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The topic title says it all.  Taxes have been brought up in other threads, so perhaps a discussion on different ideas regarding taxes is in order.

 

I personally am a big supporter of going to a consumption based system of taxation, specifically The Fair Tax Act rather than an income based solution.  This would solve several things, but off the top of my head here are a few major points.

 

1.  EVERYBODY would pay their "fair share" based on what they spend for goods and services.  That means that not only the rich person buying a fancy new car or yacht, but also the drug dealer buying a new car or new rims for said car.  The same could be said of the prostitute buying clothes, makeup, etc. which leads me to my second point.

 

2.  Those in the "underground economy" would also be contributing.  Not only drug dealers, thieves or prostitutes, but also the MANY illegal aliens in our country that need to buy things.

 

3.  It would abolish much if not all of the IRS.

 

Discuss.

In honor of The Stones/Beatles thread on the sideline..

 

https://youtu.be/Oyu5sFzWLk8

I'm open to the idea. Have to see numbers though.

Quote:I'm open to the idea. Have to see numbers though.

 

This idea has come up in the past.  In fact, the original bill was introduced many years ago.  I would suggest doing some research at http://fairtax.org.

I went to the Fair Tax rally in Orlando in the mid 00s. In spite of it being a really hot day there were about 10,000 people there. I am 100% behind the Fair Tax.


 

For those who are not familiar with the idea, it would replace the income tax, SS/Medicare tax, and corporate taxes with a national sales tax on new items and services. Used items would still be tax free. Every citizen would receive a monthly check in the amount of the monthly sales tax for the poverty-line income, so the poor would essentially get a free ride. This makes it sort-of progressive.


 

One of the claims is that by eliminating the corporate tax (and all of the associated accounting expenses) products made in the US would be priced low enough to mostly offset the tax, while the prices of foreign-made stuff wouldn't be offset. That would (hopefully) bring manufacturing back to the US.


 

As a bonus, the IRS would no longer be collecting personal information from everybody.

Quote:This idea has come up in the past.  In fact, the original bill was introduced many years ago.  I would suggest doing some research at http://fairtax.org.

Can I get a TLR on how the proposition effects the bottom line compared with the current insane tax code?

 

I.E. what is it projected to bring in vs what is brought in now?

 

In a vacuum where I do not know much about it, I like the thought of it though I don't think it would be to hard for the very wealthy to just buy their loot outside of the country. Maybe parts of the fair tax would or already address that?

Quote:Discuss.

Nothing to discuss. You and I have established a few times now that we agree more or less completely on this. Taxing income makes it far too easy for the outliers of society--rich and poor, citizens and illegals--to invent various ways to cheat the system, and the IRS is such a bureaucratic nightmare/political weapon that the overwhelming majority of them will get away with it indefinitely. Go back and read some income tax horror stories from the late '90s and early '00s, when welfare recipients living in Section 8 housing freely admitted to, even bragged about, having four or five families claim the same child as a dependent to get the $3,000 (I think that's what it was at the time) tax credit per kid and walking away every year with welfare and a tax refund. Something is wrong there.

 

Likewise, it's far too easy for the upper-middle and upper classes to shovel their money to overseas tax shelters and not declare it as assets on their return. There are plenty of other tax schemes used by the wealthy, but as Warren Buffet put it, when he's paying a lower tax rate than his secretary, something's not right.

 

Consumption-based taxation is the logical solution. Get rid of the antiquated income tax system and replace it with one that is virtually impossible to cheat. Make it nice and simple, too. 25% sales tax across the board for everyone on everything. States can add up to an additional 7%, and municipalities up to another 3% for a maximum tax rate of 35%. People can still apply for various "credits". For some of those credits, like a home buying incentive, the credit would be taken out of the final tax figure. For others, like a credit for a child, the government would issue a payment. Because there aren't any more bloated, complicated tax codes requiring an army of accountants just to figure out, the IRS would be able to significantly downsize its pencil-pushing force and add more investigators, allowing it to audit a much higher number of claims. Things like, did you claim a resident credit on a home you're renting out? Do you actually have the seven children you claim to?

 

The laws for circumventing or cheating the consumption tax would need to be harsher. Businesses might be tempted to cheat, and there would need to be crippling penalties for that. Falsifying an application for a government refund, like claiming a child you don't have or credit for home improvements you didn't make, should be punishable by prison time. What good is overhauling the tax system if you're going to continue to allow societal outliers to cheat it?

 

I don't think this country is ready for a flat consumption tax yet. While it is certainly more fair, it would likely result in an increase in tax dollars going to the government, with a vast, vast reduction in the number of credits and refunds offered. The majority of the voting base of one of the two major parties would scream bloody murder against losing their refunds, and the upper crust of the other would be quietly outraged at their inability to loophole their way out of it. Consumption tax is ultimately the only way to go, imo. The income tax system is too bloated and broken to remain viable long-term, the tiered structure doesn't adequately account for the income gap, and it allows too many people to weasel their way out of paying what they should. Ditch the income tax, overhaul and downsize the IRS (and stop using it as a political weapon) and bring on a consumption-based tax that will probably cost you more, but is a fair way of making everyone pay their share. It might even encourage more fiscal responsibility in Americans--that $1,000 TV you can't afford now has a $350 sales tax on it...better look at a smaller one. That $30,000 car you can't afford? There's a consumption tax of over $10,000 on it. How about that $22,000 certified pre-owned model on the same dealer's used car lot? You know, the one with 8,000 miles that's a year old?

Quote:I went to the Fair Tax rally in Orlando in the mid 00s. In spite of it being a really hot day there were about 10,000 people there. I am 100% behind the Fair Tax.


 

For those who are not familiar with the idea, it would replace the income tax, SS/Medicare tax, and corporate taxes with a national sales tax on new items and services. Used items would still be tax free. Every citizen would receive a monthly check in the amount of the monthly sales tax for the poverty-line income, so the poor would essentially get a free ride. This makes it sort-of progressive.


 

One of the claims is that by eliminating the corporate tax (and all of the associated accounting expenses) products made in the US would be priced low enough to mostly offset the tax, while the prices of foreign-made stuff wouldn't be offset. That would (hopefully) bring manufacturing back to the US.


 

As a bonus, the IRS would no longer be collecting personal information from everybody.

How would it impact states that collect sales tax? I.E. Florida. Does the federal tax tack onto the FL tax? For reference we don't have sales tax in Oregon but do have state taxes.

 

In addition what would it do to the state taxes we pay right now? presumably nothing while just adding a huge sales tax?

Quote:Nothing to discuss. You and I have established a few times now that we agree more or less completely on this. Taxing income makes it far too easy for the outliers of society--rich and poor, citizens and illegals--to invent various ways to cheat the system, and the IRS is such a bureaucratic nightmare/political weapon that the overwhelming majority of them will get away with it indefinitely. Go back and read some income tax horror stories from the late '90s and early '00s, when welfare recipients living in Section 8 housing freely admitted to, even bragged about, having four or five families claim the same child as a dependent to get the $3,000 (I think that's what it was at the time) tax credit per kid and walking away every year with welfare and a tax refund. Something is wrong there.

 

Likewise, it's far too easy for the upper-middle and upper classes to shovel their money to overseas tax shelters and not declare it as assets on their return. There are plenty of other tax schemes used by the wealthy, but as Warren Buffet put it, when he's paying a lower tax rate than his secretary, something's not right.

 

Consumption-based taxation is the logical solution. Get rid of the antiquated income tax system and replace it with one that is virtually impossible to cheat. Make it nice and simple, too. 25% sales tax across the board for everyone on everything. States can add up to an additional 7%, and municipalities up to another 3% for a maximum tax rate of 35%. People can still apply for various "credits". For some of those credits, like a home buying incentive, the credit would be taken out of the final tax figure. For others, like a credit for a child, the government would issue a payment. Because there aren't any more bloated, complicated tax codes requiring an army of accountants just to figure out, the IRS would be able to significantly downsize its pencil-pushing force and add more investigators, allowing it to audit a much higher number of claims. Things like, did you claim a resident credit on a home you're renting out? Do you actually have the seven children you claim to?

 

The laws for circumventing or cheating the consumption tax would need to be harsher. Businesses might be tempted to cheat, and there would need to be crippling penalties for that. Falsifying an application for a government refund, like claiming a child you don't have or credit for home improvements you didn't make, should be punishable by prison time. What good is overhauling the tax system if you're going to continue to allow societal outliers to cheat it?

 

I don't think this country is ready for a flat consumption tax yet. While it is certainly more fair, it would likely result in an increase in tax dollars going to the government, with a vast, vast reduction in the number of credits and refunds offered. The majority of the voting base of one of the two major parties would scream bloody murder against losing their refunds, and the upper crust of the other would be quietly outraged at their inability to loophole their way out of it. Consumption tax is ultimately the only way to go, imo. The income tax system is too bloated and broken to remain viable long-term, the tiered structure doesn't adequately account for the income gap, and it allows too many people to weasel their way out of paying what they should. Ditch the income tax, overhaul and downsize the IRS (and stop using it as a political weapon) and bring on a consumption-based tax that will probably cost you more, but is a fair way of making everyone pay their share. It might even encourage more fiscal responsibility in Americans--that $1,000 TV you can't afford now has a $350 sales tax on it...better look at a smaller one. That $30,000 car you can't afford? There's a consumption tax of over $10,000 on it. How about that $22,000 certified pre-owned model on the same dealer's used car lot? You know, the one with 8,000 miles that's a year old?

Those are mind boggling numbers. Though I suppose it accounts for not paying income tax. Yeah that would be a huge shift for people to wrap their heads around. 

Quote:How would it impact states that collect sales tax? I.E. Florida. Does the federal tax tack onto the FL tax? For reference we don't have sales tax in Oregon but do have state taxes.

 

Yes, it would be 'tacked on.' The idea was that most states have a sales tax, so much of the mechanism for collecting it would already be in place. States that have an income tax would probably have to switch to (or raise) a sales tax if they are dependent on the federal returns to supply their taxing info.


 

You'd get a lot bigger take-home paycheck to compensate for the extra cost of items. Even for those whose income is too low to pay income tax they'd get relief from the SS tax. Maybe as part of the bargain the employer would give the amount they spend as a SS match as an immediate raise.

Quote:Yes, it would be 'tacked on.' The idea was that most states have a sales tax, so much of the mechanism for collecting it would already be in place. States that have an income tax would probably have to switch to (or raise) a sales tax if they are dependent on the federal returns to supply their taxing info.


 

You'd get a lot bigger take-home paycheck to compensate for the extra cost of items. Even for those whose income is too low to pay income tax they'd get relief from the SS tax. Maybe as part of the bargain the employer would give the amount they spend as a SS match as an immediate raise.

Forgive me if I don't laugh myself off my chair at that... 

 

It would be an interesting transition for non sales tax states. Much hard than those that already use it. 

To add to this, I'd expect a few years of unanticipated problems before it starts working smoothly. That would be a small price to pay if it boosts the economy as the creators claim it will. Right now we need something. Seven years and counting of recession shows that the current policies aren't working.

Quote:To add to this, I'd expect a few years of unanticipated problems before it starts working smoothly. That would be a small price to pay if it boosts the economy as the creators claim it will. Right now we need something. Seven years and counting of recession shows that the current policies aren't working.

But...but...redistribute the wealth!

Quote:This idea has come up in the past. In fact, the original bill was introduced many years ago. I would suggest doing some research at <a class="bbc_url" href='http://fairtax.org/index'>http://fairtax.org</a>.

I'll look again though I'm sure there are different variations of it.

Quote:I'll look again though I'm sure there are different variations of it.

 

Full disclosure.

 

In my original post, I linked to the actual bill in Congress.  The Fair Tax dot Org website is an activist site.

 

That being said, the idea is a good one for citizens, but not a good one for politicians.  It gives power to consumers and takes power away from government.  If you are a middle class consumer and want to lower your tax bill, then don't buy new stuff.  If you don't really care, buy that new car or new fancy furniture or new cell phone, television, game console, etc..

 

How do you balance the difference between the "rich" and the "poor"?  Tax them on what they spend rather than tax them on what they earn.

Quote:Nothing to discuss. You and I have established a few times now that we agree more or less completely on this. Taxing income makes it far too easy for the outliers of society--rich and poor, citizens and illegals--to invent various ways to cheat the system, and the IRS is such a bureaucratic nightmare/political weapon that the overwhelming majority of them will get away with it indefinitely. Go back and read some income tax horror stories from the late '90s and early '00s, when welfare recipients living in Section 8 housing freely admitted to, even bragged about, having four or five families claim the same child as a dependent to get the $3,000 (I think that's what it was at the time) tax credit per kid and walking away every year with welfare and a tax refund. Something is wrong there.

 

Likewise, it's far too easy for the upper-middle and upper classes to shovel their money to overseas tax shelters and not declare it as assets on their return. There are plenty of other tax schemes used by the wealthy, but as Warren Buffet put it, when he's paying a lower tax rate than his secretary, something's not right.

 

Consumption-based taxation is the logical solution. Get rid of the antiquated income tax system and replace it with one that is virtually impossible to cheat. Make it nice and simple, too. 25% sales tax across the board for everyone on everything. States can add up to an additional 7%, and municipalities up to another 3% for a maximum tax rate of 35%. People can still apply for various "credits". For some of those credits, like a home buying incentive, the credit would be taken out of the final tax figure. For others, like a credit for a child, the government would issue a payment. Because there aren't any more bloated, complicated tax codes requiring an army of accountants just to figure out, the IRS would be able to significantly downsize its pencil-pushing force and add more investigators, allowing it to audit a much higher number of claims. Things like, did you claim a resident credit on a home you're renting out? Do you actually have the seven children you claim to?

 

The laws for circumventing or cheating the consumption tax would need to be harsher. Businesses might be tempted to cheat, and there would need to be crippling penalties for that. Falsifying an application for a government refund, like claiming a child you don't have or credit for home improvements you didn't make, should be punishable by prison time. What good is overhauling the tax system if you're going to continue to allow societal outliers to cheat it?

 

I don't think this country is ready for a flat consumption tax yet. While it is certainly more fair, it would likely result in an increase in tax dollars going to the government, with a vast, vast reduction in the number of credits and refunds offered. The majority of the voting base of one of the two major parties would scream bloody murder against losing their refunds, and the upper crust of the other would be quietly outraged at their inability to loophole their way out of it. Consumption tax is ultimately the only way to go, imo. The income tax system is too bloated and broken to remain viable long-term, the tiered structure doesn't adequately account for the income gap, and it allows too many people to weasel their way out of paying what they should. Ditch the income tax, overhaul and downsize the IRS (and stop using it as a political weapon) and bring on a consumption-based tax that will probably cost you more, but is a fair way of making everyone pay their share. It might even encourage more fiscal responsibility in Americans--that $1,000 TV you can't afford now has a $350 sales tax on it...better look at a smaller one. That $30,000 car you can't afford? There's a consumption tax of over $10,000 on it. How about that $22,000 certified pre-owned model on the same dealer's used car lot? You know, the one with 8,000 miles that's a year old?

 

 

Quote:Those are mind boggling numbers. Though I suppose it accounts for not paying income tax. Yeah that would be a huge shift for people to wrap their heads around. 

 

... boud has a point.  That's why i think Cain was ingenious with the hybrid 9 9 9 Plan as a transitional step.  

 

T.j. makes some excellent points as well.  

 

There are a couple features about the fair tax that make it a little different than the general consumption sales tax.  

 

1.) the pre-bate.  based on the poverty level they account for how much a person living below the poverty line would pay in sales tax and they pre-credit everyone in the country based on that about.  so instead of a tax refund, most people would be looking for a pre-bate so no more giving interest free loans to the government for the middle class and no more waiting for those dependent on refunds to stay afloat.  

 

2.) Used items wouldn't be subject to the tax.  That allows for people on the lower end of the income scale to be less effected and have options to avoid being taxed.  

 

3.) Fica Gets FIRED no more income tax withholding.

 

Those are direct features.  There are also some indirect consequences.  

 

1.) everyone's investments will perform better.  Without having to pay corporate taxes companies will be able to both pay higher dividends and reinvest in long term growth.  

 

2.) also instead of having to pay lobbyists they can fund a reduction in prices to stay competitive with the market of used goods.  So that tv that cost you 1000 before this system of taxation could cost 800 to start with before we get to a consumption based tax system.  

 

The problem initially would be the sticker shock.  people have been trained to think statically and 25% sales tax just sounds like an endless drain on their checkbooks.  they would need to see the dynamic influence of a.) revenue to the Federal government from untapped sources in the underground economy.  b.) prices of new goods lowering as we eliminate embeded taxes and the cost of complying with a 70k page long tax code.  c.) the effect of seeing their full earnings in their check devoid of FICA withholding and d.) the impact of the pre-bate.  

 

 

 

The problem intially would be the sticker shock

The only concern about this consumption tax/fair tax would be the revenue implications...


I mean, if the tax allows us to continue to pay for social entitlements, the public good, etc, then I could be open to the idea...

Quote:The only concern about this consumption tax/fair tax would be the revenue implications...


I mean, if the tax allows us to continue to pay for social entitlements, the public good, etc, then I could be open to the idea...

 

The Fair Tax proposal assumed that the tax rate would be set so that the same amount of revenue was collected, so no programs would have to be cut. I think it also covered borrowing.


 

That was before quantitative easing. I'm not sure how it would deal with a budget where a significant percentage of revenue is in the form of magic money.

Quote:2.) Used items wouldn't be subject to the tax.  That allows for people on the lower end of the income scale to be less effected and have options to avoid being taxed.  

I have an issue with this. For one, it creates a massive loophole on the biggest purchases (and therefore, the highest tax generators). Would a house be considered "used"? Because the overwhelming majority of home purchases in this country are "used" homes. Cars are another example.

 

It also opens the door to lots of fraud, which would make dismantling the IRS much less feasible. It would be difficult to sell new cars, for example, as used and get away with it, but lots of mom 'n pop shops would abuse the hell out of this provision. It would be a piece of cake for, say, Play It Again Sports to bring in a few new bikes and sell them as used to help customers dodge the tax (and bring in more business as a result), and with a greatly diminished IRS force, it would be difficult to assign enough auditors to catch those sort of small-scale cheats. Additionally, it'd be all but impossible to prove that the end user who ultimately got out of paying the tax was aware that the product was new. All they have to do is say, "The salesman told me it was used," and they're off the hook in almost all cases.

 

An additional problem is that it would slow manufacturing down in this country. If I could buy a brand new car and pay 35% sales tax on it or a pre-owned car that was a corporate fleet vehicle for a year, has 8,000 miles on it and is otherwise in nearly-new condition (how I got my car) and pay nothing, I'm going for option two. You'd see new car sales fall off, which would result in dealers increasing the price of used cars to make them less expensive--possibly making it cost more to buy a certified pre-owned car than to buy a brand new one of the same make and model. It would artificially screw with the market. Instead, just apply the tax evenly and let the marketplace figure itself out from there.

 

IMO, there shouldn't be any distinction between new and used items when applying a consumption tax. Too many opportunities for fraud and unpleasant side effects.

Quote:I have an issue with this. For one, it creates a massive loophole on the biggest purchases (and therefore, the highest tax generators). Would a house be considered "used"? Because the overwhelming majority of home purchases in this country are "used" homes. Cars are another example.

 

It also opens the door to lots of fraud, which would make dismantling the IRS much less feasible. It would be difficult to sell new cars, for example, as used and get away with it, but lots of mom 'n pop shops would abuse the hell out of this provision. It would be a piece of cake for, say, Play It Again Sports to bring in a few new bikes and sell them as used to help customers dodge the tax (and bring in more business as a result), and with a greatly diminished IRS force, it would be difficult to assign enough auditors to catch those sort of small-scale cheats. Additionally, it'd be all but impossible to prove that the end user who ultimately got out of paying the tax was aware that the product was new. All they have to do is say, "The salesman told me it was used," and they're off the hook in almost all cases.

 

An additional problem is that it would slow manufacturing down in this country. If I could buy a brand new car and pay 35% sales tax on it or a pre-owned car that was a corporate fleet vehicle for a year, has 8,000 miles on it and is otherwise in nearly-new condition (how I got my car) and pay nothing, I'm going for option two. You'd see new car sales fall off, which would result in dealers increasing the price of used cars to make them less expensive--possibly making it cost more to buy a certified pre-owned car than to buy a brand new one of the same make and model. It would artificially screw with the market. Instead, just apply the tax evenly and let the marketplace figure itself out from there.

 

IMO, there shouldn't be any distinction between new and used items when applying a consumption tax. Too many opportunities for fraud and unpleasant side effects.

Those are very good points. 

 

Any place that deal in used goods like collectibles would essentially be tax free businesses.