Classic Robert Gauntlet Tournament: The current tax system should be replaced by the fair tax.
Debate Rounds (4)
Explanation of the Fair Tax
1. The Fair Tax is a consumption tax at the point of sale for 23% of every dollar spent. It's effectively a 30% sales tax. For the first year.
2. The tax will replace income tax, social security, corporate taxes, capital gains tax, Medicare tax, payroll tax, gift taxes and estate tax.
3. The tax would be on all new goods and services. Purchases from thrift shops, used book stores, used car dealers etc. wouldn't be taxed. Things owned before the fair tax took effect would not be taxed.
4. After the first year the tax rate would be adjusted automatically using a formula that uses the previous fiscal year's federal receipts.
5. A tax rebate will be sent out monthly for the amount a family of that size would spend at the poverty level. This tax rebate is referred to as a prebate. It would be sent out in 12 monthly installments.
Here is a link to the chart with the prebate amounts.
The I.R.S. Sux. Most people agree with thishttp://www.gallup.com... . Pretty much everyone wants to see tax reform. Whether that comes from closing loopholes or reducing the burden on the middle class. It's just confusing as to how to solve a ton of the problems caused by the current tax system. The Fairtax is the best known available solution to the current system. It's bipartisan and provides just as much if not more revenue for the federal government http://people.bu.edu... . Politicians don't like the fairtax because they can't reward friends and punish enemies using the tax code, but that's one of the reasons why it's so great. It should be noted that 61% of people wan a more fair tax system http://www.rasmussenreports.com... and most people once they understand what the fairtax is become staunch supporters of it. (minute 8:30 in Youtube video ).
This tax code is revenue neutral. Whatever amount you were expecting from the current tax code would match what this new tax system brings in. http://people.bu.edu... . So all the benefits I bring up about the fairtax don't come at a cost to the government's revenue stream.
The Fairtax is a progressive tax system. The tax in essence untaxes the poor. The prebate ensures that the Fairtax is progressive. A family spending at the poverty level would spend 0% on taxes. Somebody spending at twice the poverty level would pay a 12% tax. Millionaires would pay a 23% tax.
How is it Revenue Neutral
Well let's remember the current tax code only taxes 100 million people. The new tax code would pull from a pool of 300 million people, plus tourists. We'd also tax a lot of the wealth we've had no access to before, some of that wealth may be from drug dealers, or tax dodgers or new higher paying jobs provided by the massive amounts of corporations flooding into America after the corporate tax is abolished. It's estimated that the GDP would rise by 10.5 % in the first year http://patriotstatesman.com... .
There's this myth that corporations are taxed. They aren't. They either pass on these tax costs to investors, employees or customers. When they feel like passing on these costs to the customer will hurt business too much, they up and leave the United States. Like Google did and shifted 80% of their pretax income to Bermuda http://www.huffingtonpost.com... .
There are a ton of corporations leaving the U.S. and flocking to low tax/no tax countries like Switzerland or Ireland http://www.informationclearinghouse.info... . This is money that could be staying in America, not to mention money that would come to the United states from other corporations flocking to the United States to avoid taxation.
It's been estimated by economists that corporations pass on this tax at the cost of 22% of every dollar you spend on their merchandise. http://www.fairtaxblog.com... . Once the fair tax is implemented the total cost of products would likely remain unchanged. So what we're talking about here is eliminating all federal taxes, implementing the fairtax and still barely affecting the total cost of products while increasing or keeping tax revenue the same.
Once you eliminate the corporate tax. Corporations will flock to the United States providing tons of new jobs and also new pools of income to be taxed.
Boortz, Neal; Linder, John (2006). The Fair Tax Book (Paperback ed.). Regan Books. ISBN 0-06-087549-6.
Bill Archer a former head of The House Ways and means committee headed a survey of 500 European and Asian countries. When surveyed 400 said they would build their next plant in the United States. 100 said that They would move their headquarters here. http://www.actionamerica.org...
Besides bringing all these jobs and corporations home, we'll also have American companies that are way more competitive overseas. They are no longer passing on the costs of taxation to foreigners. Because of taxes American businesses are already at a 17% disadvantage when competing overseas. Enacting the fairtax would immediately eliminate this disadvantage and help American companies immensely. http://en.wikipedia.org...
It's nonsense that Americans have billions of dollars in offshore accounts making Swiss bankers rich, when this money can be in America making American bankers rich and providing more tax revenue. It's estimated that 11 trillion dollars is in offshore accounts. This number is increasing by 800 billion dollars a year. http://www.taxjustice.net...
Alan Greenspan has estimated that a large portion of this money would be repatriated boosting the economy instead of the economy of tax haven countries and it would increase the pool of taxable money.
Boortz, Neal; Linder, John (2006). The Fair Tax Book (Paperback ed.). Regan Books. ISBN 0-06-087549-6.
The fairtax plan boosts the economy as estimated by as stated by over 80 economists including Nobel Laureate Vernon L. Smith, in a letter to the president. http://www.fairtax.org... . It's revenue neutral http://people.bu.edu... . The Fair tax is progressive due to the tax prebate. The Fairtax decreases most people's tax burdens. the Fairtax is just over 130 pages long as opposed to the 15,000 plus pages, which are changed daily in the current tax code. This is a more honest and clearly better way to collect taxes. There is no reason not to replace the current tax system with the fairtax.
Many thanks to Wylted for this debate, and participation in this series. I'm going to use this round to talk about some of the problems with the Fair Tax, and I'll rebut PRO in the following round. Now, I'm only going to talk about why the Fair Tax -referred to hereafter as FT- is bad policy. Here's why:
Impact to Individuals:
If implemented, the FT would replace all federal taxes, and instead impose 23% national sales tax on all retail goods and services to allow workers to "keep" all of their earnings. That figure is misleading, but for the sake of argument, let's proceed as if it were the case. On the day of FT's coming to effect, federal withholding will stop. Assuming workers paid 23% of their income in taxes before, and they spent all of their income annually, they are no better or worse off financially under the present tax system or under FT. Under FT, on April 15, a worker subject to FT has the additional benefit of not having to file taxes. But, if a worker spends all of his annual income and pays more than 23% of his income in taxes under the present scheme, then he is better off just as sure as a worker who pays less than 23% is worse off. The overwhelming majority of American's now pay less than 23% of their annual income in taxes. (1) Indeed, only those who make more than $207,000.00 pay more than 23% of their income in taxes, now. To solve this problem, FT scheme proposes to send out monthly "prebates" to everyone based on 23% of poverty rate income, to be paid out in monthly installments of about $196.00/month to cover "the necessities of life." (1) But, that payment is not distributed on the basis of need -but on the basis of existence. As Bartlett (2007) observes, "There is no income or consumption test for the rebate. It would go equally to those with zero income and those who buy nothing in the course of a month, as well as to billionaires like Warren Buffett and Bill Gates." By implication, the "prebate" proposed to correct for FT's inherent regressiveness amounts to the creation of a "national welfare program" in which "there is essentially no relationship between the rebate and the cost of living or raising children." (1)
Even still, FT's revenue neutrality rests on the erroneous assumption that "no matter how large a family's income, 100% of it is consumed every year," which is not the case. In reality, the percentage of a person's income being consumed by expenses falls as income rates rise. Low income families may even spend far more than their annual income -especially retirees who supplement income with savings accumulated over a lifetime. (1) By implication, were FT was implemented, however, retirees who supplement their income with savings accumulated during a time when personal income was taxed would in effect be subject to double taxation on that income on "everything they buy" ranging from groceries to health care. (1) Moreover, the FT's implementation would disproportionally harm young workers in the process of establishing their livelihoods as they purchase first cars, homes and pay for childcare. (1) It is inconceivable that the prebate's $196.00 month payment could offset those disproportionate impacts. Likewise, given that not all families -especially wealthy families- consume the totality of their annual income, the result of FT's implementation would be "an enormous shift in the tax burden from the wealthy to those with lower and middle incomes." (1)
The FT's Faulty Economic Logic:
FT's advocates have an annoying tendency to talk out of both sides of their mouth: on the one hand, they hypothesize that "after tax incomes will rise by enough to pay the higher prices for goods and services once the 23 percent is added to the prices people pay today" but on the other, they contend that "prices will fall once income taxes currently embedded in prices are removed." (1) Sounds good, right? Especially considering that rebate -which would be unnecessary if either were the case. The reality is that you can't have both gains in post-tax income and depreciating prices once embedded taxes are vacated, because the two are mutually exclusive. (1) Bartlett (2007) observed that "it is unclear whether [FT] supporters are genuinely ignorant of this fact or dishonestly implying that both will happen so that they can build support for their plan." (1) But, even that's wishful thinking. FT proponents assume thatwage-transition in response to FT's implementation could be facilitated as rapidly as tax policy could be changed. In practice, Carlton (1986) demonstrates that wages and prices are far more static than FT advocates believe, because consumer prices are far more strictly contingent upon monetary policy and inflation levels than tax rates (1, 2). So, in that it would be unreasonable to expect prices to quickly adjust to the FT unless the Fed drastically increased the money supply, which would result in unstable inflation at levels that would equally drastically destabilize the value of the dollar while not increasing real earnings at all.
The FT's impact on wages is similarly predictable: Bartlett (2007) continues, for prices will instantaneously fall once status quo federal taxation is abolished "wages must fall" because "if wages don't fall, there is no way to get a reduction in prices." (1) But because workers are hostile to nominal wage cuts (whether their income tax is withheld or not), to avoid the market destabilization that would nationally follow such a drastic change in tax policy it's probable that "the federal reserve will increase the money supply enough to allow the price level to rise by 23% so workers won't have to cut their nominal wages." (1) The tax burden, then, would just be passed off to consumers in the form of higher prices. (1) but if prices rise proportionally to avoid wage cuts, once more NO ONE IS BETTER OFF. But when calculating revenues, FT's advocates assume that price levels are going to remain constant even though when calculating the FT's impact on individual's disposable income rates, they assume that prices will rise by the FT's percentage itself. Both can't be the case, but each are options and they are contingent upon what the Fed decides to do in response.
Either the Fed can adopt an accommodative monetary policy, or it can not. If the former, then "the money supply would be increased enough so that nominal wages would not have to fall and prices would rise by the amount of the tax" which would result in a real wage cut. Sure, prices would be higher but incomes would be too and aggregate standards of living would remain unchanged. (1) If the later, pre-tax prices would fall relative to the FT's percentage but nominal wages would also take a commensurate dive that would have an overwhelmingly negative economic impact. (1) Given those options, it would be inconceivable that the Fed wouldn't adopt an accommodative monetary policy -but that means that prices also aren't going to fall and "workers are going to lose whatever they think they might gain from the elimination of income taxation." (1) In effect, there is no reason whatsoever to adopt the FT because at best it's a wash, and at worst it's incredibly economically dangerous. But why might it be dangerous? Let's find out.
The FT is Dangerous:
FT's allies generally find themselves in support of it because they detest the IRS. Neal Boortz and John Linders's 2005 book "The Fair Tax Book" clams that the IRS, which he describes as one of the US's "most hated institutions" will be sent to "the government guano heap of history." (3) That's... colorful but even more, it's duplicitous because as Lawrence Vance (2005) decried, "calling the IRS by another name doesn't mean that its functions will be eliminated. Just as the income tax will be replaced by the FairTax, so the IRS will be replaced by some other federal bureaucracy to oversee the collection of the fair tax." (4) Moreover, the FairTax creates an entirely new method of collecting taxes without precluding those already in existence while likewise creating entirely new kinds of taxes and entirely new varieties of tax collectors. (4) Where previously the federal government had no means to collect taxes on all sold goods and services, the FT would create an apparatus to do so -and it would create that apparatus without repealing the 16th Amendment. So, Vance (2005) asks, "what is there to prevent a [federal] income tax from being from being imposed after a national sales tax has been enacted?" Nothing. (4) Similarly, due to the increased transactional costs the FT would impose on state and local government, it is entirely foreseeable that the FT would actually necessitate states increasing their income tax rates just to achieve revenue neutrality. (1, 4) The FT would therefore not only make it easier for the federal government to raise taxes, but it would also increase the mechanisms at their disposal to tax -while at the same time not eliminating all federal taxes by any measure. We can know this because the FairTax Act makes no mention of repealing the federal excise tax on gasoline nor the federal taxes imposed on numerous other things like airline tickets. (4)
With that, there is absolutely no reason to adopt the FairTax. Its proponents have either intentionally or unintentionally misrepresented or overstated its benefits, overlooked numerous potential harms and all to the end of achieving something that may not even be revenue neutral. I'll talk more about that in later rounds.
(1) "Why the FairTax Won't Work." Bruce Bartlett. Tax Analysts Special Report. TAX NOTES. December 24, 2007.
(2) "The Rigidity of Prices." Dennis Carlton. American Economic Review. September, 1986.
(3) The FairTax Book. Neal Boortz. John Linders. Regan Books, 2005.
(4) "There is No Such Thing as a Fair Tax." Lawrence Vance. "Review of 'The FairTax Book', by Neal Boortz and John Linder." Mises Daily. December 12, 2005.
Impact to Individuals
"It would go equally to those with zero income and those who buy nothing in the course of a month, as well as to billionaires like Warren Buffett and Bill Gates." By implication, the "prebate" proposed to correct for FT's inherent regressiveness amounts to the creation of a "national welfare program" "
It's funny that Warren Buffett is brought up here. Warren Buffett is commonly quoted as saying it's unfair his secretary pays a higher tax rate than him. This plan would actually fix those loopholes Buffett uses to avoid paying as much as his secretary.
The prebate wouldn't amount to a national welfare. One of the reasons for the rebate ( besides providing a progressive tax element) is to insure nobody pays taxes on basic necessities. It doesn't matter if it's Bill Gates or a family living below the poverty level. Nobody should have to pay the government for the most basic stuff they need to survive.
The prebate just happens to be the fairest and most economical way to insure nobody has to pay to live. Right now a family living at the poverty level pays 22 cents on every dollar they spend on imbedded taxes. This isn't even taking into account FICA social security etc. coming out of their payroll check. Under the FT plan, they would pay Zero percent.
I repeat. Exempting people from paying taxes on basic necessities isn't welfare. It's just good policy.
"there is essentially no relationship between the rebate and the cost of living"
Actually there is. The prebate is based off of what somebody spends at poverty level. Poverty level spending is a cost of living index. The prebate does more than the current tax system to make sure families don't get taxed on basic necessities. The 22 percent imbedded tax is no longer there for poverty level spending.
"Even still, FT's revenue neutrality rests on the erroneous assumption that "no matter how large a family's income, 100% of it is consumed every year," which is not the case. In reality, the percentage of a person's income being consumed by expenses falls as income rates rise."
The FT revenue neutrality uses no such assumption. The plan exempts used goods from being taxed. Which is a key indicator that it isn't assuming 100% of income is taxed. Not to mention 100% of income not being used for tax exempt things, such as used cars, used houses, thrift shop purchases etc.. One of the attributes of the plan often promoted by FT proponents, is the fact that savings and investments will be untaxed. These are things not included in the calculations used to determine if it was revenue neutral.
Even if we forget about what I just stated, money earned is typically spent at some point. If the millionaire doesn't spend his money then his unappreciative children or grandchildren will blow his money after he dies. Hell Paris Hilton isn't even waiting for her dad to die to blow his money.
"By implication, were FT was implemented, however, retirees who supplement their income with savings accumulated during a time when personal income was taxed would in effect be subject to double taxation"
This is only during the adjustment phase, and remember the prices already include an imbedded tax, so they are double taxed anyway. If you take away that 22% imbedded tax, add in the 23% fair tax and take into consideration the prebate than retirees are actually coming out ahead. Let's not forget retirees actually are triple taxed in the current system anyway. They get the tax on investments, typically taken out immediately or upon withdrawing. They also are responsible for corporate taxes because they're share holders, plus they pay that imbedded tax. I'll take double taxation over triple taxation any day.
"the FT's implementation would disproportionally harm young workers in the process of establishing their livelihoods as they purchase first cars, homes and pay for childcare."
Most young workers just starting out would buy used homes and cars. These are things exempt from the fair tax. As far as child care is concerned, the imbedded taxes would be removed from that and a lot of subsidies already in place to help families afford child care would remain in place. There would be minimal to no impact on these individuals.
"an enormous shift in the tax burden from the wealthy to those with lower and middle incomes."
Nope, even if Uncle Sam isn't taxing your paycheck, you still pay that 22% imbedded tax and with the prebate that would kill any taxes you paid on products up to the poverty level. So in reality poor people would pay zero taxes as opposed to the 22% imbedded tax and the payroll tax.
Faulty Economic Logic
". The reality is that you can't have both gains in post-tax income and depreciating prices once embedded taxes are vacated,"
That's just a misunderstanding of what FT proponents are saying. Once the FT is implemented prices would immediately increase by the 30%. Obviously companies will try not to reduce prices once the tax is implemented, so they can easily keep their profit margin. However once their competitors start making market share grabs, the price will settle back to what it originally was before the FT was implemented. Incomes should remain the same. However the prebate when factored in would mean that less of your money will go to pay taxes.
The FT is dangerous
"what is there to prevent a [federal] income tax from being from being imposed after a national sales tax has been enacted?" Nothing!
There is actually systems in place to insure this doesn't happen here is a quote from the following website.http://www.fairtax.org...
"No current supporter of the FairTax would support the FairTax unless the entire income tax is repealed. Moreover, concurrent with the repeal of the income tax, a constitutional amendment repealing the 16th Amendment and prohibiting an income tax will be pushed through Congress for ratification by the states (filed as HJR 16 in the 110th Congress)."
So this the FT has a companion bill that always goes to vote with it. If a fairtax got implemented, we wouldn't end up with some 2 headed snake.
"Similarly, due to the increased transactional costs the FT would impose on state and local government, it is entirely foreseeable that the FT would actually necessitate states increasing their income tax rates just to achieve revenue neutrality. "
This isn't true either. The fairtax actually doesn't require states to collect it on the federal governments behalf. If states do collect it they will be paid a portion of the taxes collected to make up for the cost of collecting it. http://www.fairtax.org...
I actually did this argument at the last minute. I hope this rushed first draft is easy to read and comprehend.
In Response to PRO's case:
"Against the IRS"
PRO's argument begins with a criticism of the IRS, and a poll to demonstrate that point. But, that people are dissatisfied with the IRS doesn't mean that FT (a specific kind of tax reform) should be adopted. Maybe the tax code does need to be changed. Maybe it doesn't. My burden here is only to show that whether the tax code is flawed or not, FT shouldn't replace the code we've got now.
"A Simpler Code"
As I've shown in the previous round, PRO's argument that FT simplifies things is without merit, but let's explore that point in more detail. FT is a simplification only to the extent that the burden it places on individuals when they file their taxes is comparably less than the status quo. When considering the impact that FT will have on the economy, wages, inflation and prices the magnitude of that burden is shown to be far more than PRO's made it seem. As I've stated in the previous round, at best the middle class is financially exactly as well off as they are now under FT, but even that's not accounting for the massive transition costs and similarly assuming 100% compliance. (1) Moreover, in positing that FT is simpler, PRO fails to account for the transition costs that necessarily follow from the status quo to the FT's implementation as much as he ignores the logistical problems of collection. As Bartlett (2007) explains, "massive evasion is inevitable with [FT] because all revenue would be collected at just one point in the entire economic system... final sales." (1) The impact, then, is that the "well developed reporting requirements for income that has been in place for many years and withholding of taxes to ensure compliance" is abandoned, and replaced under FT with a system which "makes the tax collection process very fragile" because it eases the extent to which tax evasion is possible and reduces the enforcement power for collecting taxes generally. (1, 4) It cannot be, then, that FT is "the best known available solution to the current system" as PRO argues because by collecting taxes only at the point of final sale, as FT proposes, FT is collecting taxes at the retail level which is empirically the level of "greatest evasion." (1)
"More fairness, less loopholes"
PRO contends that politicians "don't like [FT] because they can't reward their friends, [etc.]..." in considerable error because, once more quoting Bartlett (2007), there is no possibility that the FT or it's rebate "would be free of future political manipulation, as politicians decide that some groups deserve something extra and others deserve punishment - just as is the case with the tax code today." (1) And moreover, as Sullivan (1995) articulates "there is nothing in the history of the federal tax legislative process to suggest that a federal consumption tax would be untainted by special interest provisions." (5)
I'm not really sure why PRO's arguing that revenue neutrality is a reason to adopt the FT, because even if it were true, if the tax system is revenue neutral than taxes are not lowered (which is bad if you're a Republican and lowering taxes is something you want) and also not raised (which is equally bad if you're in the business of making the wealthy pay their 'fair share -whatever that may be). But, what PRO doesn't realize is that FT is only revenue neutral if it achieves (a) 100% compliance for all those kinds of new taxes on things that weren't previously taxed like new houses, labor services, food (in some states), medical care and supplies, government transactions and the like and (b) people spend 100% of their annual incomes -which, as I explained in the previous round, just doesn't happen in all cases because as income rates go up, percentage of consumed income drops -and would probably drop even more because taxes on final sales would disincentivize consumption. (1, 4) And it's a but myopic to assume, for reasons mentioned above, that there could even feasibly be total compliance and even if there was, the burden of taxing all goods and services at the point of final sale would almost necessitate economic recession, barring some kind of intervention by the Fed which, even if it did happen -would make no one better off in PRO's world vs. the status quo.
"23% Tax Burden"
This is just not true. As Bartlett, quoting Linder and Chamberliss (here writing in the WSJ, 2007) explains, "In reality, [FT] is not 23%." This figure is arrived at "by calculating the tax as if it were already incorporated into the price of goods and services... think of it this way: if a product costs $1 at retail, [FT] adds 30%, for a total of $1.30 Since the 30-cent tax is 23% of $1.30, [FT] supporters say the rate is 23% rather than 30%." But even still, the impact to young adults who are in the process of establishing themselves is staggering, in that it unfairly penalizes "those who may need to borrow and consume heavily... by buying their first cars, first homes and all the furnishings that go with them, and possibly pay for the costs of child rearing as well." (1) Likewise, implementing FT would effectively leverage an insidious form of double taxation on those who saved their income at a time when income was taxed. (1)
"Corporations are leaving"
There is no evidence that even if corporations are shifting out of the United States, that the cause of their leaving could be remediated by implementing FT. PRO hasn't substantiated that point, because the evidence he offers only shows a marginal impact of what corporate taxes under the status quo. He's not offered anything that could lead us to believe that (a) those corporations which have left would come back, (b) that more corporations wouldn't leave for other reasons due to unanticipated costs under his plan, (c) that the aggregate economic costs of implementing/transitioning to FT wouldn't make the United States a more hostile environment to economic activity generally, or (d) that by requiring retail corporations to act as tax collectors, that their operations wouldn't be catastrophically be cut back, that consumer prices wouldn't increase or that consumption generally wouldn't be harmed because of the increased cost of doing business -any one of which would result in a harm much greater than the fractional benefit of individuals not having to file a 1040.
Ostensibly, passing taxes on consumption might have the effect of 'taxing' activity of the rich that was previously not taxed. But, if the super rich (those who have enough cash to hide it in Swiss Bank Accounts) have the kind of means to hide their money off shore, it's also probably the case that they have the means to buy (especially expensive luxury) products and high-cost services outside of the United States. FT would create a compelling incentive for them to do precisely that, because the super rich would save money by not buying goods and services in the United States. But moreover, there's no reason to think that not only the rich -but everyone- would collectively consume fewer goods and services if a 30% increase was to be leveraged on all goods and services in the US. Rather, there are a whole lot of reasons to assume that economic activity, when consumption is taxed, is going to stagnate whether there's a prebate or not -which is a harm that far outweighs any achievable good PRO's suggested might follow. (1, 2, 4) So, PRO's point about banking holds no water.
Brief Response to PRO's most erroneous rebuttals to my case:
PRO never actually countered Bartlett (2007)'s explanation that "there is essentially no relationship between the rebate and the cost of living or raising children." (1) He just explained why the rebate would exist under FT, but does not account for divergent costs of living in, say, New York versus Texas. Under FT, both New Yorker and Texan taxpayers get the same proportion of tax rebates paid to them every month -which both does not account for the difference in cost of living between NY and TX and amounts to a universal welfare policy insofar as it grants a literal stipend of cash to everyone without regard to whether they have income of their own or not. Calling welfare a prebate doesn't make it not welfare even if taxes are to be taken out of that check at the point of sale and the stipend is intended to offset those taxes.
There's also a real difference between what I've said an what PRO refuted on this point..
I said: "Even still, FT's revenue neutrality rests on the erroneous assumption that "no matter how large a family's income, 100% of it is consumed every year," which is not the case. In reality, the percentage of a person's income being consumed by expenses falls as income rates rise." But he responds by saying "The FT revenue neutrality uses no such assumption. The plan exempts used goods from being taxed. Which is a key indicator that it isn't assuming 100% of income is taxed." I didn't say that 100% of income is taxed under FT, I said that FT is revenue neutral only if 100% of income "is consumed" meaning 100% is spent on taxable goods and services. As I've said before, that's just not the case. (1)
(PRO's continues to make a lot of assumptions about FT that just hold no weight when their logical implications are explicated in various impact areas. I'll connect the dots in the next round, but now I'm out of character space. Even still, most of what he's said has been ruled out by implication of what I've said in this and the previous round.)
Many thanks to PRO for this debate and all judges.
I'm out of character space now... lol
(5) "Flat Taxes and Consumption Taxes: A Guide to the Debate." Martin Sullivan. American Institute of Certified Accountants. (1995)
The FT is simpler as well as more transparent and fair than the current tax system. We're talking about a 135 page tax code to replace much of the current tax code, which is ridiculously long and with a lot of special interest influence. Corporations spend billions of dollars just to comply with this code, and they pass the entire cost of this onto the consumer, shareholder and employee. Instead of disguising and hiding taxes, the FT puts them right in your face, so you know how much you're paying.
" When considering the impact that FT will have on the economy, wages, inflation and prices the magnitude of that burden is shown to be far more than PRO's made it seem."
Actually I've shown those arguments to be false. 22% of imbedded taxes replaced by 23% taxes, will not cause a significant jump in prices. Inflation will continue at normal levels. Incomes won't rise, but they won't be taxed, so people will have access to more money. Just about every study that comes out shows the economy improving with the FT. It probably has something to do with bringing more money home and becoming the biggest tax haven in the world and this drawing in huge businesses. http://www.fairtax.org...
"Moreover, in positing that FT is simpler, PRO fails to account for the transition costs that necessarily follow from the status quo to the FT's implementation as much as he ignores the logistical problems of collection."
I'm sure transition costs will be offset by the billions of dollars it takes just to figure out how to comply with the current tax system. Some estimates being at 230 billion dollars and up. The fair tax reduces compliance costs by 90% which will more then overcome the transitional costs. http://www.fairtax.org...
I'm not sure There is very many logistical problems to be concerned with. 80% of all retail sales go through big box stores such as Wal-Mart. These stores already have systems in place to collect taxes. http://www.fairtax.org...
"massive evasion is inevitable with [FT] because all revenue would be collected at just one point in the entire economic system... final sales."
I don't understand the point massive evasion is inevitable regardless of the tax system. It's probably a lot easier to lie about your income on a w2 than it is to buy a pack of bubblegum at Wal-Mart (big box store where 80% of sales take place) without paying the tax on it.
There is this other myth my opponent keeps referring to that is obviously false. It's the statement that the FT in order to claim revenue neutrality assumes 100% of income is spent. In the previous round he changed it from that to 100% compliance. I've pointed out the absurdity of this statement before. My opponent cites a book that proves this statement by citing the President's Advisory Panel on tax reform. The problem is The President's Advisory on Tax Reform researched their own version of the FT with added in exemptions and other things not part of the bill being passed through legislation. So, really my arguments are being attacked by criticism for a national sales tax plan that in no way resembles the FT. http://www.fairtax.org... It's most certainly revenue neutral, and that fact isn't based on some fantasy that the government would be able to gain 100% compliance.
More Fairness No Loopholes
My opponent asserts that the FT could be abused by politicians to reward special interest groups or punish political enemies. So what he's essentially saying is that because a tax code word revert back to being used for political manipulation, that we should just accept an unfair tax code.
I don't buy that. We should replace the unfair tax code with a fair one and then when that one's unfair, we should replace it. To me that's like saying "don't wash your clothes because they're just going to get dirty again". We should wash our clothes every time they get dirty and we should fix our tax code every time it breaks.
Skipping the points I've already addressed prior to this round. My opponent argues that your stereotypical Republican and Democrat wouldn't gain anything from a revenue neutral FT. They won't be able to reduce taxes and punish the super rich. I won't argue my opponent there. I think taking power away from politicians to use the tax code for their political agenda is a good thing.
My opponent argues once again that the FT's revenue neutrality rests on the assumption that people spend 100% of their income. This is simply no true. I don't know what to say. It's as simple as just plainly being false. http://www.fairtax.org...
Look at all the scholarly studies showing the FT to be revenue neutral. You won't see a 100% of income spent assumption and based on the fact that numbers for average savings amount investments etc. are always included, shows that no 100% income spent assumption is used.
There is an assumption that a FT at the final sale would discourage people from buying. The FT would actually be included in the price and collected at the point of sale. The 22% imbedded taxes get taken out and the 23% gets added in. The price is added into the product. So when you see a dollar loaf of bread. The 23% tax is already included in it.
23% Tax Burden
Let's get this out of the way. When comparing the FT to a sales tax the 30% number is used, but the 23% number is used when comparing it to an income tax. The reason is to show that if you spent all your income 23% would go towards taxes. It's not trickery or sleight of hand it's just different descriptors used to establish a fair comparison rate depending on what it's being compared to.
If any of my opponents following arguments sound familiar it's because it's not the first time he made them and he's decided to repeat them instead of address my criticism.
" But even still, the impact to young adults who are in the process of establishing themselves is staggering, in that it unfairly penalizes "those who may need to borrow and consume heavily... by buying their first cars, first homes and all the furnishings that go with them, and possibly pay for the costs of child rearing as well."
There is 2 issues with this argument. The first is that the 22% of imbedded taxes taken out and replaced with 23% taxes, doesn't show a significantly more of a burden to young adults just getting started. Another thing left out of this argument is the fact that most people just starting out would be buying used cars, homes etc. The FT has virtually no affect on these people.
" Likewise, implementing FT would effectively leverage an insidious form of double taxation on those who saved their income at a time when income was taxed."
They would have already payed the imbedded taxes in products which are being replaced by an almost equivalent amount of FT. The double taxation is a wash. If you account for the fact that they won't have to pay capital gains on investments than it's probably a win.
My opponents arguments against the influx of businesses we'd have as a result of the FT are invalid. I've already shown that being the biggest corporate tax haven in the world would heavily encourage businesses to come here. There is nothing really to defend because my evidence was dismissed without a rebuttal. My argument still stands. Corporations will flock here and the economy will grow.
My opponent claims that, the rich would go overseas to buy luxury products. This is simply not the case. Seeing as how prices would remain the same on products the rich will have just as much incentive as they always have had to take their business elsewhere.
My opponent is concerned about a cost of living not being attract chef to the prebate. This poverty level spending rebate is better than what we have now. Right now a poor person paying 0% in income tax is still paying the 22% on everything else. In the FT system this person wouldn't pay that imbedded tax either up to poverty level spending. Asking for the prebate to take into account the difference in cost of living from area to area isn't reasonable. For one it's better than what we have now so pointing out that it could be better doesn't help con's case, but other than that the cost and abuse of adjusting the prebate to match each varying cost of living isn't necessary. Cost of living can vary from one neighborhood to the next and calculating all these different variables just isn't going to happen for any tax system.
"I didn't say that 100% of income is taxed under FT, I said that FT is revenue neutral only if 100% of income "is consumed" meaning 100% is spent on taxable goods and services. As I've said before, that's just not the case. "
I think you knew what I meant. 100% of income isn't assumed to be spent on taxable goods and services. This is just a complete fabrication. Every study you'll look at (some I've included) shows that it's assumed that less than 100% of income will be spent on taxable goods and services. http://www.fairtax.org...
Thank you YYW for participating in this debate with me. Thanks to all the judges who volunteered to jugs this debate.
PRO claims that the FT is simpler and more transparent. This is not the case because while the FT may only be 135 pages, it is a logistical nightmare because it places the sole point of collection at the retail level. Bartlett (2007), explains the implications: "Massive evasion is inevitable with [FT] because all revenue would be collected at just one point in the entire economic system: "the point of sale, which is the point of "greatest evasion." So, in abandoning the status quo to achieve transparency, PRO champions a system in which locates the sole point of collecting taxes is the point at which tax evasion is greatest -implicitly incentivizing corruption and reducing the government's ability to collect taxes altogether. It should also be noted that a "simpler" tax code does not imply a more "transparent" one. In simplifying regulation, PRO creates greater opportunity for evasion because of the impact his proposal will have on tax collection. He has furthermore not explained how the FT will not incentivize massive evasion, as Bartlett (2007) predicts and likewise ignored the reality that, as Sullivan (1995) articulates "there is nothing in the history of the federal tax legislative process to suggest that a federal consumption tax would be untainted by special interest provisions." (5)
PRO has ignored my point that the FT fails to account for the massive transition cost of implementing FT while similarly he has not addressed my explanation on what impact the FT will have on the economy, wages and inflation. He merely talked past it, while maintaining the fiction of revenue neutrality. While I appreciate that tax policy and economic theory are complicated, PRO maintains the fiction that FT is revenue neutral. As I have previously mentioned, what PRO doesn't realize is that FT is only revenue neutral if it achieves (a) 100% compliance for all those kinds of new taxes on things that weren't previously taxed like new houses, labor services, food (in some states), medical care and supplies, government transactions and the like and (b) people spend 100% of their annual incomes -which, as I explained in the previous round, just doesn't happen in all cases because as income rates go up, percentage of consumed income drops -and would probably drop even more because taxes on final sales would disincentivize consumption. (1, 4) It is not enough to say that retail stores already have a means to collect sales tax, where the only sales tax collected presently is at the state level and only on retail goods. FT proposes taxing ALL goods and services, many of which are not presently taxed, and so therefore there is no infrastructure in place to collect them.
I don't understand why PRO repeated his point about the 23% vs. 30 %. It's not a reason why we should adopt FT, it's only an explanation of the dichotomy between inclusive and exclusive taxation rates. The fact is that any sales tax like the one PRO proposes would subject those who saved income at a time when income was taxed to double taxation, which he completely ignores. In PRO's world, retirees who saved their income which was subject to taxation would be then subject to taxation on that income again when they spent it. How is this fair? His prebate does not offset the additional burden placed on those who saved when income was taxed directly, rather than under his plan because the prebate does not account for income earned before the FT was implemented. So, it can't be a wash.
I also don't understand PRO's responses to my responses on corporations and banking. He just claims I'm wrong, without explaining why while maintaining his warrantless claim that under the FT corporations will "flock" to the US. As I previously said, there is no evidence that corporations would come to the United States if the FT were implemented because there is no evidence that the FT would make the US any more desirable to do business. There is likewise no evidence that corporations are shifting out of the United States, as PRO claims, or that, even if they are, that corporations leaving the US was because our present tax policy. Likewise, there is no evidence presented by my opponent that even if some corporations are leaving that the reason for their doing so would be remediated by the FT. The point is that his crying wolf is unsubstantiated, and there are too many holes in his logic for him to win this point. He similarly fails to respond to the possibility that the aggregate economic costs of implementing or transition to the FT, or the new tax regime of the FT itself would make the US a more hostile place to do business altogether when accounting for the impact that FT is going to have (and that my opponent has consistently failed to explain) on prices, wages and inflation. Similarly, he totally ignores my earlier point that there's no reason to think that not only the rich -but everyone- would collectively consume fewer goods and services if a 30% increase was to be leveraged on all goods and services in the US. Rather, there are a whole lot of reasons to assume that economic activity, when consumption is taxed, is going to stagnate whether there's a prebate or not -which is a harm that far outweighs any achievable good PRO's suggested might follow. (1, 2, 4) So, PRO's point about banking holds no water. That impacts both his banking point and his revenue neutrality point because if people are consuming less under the FT, as is predictably the case, then the amount of tax collected is going to be less than under the present regime, and the FT therefore cannot be revenue neutral.
Even worse, PRO didn't actually even begin to explain that the prebate, even if it is intended to offset some new taxes in PRO's proposal, does not account for (sometimes widely) divergent costs of living. He even goes so far as to say that "cost of living can vary from one neighborhood," which is even more reason to be profoundly skeptical of his proposal because, as Bartlett (2007) says and which PRO ignores, "there is essentially no relationship between the rebate and the cost of living or raising children." (1) Once more, PRO just explained why the rebate would exist under FT, but does not account for divergent costs of living in, say, New York versus Texas. This is especially significant because new houses and rent are taxed at the same rate in both places, but the actual amount of tax paid even for commensurate goods and services is vastly divergent but the prebate is the same across the board. How is this fair? Under FT, both New Yorker and Texan taxpayers get the same proportion of tax rebates paid to them every month -which both does not account for the difference in cost of living between NY and TX and amounts to a universal welfare policy insofar as it grants a literal stipend of cash to everyone without regard to whether they have income of their own or not. But even still, the prebate is still welfare whether PRO wants to acknowledge that or not, because changing the name of monthly distributed cash doesn't change its function.
PRO ignored most of the problems with his plan that I pointed out, or misunderstands what I wrote. The problems with his plan are vast: (a) the FairTax creates an entirely new method of collecting taxes without precluding those already in existence while likewise creating entirely new kinds of taxes and entirely new varieties of tax collectors. (4) (b) Where previously the federal government had no means to collect taxes on all sold goods and services, the FT would create an apparatus to do so -and it would create that apparatus without repealing the 16th Amendment. So, Vance (2005) asks, "what is there to prevent a [federal] income tax from being from being imposed after a national sales tax has been enacted?" Nothing. (4) (c) Similarly, due to the increased transactional costs the FT would impose on state and local government, it is entirely foreseeable that the FT would actually necessitate states increasing their income tax rates just to achieve revenue neutrality. (1, 4) The FT would therefore not only make it easier for the federal government to raise taxes, but it would also increase the mechanisms at their disposal to tax -while at the same time not eliminating all federal taxes by any measure. We can know this because the FairTax Act makes no mention of repealing the federal excise tax on gasoline nor the federal taxes imposed on numerous other things like airline tickets. (4)
All in all, there is no reason to adopt his proposal. Even if you buy his logic and the best case scenario which (myopically) assumes 100% compliance, no one is any better off other than that individuals would not have to not file a federal 1040. His method to that end, however, locates the sole point of tax collection at the level which has the highest rates of evasion and claims that this is going to promote transparency. It just doesn't work. The reality is that his proposal is going to create an unworkable system which imposes double taxation on those who saved when income was directly taxed by the IRS and severely harm the economy in predictable ways (which I explained in earlier rounds that PRO never response to), whose supposed benefits are based on faulty economic logic and whose implications (even if FT's faulty economic logic was valid) impose new taxes and new kinds of taxation in ways that even in the best case demonstrate no aggregate economic improvement from the status quo.
Many thanks to PRO. I urge a CON ballot.
3 votes have been placed for this debate. Showing 1 through 3 records.
Vote Placed by thett3 2 years ago
|Who won the debate:||-|
Reasons for voting decision: I'll leave more comments later if asked, but I am strapped for time and can't leave a long RFD. Basically, I vote neg on solvency. At the end of the day, neg poked enough holes in the policy with issues such as the probability of other taxes remaining, and the harm to the economy make me doubt the viability of the policy and Pro's ability to solve the status quo harms. This leads to a neg vote, as I can't change the entire tax system if I'm doubting the policy. Both sides focused too much on what I felt were smaller issues. Prebate, revenue neutrality, who cares? They weren't impacted enough.
Vote Placed by whiteflame 2 years ago
|Who won the debate:||-|
Reasons for voting decision: Given in comments.
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