Tax Reform

[catbirdseat]

Synonyms:

Tax simplification, Fair Tax

 

Definition:

Eliminate the progressive tax based on income and replace it with one based on consumption, that is a National Sales Tax.

 

Under the old tax those who made more money, paid at a higher rate. Those living in poverty and falling below a certain level might pay no income tax at all.

 

Proponents suggest they can mitigate the effect on the poor by exempting certain purchases, such as food. Estimates by economists suggest that the sales tax rate would need to be about 15%. This means when you go to REI to purchase a prAna top or whatever, you will pay 15 + 8.6 (local, state and county) = 23.6% on your purchase.

 

The Cato Institute suggest that economic activity will be stimulated in such a way that the rate will eventually fall to 10%.

 

Okay, here's my opinion. Apart from transferring the tax burden from the rich to the poor and Middle Class, I would predict that the economic effect would be the opposite of that predicted by the Cato Institute. I think there would be a huge fall off in economic activity, as money pours overseas for luxury purchases and into Swiss bank accounts.

 

Discuss

[chucK]

How can those figures be correct? How can 15% sales tax take the place of revenues garnered from a 25% (and higher on rich people) income tax?

[chucK]

Oh and BTW, I've changed my tune on the flat tax. I think it's a great idea as long as the standard deduction is 50-100K dollars. So, that is, flat tax on all earnings over standard deduction.

[KaskadskyjKozak]

 

Keep the system and rates as they are for now, cut spending, and when we have a surplus again, cut all the marginal rates more. Repeat.

[cj001f]

Anykind of tax "reform" is dead unless you can convince Joe Public he'll pay less. The only responsible way to pay this in taxes is to cut spending. I doubt that will happen.

 

All you have to do to kill the "national sales tax" is to say "thats what dem Yurpeans have"

[chucK]

 

with the addition of having some portion of any surplus go to paying off national debt.

[KaskadskyjKozak]

 

with the addition of having some portion of any surplus go to paying off national debt.

 

Yes.

[foraker]

how about any excess oil profits and Halliburton profits going to pay off the national debt?

[catbirdseat]

Anyone care to speculate what would happen to the economy if a flat tax or National Sales tax were implemented? Do you think 15% would be high enough? Do you think people will try to avoid paying a sales tax by smuggling and other devices? Do you think economic activity would increase or decrease? Would there be any effect on the balance of trade with other countries? What effect would such a tax have on your buying and saving habits?

[Norman_Clyde]

If such a measure were enacted, retailers would include the tax in listed prices, the way they do in the UK. This would lessen the psychological impact on consumers and dampen the effect to some extent.

People would continue to seek creative ways to avoid paying, from increased black market/bartering activity to increased cross-border activity to no doubt other clever strategies. But since these strategies are tied up with consumption, which almost always has a paper trail, maybe illegal evasion would be harder.

[catbirdseat]

We climbers like to avoid an 8% state sales tax by buying mail order. Unless I miss my guess, you won't be able to avoid National sales tax, even if you bought over seas.

[murraysovereign]

If such a measure were enacted, retailers would include the tax in listed prices, the way they do in the UK. This would lessen the psychological impact on consumers and dampen the effect to some extent...

 

Our GST, by law, must be shown separately on the receipt. The government of the day wanted to ensure everyone was always aware of how much tax was being added to the bill. This makes it much more difficult for future governments to increase the tax rate than would be the case if it was hidden in the price. If it's hidden in the price, people eventually forget that it's there, and it's easier for governments to add a quarter-point here and a half-point there. Out of sight, out of mind. Because it's added on at the till every time you buy something, people are constantly reminded of it, and consequently there's constant pressure on the government to reduce the tax or eliminate it altogether. Anyone attempting to increase the rate might as well just go straight to Rideau Hall and ask the Governor-General to dissolve Parliament.

[KaskadskyjKozak]

how about any excess oil profits and Halliburton profits going to pay off the national debt?

 

how about any excess profits made by trial lawyers?

[graupel]

http://newyorker.com/fact/content/?040906fa_fact

Such a system would penalize middle-class people, who spend nearly all the money they earn; a fact Hall and Rabushka, the originators of the flat tax, were straightforward about. In 1983, they wrote that a flat tax “would be a tremendous boon to the economic elite,” adding that “it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

Moreover, the White House’s forecast extends only to 2009, when the baby boomers are due to start retiring, putting enormous demands on Medicare and Social Security. “Perhaps the biggest difference between Reagan and George W. Bush tax cuts is that, with Reagan, history gave us time to clean up the mess,” Peter G. Peterson, who was Secretary of Commerce in the Nixon Administration, writes in his new book, “Running on Empty.” “With George W., history may not be so indulgent.”

 

Roughly two-thirds of taxable income is paid to workers in the form of wages and benefits. The other third goes to reward capital, or accumulated savings, in the form of corporate profits, dividends, and interest payments. If Bush’s economic agenda was fully enacted, the vast bulk of these payments wouldn’t be taxed at all, and labor would end up shouldering practically the entire burden of financing the federal government. In a new book, “Neoconomy: George Bush’s Revolutionary Gamble with America’s Future,” Daniel Altman, a former economics reporter for the Times and The Economist, describes what such a system might look like. “The fortunate and growing minority who managed to receive all their income from stocks, bonds and other securities would pay nothing—not a dime—for America’s cancer research, its international diplomacy, its military deterrent, the maintenance of the interstate highway system, the space program or almost anything else the federal government did. . . . Broadly speaking, that fortunate minority would be free-riders.”

[Dr_Crash]

Ha ha ha ha ha ha... No wait, it's not funny. I live here too.

 

drC