The Instigator
HempforVictory
Pro (for)
Winning
21 Points
The Contender
sethgecko13
Con (against)
Losing
12 Points

The Fairtax plan will benefit the economy and the majority of Americans

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Voting Style: Open Point System: 7 Point
Started: 1/4/2008 Category: Miscellaneous
Updated: 9 years ago Status: Voting Period
Viewed: 2,770 times Debate No: 1338
Debate Rounds (5)
Comments (28)
Votes (11)

 

HempforVictory

Pro

Before I begin, I would just like to ask that whoever accepts this debate has some prior knowledge of the Fairtax, understands its implications, and still disagrees with it. Thank you.

Information about the fairtax can be found by reading the faq:

http://www.fairtax.org...

For those who don't know, the Fairtax Bill HR25, is the most widely supported alternative tax plan in congress, with 66 representatives and 4 senators who have publicly stated their support. The premise of the plan is to first abolish all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes, and replace them with a national sales tax, which would be placed on the purchase of all final, new goods services. The tax-inclusive rate would be 23%, which works out to be approximately 30% tax-exclusive(the way sales tax is normally reported). In addition, a prebate check would be paid at the beginning of every month to every lawful household in the country that would be equal to the poverty rate of spending, which depends on family size, multiplied by the tax-inclusive rate of 23%. The prebate offsets the cost of the tax on necessities, and makes the tax progressive. The amount of the prebate is found in the faq.

There are many benefits to adopting a simplified tax code like the fairtax. The most apparent of which is the drastic cut in compliance costs. "In 2002 Americans spent roughly $194 billion dollars on tax compliance," and 6.6 billion hours filling out tax forms. That's 20 cents for every dollar collected. Under the fairtax, compliance costs drop drastically, as much as 95%, because the only cost is what would be paid to the states to collect the retail sales tax, which many of them already do.

http://www.taxfoundation.org...

Most importantly, net spending power increases for the average American family. Let's consider a middle-income married couple making $50k/year. If they spend all of their money on new goods and services(if they don't, their tax rate goes down further), their effective tax rate under the fairtax is 13.6%, whereas under the current system it is 15.8%, according to fairtax.org. However, I calculated the income plus payroll taxes to be 21.14%, so I'm not exactly sure why they calculated the income tax to be so much less. Either way, the couple is better off under the fairtax.

Although the scenario described above assumes that the base price of the goods that they purchase will remain the same, businesses would likely lower their prices because they would not have to pay any taxes, thus lowering their costs. Lower costs translates to lower prices by means of competition. This means that purchasing power increases even further.

Because investments(including college tuition) are not taxed under the fairtax, net investment is set to rise substantially under this plan. More investment translates into a lower interest rate and greater economic growth.

Because the tax will only apply to domestic sales, American produced goods will be much more competitive overseas because businesses will be able to sell their product entirely tax-free, whereas they must currently charge a higher price in order to account for their income tax burden. This means that net exports also rise under the fairtax.

Contrary to what some may think, tax evasion will decrease under the fairtax, and the reason is simple: there would be less tax-paying entities to account for, 20 million business instead of 140 million tax payers. Not only that, but the simplicity promotes compliance. According to the IRS, almost 40% of the public is out of compliance, and most of them probably don't even know it because they are confused by the complexity of the tax system.

The common skepticism of the fairtax is who loses? It seems like everybody pays less under the fairtax, but that can't possibly true if it's revenue neutral. So who loses? Well, illegal immigrants lose out because they will now be subject to federal taxation, yet will receive no prebate check. People like Paris Hilton, spending their father's fortunes on frivolous things, will likely pay more in taxes under this plan. Any person who has made a majority of their money through capital gains, will likely pay more under the fairtax. But a poor family living pay check to pay check, will benefit substantially under the fairtax.
sethgecko13

Con

I disagree that the Fair Tax will benefit either the economy or the majority of Americans for several reasons:

1) The numbers being used by Fair Tax proponents are fuzzy at best, and include optimistic predictions that are likely unsustainable.

2) The new tax system would be regressive as opposed to our current progressive tax system.

3) Enforcement would be a huge problem

4) The Fair Tax would Trade the IRS for at least two new government entities.

In depth:

1) The "23 Percent" Math

Kudos to HempforVictory for mentioning the difference between the "tax-exclusive" and "tax-inclusive" rates. Even if we ignore the tax inclusive/exclusive issue, the math on the Fair Tax is fuzzy, and even the tax-inclusive rate likely won't be as low as 23 percent. The Brookings Institution puts the actual amount that the tax would have to be closer to 30 percent without any exemptions – with exemptions, the rate would have to go even higher.
(http://www.npr.org...)

In its analysis, FactCheck.org puts the actual numbers for the "Fair Tax" as high as 34 percent, noting: "In truth, the actual rate would have to be at least 34 percent even if it fell on new homes, mortgage and credit-card interest and a host of other products and services not usually subject to state or local sales taxes."
(http://www.factcheck.org...)

2) Regressive Tax

If strictly implemented, the Fair Tax would automatically increase the tax rate of the poor and the middle class. As HempforVictory noted, it's only through the issuing of a "prebate" (basically a government subsidy) for the poor that their tax burden is actually lowered by the Fair Tax. It is, however, lying outright to claim that the Fair Tax is "progressive." Even with the prebates, it's only progressive for those making under $24,156.

Including all of the taxes the Fair Tax would eliminate - those making between $25k-$200k/year, who wouldn't receive the "prebate," actually would have their tax burden increased (a necessity to fund the prebates for the poor and to subsidize the tax cuts for the rich).

It's indisputable that the wealthy would see their overall tax burden lowered significantly (a point David Burton, chief economist of the Americans for Fair Taxation, concedes). That automatically makes the Fair Tax regressive at its core. It also makes the claim "people like Paris Hilton, spending their father's fortunes on frivolous things, will likely pay more in taxes under this plan" an outright falsehood.

3) Enforcement / Collection Problem

The claim that there will be fewer entities to watch for tax evasion if the Fair Tax is implemented just isn't practical in an age where the numerous e-business platforms available on the Internet potentially makes EVERYONE a retailer or service provider (and as the enticement to skirt the tax code altogether is heightened by the establishment of the Fair Tax). One look at how the secondhand market for goods has exploded with resources like eBay and Craigslist should give a window of insight into how many people will be enticed to skip out on the tax code (and how many new small, underground businesses will spring up to serve that demand).

Also, whatever gains might be made in reducing non-compliance by simplifying the tax code to the Fair Tax would likely be lost by the new businesses that would have to be taxed, and in the losses of revenue based on penalties for non-compliance.

Contrary to what HempforVictory said, there will be incentive to cheat on paying the tax by crossing borders and buying goods. The claim that "the relative cost of retail goods and services after the FairTax remains very close to the same levels found in the marketplace today" by the AFFT makes no sense when you couple it with this claim "American companies doing business internationally are able to sell their goods at lower prices but at similar margins." Within the space of two paragraphs, the AFFT has contradicted itself.

If the Fair Tax isn't applied to American goods sold overseas, that means prices overseas – so the prices of goods won't remain competitive; Americans will have a considerable incentive to skip paying the Fair Tax by buying more goods from outside the US.

4) Massive New Bureaucracies

Contrary to what Fair Tax proponents claim and as appealing a sound byte as it is, eliminating the IRS under the Fair Tax proposal wouldn't be a good thing. Ultimately it would have to be replaced by a government agency similar to the IRS to collect the taxes. Those same newly-unemployed IRS agents everyone loathes would (by Fair Tax proponents own statements) be put right back to work doing virtually the same thing.

Worse – it would also have to be replaced by another agency to disburse the $485 billion in monthly "prebates" (the US Treasury Dept. puts that number closer to $600-700 billion) to the poor. To get an idea of the scope of the agency, working with that kind of money would make the prebate system one of the largest categories of federal spending. One would then, of course need an IRS-like agency to police income reporting and the disbursement of the prebates (which would also still be necessary to determine prebate eligibility).

Responding specifically to some of the other arguments raised by HempforVictory:

Domestic Goods vs. Imports

Claiming that American goods will be more competitive overseas with the Fair Tax is unrealistic because it assumes that the rest of the world won't enact protectionist measures to counter the effect of the Fair Tax. Further, I can't really understand the Fair Tax explanation so I may be wrong – but it seems that if "…imported goods sold in the U.S. are subject to the FairTax because these products are consumed domestically," as the website of AFFT claims – that would effectively give foreign products a leg up over US products in the domestic market (unless we're also going to apply tariffs to them).

Taxing Undocumented ("Illegal") Immigrants Myth

Undocumented immigrants are already subject to taxes under our current system. They all pay the same sales taxes that we do – and in many cases they also pay income taxes as well. The Social Security fund is currently buoyed by billions of dollars in contributions from undocumented immigrants.

All the Fair Tax would do is further impoverish undocumented immigrants (which includes with it a host of negative ramifications). Ironically, if the Fair Tax were to go into effect as proposed, it could even make it easier for undocumented workers to operate in the US as they (and their employers) would be freed from navigating the income tax bureaucracy (which currently serves as a control on illegal labor).

Capital Gains Tax Rate

It's untrue to say that the Fair Tax will increase the rate of taxation on those who make their income through capital gains, because their capital gains won't be taxed. It's well-established that (even though they buy more and more expensive things) the wealthy still spend a much smaller percentage of their income on the goods/services that would be hit by the Fair Tax. So while the proposed [mythical] 23 percent rate is lower than the 15 percent rate capital gains is currently taxed at – the actual pool of money they're taxed ON would shrink dramatically (especially the wealthier one is).

Paycheck-to-Paycheck Rate

The claim that it benefits those living paycheck-to-paycheck is dubious. As Katherine Newman, director of the Institute for International and Regional Studies at Princeton University, notes – there are tens of millions of working poor Americans who live in what she calls the "missing class" (which earns between $20-40k/year but still lives paycheck-to-paycheck). It also ignores the millions of Americans who earn more than $40k/year who also live paycheck-to-paycheck.
Debate Round No. 1
HempforVictory

Pro

Thank you for accepting this debate seth, I hope this will be an informative experience for both of us.

Before I begin refuting your arguments, I would just like to point out a very blatant misunderstanding you have about the prebate. The prebate is NOT based on income in any way. A check is sent to every American household for an amount depending solely on the size of the family. A rich married couple would receive the same check as a poor married couple, the difference is that it will be insignificant for the rich and a blessing for the poor.

1) The 23 Percent Math

Well, according to a study by Laurence Kotlikoff, economics professor at Boston University, "Ensuring real revenue neutrality at the federal level, given the net base of $9,355 billion(which is adjusted for the prebate and collection fees), implies a rate of 23.82% on a tax-inclusive basis and 31.27% on a tax-exclusive basis." While this is slightly higher than the 23% originally quoted, this is the rate that would produce enough revenue to match spending projections for 2007. Note that we currently have a deficit of several hundred billion dollars. With the 23% rate, we would have a deficit of $76 billion.

2) Regressive Tax

It seems as though your entire argument here is based on your misconception of the prebate, for the fairtax is absolutely a progressive tax. I already showed you how a couple making $50/year would benefit under the fairtax, so to make the claim that, "those making between $25k-$200k/year, who wouldn't receive the "prebate," actually would have their tax burden increased," without addressing my point implies to me that you didn't read it, so I will suggest that you go back and read my first argument.

As for the wealthy having their tax burden lowered, that will depend on their source of income as well as their spending habits. Wall Street executives getting paid million dollar salaries will most definitely see a decrease in their tax burden as they are currently taxed more than any other American. However, little girls relying on their fathers wealth will be paying much more in taxes, because wealth is not currently taxed.

3) Enforcement/Collection Problem

Under the fairtax, the only way that you can purchase new goods tax free is if you are a licensed retailer. Now you make the point of the online market for "secondhand" goods. If by secondhand, you mean used, than it's not a problem because used goods are not subject to the fairtax. However, I am also aware that many people on ebay sell new goods as well. But where do they get them? For the most part, they purchase goods wholesale and keep them in their basement. In order for an ebay business to continue under the fairtax, they would have to become licensed retailers in order to purchase their product tax-free and charge the tax to their online purchases. It's not unfathomable for the government the monitor internet transactions to ensure compliance.

Collecting taxes under the fairtax is much easier than the current system, not only because the forms are simpler, but because the number of taxable entities is reduced nearly 80%. Regardless of the fact that there will be new businesses taxed that were not taxed before, there are over 100 millions households that are no longer taxed that the IRS, or its equivelent, will no longer have to worry about. This means that they can focus their efforts on a much smaller pool of tax-payers.

Border crossing is only a potential problem for people that live right on the border. It would be far too inconvenient for a significant portion of the population to cross the border to go shopping.

"The claim that "the relative cost of retail goods and services after the FairTax remains very close to the same levels found in the marketplace today" by the AFFT makes no sense when you couple it with this claim 'American companies doing business internationally are able to sell their goods at lower prices but at similar margins.'"

First of all, I believe that first claim was made with the assumption that companies would lower the gross pay of their employees to their current net, and pass all of their savings from removed income taxes onto consumers. It is most likely that gross pay would be reduced as well as retail prices, by an amount determined by market pressures. Going back to your point, there's no reason why their is a contradiction between those two statements. If the price of goods after the fairtax remains the same as they are today, than if they are being sold internationally without the fairtax than they will undoubtedly be able to be sold at lower prices.

"Americans will have a considerable incentive to skip paying the Fair Tax by buying more goods from outside the US."

Again, it's simply a matter of convenience. Imported goods would be subject to the fairtax, so a person would have to physically leave the country in order to evade the tax in this way. It's simply not practical to think that a significant portion of the country would do that.

On this subject, I would like to point out that there is currently a black market with total expenditures estimated around $1 trillion. Currently, this money is not taxed at all because this income goes unreported. However, drug dealers and organized crime syndicates do purchase legitimate products as well. They all need to buy food and clothing and the like, and some may even buy cars or houses, all of which would be subject to the fairtax. In this way, the taxable base expands under the fairtax and current levels of tax evasion may be reduced.

4) Massive New Bureaucracies

Because the prebate is based solely on family size, disbursing it to every American household should not be that expensive. Relative to what is currently spent on the IRS, we're talking pennies on the dollar. Also, since most(45) states already have a sales tax, the federal government will simply pay the states one quarter of one percent of the fairtax that they collect. Of the roughly $2.4 trillion collected, that works out to be 6 billion dollars. Again, pennies on the dollar compared to the IRS.

Domestic Goods vs. Imports

I can't really argue with the fact that other countries might place tariffs on American goods if they are too competitive, but perhaps they will decide to adopt their own fairtax-like system instead.

As for giving foreign products a leg up, I do not understand your thinking at all, forgive me. Both American and foreign goods would be subject to the fairtax, but while American products would only be subject to the fairtax, foreign goods may be subject to their own national taxes, so they will certainly have no advantage, at best they would be on the same level if their government had a system of not taxing their exports as well.

"Taxing Undocumented ("Illegal") Immigrants Myth"

There are currently no federal sales tax, so they only pay taxes to the state in that regard. As for income taxes, I believe most of them are paid in cash "under the table," and do not pay any income taxes. You seem to contradict yourself here when you say that the fairtax would further impoverish undocumented immigrants, while making it easier for them to operate here. Can it really go both ways?

Capital Gains Tax Rate

The thing is, capital gains taxes are so easy to evade, even legally. As long as you reinvest your capital gains, you don't get taxed on it at all. So the common practice is to buy real estate with it and than take out a line of credit against the real estate if you need money.

Paycheck-to-Paycheck Rate

Well, when we examine a person's tax rate under the fairtax, we assume that they're spending 100% of their income for that is the absolute most they could pay in taxes. If they aren't living paycheck to paycheck, their effective income tax rate will only improve.
sethgecko13

Con

Thank you for correcting me. Question: if the prebate goes to every household regardless of income, what's the point? It seems like an waste of time to disbursing about 120+ million checks every month (plus, doesn't the prebate also go back to businesses as well, adding another 20 million businesses to that number?) instead of just exempting those essentials from taxes. I don't buy the argument that we should tax them because the wealthy buy more of them and are thusly taxed less (they're still a vastly smaller proportion of the wealthy's income than that of the poor). Also - I'm curious; would that prebate disbursement be considered taxable income by states and municipalities that have income taxes?

1) The 23 Percent Math

It's troubling Kotlikoff (one of the chief backers of the Fair Tax) conceded that the actual rate isn't the 23 percent as advertised. Even if the math does work out – does anyone have confidence that a Fair Tax proposal could actually get through congress without any exemptions being added to it? (Or that it could continue to sustain itself without special interests changing their lobbying strategy to one of seeking exemptions in the application of the Fair Tax?)

Sidebar: Given how the Bush Administration has been cooking the books to fund its pet projects outside of the budget process – I don't have much confidence in the deficit projections.

2) Regressive Tax

My misunderstanding of the universal applicability of the prebate unfortunately doesn't change the reality of how the tax burden ends up shaking out against the middle class. That's the finding of the US government, the Brookings Institution, and FactCheck.org:

http://en.wikipedia.org...
http://www.brookings.edu...
http://www.factcheck.org...

The wealthy would undoubtedly have their tax burdens lowered – the only way that wouldn't be the case is if they drastically changed their spending habits.

The claim that the wealth of "little girls" isn't taxed doesn't make any sense at all. If they're still dependants, are taxed in the form taxes on their parents. They're also taxed in the form of the Estate Tax.

3) Enforcement/Collection Problem

In the same way residents skip across state lines to avoid paying taxes on cigarettes, there will be an underground market for goods. The higher the tax is, the greater the incentive is to skip out and cheat on the sales tax. A great example is what is going on right now in Michigan on the Canadian border; in spite of long lines at the borders (because of all of the new terrorism-related requirements for entry) Canadians are shopping in US stores because the US$ has finally dropped well below the Canadian$ in value. In reverse, the same is happening for pharmaceuticals.

On eBay many people do re-sell goods that they've already purchased, so there's a way to collect the taxes. The problem, though, is that eBay is also loaded with small businesses that sell goods and services right out of people's basements. For example – on eBay I recently purchased a ‘service' from a guy who put my photo on a novelty "McLovin'" fake ID (from the movie "Superbad"). Most of the cost that I paid is just for his time to put it together (because the cost of materials is very minimal). What incentives/penalties does the Fair Tax have to entice him to honestly report his tax receipts?

Another result of the Fair Tax would be that if all of those eBay entrepreneurs had to get licensed as retailers, that significantly changes the equation – instead of the new Fair Tax replacement for the IRS having to handle the policing/processing of 20 million businesses – what does it now balloon up to? I've heard estimates that if you only count established businesses, it's around 48 million. The statistic that the number of taxable entities is reduced 80 percent is very flimsy. Furthermore, though they'll be focusing on a smaller pool of taxable entities – the data they'll have to pour through will be much more concentrated.

Given that the Fair Tax doesn't apply to used goods, would a used car lot pay zero federal taxes?

How can companies lower the pay for employees under the current system? The federal tax burden for the middle class is going to increase and the state and municipal tax burdens are going to remain the same. Even if we assume that it's feasible for companies to lower employee wages – that's going to require a whole lot of contract re-negotiations.

That's to say nothing of the fact that lowering employee wages has no bearing on the conflicting claims that the cost of retail goods and services will stay the same while claiming that it will provide increased competitiveness for American goods in foreign markets. That dog still won't hunt. Unless the Fair Tax is applied to overseas purchases of US goods in foreign markets, the federal government will lose out on revenue that it is now otherwise collecting in the form of corporate taxes. This also, again, assumes that other countries won't react to this protectionist measure by passing protectionist measures of their own to compete with our goods (which they most certainly will).

How would imported goods be subject to the Fair Tax? I could understand if there was an importing entity here in the US that was registered in the US as taxable entity, but what if I order a book through the mail from a distribution house in the UK, how does that get taxed?

4) Massive New Bureaucracies

I don't believe that there will be a significant savings in replacing the IRS with the Fair Tax oversight agency because, as I mentioned earlier, the density of the records they're going to have to analyze will be substantially higher. Plus, you'll be pushing on to the Social Security Administration a new burden of calculating, policing and disbursing tens of millions more checks (plus all of the administrative costs that go along with that, like customer service, etc.).

Domestic Goods vs. Imports

I'll try to explain my thinking on Domestics vs. Imports. My reading is that if a US company ships something overseas, the argument for the Fair Tax is that the good will be cheaper in that overseas market because the Fair Tax won't be applied to it. Is that accurate?

Taxing Undocumented ("Illegal") Immigrants Myth

My comments were contradictory in one sense – but it works out like this; absent using the income tax/social security tax process, it will be easier to pay undocumented workers under the table. However, without the prebate – the new service tax rate will make living here even more difficult because workers will be unable to afford the cost of living (unless employers raise their wages to compensate for the service tax – which they may do, because it's vastly cheaper to pay undocumented workers than to pay benefits and workers compensation). Given all of that – I'm not sure how things would shake out. The bottom line is that it can't be said with any degree of certainty that the Fair Tax would discourage undocumented laborers from coming here – it may not.

Capital Gains Tax Rate

It does sound like the Fair Tax has benefits as far as Capital Gains go – so that appears to be a plus.

Paycheck-to-Paycheck Rate
The calculations for the paycheck-to-paycheck group are flawed because a great many people spend more than 100 percent of their paycheck (the average amount of revolving debt on credit cards per household in the US is $26,317).
Debate Round No. 2
HempforVictory

Pro

Prebate

First of all, only households would receive the prebate, not businesses. The "point" is to make spending up to the poverty level tax free, and to keep the tax progressive so that higher spenders pay a greater tax as a percentage of their consumption. To exempt all essentials from the tax, which I assume means food, housing, gas, electricity, etc., would untax the rich much more than it does now, because they spend a lot more money on all of these things than the average American. Furthermore, the tax would have to be much higher if exemptions were allowed, as you already pointed out. As for your question about state income taxes, I'm sorry but I really don't know. I would imagine that it would be at their discretion.

1) The 23 Percent Math

Kotlikoff conceded that in order to achieve true revenue neutrality under a STAGNANT model the actual rate would have to be .82% greater in order to achieve $76 billion in extra revenue. Many economists agree that real savings, and therefore investment would increase under a consumption based tax, and as a result, the economy will grow faster. By increasing GDP faster, the taxable base grows and increases the total amount of real revenue. Also, it's possible that tax evasion would also decrease significantly under the fairtax, as anybody making an income illegally would suddenly be subject to taxation, including illegal immigrants as well as drug dealers, prostitutes, etc.

2) Regressive

"My misunderstanding of the universal applicability of the prebate unfortunately doesn't change the reality of how the tax burden ends up shaking out against the middle class."

Your first article is just a graph comparing a "National Retail Sales Tax" to the current system, but it gives no explanation of how it reached those numbers. It is clearly not referring to the fairtax because the fairtax cannot be more than 23% of total income.

Your second link seems to list the need for exemptions and increased tax-evasion as its main criticisms, both of which I have already addressed, nor are they relevant here. Also, if you're going to use such a long argument, I think it's best to quote some part of it.

The third link gives no explanation of how it arrived at those numbers. In addition, the small differences are probably not even statistically significant, I would need to know the variances in the data before I could trust a graph like that. But it's nothing except a graph, you could have made it up yourself for all I know.

"The wealthy would undoubtedly have their tax burdens lowered – the only way that wouldn't be the case is if they drastically changed their spending habits."

Not necessarily, as you conceded in this argument, capital gains are taxed very little, which is a primary source of income for many wealthy people. Also, in the case of people like Paris Hilton, who's fathers are not self-made men, but rather from a family that made its money decades ago, the fairtax effectively taxes thier wealth, not just their income.

Finally, I'll give you a link of my own that tells you how it arrived at it's calculations. It compares the net tax on income for a family of four at different income levels. It includes the income tax, the family consumption allowance and the payroll tax, both employer and employee. If you don't think the payroll tax for the employer should be included, you'll notice that even if you subtract 7.65 from the given percent at each income level, the fairtax is still lower.

http://www.geocities.com...

3) Enforcement Collection Problem

As you seem to forget, there is already an underground market for goods, a substantial one estimated to be over $1 trillion. Much of that currently untaxed market will than become indirectly subject to taxation. At worst, the new kinds of tax-evasion would be canceled out by reductions in current tax evasion. It is more likely that net tax evasion will be decreased however, because enforcement agencies will have less individual entities to deal with and less complex tax forms to go through, resulting in a greater amount of net revenue at any given tax rate.

I already addressed the issue of people buying wholesale goods and reselling them on ebay, they would require retail permits and be subject to auditing. As for your example of the fake ID, I don't think that there is much of a market for services through ebay, it's just not that big of a concern.

Do ebay entrepreneurs really change the equation? It would be kind of you to post some sources when you make claims about specific numbers. But even if your right, maybe it's not 80%, maybe it's only 50%, it's still substantially less work for the agency. As for the data being more concentrated, I'm not exactly sure what you mean by concentrated here, but if you mean that it is concentrated on only one thing(total sales), than it would therefore be less complex and easy to verify, which can only be seen as a good thing.

"Given that the Fair Tax doesn't apply to used goods, would a used car lot pay zero federal taxes?"

In a way, except for the fact that the price of a used good is depended on the price of the new equivalent. If the fairtax raises the price of new cars, than the price of used cars will increase universally.

How can companies lower the pay for employees under the current system? Well they certainly wouldn't lower it to less than what they are actually taking home now, but they might want to lower it below the current gross pay. New contract negotiations are a small concern if the system facilitates economic growth, which it does.

"Unless the Fair Tax is applied to overseas purchases of US goods in foreign markets, the federal government will lose out on revenue that it is now otherwise collecting in the form of corporate taxes."

The fairtax would not be applied to purchases of US goods in foreign markets, so while it may lose out on revenue in that way, it would gain revenue from taxing imports. This has the effect of decreasing imports as well as increasing exports.

How would imported goods be subject to the fairtax? Well, the fairtax is a point-of-sale tax, meaning that it is collected by the retailer. Most imported goods are purchased in stores. Some goods bought online directly from another country might be able to sneak through, but it's not as if it's impossible for the government to regulate internet purchases.

4) I think you're overestimating the workload of the new agencies. They would know how much product a retailer purchased tax-free as every wholesale purchase would be documented by the distributor. Compare their wholesale purchases to their inventory, adjust by the retail price, and you know how much tax they should have collected. It's really much easier than going through thousands of pages of code to determine if they did all of their deductions correctly.

Domestic Goods vs. Imports

Yeah, that sounds about right, American exports are cheaper because they're not subject to any domestic taxes, making them more competitive overseas and thus increasing net exports.

Taxing Undocumented ("Illegal") Immigrants Myth

Under the fairtax, the penalty of living here illegally is that you don't get a prebate check every month. If that makes it too difficult to live here getting paid low wages, than you can bet that the fairtax would discourage undocumented laborers from coming here.

Capital Gains Tax Rate

I appreciate your candor, but that concession takes a big blow at the argument that the fairtax untaxes the rich. It might tax the high salary earners less, but this shows that it depends on how you make your money whether or not you will benefit, even if you are wealthy.

Very quickly, the credit card debt argument is flawed, read here:

http://moneycentral.msn.com...
sethgecko13

Con

Prebate

Thanks for clarifying. One of the explanations of the prebate that I heard said that the prebate would go to businesses. I guess that's the difficulty of trying to communicate something complex like a new tax system; people are bound to get it messed up in translation. As for the state's treatment of the prebate, I would imagine they would use it (at the very least) as a way to allow taxpayers to deduct less from state taxes – but that's just speculation on my part.

1) The 23 Percent Math

It's a little late in the game, but I finally read an explanation of the "tax-exclusive" rate that I understood – and I really think it's a complete snow job to say that the tax rate is 23 percent when the actual tax rate each consumer will pay on purchases is 30 percent. I get where the Fair Tax folks get the number from, but it's disingenuous to pitch the rate as 23 percent when the average citizen would be paying what they would consider (for all intents and purposes) to be a 30 percent rate.

I would think that it would be terribly optimistic to aim for neutrality under a stagnant model given how much government spending continues to go up – but that's not Kotlikoff's fault, nor is it the fault of the Fair Tax advocates.

Unfortunately I don't know enough to dispute the claim that a consumption-based tax will increase real savings and thusly investment. I can see that it would do that in the upper socioeconomic classes, but I can't see how that would be the case in the lower classes who don't adhere to logical economic patterns a lot of the time. The upper classes already save, so there's no gain. Plus, isn't our economy based in large part on consumption? Isn't that some of why we're experiencing the current volatility?

Also, I fail to see any evidence that would show that tax evasion would decrease under the fair tax; in fact, I only see incentive to increase tax evasion. Illegal immigrants, drug dealers and prostitutes may be taxed, but they don't account for much money. In one analysis I read, the vast majority of drug dealers end up making around minimum wage (or less). It's the people higher up in the food chain that make the money – and those folks are laundering their money and paying taxes (maybe not on all of their income, but on at least what they report).

2) Regressive

It's just mathematics. You can't have your cake and eat it too. There's no way you can give everyone lower taxes AND keep revenue coming in to the government neutral. The taxes that are lowered for the rich (who consume a tiny fraction of their income relative to the lower classes) have to fall somewhere. Given the way the prebate is structured, it has to ultimately fall on the middle class.

The graph is from the President's Advisory Panel for Federal Tax Reform, the second link is from Bill Gale at the Brookings Institution (he's written in far greater depth), and the third is from FactCheck.org – which did its own analysis after looking at the President's Advisory Panel and the findings of the Brookings Institution (as well as the AFTR's proposal):

http://www.factcheck.org...

The Fair Tax wouldn't tax the rich on their wealth as you say – it would tax them solely on their consumption, because the Fair Tax would replace the Estate Tax and the Income tax. While the wealthy do consume a lot in sheer dollars, it ends up being a small fraction of their overall wealth (smaller than the amount taxed under the current system).

The link you provided is interesting, but it goes into the whole tax-inclusive/exclusive rigmarole, so I don't find much value in it.

3) Enforcement Collection Problem

Indeed – there is already an underground market for goods, but it's minimal because the incentives to opt into it are minimal. If the incentive to traffic in underground goods is increased (say with a significant consumption tax increase) – the trafficking in underground goods is going to increase. Just look at the small examples around the US (cigarettes, alcohol, etc.) and you can get an idea of how much tax evasion is going to be going on.

Taking eBay alone (and ignoring all of the other online retail platforms) – here are some statistics to give you an idea of the logistical nightmare for policing all of these new retailers:

- eBay has approximately 248 million registered users worldwide.
- Marketplaces net revenues totaled a record $1.32 billion in the third quarter of 2007

http://news.ebay.com...

Part of the problem is that these are only the transactions reflected inside of eBay's system. There's a whole black market outside of eBay where sellers/buyers just use eBay as a medium through which to find each other, and then arrange to sell the goods/services outside of an eBay transaction to skip the percentage of the transaction that would go to eBay. Imagine if they could save 30 percent by doing that instead of just 3-4 percent of the transaction.

The car price thing makes sense – thanks for explaining that.

As for imports/exports – your explanation seems to confirm what I'm saying. If we're going to simultaneously discount the cost of goods leaving the US to help them better compete overseas, while simultaneously trying to make up the lost revenue on those goods by taxing imports – the rest of the world is going to scream bloody murder. There will be serious repercussions from a policy like that – and in the current state we're in where so much of our debt is held by our economic competitors (like China) – they've got us by the short hairs.

It's not impossible for the government to regulate Internet purchases – but it's very, very difficult (something not accounted for in the Fair Tax model). A 23 (30) percent incentive to buy something from overseas is a serious deal and it's going to fundamentally change a lot of people's buying habits.

Taxing Undocumented ("Illegal") Immigrants Myth

Undocumented labor is subject to the laws of economics too, just as surely as documented labor is. If employers are going to lower employee wages to around what they would be at the current post-tax level, they will certainly raise the wages of undocumented workers to compensate for the prebate. That, of course, assumes that there's no fraud and that the undocumented workers don't find ways to get the prebate. Even if they didn't, I could even envision a scenario where an undocumented worker could find a low-income resident to live with where they'd pool their resources (and get the prebate plus their untaxed wages).

Capital Gains Tax Rate

The Liz Pulliam Weston article you cited is based on flawed data (despite her claims using old data, the median amount of debt is between $5,100 and $9,000 - but I don't need statistics to tell me that, I see it anecdotally) – here's a great and thorough explanation why:

http://www.creditslips.org...
Debate Round No. 3
HempforVictory

Pro

Prebate

So I guess this means that you understand why essentials cannot be exempt from the tax and why the prebate is necessary?

1) 23 Percent Math

Sorry, I didn't realize that you still didn't understand it, I would have proved it for you if you wanted(i.e. if x/y = .23, than x/(y-x) = .3). And it's not a "snow job" to use the tax-inclusive rate of 23 percent when comparing the fairtax to the current income tax, because the current tax is also on a tax-inclusive basis. The only way to make meaningful comparison between the two(and include the prebate) is to report the fairtax as tax-inclusive. I'll agree that the actual at the counter rate should also be disclosed in any discussion of the tax, but I don't agree that fairtax promoters are being disingenuous when they are comparing the fairtax to the income tax and use the 23% number.

The way I understand the increase in investment is like this: the fairtax would shift a small percentage of consumption spending into savings, but since consumption is so much greater than savings, a small percent decrease in consumption will amount to a large percent increase in savings, which ultimately leads to a large increase in investment, which causes the economy to grow faster, which causes consumption and therefore federal revenue to be greater than what it would have been in the long term.

You say illegals, drug dealers, and prostitutes don't account for much money, but I already stated that the current black market is over $1 trillion. Maybe some of its being taxed by the guys higher up like you said, but I think its fair to say that the fairtax would capture more of this market because they all need to buy food and other things.

2) Regressive

Unless the middle class is spending more than they're making, they're not going to be paying more in taxes. I already told you who would be: people making their money on capital gains and effectively hiding it, undocumented workers, those involved in illegal money-making schemes(drug dealing etc.), and those who rely on old money. Wage-earners at all levels who spend 100% of their income can expect to see their taxes reduced under the fairtax.

This brings me to a point that I should have made earlier on, perhaps the main reason why the fairtax is the FAIRtax. Who's taxes will rise under the fairtax you ask? Well you can bet that those who reap the profits of our untaxed corporations will.

"more than 60 percent of U.S. corporations failed to pay any federal taxes from 1996 through 2000 when corporate profits were soaring and that corporate tax receipts had fallen to just 7.4 percent of overall federal tax revenue in 2003"

http://www.americanprogress.org...

There are so many tax-breaks and exemptions for the rich corporations of our country, whose owners should be carrying a much greater tax-burden, it's just not fair. The fairtax eliminates these tax-breaks and subsidies, making it so that if the government wants to give monetary favor to a corporation or industry, they have to do so directly and transparently. This is the reason why the fairtax will likely never come to fruition, because special interests will suffer under the fairtax, not because the middle class will.

I didn't merely have a problem with the source of the links, I had specific problems with each one that you failed to address. For example, the graph from factcheck.org compares the percent of total revenue produced by each income class, not the tax rate of an individual, and the numbers are so close that I would need to see how they arrived at those numbers because it may be the case that they are not significantly(statistically) different.

The fairtax would tax the rich on their wealth if they were spending more than their taxable income. The current system only taxes income and has no potential to tax wealth that may or may not have been taxed when it was earned decades ago.

There is no inclusive/exclusive rigmarole, like I stated previously, in order to accurately compare the two tax systems, the fairtax must be quoted on an inclusive basis.

3) Enforcement Collection Problem

Again, the underground market for good is substantial, over $1 trillion. There is a huge incentive to evade taxes, and while it may not be so easy for wage-earners to do, it is possible for those who make money in other ways because they are able to exploit the complexity of the system.

Ebay is really not that big of a deal. Not only are the stats that you posted irrelevant(we're concerned with sellers, not users, and GMV would probably be more appropriate than net revenues), but when considering that GDP(and therefore net expenditures) is roughly 10 trillion dollars, and that net federal revenue is estimated around 3.4 trillion dollars, it is seen that ebay is rather insignificant. However, that's not to say ebay would go unregulated. I would imagine that the "powersellers" would be subject to the most scrutiny, and that government agents would patrol the web, acting as buyers trying to convince the seller to waive the taxes.

As for pissing off the rest of the world because we're taxing imports, what are they gonna do? I really don't think it's an issue, American goods will become more competitive and if other countries feel the need to impose tariffs, let them. Nobody will complain about discrimination because all imports(all sales) would be taxed, the logical thing for them to do would be to adopt their own fairtax or a similar system that allows them to drop their taxes on exports and impose it on imports.

You do bring up an interesting point with online sales from foreign countries, I don't really know how those would be treated. Are them imports bought domestically? Or are they being purchased in a foreign country? Perhaps all foreign online purchases would be subject to the tax, used or new for simplicity with the assumption that the vast majority of these purchases will be for new goods. Than it would just be a matter of requiring paypal, or its equivelent, to charge the tax for all foreign purchases.

Taxing Undocumented ("Illegal") Immigrants Myth

You clearly do not have a very strong grasp of economics. If employee wages are lowered, undocumented employee wages will certainly not be raised, that would make no sense for the employer. They would likely be lowered as well, or at best remain stagnant. Employers aren't going to sympathize with undocumented workers because they don't get the prebate check. If it used to cost $20 to pay an employee $15, or $10 to pay an illegal $10, but now it costs $15 to pay an employee $15, the incentive to go with the illegal suddenly got cut in half. To maintain the same 2:1 incentive, illegal wages will drop to $7.50.

Credit Card Debt (Capital Gains Tax Rate = mistake, i guess?)

You need to read your own links buddy, the one you posted does not say that the median amount of debt is between $5,100 and $9,000. It says:

"If the underreporting hypothesis is right, the truth for the average credit card debt owed per U.S. household probably lies somewhere between the extremes of $5,100 and $9,000."

"Given the likely underreporting of credit card debt, the $2,200 median figure from the Survey of Consumer Finance (for households that carry a balance) is probably too low although it is impossible to say how low."
sethgecko13

Con

Prebate

I think we're we're mixing the implications between the theoretical world and the practical world. The prebate is necessary to keep the Fair Tax from being a completely unfair and regressive tax on the poor, however, that doesn't mean that essentials can't be excluded. In fact, one could make the argument (theoretically) that the exemptions could be used to guide people into healthier food choices to ease the burden of our massive health care costs given how important preventative measures like a healthy lifestyle are.

The practical implications of exemptions are that our political process would probably kill the tax as every special interest lobbied to have its products/services considered to be ‘essential'.

1) 23 Percent Math

I'm going to remain firm on the conclusion that the 23% rate is disingenuous. The vast majority of people don't think in those sorts of terms – so they're going to think that they'll pay a 23 percent tax on everything that they buy when they go to buy it and they'll be upset when that's not actually what it is. Explaining them what it ends up being on the back end after a bunch of calculations isn't going to help. The masses are not great fans of nuance.

The connection between the Fair Tax and increasing federal revenue is tenuous at best, and it's based on a lot of moving parts. Assuming the money from the Fair Tax savings went from consumption to savings (tenuous), it would have to go to pay down the debt that the average person has before it would go into savings and thusly investment. That's definitely counting one's chickens before they've hatched.

I've heard estimates of the black market being between $1-3 trillion, and the Fair Tax stands to recoup some of that through the taxes on goods/services – but it won't capture taxes from the sales of illegal goods and services so the amount of money it will collect will be minimal. You'll be taxing the pot dealer on the bag of Doritos he buys, and not the ounce of weed he just sold.

Again, it could even decline depending on how many people who make the lion's share of that $1-3 trillion operate – if a lot of them launder their money and pay taxes on it, it could even be a loss.

2) Regressive

In many cases, what's left of the the middle class is spending more than it's making. That shows up in our rates of consumer debt.

I do like the idea of taxing the people who are dodging their fair share of taxes through loopholes like using private equity firms to hide their earnings by classifying them as capital gains. That's a good thing, but in practicality these things are going to have real and unintended consequences that we can't necessarily forecast.

Many corporations go untaxed not just because they dodge taxes by loopholes in the way they classify their income, but because we've effectively bought into this idea that we need to lower taxes for corporations to improve the overall economy. I don't know if corporate exemptions are included in the numbers you're referring to – I would assume so. The statistics you cited from the Center for American Progress underscore the argument against lowering taxes on corporations and the wealthy as a way of bringing in additional revenue (which has been argued for years by libertarians and conservative republicans, which manifested itself in the Bush Administration's tax cuts).

That said – I'm behind any part of any tax proposal that increases taxes for corporations. It would be interesting to see how that would manifest itself in practice though. Would corporations move offshore to dodge the tax burden? You're exactly right that the feasibility of the Fair Tax is challenged the most by its increasing the taxes of the wealthy corporations that have so much undue influence in our political systems.

3) Enforcement Collection Problem

In eBay, each user is also a seller (or at the very least has the potential to be a seller). The numbers are significant because eBay is merely one platform, and there are hundreds of others (Craigslist, half.com, etc.) The infrastructure is in place already to dodge paying a sales tax, all that's lacking right now is the incentive to dodge it which a consumption-based tax will provide.

What's the rest of the world going to do? Many, many things. Given how much money we owe around the world given our level of debt, they could start using that to squeeze us. They could also start flooding the market with their own cheap, government-subsidized goods and services. The idea that the US adopting the Fair Tax would cause other nations to do the same is a bit much.

As far as online sales from foreign countries, I'm talking about products purchased from a foreign country. I can purchase a book, for example, from a bookseller in the UK – they ship it to me, and no one is the wiser. If they attempted to tax all foreign purchases, I could just claim that the money transferred was a donation to a cause I support.

Taxing Undocumented ("Illegal") Immigrants Myth

I don't have the strongest grasp of economics, but I understand some things. Wages aren't the only factor that businesses consider when they look at labor costs. They're an important one, but other things like worker's compensation, health care, retirement, fair labor compliance, etc. factor in as well. Even with the Fair Tax in place, it may still be cheaper for many businesses to hire undocumented laborers even if they have to pay them higher wages than regular employees because they save so much on all of the other costs associated with labor.

Also – it may be that the business owner would provide (as many of them do now) many of the essentials (food/lodging) to the employees so that they don't have to address the consumption tax at all.

Credit Card Debt

I read my own links and I think the underreporting hypothesis is exactly right. I did wrongly say median when that number is an average, so I concede there. But there's no way the median credit card debt per US household is 2,200 (especially given that number comes from 2004). To wit:

"According to our survey, the average credit card debt of a low- and middle-income indebted household in America was $8,650; the median was $5,000. One-third of households had credit card debt over $10,000, while another third reported credit card debt lower than $2,500."

http://www.demos.org...
Debate Round No. 4
HempforVictory

Pro

Prebate

If it's in the best interest of the public and if there is enough support for it, there's no reason why the fairtax couldn't be modified to lower the tax on certain items and raise it on others. However, the fairtax is fair because there are no exemptions - every business is taxed equally and there's no special favors from the government. Supporters of the fairtax generally like the idea of letting citizens decide what is best for themselves on their own and not allow the government to sway our decisions by controlling prices and favoring certain industries. After all, history has shown that the government doesn't always use its influence to benefit the majority of its citizens, but often a select few.

I like to think that the practical implications of not having any exemptions would greatly diminish the influence of special interests in politics because it is suddenly much more difficult to attain special favors from the government.

1) 23 Percent Math

The 23% rate is not disingenous, like I said before, "I'll agree that the actual at the counter rate should also be disclosed in any discussion of the tax, but I don't agree that fairtax promoters are being disingenuous when they are comparing the fairtax to the income tax and use the 23% number." How can you compare the fairtax quoted on an exclusive basis to the income tax that is quoted on an inclusive basis? It would be more disingenuous to quote the fairtax as <30%(depending on prebate amount and total spending) and compare that number to the way income tax is normally reported, because the fairtax would come out looking much higher, even though an accurate comparison would show the fairtax to be less.

Virtually every economist agrees that if you remove a tax on income and place it on consumption, than consumption will decrease and savings will increase, and savings is synonymous with investment. The average person does not have that much debt, but regardless, it will be much easier to pay off debt using pre-tax dollars as in the absence of the income tax.

So you think that pot-deelers spend all of their money on pot? You don't think they buy cars? Or pay rent? You don't think they spend their fair share of money on food other than dorritos? There is over a trillion dollars circulating through the black market, and the people profiting from it and using that money to buy legitimate goods are currently not taxed at all, but under the fairtax they would be.

I think it's a safe bet to say that most of the money that circulates in the black market is not subject to income tax, whereas a lot of it may be subject to sales tax.

2) Regressive

First off, why is the middle class declining? Because all of the good jobs are being outsourced to other countries, right? They're being outsourced to places like India and Dubai because they have favorable tax systems. But if all of those taxes that make our system unfavorable are eliminated, companies are going to want to operate here because this is where their final product is going anyway.

Well, if you're behind any tax proposal that increases taxes for corporations, but you're worried that they will move offshore to avoid the taxes, than you should be supporting the fairtax. Not only will their products be subject to taxation without the possibility of squeezing through any loopholes or bribing someone for a tax-break, but they'll have no reason to move to another country because as long as they're selling in America, their goods will be subject to the tax, and America will surely remain the world's top consumer even after the fairtax is passed.

"You're exactly right that the feasibility of the Fair Tax is challenged the most by its increasing the taxes of the wealthy corporations that have so much undue influence in our political systems."

Well Seth, this debate is over how the fairtax will benefit the economy and the majority of Americans, not how likely it is to be passed into law because several special interests are against it.

3) Enforcement Collection Problem

No, the numbers really aren't that significant. First of all, most of the products on those websites are used goods. More importantly, in order for anyone to sell new goods tax-free, they need to be a licensed retailer. Under the fairtax, any wholesaler is obliged to verify that the person they are selling to is a licensed retailer and is subject to auditing just as the retailer is. Perhaps there will be 20 million established businesses and another 20 million online stores, the simplicity of enforcing the tax will still be exponentially greater than the current headache of deciphering all our current taxes.

As far as online purchases from foreign countries, there is always an intermediary bank to process the transaction. I gave the example of paypal, but I'm sure there are others. This is likely where the tax would be enforced.

Taxing Undocumented ("Illegal") Immigrants Myth

When we talk about real wages in terms of economics, we include every benefit the employee receives at the expense of the employer. Therefore, businesses will always pay undocumented workers a lower real wage than a legal employee because that's the only incentive for them to break the law. If payroll and income taxes are removed, the incentive to evade the law is decreased, so employers will have less reason to hire undocumented workers. That is not to say that there would be absolutely no incentive and no business would bother hiring undocumented laborers, but it would be less. That coupled with more expensive retail goods and no prebate might be enough to discourage illegal immigrants from coming here and there total number may be expected to decrease under the fairtax.

If a business were to provide food and lodging to their undocumented employees, it would have to carry the burden of the fairtax for them.

Credit Card Debt

You do realize that there is a big difference between "per US household" and "low- and middle-income indebted household", right? However, I won't argue that credit card debt isn't an issue to consider, but are low-income families really increasing their annual consumption expenditure by a significant amount by using credit cards? Even if the average outstanding debt is $8000, that doesn't mean that anybody is actually spending $8000 more than their income every year. It's more likely that they accumulated that debt over several years. If a family earning $30k/year spends $500 more than $30k each year, their tax rate will still be better under the fairtax than it currently is. Furthermore, in the short term after the fairtax is enacted, it would be easier to pay off current outstanding debts now that a person is accumulating pre-tax dollars to pay off items that were purchased with post-tax dollars that also had no fairtax applied.

Thank you for an excellent debate Seth, I hope that this discussion has positively influenced your opinion of the fairtax.
sethgecko13

Con

Prebate

Unfortunately you're assuming that the public will is all that is required for political action to be taken on behalf of the best interest of the public. Regrettably that is not so (which is why our tax system is currently in the state that it's in; absurdly confusing and full of Mac Truck-sized loopholes through which the wealthy drive their wealth).

I in theory as stated by its proponents, the Fair Tax plan does seem to eliminate the exemptions that the wealthy currently use to tilt the tax system in their favor and avoid paying the full price they owe the state. But unfortunately that's only in theory, and there isn't enough concrete explanation in place to explain all of the logistical problems and complications.

Further, letting citizens decide for themselves what is best isn't always a great idea on everything. That's why we created Social Security; to provide insurance for the disabled and the elderly because invariably a large proportion of the population does not adequately plan for its future (or cannot, regardless of whatever good decisions it makes).

Exemptions are one way that special interests get favors – subsidies are another (and there are many beyond that).

1) 23 Percent Math

Our differing opinions of disingenuousness aside, taxes on consumption would invariably tend to decrease consumption – but the problem is that it's hard to tell how much it will decrease.

Savings and investment aren't synonymous. For starters, something like Federal Reserve estimates that around 9 percent of US households don't even have bank accounts so they're not even earning interest on savings accounts. For many more that do, they may have savings accounts but they don't invest in the stock market. Only about half of all households in the US are invested in the stock market (one guess as to which half of the socioeconomic classes it is).

Pot dealers spend money, but we don't know what their spending habits would be under the new system.

2) Regressive

The middle class is declining for a variety of reasons, only one of which is outsourcing (many people argue that the effects of outsourcing are overstated). Jobs aren't only outsourced for tax reasons (as I've mentioned). They're also outsourced because the standard of living is lower in other countries, and because the labor laws are weaker, and in the case of manufacturing – because the environmental regulations are looser (or nonexistent). Here in Michigan there have been many examples where companies are offered virtually zero taxes and they still pick up and leave because those other countries offer savings in those other areas.

The possibility of loopholes still exists even with the Fair Tax unless other measures are taken. There are quasi-foreign nations like the Marianas Islands that afford corporations the benefits of both worlds (they've long been used for skirting labor laws here in the US).

3) Enforcement Collection Problem

The simplicity of the current system is dependant on the participants willingly following the laws and not skirting them. I pointed to examples like eBay to show how many potential casual lawbreakers there could be who might skirt paying the sales tax. For the more concerted, these types of e-business platforms make breaking the law pretty easy – especially if they set up operations overseas where they're beyond the reach of US law enforcement (which happens frequently right now with online casinos).

A similar problem would exist for sales of foreign goods. All it takes is for the intermediary bank to be one located in a country unfriendly to the US for the sales tax to be skirted.

Taxing Undocumented ("Illegal") Immigrants Myth

Again, wages aren't the only cost associated with employees. So there's still wiggle room for expenses to go up and wages to stay the same (or for employers to absorb some costs themselves). I don't have any statistics on it, but a lot of the undocumented workers are in the agricultural sector and it's possible that they could be given produce as part of their wages (as is likely done now) which would help skirt paying the consumption tax. The same goes for lodging – which is the case right now; they frequently set up trailers or communal housing on their property for their employees. A lot of the other goods they may need could be purchased secondhand (as they likely are now).

Credit Card Debt

There's a difference between per US household and low- and middle- income households – but it's irrelevant given what we're talking about, which is primarily those lower-income households that have the majority of the debt. All of the positive postulations the Fair Tax makes about raising people's standard of living relies on leveraging the power of the Fair Tax against those households in particular because they're the ones that are hurting. Nobody is really concerned about making the upper income, non-indebted households better.

It's not just credit card debt either. It's the fees and penalties associated with that kind of predatory lending. In some cases, lenders make more off of the fees and penalties than they do off of the interest from their loans. It may not be that these people are routinely spending $8000 more than they make in a given year – what's probably more likely is that they have one bad year where they lose a job, get divorced, or have a serious medical issue come up and they go way into the hole and spend the rest of their lives trying to dig out from it. Unfortunately the Fair Tax isn't going to help those people (and they represent 90 percent of those who declare bankruptcy).

I thank you for the excellent debate as well – it has been enlightening.
Debate Round No. 5
28 comments have been posted on this debate. Showing 1 through 10 records.
Posted by HempforVictory 9 years ago
HempforVictory
The materials used to build a house would not be taxed under the fairtax. Only FINAL goods and services are taxed, so unless if the window is being used as is, it's purchase will not be taxed. True, it's a finished product for the window maker, but it's not a final good if it's being used for the building of a house, so it's not subject to the tax. The machinery used to build the home would be subject to taxation, but none of the actual building materials would be.

Also, the price of a used home is determined by the price of new homes. If the price of new homes increases under the fairtax, than the asking price of people selling their homes will increase as well, because the market demand will warrant it. For instance, if the tax were enacted and the price of purchasing a new home increased by 15%(hypothetically), but sellers of used homes did not change their prices, demand for used homes would increase sharply because they would be significantly cheaper than new homes, and they would raise their prices.
Posted by Cobjob 9 years ago
Cobjob
I suppose it depends on how they decide what is a finished product. if the materials the builders use are taxed then they won't really save any money on pay roll taxes. A window is a finished product if you make windows. All that shows how home owners will benefit, but there ill still be a huge gap between the cost of a used home and a similar new home.

On an opportunistic note; I would circumvent this by building renting for a year and then selling. Or maybe living in the home for a short period.
Posted by shwayze 9 years ago
shwayze
congratulations on the longest debate i have ever seen.
Posted by HempforVictory 9 years ago
HempforVictory
For a more comprehensive explanation of the effect of the fairtax on the housing market, read here:

http://fairtaxmyrtlebeach.com...
Posted by HempforVictory 9 years ago
HempforVictory
Cobjob, that is something that I have concerns with as well, and I was very surprised that it did not come up in the debate tbh. First of all, there are already taxes embedded in the price of houses. The developers are taxed, as are the producers of the raw material necessary to build a house. For this reason, the price of a house won't actually rise by 30%, but by an amount determined by market pressures as companies decide how much to lower prices and/or (gross) wages. Another important thing to consider is that lending institutions will no longer pay income taxes and this, coupled with the rise in investment, will cause the mortgage interest rate to drop substantially (predicted to be 25%), which would make it easier to afford a house that is a bit more expensive. Finally, since savings aren't taxed at all, it becomes much easier to save up enough money for the down payment.

My main concern with the fairtax is the transition period, and while that goes for everything, it is especially worrisome for something as big as the housing market. Economic forecasting is great, but it only predicts the state of the economy at equilibrium. The problem is knowing what's going to happen to the economy as its getting there. My hope is that if the fairtax were to gain enough support in congress, there would be negotiations within the large developing firms so that they can react quickly and appropriately after the tax is passed into law.
Posted by Cobjob 9 years ago
Cobjob
I am a fair tax fan. The one issue I have, that I have never heard discussed; won't this hurt our already struggling housing market. If a new house is going to be 30% higher all of sudden...
Please respond hemp
Posted by HempforVictory 9 years ago
HempforVictory
"Savings and investment aren't synonymous."

Just so you know, savings does equal investment when the economy is in equilibrium, even if the people saving their money aren't investing it. When you put your money into a bank's saving account, that money becomes available to the capital funds market and it is loaned out to investors. It doesn't matter if some people don't save at all, a consumption tax will cause total savings to increase and that means that total investment would increase as well.
Posted by SperoAmicus 9 years ago
SperoAmicus
I think we're down to nitpicking the minutiae.

But just to be clear, the question isn't just of variance, but how much the taxes move in unison with each other. Whether or not there is enough of a diversified tax portfolio to reduce fluctuation below the FairTaxes, I would assume so, but I'll admit, is currently beyond my scope.
Posted by HempforVictory 9 years ago
HempforVictory
Well, if anything, profits would be more variable than personal income, I would think.

Gift/estate taxes are too insignificant to rely on as a stable source of revenue.

Social Security/Medicare - It's possible that revenue from this source would be more stable, but is it really so much more stable to make the current tax base more stable than a consumption base, I don't know.

Capital Gains - technically not, but they are certainly a source of income for some people. Ever hear of day-trading? I would bet that capital gains aren't very stable either and depend on growth in the economy.
Posted by SperoAmicus 9 years ago
SperoAmicus
Close, but not quite.

Corporate Taxes - Income lags behind Profit Margins
Gift/Estate Taxes - Transfer of Existing Wealth
Social Security/Medicare - Lower-end Incomes are presumably more stable
Capital Gains - Sale of Assets aren't Income
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