Total Posts:16|Showing Posts:1-16
Jump to topic:

X-tax vs. FairTax

tejretics
Posts: 6,088
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 9:05:48 AM
Posted: 1 year ago
It's time for the battle to BEGIN! I'm hoping JMK and Cowboy see this, so we can watch them clash on this. I'm very interested in seeing that ...
"Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe." - Frederick Douglass
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 9:15:11 AM
Posted: 1 year ago
But, basically, here are my problems with the FairTax:

(1) An advisory panel under Bush called the prebate the "biggest entitlement in history."

(2) It's easy to evade

(3) The actual rate would need to be somewhere around 33% for it to revenue-neutral.

(4) Political considerations - i.e,, you'd need to abolish the 16th Amendment for this to even be a possibility.

(5) A lot of proposals waive taxes on X, Y, Z, B, and D, which only jacks up the effective rate

(6) It's highly regressive, even with the prebate. If you make between $25k and $200k, according even to analysis by the Bush Administration, you see a giant tax hike. That isn't so with the X-Tax.
~ResponsiblyIrresponsible

DDO's Economics Messiah
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 9:24:55 AM
Posted: 1 year ago
Here's an analysis by Bruce Bartlett, who's by no means a raging liberal. In fact, he was an advisor to Ronald Reagan: http://www.wsj.com...

On the deception of the tax:

"In reality, the FairTax rate is not 23%. Messrs. Linder and Chambliss get this figure by calculating the tax as if it were already incorporated into the price of goods and services. (This is known as the tax-inclusive rate.) Calculating it the conventional way that every other sales tax is calculated, with the tax on top of the price, yields a rate of 30%. (This is called the tax-exclusive rate.)"

And on "paying taxes to itself":

"Under the Linder-Chambliss bill, the federal government would have to pay taxes to itself on all of its purchases of goods and services. Thus if the Defense Department buys a tank that now costs $1 million, the manufacturer would have to add the FairTax and send it to the Treasury Department. The tank would then cost the federal government $300,000 more than it does today, but its tax collection will also be $300,000 higher. This legerdemain is done solely to make revenues under the FairTax seem larger than they really are, so that its supporters can claim that it is revenue-neutral. But for the government to afford to purchase the same goods and services, it would have to raise spending by the amount of the tax it pays to itself. The FairTax rate, however, is not high enough to finance the higher spending it imposes. Therefore the proposal only works if federal purchases are cut by 30%, close to $300 billion -- the increased cost imposed by the FairTax."

That's a wonderful way to grow the deficit, right? Every dollar spent on government consumption would really be a $1.30, or whatever the rate happens to be. It's just more evidence that the actual rate is nowhere near 23%.

And another - and this is particularly important on healthcare costs, which are rapidly rising:

"State sales taxes have long exempted all but a few services because of the enormous difficulty in taxing intangibles. But the FairTax would apply to 100% of services, including medical care, thus increasing their cost by 30%. No state comes close to taxing services so broadly. Consumers would also find themselves taxed on newly constructed homes. Imagine paying 30% to the federal government on top of the purchase price of your next house."

Then, the actual *cost* of the tax doesn't even factor in the rebate:

"Aside from the incredible complexity and intrusiveness of tracking every American's monthly income -- and creating a de facto national welfare program -- the FairTax does not include the cost of this rebate in the tax rate. As noted earlier, the FairTax is designed only to match current revenues and does not cover any increased spending that it may require. Since the rebate will cost at least $600 billion the first year, either federal discretionary spending would have to be cut by 60% or the rate would have to be five percentage points higher than advertised."

And, finally, an assessment of what the rate actually is:

"A 2000 estimate by Congress's Joint Committee on Taxation found the tax-inclusive rate would have to be 36% and the tax-exclusive rate would be 57%. In 2005, the U.S. Treasury Department calculated that a tax-exclusive rate of 34% would be needed just to replace the income tax, leaving the payroll tax in place. But if evasion were high then the rate might have to rise to 49%. If the FairTax were only able to cover the limited sales tax base of a typical state, then a rate of 64% would be required (89% with high evasion)."

In summary, this is a horrid idea.
~ResponsiblyIrresponsible

DDO's Economics Messiah
Cowboy0108
Posts: 420
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 10:14:41 AM
Posted: 1 year ago
Firstly, I will work on combating the x-tax.
If the x-tax is the flat tax, it will not produce enough revenue. According to the Laffer Curve, every income level has its own optimal tax rate. By taxing each income level at the same rate, you miss out on taxing everyone at the best rate possible. This hurts revenue. Furthermore, when the US government first instituted an income tax, it was one flat rate. Problem is, that did not provide enough revenue for the US government. They had to make taxes progressive. It did not work back then, it will not work right now.
If the x-tax is referring to the current tax system, I should not even have to waste my time describing the flaws. For one, it encourages people to put their money in tax havens. This prevents them from saving and investing in the economy. The fairtax would fix this. Furthermore, it is far from competitive on the international scale. FairTax is incredibly competitive, and it will encourage business to come to the US.
There are flaws to FairTax, but it is nothing compared to the other systems. Yes, adopting it on a national level overnight could come with risks. This is why I would suggest using the states to experiment with it. Adopt it across various states with various economies, and apply variations to it for each state to see what works.
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 11:51:46 AM
Posted: 1 year ago
At 5/21/2015 10:14:41 AM, Cowboy0108 wrote:

If the x-tax is the flat tax, it will not produce enough revenue.

I don't know how this could possibly be the case, since I don't even know of any set rate for the X-Tax or set exemption. If we set the rate/exemption high enough - let's say, 30 percent - then rich people pay close to what they're paying now, and with a broader base that would actually *increase* revenue. If we graduated the system somewhat, it only becomes more progressive.

According to the Laffer Curve, every income level has its own optimal tax rate.

That's not what the Laffer Curve says... it sets up a parabola that compares tax revenue to tax rate - if you tax at 0 percent, you take in no revenue, and if you tax at 100 percent, no one wants to work, and thus you take in no revenue. Along that curve - specifically, the point at which its first derivative is zero - there's some effective tax rate at which revenue is maximized. But the Laffer Curve looks to the aggregate, not to individual income levels. Case in point, Art Laffer supports a flat tax.

By taxing each income level at the same rate, you miss out on taxing everyone at the best rate possible. This hurts revenue.

But we're not doing that. That's not what the X-Tax accomplishes - it's progressive by its very nature because it exempts some level of income from the tax, which is a larger percentage of overall income amongst poorer people.

For instance, let's consider a hypothetical where the exemption is $20,000 and the rate above $20,000 is 20% - easy numbers, but by no means the rate we must use.

If you earn $30,000 in wage income, the math works out like this:

Total Wages - Exemption = Taxable Wages = $30,000 - $20,000 = $10,000
Taxable wages * tax rate = tax bill = $10,000 * .2 = $2000
Effective tax rate = Tax bill / Wage income = $2,000/$30,000 = 6.67%

Now, let's say you earn $80,000. I'll short hand some of the math.

80,000 - 20,000 = 60,000 * .2 = 12000/80000 = 15%

If we raise the exemption and jack up the rate, it becomes even more progressive. To actual pay even close to the actual rate, you need to earn some exorbitant amount of income - implicit in that is a utilitarian case that the first dollar you spend is more valuable than, say, the millionth, and thus higher levels of consumption are taxed at a higher effective rate than lower levels.

Furthermore, when the US government first instituted an income tax, it was one flat rate. Problem is, that did not provide enough revenue for the US government. They had to make taxes progressive. It did not work back then, it will not work right now.

It's not a flat tax, so that argument is null and void. Not to mention, that was 1913 and the rate was around 7 percent - that was *before* the implementation of SS and Medicare. Of course that wouldn't work, though no one is actually suggesting such a meager tax rate.

Not to mention, I already pointed out the multiplicity of problems with the FairTax with respect to revenue. That's where you want to look - scroll up.

If the x-tax is referring to the current tax system, I should not even have to waste my time describing the flaws.

It's not. In fact, they're not even close. The current tax system has a number of distortions that tax future consumption at a higher rate than current consumption and thus discourage savings. Attacking strawmen sounds cute, but that's not what I'm arguing for.

Here's the Bradford X-Tax: https://www.princeton.edu...

For one, it encourages people to put their money in tax havens. This prevents them from saving and investing in the economy.

Irrelevant, because (1) this isn't the current system and (2) I'm taxing wage income, not capital gains. It's a withholding tax on par with the current payroll tax.

The fairtax would fix this.

Actually, evasion under the FairTax would be far worse, *and* this would completely evade black market dealings. Again, a withholding tax solves for this - and eliminates the cumbersome costs and the billions of dollars Americans spend each year on filing their taxes.

Furthermore, it is far from competitive on the international scale.

How? Asserting something need not make it so. I don't see how a tax system that broadens the base and eliminates distortions could possibly be uncompetitive - though I can see how a regressive FairTax system would wallop consumption and prompt the Fed to action to bring down the inflationary impact.

FairTax is incredibly competitive, and it will encourage business to come to the US.

Nonsense - the rate would need to be far higher than you're letting on and it'll jack up prices. It'll push the AS curve up and the AD curve down, prompting the Fed to push AD even further down - add the fact that it'll tend to, ceteris paribus, the ambiguous effects on the USD exchange rate: inflationary impact pushes it downward, monetary tightening pushes it upward. That's ripe for a balance of payments crisis - who in the world would actually want to hold dollars at that rate? We'd be shedding international reserves by the second.

There are flaws to FairTax, but it is nothing compared to the other systems.

I'd take the current system with a few tweaks over the FairTax, actually - see above.

Yes, adopting it on a national level overnight could come with risks. This is why I would suggest using the states to experiment with it. Adopt it across various states with various economies, and apply variations to it for each state to see what works.

A lot of states have supplanted income with sales taxes, and it's highly regressive - particularly because the states can't fully fund the prebate which is supposed to add some degree of progressively.

Basically, any argument you can make in favor of the FairTax applies to an even greater degree to the X-Tax.
~ResponsiblyIrresponsible

DDO's Economics Messiah
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 12:03:48 PM
Posted: 1 year ago
Fun fact: with a $50k exemption and 50% rate, someone earning 10k would get 20k back from the government, and pay a -200% effective rate.

This is *not* a flat tax.
~ResponsiblyIrresponsible

DDO's Economics Messiah
lannan13
Posts: 23,051
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 4:19:15 PM
Posted: 1 year ago
At 5/21/2015 9:05:48 AM, tejretics wrote:
It's time for the battle to BEGIN! I'm hoping JMK and Cowboy see this, so we can watch them clash on this. I'm very interested in seeing that ...

What's X-tax?
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~
lannan13
Posts: 23,051
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 4:21:15 PM
Posted: 1 year ago
Well the Fair Tax follows this equation and when we actually look at the statistics we can see that the Poor pay way more than the rich.

1. Working poor person - earns $30,000 a year - works paycheck to paycheck - spends it all on necessities - has 0% to invest tax-free under FairTax.
2. Middle class person - earns $70,000 a year - spends 80 percent on necessities - has 20% to invest tax-free under FairTax.
3. Rich person - earns $10,000,000 a year - spends 5 percent on necessities - has 95% to invest tax-free under FairTax.

(INCOME plus PREBATE X 12 minus NECESSITIES) divided by INCOME mult by 100 equals PERCENT LEFT TAX RATE
1. ($30,000 + 187 x 12 - $30,000) / 30,000 X 100 = 7.5 92.5% working poor
2. ($70,000 + 187 X 12 - $56,000) / 70,000 X 100 = 23 77% middle
3. ($10M + 187 X 12 - $500,000) / 10M X 100 = 95 5% rich

Next here I will quote Gary Johnson, " The Fair Tax calls for abolishing all federal taxes and replacing them with a 23 percent nationwide sales tax that applies only to new goods and services. For example a used car or secondhand clothes would be exempt, while groceries would not. In addition to a simplified tax, everyone would receive something called a monthly prebate check."

Now you may look to Europe for possible signs of sales tax working, but that is only because they use VAT, meaning that they take 25% of the FINIAL sales profits. This is a much better system than what my opponent is purposing and we can see it doesn't harm the business, as much, and it helps the government by ensuring that business are still in operation and it doesn't harm the consumer as much. Though I still prefer the flat tax system.
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~
lannan13
Posts: 23,051
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 4:25:21 PM
Posted: 1 year ago
At 5/21/2015 10:14:41 AM, Cowboy0108 wrote:
Firstly, I will work on combating the x-tax.
If the x-tax is the flat tax, it will not produce enough revenue. According to the Laffer Curve, every income level has its own optimal tax rate. By taxing each income level at the same rate, you miss out on taxing everyone at the best rate possible. This hurts revenue. Furthermore, when the US government first instituted an income tax, it was one flat rate. Problem is, that did not provide enough revenue for the US government. They had to make taxes progressive. It did not work back then, it will not work right now.
It would produce enough revenue if you gurrienteed that everyone, even corporate paid flat tax of 35%. If you made sure that the tax rate is equal and that everyone would pay you eliminate loops in which people get free "entitlements" from the government.
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~
Cowboy0108
Posts: 420
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 6:22:08 PM
Posted: 1 year ago
At 5/21/2015 4:25:21 PM, lannan13 wrote:
At 5/21/2015 10:14:41 AM, Cowboy0108 wrote:
Firstly, I will work on combating the x-tax.
If the x-tax is the flat tax, it will not produce enough revenue. According to the Laffer Curve, every income level has its own optimal tax rate. By taxing each income level at the same rate, you miss out on taxing everyone at the best rate possible. This hurts revenue. Furthermore, when the US government first instituted an income tax, it was one flat rate. Problem is, that did not provide enough revenue for the US government. They had to make taxes progressive. It did not work back then, it will not work right now.
It would produce enough revenue if you gurrienteed that everyone, even corporate paid flat tax of 35%. If you made sure that the tax rate is equal and that everyone would pay you eliminate loops in which people get free "entitlements" from the government.

But that would encourage corporations to store money in tax havens. The FairTax would ensure that all the money will come back to the US.
lannan13
Posts: 23,051
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 6:24:17 PM
Posted: 1 year ago
At 5/21/2015 6:22:08 PM, Cowboy0108 wrote:
At 5/21/2015 4:25:21 PM, lannan13 wrote:
At 5/21/2015 10:14:41 AM, Cowboy0108 wrote:
Firstly, I will work on combating the x-tax.
If the x-tax is the flat tax, it will not produce enough revenue. According to the Laffer Curve, every income level has its own optimal tax rate. By taxing each income level at the same rate, you miss out on taxing everyone at the best rate possible. This hurts revenue. Furthermore, when the US government first instituted an income tax, it was one flat rate. Problem is, that did not provide enough revenue for the US government. They had to make taxes progressive. It did not work back then, it will not work right now.
It would produce enough revenue if you gurrienteed that everyone, even corporate paid flat tax of 35%. If you made sure that the tax rate is equal and that everyone would pay you eliminate loops in which people get free "entitlements" from the government.

But that would encourage corporations to store money in tax havens. The FairTax would ensure that all the money will come back to the US.

Well the thing is they can keep outsourcing, but the thing is China and other Communist nations don't have Copyright and China is just steeling the technology and running these companies out of buisness. I'm shocked General Motors is trusting the Chinese to build jet plane engines.
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~
Cowboy0108
Posts: 420
Add as Friend
Challenge to a Debate
Send a Message
5/21/2015 8:14:49 PM
Posted: 1 year ago
At 5/21/2015 6:24:17 PM, lannan13 wrote:
At 5/21/2015 6:22:08 PM, Cowboy0108 wrote:
At 5/21/2015 4:25:21 PM, lannan13 wrote:
At 5/21/2015 10:14:41 AM, Cowboy0108 wrote:
Firstly, I will work on combating the x-tax.
If the x-tax is the flat tax, it will not produce enough revenue. According to the Laffer Curve, every income level has its own optimal tax rate. By taxing each income level at the same rate, you miss out on taxing everyone at the best rate possible. This hurts revenue. Furthermore, when the US government first instituted an income tax, it was one flat rate. Problem is, that did not provide enough revenue for the US government. They had to make taxes progressive. It did not work back then, it will not work right now.
It would produce enough revenue if you gurrienteed that everyone, even corporate paid flat tax of 35%. If you made sure that the tax rate is equal and that everyone would pay you eliminate loops in which people get free "entitlements" from the government.

But that would encourage corporations to store money in tax havens. The FairTax would ensure that all the money will come back to the US.

Well the thing is they can keep outsourcing, but the thing is China and other Communist nations don't have Copyright and China is just steeling the technology and running these companies out of buisness. I'm shocked General Motors is trusting the Chinese to build jet plane engines.

Well that will continue to happen. I am talking about just hiding money away. THAT money will come back to the US. That money will be saved and invested here. That will grow the economy much faster.
Furthermore, FairTax will encourage European Industry to move to the US because of the tax incentive. This means more jobs.
tejretics
Posts: 6,088
Add as Friend
Challenge to a Debate
Send a Message
5/22/2015 1:29:00 AM
Posted: 1 year ago
At 5/21/2015 4:19:15 PM, lannan13 wrote:
At 5/21/2015 9:05:48 AM, tejretics wrote:
It's time for the battle to BEGIN! I'm hoping JMK and Cowboy see this, so we can watch them clash on this. I'm very interested in seeing that ...

What's X-tax?

Prog consumption tax, basically taxes progressively via. income except exempting a portion so as to tax annual consumption, based on my understanding. Like a reformed and annual VAT + exempt %.
"Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe." - Frederick Douglass
lannan13
Posts: 23,051
Add as Friend
Challenge to a Debate
Send a Message
5/22/2015 8:29:38 AM
Posted: 1 year ago
At 5/22/2015 1:29:00 AM, tejretics wrote:
At 5/21/2015 4:19:15 PM, lannan13 wrote:
At 5/21/2015 9:05:48 AM, tejretics wrote:
It's time for the battle to BEGIN! I'm hoping JMK and Cowboy see this, so we can watch them clash on this. I'm very interested in seeing that ...

What's X-tax?

Prog consumption tax, basically taxes progressively via. income except exempting a portion so as to tax annual consumption, based on my understanding. Like a reformed and annual VAT + exempt %.

Ew, I prefer Flat tax.
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~
tejretics
Posts: 6,088
Add as Friend
Challenge to a Debate
Send a Message
5/22/2015 8:32:47 AM
Posted: 1 year ago
At 5/22/2015 8:29:38 AM, lannan13 wrote:
At 5/22/2015 1:29:00 AM, tejretics wrote:
At 5/21/2015 4:19:15 PM, lannan13 wrote:
At 5/21/2015 9:05:48 AM, tejretics wrote:
It's time for the battle to BEGIN! I'm hoping JMK and Cowboy see this, so we can watch them clash on this. I'm very interested in seeing that ...

What's X-tax?

Prog consumption tax, basically taxes progressively via. income except exempting a portion so as to tax annual consumption, based on my understanding. Like a reformed and annual VAT + exempt %.

Ew, I prefer Flat tax.

Flat tax = income tax = penalize saving
X-tax is a flat rate except a rate of exemption from income that makes it progressive. Like, you're taxed at a flat rate of, for example, 25% of your income, but are *exempted* by some percent of income (I'm not sure flat or not), so it becomes progressive (not exactly "income" because VAT+exemption, so it taxes consumption). Most economists hail it as the best tax.
"Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe." - Frederick Douglass