“Fair” Unbalanced?

U.S. Rep. John Linder with the current Tax cod...

Rep John Linder holding the 133 page Fair Tax Act in contrast to the current U.S. tax code. (Image via Wikipedia)

Last week I described four incidental burdens that arise from income taxes:

  • They conflict with key elements of the Bill of Rights
  • Calculating the correct amount of tax costs many taxpayers significant amounts of money and/or time
  • The rates, coupled with the large number of collection points, create incentive for tax evasion
  • The underground economy is entirely untaxed (at a federal level)

In order to alleviate those burdens, several people have proposed forms of consumption taxes, ranging from value-added taxes (VATs) to national sales taxes. One of these proposals is called “FairTax.” The notion of “fair taxation,” as I mentioned two weeks ago, is a matter of perspective. Nonetheless, as currently proposed, FairTax has some degree of progressivity.

The fundamental principles of the proposal are as follows:

  • Taxes are levied at the point of purchase for services and new goods only. Used goods may be sold ad infinitum tax-free.
  • Taxes are “prebated.” That is, an amount of money is given to every taxpayer each month to provide a mechanism of progressivity, effectively making a portion of purchases tax-free.
  • Taxes are presented as part of the final sale price, which makes the tax rate appear to be lower. For example, a purchase price of $100 includes $23 in tax. This is fiscally equivalent to a sales price of $77 with a 30% sales tax, though it would be presented as a 23% tax, since tax represents 23% of the final price. This can lead to confusion about the tax rate.

There are some really good aspects to this approach:

  • It encourages saving, which in the long run reduces poverty among the elderly.
  • Self-reporting is unnecessary for the majority of taxpayers, which eliminates much of the damage to civil rights.
  • It is somewhat progressive, at least as far as spending is concerned. The degree of progressivity there is dependent on how much money is prebated, and how that amount is determined.
  • It taxes much of today’s underground economy, because even those who make money under the table will buy legitimate goods and services, and pay taxes on them.
  • Since used goods are untaxed, it encourages reuse, which is environmentally beneficial.
  • It’s short and simple, which makes inadvertent noncompliance less likely.

There are several downsides to this model, too:

  • Placing the entire tax burden at the point of sale to the final consumer, the tax rate is high enough to encourage tax evasion. In this case, there would likely be an increase in under-the-table commerce, particularly in services, which are harder to trace.
  • Americans’ spending outside the US isn’t subject to the tax. This may be offset by foreigners’ spending within the US, depending on which is greater at any given time. In terms of nominal dollars in taxes levied, a weak dollar would be advantageous here, while a strong dollar would result in less tax revenue.
  • Encouraging saving, while fiscally advantageous in the long run for most of the economy, slows the economy in the short run by reducing commerce. This downside is similar to that of government not running deficits. It hurts the economy in the short run, with the benefits of avoiding a cost to be paid in the future.
  • The tax is progressive only as far as spending is concerned. Since higher-income earners save a larger percentage of their income, the ultimate tax from an income perspective is regressive. It’s even more regressive when looking from a net worth perspective.

So the “FairTax” as a replacement for the current income tax is trading one set of taxation issues for another. It’s hard for me to say that it’s better or worse than the existing model; it’s just different.

Much of the progressivity of the model depends on the amount of prebating, and the method by which that amount is determined. Some additional progressivity could be added by charging different tax rates for different items, perhaps based on the price of the specific item relative to the median price for items of that class. This approach, while improving progressivity, comes at a cost of significant complexity, and thus higher implementation costs and greater likelihood of tax evasion (either intentional or inadvertent).

The impact to the economy of shifting from an income model to a consumption model can be reduced by transitioning over time. Doing so would be particularly innocuous if it occurs during an economic upswing. In essence, it would be a close cousin to Keynes’s countercyclical model of reducing government spending during economic booms, and one would expect it to have a similar effect.

Over time in this series, I’ll put other proposals under a similar microscope. One thing should be clear by now: all tax models have unintended consequences. In essence, we have an engineering problem. Like all engineering problems, the goal is to maximize the benefits and minimize the costs (financial and otherwise). But the “ideal” solution is only ideal for some. If you only get to apply a single solution, it will inherently be not ideal for a large segment of the population.

I’m outlining all of this so that we can discuss the bigger picture of the costs and benefits of each of these models. As I go through these various models, we can all draw upon the full spectrum of existing and proposed models of taxation.

For now, I’d like to leave you with one question. What is the order of importance to you of the following:

  • Civil rights
  • Progressivity of tax
  • Avoidance of tax evasion
  • Short-term impact on the economy
  • Long-term impact on the economy

…and why? The answers to these questions largely determine which tax model you’ll prefer.


About Michael Weiss

Michael is now located at http://www.logarchism.com, along with Monotreme, filistro, and dcpetterson. Please make note of the new location.
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138 Responses to “Fair” Unbalanced?

  1. GROG says:

    Great article Michael.

    Another benefit to a national sales tax replacing the income tax would be that it would practically dismantle the IRS which costs about $10 billion per year to operate.

  2. Mark says:

    You write well but you don’t have a clue about taxes.

    Oh you know our tax code sucks, that it’s far too complicated, that it’s inherently unfair, but you don’t know why, other than what someone told you.

    For example, you ramble on about Fairtax, giving its “fundamental principles”

    Clearly, you don’t know a fundamental principle from a sound bite, you don’t know reality from a slogan. You took the “fundamental principles” of Fairtax directly from their own fraudulent deceptive tag lines.

    You deign to be an expert on taxes, but your knowledge of them is trite, shallow, and at least about Fairtax, idiotically naive.

    Did you even bother to try to find information which challenged fairtax? Did you google it?

    Did you even WONDER — seriously did you even WONDER — how a tax plan could make prices drop by almost the exact amount of the tax? Fairtax claims it will make prices drop — on everything, very nearly the price of the tax. And then presto chango, we will pay essentially the same price for goods and services we do now, but this rabit we pull out of that hat, will allow us not to pay a PENNY of other taxes, of the three TRILLION dollars in various taxes. Just buy the products we do now, for the same essential price, and like magic, it works.

    You bought this idiotic magic wand story? Honestly, how stupid can you get and still exhale? At what point does a bullship story wake you up?

    Maybe you should look at the fine print of Fairtax, if you are too dense to spot the con already.

    http://fairtaxfineprint.blogspot.com/

    After you learn what an utter con Fairtax is, take a moment to reflect how much of a gullible fool you were about it. Then consider that you are too easily fooled, that you should learn more than sound bites and slogans, before you give insights to others.

    But you do write well. Nice bullets and use of paragraphs!

  3. Bart DePalma says:

    Michael:

    Nice analysis. I would add a rather important benefit – the massive reduction of tax compliance costs as compared to our Byzantine income tax system.

  4. Max aka Birdpilot says:

    Mark,

    Please quote the line in Michael’s article where HE states that prices would drop by the amount of the tax? I can’t seem to find it.

    Thanks

  5. mclever says:

    I think Michael’s article does a good job of laying the ground work for beginning a discussion about VAT/FairTax/National Sales Tax proposals. It’s evenhanded and fair. heh.

    Michael doesn’t endorse the FairTax. He cites it as one of the more thoroughly fleshed-out versions of the sales-tax approach. The fact that we can see many of the inherent logical flaws in the FairTax proposal shouldn’t be reasons to attack Michael, but rather they should be ammunition for the debate about how such a proposal can or cannot work and why.

    I could support a national sales tax on a limited basis, but not as a complete replacement for income tax. It could have good supplemental value, but even with “pre-bates” it won’t be sufficiently progressive.

    To answer Michael’s final question, I think progressivity and the ability to generate sufficient revenue with lower impact on the below-median workers are important. I have both economic and moral reasons for this view, so I’m unlikely to be swayed on this point. Therefore, I would be more in favor of a wealth-tax (or net-worth) approach than a sales-tax approach.

  6. Max aka Birdpilot says:

    Mark,

    Since you’ve delayed answering my earlier question, could you please justify your use of a blog rant, for lack of a better word, as a citation, instead of using the FairTax folks OWN site as to a refutation of Michael’s points?

    With no answer from you, we must assume you to be some hit-and-run troll, without merit or credibility.

  7. NotImpressed says:

    Very balanced article, presenting both the positives and negatives of this tax model.

    It seems to me that anything called “FairTax” would have been named by someone who knew it was inherently unfair. It’s like naming a bill “the Patriot Act”. People use these ad-slogan gimmick names to convince people that a thing is what it is not. Honest naming of a thing involves merely being descriptive, rather than manipulative.

    The “FairTax” is a national sales tax, nothing more or less. That makes it neither good nor bad. But Michael, as your previous article showed, it is not inherently more “fair” than some other form of tax. As a thinking being able to make my own judgments, I resent the designers of this tax trying to tell me what to think of it. That feels intentionally smarmy. One’s definition of “fair” depends on perspective.

    Despite that, this version of a national sales tax has some important and positive features. I just wish its designers hadn’t gone out of their way to seem like used car salesmen.

  8. Bart DePalma says:

    Mclever:

    The FAIR tax is not meant to be progressive. The prebate is a consumption tax version of the individual deduction, which is based upon the assumption that disposable rather than basic living income/consumption should be taxed. The money flow being taxed is taxed at a flat rate.

    IMHO, the FAIR tax meets my two criteria for an fair tax – broadly shared (which means we all share a lesser burden) and neutral in its impact on the economy (the government is not rewarding some, punishing others and thus distorting the markets).

  9. Max aka Birdpilot says:

    Oh but the “FairTax” IS NOT “neutral in its impact on the economy (the government is not rewarding some, punishing others“!

    If I make $10 million/year and I want to provide more for my family than just the necessities of food, clothing and decent shelter, I get punished!

    I get punished if I want to live in a $5 million house instead of a tract home.

    I get punished if I want to buy a 100′ Hargrave to putter around the Caribbean.

    I get punished if I want to buy that new Beech King Air to fly down to the coast and my new Hargrave.

    WHY should I NOT get to enjoy the fruits of my hard-earned $10 mill without the damned government getting their hands on that part that separates me from the masses?

    It’s just NOT FAIR!!!!!!!!!

  10. shortchain says:

    I see no mention of the effects on society of these taxes. It is a purely conservative theme that the health of a society can be measured by the economy. Economics is just one measure way to measure health — or perhaps you think that you can tell how healthy a person is by looking in their wallet?

    I notice that Bart says that a different tax would mean “we all share a lesser burden”. This is obviously false unless it assumes, without mentioning it, that the burden has somehow been reduced. Otherwise, all it means is that “my burden is less because I’ve convinced other people to carry it.”

    Not that this isn’t a valid means of comparing tax proposals — my own ideal proposal is one in which the burden of taxes is paid fairly and equally … by everybody else, leaving me to accumulate wealth in tax-less joy.

  11. Bartbuster says:

    IMHO, the FAIR tax meets my two criteria for an fair tax – broadly shared (which means we all share a lesser burden)

    Unless you’re poor. Then your burden is being increased.

    In fact, the only way our collective burden is increased is if government services are reduced, not if we change the methodology of how the taxes are collected.

    and neutral in its impact on the economy (the government is not rewarding some, punishing others and thus distorting the markets)

    Until the government starts removing the sales tax on things like clothes and food, which is almost certain to happen.

  12. Bartbuster says:

    I get punished if I want to live in a $5 million house instead of a tract home.

    I get punished if I want to buy a 100′ Hargrave to putter around the Caribbean.

    I get punished if I want to buy that new Beech King Air to fly down to the coast and my new Hargrave.

    You don’t get punished if you buy those things outside the US.

  13. Bartbuster says:

    If you think the fighting over the current tax system is bad, just imagine the fight over what is taxed in a national sales tax.

  14. Bart DePalma says:

    An appetizer rather than an entree

    The Daily Caller reports that the GOP is ready to offer legislation to cut $2.5 trillion over ten years. While cuts of any kind would be more than welcome, this proposal only cuts an average of $250 billion out of a deficit of $1.4 trillion. We need to go much, much further if we are to get off the road to Greek insolvency.

  15. Bart DePalma says:

    Max:

    All taxation is punishment. The equitable approach is to share it broadly.

    BB:

    The poor pay no net taxes currently. What little they pay in social insurance payroll taxes (which they get back as seniors) is more than offset by the EITC and various tax credits. Under the FAIR tax, things do not change much because of the prebate.

  16. Bart DePalma says:

    shortchain says: I notice that Bart says that a different tax would mean “we all share a lesser burden”. This is obviously false unless it assumes, without mentioning it, that the burden has somehow been reduced. Otherwise, all it means is that “my burden is less because I’ve convinced other people to carry it.”

    Income tax evasion is rampant. Under a FAIR tax we all share a lesser burden because there is no easy escape from a consumption tax and all the current free riders will now assume their fair share.

  17. Bartbuster says:

    The poor pay no net taxes currently. What little they pay in social insurance payroll taxes (which they get back as seniors) is more than offset by the EITC and various tax credits. Under the FAIR tax, things do not change much because of the prebate.

    Not sure of your point. If you were trying to dispute my statement that a national sales tax increases the tax burden on the poor, you did a pretty crappy job.

  18. Bartbuster says:

    Income tax evasion is rampant.

    Yeah, I’m sure that problem will disappear with a federal sales tax.

  19. Bart DePalma says:

    BB:

    Income tax evasion will disappear if the income tax is eliminated, which is a prerequisite in the FAIR tax proposal.

  20. Bart DePalma says:

    BB:

    The poor by definition can only pay for basic living expenses. These are covered with the prebate. The actual poor will pay no net FAIR tax.

  21. Bartbuster says:

    Let’s assume that somehow a sales tax is set up to avoid putting a higher burden on the poor. That leaves the same pool of people paying for the same overall tax bill. Meanwhile, the wealthy will start buying their houses, boats, and planes outside the country. Guess who picks up the slack?

  22. Bartbuster says:

    Income tax evasion will disappear if the income tax is eliminated, which is a prerequisite in the FAIR tax proposal.

    Income tax evasion will be replaced by sales tax evasion, you dimwit.

  23. Max aka Birdpilot says:

    BIG Number One!

    STOP with calling it a “Fair” tax. That’s just salesmanship and PR.

    Call it what it is: a national sales tax.

    barted: “Max:
    All taxation is punishment.

    No, Bart, you pedantic ideological ass, it is NOT. It is the payment for goods and services provided by the government, as provided by legislation enacted by representatives of We the People.

    You just can’t help falling back into your own steaming pile of bullshit, can you?

    Are you even CAPABLE of carrying on a reasonable discussion without doing so? So far, the evidence incriminates you as INCAPABLE.

  24. Max aka Birdpilot says:

    Question for you, Bart:

    If the government ONLY provided for the national defense, post offices and roads, etc., etc., to the limited extent of YOUR OWN explicit reading of the Constitution, would taxation then be “punishment?

  25. Bartbuster says:

    Anyone who thinks that a national sales tax would reduce tax evasion is delusional. If anything, it would get worse, which a simple example will show…

    Company X has 1000 employees who produce 1,000,000 widgets per year. Right now the government only has to track about 12,000 paychecks each year for that company. If we switch to a national sales tax the government has to track all 1,000,000 widgets. Not to mention that company X now has incentive to “lose” those widgets to the black market.

  26. Bart DePalma says:

    Max:

    When I said all taxation is punishment, I meant all. The Supreme Court once similarly observed that all taxation is destructive.

    Government is a necessary evil at best and tyrannical threat to personal freedom at worst.

    If the People limit government to providing widely shared public goods and pay for these with widely shared taxes, then the destructive nature of taxes can me mostly or completely offset with public goods.

    The destructive nature of taxes are maximized when a minority is taxed to provide goods targeted toward an electoral majority.

  27. Bartbuster says:

    Blankshot, which is more destructive, progressive taxes or periodic revolutions where the serfs kill all the wealthy and take their land and property?

  28. shortchain says:

    Sales tax cheating is rampant already, so I see no reason to suppose that, if the burden of taxes is moved to a national sales tax, this would go away. Unless, of course, a massive federal police force were created to enforce, monitor, and collect this sales tax. They could probably hire the current staff of the IRS…

    Bart’s arguments for the national sales tax is simply wishful thinking. Anybody got something that actually accounts for the socio-economic impact?

  29. shortchain says:

    The canard that “all taxes are destructive” is easily and trivially destroyed: are taxes collected to support the military destructive to defense companies? I think Boeing and Lockheed-Martin might have an opinion about that.

    Apparently, what Bart really means is that “all taxes are destructive to those taxed.” Therefore, his reasoning goes, we must make sure to destroy the poor so as to prevent harm to the wealthy.

  30. NotImpressed says:

    DePalma
    “The destructive nature of taxes are maximized when a minority is taxed to provide goods targeted toward an electoral majority.”

    But a democracy has to follow the will of the majority. Or else it is tyranny. Right? So if a majority of people want the wealthy elites to pay for the services enjoyed by the majority, then a democratic government MUST do this. Or else it is tyranny. According to DePalma.

    Taxes are not “punishment.” Taxes are how the MAJORITY decides to pay for the services it wants. To NOT follow the will of the majority is TYRANNY. According to DePalma.

  31. GROG,

    Another benefit to a national sales tax replacing the income tax would be that it would practically dismantle the IRS which costs about $10 billion per year to operate.

    Indeed, though it’s unclear how much the replacement agency would cost. I think it would be less, but really there’s not enough data out there to confirm that.

  32. Bart DePalma says:

    shortchain says: The canard that “all taxes are destructive” is easily and trivially destroyed: are taxes collected to support the military destructive to defense companies?

    All military spending in excess of what is required to protect our economy is destructive to the economy because military spending does not create wealth in the form of goods and services which can be used by the citizenry. See the Soviet Union.

    In general, when you tax the economy and do not use that money to provide goods and services to the broad citizenry will use, the taxation is destructive of the economy.

    This is pretty basic economics.

    Both Keynes and Laffler would agree with this.

  33. Mark,
    I must confess I’m confused about your vitriolic attack. I said nothing about the claims of the people behind FairTax because any such claims are silly. Sure, I could have spent the entire article explaining how their claims of lower prices, and lower tax rates, and all that other stuff are unfounded. But the point was not to argue against the points made by the proponents.

    The point of the article was to discuss the architecture. All of the rest depends on what tax rates are set, and how they are applied and collected. There’s waaaay too much room for variability in that area to bother discussing it.

    By the way, I hardly consider myself to be an expert on taxes. My areas of expertise are more in systems analysis, and to a lesser degree economics. To the extent that taxation falls under those two umbrellas, I’m pretty comfortable. Anyway, my goal isn’t to sell the FairTax (I’m always suspicious when people come up with marketing names like that anyway). My goal is to spark discussion.

  34. Bart DePalma says:

    NI:

    Apart from the inequity, if you abuse the tax system to take from Peter to give to the Government’s preferred Paul, Peter will reasonably seek to evade the confiscatory taxes which are more than his share and from which he derives no benefit in public goods.

    When the tax is on the creation of wealth, Peter can evade taxes in two ways – stop creating wealth and/or by declining to self report the income. In the former case, the economy suffers from the creation of less wealth and fewer jobs. In both cases, the government is out of tax revenues and can pay for fewer public services.

  35. Bartbuster says:

    Indeed, though it’s unclear how much the replacement agency would cost. I think it would be less, but really there’s not enough data out there to confirm that.

    Most likely it would cost much more. Instead of tracking relatively few paycheck transactions (for most people) per year, it would have to track virtually every sales transaction. It would also have to make sure all those widgets don’t disappear into the black market. How is that possibly going to cost less than the IRS?

  36. NotImpressed says:

    Mr. DePalma

    Thank you for tapdancing around my comment. By your definitions, not following the Will of the People is TYRANNY. If The People want to take from Peter to pay Paul, then it is TYRANNY to not do that. Period. End of discussion. According to your definitions.

    You are advocating TYRANNY. You are giving your reasons for advocating TYRANNY, but, according to your definitions, you are advocating TYRANNY.

    Actually, what you are doing is (very properly) throwing aside your previous nonsense about TYRANNY. Because your definitions and arguments involving TYRANNY are, in fact, nonsense. Instead, you are making an argument about the practical effect of a given suggested policy. Your new argument is equally nonsensical. But I am glad you have thrown away your previous BS about TYRANNY.

    In the future, whenever you argue that the will of the majority must be imposed upon the nation regardless of its practical effects, I will remind you that you have, here in this thread, argued in favor of TYRANNY (by your definitions).

  37. Max aka Birdpilot says:

    barted: “When I said all taxation is punishment, I meant all. The Supreme Court once similarly observed that all taxation is destructive.

    Government is a necessary evil at best and tyrannical threat to personal freedom at worst.

    There is the evidence. Bart is neither conservative nor libertarian. By his own words, Bart is an anarchist. Perhaps even to the point of misanthropic.

    Bart, as you consider the social interaction that IS government a necessary evil, may I suggest that you give up your law practice, and with the proceeds and those of your book sales, buy yourself a small island, declare yourself an independent nation, and live out your days in peaceful solitude, away from the “necessary evil” of other people and the “tyrannical threat” of social interaction.

    What a maroon!” – Bugs Bunny

  38. Max aka Birdpilot says:

    I mean Bart even places himself in higher authority above Christ!

    When questioned as to whether it was lawful for Jews to pay taxes to Rome, Jesus answered, NOT that taxes were “evil” or a “punishment”, on the subject of which one would expect Him to be an authority, but with th “Render unto Caesar . . .” quote from Matthew 22:21.

  39. BB,

    Anyone who thinks that a national sales tax would reduce tax evasion is delusional.

    It’s hard to say whether it would or not. The incentives and disincentives for evasion differ from that of income taxes.

  40. shortchain says:

    Bart says “All military spending in excess of what is required to protect our economy is destructive to the economy”.

    Absolutely untrue, as spin-offs from military technology abound, not the least of which is this here internet thingy you use a lot.

    But, even granting that it were true, there is no magical touchstone which allows anybody — and this emphatically includes you, Bart — to determine how much spending is necessary and how much is not on any given issue.

    It is also not given to anyone to determine how much is fair and how much is not when it comes to taxes. We’ll just have to vote, and then let our elected representatives implement the “will of the people” as they see fit.

    Of course, they’ll probably want to spend their time in meaningless theatrics like the “repeal”, as we’ve just seen, rather than tackle the hard problems like who should pay more or less taxes.

  41. Bartbuster says:

    It’s hard to say whether it would or not. The incentives and disincentives for evasion differ from that of income taxes.

    The incentive for avoiding taxes is always the same. The person doing the avoiding ends up with more money. The only difference is how the avoiding would be done. If the government has to track more taxable transactions, it only makes sense that tracking those transactions is going to be more expensive for the government.

  42. Max aka Birdpilot says:

    Bart may well want to remember the admonishment of Paul in Romans 13.

    Bart, claiming Christian beliefs as his opposition to abortion as defined in this country, SHOULD be expected to follow everything the Good Book teaches.

    Unless y’all think Bart is as selective in his Biblical acceptance as he is in his readings of the US Constitution.

  43. Brian says:

    I’m not entirely sure what you mean by the Bill of Rights violations. Taxation is not my area of expertise, hollow metallic nanoshapes are. As I understand it, everyone is taxed the same for certain income figures. That is, everyone is taxed the same for the first $20k they make, then the next $40k is taxed at a higher rate, etc. Could someone please explain this to me if I’m wrong? Thanks.

  44. BB,

    Instead of tracking relatively few paycheck transactions (for most people) per year, it would have to track virtually every sales transaction. It would also have to make sure all those widgets don’t disappear into the black market. How is that possibly going to cost less than the IRS?

    Part of what makes cheating less likely is separation of the beneficiary of the cheating from the responsible party. For example, your employer has little incentive to misrepresent your salary and thus your taxes due, particularly relative to the potential cost if your employer gets caught. Similarly, when you buy goods at a store, the store staff has little incentive to fail to collect the taxes, since the taxes are owed by the buyer, not the seller.

    Much of the sales tax cheating that occurs today has to do with avoiding state sales taxes by buying across state lines. This approach would have to shift to buying across national lines in order to avoid a national sales tax.

    It would be worth comparing Washington state’s tax enforcement costs to that of Oregon, since the former has no income tax, and the latter no sales tax.

  45. BB,

    The incentive for avoiding taxes is always the same.

    Yes, the qualitative incentive is always the same. The quantitative incentive differs.

    If the government has to track more taxable transactions, it only makes sense that tracking those transactions is going to be more expensive for the government.

    This is only true if both the base system and per-transaction costs of each model are the same. We do not have enough information available to ascertain that they are.

  46. Bart DePalma says:

    NotImpressed says: Thank you for tapdancing around my comment. By your definitions, not following the Will of the People is TYRANNY. If The People want to take from Peter to pay Paul, then it is TYRANNY to not do that. Period. End of discussion. According to your definitions.

    Cute. Our Republic is designed to have a government of the people and then to limi that government so a tyranny of the majority cannot infringe on the rights of a minority. One of those rights is equal protection under the law. Unfortunately, the courts have seen fit not to apply equal protection to the tax code.

    Beyond the much needed civics lesson, the empirical fact that taxation is destructive to the economy does not change regardless of whether the tax is enacted tyrannically or fairly.

    BDL “When I said all taxation is punishment, I meant all. The Supreme Court once similarly observed that all taxation is destructive. Government is a necessary evil at best and tyrannical threat to personal freedom at worst.”

    Max: There is the evidence. Bart is neither conservative nor libertarian. By his own words, Bart is an anarchist. Perhaps even to the point of misanthropic.

    In that case, I am in good company with the Founders and nearly every credible economist.

    BD: “All military spending in excess of what is required to protect our economy is destructive to the economy”.

    Absolutely untrue, as spin-offs from military technology abound, not the least of which is this here internet thingy you use a lot.

    :::rolls eyes:::

    You forgot Army Navy surplus stores. The internet as we know it today is a product of a very rare nearly free private economy developing a military idea.

  47. Bartbuster says:

    Michael, I’m not talking about petty theft, I’m talking about the HUGE incentive a national sales tax would give companies to dump their products into a tax-free black market. Right now only the taxpayer has incentive to cheat, but that is more difficult to do when their employer has no incentive to help them. A national tax gives producers incentive to cheat, and consumers incentive to help them cheat.

  48. Number Seven says:

    Interesting article but the fair tax is anything but. I always find this link helpful when trying to out why.

  49. Brian,

    I’m not entirely sure what you mean by the Bill of Rights violations.

    Of greatest significance to me is the Fifth Amendment. We are compelled under income tax law to confess to any crimes committed that result in income.

    In addition, the government is not subject to following due process of law in taking of property as part of income tax collection. In everything else, the government must prove guilt in order to confiscate property. In income tax law, the property is confiscated first, and it is the citizen who must prove innocense.

  50. Max aka Birdpilot says:

    Bart, as your only rebuttal is a self proclamation, you have lost and I need spend no further time with you.

    I think I’m going off to play Angry Birds. I can actually accomplish more than arguing with an ideological bird brain.

  51. BB,

    I’m talking about the HUGE incentive a national sales tax would give companies to dump their products into a tax-free black market.

    Which would be true if the companies were the ones charged the tax. But they’re not; the consumers are.

  52. #7,
    Let’s be clear about the difference between the specific proposal (the rates and amounts), and the general notion of a sales or value-added tax.

    Yes, the specific proposal is more regressive than it could be, and, yes, the rates quoted in the specific proposal are deceptive. But you shouldn’t allow those specifics to get in the way of the potential benefit of replacing an income tax with a sales tax.

    For example, what if we could have tax rates and rebates set in such a fashion as to produce a high degree of progressivity? Would it still be a bad thing?

  53. Bartbuster says:

    Which would be true if the companies were the ones charged the tax. But they’re not; the consumers are.

    They have incentive because their product is cheaper if it is not taxed.

    Cheaper product = higher demand = more sales = more profit

    A national sales tax would be a disaster.

  54. dcpetterson says:

    Michael:
    Which would be true if the companies were the ones charged the tax. But they’re not; the consumers are.

    However, if the producers sell on the black market, the cost to consumers is less (they do not have the added tax). Therefore, the producers can reasonably expect to increase sales, and thus also to increase income.

    This could be countered with better reporting of production vs (legal) sales, but again, this increases the costs of regulation.

  55. dcpetterson says:

    BB, I guess we caught the same idea there .. 🙂

  56. BB,

    They have incentive because their product is cheaper if it is not taxed.

    And this is why the rate needs to be under 10%. Above that level, that incentive is great enough to create significant evasion. At the mid-single-digit levels, not so much.

    And this is why I prefer a VAT to a NST.

  57. Bartbuster says:

    BB, I guess we caught the same idea there

    I’m sure we’re not alone. It’s a pretty obvious flaw.

  58. Bartbuster says:

    And this is why the rate needs to be under 10%. Above that level, that incentive is great enough to create significant evasion. At the mid-single-digit levels, not so much.

    Based on what? If you’re selling enough of a product a difference of 1% can be enough to cheat.

  59. BB,

    Based on what? If you’re selling enough of a product a difference of 1% can be enough to cheat.

    All tax evasion comes with risks. If the risks are greater than the rewards, you’re not going to bother. The studies that have been done recently suggest that single-digit tax rates don’t provide enough incentive, relative to the risks, for significant amounts of evasion.

  60. Bartbuster says:

    And this is why I prefer a VAT to a NST.

    A VAT increases the number of taxable transactions, which means it increases the cost to the government to monitor it.

  61. shortchain says:

    Bart,

    Rolling your eyes is not an effective argument, even in person.

    Only one example (and there are others!) is necessary to disprove a claim of “never”.

  62. Bartbuster says:

    All tax evasion comes with risks. If the risks are greater than the rewards, you’re not going to bother. The studies that have been done recently suggest that single-digit tax rates don’t provide enough incentive, relative to the risks, for significant amounts of evasion.

    Were these studies based on individual consumers paying 9% tax on a pack of gum, or were they based on the increased demand (and profits) that a 9% nationwide discount would create? Because I can pretty much guarantee that a 9% nationwide discount is going to generate some pretty significant cheating.

  63. BB,

    A VAT increases the number of taxable transactions, which means it increases the cost to the government to monitor it.

    Compared to fewer transactions of the same type, that’s true. So if we’re comparing the implementation cost of a VAT to a NST, the implementation cost is higher. Is that increase in cost greater than the amount lost due to the greater amount of evasion of a higher rate at the NST level? My gut says no, but I’m open to evidence to the contrary.

    Compared to the fewer transactions but increased complexity in income tax? I strongly disagree there. One issue with income tax is that the rules are so complex that it becomes easy to evade taxes by burying the evasion in the nooks and crannies of the law. Most of the income tax evasion occurs from a combination of not reporting off-the-books income, and the padding that occurs in the margins of the complex zones. Simplification makes it harder to do the latter, and separation of duties reduces the former.

    In no way to I mean to suggest that evasion can be eliminated. But careful application of policies and procedures can reduce it significantly.

  64. mclever says:

    Michael,

    I see two problems with the NST idea:

    1) I find it incredibly dubious that a rate below 10% would provide sufficient funding for our government.

    2) I can’t see any way to structure the pre-bate/rebate approach to maintain appropriate progressivity in the tax structure. If it’s just based on dollars spent, then it will disproportionately favor the upper-middle earners and especially the wealthy who spend a far smaller percentage of their earnings as compared to lower-wage workers. Ideally, the progressive structure would scale with the person’s net worth, so how do we get those prebates/rebates without a similar level of income/wealth reporting (and evasions) that we already have with the IRS.

  65. mclever says:

    Michael,

    The fact that income tax evasion is readily possible due to the complexities of our current income tax code mostly argues for simplification of the income tax code, rather than stripping it out completely and replacing it with a NST or VAT.

  66. BB,

    I can pretty much guarantee that a 9% nationwide discount is going to generate some pretty significant cheating.

    Depends on your definition of “significant,” I suppose. Today, with income taxes, much of the incentive to evade the taxes comes not from the taxes themselves, but rather the nature of the income being taxed. That is, income that comes from selling drugs, or working as an illegal immigrant, doesn’t show up on the income tax radar. But the goods that drug dealers and illegal immigrants buy are on the sales tax radar.

    Ultimately, the question we should be asking with respect to tax evasion is not whether or not there will be evasion, but rather whether the evasion of the proposed model is less than that of the alternatives. The answer to that question takes as inputs the incentive to evade, the ease of being caught, and the penalties associated with being caught.

  67. Brian says:

    Michael,

    Thank you for your response. I understand what you mean. I’ll raise this issue with my mother, who has worked for the IRS for 25 years as a tax examiner to see what she has to say about it.

  68. Bartbuster says:

    Compared to the fewer transactions but increased complexity in income tax? I strongly disagree there. One issue with income tax is that the rules are so complex that it becomes easy to evade taxes by burying the evasion in the nooks and crannies of the law.

    Fine, make the rules less complex. But, even if we left the system as is, it would still be better than a system where everyone has incentive to cheat. A national sales tax would be an epic disaster.

  69. Bartbuster says:

    Depends on your definition of “significant,” I suppose. Today, with income taxes, much of the incentive to evade the taxes comes not from the taxes themselves, but rather the nature of the income being taxed. That is, income that comes from selling drugs, or working as an illegal immigrant, doesn’t show up on the income tax radar. But the goods that drug dealers and illegal immigrants buy are on the sales tax radar.

    No offense, but blowing up our tax system to squeeze more tax money out of drug dealers and illegals is absurd.

  70. mclever,

    I find it incredibly dubious that a [NST] rate below 10% would provide sufficient funding for our government.

    Me, too. A VAT below 10% might work, though.

    I can’t see any way to structure the pre-bate/rebate approach to maintain appropriate progressivity in the tax structure.

    It would have to take into account the different things that the wealthy buy, compared to the poor. That would require different rates for different goods, or something of the sort. Perhaps a progressive rate, based on the amount a particular good costs.

    The fact that income tax evasion is readily possible due to the complexities of our current income tax code mostly argues for simplification of the income tax code, rather than stripping it out completely and replacing it with a NST or VAT.

    If that were the only type of evasion, I’d agree. But simplification does nothing to capture the underground economy.

  71. Bartbuster says:

    To summarize, a national sales tax gives producers incentive to cheat, gives consumers incentive to help them cheat, increases incentive for smuggling, and gives everyone incentive to buy luxury items outside the country. It isn’t a bad idea, it’s an appallingly bad idea.

  72. BB,

    No offense, but blowing up our tax system to squeeze more tax money out of drug dealers and illegals is absurd.

    Somewhere in the neighborhood of $2T per year is not being taxed, and you think fixing that is absurd?

  73. Bartbuster says:

    Somewhere in the neighborhood of $2T per year is not being taxed, and you think fixing that is absurd?

    Given all the downsides, absofrigginlutely. $2T is a drop in the bucket compared to the mess you would create.

  74. BB,

    To summarize, a national sales tax gives producers incentive to cheat, gives consumers incentive to help them cheat, increases incentive for smuggling, and gives everyone incentive to buy luxury items outside the country.

    Conversely, a national income tax gives employers incentive to cheat (hiring off the books), gives employees incentive to help them cheat, increases incentive to hire illegals, and gives everyone incentive to offshore their accumulated wealth in order to keep untaxed earnings generated from them.

    It isn’t a bad idea, it’s an appallingly bad idea.

    In the end, we have to choose which appallingly bad idea we want.

  75. mclever says:

    Considering that the wealthy are the ones most readily able to skip outside the country to buy whatever they might want or need, it seems likely to me that they’ll be the ones who dodge the most taxes under a NST or VAT.

    So, make it easier for the wealthy to skip out of paying taxes entirely, make it so much more burdensome on the lower and middle classes, that there need to be hefty “prebates” paid monthly to keep those consumers afloat. (And what about the poor people who are certainly entitled to the prebate, but are homeless or otherwise outside the system and therefore unable to receive it?) Make everything cost more for everyone, so that a handful of drug dealers and babysitters can’t skip paying taxes for services or goods provided outside the standard market.

    Seems the drugs and babysitting will still likely avoid the NST, but now you’ll get the babysitter when she buys her bubblegum and the drug dealer when he buys his new caddy, unless he buys it used…

    Still not selling me on the NST/VAT approach yet.

  76. Bartbuster says:

    In the end, we have to choose which appallingly bad idea we want.

    I’ll stick with the appallingly bad system that made us the #1 economic force in the world.

  77. Bartbuster says:

    increases incentive to hire illegals

    Actually, the fact they work for dirt cheap wages is the more significant factor there.

    gives everyone incentive to offshore their accumulated wealth in order to keep untaxed earnings generated from them

    At least the current system taxes that wealth before it leaves the country. We get nothing from them in your system.

  78. BB,

    I’ll stick with the appallingly bad system that made us the #1 economic force in the world.

    Correlation does not equal causation. You should know that by now.

  79. mclever,

    Considering that the wealthy are the ones most readily able to skip outside the country to buy whatever they might want or need, it seems likely to me that they’ll be the ones who dodge the most taxes under a NST or VAT.

    For valuable, easily concealable items, perhaps. The amount of tax savings would need to exceed the cost of the trip (assuming that they were traveling just to go shopping), plus the risk associated with being caught.

    And what about the poor people who are certainly entitled to the prebate, but are homeless or otherwise outside the system and therefore unable to receive it?

    That’s actually pretty easy to solve. It’s been done for homeless people to collect vouchers and other forms of subsistence payments.

    Seems the drugs and babysitting will still likely avoid the NST

    Yes. As I mentioned in the article, services are the easiest place to evade the taxes.

    but now you’ll get the babysitter when she buys her bubblegum and the drug dealer when he buys his new caddy

    Exactly.

    unless he buys it used

    Yeah, I’m not thrilled about the secondhand exemption for that reason.

  80. BB,

    We get nothing from them in your system.

    It’s not “my system.” It’s one proposal that I’m suggesting we seriously examine in order to understand how it compares to the others.

    I just don’t want everyone rejecting it out of hand without a deeper examination.

  81. Bartbuster says:

    Correlation does not equal causation. You should know that by now.

    It seems extremely unlikely that we would get to where we are now with an appallingly bad tax system.

  82. Bartbuster says:

    I just don’t want everyone rejecting it out of hand without a deeper examination.

    I’m not. I’m rejecting it because it appears to have some serious flaws.

  83. Bartbuster says:

    By the way, I suspect that most drug dealers, prostitutes, illegals, and under the table employees are from the lower economic range. Is that the group we really want to start squeezing for more tax income? If we want to get more tax money from poor people, how about if we just start a national Keno lottery game? At least then they have a chance to get some return for their taxes.

  84. Pete G says:

    There are many ways to think about taxes. Of the choices posted here, I thinks “payment for services” is closer to the mark than whoever called taxes “punishment.”

    This is the way I think about taxes, from my discussion of the 4 main components of any economy at http://fairsharetaxes.org: Production (work), Consumption, Private investment and Public investment:

    “Examples of public investment are road building, education of children, basic science research, national defense and insuring that the disabled and elderly do not live in poverty. As in private investment, there is the bundling of money from many for large endeavors, but in public investment, the payoff is usually diffuse, going to individuals and businesses throughout society and/or the payoff is expected far off in the future. Because private investors cannot capture the profit from such endeavors, they are unwilling to make these investments. Therefore, governments (and to a much smaller extent non-profit organizations) carry out public investment. We have empowered our governments to fund such endeavors by requiring payments from its citizens in the form of taxes.”

    On the other hand, taxes can also pay an important roll to discourage behaviors that are damaging to society (call it punishment) by raising the price of these activities. Examples are taxes on cigarettes or fossil fuels. Another way to look at and justify those excise taxes is: They correct distorted market forces by increasing the cost of those endeavors so they better reflect the true cost to society/government (eg medical costs, pollution, global warming, flooded coastlines, defense of oil tanker shipping lanes…) I think the use of excise taxes, should be limited (to say less than 10% of tax revenue), because such taxes (especially for non-discretionary items like heating oil) are, like almost any consumption tax, regressive (on income and networth, the two true measures of ability to pay and household history of profiting from government-provided economic infrastructure). Also it is tricky (but I think occasionally justified) to tinker with market forces.

    Wow sorry long post. I’ve spent too much time thinking about all this. Once I start, it takes me a while to run down.

  85. dcpetterson says:

    One way to partially account for foreign purchases is to have import duties that are at least equal to the amount of a VAT or NST. (Note: I don’t particularly like the idea of consumption taxes, but if we’re going to consider one, we should think about addressing the loopholes.) This wouldn’t help with goods purchased outside of the country that are also kept outside of the country. But it certainly would help with big-ticket items (like cars, or anything else you have to declare when you go through customs) that are specifically purchased from foreign sources for the purposes of attempting to avoid a VAT or NST.

  86. Bartbuster says:

    One way to partially account for foreign purchases is to have import duties that are at least equal to the amount of a VAT or NST

    Do I have to pay an import duty on my “used” BMW? How about my “used” J-Boat?

  87. dcpetterson says:

    @Bartbuster
    Do I have to pay an import duty on my “used” BMW? How about my “used” J-Boat?

    Depends on how the import duty is structured. I would say yes, you have to pay the import duty if you import it, whether it is used or not. If the vehicle was already here, then whoever imported it originally already paid the tax.

    The idea of not imposing a VAT or NST on used items is that the reporting requirements would be very difficult, so it would be a difficult tax to enforce. But if you’re having an import duty of any kind, you need to have a system in place for examining imports. Catching used items moving through customs isn’t much more difficult than catching new items, so the increased difficulty in assessing the duty on used vs new isn’t there.

    By the way, as I said already, I don’t particularly like the idea of an NST or VAT. But I think something like this would help close one of the loopholes, if we have to have a tax of this kind.

  88. Mr. Universe says:

    It would be worth comparing Washington state’s tax enforcement costs to that of Oregon, since the former has no income tax, and the latter no sales tax.

    There are several people in Washington who do all their shopping on the other side of the Columbia River specifically to take advantage of that scenario.

    The problem with having only an income tax is when the economy tanks and unemployment is high (as it is now). Oregon has no choice but to cut services which in turn leads to higher unemployment, which leads to less income, etc. But Oregonians are a stubborn lot. Any politician pushing a sales tax would have a very short career.

    Alternately, we do attract a lot of business here because of the lack of a sales tax but our economy, by and large, is not one of the more robust in the nation.

  89. Bartbuster says:

    If I’m going to pay an import tax on my “used” boat/car/plane, then I’ll just keep it at my vacation chalet in Mexico/Canada.

  90. mclever says:

    Pete G,

    We like long posts ’round here, especially if they are well-considered and thoughtful…

    🙂

  91. Mark says:

    I quote from the Fairtax book (Fairtax the Truth — Answering the Critics) and from Fairtax spokesman, and their books and web sites.

    The main point is, Fairtax pretends — in their fine print — to get about a trillion dollars a year from this tax on city and state governments.

    They mention this massive tax in ONE sentence. ONE. Now, forget for a minute if that’s even possible — who on earth puts their biggest source of revenue, in ONE sentence?

    Do you folks realize you are being conned by pure BSers? They may as well pretend to tax moonbeams and baby burps. They have exactly the same chance of collecting a trillion dollars from a tax on moonbeams, as they do by taxing city and states.

    Do you think city and states are going to just go “oh, okay, we will pay the federal government massive taxes”? No. they wont.

    And city and states will certainly not say “Oh, you mentioned that in one sentence, ohkay, here is your trillion dollars”.

    I got news for you gullible souls — Fairtax leaders know their own plan is BS. They don’t believe their own plan.

    Have you seen their “Calculator”? Have you? The “DARE TO COMPARE CALCULATOR”?

    Go see this absurdity. If you can’t tell their “plan” is absurd by this pretend and hidden trillion dollar tax, I don’t know how anyone would wake you up. But go see the Calculator.

    Not a SINGLE question about your spending which would be taxed. NOT ONE. Hello!!! They call it “DARE TO COMPARE” and then run as fast as they can from comparison. Not ONE question about your taxable spending ! Not one question about your rent, your food expense, how much you pay for utlities or medical cost, nothing about whether you plan on buying a new car or house.

    Nothing, in short, that will tell youwhat your lunatic Fairtax is! Yet they call this the “DARE TO COMPARE” calculator.

    You have been conned by BSers. Fairtax sounds great, and if they could tax all cancer patients, all renters, all cities, all states, if they could tax the pentagon and medicare, if they could tax all that, yeah, their plan would work,

    But they can’t tax city and states. They can’t tax all renters, or tax the pentagon, or tax medicare, etc.

    When you figure out you have been conned, don’t get mad at me. I just woke you up.

    Go read their fine print. Then ask yourself — why did they hide a trillion dollars in taxes in ONE sentence? Why is their calculator insane?

    You will figure it, eventually

  92. mclever says:

    Mark,

    Please explain who you mean by “you folks”? Because I don’t see anyone here (except maybe Bart) advocating for the FairTax proposal as outlined on their website.

    Thanks.

  93. dcpetterson says:

    mclever — perhaps we’re not condemning it enough. We’re all praising it with faint damns.

  94. BB,

    It seems extremely unlikely that we would get to where we are now with an appallingly bad tax system.

    Why? The only way it would have kept us from getting where we are now is if it were appallingly bad for the economy. I never meant to imply that it was. It has plenty of other things to dislike.

    I’m reminded of Winston Churchill:

    It has been said that democracy is the worst form of government except all the others that have been tried.

    My intent here was never to suggest that a consumption tax is the perfect solution. Rather, I’m pointing out that it addresses some of the issues that the income tax has. I tried hard to be clear that there are issues with consumption taxes as well.

    My hope was that two topics would drive the discussion.

    First, that of priorities. I’m surprised that this group of mostly liberal people is so cavalier about the violations of the Bill of Rights resulting from the income tax. Are you all so willing to throw away those important protections from government? Does it not bother you that tax law can be used, much like the PATRIOT Act, as a weapon against political enemies?

    Second, can we collectively develop some mechanism that would mitigate the issues pertaining to progressivity and evasion?

    Am I the only one here who considers those to be topics worthy of discussion?

  95. Mr. Universe says:

    @Mark

    Relax, man. I don’t think we have anyone expressly advocating what Michael wrote about. We’re just talking. Feel free to keep talking about why you oppose it though. Links and references are helpful, too.

  96. dcpetterson says:

    Michael,

    I personally feel those points you make are important ones.

    I think we’ve been conditioned to consider taxes (and nearly every other aspect of government) mostly in terms of dollars. There are a great number of other issues — social issues, legal issues, Constitutional issues, and others — which should also be considered.

    I think you’re right, that the level of reporting that must go along with an income tax (or a wealth tax) is enormous and invasive. A consumption tax rectifies some of that, but raises issues with regressivity. It is easier to see routes toward making an income tax or wealth tax progressive. I think most liberal probably weigh the progressiveness of an income tax as being more important than the invasiveness of the reporting.

    This is particularly so because there are laws limiting the misuse of IRS data. It occasionally happens anyway. I’m not sure if it is good or bad that the only things they cold pin on Al Capone and Spiro Agnew were income tax evasions.

  97. Bartbuster says:

    The only way it would have kept us from getting where we are now is if it were appallingly bad for the economy.

    If the current system isn’t bad for the economy, and this new system looks like an unworkable disaster, please explain why this is something to be taken seriously?

  98. Mr. Universe says:

    If we want to get more tax money from poor people, how about if we just start a national Keno lottery game? At least then they have a chance to get some return for their taxes.

    While I think this statement was made tongue-in-cheek, many more states than ever rely on this type of income. My colleagues and I refer to this as an ‘idiot tax’. I am opposed to this type of income generator because it:

    1. encourages people to waste money they may not necessarily have,
    2. takes advantage of people who have an unreasonable view of their actual odds
    3. fosters societal habits that have ancillary consequences (gambling addiction and subsequent crime to deal with it).

    I get particularly irritated when the Lottery folks take some of that money and make commercials telling me what great things that money funds like education and other public services.

    I understand the argument that gambling is no different than any other form of entertainment. I’m pretty good at Texas Hold ’em and can generally liberate some tourist money when I’m in places where that’s allowed. But to rely too heavily on it as an excise tax strikes me as wrong.

  99. I’m not sure if it is good or bad that the only things they cold pin on Al Capone and Spiro Agnew were income tax evasions.

    See, I am sure. It’s bad.

    It’s bad in the way that it was bad to convict the LAPD officers of “civil rights violations” when they managed to get acquitted for beating Rodney King. Do I think they were guilty? Yes, but we have protections against double jeopardy for a reason, and chipping away at it in the interests of “yeah, but we didn’t get the results we wanted in the courtroom” is not that far removed from “Second Amendment Remedies” being the solution to “yeah, but we didn’t get the results we wanted at the ballot box.”

    It’s bad in the way that it was bad to hold O. J. Simpson liable for deaths of which he was acquitted. I’m pretty sure he was guilty, too, but I’m not willing to trade our protections, which were placed there with very good reason, just to address a single court case.

    When we exchange our core principles for one-shot “wins,” we all lose.

  100. BB,

    If the current system isn’t bad for the economy, and this new system looks like an unworkable disaster, please explain why this is something to be taken seriously?

    Because the current system is bad for other things, and I’d like to think that a handful of smart people would be able to find solutions to address the more troubling facets of a consumption tax.

    Hmmm…consumption tax…maybe a tax on tuberculosis? Nevermind…

  101. Bartbuster says:

    See, I am sure. It’s bad.

    You are seriously delusional if you think this plan is going to end, or even decrease, tax evasion.

  102. If we want to get more tax money from poor people, how about if we just start a national Keno lottery game?

    I’m not interested in getting “more tax money from poor people.” But I am interested in finding ways to ensure that everyone pays the taxes that they rightfully owe. Whether that’s a 13-year-old babysitter or a 53-year-old CEO, we all have obligations as members of society to pay our taxes.

    I filed my first 1040 at the age of 14. Could I have gotten away with not filing, and not paying anything? Sure, but it was my civic duty to file and pay. And I did.

  103. Bartbuster says:

    Because the current system is bad for other things

    So we ignore the fact that your system looks like a disaster?

  104. Max aka Birdpilot says:

    Well, why don’t we do a thought experiment.

    Start from scratch, square one. You don’t have ANY previous examples of taxation. You’ve got got to raise about 20% of GDP to pay for the goods and services We the People collectively want the government to provide.

    Starting from Square One, how would YOU do it?

    (I’ll wait till a few others rise to the bait before I give my answers)

  105. Bartbuster says:

    I’m not interested in getting “more tax money from poor people.”

    Well, that’s the end result of your plan. The poor carry more of the nation’s tax burden, while the wealthy spend more of their money outside the country. Toss in added incentives for cheating and smuggling, and it’s a complete disaster.

  106. BB,

    Well, that’s the end result of your plan.

    Um, we’ve been over this before. It’s not my plan. I’m not even endorsing it. I haven’t endorsed a plan, and don’t intend to for the next few weeks.

    You are seriously delusional if you think this plan is going to end, or even decrease, tax evasion.

    So you allege that it is impossible to craft a consumption tax that would result in less tax evasion than the current income tax has?

  107. Max,
    I like the way you’re thinking about this. Come at it from a perspective of creativity, not destructivity. I, too, will wait for others’ responses.

  108. Mr. Universe says:

    Hmmm…consumption tax…maybe a tax on tuberculosis? Nevermind…

    Glad you made that crack although I’ll admit to thinking of it, too.

  109. Bartbuster says:

    So you allege that it is impossible to craft a consumption tax that would result in less tax evasion than the current income tax has?

    Yes. Unless we’re buying all our goods from a small number of sources, a consumption plan dramatically increases the number of taxable transactions, which means an increase in fraud (or an increase in enforcement costs). Not only does it not decrease evasion, it probably increases evasion, and it shifts the burden to the poor. It’s a loser from top to bottom.

  110. dcpetterson says:

    This is the point where we need filistro. She has experience living in a nation with a VAT. From her descriptions, they have dealt with the problems that have been described here, and found equitable solutions. From what I understand, the tax not only works well, but is no more unpopular than the income tax.

  111. mclever says:

    dcpetterson,

    Except that the Canadian VAT is only a temporary supplement to the existing income tax and not a replacement of the income tax. It worked as a temporary measure to make up a budgetary shortfall, but not as a long-term sole source of government funds.

    Or, at least that’s my understanding… Feel free to correct me if I’m wrong!

  112. Mr. Universe says:

    Yeah, fili described it in a post on one of Michael’s previous articles but we currently don’t have a wayback machine at this particular site like we did at the old 538.

  113. Mr. Universe says:

    Actually, it looks like our search feature can help you find things in the comment section if you know certain key words that were used. Cool!

    Quoting fili from the Secession article:

    The way it’s handled in Canada is through annual rebates. The tax is added to everything you pay for.. both goods and services. Then when you file your income tax you receive a rebate based on your level of income. (The higher your income the lower the rebate, until you reach a point where there’s none at all.) People who have no income file anyway just to get the rebate, which would of course then be the maximum amount.

    the GST has been great for Canada… helped to balance the books and allow the country to survive the recession more or less unscathed. It started at 7% but has been lowered to 5%… and another reduction is on the horizon as soon as they’re sure the big guy to the south has pulled its economy out of the woods and back into the sunlight.

  114. Pete G says:

    Right now billionaire Warren Buffett pays personal total (total=”federal, state, local, indirect, including corporate) tax rate of 11% on $8 billion annual investment gains. A single minimum wage worker pays 30% total taxes on her $14,500 annual salary (http://fairsharetaxes.org). The “Fair” tax, a VAT, or any consumption tax would make our current tax inequity inequity far worse. Compared to the wealthy, the middle and poor spend a much greater fraction of their income and wealth. Thus the VAT would be regressive on income and wealth.

    For instance, under the proposed “Fair Tax,” Warren Buffett’s total tax bill would drop from about 11% to about 0.002% of his income and investment gains, a 650-fold drop. The minimum wage worker’s total taxes would decrease to about 20% of her income (after prebate), assuming she spends her entire income. That’s 10,000 times Mr Buffett’s rate. So under the Fair Tax, the poor do a little better, the rich do stupedously better, and that leaves the middle class to make up the difference. The money has to come from somewhere. The “Fair” tax worsens current tax inequities substantially.

    (I think the “Fair” Taxe’s gargantuan unfairness outweighs any self-incriminations concerns … one hundred times over. I frankly don’t care if a mafia boss has to face the moral dilemma of whether to cheat on his taxes to to avoid self-incriminating. Our rights are not absolute. You can’t yell fire in a crowed theater and risk killing a few people in a stampede in the name of free speech. No rights are absolute. They are subject to common sense and consideration of the greater good.)

    On the other hand the 1-2% wealth tax on net worths greater than about $800,000 (http://fairsharetaxes.org/ProposedReform.aspx) would reduce current tax inequities. Under the comprehensive reform proposed, Warren Buffett’s total tax bill would increase to about 29% of his income and investment gains, still less than the total tax rate our hypothetical middle-class family now pays on its wages. The minimum wage worker’s total tax bill is decreased to about 1%. Typical middle class would pay about 20% of income in total taxes.

  115. Max aka Birdpilot says:

    I can’t believe it.

    No takers on the “Start over with Raising Revenue” question.

    Are we just a bunch of whiners? We take pot shots at people and policies with which we disagree, but when asked to actually attempt to SOLVE a problem, we run like a Bart. It’s the difference between complaining about the government and actually holding an office and having TO govern.

    AND this exercise DOESN’T even require implementation, just reasoned speculation.

    C’mon people. Let’s see something.

    I’ll post my ideas around noon. Michael, would you do the same?

  116. Pete G says:

    So in my last post I covered the unfairness of the “Fair” Tax because it gives the very wealthy even more favored tax treatment than they have now. [Did you know the recent tax deal gave the average person in the to 2% $74,000 while those in the botton 98% get an average $5200.] Now let me outline the “Fair” Tax’s effects on the economy:

    Investment income and gains are taxed at 2-100-fold lower rates that income from work (production). Therefore, investment is encouraged relative to work. The United State’s concentration of wealth in the very few further encourages investment over spending. Give a millionaire a dollar and he will invest it. A poor person will spend it. A middle class person will spend most of it and save (invest) the rest. There is such a thing as encouraging more investment than the economy can sustain, particularly if work and consumer spending drop as the middle class is squeezed.

    If tax distortions encourage investment over the other two parts of the economy (work/production and spending/consumption), too many investment dollars chase too few worthy investments. Under supply and demand pressure, investment prices soar. This is an investment bubble, which will eventually burst, and when it does, usually causes a recession. Then, the poor and middle class suffer with job loss, salary reduction, and evaporation of their retirement savings. Any financial regulations that try to curtail irresponsible investing will be overwhelmed by market forces, in this case distorted market forces.

    The “Fair” Tax or any consumption tax (especially one that eliminates corporate taxes like the “Fair” Tax does) would mean that investment income gets even more favored tax treatment and the wealth concentration in the investing class would increase. Consumption would drop. Each of these three effects would lead to even more bubbles…busts… recessions. On the other hand, a wealth tax would allow a reduction in taxes on work and consumption and so would have the opposite effects: reduce the favored tax treatment for investment, reduce wealth concentration, and increase middle class consumption. The economy would soar. Recessions, which undo much of the previous economic progress, would be less frequent and more shallow. This would increase tax revenues further.

    There is much empiric evidence from history that supports the claims madehere. See the paragraphs next to President Clinton’s photo on this page:http://fairsharetaxes.org/Talkingpoints.aspx. It is probably not coincidental that the two most recent investment bubbles began here in the United States, the industrialized country with the greatest wealth disparity and that each occurred (2001, 2008) a few years after investments were given even more favored tax treatment (1997, 2001, 2003). Nor is it coincidental that the Great Depression started with the US stock market crash, just after the last time our wealth disparity reached the levels reached in 2000.

  117. Pete G says:

    Max aka wrote: “No takers on the ‘Start over with Raising Revenue’ question ….
    I’ll post my ideas around noon. Michael, would you do the same?”

    Me: I’m going to horn in too and post my detailed “Fair Share” Tax Proposal. (http://fairsharetaxes.org) I would ask anyone who likes some aspects of the proposal to send a link to your friends who might be interested. This is more than just promotion of my ideas/project … the plan has really improved by the input of folks critiquing my original plan. The more visitors to the site, the better the plan becomes.

    See you around noon with the detailed plan.

  118. Bart DePalma says:

    Max:

    If I could start over, I would implement a two part tax system – (1) a flat personal income tax of 9% with only personal and dependent deductions and (2) a FAIR tax with a percentage designed to cover the balance of a total taxation 18% of GDP.

    In order to prevent the growth of tax loopholes, the Constitution would also have to be amended to require a 3/5 super majority vote of Congress or a majority referendum of the People during a congressional election to change the tax system.

    The pros for such a system would be:

    1) The tax rates are lower than that which generally triggers tax evasion.

    2) Both income and consumption are taxed roughly equally, and the tax system is not being used to reward or punish behavior, preventing a distortion of the markets.

    3) Double and triple taxation of a single income stream is eliminated with a single personal income tax.

    4) Compliance costs would drop to a fraction of the current burden. You could file your tax return on a post card.

    5) The FAIR tax part would catch the black and gray market evaders of the income tax.

  119. mclever says:

    Max,

    I’ve been giving your question thought, but it’s not an easy one to answer. The last time I gave tax reform serious thought, I was only concerned with revising the existing income tax, and not thinking of what the additional alternatives might be.

    From an income tax perspective, I would be in favor of stripping out all of the loopholes and exemptions and simplifying the code tremendously. Income is income, whether you get it as an inheritance, a salary, a dividend, or a capital gain. I haven’t crunched the numbers in nearly a decade, so I hesitate to put anything concrete out there, but as a general guideline, I don’t think anything below about 2X the poverty line should be taxed. I would like to see a rudimentary COLI adjustment to help those who live in particularly expensive areas. And, I would be OK with something like a $10K gift exemption, mostly because it would simplify reporting. (It would be tedious to make someone report the values of every toy their kid gets for his birthday.)

    If we get the whole income is income mess straightened out, then I’d want some rather progressive tax brackets. Again, not having crunched the numbers in a long time, I can’t say exactly what I’d want them to be, but I’d probably want something like a <$50K bracket, a $75K bracket, a $100K bracket, a $250K bracket, a $500K bracket, a $1M bracket, and a $5M bracket. (Keep in mind, that in my ideal income tax system, the standard deduction would be around $30K.) I'd want to set the rates so that the revenues received from each bracket were roughly proportional to the amount of wealth possessed by folks in those brackets. If we're only trying to raise 20% of GDP, then I'd guess about 30-35% on the top bracket would be enough. (Again, I haven't crunched the numbers in a while.)

    With those sorts of income tax reforms in mind, my ideal solution wouldn't change the way states raise revenues. States should be allowed to raise revenues independently however they please, whether by income tax, sales tax, property tax, wealth tax, or whatever. If the Feds come up with something that works, I bet several states will adopt it on smaller scale anyway.

    For greatest flexibility, we shouldn't limit ourselves to only one type of tax. Therefore, if I were starting from scratch:

    1) Net worth tax on the top 5%, with elevated bracket for the top 1%. If they're in the top, then the system is working for them, meaning they're getting the most out of the system, so they contribute the most to keeping the system going. Tax rates should be ~1%, give or take. Target getting ~10% of total revenues from net worth taxes. (~2% of GDP)

    2) Income tax, simplified and progressive. Target getting ~30% of total revenues from income taxes. (~6% of GDP)

    3) Payroll tax for SS & Med: either roll it into the income tax and raise the target for income to to ~55% of revenues, or keep it and eliminate the upper limit on contributions and a target of ~25% of revenues. Personally, I like rolling it into the income tax, but I understand the political reasons for keeping it in a separate bucket. (~5% of GDP)

    4) Corporate taxes: target ~25% of revenues. Again, simplify the current code and have exemptions for smaller businesses. (~5% of GDP)

    5) VAT: Only in small doses. Target <1% of total revenues, but keep it in the back pocket as something that can be raised if needed for economic stimulation purposes (see Canada's most recent experiment). Should never be more than 5% of revenues. (<1% of GDP)

    6) Excise taxes on cigarettes, gas, etc. Target ~5% of total revenues. (<1% of GDP)

    7) Tariffs and other duty taxes not captured under Excise taxes: Consider those bonuses if they can be implemented given our current free trade agreements. (Generally, I think tariffs are more protectionary than revenue raising…)

    I'm sure there's something I missed, but that's probably how I would structure it if I were doing it from scratch.

    Feel free to pick me apart!

    🙂

  120. Max aka Birdpilot says:

    PeteG

    NO FAIR!! You had a head start!

    (Not just PeteG) I DO want this PR blitz to stop though. Stop with the word “Fair”. That’s a value judgement for others to make. Call it what it is: sales tax, VAT, income tax, wealth tax, whatever.

    Thanks

  121. Pete G says:

    Showdown at High Noon (EST)

    In answer to Max’s Challenge here is:
    My detailed “Fair Share” Tax Proposal. (http://fairsharetaxes.org)

    – Eliminate payroll (Social Security, Medicare) taxes (instead, these programs paid for out of general revenue)
    – Eliminate state income taxes in their current form
    – Eliminate sales and use taxes (regressive)
    – Eliminate property taxes (very regressive)
    – Eliminate capital gains taxes (gains are taxed indirectly through the net worth tax)
    – Eliminate estate taxes (instead collected in manageable bits through the net worth tax)
    – Eliminate corporate taxes (labor pays half of them anyway; instead the human owners of corporations are taxed directly; see below)
    – Eliminate tolls (regressive and inefficient)
    – Reform the Federal Income Tax, eliminating nearly all adjustments and deductions, with reduced progressive tax rates, ranging 14% up to 28% on over $500,000* (e.g. 22% for $300,000 ) on all income and other compensation beyond a realistic poverty line (about $25,000 for a household of three) and excluding medical expenses exceeding 10% of income + 4% of taxable net worth and up to $10,000 in employer-paid insurance coverage). Dividends are taxed as normal income.
    – Institute a new annual Federal Net-worth Tax on household net-worths over about $800,000 (for a typical family), ranging from 0.1% of net-worths of about $1 million ($1000 tax) up to 2.0% of net-worths over about $30 million* (e.g. 1% on $6 million). Only the wealthiest roughly 12% of households would be subject to any Net-worth Tax.
    – A 5% War Tax surcharge on the Federal Income and Net-worth Taxes (increasing a $100 federal tax bill to $105) whenever the nation is at war.
    – Fund state and municipal governments through a surcharge on each household’s combined Federal Income and Wealth Tax, with the surcharge rate set by each state and municipality. For efficiency’s sake the federal government could collect the taxes and pass them directly to states and municipalities.
    – Increase excise taxes on actions that society would like discourage, such as fossil fuel and cigarette purchases. For most poor and middle class households, this would be much more than offset by the reduction in their other taxes. For the very poor a small annual negative tax (prebate) could be given to cover purchase of non-discretionary items (like fossil-fuel-based energy).
    – Institute a single, unified, tax-free account with a modest age-determined cap for each adult that they can tap for activities that society would like to promote, such as education and saving for retirement.*
    – Index entire tax code for inflation.
    – Taxes apply to United States citizens and residents. Taxes on dividends from US corporations are withheld for non-resident, non-citizens to the extent the corporation derives its profits from within the United States.

    * Income tax formula: Rate = Taxable income x (.14 / 500,000) + .14 … OR 28% whichever is smaller
    Exempt income = [(# household members + 2.5) x 4500] PLUS [out-of-pocket medical expenses exceeding sum of 10% of gross income and 4% of taxable net-worth] PLUS [up to $10000 in employer-paid medical insurance premiums]
    Net-worth tax formula: Rate = Taxable net-worth x (.015 / 5,000,000) + .005 … OR 2% whichever is smaller
    Exempt net-worth = median price of home (now $180,000) + $50,000 per household member + tax-free account(s) value + up to$30,000 in household and personal items
    Cap on tax-free account per individual = $8000 x (age-17) (e.g. $528,000 for a 50 year old couple)

    Effective Total Tax (income+networth taxes; fed, state, local) as fraction income and investment gain:
    Min wage worker (14,500 /year) 1%;
    Middle class (40,000-140,000/year) 10-25%;
    Warren Buffett 30%

    Under this proposal, total calculated revenue for federal, state, and municipal governments would have been $4950 billion for 2007. That would have left a $25 billion surplus after subtracting off spending at all levels of government for that year. If the tax reform was joined with the spending cuts on the recommended at the site, we could have retired 7% of the nation’s debt in a single year.

  122. Pete G says:

    To Mccleaver. I like 90% of your plan. My objections breifly:

    1. I don’t like brackets. They are confusing. Now if you have 212,301 taxlible income (probably 250,000 actual income) you can claim to be in the 33% tax bracket. Sounds pretty bad. But only the last dollar is taxed at 33%. Your actual effective tax rate on the $212,301 is 22.4%

    2. Corporate taxes. I say do away with them. Gasp!. I published about 8 reasons, but the main one is that nearly all economists who look at it say half of them are paid by workers (lower salaries) and consumer (higher income). I hate invisble taxes. The populace is better served if they see (nearly) all the taxes they are paying on a single line entry on their returns (http://fairsharetaxes.org/TaxForm.aspx). This is another reason I dislike the “Fair” tax. Instead-it’s rather invisible. Corporate taxes can be collected thru a full tax on dividends and then all are paid by the owners of the capital.

    3. I think estate taxes and capital gains taxes can be more effectively collected thru the wealth (net worth) tax. It would quiet all those objections to double taxation, breaking up the ol’ family farm. It also captures unrealized capital gains (indirectly over the long haul.

    4. I’m more draconian toward states & municipalities, inducing them to switch to an income and wealth tax: Only 30% of taxes collected in this country are federal income taxes. It’s progressivity gets overwhelmed by sales and property taxes. As you know a VAT is just another sales tax. The only regressive component I have in my plan is excise taxes to correct price distortion in cigs, fossil-fuel energy consumption, etc. but limit them to 10% of all tax revenue

    Note to Max: Sorry for persisting with “fair share.” Yes, subjective – but too firmly embedded in my website/mind. I you prefer, think of it as the Don Quioxte Tax.

  123. Bart DePalma says:

    Pete G: Note to Max: Sorry for persisting with “fair share.” Yes, subjective – but too firmly embedded in my website/mind. I you prefer, think of it as the Don Quioxte Tax.

    A wealth confiscation tax would be more accurate. If the confiscation part, although accurate, raises hackles, call it a wealth tax.

  124. shiloh says:

    Barted ~ A wealth confiscation tax would be more accurate. If the confiscation part, although accurate, raises hackles, call it a wealth tax.

    wah sniffle wah as again Bartles, if you’re not part of the solution, you’re part of the problem

    We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.

    Again Bart, why do you hate America!

    take care

  125. mclever says:

    Pete G,

    I understand your dislike of invisible taxes. Probably why we’re largely in agreement on a lot of points. I’m not wedded to anything in my slap-dash proposal, so I can be pretty easily swayed…

    1. I agree that brackets can be confusing, but I think they are the simplest, most direct way to maintain progressivity. Complex, scalable formulas only make things harder for the consumer to understand. Too much math, ya know. But, I will admit that something like your formula is workable… I could be persuaded, though I’m not yet convinced. My question would be how it’s adjusted for inflation, if at all.

    2. I didn’t realize that half of corporate taxes are actually paid by the worker/consumer… Hmm. I could probably be convinced to do away with corporate taxes if we get an appropriate wealth tax and clear capture of dividend taxes. That would mean a corresponding increase in the portion of revenues drawn from the “net worth tax” component of my proposal, and probably an increase in excise and “other” taxes, too.

    3. If estate/inheritance taxes and capital gains are more easily captured via a wealth tax, then that’s fine. As I said in my preamble, I’d mostly only considered this question before from a strictly income tax perspective. If a net worth tax is included, then you are correct that it would probably capture the appropriate inheritance and investment gains. And it would quiet some of the “double taxation” whining, too.

    4. This is the one where we’ll have to disagree. While I deplore the regressive tax structures in many states, I can’t justify the federal government meddling overmuch in state affairs. Some states have sales taxes, property taxes, income taxes, some none of the above or all of the above. Let each state be its own experiment. A lot of states will end up adopting whatever the federal plan is anyway, because they like to keep the forms simple. Line 1: “What was your federal taxable income?” Line 2: “What was your federal reported net worth?” Look up value on state rate chart. Voila. You owe $X.

    I’m with you on the excise taxes, but I think we should leave the states alone. In fact, meddling with the way states generate their own revenues may be the biggest hurdle your plan faces in any hope of implementation.

    Oh, and I mostly agree with Max on the “Fair” marketing of everyone’s tax plans. Everyone thinks their own plan is “fairer” than anyone else’s… That, and the similar names generate confusion between the FairTax and the Fair Share plan. I know I skipped your link the first time someone posted it here, because I thought it was another push for the FairTax NST proposal.

  126. Max aka Birdpilot says:

    I would propose a three prong system:

    1) A series of excises and tariffs for imports and other goods that would have the effect of relative balancing of imported goods with home produced goods, paying for societal effects as tobacco and alcohol excises, and manufacturing processes that do not meet certain environmental standards.
    2) Income tax: EVERYBODY would pay a certain minimum, say 5%, of income. No more than 2 additional tax rates, first at 1.5x of poverty line, and second at 15x poverty line. All income from whatever source: wages, gifts, inheritance, etc. Personal exemptions only deduction allowed to adjust income.
    3) National sales tax. Goods and services. Offset of tax (prebate) for income up to 1.5x poverty level from previous tax year. This tax may be changed to higher level to pay for national emergency spending such as war of economic disaster to ratchet down within 15 year period.
    Home purchase price of up to national median price from previous tax year would be only exemption from sales tax. Exemption for primary home purchase only.

    No Social Security or Medicaid taxes.

    As per SCOTUS, corporations are citizens, thus corporations are treated as a single citizen for tax purposes. (Sorry, you want the rights, you gotta pay the price.) Same income adjustment, same prebate, same exemption for building purchase. Business would deduct cost of goods sold and actual wages paid from revenue to determine income. No deduction for additional compensation above wages paid.

    Any year budget not balanced, following year would increase sales tax.

    Postcard Form 1040, same for both individual and business, with 2 extra lines for business use (COGS and Wages paid from Sched. C).

  127. Pete G,

    I don’t like brackets. They are confusing.

    Perhaps so, but that’s far more about marketing and presentation than it is about anything else.

    Corporate taxes can be collected thru a full tax on dividends and then all are paid by the owners of the capital.

    This has similar effects (albeit from a corporate perspective) to consumption taxes, insofar as corporations at that point have a disincentive to offer dividends, relative to simply holding onto the money and/or reinvesting it elsewhere.

  128. Bart DePalma says:

    Pete G:

    How is it unfair to the citizenry for the FAIR tax to force Warren Buffett to either invest his money or pay the tax if he decides to actually enjoy his wealth.

    The tax encourages Buffett to put his money and investment to work improving the economy and providing jobs for his fellow citizens rather than for himself.

    If the government instead took the money Buffet would otherwise invest through an income and spent it, do you really think the bureaucracy could improve the economy and provide jobs for the citizenry even half as well as Buffett? Remember 2009 and 2010 for a perfect example of the government’s utter ineptitude in growing the economy and creating jobs.

  129. Bartbuster says:

    Remember 2009 and 2010 for a perfect example of the government’s utter ineptitude in growing the economy and creating jobs.

    Holy crap. We spent 2009 and 2010 desperately trying to recover from you wingnuts driving us over a cliff. It takes a lot of nerve for you to complain that we’re not cleaning up the mess you created fast enough.

  130. Bartbuster says:

    Remember 2009 and 2010 for a perfect example of the government’s utter ineptitude in growing the economy and creating jobs.

    By the way, thanks to the government my company is hiring like crazy.

  131. Bartbuster says:

    Remember 2009 and 2010 for a perfect example of the government’s utter ineptitude in growing the economy and creating jobs.

    If you want to convince someone to become a communist you should have them check out the government ineptitude from 2000-2008.

  132. Max aka Birdpilot says:

    Or look at the 30 years since the “Reagan Administration” promised us the benefits of supply-side economics and “trickle-down theory.

    In 1980 it took around 17 people to produce $1 million of real US GDP. By 2010 the comparable number stood at 10.6. And increase in productivity of almost 40%!!

    In the same time period, American workers REAL income increased less than 5%. While in the same period, the CEO pay went up from 40x the average worker to over 300x the average worker.

    We’ve been over this in class time and again, and SOME students just DON’T get it. They cannot refute these facts, but STILL want to convince us that Supply-side and trickle-down are really, REALLY good for ole average Joe.

    Silly of them, I know.

  133. Bart DePalma says:

    BD: Remember 2009 and 2010 for a perfect example of the government’s utter ineptitude in growing the economy and creating jobs.

    Max: Or look at the 30 years since the “Reagan Administration” promised us the benefits of supply-side economics and “trickle-down theory.

    You mean the most uninterruptedly prosperous period in US history – 1982-2007?

    You can check this out, but if memory serves: 40% growth in productivity, north of 40 million new jobs (employing both Americans and about 20 million immigrants), increased standard of living for every single quintile of earners (even though the new immigrants were largely poor and unskilled), inflation all but disappeared, interest rates fell by 75% and a constantly rising GDP apart from a mild recession in 91 and a slowdown near recession in 01.

    Government had nothing to do with this prosperous era as federal spending as a percentage of GDP dropped to 19% until George II started the Ought spending spree and raised it to about 21 or 22% of GDP.

    Before you even start, do not offer figures from before the Reagan plan went into effect in 1982 or the mortgage meltdown after 2007 caused by Clinton banking policies.

    Next, do not use household income figures because America became so prosperous during the Reagan era that folks moved out on their own and there were fewer incomes to boost the household figure. Use per capita figures.

    After two years of the Reagan program implemented in 1982, the economy was booming and hiring millions.

    After two years of the Obama program implemented in March 09, the economy is in the trough of an L shaped recession with the worst post dip private job growth since the New Deal.

    You can blame every GOP president back to Lincoln for your progressive failures, but reality speaks louder than words.

  134. shiloh says:

    Barted ~ You can blame every GOP president back to Lincoln for your progressive failures, but reality speaks louder than words.

    No, as mentioned, your boys cheney/bush totally FUBAR’d America economically and every other way from 2001/2009 as the economy was pretty good under Nixon who coincidentally was more of a moderate than Clinton, gasp!

    Of course LBJ and Nixon had the Vietnam War machine to keep America’s economic guns blazin’.

    btw Bartles, your current reality ~ Obama’s still president, Dutch is still dead and boehner is Speaker 😀

    take care, blessings

  135. Max aka Birdpilot says:

    barted “_____”

    What a maroon!” – Bugs Bunny

  136. Bartbuster says:

    You can blame every GOP president back to Lincoln for your progressive failures, but reality speaks louder than words.

    I don’t have to go back to Lincoln, I just have to go back to the idiot who was president before our most recent economic meltdown.

  137. Bartbuster says:

    After two years of the Reagan program implemented in 1982, the economy was booming and hiring millions.

    Blankshot, are you talking about Ronnie’s $1.6 trillion in government stimulus spending?

  138. Max aka Birdpilot says:

    Barted:”After two years of the Reagan program implemented in 1982, the economy was booming and hiring millions.

    One of the centerpieces of the 1982 “Reagan program”: “Reagan agreed to a corporate tax increase in 1982. The Tax Equity and Fiscal Responsibility Act of 1982 instituted a three-year, $100 billion tax hike—the largest tax increase since World War II.

    Beyond that, on the “millions of jobs” comment, that was the first taste of large numbers of downsized workers having to take jobs paying LESS than their previous one. This has become MORE pronounced in the years subsequent to where the term “underemployed” has entered the lexicon to define workers who are working below levels of expertise (thus less effective for the larger economy) and being paid substantially less as a result. So while “millions of jobs” is a true statement, the net effect is that, after 30 years of Reagan’s “voodoo economics” (hey a Republican said it, I didn’t) the average worker is making no more today than in 1980 in real dollars.

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