that gets taxed in the unFairTax, resulting in a lower tax rate for the rich.
>This being a consumption tax, it has nothing to do with income [A] and >everything to do with spending[B].
Higher-income/rich people need to spend a smaller portion of their income on their living requirements and can therefore put a larger portion of their income into savings and investment, shielding it from the unFairTax's consumption tax, resulting in a smaller portion of rich people's income being paid as taxes.
It's a lower rate of taxes for people with higher incomes. Calling that a "fair" tax is falsehood and disingenuity of the highest order.
>My dollar spent is not going to be taxed at a HIGHER or LOWER rate than the >dollar you spend or the dollar anyone else spends.
Each dollar is a higher percentage of a poor person's income than is each dollar of rich person's income. The person that must spend 98% of their income to meet their living requirements pays a MUCH higher percentage of their income on the unFairTax than the rich person that only needs to spend 30% of their income to meet their living requirements.
That is why it is the unfairtax.
>"Because of the nonexistant federal tax burden on manufacturing and >"Because the FairTax eliminates special interest exclusions to the tax"
Bullshit. These statements nullify each other. Shifting the tax burden away from corporations and entirely over to individuals is choice that reflects a particular set of values and special interests.
>Because of the nonexistant federal tax burden on manufacturing we will see a >turn around in the loss of manufacturing jobs in this country. Foreign >companies will be lining up to open manufacturing facilities here while US >manufacturers will have less incentive to move manufacturing capacities >overseas.
Bullshit fantasy. Do you understand that China has lost millions more manufacturing jobs than the US? http://www.conference-board.or...es/pressDetail.cfm?press_ID=2432
*** For the entire economy between 1995 and 2002, China lost 15 million manufacturing jobs, compared with 2 million in the U.S."
China is rapidly losing manufacturing jobs in the same industries where the U.S. and other major countries have seen jobs disappear, such as textiles. Matthew Spiegelman, Economist at The Conference Board and co-author of the study, notes: "The U.S. lost 202,000 textile jobs between 1995 and 2002, a tremendous decline by any measure. But China lost far more jobs in this sector –1.8 million." ***
>The FairTax is also a true voluntary tax in that you can choose to spend or not >to spend.
ONLY FOR THE RICH! Those with only enough income to meet their living requirements do not have the *LUXURY* choosing whether or not to spend. They must, to live. This choice you speak of exists ONLY for the rich. You're arguing to give the ability to opt out of taxes only to the rich! In no way is that "fair."
>Don't want to pay the consumption tax on a new house? Buy an older home. Don't >want to pay the tax on a new car purchase? Buy a used car. Shop flea markets >and thrift shops for your clothing and household goods and drop your tax burden >even more.
How many sacrifices would you force on the poor to pay this tax cut for the rich? Perhaps you would be so helpful as to point of some sources of used medicine for the poor. We already know what happens to used food, so in a sense the unFairTax would be no change there since the rich have been shitting on the poor for a loooong time.
And, in case the scent of BS wasn't strong enough already wait until the explosion of an enormous used merchandise market envisioned here steamrolls that fantasy-land manufacturing fairy tale of yours.
The ultimate and inescapable bottom line comes from the intersection of two facts:
The result is that to achieve the revenue neutrality claimed in point 1, it must place the financial burden removed from the rich in point 2 onto those making less money than the rich people that used to provide that tax revenue. The tax burden moves from those that make a lot of money to those that make less money.
That is the inevitable result of the unFairTax. It's a sham, a lie, an abuse of ignorance, and attempt by the rich to make those with less pay the taxes they now pay.
It's an obscenity.
#Comment Re: made: 2004-08-01 21:17:15.484465+00 by: Pete
Shawn, taxation is not punishment. Ask a valid question and I will answer it.
#Comment Re: made: 2004-08-01 22:29:14.996019+00 by: Larry Burton
Dan, any tax a corporation pays is going to be passed on to the consumer in the price of the goods or services offered by that corporation. Why not uncover that hidden tax and put it where people know it's there and how much it is?
Pete, the only thing I have to say at this point is that you are not looking for fair taxation. You are looking for taxation to ease the burden of being poor. A little secret you need to be let in on, the only way to ease the burden on the poor is by them digging their way out of their predicament. Take away all taxes on the poor and they are still going to be burdened because they are poor.
The arguments you are giving makes taxation a punishment for being well off. Since that's the case, answer Shawn's valid question... unless you prefer me answer it.
Oh and about: > Bullshit fantasy. Do you understand that China has lost millions more manufacturing jobs than the US? http://www.conference-board.or...es/pressDetail.cfm?press_ID=2432
I guess John Kerry's and John Edward's promise to bring back jobs from overseas is moot.
Yeah, I understand that not near the jobs have been transferred offshore as people think. I'm responsible for a small portion of those jobs disappearing. I automate factories. Still, I know that a textile fiber plant in Turkey has caused a few hundred to a thousand jobs to move from the US to Turkey. An old company I worked for did a portion of the controls in that plant and I know what plant in the US closed because the Turkey plant was more efficient.
I also know of a few jobs that were moved from overseas to here because of a plant expansion that I was involved in that made the US plant more efficient than the one overseas. This was in the production of nylon pellets. It was cheaper to make the stuff here and ship it to Singapore than it was to make it in Singapore.
Still stopping jobs from moving offshore is one of the Democrat's planks in their platform. They are seeking to do it by cutting out tax incentives that they claim makes it attractive for companies to move offshore. I'm offering an alternative.
#Comment Re: made: 2004-08-01 22:42:17.105627+00 by: Pete
So you really have no attempt to refute anything I said? You acknowledge the truthfulness of what I wrote? Yes, it's refreshing to find a "flat" tax or sales tax advocate willing to admit in public that he wants to make life cheaper for the rich and *more* expensive for those with less. I do prefer my obscenities unvarnished.
#Comment Re: made: 2004-08-02 00:24:49.977887+00 by: Mars Saxman
My tax bill last year was bigger than my entire annual income five years prior, and let me tell you, 28% of what I make now hurts a hell of a lot less than 15% of what I made then. DAMN did it suck being poor. Taxes were a serious burden - I had to scrimp and save and carefully put money aside and still not have enough and make payments with interest. Every last penny went to staying afloat, and every penny spent on taxes was a penny I couldn't spend getting out of debt, maintaining my health, or just plain keeping food in the kitchen. It mattered.
Today, it matters only in an abstract way: I'm getting wealthier at a slower rate than I might be if I were taxed less heavily. Taxes don't come anywhere close to touching my ability to cover the necessities of life.
As far as I'm concerned, the U.S. tax system isn't progressive enough.
Take away all taxes on the poor and they are still going to be burdened because they are poor.
Well, yeah. So why make life any harder on them than necessary? It's not like the amount of money they contribute adds up to a significant portion of the budget: they are poor, after all, so whatever percentage of their income you extract, it still represents a pretty small number. Why worry about it?
As far as taxes being a "punishment" - what kind of gall do you have to have to pretend that you made all that money on your own without any help from the society that supports you? Unless you're a subsistence farmer - which you aren't, or you wouldn't have access to the 'net - then you make your money via commerce, which depends on a stable society and a well regulated market. Taxes aren't punishment - they are payment for services rendered. Instead of an itemized bill, we guess that you took advantage of those services roughly in proportion to your income. It's an approximation, but a reasonable one.
#Comment Re: made: 2004-08-02 00:58:50.103955+00 by: Larry Burton
Pete, it isn't that, it's that we have no common ground to discuss this from. You insist that it is fair somehow to take money by force from one group of people to pay for services used by another group of people simply because the first group has applied themselves and struggeled to make a decent income. I don't believe that is fair, I don't believe it is right.
You somehow believe that the "rich" do not spend their money above and beyond necessities. I guess you believe that money is doing them some kind of good locked up in investments, not being spent on any luxuries. I don't believe that. Even on the investments, though, they are going to pay the FairTax on the investment services rendered to them.
I also guess that you believe that the used goods I mentioned that give us the option of opting out are going to last forever. The fact is that they will not last forever and will have to be replaced. There will be a high demand for used stuff so you are going to see people wanting new recycling their old stuff through the resale shops at a premium, enabling them to buy more new stuff.
Right now the poor folks are driving used cars, shopping flea markets and resale shops, heck, I even drive used cars and shop flea markets and resale shops. I don't see that as a sacrifice, I see it as a smart shopping decision.
You said: > Each dollar is a higher percentage of a poor person's income than is each dollar of rich person's income. The person that must spend 98% of their income to meet their living requirements pays a MUCH higher percentage of their income on the unFairTax than the rich person that only needs to spend 30% of their income to meet their living requirements.
Rich people spend more than their living requirements on consumables. This tax isn't going to change that and the tax is on luxury items also, not just life's necessities. So regardless of the percentage of their income they spend on necessities compared to the percentage they spend on luxury items they are going to pay more taxes because they are going to spend more.
You also said: > The unFairTax, having a rate below that of the top federal income tax rate (they discuss 23%), would lower the burden on the the rich paying the income tax brackets above that.
It would also remove deductions they receive on much of their income. Do you think they pay the higher rates on all their income? No just on the unprotected portions. That money they've been protecting isn't doing them a bit of good unless they spend it. If they spend it on something that will make them more money it's sheltered from the FairTax but it's also growing the economy and eventually will end up being taxed because what else are they going to do with it?
Is the FairTax perfect? No, I'll freely admit that. There are plenty of opportunities to defraud the system by claiming purchases will be used for business purposes, but people defraud the current system. It's still the fairest proposal I've seen for replacing the income tax that we currently have which is definately unfair and a burden on our economy.
Now, I'm sure you have plenty of comebacks for what I've just written. I won't bother with them because, as I said earlier, we come from two different places and I just can't understand your premise that rich people owe poor people the things that they can't afford. I see no basis for this assertion. Under the FairTax the rich will continue to bare a larger portion of the tax burden than the poor people. However, under the FairTax that burden will be a straight line increase rather than the steep curve that you would like to see. The straight line is fair while the steep curve is punishment for success.
You still need to answer Shawn's question. It is valid.
#Comment Re: made: 2004-08-02 01:18:40.714995+00 by: Larry Burton
Mars,
> It's not like the amount of money they contribute adds up to a significant portion of the budget: they are poor, after all, so whatever percentage of their income you extract, it still represents a pretty small number. Why worry about it?
Actually, I'm not. What worries me is that by me being taxed at an incresingly higher rate at some point I've got no incentive to work any harder to make any more. I'd like to believe that society needs to continue providing an incentive for me to work harder, not start removing that incentive once I start to become truely successful.
> As far as taxes being a "punishment" - what kind of gall do you have to have to pretend that you made all that money on your own without any help from the society that supports you?
I don't pretend that I don't owe my fair share for living in a country that provides me with all the opportunities it has provided me. If I make ten times more than you make I'm more than willing to pay ten times the taxes. I believe that I'm not being unreasonable, though, to not want to pay 50 times the taxes.
Look, I've been poor myself. I ate Ramen Noodles way too many times for supper when I was younger and wondered how I was going to pay all the bills. I'm a lot better off now but I'm still not rich by any stretch of the imagination. I'm still recovering from a being out of work for most of last year. I'll also admit that the biggest draw for me with the FairTax is the way it would simplify my life in regards to record keeping.
But still after studying it and considering the good and the bad of it, it's still the best alternative that I've seen proposed to reforming our tax system.
#Comment Re: made: 2004-08-02 01:26:52.237693+00 by: Pete
>You insist that it is fair somehow to take money by force from one group of >people to pay for services used by another group of people simply because the >first group has applied themselves and struggeled to make a decent income.
Really? Show me where I said that.
Or was that a lie?
#Comment Re: made: 2004-08-02 01:52:25.009915+00 by: Larry Burton
You say that by being against any flat tax. You say that anytime you want one groups tax rate to be higher than another person's tax rate. You keep saying that the rate on poor people will be higher which is incorrect the rate on poor and rich will be the same.
Shawn asked you a valid question. Why will you not answer it?
#Comment Re: made: 2004-08-02 01:56:46.3225+00 by: Pete
Sorry, Larry, but that's false. Opposing your pet proposal is not the same declaring the status quo to be fair.
I never said it was. You lied, and you put words into my mouth. Poor, in a whole other sense.
#Comment Re: made: 2004-08-02 02:00:18.230376+00 by: Pete [edit history]
Shawn's question is only valid if taxation is the same as punishment. It is not.
If Shawn disentangles his question from an imagined equivalence between taxation and punishment, I will answer it, just like I said I would.
#Comment Re: made: 2004-08-02 02:08:31.046931+00 by: Larry Burton
I'm not lying about a thing. What I am doing is showing you my perspective of what you are suggesting. That's the way I see your argument. That's all there is to that.
Shawn is also looking at this from a different perspective than you are and seeing the current progressive tax schedule as being unfair. Rather than suggesting he disentangle something where he see's no tangle how about explaining it in a way that we see your perspective.
It isn't taxation that he or I see as punishment it's a progressive tax schedule that we see as punishment. How can we possibly see it any other way?
#Comment Re: made: 2004-08-02 02:24:00.067189+00 by: dexev
Dan-
Eugene Volokh has some good points (http://volokh.com/2002_06_16_volokh_archive.html) on the legal status of corporations that changed the way I was framing the idea in my own mind. I can't figure out how to get a link to just the one article -- you'll need to search on 'corporation' within the page.
#Comment Re: made: 2004-08-02 02:47:28.818323+00 by: Pete
Larry, that's false. You flat out stated the I "insist that it is fair somehow to take money by force..." when I neither said nor insisted any such thing. It's a lie, your lie.
As for Shawn's question, I am not equating progressive taxation with punishment, and no line of reasoning has been laid down in here proving that it is. So, if you or Shawn want me to answer his question (which is no Herculean task when separated from this fallacy), then it falls to you or Shawn to either prove Shawn's assumption of equalivance between progressive taxation and punishment to be a fact, or to disentangle Shawn's question from the the unproven assertion that they are equivalent.
To me, adressing Shawn's question now would mean that I accept his assertion that progressive taxation is punishment, when I see no case to do so. I won't support that assertion by answering a question that, according to the sentiments leading to it, is the same as "Why should I expect somebody who makes more money to be punished?" Since that notion is unsupported in here, to me it's an absurd question.
Either disentangle the question from the absurd and unsupported equivalences between progressive taxation and punishment, and I'll answer it; or prove this alleged equalivance between progressive taxation and punishment, and then too I'll answer it. Until then, I wouldn't hold my my breath.
And, Larry, saying "I really, really think it is punishment" would not prove it.
#Comment Re: made: 2004-08-02 03:34:45.656865+00 by: Larry Burton [edit history]
dexev, http://volokh.com/2002_06_16_volokh_archive.html#85183253 is the link to the individual article you were refering to.
Thank you, Pete. Now I understand your refusal to answer. So let me try to rephrase this with some questions.
Do you believe progressive taxes are fair? If so, how are they fair? If not, how do you compare their fairness with flat taxes?
Oh, and Mars, the FairTax does not tax spending up to the poverty line. That's regardless of how much one makes, I think. it's at least rebated to people making under $50k a year.
#Comment Re: made: 2004-08-02 04:05:11.41372+00 by: Pete [edit history]
I've got to get up up early (jury duty!), so I've only had to time scan your last post, Larry, but my first reaction is that "right" does not need to have anything in common with "fair," so I think your question is very different from Shawn's.
Secondly, you need to realize that no one in here is actually championing a flat tax, or even a flat-rate tax. Your so-called "FairTax" has a progressive rate structure (but a regressive assessment procedure).
I'll put time into a more thorough response tomorrow (probably--I also have evening commitments), but you may also want to reconsider your questions.
#Comment Re: made: 2004-08-02 04:39:42.398533+00 by: dexev
Pete-
You ever read the short story "Harrison Bergeron"? It's about a world where nobody is allowed to be above average -- stronger people are forced to carry heavy weights, smart people have to wear earpieces that play distracting sounds, etc. A progressive tax system is similar: The better you are at earning money, the greater the inefficiency (tax %) you're forced to carry.
#Comment Re: made: 2004-08-02 10:46:51.533285+00 by: Larry Burton
> Your so-called "FairTax" has a progressive rate structure (but a regressive assessment procedure).
I don't see it. If there is something I'm missing on this FairTax I would love to have it explained to me.
#Comment Re: made: 2004-08-02 14:14:16.120476+00 by: Shawn [edit history]
Pete; No, taxation is not punishment. Disparity between percentages is - unless you can give me another reason than simply "because they make more". It's discrimination - which, in turn, is social punishment.
we guess that you took advantage of those services roughly in proportion to your income
But we're not. We're saying that those who make more took advantage in a higher proportion. If we had a flat tax your statement would be correct.
#Comment Re: made: 2004-08-02 16:09:26.278223+00 by: Mars Saxman [edit history]
Well, I suppose it shouldn't be surprising that we all have strong feelings about this subject...
"Fairness" is a tricky question. One could argue that every citizen receives equal treatment under the law, and that we should therefore fund the government's activities by dividing its budget equally among all citizens. This would be strictly fair: after all, each person would pay equally, regardless of their circumstances. Many ancient taxation schemes actually did work like this.
But nowadays nobody likes this idea very much. We have a more nuanced idea of fairness: instead of looking strictly at the dollar amounts, we include the idea that the tax burden itself should be fair. Each taxpayer should experience roughly the same amount of pain come April 15th; in order to accomplish that, the tax needs to be somehow proportional to the amount of money they have available.
So far, we are all (I hope) agreed.... So the question is, how do we design a tax system that funds the government's needs while imposing an equal burden on every taxpayer?
Progressive income taxation is based on the idea economists call decreasing marginal utility, which is basically the observation that each additional dollar has less subjective value than the one before. If your net worth is ten bucks, one more dollar makes a really big difference; if your net worth is a million, you won't even notice the extra buck. But it goes even further: if you have a million and you add another hundred thousand, it still doesn't make as much difference as that one original dollar did, even though - strictly speaking - you've increased your wealth by the same percentage.
So if we're looking for an equal burden, a flat percentage won't do it: the cost of that percentage drops as one's income increases. You have to increase the percentage in parallel with income to maintain a constant level of inconvenience. And that's why I say the U.S. tax system isn't progressive enough: despite its gradations, and the fact that my tax rate today is nearly double what it was six years ago, the tax burden today is nowhere near as heavy today as it was then. Back then, taxes affected my ability to eat; now, you'd have to raise my tax rate up to at least70% to have the same effect. Not that I want to be taxed that heavily, of course - what I want is lower taxes on the poor, and if that means tweaking the higher end of the scale up by a percent or two, well, I'm still not going to feel it.
-Mars
#Comment Re: made: 2004-08-02 19:08:06.845286+00 by: Shawn [edit history]
Okay, we seem to be getting down to the bases for the disconnnect...
disentangle the question from the absurd and unsupported equivalences between progressive taxation and punishment, and I'll answer it
Let's take it a step at a time, then. Would you agree that progressive taxation is discrimination?
"right" does not need to have anything in common with "fair," so I think your question is very different from Shawn's
"right", "fair", "just", "appropriate", etc. are all synonymous in my lexicon. Larry's interpretation of my position has been dead on.
Mars; on general principal, I am not agreed on the necessity for some kind of "equivalence of pain". Back to the topic of taxation, you talk of making sure those with more money feel the same pain as the poor and "maintain[ing] a constant level of inconvenience". How is intentional infliction of "pain", "inconvenience" and "burden" not punishment?
#Comment Re: made: 2004-08-02 21:04:14.124748+00 by: Mars Saxman
Shawn: punishment implies wrongdoing, and there's no transgression here - just a bill to be paid. Sure, it hurts when I write that monthly rent check, and the various utility bills can feel like a burden; but they're just bills, not punishments.
The argument you're making against progressive taxation applies just as well to the "flat tax". After all, how is it fair that I pay (let's say) $30k worth of taxes in a year and my neighbor only pays $10k? I don't pay three times as much for the same groceries, or electricity, or gasoline! I'm being discriminated against for making more money; the feds are making me carry a heavier weight than my neighbor just because I have better skills and can work more productively. This is unfair; we are equal in the eyes of the law, so why shouldn't our tax bills be equal too? The truly fair way to tax is to divide the budget by the number of taxpayers and charge us all an equal share.
#Comment Re: made: 2004-08-02 22:28:08.604958+00 by: Shawn [edit history]
punish ment can also be to handle roughly, mistreat, hurt or impose penalty for a "fault".
If we're going to base our tax on income (a variable figure), then percentage becomes the measuring stick - not the final amount. If y does not remain constant (over x) comparisons [edit: of equality] based soley on y are meaningless. Furthermore, groceries and the like are not based on income, and generally as their baseline goes up their prices go up at a steady rate - not an accelerating one.
#Comment Re: made: 2004-08-03 00:34:16.57021+00 by: Pete [edit history]
>>Your so-called "FairTax" has a progressive rate structure (but a regressive >>assessment procedure). > >I don't see it. If there is something I'm missing on this FairTax I would love >to have it explained to me.
No sweat. The unFairTax is a progressive rate system with two tiers: "And this tax is collected only on spending above the federal poverty level, thus making the tax rate zero up to that level." (from the unFairTax thumbnail). The two tiers are 0% and whatever the revenue neutrality number is (23% is discussed). This means that rate-wise, the unFairTax is only a limited tweak of the current progressive Federal income tax system.
So then, what is the nature of the rate tweaks that the unFairTax makes to the current system? They are also simple: it reduces the rates the rich pay and moves what had previously been part of the rich people's tax bill down to every one else below the rich people but above the poverty line. The rich pay less than they do now, and instead that money is extracted from the people making less than them.
Now for how the assessment mechanism of the unFairTax makes it regressive: it's assessed as a sales tax, and sales taxes take a higher percentage of income from those making less money because they must spend a larger portion of their income than those making more money must.
What makes people rich is that they build wealth. Building wealth ONLY happens when people's income exceeds their expenditures. The ONLY way to get rich is to have income that exceeds outlay. These are all inescapable economic truths, and they also mean that the rich, by definition, are people that spend less of their income than they receive.
So then the rich are people that do not spend as much as they make. Therefore, by definition, the rich have a smaller percentage of their income subjected to a sales tax.
Compare a middle class person that must (and does) spend 90% of their income in a way that incurs a sales tax to a rich person that can (and does) meet their living expenses with only 30% of their income (leaving the rest for savings). In that scenario the middle class person is paying three times the percentage of their income in taxes as the rich person, or stated another way, the middle class person is has an effective income tax rate three times that of the rich person.
That's what it means for a tax to be regressive: proportionally it places a light burden on those with greater income and a higher burden on those with less income.
From all appearances, the regressive assessment mechanism of the unFairTax would overwhelm the progressive nature of its rate structure, with the end result being that the rich would pay a smaller percentage of their income in taxes than those with fewer financial resources.
#Comment Re: made: 2004-08-03 01:15:42.064338+00 by: Pete
>"right", "fair", "just", "appropriate", etc. are all synonymous in my lexicon.
That's too limited a definition for "right." What is right for a group may be "unfair" (as in "inequitable") to an individual in that group.
Today perhaps 0.5% of my neighbors are needed for jury duty. Their service is required, and it is right to create juries to allow the whole community to pursue justice even if force is required to do so. But, right now, that burden falls, unshared, on select individuals such as myself. That doesn't make the jury system wrong.
>punish ment can also be to handle roughly, mistreat, hurt or impose penalty for a "fault".
You've pretty much nailed the problem I have with your question as formulated: I'm not claiming there's any necessary fault in making more money than someone else.
>Would you agree that progressive taxation is discrimination?
No. Progressive taxation is not discrimination. Definitions one and two of discrimination from your link are involved in progressive taxation, but that does not make progressive taxation the same thing as discrimination.
By the way, defintion three from your link is the only negative aspect of discrimination, and it is not involved in progressive taxation as discussed here. The taxation we are discussing is applied individual by individual, based on a discriminating analysis of the relevant aspects of the individual, in this case their finances.
#Comment Re: made: 2004-08-03 01:22:48.46446+00 by: Pete
Let's try it another way, Shawn. Are you looking for unique benefits of progressive taxation that are unrelated to punishment of the rich? That is information I would be happy to provide.
#Comment Re: made: 2004-08-03 14:21:31.253689+00 by: Shawn
Feel free to share away, but to be honest I'm starting to grow a bit bored with the discussion.
defintion three from your link is the only negative aspect of discrimination
Who said anything about negative? I asked if you agree whether progressive taxation meets the definition of discrimination. I'm trying to esablish a baseline for discussion.
defintion three ... is not involved in progressive taxation as discussed here
How not? Are you not defining a category of people (those who make/have more money) and stating they should be treated differently (be forced to pay a higher percentage of taxes)? What do you mean by "as discussed here"?
I'm not claiming there's any necessary fault in making more money than someone else.
If not, then what is your justification for applying a different, more costly, standard to them?
#Comment Re: made: 2004-08-03 15:56:28.17315+00 by: Larry Burton
Okay, Pete, I understand and agree with you about the progressive nature of the FairTax. I still disagree with you about it being regressive. Yes, it can be regressive but not based on income. The regressivness stems from peoples spending habits which are not directly tied to their income. I've known people who spend and I've known people who have saved and the savers were generally lower paid than the spenders.
> Building wealth ONLY happens when people's income exceeds their expenditures. The ONLY way to get rich is to have income that exceeds outlay. These are all inescapable economic truths, and they also mean that the rich, by definition, are people that spend less of their income than they receive.
Would you agree that people who are not rich can build wealth? I now my father did as an auto mechanic, working as an employee, not a shop owner. I now my mother-in-law did as a single-mother doing factory work. Both did this on relatively small incomes. The FairTax would treat them as you suggest only the rich would be treated by this tax.
The FairTax rewards saving which is something that can be done regardless of income. Yes, it's more difficult to save on a low income but the poverty level spending rebates built into the legislation ensures that an adequate amount of money to at least exist will remain untaxed and the vast majority who are earning at the poverty level are only there temporarily. Any additional earnings above the poverty level will either go to savings or toward elevating one's lifestyle.
It's those dollars spent elevating one's lifestyle that will be taxed by the FairTax. I don't call that regressive, I call it fair.
#Comment Re: made: 2004-08-03 23:14:25.415004+00 by: Pete [edit history]
>I asked if you agree whether progressive taxation meets the definition of discrimination.
And I already answered.
>>defintion three ... is not involved in progressive taxation as discussed here > >How not?
Look at the examples from the definition you point to: "racial discrimination; discrimination against foreigners."
What has made racial and national discrimination so deeply reviled is that they have resulted in characteristics being erroneously assigned to individuals based on the measurement of unrelated characteristics. Examples of how this leads to bullshit include the the racist myths such as the assessment that people with dark skin are stupid, when skin tone has no causal relationship with intelligence. This discrimination happened when people were individually measured to determine the darkness of their skin, but then the result of that determination was used to make unsupported assessments about unrelated characteristics. In the case of progressive taxation we are evaluating a person's finances individually, and making assessments along that same financial axis.
>Feel free to share away
Well for starters, there's the built-in effeciencies of progressive taxation compared to flat or regressive taxation .
Person A has exactly enough income to provide for their own needs. If the tax policies of the government deprive Person A of the ability to sustain themselves, then the governent will have to duty to alleviate the deprivation it created by replacing the resources it drained in taxes with equivalent services. It is much more effecient to merely let Person A keep their money by not taxing them in the first place, and it results in a leaner government apparatus.
Stated another way, progressive taxation has built-in effeciencies compared to flat taxation in that the more money the government takes away from the poor, the more the government has to replace in welfare services. It is much more effecient to just let the poor keep a greater percentage of their income and avoid the friction and waste associated with delivering services to them via welfare programs. Progressive taxation reduces the need for welfare services by keeping the government from *creating* deprivation with taxes.
#Comment Re: made: 2004-08-03 23:15:24.68876+00 by: Pete [edit history]
>Yes, it can be regressive but not based on income. The regressivness stems#Comment Re: made: 2004-08-03 23:56:50.416234+00 by: Shawn
Pete; you have not made an argument for the benefits of a progressive tax, you have made an argument against a flat tax - specifically one that raises taxes (from their present level) on the poor. I am not arguing in favor of the tax plan Larry is recommending. I am simply questioning the assertion that it is right/fair/proper to increase the percentage of tax a person pays because they make more money.
Look at the examples from the definition
Examples are just that. They are not all inclusive.
making assessments along that same financial axis.
No, we're not. We're making assessments along a curve. That's my whole point.
#Comment Re: made: 2004-08-04 01:20:57.545347+00 by: Pete [edit history]
Shawn, all taxes fall into one of these three categories: regressive, flat or progressive. If I say that progressive taxation has a uniquely effecient characteristic, then that's an argument for the benefits of progressive taxation over every other possible type of taxation. It might not be a judgment along the moral dimension you are considering, but it's false to say that I "have not made an argument for the benefits of a progressive tax."
As for your last point, we're assessing an individual based upon the particular characteristic under consideration (financial), not testing for membership in a group and then making an assessment of a characteristic other than that used in the test.
That which is tested, finances, is that which is assessed. It's a straight line relationship, as opposed to to the orthogonal illogic of the skin tone / intelligence example I cited as an example.
#Comment Re: made: 2004-08-04 02:04:56.284403+00 by: Larry Burton
> As I just illustrated, everywhere it's still applied (everywhere above the poverty level), the unFairTax is still regressive--it still takes a greater percentage of income from those making less.
Only for spending above the poverty level. If we take the poverty level as being the least amount of spending it takes to live then every thing spent above that level is for lifestyle. For every penny spent on lifestyle the Fairtax says that is fair game for taxation. You are not taking food out of ones mouth for taxing any spending above the poverty level.
Any progressive tax above the poverty level only subsidizes lifestyle spending for those being taxed at a lower rate.
>> The FairTax rewards saving which is something that can be done regardless of >income.
> This is false. There are income levels which do not meet the sustanence level, and at those income levels and below saving is simply not possible.
That level is the poverty level. The FairTax does not tax spending up to the poverty level.
There is also a difference between possesing wealth and having a high income. You pointed out that it's much more common for a rich person to save than to spend. I do not doubt this one bit, you don't stay rich long if you spend the wealth you have accumulated. What I want you to consider, though, is that the income of the rich isn't necessarrily a high income, at least the income that got them to the point of being rich. An extravagent lifestyle may be the mark of a high earner but that high earner isn't necessarily rich.
Consider someone like Mike Tyson. The man made hundreds of millions of dollars yet he is now $60 million in debt. He was a high earner but he was never a rich man. You can probably think of many more examples like this. John Rigas is another example of this type of behavior.
While these two are at the extreme end of extravagance I believe most people are like this to some extent. The more money they make the more they will spend. The more they spend the more taxes they will pay. They don't have to pay more taxes, they could save instead, but they will spend.
Then I've got to look at the money that is being saved and not taxed. What's it doing? Eventually it will have to be spent, either for capital investments that will grow the economy or on lifestyle where it will pay taxes. If it's spent on capital investments to grow the economy then it's creating more money which will either have to be spent on more capital investments or on lifestyle, paying more taxes.
The FairTax is a much more efficient way of collecting taxes in that it doesn't remove money from the pool of investments that run our economy and is only collected on money spent for lifestyle enhancement. It is truely a Fair Tax.
#Comment Re: made: 2004-08-04 02:44:55.85843+00 by: Pete [edit history]
>That level is the poverty level. The FairTax does not tax spending up to the#Comment Re: made: 2004-08-04 15:47:02.990414+00 by: ziffle
Why is it right for anyone, including a government, to take from one person and give to another? Is that not called theft?
Ziffle
#Comment Re: made: 2004-08-04 16:24:06.151533+00 by: Larry Burton
> Is it that you just don't realize that this policy creates a disincentive for the rich to spend their money?
Is it that you don't realize the only reason for accumulating wealth is to enhance one's lifestyle? One's dollar, doesn't do a damn thing unless it is spent and there are only three reasons for spending money. One reason is to make more money, another is to further a cause one believes in and the third is to acquire goods and services that enhances one's lifestyle. That rich man that you are so worried about getting a free ride is eventually going to spend his money. If it isn't spent it isn't worth squat.
A retail sales tax isn't like an income tax that encourages one to defer income that isn't required to some later date. People are going to spend their money to acquire what they wish to acquire. Consumers will continue to consume.
> This is an economic policy that reinforces hording and taking money out of the economy, not one that puts resources where they will be immediately, through NECESSITY, turned into the fuel of commerce and activity.
What you seem to be missing is that this is an economic policy that places MORE money into the pocket of the wage earner by not taxing income. The consumers will continue spending this money on things they want. Look at the rising gas prices. These rising prices have not reduced the demand for gas. People are still buying gas and driving and buying more gas.
> This is a policy that continually reinforces the accumulation of hordes of wealth and penalizes any spending of it,...
I thought you said that taxation was not penalization or punishment.
#Comment Re: made: 2004-08-04 20:03:07.108538+00 by: dexev
I've been thinking about the economic effects of switching from an income-based tax to a consumption-based tax, trying to figure out ends up paying what.
First, wage-earners see nominal wages rise, because they're no longer paying income taxes. But prices for most goods just went up because of the new tax. Oops...massive inflation, and everybody's bank account is now worth probably 10-15% less than it was yesterday. Retirees scream, because they're on fixed incomes and are now being taxed twice on their savings. Debtors rejoice, because their effective debt was just reduced. The stock market rewards debtor companies and punishes creditors, but declines overall due to the uncertainty. Bond prices crash.
All of this may be enough to trigger a major economic/social upheaval, but let's assume not. After a while, we reach a new equilibrium. Wages are up 10 - 15% on average, but so are prices, real prices stay the same. Demand for new goods drops, followed by manufactuing jobs, as people switch to used goods. Savings and investment increases, interest rates drop. The money supply has been increased, and demand has been reduced. Whoops, Stagflation.
After a couple/ten years of this, the economy has managed to sort itself out. But the long-term changes are uncertain. Do manufacturers switch to higher-quality goods with higher resale value, or do they make even cheaper goods to offset the sales tax? Do more small businesses open to take advantage of the business-input tax break, or are they put off by the regulatory hassle of getting a sales tax license? Low wage-earners get a big rebate check, but is it bigger or smaller than their EIC check is now?
#Comment Re: made: 2004-08-04 21:39:54.198907+00 by: Larry Burton
dexev, you are now talking about the only worry I have about the FairTax, how are we going to handle the switch? It will definately cause at least short term turmoil within the economy. I think you have come to a lot of the same conclusions that I have but I've decided that a change needs to come and this is the only workable long term change I see that is workable.
You ask:
> Do manufacturers switch to higher-quality goods with higher resale value, or do they make even cheaper goods to offset the sales tax?
That's a good question. Due to the fact that you will see a less depreciation for used equipment I think they will switch to the higher-quality goods on high ticket items like cars and major appliances. I think on low cost items it will go the other way.
> Do more small businesses open to take advantage of the business-input tax break, or are they put off by the regulatory hassle of getting a sales tax license?
I think you will see a ton of new small businesses opening at the beginning with the majority seeing this as an opportunity to transfer some of the business purchases to their personal use. I think after a few years of enforcement those numbers will drop back to about what we have now.
I think the one area that will see a huge growth is in appliance repair. People will trade in appliances on new ones much the same as they do cars now. The appliance retailers will be able to turnaround used appliances so easily that it will be worth repairing old appliances for the resale market.
Unless other countries follow suit in moving to consumption taxes I see the FairTax allowing US manufacturers to be able to compete better globally than they do now so I don't think manufacturing will be hit nearly as hard as you might think. The tax breaks for capital spending won't be around anymore but neither will the taxes they were put there to offset and there will be a lot more investment money for captial investments.
#Comment Re: made: 2004-08-05 03:46:54.486661+00 by: Pete
Today's installment in Debunking The FairTax
>Is it that you don't realize the only reason for accumulating wealth is to >enhance one's lifestyle?
Completely false. Many of the rich accumulate wealth to increase their security in their *current* lifestyle.
>One's dollar, doesn't do a damn thing unless it isspent
False. See above.
>That rich man that you are so worried about getting a free ride is eventually >going to spend his money.
False. How do I know? Larry Burton told me so: "it's much more common for a rich person to save than to spend. I do not doubt this one bit"
>A retail sales tax isn't like an income tax that encourages one to defer income >that isn't required to some later date.
False. The exact same dynamic applies to a consumption tax (except perhaps even more aggressively): "avoid the activity that incurs the tax." The unFairTax provides an incentive to delay and avoid any purchase that can be, to avoid or delay taxation.
>I thought you said that taxation was not penalization or punishment.
You thought wrong. To draw the relevant portion from Shawn's definition:
punishment: to impose penalty for a "fault".
Even from just this I hope it's clear to you that "penalty" and "punishment" are quite distinct. A penalty is a penalty, and only a penalty imposed for a fault is punishment. "Penalty" does not require judgements of right and wrong while "punishment" does.
Let's look at what is uncontested in this discussion, Larry:
If you do not acknowledge these as facts, please change any of the above statements to reflect your understanding. Please make the smallest changes necessary to make them "correct" to your understanding of things. (the aim is correction, not descriptiveness)
#Comment Re: made: 2004-08-05 05:54:28.846674+00 by: dexev
Pete-
I don't think your #4 follows. In the period 1984 - 2004, the top marginal tax rate dropped from 70% to 38.1%, but the percentage of the income paid as tax for the top 20% of families *rose* from 24.5% to 26.8%. The percentage of the overall tax burden paid by the top quintile also rose in this time period. [cites here(http://www.allegromedia.com/sugi/taxes/) and here(http://www.ncpa.org/edo/bb/2004/20040407bb.htm)].
Yes, I realize that both of those numbers are higher than 23% -- I'm more interested in the fact that lowering the tax rate *increased* the tax collected. We like to play with our tax structure and pretend that we understand the real-world effects, but events like the above suggest that we don't. Especially with such a significant structural change, we'd see a lot of secondary effects that are difficult to predict.
#Comment Re: made: 2004-08-05 06:13:09.90118+00 by: dexev
Larry-
I mostly agree with you, but I don't think the long-term effects of the FairTax are predictable. If the government does nothing to alleviate them, the short-term effects would be disasterous, and softening the blow would be quite expensive (and require a huge new bureaucracy) in the short- and medium-term.
#Comment Re: made: 2004-08-05 06:48:36.897812+00 by: Pete [edit history]
>In the period 1984 - 2004, the top marginal tax rate dropped from 70% to 38.1%, but the percentage of the income paid as tax for the top 20% of families *rose* from 24.5% to 26.8%.
I haven't read the links yet (just going by what you presented as it's past my bedtime), but there are lots of gaps in the data you're presenting that keep this from being really useful for making judgments in this context. For starters, did all of that top 20% qualify for the the previous top marginal rate? If not, then just telling us what the change was to the top rate doesn't tell what the change in collective average tax rate was for the top 20%.
>I'm more interested in the fact that lowering the tax rate *increased* the tax >collected.
It didn't. It's my understanding that regressive (exploitedable only by the rich) loopholes were simultaneously closed that raised the actual tax rates paid by the high-income taxpayers.
And don't think such loopholes are an artifact of the progressive nature of the tax. Loopholes, wacky tax laws and deductions are not the product of progressive taxation, they are the product of using the tax code as a tool of social engineering. The government rewards certain behaviors monetarily through the tax code to encourage those behaviors, such as loaning money to the government (tax-free bonds), producing more tax-payers(exemptions for dependents), etc. The temptation to do this exists whether the government sets the tax baseline via progressive taxation or flat taxation.
But apart from all these points, I'm still certain regarding the inflexible truth of #4. X dollars are to be extracted from the same 3 groups of ten people on two separate occasions. If one group (high income) contributes less the second time than it did the first time, the other two (lower incomes) must collectively contribute more than they did before to reach that same total number of dollars. It's inescapable.
(the only vaguely conceivable way to avoid that is to have vast new incomes generated ONLY among those that are already high-income, meaning you've unleashed an economic policy that diverts all the growth of an entire economy into the pockets of those that were already the highest income people. This means the unFairTax would have to grow the income (in both absolute dollars and as a proportion of all the income generated among all the people in the country) of a tiny number of people by such a huge amount that the lower tax rate (lower even than the rate paid by there lower-income neighbors since saved income is shielded) generates just as large a *portion* of all the tax dollars collected as did the previously higher (progressive) rates. Any claim of revenue parity in this situation would be predicated upon insane growth of the gap between rich and poor. This means that the only way revenue parity could be achieved without raising that absolute number of dollars paid by the lower-income taxpayers is to have all the (imagined) economic benefits of the tax policy accrue to those that are already the best provided for. The only thing more ridiculous than the idea that this will happen is the idea that this is desirable. The only realistic conclusion is that revenue parity would either not be achieved or would be achieved at the expense of everyone that previously was taxed at a lower rate.)
#Comment Re: made: 2004-08-06 15:07:34.497112+00 by: Larry Burton [edit history]
> Even from just this I hope it's clear to you that "penalty" and "punishment" are quite distinct. A penalty is a penalty, and only a penalty imposed for a fault is punishment. "Penalty" does not require judgements of right and wrong while "punishment" does.
It still ends up being the same thing, negative stimulus that will modify behavior.
> Let's look at what is uncontested in this discussion, Larry:
> If you do not acknowledge these as facts, please change any of the above statements to reflect your understanding. Please make the smallest changes necessary to make them "correct" to your understanding of things. (the aim is correction, not descriptiveness)
It's not that I disagree with your statements, it's that income becomes irrelevent in this method of taxation. People who spend more pay more taxes, people who spend less pay less taxes. It doesn't matter what their income is.
You claim that people with a lower income will be paying more of a percentage of their income in taxes for the same lifestyle as someone earning a higher income but you fail to recognize that they will also be paying more of a percentage of their income on food, housing and clothing than someone earning a higher income.
I've got this silly notion that people need to live a lifestyle that is compatable with their own income. I've got no problem with someone wanting to improve their lifestyle but they need to do it by increasing their earnings or learning how to be a shrewd shopper. With a tax system that taxes one based on their lifestyle rather than their income you collect more tax dollars from those people living more extravegant lifestyles than people living less extravegant lifestyles. To me that is fair.
#Comment Re: made: 2004-08-06 16:11:57.091715+00 by: Mars Saxman
Wait - I didn't catch that until now: the FairTax excludes rent payments?
That settles it - we don't need to spend any more time worrying about the FairTax because it will NEVER happen. Homebuilding is one of the major components of the U.S. economy, and home mortgages are the bread and butter of the banking industry - and it's all driven by the massive government subsidy known as the mortgage interest deduction. This is the magic behind the "owning is no more expensive than renting" idea.
So what happens if you dump the income tax and adopt a national sales tax? Half the families in the country suddenly find themselves living in houses they can't afford, because they can no longer write the interest off at tax time. A massive wave of defaults follows. Prices crash following the glut in supply. Then demand disappears, because renting is so much cheaper than buying. Homebuilding grinds to a halt; construction companies start laying off workers and scaling back operations. Thousands of home construction related manufacturing companies follow suit.
Guess what friend? It's the second great depression!
Never going to happen.
#Comment Re: made: 2004-08-06 16:52:53.294119+00 by: topspin [edit history]
I've been watching this from a distance.... 'cause taxes don't annoy/interest me that much, but Larry FINALLY comes close to stating what's obvious to me:
If you're poor, the amount you pay in taxes IS a higher percentage of your income, but so is EVERYTHING. Ergo, being poor sucks. But... it ain't the taxes that make it suck, it's the lack of income.
The middle class, being the largest group of us, foots most of the bill and bitches about taxes, but pays them and basically enjoys life in the middle class.... be it minivan, kids, etc or an alternative lifestyle. The rich massage the system, but still pay quite a bit of cash into the system.
A "spending tax" based system seems to discourage spending, discourage development/commerce..... which might just be a GOOD thing for this country. We are overfed, overentertained, overpackaging overusers of everything from Oreos to Oxycontin. Perhaps if spending taxes WERE heavy enough, we might think a bit more about the dispassionate disposable existence we've come to accept.
My 1.6 cents (after taxes, of course)
#Comment Re: made: 2004-08-06 17:42:56.88004+00 by: Larry Burton
> Wait - I didn't catch that until now: the FairTax excludes rent payments?
Mars, the FairTax will tax rent on non-commercial property.
#Comment Re: made: 2004-08-06 21:46:32.84169+00 by: Mars Saxman
Mars, the FairTax will tax rent on non-commercial property.
Ahh, well, that's less drastic then. Still, the FairTax might not subsidize renting, but eliminating the home-purchase subsidy in itself would trigger a major realignment of the U.S. economy, and it would put all kinds of pain on the banking system. Not going to happen, as far as I can imagine.
#Comment Re: made: 2004-08-07 15:32:25.346529+00 by: Larry Burton
Mars, with current home mortgage interest rates being as low as they have been the mortgage interest deduction has not been much as much of an incentive for home ownership as it was in the past and the housing industry hasn't suffered much because the interest rates have been so low.
If the FairTax gives people more of an incentive to save those dollars being saved are going to be available for mortgage loans. With so much money available for mortgages the mortgage interest rates, I would think, should remain low.
#Comment Re: made: 2004-08-08 18:18:26.485745+00 by: Pete
True or false, Larry:
The proposal referred to as the FairTax lowers the maximum amount of tax that those with the highest income could possibly pay on a continuing basis to less than they already pay under current federal taxation.
#Comment Re: made: 2004-08-08 23:40:45.881606+00 by: Larry Burton
There is no true or false answer to that. One person in that category who spends a lot of money would pay more so it would be false for that individual. Another person who is in that category who spends very little would pay less so it would be true for that individual. Spending habits are not tied directly to income. Having a high income and acquiring wealth don't necessarily go hand in hand, either.
Eventually, though, the money will be spent and the tax will be paid on it. It might not be the current generation but it will occur. Money must be spent in order to realize its value.
What you are failing to recognize, though, is that the FairTax is changing the whole mindset about what is taxed. Using income to compare the amount of tax people pay is no longer a valid metric. The FairTax taxes accumulated wealth, not income.
Now, can you tell me whether or not you believe this statement to be generally true or generally false: "The more one makes the more one spends."
#Comment Re: made: 2004-08-09 00:12:11.761024+00 by: Pete [edit history]
For your answer to be truthful, it would have to be possible for a high income person to pay more in taxes on a continuing basis under the tax plan referred to as the FairTax than they would under current federal tax law. Please illustrate a scenario is which that is true.
#Comment Re: made: 2004-08-09 02:56:53.988448+00 by: Larry Burton
Right now a man earning $1,000,000 a year who is married filing a joint return and finding a way to shelter 40% to bring his earned income down to $600,000 is taxed $200,601. Under the FairTax the man would have his full million. Let's say that this man only saves 5% of his income. That would mean that he would be spending $950,000 a year and paying $218,500. This is a sustainable scenario.
But, you are still fixating on income rather than the expenditures that will be taxed. Income doesn't matter under the FairTax, only retail spending.
Now, can you tell me whether or not you believe this statement to be generally true or generally false: "The more one makes the more one spends."
#Comment Re: made: 2004-08-09 03:16:17.838723+00 by: Pete
Your scenario fails to incorporate the AMT (which is higher than the discussed level of the unFairTax) and is therefore invalid and wrong.
Please illustrate a legal scenario in which the high-income person would pay more taxes on a continuing basis under the tax plan referred to as the FairTax than under the current federal tax law, Larry.
#Comment Re: made: 2004-08-09 05:31:52.216711+00 by: Diane Reese [edit history]
[I'm watching from afar, and not planning to get embroiled in this, just dropping in a comment:]
My family unit may not earn $1M a year, but we earn what I consider to be a lot of money, and we save 20-25% annually. (Where did your 5% savings figure come from, Larry?) As our income increased over the past decade, our spending did increase, but nowhere near proportionally with our increased income.
I think we pay a just amount of tax now. I sometimes wish other people more clever and richer than us didn't find ways to sneak out of paying a similar share of support for our common infrastructure and services, and investments in our joint future (such as public school, which our children have never made use of, but which I feel strongly about funding nonetheless). But even if they get away with forcing the burden onto others, it's frankly a burden I am not unwilling to help carry.
I'm not sure what camp that puts me in, I just felt moved to contribute it. Carry on. [Returning to afar...]
#Comment Re: made: 2004-08-09 13:54:23.779365+00 by: Larry Burton
Pete, show me how it is invalid and wrong in numbers. Show me what the actual tax liability would be for the indivdual I gave as an example. I sure have no interest in determining the alternate minimum tax he might owe. Believe it or not, I've got much better things to do with my time. Prove me wrong rather than just saying I'm wrong with your figures. At this point I have no interest in investing any more time in this debate. You are looking at this as being fair or unfair based on taxes paid by income levels and that, IMO, is the wrong way to look at this.
Diane, my 5% savings rate was pulled out of the air. Due to the fact that there are numerous examples of sports and entertainment figures earning multi-million dollar a year incomes and then finding themselves in serious debt and filing bankrutptcy I thought a person making $1 million a year and only saving 5% of that income to be plausable. Based on some tax returns that have been made public by some millionaire political candidates I also believed the 40% shielding of income was plausable. I then went to the tax tables to calculate the tax liability for my example taxpayer.
If I didn't think that there was a huge amount of waste in government I wouldn't have a problem with the taxes I'm paying either. If government is going to take money from me I'd like to think that every dollar taken was being put to good use.
The major problem I really have with the tax system we are currently under is with the burden it places on me to comply with paying the tax. This is the number one reason for my support of the FairTax. I have way too many files to keep up with just for my own personal record keeping to have to also maintain tax records for a truely unknown number of years.
With the FairTax I have no record keeping overhead, as an individual, to comply with the tax. People who spend more on lifestyle than I do pay proportionatly more tax, people who spend less pay proportionatly less tax while people spending only at the poverty level pay no tax.
Will clever people figure out a way to beat the system? I have no doubt that this will happen. Beating tax systems is something clever people have always done with every tax system ever thought of. I see no reason to believe this will ever change. Still, that doesn't change the fact that with the FairTax, people spending more on lifestyle will pay more tax. It has nothing to do with income and everything to do with expenditures for lifestyle.
Now, Pete, please tell me if you think the statement that "the more you make the more you spend" is generally true or generally false.
#Comment Re: made: 2004-08-17 07:36:55.234113+00 by: Pete
This is the sound of me deciding whether or not to continue a discussion in which a main participant has lied, twice put words in my mouth, and contradicted his own assertions. That makes it hard to believe he was proceeding in good faith, or would do so going forward.
#Comment Re: made: 2004-08-17 15:32:13.431957+00 by: Larry Burton
Pete, I've not made one statement that I did not believe to be true at the time I made it. As far as putting words in your mouth, I've only restated what I've believed to be your views. I fully admit that I could have misinterpreted what you really meant but that was the way you came off to me.
As far as continuing in good faith goes, I've stated my views and as far as I'm concerned I've made my case for the FairTax. The FairTax will tax people on their lifestyle, not income. Those living a higher lifestyle will pay more tax than those living a lesser lifestyle. The FairTax exempts essential spending, that is spending for the base necessities, while taxing all spending above that used for base necessities equally.
The only real downside I can see from switching to the FairTax is that it will cause economic turmoil for some period during the transition. I personally believe that period will be shorter rather than longer but I freely admit that I could be wrong and we could be looking at a decade or more before things stabilize. I doubt that but it could happen.
I don't know where else I can go with this. It's evident that you and I have two completely different ideas of what is a fair way to tax people. I think maybe at this point we just need to agree on that one point and let it go.
I would like to know what you consider a fair method of taxation. I don't think that has ever come out in this discussion.