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[edit: Andir fixed it.]



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cleveland124 said:
Andir said:
Entroper said:
Sqrl said:

Paragraph by paragraph:

No they do spend their money, but they don't spend it on frivolous things, they invest it in business, real estate, bonds, etc.... and it is very healthy for the economy. There aren't rich people who simply have a giant vault of $100 bills or anything. Now, Ideally there would be incentives to get all people to invest some of their extra cash but those details can get sticky very quickly.

You would very likely pay less taxes because the government would be spending less. The government would be spending less because they would not be propping up one of the most expensives beaurocracies in the world...the I.R.S.. I'm sure someone could rustle up the expenditure statistics for the IRS, and I bet they aren't pretty.


As ugly as the IRS expenditure sheets are, I don't think they make a significant dent in the overall budget.

I agree about rich people spending their money and helping the economy, though.  Also, I don't understand why rich people getting richer by saving their money is a bad thing for the economy.  Sure, they're accumulating wealth by saving most of their money, but they're still spending more money than the middle class, and as long as their wealth continues to grow, they'll continue to spend even more money.


 $11 - 11.6 billion to run the IRS each year according to: http://www.gao.gov/new.items/d07719t.pdf  (page 7)

 One of the proposed Federal budget numbers I've seen for 2008 is $933 billion.  IRS would be 1.2% of that ($11.6 billion.)  The sad part is that 54% of that is given to the Pentagon, but we won't even get into that here.


This is more negative than positive I feel.  While tax is too complicated, and I'm all for a smaller government.  The biggest expense in that $11 billion is salaries of IRS individuals.  To have that many individuals lose their job all at once will create a negative effect on our economy and worsen the credit crisis that currently affects our country.  Not just IRS individuals either though.  How many corporations accross the country have tax accounting staffs that are in 10s, 20s, or higher individuals?  These people will lose a job overnight.  Whether or not you feel they add any value to society this is alot of individuals to become jobless all at once. 

Notwithstanding with that many accounting/finance people looking for jobs, expect existing jobs in accounting/finance to have significant pay decreases as the market goes from excellent to poor all in one fell swoop. 

I also think that even a fair tax will eventually have most of the deductions/exemptions that current law has.  It starts out simple enough, just a tax on sales with an exemption for families (i.e. standard deduction).  But what happens when charities start complaining?  Well, it wouldn't hurt to add an exemption for 10% giving would it?  Even the old tax law had that.  What happens the housing market continues its downward spiral?  Well it wouldn't hurt to give individuals paying taxes a benefit for the interest they are paying on a house would it?  The old system had that too after all.  Taxes are too complex, and often on the surface don't make much sense.  But when you did into the details a lot of thought has gone into the laws.  Not always the best reasons for certain exemptions/deductions, but no system is going to be perfect. 


 That's discretionalry spending.  That's basically money that is used for things not entitled (Salaries).  Sorry for the confusion.  I'm getting the Total costs now.



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[edit: Saw the above post, so the fact that the 11.6B is 0.4% of FY2008 budget (~2900B) is less relevant.]



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My advice to fanboys: Brag about stuff that's true, not about stuff that's false. Predict stuff that's likely, not stuff that's unlikely. You will be happier, and we will be happier.

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Treasury total (Manditory + Discretionary) expenditure estimates for 2008:

518 Billion (17% of the 2.9 Trillion total)

http://www.whitehouse.gov/omb/budget/fy2008/pdf/08msr.pdf (page 34 [PDF 42])

I'm having a hard time finding how much of that is IRS cost, and I have to get to work.

It's not only the IRS cost, but the costs to the taxpayers trying to comply with Income tax code:

"In 2005 individuals, businesses and non-profits will spend an estimated 6 billion hours complying with the federal income tax code, with an estimated compliance cost of over $265.1 billion. This amounts to imposing a 22-cent tax compliance surcharge for every dollar the income tax system collects. Projections show that by 2015 the compliance cost will grow to $482.7 billion." - www.taxfoundation.org/files/sr138.pdf

As far as the people working in these jobs, it's not like there aren't other ways to make money in the world.  I know it's a stearn outlook on their dependency of the system, but you can't expect the taxpayers to continue pouring money into a system that just needs more and more each year in a neverending cycle.  A flat percentage would virtually eliminate this spiral or signifigantly cut it down.



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Final-Fan said:
[edit: Saw the above post, so the fact that the 11.6B is 0.4% of FY2008 budget (~2900B) is less relevant.]

 Again, the 11.6 Billion is discretionary spending.  This isn't operating cost.  This is the amount of money they get to spend each year on things like equipment and supplies.

Edit:  at least I'm pretty sure... ugh.  I'll look later.



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I'm all for looking into ways to simplify the tax code. I think this could be a way to do it.

I'll try to address two concerns that people seem to have.

1) Not enough taxing of the rich: I'll avoid the Rand arguements here, but just suggest that maybe look into Atlus Shrugged. But to be more definitive in my answer I'll say this. Rich people don't hoard their money in banks or cash under their mattress, they invest it. This investment can have a powerful effect on the economy, see the credit crunch. Imagine if wealthy individuals could invest more money, that should help increase liquidity in the markets.

The fact is that the increased investing power of the wealthy could help grow the economy, leading to more jobs and better pay which would be a good thing.

Also, look at it like this, Warren Buffet paid 18% or so federal income tax rate last year. Why? most uber rich earn with stock options and dividends, which are taxed at 18% or so, which is much less than the middle class actually cash pay gets taxed at. So as it is the system is not going after the rich.

2) Charities would not suffer as bad as some may think. First off Charities have tax exempt cards that they use to avoid paying sales taxes as it is. I know because I used to be a treasurer for one. Also, most charities rely on contributions from individuals and in that aspect the US is the most generous nation on the planet by far, and that is not national bias, it is fact. I believe the stat was the average US citizen gives about double what the next most generous nation gives in terms of percentage of their income. UK being number 2. I read the report awhile back, if I can find it again I'll link it.


Now to be fair I have my own concerns, mine is the housing market, which is already soft. Add on a 23% markup to home prices for taxes and it may collapse. Buyers won't pay it, so sellers will be losing a lot of equity which may spur foreclosures which would hurt the economy badly.

THe other issue I have is the lag time it would take between the two tax systems. There are a lot of things the US government should fix, social security comes to mind, but without a budget surplus to fix these things, it would mean more debt. How much more debt can the US take on? In terms of debt as a % of GDP Japan and I believe Australia are worse off, but still lets not try to outdue them on this issue.



Legend11 said:

I have a few questions that maybe someone advocating FairTax can answer...

1) Wouldn't this seriously harm tourism dollars flowing into the United States? I mean since the tax burden would be shifted from income, corporate, etc, into a consumption tax wouldn't tourists be spending a lot more? Florida for example makes over $55 billion a year from tourism, what incentive would there for people to go there if they could go to the Dominican Republic and other destinations for far far cheaper?

2) Wouldn't it seriously harm donations to charity? I realize many people are kind of heart and give simply for that reason but there are a lot of donations given as simply tax writeoffs. Is the Government going to make up for the large shortfalls?

3) Wouldn't underground economies be even harder on the system since the Government would be seeing no tax revenue at all here at least they had some income tax from many people who participate in such systems?

4) Wouldn't this kind of tax remove a large tax burden from corporations that would have to be filled by private citizens?

5) Some people who propose this tax argue that the price of goods would come down a bit to compensate for the higher prices but wouldn't that only be for goods made in the United States? Since a massive amount of goods are actually manufactured outside the United States wouldn't they actually become more expensive because of this tax? Basically they're imported at the same cost as before but with a higher tax placed on them.


1) Very Good question, however, it's only a question because you are thinking in income tax terms. The Fair Tax replaces income tax and cooperate tax. Here's a functional example

Income tax: American Vactioner to Florida spends $1000 dollars for that vaction. Before he ever arrives in Florida he is taxed on that $1000 of that income between 20-30% or between 200 and 300 dollars.

Fairt Tax: American Vactionaer to Florida spends $1000 dollars for that vacation. After he arrives he is taxed 23% for everything he buys. His tax burden is $230 dollars.

since the Fair Tax is designed to be price neutral the vactioner's buying power remains the same.  Also there's a cherry on top. Non-American vactioners, including illegal immigrants, cannot escape paying the tax, yet they will not mind or even know that they are paying the tax since the sticker price will be about the same as before.

 

2) Charities will not be harmed, but they will have to change tactics. Right now they do appeal to people getting tax benefits for large donations. They may have to appeal to people who actually care about others.

 

3)Underground economy will still exist, a tax code cannot get rid of it. But they will be taxed when they spend that money. Whenever they buy an item. they are paying tax. Here's a functional example:

Income Tax: A prostitute makes $1000 a night. Her income tax burden is between 20%-30% or $200-$300. However she does not claim her income so she cheats the federal government the income tax she owns.

Fair Tax: A prostitute makes $1000 a night. When she pends that money she makes she will pay the federal tax of 23%. She cannot avoid it. She is paying for social security, welfare, and medicare.

Now, I realize many feel that she can avoid it if she saves it or invests it. But I ask these people what happens to that money that is saved and invested? Yes, it is eventually spent and taxed.

 

4)This is a false premise. By this question you show that you sincerely believe that corporations pay taxes. You are wrong. Corps get money by private citizens. Any taxes they are able to pay is made possible by funds they gathered from us thru pricing structure. Here's an example.

Income tax: American earns $1000 dollars. He takes home $800 dollars after taxes. With that money he buys a PS3 and some games and spends $500 leaving $300. Sony takes that $500 and divides it amoung payroll, CORPORTATE TAXES, R&D, bills, shareholders, and profit. 

Fair Tax:  American earns $1000 dollars. He takes home $1000 dollars after the abololition income of taxes. With that money he buys a PS3 and some games and spends $500 leaving $500. Sony takes that $500 and divides it amoung payroll, THE FAIR TAX(23% or $115), R&D, bills, shareholders, and profit.

 

5) There are many theories as to what will happen with prices. But again you are operating from a false premise. The prices of good will not go up. Some companies MAY try to take advantage and increase prices by 23%-30%. However, the nature of capitalism and competition would make doing so very difficult at least and a stupid mistake in most cases. The Fair Tax removes all tax burden on corps which will collapse prices by 10%-40% resulting in price that will offset the Fair Tax. Here's and Example.

Income Tax: Product costs $500 - from that $500 the company needs to pay corp taxes and compliance costs.

Fair Tax: Same product costs $500 - from that money the comanpany sends 23% to the federal government and there is no compliance cost since a lawyer and accountant will not be needed on payroll. 

Imported goods may see slightly higher prices, but more than likely it would be neutral again. The theory behind this is that companies that import will no longer have to pay tariffs or taxes or coperate taxes, which would amount to 20%-30%, easily offsetting the Fair Tax. 



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I think you confused Legends point 1. He meant foreign tourists I believe.

My shot at answering that is look at it like this. The hotel has to pay corporate taxes and hire accountants to prepare them. Lets say a room cost $200 a night now, under this plan a foreign tourist would have to not pay $246 for that room right? No, not likely. part of the $200 a night is a built in cost for the hotel to pay their taxes and hire accountants and so on. so the price will likely fall to say maybe $175 a night or lower. This means the tourist would pay $215 for one night. Is it more, yes, but probably not as bad as you might have been thinking. I don't know enough about corporate taxes to know how far the room price might fall, but from what I have heard from those that do, the effect will likely be a wash between current and proposed future prices.

Anyone that knows more than me, does this make sense?



Sqrl said:
JMan said:
Andir said:
JMan said:
Simple: Large amount of income =/= being rich =/= paying more tax.

1. People who are rich and save their money (to make more money with) aren't spending it. So that ties up a good deal of the "potential" tax.

2. Just because you have a large income does not necessarily mean you live the wonderful life. 100,000 in NYC doesn't go nearly as far as it does in Denver, Colorado. The expense difference causes those people in higher cost of living states to pay a larger portion of the taxes. Is that "fair"?

3. Large Families may have a large income and a huge expense bill. Is it fair to make them pay more tax when their overall standard of living may be lower? By the way, poor people are more likely to have large families than rich.

And that's just off the top, without even digging into this. I'm sure there's some standard response to all of those, so go ahead and post them and let's see where this goes. By the way, I'm heading out, so don't expect a response from me anytime soon. And I'm not opposed to the fair tax. I'm posting what I consider my first concerns the concept.

My few concerns on your perspective here are that there a very few people (percentage wise) that are in the very high tax bracket and those with money will likely find a way to spend it (or whoever inherits it will.) In essense, the money will be spent in one form or another, those that save their money for a later date re-inforce the economy later when it's needed. If they are out of a job and not contributing to the income tax, they are most likely still spending money and paying the consumption tax. In effect, those that save for a rainy day are protecting the economy in the grand scale of things.

And about the cost of living. The 23% you would be spending on everyday things would likely be less than you pay out in taxes unless you are one of those that lives with your credit card maxxed out and every penny goes to repay that month to month. The poor will likely be those that spend the entire paycheck as you noted, but the percentage going out is less than that being spent in income taxes, add that to the "prebate" and you'll likely have more money in the "less fortunate" people's hands year to year.


Well, the problem here is that the wealthy accumulate wealth, not spend it. Sure, they spend some, but have you seen the top earners in the world? Do they stagnate? Do they go down each year? No, as I recall, they have more money year after year. It's typically a function of "money working to make more money". If they pass it on to their heirs, their heirs are now wealthy and just as likely to hold it. But under the current tax system, that money can't pass from generation to generation untouched because of the inheritance tax. That encourages the person to do something with it rather than just hoard it, because eventually the government will get it anyway.

And no matter how you argue it, there is simply no way that I would end up paying less in federal taxes overall. If I pay less, then somebody else has to pay more because the federal government is spending it. They'll set the rate high enough to keep the total tax revenue the same (or more). The only way I pay less is if the federal government stops spending as much and lowers the tax rate. And that's applicable to both versions of the tax code anyway.


Paragraph by paragraph:

No they do spend their money, but they don't spend it on frivolous things, they invest it in business, real estate, bonds, etc.... and it is very healthy for the economy. There aren't rich people who simply have a giant vault of $100 bills or anything. Now, Ideally there would be incentives to get all people to invest some of their extra cash but those details can get sticky very quickly.

You would very likely pay less taxes because the government would be spending less. The government would be spending less because they would not be propping up one of the most expensives beaurocracies in the world...the I.R.S.. I'm sure someone could rustle up the expenditure statistics for the IRS, and I bet they aren't pretty.

 


Except for the prebate commission which would take nearly as much if not more man power as they IRS. To run the registration centers in every town, heck a few in every town since the poor can't find good travel to get to places. I've known people who couldn't get welfare because they couldn't get a ride there.

Oh, and the agents needed to audit the prebate numbers, to make sure that nobody is frauding the system, oh and the agents needed to audit every buisness in the US to make sure they arn't selling goods as for other sales instead of final goods.

I'm not seeing where the cutbacks in the IRS would be made.



Selling a home wouldn't see a tax since it's not a new item. Only new homes would be taxed I believe.

The main issues with this system are logistical, and in my mind the fact that it'd be hard to implement shouldn't really be a barrier or nothing in this country will ever get fixed.