[ale] OT fairtax isn't

[Byron A Jeff]

On Fri, Mar 16, 2007 at 12:02:10PM -0400, Jeff Lightner wrote:

>> David Corbin
>> Abolish the IRS - http://www.fairtax.org

I moved the catalyst here. I remember why I don't like top posting...

> Fairtax is just as confusing as the current system so wouldn't eliminate
> the IRS IMO.

Confusing how? Fairtax is supposedly a national sales tax on new goods and
services. It'll move the tax collection point from the IRS out to retail
businesses. All other income and capital gains taxes would be repealed.

There would still be some tax collection entity. But it wouldn't deal with
individuals, but the businesses that collect the taxes.

I'm reversing your next two points...

> Why not a simple tax? Everyone pays 10-30% of income to the city/county.
> The city/county remits to the state and the states remit to the feds.   

>  Especially I don't like the idea of "prebates" because it
> just allows for gaming the system like current tax shelters do.

Several reasons:

1) All simple/flat taxes are regressive. The less you make, the more the tax
impacts your bottom line.

2) The prebate offsets the regressive nature of the tax. It untaxes goods
and services for each individual up to the poverty level. Also the prebate
could not be gamed. If you are a living citizen, you'd get the prebate.

3) By taxing goods/services when purchased (and I presume bartered too) it
decouples taxation from income. The problems with taxing income is manyfold.
First is that richer folks do not necessarily make what is considered income.
Secondly lots and lots of income simply goes unreported, especially income
from illegal activities. Fairtax would tax these revenue streams that are
currently sliding under the radar.

> You'd still need an IRS to insure "perks" were included as "income"
> which of course they really are no matter what the guy riding on the
> corporate jet tells you about his need to do that rather than be with
> the cattle on commercial jets.

This is the whole point of switching from an income tax to a consumption tax.
Consumption taxes don't bother to differentiate where the revenue stream
came from. So there'd be no need for an organization to make those types
of differentiations.

>  Not saying they aren't entitled just
> that they shouldn't pretend it isn't "compensation".

Again with Fairtax and other consumption taxes, there'd be no need to 
differentiate compensation in any form.

> The rich that liberals complain about would still be paying more than
> the middle class - we'd just eliminate the tax tables that penalize
> people by taking a bigger and bigger percentage as they rise.

So now you're talking about a progressive tax system again. Now you'll start
folks trying to game the system. Because once you set it up that the amount
of tax is based on the amount you "make", then folks will work real hard to
find ways of reporting that they are "making" less, even when they are not.

Now Fairtax would still need to transfer that problem to the tax collection
points. But it would be out of the public's hand.

> I recently got a raise and was distressed to see that only 50% of the
> raise made it to my "take home" pay where I'd only been predicting 33%.

With Fairtax you'd get 100% of it take home. You'd get to decide how to
spend it or save it, only being taxed when you purchase new goods or services.
Someone who grows their own food, only shops secondhand, and services their
own stuff would literally be untaxed. In addition they'd get a deposit from 
the federal government every covering the prebated taxes.

Administration issues would disappear. No tax filings. No receipt tracking.
No audits. You'd only have to do that if you were collecting taxes from the
public, and IIRC the feds would pay you for that service.

> My favorite tax ever was the National Insurance Scheme in Grenada.
> (Loved the word "scheme" in that tax.)   It was sort of like our Social
> Security. The law was less than one page long and they only taxed you
> over a certain income level and then you had a maximum of $50 Grenadian
> limit per year.   In that law they exempted "international
> organizations" without defining them as "NGOs" or not-for-profit meaning
> since I worked for an international hotel company I could successfully
> have claimed to be exempt.  :-)

Well that ship has sailed in the US. Taxation, and fairly heavy taxation, is
a fact of life. So while Fairtax isn't perfect, anything that reduces
administration by individuals, widens the tax base, and accounts for the
regressive nature of flat taxes is looking the the right direction.

The problem is that the public would choke when they realize the tax
revenue equal percentage that would have to be implemented. Honestly it would
be on the order of 35%. 

I of course can see that when you add up the 7.5 employment tax, along with
the 25-28% income tax, that 35% really isn't looking too terribly bad.

> P.S.  I'm not "rich" even by Democratic limits nor am I a Republican.  


A pretty good rebuttal to the Fairtax can be found here:

http://www.mises.org/story/1975

The author approaches the subject from the basis that all taxation is wrong.
Of course that's a different debate. But from the basis he tears into many
of the issues that the FairTax raises.

Personally I'm fatalistic when it comes to taxation. So I won't get into the
debate of are taxes justified. But any tax scheme that simplifies the process
for the majority of individuals is worth looking into IMHO.

BAJ