>> >> On Fri, 14 May 2010 21:26:28 -0700, John Larkin
>
> >> wrote:
> >> >>
> >> >>>
> >> >>>>
> >> >>>>John Lark> >> >>>>> >
> >> >>>>>> John Lark>
> >> >>>>[...]
>
> >> >>>>>>> I like the sales tax, as opposed to income tax, because it puts
> >> >>>>>>> business on a better basis against imports, so saves jobs. And
because
>> >>>>>>> it would be enormously simpler and cheaper to comply with. No
> >> >>>>>>> accountants, no tax returns, no exemptions, no deductions, no
> >> >>>>>>> quarterly estimates, no loopholes... almost.
>
> >> >>>>>>> Tax consumption. Don't tax savings or investment or job creation.
If a
>> >>>>>>> person is rich but doesn't spend any money, nobody can reasonably be
> >> >>>>>>> jealous of his wealth.
>
> >> >>>>>> A serious problem with that: It punishes frugal people who have saved
> >> >>>>>> for their retirement and rewards those who squandered everything. The
> >> >>>>>> money they saved _has_ already been taxed.
>
> >> >>>>> Simple fix: don't tax income.
>
> >> >>>>Yeah, but how do you deal with income that _has_ already been taxed but
> >> >>>>not spent yet because people saved it for their retirement? A flat
> >> >>>>VAT-type tax is the same as confiscating xx% percent of that. Not fair
> >> >>>>at all.
>
> >> >>>As I suggested, exempt basics, like food, reasonable rent, generic
> >> >>>medicines. If people can afford a yacht, they can afford to pay sales
> >> >>>tax on it.
>
> >> >>The point is that that money has already been taxed. It shouldn't matter
if
>> >>it is used to buy a yacht. Taxing it again is wrong (one reason I don't
trust
>> >>Roth IRAs).
>
> >> >As I suggested, eliminate income taxes and go to sales tax. Then
> >> >things are only taxed once.
>
> >> You're missing the point. Those millions of people who have saved all their
> >> lives will be taxed a second time. They've *already* been taxed on that
> >> money.
>
> >The defense the Fair Tax people offer is that it really isn't an
> >increase at all--you're already paying that 2nd tax today. It's
> >hidden in the price of everything you buy.
>
> How so? Inflation? That increases investment values, as well.
>
> >The price of anything always includes all the taxes--ihe income, SS,
> >Medicare, and other taxes--paid by the people who made it. Take those
> >out and the price of goods will fall.
>
> Sure, but the *INCOME* tax has been paid and the new sales tax will also have
> to be paid. Without the change, there isn't a second tax on the income. Yes,
> the "fair" tax will include the income tax of the people paying now, but it
> will also increase the real cost of the product the same as another income tax
> would on the buyer.
Now you're not getting it...maybe equations would be clearer... I'll set out the reasoning, then you can have a go at rebutting it.
a) If you buy an item today--any item--the price of that item is roughly
price = raw materials + labor cost(wages + benefits + employer matching taxes) + overhead(rent, power, office help, advertising, phones) + business taxes + profit.
b) The Fair Tax economists calculate that when you buy a $1 item, 23 cents of the price of that item goes to covering the various taxes that the people who made the item had to pay.
That is, if your laborer has to pay income tax, you have to pay him more to compensate, and you have to raise your sales prices to recover that loss from your customers.
c) So, when you buy an item, you *are* paying all the taxes of all the people and entities that made the item.
Make sense so far?
d) Under the Fair Tax, with all those embedded taxes eliminated, the manufacturer would now be able to make the same profit selling his $1 item for $0.77, which would be the new price.
e) At checkout, your (formerly) $1 item would now appear on the sales ticket as 1) price = $0.77, plus 2) $0.23 in Fair Tax, collected at point-of-sale to pay all the taxes of all the people who made the thing.
Total = $1.00, just like before. No difference.
There, I think that's basically their pitch. I'm not a Fair Tax expert, so I could've biffed something.
>The Fair Tax--now separated and out in the open for all to see--is
> >simply the tax which you would've paid before anyhow, but without
> >knowing it.
>
> No, it's not. Yo can't tell me that money that has already been taxed has the
> same value as money that hasn't. Which would you rather have, $1M in an
> conventional IRA (no tax yet paid), or $600K ($1M after tax) in a Roth, when
> they change the tax to a consumption tax?
Depends on the tax rates. Under the Fair Tax's 23% I'd rather have the $1M, because that way I avoid the current system's higher rates.
But, the difference here is not made by getting taxed twice--per item c) you are *already* paying the 23% tax built into the price of of an purchase, and under today's system you *are* going to pay it when you buy something.
I don't have an IRA because I don't have confidence in the premise that tax rates will be lower in the future. Without that the numbers don't make sense. Bob Pease actually had a pretty good column on this a decade or so ago; he concluded the same.
Besides, I don't like having my money at the whim of Congress. They burned me ex post facto with my 401k charging me a penalty for doing something that was allowed when I did it, then changing the law retroactively months later.
-- Cheers, James Arthur