NationStates Jolt Archive

A Progressive Sales Tax, aka the Fair Tax, would benefit everyone by giving the poor what they need to survive more directly and effectively, lower costs for virtually all goods and services, reduce bureaucracy as well as time and money wasted on paperwork, encourage saving instead of unsustainable, relentless spending, and generally serve the people better than the current income and "secret" taxes.

The Fair Tax would be a sales tax that taxes 23% of all new products and services. It would replace the income tax as well as hidden taxes. Usually sales taxes are regressive taxes, i.e. they tax the poor, who consume more products, more than the rich, who save more of their wealth. However, to make up for this inadequacy, the Fair Tax would give an amount of money necessary to live well, i.e. the poverty line, to every single family. Almost all people find income taxes, with their hundreds of pages and countless contradictions and complexities, extremely difficult, if not impossible, to do properly. A poor, uneducated person would find this even more difficult than others and may miss out on chances to gain tax credits etc. to alleviate their condition.

All an uneducated, poor person, or anyone, would need to receive the rebate of money equivalent to the poverty line would be A.) If they're married and B.) How many people are in their family. That's it. It would make life easier for everyone, especially those in need. Plus, since the Fair Tax only taxes new goods, a poor person could choose to wisely purchase only used goods (a good impetus for recycling, additionally) and not only evade being taxed, but be helped by the rebate. The Fair Tax would *help* the poor, unlike its regressive brethren, as well as its income taxing counterparts. Plus, the rebate is given to every person, so middle class people would be helped by the rebate as well and could be encouraged to either buy used goods or save their money due to the nature of the sales tax.

Another way that the Fair Tax would benefit the entirety of society would be that it would remove the indirect taxes on savings and purchases. (Did you know that there is a tax on telephones in the United States that was instituted before the Spanish-American War that's STILL in effect? These taxes do pile on.) With the replacement of these cumulative little taxes, as well as the wealth afforded by having more pre-tax dollars due to the replacement of an income tax, people would be able to afford more things to buy more things at cheaper prices. Therefore, people would be able to live with a higher quality of life.

The Fair Tax would reduce spending by the government, as well as time and money wasted on doing taxes instead of doing productive work. With no income tax and many of the 'secret' taxes removed, there would be far less need for a tax bureaucracy, such as the IRS, to exist. Thus, the people would be relieved of a financial burden to provide for the government. The income tax is also full of loopholes that give unfair advantages to those who know the ways through, as well as vendors of certain products and services who can write off the taxes they are supposed to pay due to their special interest power. Not so with the Fair Tax- all products and services must be taxed by it, and there is no way to get around it as it can be easily and quickly done. Food and medicine would have to be taxed as well to make sure that the system would not become cumbersome and open to special interest, but do not forget that the rich pay far more for expensive medicine and food than do the poor. There is no reason to avoid taking this income when those with needs are provided for and the system is kept fair.

The final point is that the Fair Tax prevents the rampant consumption in which people waste their money and do not prepare for the future. The abolition of the income tax would give people more money, which they could save and have their saved money safe from taxes that tax savings. Additionally, the sales tax would make everyone conscientious of their consumption and prevent rampant spending. Finally, people could be more financially secure without the heavy-handed, costly hand of government forcing them to follow such a path.

In conclusion, the Fair Tax is just plain better than the income tax.

Sounds like the Fair Tax will fetch my slippers for me, too.

Generally ideas that sound too good to be true are.

it sounds like a WONDERFUL IDEA, and it would do AMAZING THINGS

unfortunately for us, it will never happen

Poverty is measured in position though. So the second that you hand out subsitence to everyone, the poverty line just moves straight up. Not to mention the inflation that would be caused by giving everyone a "free" $14,000 dollars or whatever a year.

Bad idea.

The Fair Tax would be a sales tax that taxes 23% of all new products and services.
That is where I stopped caring.

Plus, since the Fair Tax only taxes new goods, a poor person could choose to wisely purchase only used goods (a good impetus for recycling, additionally) and not only evade being taxed, but be helped by the rebate. The Fair Tax would *help* the poor, unlike its regressive brethren, as well as its income taxing counterparts. Plus, the rebate is given to every person, so middle class people would be helped by the rebate as well and could be encouraged to either buy used goods or save their money due to the nature of the sales tax.
Things that can be bought used are bought far less than things that can't be: medicine, food, etc.

I like the concept very much. Like many other idealized systems for fixing the economy, it's beautiful, simple, elegant, and sounds like a superb idea.

Unfortunately, there is this to consider. You'd like the government to announce, "Hey! We're about to start handing out a year's living money to anyone who fills in this little form!"

Might some problems possibly arise therefrom? Especially when one is not required to demonstrate any attempt to raise that money oneself first?

Poverty is measured in position though. So the second that you hand out subsitence to everyone, the poverty line just moves straight up. Not to mention the inflation that would be caused by giving everyone a "free" $14,000 dollars or whatever a year.

Bad idea.

Another reason everyone should ditch money and use a bartering system.

it sounds like a WONDERFUL IDEA, and it would do AMAZING THINGS

unfortunately for us, it will never happen

Except the Tom Delay has promised it will get a vote next year (don't know how the indictment(sp?) crap will figure in though). And it's gaining support from both sides of the aisle. Check out www.fairtax.org it's incredibly informative. And you can also but the book The Fairtax Book it's an easy read (only 180+- pages)

Another reason everyone should ditch money and use a bartering system.

Well, when someone can figure out how to produce a laptop computer with a barter economy I'll sign on for that.

That is where I stopped caring.


Things that can be bought used are bought far less than things that can't be: medicine, food, etc.

But your already paying an embedded tax of 22% on top of your income tax, which would now be gone.

John Locke's principles could be considered too good to be true, too. But the countries that have protected the principles of life, liberty and property have, for the most part, been more prosperous than those who have ignored them. I'm not saying it wouldn't have problems; all it needs to be is better than the current tax system.

Also, the effect on inflation would be negligible. People wouldn't be receiving tens of thousands of dollars, just amounts of money necessary to survive- a few thousand, a refund necessary to live. That isn't enough to affect it like it was said before.

I like the concept very much. Like many other idealized systems for fixing the economy, it's beautiful, simple, elegant, and sounds like a superb idea.

Unfortunately, there is this to consider. You'd like the government to announce, "Hey! We're about to start handing out a year's living money to anyone who fills in this little form!"

Might some problems possibly arise therefrom? Especially when one is not required to demonstrate any attempt to raise that money oneself first?

But the rebate only covers the TAXES that one would spend on the necessities of life at poverty level spending.

Another reason everyone should ditch money and use a bartering system.

how, then do you propose to 'sell' services? "I'll fix your car if you give me that chicken."?

an abstract form of wealth (money) is the natural product of any bartering system. originally, precious and semi-precious metals were used, then representations of those metals, then (now) the units were representative only of themselves

Poverty is measured in position though. So the second that you hand out subsitence to everyone, the poverty line just moves straight up. Not to mention the inflation that would be caused by giving everyone a "free" $14,000 dollars or whatever a year.

Bad idea.
I think you missed the point of the rebates. These are to offset the sales tax on essential goods and services, also known as the poverty level expenditures. No one is going to get $14,000 a year. More like $5000 a year for a married family of four. And it's not being given, either, it's refunded.

There are only two reasons to oppose the Fair Tax. The first is because you don't want to see power transferred away from the government. The second is because you want to punish the wealthy via our screwed up progressive income tax.

From this propaganda, I agree the Fair Tax sounds like it converts english to metric and is a perpetual-motion device. However, it seems like the "fair tax" system is a super food and medicine tax.

Because really, the Fair Tax system is going to reduce government spending? How? Is it instituting a task force that assassinates politicians when they suggest new expenditures?

That is where I stopped caring.


Things that can be bought used are bought far less than things that can't be: medicine, food, etc.
Prices on new things should stay about the same. That's the consensus of economists that have studied the plan, anyway.

Prices on new things should stay about the same. That's the consensus of economists that have studied the plan, anyway.
If the Fair Tax plan adds a 23% tax increase to all new goods and services, only excluding "used" ones, it sounds like an awesome way to bankrupt everyone by taxing bread and milk and already overpriced medicine to hell.

Flaw one: Does not tax all income. The lower classes spend more, and so more of their income is taxed, then the rich who tend to save, and so are taxed less under this system.

Flaw two: Taxes vital goods, placing them on the same level as, say, a BRAND NEW CAR. Vital goods should not be taxed at all, for all you're doing is penalizing a person for living.


Please don't give me crap about "a tax on savings". If we started to save, our economy would tank.

There's no such thing as a fair tax. If you want to make taxes less unfair, lower the rates.

Also, to those who say my op-ed is propaganda and therefore bad, I don't think there's another way I would, could or should put it to convince people. I can't say "This idea sucks, it'll screw up *everything*."

I think you missed the point of the rebates. These are to offset the sales tax on essential goods and services, also known as the poverty level expenditures. No one is going to get $14,000 a year. More like $5000 a year for a married family of four. And it's not being given, either, it's refunded.

There are only two reasons to oppose the Fair Tax. The first is because you don't want to see power transferred away from the government. The second is because you want to punish the wealthy via our screwed up progressive income tax.

Well I was just going from the OP


The Fair Tax would be a sales tax that taxes 23% of all new products and services. It would replace the income tax as well as hidden taxes. Usually sales taxes are regressive taxes, i.e. they tax the poor, who consume more products, more than the rich, who save more of their wealth. However, to make up for this inadequacy, the Fair Tax would give an amount of money necessary to live well, i.e. the poverty line, to every single family. Almost all people find income taxes, with their hundreds of pages and countless contradictions and complexities, extremely difficult, if not impossible, to do properly. A poor, uneducated person would find this even more difficult than others and may miss out on chances to gain tax credits etc. to alleviate their condition.

If it's only a matter of "refunding" sales tax in a small lump sum payment, then it's not a bad idea. So long as every other tax is abolished.

This plan has so many holes.

It's a far better system to tax the exchange of money instead of taxing consumption.

Well I was just going from the OP



If it's only a matter of "refunding" sales tax in a small lump sum payment, then it's not a bad idea. So long as every other tax is abolished.
The amount of paperwork in "refunding" sales taxes would be insane. I don't keep records of every thing I buy.

Flaw one: Does not tax all income. The lower classes spend more, and so more of their income is taxed, then the rich who tend to save, and so are taxed less under this system.

Flaw two: Taxes vital goods, placing them on the same level as, say, a BRAND NEW CAR. Vital goods should not be taxed at all, for all you're doing is penalizing a person for living.


Please don't give me crap about "a tax on savings". If we started to save, our economy would tank.

I did not say replace *all* taxes with the fair tax- just the income tax and others which prevent economic growth. The tax would help the poor more by making it so the tax doesn't take their money but helps them survive better. The wealthy would pay more than anyone else on this tax, both percentage-wise and per unit. Besides, everyone is given a certain share initially and no one has to give more or less, and those who need help are given it.

Also, luxury taxes would not be removed. You see, if we start giving exemptions, all sorts of interest groups will try and manipulate the system to give themselves unfair benefits. This way, everyone has to pay their fair share, whatever it is, and they can't weasel out of it.

People do not prepare for their future, and do not save well, instead paying indiscriminately. When they reach old age, they place a financial burden on others to support them, not just their families (if any), but the general society through medical expenses, retirement, etc. If this financial burden was removed the economy would benefit from it.

I'm kinda curious about something. Is paying income tax an abstract idea to most of you?

Or do you wait for that day in September or October when you have paid your burden to Social Security and the 15% that you put into your 401K finally tops the by law limit. Those are the sweet days that only see the federal withholding stolen from your gross pay. It's just a tease of what life would be like with no payroll or income tax withheld. I think that's why it appeals to those of use that pay taxes so much.

The amount of paperwork in "refunding" sales taxes would be insane. I don't keep records of every thing I buy.

I would assume everyone is just going to get a lump sum equal to 23% of poverty line. But you'll have to ask someone who knows more about this than me.

The amount of paperwork in "refunding" sales taxes would be insane. I don't keep records of every thing I buy.

You don't have to. We take the average poverty line, ie what you need to spend to survive, and we refund it. It would be a nightmare if it was otherwise, I would agree. But it isn't.

Well I was just going from the OP



If it's only a matter of "refunding" sales tax in a small lump sum payment, then it's not a bad idea. So long as every other tax is abolished.
The best place to do any research on this is www.fairtax.org. I know a lot of you, CSW in particular, have objections to doing some research on the matter, but it is an informative site and documents a well thought out plan.

I did not say replace *all* taxes with the fair tax- just the income tax and others which prevent economic growth. The tax would help the poor more by making it so the tax doesn't take their money but helps them survive better. The wealthy would pay more than anyone else on this tax, both percentage-wise and per unit. Besides, everyone is given a certain share initially and no one has to give more or less, and those who need help are given it.
The legislation would, if passed, eliminate federal payroll and income taxes. Imagine the savings from compliance, alone. Simple assessment, simple rebates, couldn't be a better idea for replacing the federal tax code.

The cost of your average loaf of bread without tax: $1.99
The cost of your average loaf of bread with the "fair" tax: $2.45

The cost of your average gallon of 2% milk without tax: $2.09
The cost of your average gallon of 2% milk with the "fair" tax: $2.57

The cost of two week's worth of groceries without tax: $200
The cost of two week's worth of groceries with the "fair" tax: $246

The cost of a new game console: $299
The cost of a new game console with the "fair" tax: $367.77

The cost of a new house: $200,000
The cost of a new house with the "fair" tax: $246,000

The cost of a palacial estate: $23,000,000
The cost of a palacial estate with the "fair" tax: $28,293,000

23% looks good on paper (look at how much more luxury goods cost!), but for FOOD? You've gotta be shitting me.

The cost isn't going to change. Industry already has taxes embedded in the prices that you pay for the goods. When the Fair Tax replaces income and payroll taxes, prices will drop as those taxes are eliminated from the price. Prices may fall even further because companies will no longer have to pay the huge fees associated with compliance in our current convoluted mess.

[I]The cost of your average loaf of bread without tax: $1.99
The cost of your average loaf of bread with the "fair" tax: $2.45
[and so on...]

The only people who support the fair tax are those likely to drop from their higher tax bracket into a more acceptable bracket.

For a majority of Americans this would increase the amount they pay annually.

The notion of the progressive tax is rightly formed on the idea of marginal utility - those with more money have less use for it.

Clearly anyone can see a middle-class family of four earning $50,000 annually has a greater need to keep more of their money.

However important a single male feels that 65" HDTV is, he is spending in money in a less critical way.

Americans don't like to admit we live in welfare society. Social security, the tax structure, and other programs go towards realizing poor people have a harder life.

While people debate the tax system often they forget the children. I was lucky enough to go to college because money creates opportunity. By keeping the current structure, more rural and inter-city kids will be able to elevate themselves.

It doesn't really seem some people pay more for the same thing, but it's about how much can you afford to give. Any tax structure not based on how much a person can reasonably afford is contrary to the role the government is designed to serve.

If you don't think 45 cents on a loaf of bread is significant you either haven't spent much time buying groceries or you havent had significant cash-flow problems.

The cost isn't going to change. Industry already has taxes embedded in the prices that you pay for the goods. When the Fair Tax replaces income and payroll taxes, prices will drop as those taxes are eliminated from the price. Prices may fall even further because companies will no longer have to pay the huge fees associated with compliance in our current convoluted mess.

If that's true, it's a good plan. Well, good for Capitalism...

If you don't think 45 cents on a loaf of bread is significant you either haven't spent much time buying groceries or you havent had significant cash-flow problems.

Ugh, I know how that is. I have to buy the $0.88 loaves of store-brand bread now, because the good ones are too fucking expensive (they used to be $1.09, now they're right at $2.00). Bad taste for bad times.

If that's true, it's a good plan. Well, good for Capitalism...
Income and payroll taxes are pretty screwed up. I don't think that a progressive sales tax could be any worse.

This is what the Fair Tax FAQ has to say about embedded taxes and retail prices ...

How much do pre-tax prices for goods and services go down under the FairTax?
All goods and services already contain the embedded costs of the current tax system in their prices. When these embedded taxes are removed, prices come down. Dale Jorgenson, Ph.D., former chairman of the Economics Department at Harvard University, has projected an average producer price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax. In addition, the FairTax lowers compliance costs by an estimated 95 percent and the removal of these costs will force prices down even lower.

Income and payroll taxes are pretty screwed up. I don't think that a progressive sales tax could be any worse.

This is what the Fair Tax FAQ has to say about embedded taxes and retail prices ...

That'd be nice if it actually worked as planned. But still, taxing food is less than savory, in my opinion.

Seems to me that this is just another scheme to take less money from the rich.

23% looks good on paper (look at how much more luxury goods cost!), but for FOOD? You've gotta be shitting me.
Luxury goods can be bought "used."

But the rebate only covers the TAXES that one would spend on the necessities of life at poverty level spending.

Valid points if one allows two assumptions:

(1) Handing out free money won't tempt some people to apply for several shares of it. What are the odds that this is true?

(2) Patterns of employment will not change in response to a new means of earning one's living. Again, what are the odds? This tax proposal rebates the taxes one would pay if one was earning a wage and spending the money one earned. If, however, one recognizes that under the new system, one can actually live without earning anything, one might choose not to. Why work when there's food coming in, a warm place to flop, and free Internet access and books at the local library? It might not be an appealing life-long plan, but I imagine that it would look rather appealing to many people as a gap-year (or five) after school. And, after all, if one supplements that check with a little house-breaking or car-stealing now and then to buy a few luxury goods, one might never need to work again.

This is a nice little rant, but you haven't addressed a single disadvantage of the Fair Tax with any sort of argument beyond some broad platitudes. Life would continue exactly as it does now. The old codgers would get their Social Security checks. The lame and lazy would get their welfare checks. The only difference would be where the money comes from. Read about the Fair Tax, then if you still think it's a bad idea, read one of my earlier posts and you can see that you fit into category #2.
The only people who support the fair tax are those likely to drop from their higher tax bracket into a more acceptable bracket.

For a majority of Americans this would increase the amount they pay annually.

The notion of the progressive tax is rightly formed on the idea of marginal utility - those with more money have less use for it.

Clearly anyone can see a middle-class family of four earning $50,000 annually has a greater need to keep more of their money.

However important a single male feels that 65" HDTV is, he is spending in money in a less critical way.

Americans don't like to admit we live in welfare society. Social security, the tax structure, and other programs go towards realizing poor people have a harder life.

While people debate the tax system often they forget the children. I was lucky enough to go to college because money creates opportunity. By keeping the current structure, more rural and inter-city kids will be able to elevate themselves.

It doesn't really seem some people pay more for the same thing, but it's about how much can you afford to give. Any tax structure not based on how much a person can reasonably afford is contrary to the role the government is designed to serve.

Luxury goods can be bought "used."

Yep. Knowing rich people and their ways of getting around things, I bet a good portion of them would buy used goods.

Heh, my aunt and uncle sure as fuck would. Strange how rich people become the thrifty ones when more taxes are placed on them.

Who here wants to pretend that companies will drop their prices suddenly and drastically because they have to pay less for supplies and services, well besides Myrmidonisia?

Who here wants to pretend that companies will drop their prices suddenly and drastically because they have to pay less for supplies and services, well besides Myrmidonisia?

That's funny, actually. I was thinking the same thing.

Corporations would see a chance to widen their profit margins (hello Wal-Mart!). I bet only a few would give a flying fuck about the little guy.

That'd be nice if it actually worked as planned. But still, taxing food is less than savory, in my opinion.

Seems to me that this is just another scheme to take less money from the rich.
Okay, if the net price on a loaf of bread went up, the plan wouldn't be working. If the net price stayed the same, what difference is it to you if 23% is tax? None.

Industry is certainly taxed. They pass along those payroll and other taxes to consumers. That's where the beauty of competition comes in. All that has to happen is for Wonder Bread to cut the price of their bread to reflect the new, no-tax price for their product and everyone else will have to follow. Pretty soon, the prices stabilize about where they are now when you just consider the costs of ingredients, labor, and the new, improved, reduced overhead costs.

And where do you buy milk at $2.09 a gallon? I'd like a couple dozen of those gallons.

That's funny, actually. I was thinking the same thing.

Corporations would see a chance to widen their profit margins. I bet only a few would give a flying fuck about the little guy.
The most of a drop in price I could predict would be far more fractional than the increase. And does the fair tax system address state taxes? Many states tax goods, and if the federal government doesn't already tax goods, and medicines, the added tax would just screw over those states without sales taxes and screw over even more those with. Also, this tax on medicine could possibly send senior citizen drug programs into a tailspin.

Two problems though, one built on top of the other.

States, counties, and cities apply sales tax (unless you live in Oregon, but that's another story). It is a large chunk of change for their coffers. The hidden taxes of basic products are usually not federal, but state and local. So then what? If you remove state/local sales taxes, states raise income taxes. Remove income taxes from the state level, states raise sales/tax property taxes. Remove them all and states come to the federal goverment for money, meaning federal has to raise the sales tax.

That loaf of bread costs a lot more.

The second problem is one I'm very familar with coming from a state that has no personal income tax and collects most funds from the state sales tax. Nevada's ecconomic moddel is based on the idea that people will come to the state and give us (the casinos) money for no reason. In the process, they will buy a lot of stuff that the state can then tax. Sales tax in Nevada is around 7 or 8% then, depending on the area.

Works great if everyone's taking vacations. However, after 9/11 and with gas prices the way they are, consumers stop consuming because they are slightly worried. Two years ago Nevada faced a large budget defficit due to lack of people coming to the state to buy stuff and give us money. Nevada made up for it by instituting a payroll tax and taxing banks. Now that (knock on wood) the ecconmy's better, people are starting to come back, but the gas prices have Nevada worried that people again won't come.

That's the problem with getting rid of the income tax and going to a national sales tax. People choose how much to consume meaning your funding can be effected by a wide range of factors outside your control. Not a good idea if you need steady money to run, say, a war, or rebuild New Orleans.

This is a nice little rant, but you haven't addressed a single disadvantage of the Fair Tax with any sort of argument beyond some broad platitudes.

What, you mean like these?


There are only two reasons to oppose the Fair Tax. The first is because you don't want to see power transferred away from the government. The second is because you want to punish the wealthy via our screwed up progressive income tax.

Once you've decided that you get to dictate both your own position and the oposition's, then yes - you're likely to "win" the argument. But there's a reason they coined the term "straw man" for that sort of behavior. It's about as challenging as pummeling one.

I see we have a lot of wealth-haters. I think that's about as ingrained as an opinion on religion. Time for me to go. It's not true, by the way...
That's funny, actually. I was thinking the same thing.

Corporations would see a chance to widen their profit margins (hello Wal-Mart!). I bet only a few would give a flying fuck about the little guy.

So is that any worse than posting something completely irrelevant, as you have done? Why not take a stand on something meaningful.

What, you mean like these?



Once you've decided that you get to dictate both your own position and the oposition's, then yes - you're likely to "win" the argument. But there's a reason they coined the term "straw man" for that sort of behavior. It's about as challenging as pummeling one.

I'm pretty sure Wonder Bread is already notably cheaper than Sara Lee.

Okay, if the net price on a loaf of bread went up, the plan wouldn't be working. If the net price stayed the same, what difference is it to you if 23% is tax? None.

Not any to do with price, but it's the principle. It show that companies and corporations don't factor in the "little guy" when pricing their products.

Industry is certainly taxed. They pass along those payroll and other taxes to consumers. That's where the beauty of competition comes in. All that has to happen is for Wonder Bread to cut the price of their bread to reflect the new, no-tax price for their product and everyone else will have to follow. Pretty soon, the prices stabilize about where they are now when you just consider the costs of ingredients, labor, and the new, improved, reduced overhead costs.

Haha, I'd love to see a corporation cut prices so people will be better off. *laughs maniacally*

And where do you buy milk at $2.09 a gallon? I'd like a couple dozen of those gallons.

Milk's butt-fucking expensive in Texas. Wanna know why? Two years ago, our milk producers said there was a shortage. The price for a gallon of skim milk (the cheapest kind, no less) was $1.29. They jacked up the price for said milk to $2.98 a gallon (the $2.09 price for 2% was a brain error... my brother's telling me it's much more than that: $2.98 for skim, $3.09 for 2%, and $3.19 for whole), and it hasn't gone down since. All notion of a "shortage" has been abandoned.

I remember the yellow sheets of paper in the dairy freezers: "Due to the recent milk shortage, the prices have increased." At the local H-E-B, they had these sheets of paper up for about two weeks. When they were taken down, the milk was still ridiculously expensive.

Lovely, eh?

The Black market, and especially the grey market, will grow incredibly. You know who will gain most from this?

Drug dealers and suppliers. Marijuana is already illegal, this sales tax will do nothing to it. People will have more money to spend on illegal goods. Stealing will become more profitable. Under the table deals will become a norm.

This will make it even worse for poorer people, who buy drugs, etc. They will be able to buy more, and just further sink them into poverty, etc. The music industry will take even another hit, it will become much more profitable to download movies than to buy them, same with games, etc.

WOW. I'm not quite sure where to begin. I think I will start with correcting Greill on several points. Myrmidonisia has already done a good job of it on several points.

First of all this is a revenue nutral plan. It doesn't change what comes into the govt(at first), only where it comes from.

Cost don't actually lower, or not by much depending on the embedded taxes. The average of the embedded taxes is about 22%; more in some cases less in others.

The plan eliminates all income and payroll taxes, both personal and business. This puts more money initiall in the pockets of the working person (of course if your not working you might oppose this because then people who work get more..horror). It also reduces the cost of compliance for business. This is really important for the small businesses that make up the bulk of the business world in America. It also, yes does the same for large corporations.

One of the main reasons that business are incorporating outside the US is that they are going to countries who have more favorable tax systems. By eliminating the corporate tax the US becomes the most favorable country for corporations. By buliding some of their factories and headquartering their corporate offices in the US, business are able to redue their costs and increase their market share over competitors who do this in other countries. When they bulid their factories and offices in the US that also creates jobs.

The costs go down not only because of a lack of tax to pass along to the consumer (remember that no business pays taxes, they merely collect it from the consumer in the form of a higher price, from the employee in the form of less wages or benifits, or from the stockholder in the form of lower dividends), but they also don't need the armies of accounts to make sure they are in compliance with tax laws. Laws I might add that even the people who wrote them don't understand.

I'm going to leave it at this and make responses to other posts.

The Black market, and especially the grey market, will grow incredibly. You know who will gain most from this?

Drug dealers and suppliers. Marijuana is already illegal, this sales tax will do nothing to it. People will have more money to spend on illegal goods. Stealing will become more profitable. Under the table deals will become a norm.

This will make it even worse for poorer people, who buy drugs, etc. They will be able to buy more, and just further sink them into poverty, etc. The music industry will take even another hit, it will become much more profitable to download movies than to buy them, same with games, etc.


First of all this is not intended to change anything but the source of the federal revenue. Personal responability is still in the hands of each individual.

Yes the black and graey markets will still be there. Always will be no matter what the tax system. There will always be cheaters, no matter the tax system. You can not base you arguements on "people will cheat the system" since it's already happening.

In addition those making their profit on the black and grey markets still have to or will buy food, clothing, housing, and cars, as well as several other luxury items. They will be paying taxes then, as opposed to now where they are paying NO taxes.

Also it will not be more profitable to go to the black markets any more under the Fair Tax than under the current tax system, since prices will not significantly change.

Two problems though, one built on top of the other.

States, counties, and cities apply sales tax (unless you live in Oregon, but that's another story). It is a large chunk of change for their coffers. The hidden taxes of basic products are usually not federal, but state and local. So then what? If you remove state/local sales taxes, states raise income taxes. Remove income taxes from the state level, states raise sales/tax property taxes. Remove them all and states come to the federal goverment for money, meaning federal has to raise the sales tax.

This is a federal issue only. It does not affect the states. However, it will hopefully apply enough incentive for reforms to occur there. But this Fair Tax will not remove any State or local taxes.

The second problem is one I'm very familar with coming from a state that has no personal income tax and collects most funds from the state sales tax. Nevada's ecconomic moddel is based on the idea that people will come to the state and give us (the casinos) money for no reason. In the process, they will buy a lot of stuff that the state can then tax. Sales tax in Nevada is around 7 or 8% then, depending on the area.

Works great if everyone's taking vacations. However, after 9/11 and with gas prices the way they are, consumers stop consuming because they are slightly worried. Two years ago Nevada faced a large budget defficit due to lack of people coming to the state to buy stuff and give us money. Nevada made up for it by instituting a payroll tax and taxing banks. Now that (knock on wood) the ecconmy's better, people are starting to come back, but the gas prices have Nevada worried that people again won't come.

That's the problem with getting rid of the income tax and going to a national sales tax. People choose how much to consume meaning your funding can be effected by a wide range of factors outside your control. Not a good idea if you need steady money to run, say, a war, or rebuild New Orleans.

The diffrence here is that you are looking at it as people vacationing from state to state. But since the Fair Tax is federal regardless of whether someone goes away on vacation or not (unless it's outside the US) the base will always be there. In addition we will also be getting the revenue from any vacationers from outside the US. They won't mind because they are already paying state sales taxes if they got to one of those states (DE has no Sales tax, don't know who else doesn't), and they won't see a diffrence in the price anyway.

So is that any worse than posting something completely irrelevant, as you have done? Why not take a stand on something meaningful.

I have. Informed debate is meaningful to me. Unfortunately, that doesn't appear to be a widely held opinion in your locale. I think I spelled out the relevence of the "straw man" issue to your own arguments about as clearly as can be expected. Not everything can be made transparent to the willfully obtuse.

First of all this is not intended to change anything but the source of the federal revenue. Personal responability is still in the hands of each individual.

Intention is irrelevant. The reality is, the black market will become more profitable. Cheating the system becomes more profitable.

Yes the black and graey markets will still be there. Always will be no matter what the tax system. There will always be cheaters, no matter the tax system. You can not base you arguements on "people will cheat the system" since it's already happening.

My argument is not based on the fact that people will cheat the system. Its that more people will, and it will become easier and more profitable to do so under a "fair tax".

In addition those making their profit on the black and grey markets still have to or will buy food, clothing, housing, and cars, as well as several other luxury items. They will be paying taxes then, as opposed to now where they are paying NO taxes.

Those making their profit on these markets will buy some things, like food. But with the increased revenue, they will likely invest more into their buisness, and buy other things under the table. They will be putting much less money into the government.

Those who profit off of the increase in the black market will offset the loss to the government. They won't have anyone to be accountable to, as to where their income is coming from. They will put in money, but those who buy from these markets will pay less. Its unlikely the sellers would be buying more taxable goods with the profit, while the buyers are likely to buy less. This goes for stolen cars, cable, etc as well. There is so much that can be stolen these days, but this "fair tax" will make it unfair to those who play by the rules, turning more people to illegal methods.

Also it will not be more profitable to go to the black markets any more under the Fair Tax than under the current tax system, since prices will not significantly change.

This is the miracle factor. Take out all taxes except sales tax. Increase sales tax. And by some miracle, everything stays the same price, while the government income stays the same, and the people's income increases. This does not logically work. Either prices have to rise, government income needs to fall, or the people income can't rise(which is income tax).

If someone wants to buy something, it will cost them more. They are gaining more money from no income tax, but paying more to sales tax. At the least, even if the miracle factor came through, and people had more money because of no income tax, corporations would raise prices to meet the new money supply.

One way or another, it will become more profitable than before to steal, to cheat, etc.

The most of a drop in price I could predict would be far more fractional than the increase. And does the fair tax system address state taxes? Many states tax goods, and if the federal government doesn't already tax goods, and medicines, the added tax would just screw over those states without sales taxes and screw over even more those with. Also, this tax on medicine could possibly send senior citizen drug programs into a tailspin.

There was a tax that was on airline tickets. It was a bulit in tax like the ones on gas, where you see the final price and not the price plus tax. Congress failed to renew the legislation one year. Now this provided the airlines a chance to earn a higher profit margin since the customer didn't see the tax itself anyway. Within 24 hours of that tax no longer being applicable the first airline had reduced its ticket prices. Within 48 hours the other airlines followed suit to remain competitive.

Some companies may try to hold on to that larger profit margins, but most will see right away that if they lower their prices by the amount they no longer have to pay in taxes they can gain the advantage of thoes that don't. It will go down rapidly.

Valid points if one allows two assumptions:

(1) Handing out free money won't tempt some people to apply for several shares of it. What are the odds that this is true?

Since it would be done via the Social Security system that odds are small for multiple shares to one person.


(2) Patterns of employment will not change in response to a new means of earning one's living. Again, what are the odds? This tax proposal rebates the taxes one would pay if one was earning a wage and spending the money one earned. If, however, one recognizes that under the new system, one can actually live without earning anything, one might choose not to. Why work when there's food coming in, a warm place to flop, and free Internet access and books at the local library? It might not be an appealing life-long plan, but I imagine that it would look rather appealing to many people as a gap-year (or five) after school. And, after all, if one supplements that check with a little house-breaking or car-stealing now and then to buy a few luxury goods, one might never need to work again.

What's the diffrence? You already have people doing this on the welfare system

[I]The cost of your average loaf of bread without tax: $1.99
The cost of your average loaf of bread with the "fair" tax: $2.45

To expand on Myrmidonisia's post:
You are simply tacking on an additional 23% onto the current price, which is exactly opposite of what will happen. I will illistrate with hard numbers.

Let's take a $100 item. Any item it doesn't matter, works for services too.

now the Harvard study showed that an average of 22% of the $100, or $22, is embedded taxes. Taxes added all along the way by the many businesses who have touched the product and added a bit more to the price to cover their taxes. The Fair Tax, eliminating those embedded taxes will leave $78 as the item price.

A 23% sales tax on $78 equals $17.94, for a total price of $95.94

IF I add on, say Maryland's 5% sales tax, that will be calculated off the $78 for $3.90, bringing the grand total to $99.84. Not much of a change there is it?

23% looks good on paper (look at how much more luxury goods cost!), but for FOOD? You've gotta be shitting me.

Why not food? Who buys the most food? Why rich people. Any given "rich " person's food bill will be hugely over any "poor" persons. Not to mention all the food bought for parties and other functions such as weddings and such.

Since it would be a logistical nightmare to try to track who has paid what, it is much simpler to tax the food at the register, then provide a rebate for the taxes for the base amount of food needed to survive at the poverty level.

This is a federal issue only. It does not affect the states. However, it will hopefully apply enough incentive for reforms to occur there. But this Fair Tax will not remove any State or local taxes.
But that does not do anything to prices then, as stated, most taxes collected on items are local and state taxes.

The diffrence here is that you are looking at it as people vacationing from state to state. But since the Fair Tax is federal regardless of whether someone goes away on vacation or not (unless it's outside the US) the base will always be there. In addition we will also be getting the revenue from any vacationers from outside the US. They won't mind because they are already paying state sales taxes if they got to one of those states (DE has no Sales tax, don't know who else doesn't), and they won't see a diffrence in the price anyway.
No, you've missed my point. People have to consume, yes. However, what they consume, the price they will accept to consume, and how much they consume is based upon how happy they tend to be. I used Nevada as a case in point because it showed how after 9/11, and now during the gas price problem, the level of consumption went/is down. People will have to buy bread, but you earn more tax off the $2.99 loaf vs the $0.88 loaf. But if a person is worried about, say, heating costs this winter, they might switch to a $0.88 loaf and you lose funds. Since consumtion goes down during emergencies, right when the goverment needs funds, you have a cycle of the goverment needing people to spend to get money to deal with the emergency, and the people refusing to spend money because of the emergency.

If consumers will not consume, from houses to loaves of bread, the goverment loses all funds. Now, given the goverment, this means even more red ink, which worries consumers, who stop consuming, causing the goverment to make more of the red stuff... wash, rince, and repeat.

My point is that a sales tax isn't steady as the main and only form of funding for the goverment. Especially for things that NEED to have a certian amount each time.

You don't have to. We take the average poverty line, ie what you need to spend to survive, and we refund it. It would be a nightmare if it was otherwise, I would agree. But it isn't.

Not quite Greill. The US Govt already calculates the poverty level for all the family combinations. There is a diffrent amount for a single person from a couple, which is diffrent from that of a single parent with 2 kids, which is diffrent than that of a couple with 3 kids.

23% of that annual amount required to survive is sent to each household as it matches.

According to the Department of Health & Human Services, the poverty level for a single person for 2005 is $9,570 a year. Remember that this is the minimum required for the essentials determined well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc.

For a household of 2 the ammount is $12,830.

take the annual ammount and divide by 12 to get the amount each household would recieve at the beginning of each month.

From the Fiar Tax web site:
How does the rebate work? All valid Social Security cardholders who are U.S. residents receive a monthly rebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The rebate is paid in advance, in equal installments each month. The size of the rebate is determined by the Department of Health & Human Services’ poverty level multiplied by the tax rate. This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc.

People will have to buy bread, but you earn more tax off the $2.99 loaf vs the $0.88 loaf. But if a person is worried about, say, heating costs this winter, they might switch to a $0.88 loaf and you lose funds.

But they're still paying the tax on the fuel. If they are lowing consumption in one area to make up for higher prices in another, the net effect is the same since there is NO items exempted from the Federal Sales tax.

But that does not do anything to prices then, as stated, most taxes collected on items are local and state taxes.

Last time I checked all business paid federal income taxes.

The amount of paperwork in "refunding" sales taxes would be insane. I don't keep records of every thing I buy.

As pointed out earlier the rebate is done based solely on poverty level. Also as far as other "paperwork", most states already handle this job. The Bill has each state collect the funds from the businesses as they already do and then pass it on to the Federal. Plus the states get to keep a portion of the sales taxes collected as payment for their services. In addition it would be the same for the businesses. Most already do collect state sales taxes. Its merely a matter of changing the registers. Very cheap to do.

Because really, the Fair Tax system is going to reduce government spending? How? Is it instituting a task force that assassinates politicians when they suggest new expenditures?

The Fair Tax isn't about cutting Govt spending. It's about having a better revenue system then the income tax. It's still up to us to jump down our represenatives' throats about spending too much

In response to people worrying about food being taxed, I'll expand a bit here with a quote from the Fair Tax web site:

Why not just exempt food and medicine from the tax? Wouldn’t that be fair and simple? Exempting items by category is neither fair nor simple. Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor. Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit. Also, today these purchases are not exempted from federal taxation. The purchase of food, clothing, and medical services is made from after-income-tax and after-payroll-tax dollars, while their purchase price hides the cost of corporate taxes and private sector compliance costs. Finally, exempting one product or service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today. Those who have the money will send their lobbyists to Washington to obtain special tax breaks in their own self-interest. This process causes unfair and inefficient distortions in our economy and must be stopped.

But they're still paying the tax on the fuel. If they are lowing consumption in one area to make up for higher prices in another, the net effect is the same since there is NO items exempted from the Federal Sales tax.
So gas and electric would be considered saleable items? THAT out to be fun.

In any case, no it doesn't, you're still losing money as again, jittery consumers usually do not buy high priced items.

It ain't steady.

Last time I checked all business paid federal income taxes.
And since I have run into dollar differences between the price of items due to sales taxes due to being in one county/state/city or another, there's still a chunk of change coming from state/local sales taxes in the prices of items.

And since I have run into dollar differences between the price of items due to sales taxes due to being in one county/state/city or another, there's still a chunk of change coming from state/local sales taxes in the prices of items.

The Fair tax doesn't address them. It is only dealing with FEDERAL taxes. It is up to the people in the individual states/counties/cities to do something about THOSE taxes. But when the Fair Tax finally does go into effect, then it will be a powerful leveraging tool to get reforms in those areas as well.

BTW did you know that a study was done that showed that if Texas shifted from a item exempted sales tax to one where nothing was exempted they could reduce their sales tax to 2% and still make the same revenue?

I just thought of something. Most of the arguements against the Fiar Tax are on it's supposed regressiveness (it's not regressive due to the prebate).

I've had opponnets say even with the rebate it's regressive because some people with be paying less percentage of their income then others.

What is the big thing that some of you have to be stuck on income as a determining factor?

Should this be turned into a seperate thread?

To expand on Myrmidonisia's post:
You are simply tacking on an additional 23% onto the current price, which is exactly opposite of what will happen. I will illistrate with hard numbers.

Let's take a $100 item. Any item it doesn't matter, works for services too.

now the Harvard study showed that an average of 22% of the $100, or $22, is embedded taxes. Taxes added all along the way by the many businesses who have touched the product and added a bit more to the price to cover their taxes. The Fair Tax, eliminating those embedded taxes will leave $78 as the item price.

A 23% sales tax on $78 equals $17.94, for a total price of $95.94

IF I add on, say Maryland's 5% sales tax, that will be calculated off the $78 for $3.90, bringing the grand total to $99.84. Not much of a change there is it?



Why not food? Who buys the most food? Why rich people. Any given "rich " person's food bill will be hugely over any "poor" persons. Not to mention all the food bought for parties and other functions such as weddings and such.

Since it would be a logistical nightmare to try to track who has paid what, it is much simpler to tax the food at the register, then provide a rebate for the taxes for the base amount of food needed to survive at the poverty level.

1: Stuff that I already knew about. Was it really necessary to use so much forum space?

2: HAH. So, just because rich people buy more food (and I know this is true, because I went shopping with my aunt when I spent two weeks at her house), it means that the burden on poor people means nothing? The difference between $2.00 and $2.45 is huge when you barely have any money for food each month.

1: Stuff that I already knew about. Was it really necessary to use so much forum space?

2: HAH. So, just because rich people buy more food (and I know this is true, because I went shopping with my aunt when I spent two weeks at her house), it means that the burden on poor people means nothing? The difference between $2.00 and $2.45 is huge when you barely have any money for food each month.
The prices will be reduced. Look at what has happened in Georgia to gasoline prices. The governor suspended a 15 cent per gallon tax on gasoline early in September. The prices at the pump fell 15 cents the next day. The taxes were re-imposed in early Octover and the pump prices went up overnight.

Companies will not be able to keep increase their profit by charging for a tax that isn't there because not all of them will do it. When the first company lowers its prices to be more competitive, the rest will have to follow.

Your bread will remain at $2.00 a loaf. The only difference is that 37 cents of that $2.00 will be tax.

Companies will not be able to keep increase their profit by charging for a tax that isn't there because not all of them will do it. When the first company lowers its prices to be more competitive, the rest will have to follow.

Thats a fine argument on paper. In reality, most companies will rise their prices, as they know if they lower their prices signifigantly, its a short term gain, while other companies will do the same. Its not in companies interests to lower prices, unless they can get enough supply/revenue/monopoly to justify it.

The fair tax, like pretty much all sales taxes, is regressive. It's not as regressive as a traditional sales tax, but is nonetheless regressive. Regressive sales taxes are not fair. If anything, all sales taxes should be abolished, and income, property, and taxes on investment raised to cover the shortfalls.

There was a tax that was on airline tickets. It was a bulit in tax like the ones on gas, where you see the final price and not the price plus tax. Congress failed to renew the legislation one year. Now this provided the airlines a chance to earn a higher profit margin since the customer didn't see the tax itself anyway. Within 24 hours of that tax no longer being applicable the first airline had reduced its ticket prices. Within 48 hours the other airlines followed suit to remain competitive.

Some companies may try to hold on to that larger profit margins, but most will see right away that if they lower their prices by the amount they no longer have to pay in taxes they can gain the advantage of thoes that don't. It will go down rapidly.
Bad example, airlines have been in the red for years, especially since the advent of smaller "bargain" companies.

Thats a fine argument on paper. In reality, most companies will rise their prices, as they know if they lower their prices signifigantly, its a short term gain, while other companies will do the same. Its not in companies interests to lower prices, unless they can get enough supply/revenue/monopoly to justify it.
I didn't make the argument on paper, did I. The gasoline tax suspension is an excellent case of this argument being borne out in real life. If you were correct, the gas prices would have stayed the same after the tax was suspended, then raised some more after the tax was re-instituted.

Don't underestimate competition.

I didn't make the argument on paper, did I. The gasoline tax suspension is an excellent case of this argument being borne out in real life. If you were correct, the gas prices would have stayed the same after the tax was suspended, then raised some more after the tax was re-instituted.

Don't underestimate competition.
The only competition would be between the people who sell the items NOT the people who make them, and Wal-Mart already costs less than Publix.

The only competition would be between the people who sell the items NOT the people who make them, and Wal-Mart already costs less than Publix.
First, that's the only place it matters, isn't it? We want to make sure Potaria's $2 loaf of bread stays at 2$. This isn't a plan to level out the prices between Publix and Walmart, only to replace the current income/payroll tax mess.

I don't know if the statement about competiton is true, anyway. It is true that the bakery isn't charged a tax on the ingredients that it bakes because it's not a retail sale. Neither will the grocery that sells the bread, because the baked bread still isn't a retail sale. Both the bakery and the grocery will no longer be responsible for payroll taxes on their employees, however. They will also no longer see the effects of the embedded taxes. I don't see how the bakery will be able to resist a chance to lower its price to the grocery. Reduced wholesale prices will result in reduced retail prices and will result in increased sales of the bakery's product.

Quote:
I don't know if the statement about competiton is true, anyway. It is true that the bakery isn't charged a tax on the ingredients that it bakes because it's not a retail sale. Neither will the grocery that sells the bread, because the baked bread still isn't a retail sale. Both the bakery and the grocery will no longer be responsible for payroll taxes on their employees, however. They will also no longer see the effects of the embedded taxes. I don't see how the bakery will be able to resist a chance to lower its price to the grocery. Reduced wholesale prices will result in reduced retail prices and will result in increased sales of the bakery's product.

Two points:

1) Profit maximization always occurs at a price higher than the market clearing price despite fewer goods being sold.

2) Generally speaking, most markets can be characterized by monopolistic competition where strategic pricing does occur. Prices in such markets may fall due a drop in costs, but if they do it will take awhile and they may not at all.

However, I should say that in your particular example we probably have pure competition rather than monopolistic competition and generally speaking I agree that removing all taxes and then instituting a "fair tax" probably won't affect prices all that much.

I didn't make the argument on paper, did I. The gasoline tax suspension is an excellent case of this argument being borne out in real life. If you were correct, the gas prices would have stayed the same after the tax was suspended, then raised some more after the tax was re-instituted.

Don't underestimate competition.
I'd say that particular instance is more a don't underestimate poltical force. The whole reason the gas tax was dropped was due to poltical pressure and the very real threat from the state that any gas companies found to be gouging would be fined and shut down. They were expected to lower prices because the state was watching, do you really think they would have lowered prices if the state wasn't watching them?

First, that's the only place it matters, isn't it? We want to make sure Potaria's $2 loaf of bread stays at 2$. This isn't a plan to level out the prices between Publix and Walmart, only to replace the current income/payroll tax mess.

I don't know if the statement about competiton is true, anyway. It is true that the bakery isn't charged a tax on the ingredients that it bakes because it's not a retail sale. Neither will the grocery that sells the bread, because the baked bread still isn't a retail sale. Both the bakery and the grocery will no longer be responsible for payroll taxes on their employees, however. They will also no longer see the effects of the embedded taxes. I don't see how the bakery will be able to resist a chance to lower its price to the grocery. Reduced wholesale prices will result in reduced retail prices and will result in increased sales of the bakery's product.
Reduced prices will result in more sales regardless.

I think the embedded tax thing has been beat to death, so let's look at another desirable facet of the Fair Tax.

Reducing the cost of compliance with the tax code, as well as removing the tax burden from non-retail activity, will bring businesses back to the U.S. in droves. We force capital out of the country because of our insane tax laws. By removing those tax laws, we will create the greatest tax haven in the world. People will have to hide in a cellar to avoid getting a decent job.

For example, when Mercedes and Chrysler merged, they put their headquarters in Germany to avoid the additional 20% taxes that the U.S. would impose on all sales made outside the U.S. Smart for them, dumb for us.

People will have to hide in a cellar to avoid getting a decent job.That's debatable. Most economists believe that capitalism requires a certain level of unemployment. (What that level is is debatable, but most agree that it exists.) So if they're right, there can be only a finite amount of economic growth at any one time.

That's debatable. Most economists believe that capitalism requires a certain level of unemployment. (What that level is is debatable, but most agree that it exists.) So if they're right, there can be only a finite amount of economic growth at any one time.
I think that's silly. I don't have loads of respect for 'most' economists. Just 'some'.
An economist is just a sociologist that can do calculus. It doesn't take a lot of ability to marginal cost curves, either. I don't think most of them have any common sense. If the 'most' that you refer to did have some sense, they'd see that concept disproved all over the world. When there are excess jobs in one location, people emigrate from the places jobs aren't to the places that jobs are. Kinda like water seeking it's own level, or nature abhorring a vacuum.

I think that's silly. I don't have loads of respect for 'most' economists. Just 'some'.
An economist is just a sociologist that can do calculus. It doesn't take a lot of ability to marginal cost curves, either. I don't think most of them have any common sense. If the 'most' that you refer to did have some sense, they'd see that concept disproved all over the world. When there are excess jobs in one location, people emigrate from the places jobs aren't to the places that jobs are. Kinda like water seeking it's own level, or nature abhorring a vacuum.
Then you have no real understanding of capitalism then. You NEED unemployment to keep the system running, which is why when the US posted such great unemployment numbers during the Clinton Administration the Fed reacted by slowing down the ecconomy and therefore raising unemployment.

It's also why I disagree with those who say that there are always jobs avalable or that there is no moral reason to support those who cannot find jobs.

Okay, bright guy, how about explaining it to me in a hundred words or less. If it's truly a fundamental principle of capitalism that there must be unemployment and that the more unemployment the more successful the economy, you shouldn't have to rely on what 'most' economists say. You should be able to explain it to a cracker like me in terms that this poor, dirt farmer, looking in vain for a new hand, can understand.

Okay, bright guy, how about explaining it to me in a hundred words or less. If it's truly a fundamental principle of capitalism that there must be unemployment and that the more unemployment the more successful the economy, you shouldn't have to rely on what 'most' economists say. You should be able to explain it to a cracker like me in terms that this poor, dirt farmer, looking in vain for a new hand, can understand.This wasn't exactly to me, but I can do it:

1) Unemployment goes down.
2) Business raise wages to attract workers.
3) Workers realize that unemployment goes down, and organize, as there is little fear of unemployment.
4) Businesses concede to the demands of labor, as more workers are hard to find.
5) Steps 3 and 4 repeat N times.
6) Business either continue to concede, or disband. But even if they disband, there is still the huge labor market for every worker to be a part of. Eventually it will be impossible for employers to make a profit, and all business would essentially become worker-owned co-operatives.

It's simplified, but you did ask for 100 words or less.

Okay, bright guy, how about explaining it to me in a hundred words or less. If it's truly a fundamental principle of capitalism that there must be unemployment and that the more unemployment the more successful the economy, you shouldn't have to rely on what 'most' economists say. You should be able to explain it to a cracker like me in terms that this poor, dirt farmer, looking in vain for a new hand, can understand.
A hundred words or less? Well, I'll try.

It's very simple, if you have 100% employment, you cannot fire a worker. Assume that each and every job is a necessary job. Therefore, to keep production going you must have that job filled. If there are none left to hire, your employee has you. He can work or not work as much has he or she likes because YOU CANNOT FIRE HIM/HER because there's no replacement. Also your wages and other compensation go up leaving less profit.

Look at the IT industry during the dot com bubble. There were simply not enough IT workers and the wages/compensation was simply ridiculous. When it burst, and there was a glut of IT workers on the market, wages in that industry dropped.

High unemployment is bad for an economy, but full employment is also bad. The only system that calls for full employment is communism. From your sig I assumed you disliked communism, but I see you are calling for it after all.

And sorry, it was 120 words.

This wasn't exactly to me, but I can do it:

1) Unemployment goes down.
2) Business raise wages to attract workers.
3) Workers realize that unemployment goes down, and organize, as there is little fear of unemployment.
4) Businesses concede to the demands of labor, as more workers are hard to find.
5) Steps 3 and 4 repeat N times.
6) Business either continue to concede, or disband. But even if they disband, there is still the huge labor market for every worker to be a part of. Eventually it will be impossible for employers to make a profit, and all business would essentially become worker-owned co-operatives.

It's simplified, but you did ask for 100 words or less.
And I appreciate the easy to read, executive style bullets. I'm sure if this continues, we'll get to the sub-bullets and probably some sub-sub points after that.

First, my argument is that the Fair Tax is going to bring all kinds of capital to the U.S. I don't think anyone disputes that. A rapidly growing economy might well have to fight off inflation. I can imagine the situation would be like a modern day gold rush. Or maybe a better example would be the migration to Silicon Valley in the late '90s. Anyhow, fighting off the inflation from a rapidly growing economy is a whole lot more attractive than to fight off the recession that would follow a rapidly shrinking economy.

Anyhow, I don't see where 3 is a sufficient condition for 4. Demands may never be made. Business may never concede to the demands. The labor pool is a lot bigger than it used to be. H1-B visas are a great way to get cheap labor.

I don't see how any of the conditions are sufficient for #6.

There's some more thought to put into this, but I have to talk to a customer.

And I appreciate the easy to read, executive style bullets. I'm sure if this continues, we'll get to the sub-bullets and probably some sub-sub points after that.

First, my argument is that the Fair Tax is going to bring all kinds of capital to the U.S. I don't think anyone disputes that. A rapidly growing economy might well have to fight off inflation. I can imagine the situation would be like a modern day gold rush. Or maybe a better example would be the migration to Silicon Valley in the late '90s. Anyhow, fighting off the inflation from a rapidly growing economy is a whole lot more attractive than to fight off the recession that would follow a rapidly shrinking economy.

Anyhow, I don't see where 3 is a sufficient condition for 4. Demands may never be made. Business may never concede to the demands. The labor pool is a lot bigger than it used to be. H1-B visas are a great way to get cheap labor.

I don't see how any of the conditions are sufficient for #6.

There's some more thought to put into this, but I have to talk to a customer.In theory, it is possible that demands will never be made, but employees would either make them or go to work somewhere else for a higher wage.
The same goes for #4. Either a company concedes to the demands, or its employees leave.
I can see how immigration might lower the risk of this happening, but not completely. It may become that once worldwide unemployment becomes too low, what I've said will happen will happen.

I can see how immigration might lower the risk of this happening, but not completely. It may become that once worldwide unemployment becomes too low, what I've said will happen will happen.
To build upon that, for jobs needing unskilled or low skilled labor, it will probably never happen as poorer countries produce an over abundance of children while richer countries do not produce quite that many jobs.

However, the SKILLED labor pools can and have quickly dried up.

It's very simple, if you have 100% employment, you cannot fire a worker. Assume that each and every job is a necessary job. Therefore, to keep production going you must have that job filled. If there are none left to hire, your employee has you. He can work or not work as much has he or she likes because YOU CANNOT FIRE HIM/HER because there's no replacement. Also your wages and other compensation go up leaving less profit.

I'm sorry, but I can only see this one working on paper. It would be next to impossible for maintain a 100% employment rate because of two factors. One is the fact that there is continually children growing up to become working adults (and even working before that). Since a child is pretty much born everyday, that also means every day another person ages enough to enter the work force. Therefore there will always be replacements.

Two is that there will always be people who will not work or who won't do what is required of the job their hired for. They will be fired because they would rapidly drag down the morale of the other workers. Speaking from experiance we did better with less people who were motivated to do the job than with more people with some who didn't bother.

I also don't think that Myrmidonisia's comment on having to try to not have a job was intended to imply a 100% employment rate (although it could effectively get there, maybe). I think the point was that the resurgance of business coming back to the US would allow everyone who wanted a job AND was willing to actually work for the pay could easily get one.

Heck right now I see job ads that are almost consistantly inthe local paper that are the low end jobs (janitor, garbage truck driver, etc). Some people will complain about not having work but then refuse to apply for these jobs.

Oh and Myrmidonisia, it would probably help your credibility a bit if you wouldn't quote Boortz almost word for word.("People will have to hide in a cellar to avoid getting a decent job.") Not that I think you have a problem yet, but that just serves to undermine it.

a) There are economists with a lot of sense out there. Like me! :D
And those guys: http://www.paecon.net/

b) Capitalism doesn't so much require some uneployment, it just so happens because it can't be avoided.
People change jobs, and sometimes industries disappear and people's skills are no longer in demand (how many people are still working in the horseshoe industry?).

c) Inflation on the other hand (although it makes sense not to make it zero) does have a little conspiracy attached to it (see seignorage (http://en.wikipedia.org/wiki/Seignorage))

As far as the negative income tax is concerned, that (and the idea of taxing every family member individually a part of the total family income) is probably the best idea Milton Friedman had.
It simplifies the whole business greatly, yet still provides the same benefit to poor people.
Plus it serves as a kind of minimum wage, without there needing to be specific legislation. That is as long as you don't force people to get a job if they're happy on that minimum income.

I would combine it with a progressive income tax though, such that $100 is taxed -100%, $200 isn't taxed at all and so the rate rises (although you got to keep things sensible).

I support the Fair Tax plan and have written and asked my congressman and senators to support it to. Those of you who claim it won't work don't fully understand the entire plan. I suggest that you read the book and inform yourself on the details of the plan before you critisize it. Until you know how it works, you don't have the knowledge to claim it won't work.

One thing I see repeated over and over in this thread is the gripe about the tax on food and medicine and a misunderstandinga about the rebate. Yes, there will be a tax on food and medicine, but if you are making $24,000/year and get to take ALL of that home instead of having 1/3 or more taken off the top, you have more to spend on food and medicine. Further, each month, the goverment will send you a rebate check for what the average family of your size living on the exact poverty line would be spending, on average, in paying the 23% tax on food and medicine and other staples. So, in other words, the poor, living below the poverty line, who don't pay taxes anyway under the current system, still don't pay taxes unless they spend more than the average amount for food and medicine. If they spend less than the average amount, they MAKE money.

Further, the tax has the advantage of tapping into the grey and black market by taxing the "illegal" cash that drug dealers, businesses that are paid under the table, etc. earn. Those people spend their money too and when they do spend the "illegal" income, they'll be paying taxes rather than evading them as they do under the current system. Also, payments "under the table" will no longer be illegal and can be done "above board" since there would be no need to "hide" income from the IRS.

There may be a few flaws here and there, I'm no expert economist. But the system is a hell of a lot better than the current one and definitely much more fair to all than the current system. Again, READ THE BOOK, before you shoot off your mouth with misunderstandings about how it would work.

That's debatable. Most economists believe that capitalism requires a certain level of unemployment. (What that level is is debatable, but most agree that it exists.) So if they're right, there can be only a finite amount of economic growth at any one time.Unemployment says very little about economic growth, if anything. What is it you think one has to do with the other? Also, most economists are fools. There are three types of unemployed people:
1. Those who choose not to work (anyone collecting unemployment).
2. Those who are unable to work (infants, invalids).
3. Those who are prevented from working by labor restrictions (anyone who can't get a minimum wage job, children).

Now add up all those people (omitting those who don't wish to work at all, if you wish) and tell me what you can about the economic growth in that particular society.

I support the Fair Tax plan and have written and asked my congressman and senators to support it to. Those of you who claim it won't work don't fully understand the entire plan. I suggest that you read the book and inform yourself on the details of the plan before you critisize it. Until you know how it works, you don't have the knowledge to claim it won't work.I wouldn't say that it won't work. The current tax system "works". I don't like it and want it to go away, but somebody's getting what they want from it or it wouldn't exist. Just because people critisize doesn't mean they aren't familiar with the plan. And, how much time can you expect people to spend learning about something they already think is a bad idea anyway?

One thing I see repeated over and over in this thread is the gripe about the tax on food and medicine and a misunderstandinga about the rebate. Yes, there will be a tax on food and medicine, but if you are making $24,000/year and get to take ALL of that home instead of having 1/3 or more taken off the top, you have more to spend on food and medicine. Further, each month, the goverment will send you a rebate check for what the average family of your size living on the exact poverty line would be spending, on average, in paying the 23% tax on food and medicine and other staples. So, in other words, the poor, living below the poverty line, who don't pay taxes anyway under the current system, still don't pay taxes unless they spend more than the average amount for food and medicine. If they spend less than the average amount, they MAKE money.And just what's so great or "fair" about that? What about people want to spend lots of money? Should they be punished?

Further, the tax has the advantage of tapping into the grey and black market by taxing the "illegal" cash that drug dealers, businesses that are paid under the table, etc. earn. Those people spend their money too and when they do spend the "illegal" income, they'll be paying taxes rather than evading them as they do under the current system. Also, payments "under the table" will no longer be illegal and can be done "above board" since there would be no need to "hide" income from the IRS.The tax would create a whole new black market. Many people have pointed out that state sales taxes do quite well, but there are ways to avoid them and there would be many new ways to do so with a higher rate. It's all about the rate. I've often wondered how many new "pre-ban" high capacity magazines were sold during the "assault weapons" ban from 1994 to 2004. I would expect a tax on new goods to cause at least some new goods to be sold as used.

There may be a few flaws here and there, I'm no expert economist. But the system is a hell of a lot better than the current one and definitely much more fair to all than the current system. Again, READ THE BOOK, before you shoot off your mouth with misunderstandings about how it would work.
It might possibly be better than the current system but it still sucks. The rate is too high. And I can't really say it sounds more fair. What's fair? Is it fair that wealthier people pay a higher portion of their income under the current system? Would a flat rate income tax be fair? Would a flat amount tax, where everyone pays the same exact amount be fair? Is it fair to tax a man on the income he spends to take his terminally ill son to Disney World and not tax another on the income he spends to send some terminally ill kid he never met to the same place? Is any tax ever fair?

You want my support on this tax?
1. Take the word 'fair' out it.
2. Get rid of the rebates.
3. Cut the rate by at least 2/3.
4. Include a provision to cut the federal budget by at least 3/4, naming specific agencies to fire (I'd start with the DEA and Homeland Security).


That's all you gotta do. ;)

I support the Fair Tax plan and have written and asked my congressman and senators to support it to. Those of you who claim it won't work don't fully understand the entire plan. I suggest that you read the book and inform yourself on the details of the plan before you critisize it. Until you know how it works, you don't have the knowledge to claim it won't work.
Oh, I fully believe it works - on paper. In the real world, I fully believe people who run companies are greedy assholes.

If they spend less than the average amount, they MAKE money.
Define average amount, better yet, define it how the government agency paying people back will.


Even if people are making more money per year due to not paying income taxes, do you honestly think the majority will start spending willy-nilly? Those who don't know how to save their money will keep spending it, and those who know how to save money will be less inclined to buy more stuff.

Unemployment says very little about economic growth, if anything. What is it you think one has to do with the other? Also, most economists are fools. There are three types of unemployed people:
1. Those who choose not to work (anyone collecting unemployment).
2. Those who are unable to work (infants, invalids).
3. Those who are prevented from working by labor restrictions (anyone who can't get a minimum wage job, children).

Now add up all those people (omitting those who don't wish to work at all, if you wish) and tell me what you can about the economic growth in that particular society.Societies with high rates of unemployment have little or even negative economic growth, and/or huge welfare states. People who haven't applied for work within the last year and people who are unable to work aren't included in unemployment statistics.

Flaw one: Does not tax all income. The lower classes spend more, and so more of their income is taxed, then the rich who tend to save, and so are taxed less under this system.

You are incorrect in stating that lower classes spend more that the rich. Lower classes will spend a higher percent of their disposable income than the rich, but they do not spend more total dollars than the rich.

Flaw two: Taxes vital goods, placing them on the same level as, say, a BRAND NEW CAR. Vital goods should not be taxed at all, for all you're doing is penalizing a person for living.

Vital goods are already taxed. Some states, like Oklahoma, have a sales tax on food. There are also "hidden taxes" on food, medicine and other vital goods. Those hidden taxes would be eliminated under the fair tax.

Please don't give me crap about "a tax on savings". If we started to save, our economy would tank.

Savings is what is used to build an economy. Companies borrow saved money for capital investment to create jobs. People borrow saved money when they get a mortgage. More saved money means more money to invest in building the economy and create more new jobs.

This plan has so many holes.

It's a far better system to tax the exchange of money instead of taxing consumption.

If it has so many holes why not point out a few of them?

The legislation would, if passed, eliminate federal payroll and income taxes. Imagine the savings from compliance, alone. Simple assessment, simple rebates, couldn't be a better idea for replacing the federal tax code.

And the amount of money saved by eliminating or drasticly reducing the IRS. Bad deal for tax preparers though. :(

Ugh, I know how that is. I have to buy the $0.88 loaves of store-brand bread now, because the good ones are too fucking expensive (they used to be $1.09, now they're right at $2.00). Bad taste for bad times.

The store brand bread is baked by the same company that bakes the "good ones." :eek The only difference is the wrapper and the price.

Valid points if one allows two assumptions:

(1) Handing out free money won't tempt some people to apply for several shares of it. What are the odds that this is true?

We already give out "free money." Ever hear of food stamps? Ever hear of low income tax credits that give you a refund larger than the amount of tax you paid in?

I think sales taxes are a great thing because they tax consumption, not income.

And one of my ideas on tax reform is to end corporate income tax (or replace it with a small, flat rate) and get the rest from an increase in sales tax, which wouldn't be that high, because in a modern economy consumption is HUGE, a lot bigger than corporate income and since that money saved up by corporations would go back to their employees, the sales tax hike wouldn't hurt their purchasing power much. For instance in a country like Germany you wipe the slate clean of all corporate tax and income tax would only go up 5 percentage points -- which was what Angela Merkel was going to do but that's not likely since she "won" the elections.

However, I don't believe in removing personal income tax. I think people, at least in the middle class and up, should contribute to the common wealth directly. My idea is for an income tax with two rates, and the difference between the highest and the lowest rate is deductible in donations to charity. I.e. effectively you would be paying a flat tax to the government plus a percentage above a bracket to the charity of your choice. So the lower class would pay no income tax, the middle class would pay a flat rate, and the upper class would pay the same rate, but also contribute to welfare in an active way, by finding the right private associations to donate to, rather than just signing off a check to the state.

I think that would provide the right balance for purchasing power, entrepreneurship, welfare and private initiative.

The Black market, and especially the grey market, will grow incredibly. You know who will gain most from this?

Drug dealers and suppliers. Marijuana is already illegal, this sales tax will do nothing to it. People will have more money to spend on illegal goods. Stealing will become more profitable. Under the table deals will become a norm.

This will make it even worse for poorer people, who buy drugs, etc. They will be able to buy more, and just further sink them into poverty, etc. The music industry will take even another hit, it will become much more profitable to download movies than to buy them, same with games, etc.

Actually, drug dealers and other criminals are hurt the most, since currently they pay no federal taxes (ever hear of a dope dealer filling out his 1040?). Shift the tax source from income to consumption, and all of a sudden you have an entirely new pool of taxpayers.

Oh and Myrmidonisia, it would probably help your credibility a bit if you wouldn't quote Boortz almost word for word.("People will have to hide in a cellar to avoid getting a decent job.") Not that I think you have a problem yet, but that just serves to undermine it.
You're right, my comments were just an embellishment on my original point. I hear him preach the gospel of the Fair Tax every day and it's hard not to adopt some of the language. Or ... maybe I am Boortz. Did you ever think about that? I do like the plan, and it's what keeps me voting Linder in the Congressional elections.

And the amount of money saved by eliminating or drasticly reducing the IRS. Bad deal for tax preparers though. :(
They're smart folks. They have to be to navigate around the tax code that exists today. They'll figure out another niche. Maybe financial planning? Except for CPAs, professional tax preparers haven't been around all that long, have they?

Another thing though, that perhaps hasn't been mentioned yet, is that Income Taxes are an automatic stabiliser in the economy.

If a shock (like for example if Investment takes a plunge) occurs, something called the "multiplier" can be used to calculate the overall effect to GDP.

It's called the multiplier because the initial effect causes damage, which causes other effects which cause more damage.

Consumption is the largest part of GDP. If you use an income tax, disposable income falls. It's been shown that a shock causes people to save (ie not consume, thus hurting GDP) a percentage of disposable income, rather than a fixed amount.

Thus making disposable income smaller means that the percentage change is less in absolute terms.
Income Taxes are a tool that helps make the business cycle less volatile. You'd lose that if you only used sales taxes.

Another thing though, that perhaps hasn't been mentioned yet, is that Income Taxes are an automatic stabiliser in the economy.

If a shock (like for example if Investment takes a plunge) occurs, something called the "multiplier" can be used to calculate the overall effect to GDP.

It's called the multiplier because the initial effect causes damage, which causes other effects which cause more damage.

Consumption is the largest part of GDP. If you use an income tax, disposable income falls. It's been shown that a shock causes people to save (ie not consume, thus hurting GDP) a percentage of disposable income, rather than a fixed amount.

Thus making disposable income smaller means that the percentage change is less in absolute terms.
Income Taxes are a tool that helps make the business cycle less volatile. You'd lose that if you only used sales taxes.

I'm not sure I'm reading this right, so let me throw out an answer that may
be a complete non-sequitur. But consistent revenue is what we're interested in, so I think it's appropriate to introduce some empirical data.

In the Fair Tax FAQ, it is stated that consumption is a more stable source of revenue than income.

es, in fact, consumption is a more stable source of revenue than income. A recent study by former American Farm Bureau economist Ross Korves shows the FairTax base is less variable than the income tax base. Why? Because during difficult times due to loss of a job or an inability to work, people may not have as much income, or may have no income at all. They borrow funds or use savings. They may not have earnings, but they still continue to consume. Korves’s Figure 2 below shows the yearly changes in the tax base, adjusted gross income (AGI) under the current tax system for 1971-2001, and changes in personal consumption expenditures (PCE) of the same time period.
Fortunately the graphic that follows can be imported as well
Figure 2. Stability of the Tax Base 1971-2001
http://www.fairtaxvolunteer.org/smart/gfx/FAQ2.jpg

In the Fair Tax FAQ, it is stated that consumption is a more stable source of revenue than income.
There's no doubt about that. People always comsume, even if they don't have an income.

But my point wasn't about Government revenue as much as on the general stablity of the economy.
Suppose there's a shock in the economy and investment goes down by 40% (it really is that volatile).

Now suppose you're a person who in bad times doesn't feel like consuming much, and you save 50% of your disposable income if you think a recession comes along.
And under a purely consumption-based tax system, you'd keep the $1000 you earn a week.

Now comes the shock. Your disposable income is a grand, you save half of it, and so the loss in consumption to the economy is $500 (plus some sort of tax fluctuation, but you get the idea).

Now here's the income tax. Let's say you pay $300 a week.
Your disposable income is now $700, of which you save half, thus making the loss to the economy $350.

So Income Tax can serve to reduce the violence of economic fluctuations.

There's no doubt about that. People always comsume, even if they don't have an income.

But my point wasn't about Government revenue as much as on the general stablity of the economy.
Suppose there's a shock in the economy and investment goes down by 40% (it really is that volatile).

Now suppose you're a person who in bad times doesn't feel like consuming much, and you save 50% of your disposable income if you think a recession comes along.
And under a purely consumption-based tax system, you'd keep the $1000 you earn a week.

Now comes the shock. Your disposable income is a grand, you save half of it, and so the loss in consumption to the economy is $500 (plus some sort of tax fluctuation, but you get the idea).

Now here's the income tax. Let's say you pay $300 a week.
Your disposable income is now $700, of which you save half, thus making the loss to the economy $350.

So Income Tax can serve to reduce the violence of economic fluctuations.
I think I'm catching on, so let me try again.
More stable revenue has to act to reduce the shock you are talking about. Look at the plot and find a place where both income and consumption dip. Between 1990 and 1991 is a good one. We can see that the change in the tax base declined about 2 percent more for income than it did for expenditures. If we go to the right a little, we can see that the next decline in the tax base income was not matched at all by expenditures, leaving about a four percent gap in the two indices.

What does that mean to the economy? The way I read it is that there is more shock when you look at a tax base that is indexed to income. Your example might be very accurate for the case where someone remains employed during this recession. But in the cases where a job is lost, or pay is reduced, the shock to the economy is more than enough to offset the stabilization that an income tax provides.

I'll try an example with numbers and see how it pans out. I'm working a job and making $1000 a week. I get laid off. Now my $300 a week doesn't get fed back into the economy via the IRS. In fact, I start drawing $400 a week in unemployment insurance. Now, I've shocked the economy to the tune of $700 a week. If I were paying a consumption tax, instead of an income tax, I'd be using that entire $400 to feed and clothe myself. So, even as an unemployed leech, I'd be contributing to the economy.

Tell me where I'm wrong and I'll try to pick it up tomorrow. I've been fishing all day and I'm ready for the sack.

Never mind. I think I see where I missed your point. I'll leave this instead of deleting it so I can have somewhere to start tomorrow.

There's no doubt about that. People always comsume, even if they don't have an income.

But my point wasn't about Government revenue as much as on the general stablity of the economy.
Suppose there's a shock in the economy and investment goes down by 40% (it really is that volatile).

Now suppose you're a person who in bad times doesn't feel like consuming much, and you save 50% of your disposable income if you think a recession comes along.
And under a purely consumption-based tax system, you'd keep the $1000 you earn a week.

Now comes the shock. Your disposable income is a grand, you save half of it, and so the loss in consumption to the economy is $500 (plus some sort of tax fluctuation, but you get the idea).

Now here's the income tax. Let's say you pay $300 a week.
Your disposable income is now $700, of which you save half, thus making the loss to the economy $350.

So Income Tax can serve to reduce the violence of economic fluctuations.
I think I'm catching on, so let me try again.
More stable revenue has to act to reduce the shock you are talking about. Look at the plot and find a place where both income and consumption dip. Between 1990 and 1991 is a good one. We can see that the change in the tax base declined about 2 percent more for income than it did for expenditures. If we go to the right a little, we can see that the next decline in the tax base income was not matched at all by expenditures, leaving about a four percent gap in the two indices.

What does that mean to the economy? The way I read it is that there is more shock when you look at a tax base that is indexed to income. Your example might be very accurate for the case where someone remains employed during this recession. But in the cases where a job is lost, or pay is reduced, the shock to the economy is more than enough to offset the stabilization that an income tax provides.

I'll try an example with numbers and see how it pans out. I'm working a job and making $1000 a week. I get laid off. Now my $300 a week doesn't get fed back into the economy via the IRS. In fact, I start drawing $400 a week in unemployment insurance. Now, I've shocked the economy to the tune of $700 a week. If I were paying a consumption tax, instead of an income tax, I'd be using that entire $400 to feed and clothe myself. So, even as an unemployed leech, I'd be contributing to the economy.

Tell me where I'm wrong and I'll try to pick it up tomorrow. I've been fishing all day and I'm ready for the sack.

Never mind. I think I see where I missed your point. I'll leave this instead of deleting it so I can have somewhere to start tomorrow.

What does that mean to the economy? The way I read it is that there is more shock when you look at a tax base that is indexed to income. Your example might be very accurate for the case where someone remains employed during this recession. But in the cases where a job is lost, or pay is reduced, the shock to the economy is more than enough to offset the stabilization that an income tax provides.
Well, initially only investment goes down. The recession only really starts when consumption goes down, which makes about 60% or something of GDP, while investment is only about 17%.
If you can weaken that initial blow, less people are going to lose their job.

I'll try an example with numbers and see how it pans out. I'm working a job and making $1000 a week. I get laid off. Now my $300 a week doesn't get fed back into the economy via the IRS. In fact, I start drawing $400 a week in unemployment insurance. Now, I've shocked the economy to the tune of $700 a week. If I were paying a consumption tax, instead of an income tax, I'd be using that entire $400 to feed and clothe myself. So, even as an unemployed leech, I'd be contributing to the economy.
Not necessarily the whole $400, but fair enough.
At any rate, you're assuming that all government money goes straight into the economy. But that's not necessarily true.
Firstly governments gan take fiscal measures to pump the economy independently of their income - they can make debt.
Secondly, there are many forms of government expenditure which don't actually help the economy much: Defence, Admin and the like.
Thirdly, there is still the issue of crowding out, where investment is further weakened by fiscal expenditure driving up interest rate - sometimes giving you a net negative effect.

People who haven't applied for work within the last year and people who are unable to work aren't included in unemployment statistics.
People who are unemployed for only one day of the year are counted on the unemployment numbers.

And the amount of money saved by eliminating or drasticly reducing the IRS. Bad deal for tax preparers though. :(

There are still all the state income taxes to do. Besides with all the new businesses that would come here since the US would be the biggest tax haven in the world there will more than enough jobs for accountants. They do more than figure taxes you know

Now comes the shock. Your disposable income is a grand, you save half of it, and so the loss in consumption to the economy is $500 (plus some sort of tax fluctuation, but you get the idea).

That money is still in the economy. When you save it it is still investments. The bank lends it out to people and business. It still grows the economy.

The tax would create a whole new black market. Many people have pointed out that state sales taxes do quite well, but there are ways to avoid them and there would be many new ways to do so with a higher rate. It's all about the rate. I've often wondered how many new "pre-ban" high capacity magazines were sold during the "assault weapons" ban from 1994 to 2004. I would expect a tax on new goods to cause at least some new goods to be sold as used.
No one is really going to see the rate though. That $100 item is still going to be about $100. Shoot I showed where even with my local sales tax I wouldn't go over the original price under the current system. Plus if the states would follow suit and eliminate any business income tax(if they have it) and go for an across the board no exemptions sales tax, they could drop the sales tax dramatically. Look at the Texas example I noted earlier.

That money is still in the economy. When you save it it is still investments. The bank lends it out to people and business. It still grows the economy.
Well of course it's not destroyed, but for our purposes it's sitting in the bank. Remember that we're in a recession (or just before one): Investment has become very unpopular indeed.
In the long term a high savings rate is important to sustain investment and thus growth, in the short term savings doesn't help aggregate demand at all and thus becomes a loss.

And here's a good piece from wiki (http://en.wikipedia.org/wiki/Multiplier_%28economics%29) that explains the multiplier, and where my point comes in:
The eventual amount by which output expands is governed by the marginal propensity to save, which is the proportion of extra income that is saved rather than consumed. If the marginal propensity to save is large, less money is returned into the economy with each circulation so the multiplier effect is smaller. The value of the multiplier in a closed economy with no taxes is given by
mult = 1/(1 – mpc) = 1/s
where s is the marginal propensity to save, i.e., the increase in consumer saving divided by the increase in consumer disposable income. In the Keynesian model, s equals one minus the mpc. (Note that s cannot equal zero, nor the can the mpc equal one.)

In this simple model, the multiplier can be used to predict changes in GDP (Y) for a given change in spending, X.
predicted ΔY = mult * ΔX
Of course, the validity of this equation depends of the validity of the assumptions of the model.
And here's the full multiplier as given by a simple Keynesian model (it can be expanded to become more realistic, but the principle stays the same):
Multiplier = 1/(1-c(1-t)+m)
Where "c" is the MPC, "m" is MPI (the percentage of income spent on imports) and the income tax level, "t".

Actually, drug dealers and other criminals are hurt the most, since currently they pay no federal taxes (ever hear of a dope dealer filling out his 1040?). Shift the tax source from income to consumption, and all of a sudden you have an entirely new pool of taxpayers.Do you have something against drug dealers?

And here's the full multiplier as given by a simple Keynesian model (it can be expanded to become more realistic, but the principle stays the same):
Multiplier = 1/(1-c(1-t)+m)
Where "c" is the MPC, "m" is MPI (the percentage of income spent on imports) and the income tax level, "t".
My problem last night was that I wasn't really addressing the contributions to the economy, but was still looking at the tax base. Now with a decent night's sleep and a formula to dissect, I'm ready to go.

The formula, itself, looks like a good argument for tax cuts during a recession. But I question whether this is just a convenient tool to explain some past behavior, or whether it really has the status of theory in the scientific sense. This is where economics and I have a hard time with each other. There are a lot of economists that present a 'theory' to explain some limited set of behavior. The theory is then true until it isn't true anymore. My concept of a theory is that they are never true until they are always true. Does that make sense?

Anyhow back to the discussion at hand. As I pointed out, the mult() function makes a good case to reduce taxes during a recession. What's to stop the Congress from doing just that for a consumption tax? Consumer prices are reduced and more money is put back into the economy. If the mult() function is valid for income taxes vs. spending, I think it should be valid for any tax. Otherwise, I'm not sure it's valid at all. That's the IFF problem that theories have to satisfy.

The formula, itself, looks like a good argument for tax cuts during a recession.
Well you could look at it that way, but that's not really its purpose. It's a tool to calculate the total effect to GDP when a shock happens to the economy.

But I question whether this is just a convenient tool to explain some past behavior, or whether it really has the status of theory in the scientific sense. This is where economics and I have a hard time with each other. There are a lot of economists that present a 'theory' to explain some limited set of behavior. The theory is then true until it isn't true anymore. My concept of a theory is that they are never true until they are always true. Does that make sense?
It does, but the problem is that Economics, and especially Macroeconomics, is a social science. You can't do experiments to help you. All there is is huge amounts of data, and people sit down and use their brains to try and make sense of it.
Of course, when you have to make certain assumptions, there always is a chance that some things may go wrong.
But rest assured that, while the particular things that go into the multiplier-formula may have changed since Keynes, the structure makes intuitive sense. If you really want, I'll explain it to you.
As for tax cuts...check the Barro-Ricardian Equivalence Model... :D

Anyhow back to the discussion at hand. As I pointed out, the mult() function makes a good case to reduce taxes during a recession. What's to stop the Congress from doing just that for a consumption tax? Consumer prices are reduced and more money is put back into the economy. If the mult() function is valid for income taxes vs. spending, I think it should be valid for any tax. Otherwise, I'm not sure it's valid at all. That's the IFF problem that theories have to satisfy.
But it's not particularly about taxes at all. It's about disposable income - and income taxes come into that.
But yes, sales taxes give the government a very handy tool to modify demand. I myself am not necessarily against Sales Taxes, although I wouldn't rely on them entirely, but the problem remains that such a system could make business cycle fluctuations more violent.

I find the opinion of the poster to be incredibly stupid for one simple reason. The wealthy would not be affected by higher costs in products. They can simply buy foreign goods.

OH NO, AN EXTREMELY SIMPLE LOOPHOPE!

I find the opinion of the poster to be incredibly stupid for one simple reason. The wealthy would not be affected by higher costs in products. They can simply buy foreign goods.

OH NO, AN EXTREMELY SIMPLE LOOPHOPE!

What ever are you talking about?

What ever are you talking about?
I guess he means that there wouldn't be taxes on goods imported from overseas.

I guess he means that there wouldn't be taxes on goods imported from overseas.Actually, taxes on overseas goods is the best thing about the sales tax. Not because it's protectionist (it would be protectionist if the taxes for overseas goods were higher), on the contrary, because instead of taxing home corporations you are actually taxing overseas corporations. I think that's pretty cool, to have other people pay your taxes.

...I think that's pretty cool, to have other people pay your taxes.
Well, that all depends on the respective price elasticities. If we in Country A can't go without a certain good, I can guarantee you that we will in effect pay the entire tax.