A tax analogy, who's really paying their fair share?

[BigNBushy]

You also asked about business purchases and compliance. There would be a "policing" body, if you will, but consider the following.

The IRS has to track every business and individual. This has created a beast.

Something like 90% of all retail sales are done by less than 1000 companies. I forget what they would call it, but they have a plan for insuring compliance. It wont cost a fortune to run, like the IRS does.

Also, you are right, if you purchase something for business purposes, you arent taxed on it. Since, if you are a business you supply a good or service, you would have a relationship with this policing agency.

I would imagine it is something like churches have to avoid paying sales tax here in my state. Its a card they swipe. Here, this card would be capable of recording the transaction, then the business purchasing the product would simply include it in some sort of report/form showing it as a legitimate business purchase.

I have it in my head, Im having a hard time explaining it. But it is very similar to how it is done today.

There aren't very many pastors out there, or folks from charity buying stuff for personal use and using their tax exempt card because they have a way of keeping tabs on that. Its simple.

 

[NLXSK1]

if i wanted horrible advice from a subway sandwich maker, i would walk down the block to subway.

LOL... An out of work pot grower gets an attitude about people who work for a living...

Every subway employee has a better work ethic than you bucky... What does that make you?

Oh yeah, someone who must hate himself...

 

[beenthere]

LOL... An out of work pot grower gets an attitude about people who work for a living...

Every subway employee has a better work ethic than you bucky... What does that make you?

Oh yeah, someone who must hate himself...

You keep forgetting that UncleBuck is taking over his father in-laws multimillion dollar business.
He's been getting up around 11:00 am lately, that's a couple hours earlier than usual, clearly he's gearing up for something.

 

[travisw]

You keep forgetting that UncleBuck is taking over his father in-laws multimillion dollar business.
He's been getting up around 11:00 am lately, that's a couple hours earlier than usual, clearly he's gearing up for something.

First it was Schuylaar's feet, then it was Chesus's penis, and now you know what time Buck wakes up. How does he like his pancakes?

 

[beenthere]

First it was Schuylaar's feet, then it was Chesus's penis, and now you know what time Buck wakes up. How does he like his pancakes?

It's always been about Bucky taking over his father in-laws multimillion dollar business, you just haven't been around long enough.

BTW, you have it mixed up, it was Schuylarr's feet and penis And her adams apple, UncleBuck is the penis worshiper.

 

[tokeprep]

You're saying the same thing I am. I worded my sentence poorly, apologies. Folks bitch about the super wealthy only paying capital gains. That is a much lower percentage than income tax. They also hire accountants and attorneys to help them shelter, hide and deduct much more than they could have otherwise.

Of course high-income earners pay the lions share, poor people dont have much income to tax. Im just saying though, that the poor pay the percentage that is dictated by legislation. The rich and wealthy pay significantly lower because they can. The top bracket is 39%, a person earning 10 million each year, I would be willing to bet, does not pay 39% on the income he earns over the 39% threshold. So they avoid paying it.

Avoidance would not be an issue with the FairTax. Unless of course you see buying a used car a form of tax evasion.

I agree that rich people structure their income to be tax-advantaged, but I should clarify that I'm not bothered by that. When you say the rate on $10 million+ in wages will be 39%, you shouldn't be surprised to see compensation at and above that level restructured as capital gains taxed at 20%. Reducing the marginal rates and equating them to capital gains rates would probably yield approximately the same tax collections. They might as well do this.

Anyone who looks at marginal rates and think people with $x income are paying x% as income tax is kidding themselves. I'm not pretending that's true.

Right now capital gains tax rates are historically low. I think they could stand to go up a little. However, Bush dropped them from 20 to 16 and revenue from the rate went up. Dont believe me, there is a very nice chart here that will show that when Bush dropped the rates durring his first term, the revenue generated from this tax DRAMATICALLY increased. Link.

I'm interpreting your chart a bit differently. I see high capital gains tax collections in periods of good market performance and low capital gains tax collections in periods of bad market performance. Smart players in 2000 took tons of money off the table before equity values plummeted; likewise, smart players in 2007 took tons of money off the table before the economy had a near death experience.

You could even make the argument that lower capital gains rates seem to spur excessive speculative market activity, which is good for revenues when people take the profits but bad for the economy when the speculative bubble collapses.

Now, if your goal is to keep folks from getting rich, then raising the rates is the best policy. If your goal is to generate as much revenue as possible, in this case, it appears less is more.

If I make $10 million and pay $3 million in tax, I'm still rich. Taking 30% of a rich person's return prevents no one from being rich.

As to spending. It is hard to answer a question based on a false premise (see the bold above.) The actual sticker price on objects probably wont go up much (they might at first, but competition will drive price down.) Take a loaf of bread. Right now when you buy bread you are paying a portion of the taxes of the farmer, the truck driver, the baker, and the store owner (the list could keep going, but I think I made the point). The FairTax eliminates the taxes all of these folks are paying. So after implementation of the FairTax, the amount of money they need to charge to be profitable goes down. As long as they have a competitor, they will lower their prices, probably to a point that gets them around where profit margins are today.

So, the price isn't really going to go up.

Besides, even if it did, people buy things they want and things they need. If they need it, they will buy it. If they want it, they will save for it and get it when they can.

The consumption tax does not eliminate the taxes all those players are paying. All it does is restructure how they pay their taxes. Keep in mind that you're telling me this consumption tax would be revenue neutral. The tax people are paying is going to be impounded into the compensation they demand. Thus I see no reason for prices to decrease, since the aggregate tax burden is unchanged.

Ok, my first point here is this. There is a way of calculating the FairTax that would make it a 32% tax, pretty darn close to your JCT estimate. There is a reason why folks say its 23% and it makes sense. It really doesnt matter to me which number is used, because it doesn't change anything.

As to the rest of it. Business and everything right now is structured around or current tax system. Clearly, some industries would suffer. For instance, H&R Block employees would need to find new work. I think a big benefit of the FairTax is business owners could make decisions based on what would be good for business instead of thinking about taxes all the time.

The value of ALL used goods would increase a little. Seems to me this is of benefit to everyone.

The value of used cars would go up. But not tremendously. For instance, they could never exceed the value of a new one. The economics of this would work itself out. Having sold cars I can tell you that there are two kinds of car buyers out there; new car buyers and used car buyers. I can say that in over a year of selling cars on a lot with both that I never showed a used car to a customer who had also looked at a new one. And as explained above, the actual cost of the new car isn't going to be affected as much as you think, if at all, there will still be plenty of new car buyers out there. lol, the auto industry will survive this. Hell they will probably thrive in this.

I think the biggest change in the auto industry might be that those manufacturing jobs that have been sent to Mexico and other places might start coming back to the United States because it will suddenly become much cheaper to do business here.

As to the 23/32%, this rate has been independently confirmed by several different, nonpartisan institutions across the country. Detailed calculations are available from FairTax.org.

I'll leave the calculation problems to the other post on them, which was very good.

 

[tokeprep]

I provided a link to that in the post above, Capital gains has a little to do with GDP, but you post them together, and I even included another similar chart in my above post, but you post them together like that is the end all be all of the converstation.

Look at the chart in the link I provided above.

http://taxfoundation.org/article/federal-capital-gains-tax-collections-1954-2009

There it is again.

No correlations to be made, just straight raw unadulterated numbers.

WHEN YOU LOWER THE % OF THE CAPITAL GAINS TAX, THAT TAX GENERATES MORE REVENUE TO THE FEDERAL GOVERNMENT.

You're telling us lowering the capital gains rate encourages investment, which presumably would increase GDP growth. If those additional investments don't generate economic growth, why are you suggesting they're desirable? The whole rationale for lower capital gains rates is that it's supposed to increase economic growth. At least from everyone I've ever heard espouse the theory.

That can only mean one thing, a hell of a lot more economic activity is taking place when the tax is lower than when it is higher. Fuck your charts, they are worthless. Look at the real numbers instead of charts made by people wanting to mislead you.

Now you just contradicted yourself. You told us capital gains have little to do with GDP growth, and yet you're pushing your chart as evidence of "a lot more economic activity." Your chart shows capital gains realized, capital gains taxes paid, and the effective rates. That's it. If you look at GDP growth rates, they don't line up with the capital gains chart. GDP is a more proper measure of economic activity than capital gains realized.

As I already explained, your chart really just suggests that people intelligently chose to cash out their significant gains before speculative bubbles deflated. The economy faltered afterward, which undermines your suggestion that capital gains realization activity is relevant to economic growth.

To your comments on the death tax.

So since only a small percentage of the people can expect to benefit from it, we should just take it all? The tyranny of the majority.

I don't know where you get these numbers. I know all kinds of people who got land, chattels, or money from someone who died. I cant cite to a study from Cleveland, but I can remember my Wills Trusts and Estate class where my professor said he knew plenty of lawyers who made a damn good living going out an hustling the will market. I mean by that they spend a lot of time writing wills for people, even small simple wills, for just 100 or 200 dollars.

Those numbers do not mesh with my experience on this planet in any way. I know too many people who have gotten shit from dead relatives. Usually its just straight down.

A will will state, leave shit to wife, if she is dead to kids, if they are dead to grandkids, if there are none sibling, yada yada yada.

I wouldnt be surprised if that study just surveyed inner city Cleveland folks or something.

The study is from the Federal Reserve Bank of Cleveland, not some random, questionable source. It wasn't a survey of "inner city Cleveland folks." Keep in mind that 8% of 300 million people is 24 million people. It's almost 1 out of 10. So yes, I'm sure you do know a lot of people who inherited, because over your lifetime you have presumably known and known of hundreds and thousands of people.

Second, keep in mind that the pattern has shifted dramatically. People in the past were significantly more likely to care about leaving something for their children and were more able to do it because their end of life expenses were much lower. As people live longer and need money for retirement, healthcare, and assisted living facilities, far fewer people are leaving anything for their kids. The fact that you write a will doesn't mean anything actually gets inherited. If you had $100,000 to leave and then ran up $150,000 in medical bills at the end of your life, the estate has nothing to give away.

 

[tokeprep]

That might be true, but they solicited a wide rage of experts who all came to the same conclusion.

Dale Jorgenson did not come to the same conclusion. I suspect he's not the only "FairTax expert" who disagrees with the FairTax plan.

The only other names I found with significant reputations outside of academia were Stephen Moore and Laurence Kotlikoff. You keep telling us this is an exceedingly diverse group of people all reaching the same conclusion, but it sure doesn't seem that way. Where's the diversity at?

A lot of people, and I fear you are among them, cannot do what is necessary to grasp the FairTax. It isnt just adding a new tax. It is taking away all the others, it is putting new ones in, it is passing an amendment to the constitution, and it is changing something that has become very ingrained in our society.

So much is shaped by the income tax. Terms like "take home" pay.

The fact that you would seemingly fail to consider an idea because of who came up with it might just tell one all they need to know about you. Fairly closed minded. I am opinionated, but I, at least think I am open minded.

Read up on the history of the FairTax if you want answers to this. They sent out information to several groups that WERE NOT libertarians. The non libertarians sent them back the fairtax.

The criteria were (going from memory) revenue neutrality, progressive, transparent to name a few. They didnt come up with the idea, they solicited the idea.

I said I was suspicious because libertarians were the primary proponents of the plan. I'm not suggesting that everyone involved in its formulation is an ardent libertarian. My point was that if this plan were so mathematically valid and credible there could be little reasonable criticism of it. That is far from the case. The assumptions underlying the plan have been viciously, viciously criticized as being unrealistic and excessively optimistic in the plan's favor.

The vast majority of economists think the FairTax is bunk. I find this especially damning: http://www.fairtax.org/site/News2?id=8351. In this open letter supporting the FairTax, you will note that most of the economists who supposedly developed the plan are not signatories!

 

[tokeprep]

I do not think that the production of new autos would be impacted at all. Used items can only rise in value up to a certian point below what the new counterpart cost. Since so much of the make up in what an item costs is the taxes paid by the company to produce it, the price of new cars would probably go down, if anything. But I don't have a crystal ball.

I think a better way to say it is that more used goods would retain value. But I think 1999 Nissan Altima in decent shape would still be a $2500 dollar car. And a new one would still be $25,000. I simply think it would be easier to sell used goods... other than cars.

Used cars are currently quite a bit cheaper than new ones, yet plenty of people still opt to buy the new, because they want the new and they can afford it. Same would work here.

You cannot compare the present market to the FairTax market. Right now there is no artificial distinction between used and new cars for tax purposes. If you slap a 30% tax on the price of a $15,000 car, it now costs almost $20,000 while the used car is suddenly tax free. The effect on the market for new cars with such a significant artificial difference in price cannot be reasonably denied. Behavior would be altered because the environment would be fundamentally altered.

The tax savings are not as significant as you suggest they could be. Corporations are already gaming the tax system to pay as little as possible. As an example, in 2012 Ford paid 1.5% of its revenue as federal income tax. For every $1 in Ford's car sales, 1.5 cents was federal income tax. Add up all the other taxes Ford pays and it's still not going to be that significant a portion of the company's revenue. Not that it matters. Even if Ford pays no tax, Ford's employees take up the burden, and they'll demand extra compensation to make up for their new tax burden.

You had one very perceptive response, the least benefit comes to those in the $80-$120k crowd. Though the percentages are negligible. I mean seriously, its less than 5% in any scenario I've seen. But consider, the "tax burden" isn't really felt like it is now. This isn't money taken out of your check, it is money included in the cost of goods and services you buy. So being smart and frugal can reduce your tax. Also, since I think I have shown fairly well that prices will not be 23% higher than they are now, even though they arent as benefited, you really cant say they are hurt. Their purchasing power would still go up. They would have ALL of their checks to spend how they wished, on goods that probably cost the same or less than they do now. And they still get the prebate.

Only if you give up your claim of revenue neutrality could that possibly make sense. If nothing is saved on tax, in aggregate, there are no tax savings to split up.

Basically I see it like this. Although the percentage of revenue generated from the median quartiles goes up, they arent affected as much as one would think that statement implies. This all hinges, of course, on competition driving prices down after the implementation of a 23% tax. I think that is almost as sure as night follows day. But I could see how a select few services and goods could not have a reduction in price. Namely, it would have to be one without much, if any competition. So although the percentage of revenue coming from these quartiles goes up, so does the purchasing power. I guess the way to say it is they aren't benefited as much as others, but they still have a benefit. If Im lucky, Ill be in this quartile this year. I still would want the FairTax.

Can you think of a product/service that doesnt have competition? I cant.

Anyway, there are some weird things about this, that is for sure.

I am well aware it isn't perfect. The elderly, for instance, have saved their whole life. The money they saved was taxed, now they buy things with that money, and its taxed.

But what I think this does is increase the purchasing power of everyone.

Is the FairTax perfect? Nope.

But I get rather frustrated at people when it is discussed. They find a flaw or two and then they are done with it. We can sit and find flaws all day long with our current tax system.

Our current tax system was designed in the later part if the 19th century. We dont use much that was designed back then anymore. Yet folks like Buck cling to it, all the while screaming how terrible it is because the rich keep screwing everyone by avoiding taxes.

Let not the dream of a perfect plan impede the progress of a good one. - me lol, but Im sure someone else has said it somewhere.

Knowing what you know about the FairTax and our current taxes, if we were starting a new country tomorrow, which would you impliment?

The fairtax is a 21st century tax, the income tax is a 19th century tax. England abolished an income tax a couple hundred years ago and had a economic boon lasting over a century. It only ended when they implemented the income tax again.

If I were founding a country I can assure you I would not adopt the FairTax. The vast majority of economists would agree with me.

 

[tokeprep]

You also asked about business purchases and compliance. There would be a "policing" body, if you will, but consider the following.

The IRS has to track every business and individual. This has created a beast.

Something like 90% of all retail sales are done by less than 1000 companies. I forget what they would call it, but they have a plan for insuring compliance. It wont cost a fortune to run, like the IRS does.

Also, you are right, if you purchase something for business purposes, you arent taxed on it. Since, if you are a business you supply a good or service, you would have a relationship with this policing agency.

I would imagine it is something like churches have to avoid paying sales tax here in my state. Its a card they swipe. Here, this card would be capable of recording the transaction, then the business purchasing the product would simply include it in some sort of report/form showing it as a legitimate business purchase.

I have it in my head, Im having a hard time explaining it. But it is very similar to how it is done today.

There aren't very many pastors out there, or folks from charity buying stuff for personal use and using their tax exempt card because they have a way of keeping tabs on that. Its simple.

If I a set up a corporation and have the corporation buy my Boeing 747, in order to avoid a huge tax bill, how does your policing agency evaluate whether my corporation is a real business? What if I charter out my Boeing 747 when I'm not personally using it? What if 50,000 of these part time airplane charter corporations spring up overnight? How much personal use of an aircraft is too much for it to be a legitimate business? What if I pay some consumption tax equivalent to my personal usage of the aircraft?

Now take my example and apply it to everything. I think your police agency would have to be much, much larger than you imagine, because people will always, always, always try to reduce their tax burden as much as they possibly can. Given the choice between paying and chancing getting away with not paying, they're usually going to chance it.

The tax system is exceedingly complex now because it started out relatively simple and people took advantage of it. Congress wrote new rules to cut out abuses and people found ways around them. Congress wrote more rules to cut out the new abuses and people yet again found ways around them.

The idea of a simple tax system is as unrealistic as the idea of Marxism. To suggest that it is possible is to deny human nature. We can certainly make the tax system simpler than it is now, but it won't ever be simple.

 

[BigNBushy]

I agree that rich people structure their income to be tax-advantaged, but I should clarify that I'm not bothered by that. When you say the rate on $10 million+ in wages will be 39%, you shouldn't be surprised to see compensation at and above that level restructured as capital gains taxed at 20%. Reducing the marginal rates and equating them to capital gains rates would probably yield approximately the same tax collections. They might as well do this.

Anyone who looks at marginal rates and think people with $x income are paying x% as income tax is kidding themselves. I'm not pretending that's true.
[/SIZE]

Yeah, there are all sorts of tricks to keep from paying as much tax as one might think. This is part of the reason I am for reform so much. Be it a flat tax, or the FairTax, or something else perhaps. I dont know why the idea of tax reformation meets with so much resistance since nearly everyone agrees the current one is atrocious.

I'm interpreting your chart a bit differently. I see high capital gains tax collections in periods of good market performance and low capital gains tax collections in periods of bad market performance. Smart players in 2000 took tons of money off the table before equity values plummeted; likewise, smart players in 2007 took tons of money off the table before the economy had a near death experience.

You could even make the argument that lower capital gains rates seem to spur excessive speculative market activity, which is good for revenues when people take the profits but bad for the economy when the speculative bubble collapses.

If that chart I provided is true, and neither of us has any reason to doubt it isn't, then ALL that either of us can say and be absolutely sure about is that periods where the capital gains tax has been lowered the revenue generated from capital gains has increased.

In order for you to get more at 15% than you get at 20%, you have to have a lot more taking place.

Look at it like this, if your selling anything, you are going to sell more of it if it is cheaper. For instance, people borrow more money when interest rates are lower, because money is cheaper. Likewise, folks invest more, when the cost of doing so is cheaper. The facts bear this out.

If speculation is your concern, there are avenues to address this that have nothing to do with taxes.

I'm not one of those people who thinks that regulation is bad. If nothing else the recent economic crash has shown us that. Speculation is bad in the long run. Speculation can be curbed with regulation, problem solved.

If I make $10 million and pay $3 million in tax, I'm still rich. Taking 30% of a rich person's return prevents no one from being rich.



The consumption tax does not eliminate the taxes all those players are paying. All it does is restructure how they pay their taxes. Keep in mind that you're telling me this consumption tax would be revenue neutral. The tax people are paying is going to be impounded into the compensation they demand. Thus I see no reason for prices to decrease, since the aggregate tax burden is unchanged.



I'll leave the calculation problems to the other post on them, which was very good.

Yes, I know many people don't want to do much to protect folks that make $10 million dollars a year. And when the person is making that amount of money for a protracted period of years, I tend to agree, or at least am not as sympathetic to his plight.

However, there are many scenarios where this is not the case. My father was a small business owner, and for over 30 years he ran a fairly successful one.

Early on my dad worked for a guy who had his own business. Later on the man started another business and offered penny shares for an IPO and dad invested.
"Shop at Home" was the name of the network. Kind of like QVC or the Home Shopping Network, but it never got that big.

Dad kept this stock for years and years. Finally when I was in high school the stock, almost over night, went from pennies to around $30 per share. Dad told the broker to sell them all. He had 40,000 shares as I recall and he sold them for a little over 1 million dollars.

Now, that isn't a TONE of money in some respects, or to some people, but it sure is a lot. This was during the Clinton years, so the Cap Gains were lot higher than they are today.

Do you think that this scenario deserves the same amount of taxation as someone such as Warren Buffet who makes millions every year off of this? In other words, should middle class folks who get a windfall that probably only comes a couple times a year be treated the same as the super rich?

I don't.

That was probably the only year in my dads life where he made over 1 million dollars, in fact I'm sure of it and doubt if he even made half a million any other year. There are lots of folks out there who have an unexpected windfall and that extra hundred thousand dollars or so can make a big difference in how they live the rest of their lives.

 

[BigNBushy]

You're telling us lowering the capital gains rate encourages investment, which presumably would increase GDP growth. If those additional investments don't generate economic growth, why are you suggesting they're desirable? The whole rationale for lower capital gains rates is that it's supposed to increase economic growth. At least from everyone I've ever heard espouse the theory.

Im saying lowering the capital gains rates increases revenue from capital gains taxation. There is an equilibrium here that if you go too low, then you wont get anything. Im not sure where that might be, but 15% is probably as low as you can go. Likewise, I think you can go too high so you discourage such activity. That probably is somewhere north of 30%.

Now you just contradicted yourself. You told us capital gains have little to do with GDP growth, and yet you're pushing your chart as evidence of "a lot more economic activity." Your chart shows capital gains realized, capital gains taxes paid, and the effective rates. That's it. If you look at GDP growth rates, they don't line up with the capital gains chart. GDP is a more proper measure of economic activity than capital gains realized.

As I already explained, your chart really just suggests that people intelligently chose to cash out their significant gains before speculative bubbles deflated. The economy faltered afterward, which undermines your suggestion that capital gains realization activity is relevant to economic growth.

I see no contradiction, and I don't see any that you have pointed out.

I'll attempt to clarify.

As to capital gains and GDP, every chart I have seen looks as if there is no statistically significant relationship. Ill give you that. But I think that is an erroneous way to measure the merits of lowering, or the detriment of raising the capital gains (cg) rate. There are so many more factors that go into GDP than the capital gains rate.

It is possible to have a poor economy with low cg rates, and possible to have a good economy with high cg rates.

My point about capital gains is that it appears to me the country derives more revenue from a low rate than a high rate. So why on Earth would you want to raise them? Unless you don't think rich people should be able to keep that much of their money. There is no detriment to the country from low rates (how could there be if revenues are at least as high, if not higher.) If you can show me a way that having a low capital gains rate is somehow exploitative of the poor I might change my tune. The only argument I hear is that it is "unfair" that Warren Buffet's effective tax rate is lower than his secretaries.

This goes back to what is the purpose of a tax; revenue generation or social justice? It is clear from the chart that lower rates do not mean the government gets less money, but if you want to be fair about things then there is a different purpose than revenue generation.

The study is from the Federal Reserve Bank of Cleveland, not some random, questionable source. It wasn't a survey of "inner city Cleveland folks." Keep in mind that 8% of 300 million people is 24 million people. It's almost 1 out of 10. So yes, I'm sure you do know a lot of people who inherited, because over your lifetime you have presumably known and known of hundreds and thousands of people.

Second, keep in mind that the pattern has shifted dramatically. People in the past were significantly more likely to care about leaving something for their children and were more able to do it because their end of life expenses were much lower. As people live longer and need money for retirement, healthcare, and assisted living facilities, far fewer people are leaving anything for their kids. The fact that you write a will doesn't mean anything actually gets inherited. If you had $100,000 to leave and then ran up $150,000 in medical bills at the end of your life, the estate has nothing to give away.

I was thinking the same thing last night, about nursing homes and the like. But still, just because there aren't that many, statistically speaking, does not mean (in my mind) that those in a position to inherit are any less entitled to getting the money.

If anything, it means that letting the people keep all of the value of the estate is much less a reason for the government to need to see that as a means of revenue generation.

 

[Dr Kynes]

Economics made easy:

 

[tokeprep]

Yeah, there are all sorts of tricks to keep from paying as much tax as one might think. This is part of the reason I am for reform so much. Be it a flat tax, or the FairTax, or something else perhaps. I dont know why the idea of tax reformation meets with so much resistance since nearly everyone agrees the current one is atrocious.

My idea of reform would be to lower the marginal rate or to increase the capital gains tax, so that they are closer to being equivalent. The idea that lower capital gains rates stimulate economic growth is only relevant if it's actually true. If it's not, there's no justification for the diversity in the rates (indeed, they're very unfair, because rich people have a much easier time restructuring their incomes to pay less).

Likewise, I would make taxation simpler by reducing and eliminating deductions, credits, and complicated rules, instituting much lower marginal rates.

(I'm being practical with these suggestions rather than re-offering my idealistic ones.)

If that chart I provided is true, and neither of us has any reason to doubt it isn't, then ALL that either of us can say and be absolutely sure about is that periods where the capital gains tax has been lowered the revenue generated from capital gains has increased.

In order for you to get more at 15% than you get at 20%, you have to have a lot more taking place.

Look at it like this, if your selling anything, you are going to sell more of it if it is cheaper. For instance, people borrow more money when interest rates are lower, because money is cheaper. Likewise, folks invest more, when the cost of doing so is cheaper. The facts bear this out.

If speculation is your concern, there are avenues to address this that have nothing to do with taxes.

I'm not one of those people who thinks that regulation is bad. If nothing else the recent economic crash has shown us that. Speculation is bad in the long run. Speculation can be curbed with regulation, problem solved.

What you're saying is true in some periods. But in some periods when capital gains tax rates increased, revenue generated from capital gains also increased. In some periods when capital gains tax rates decreased, revenue generated from capital gains also decreased. This is why I'm suggesting that capital gains revenues have a lot more to do with economic conditions and a lot less to do with tax rates. Rather than resolutely supporting your theory, the chart repeatedly contradicts it with results opposite of what you predict.

Yes, I know many people don't want to do much to protect folks that make $10 million dollars a year. And when the person is making that amount of money for a protracted period of years, I tend to agree, or at least am not as sympathetic to his plight.

However, there are many scenarios where this is not the case. My father was a small business owner, and for over 30 years he ran a fairly successful one.

Early on my dad worked for a guy who had his own business. Later on the man started another business and offered penny shares for an IPO and dad invested.
"Shop at Home" was the name of the network. Kind of like QVC or the Home Shopping Network, but it never got that big.

Dad kept this stock for years and years. Finally when I was in high school the stock, almost over night, went from pennies to around $30 per share. Dad told the broker to sell them all. He had 40,000 shares as I recall and he sold them for a little over 1 million dollars.

Now, that isn't a TONE of money in some respects, or to some people, but it sure is a lot. This was during the Clinton years, so the Cap Gains were lot higher than they are today.

Do you think that this scenario deserves the same amount of taxation as someone such as Warren Buffet who makes millions every year off of this? In other words, should middle class folks who get a windfall that probably only comes a couple times a year be treated the same as the super rich?

I don't.

That was probably the only year in my dads life where he made over 1 million dollars, in fact I'm sure of it and doubt if he even made half a million any other year. There are lots of folks out there who have an unexpected windfall and that extra hundred thousand dollars or so can make a big difference in how they live the rest of their lives.

If I make $10,000 a year and get extraordinarily lucky one year and make $150,000, should I pay less tax than other people who make $150,000 every year? Tax is based on how much you make this year, not on what you made last year and not on what you'll make next year. Want to pay less tax? Earn less money. How interested is your dad in giving up his ~$700,000 windfall in order to pay ~$100,000 less in tax? I'm guessing not at all. It's an income tax, not a wealth tax.

 

[BigNBushy]

Dale Jorgenson did not come to the same conclusion. I suspect he's not the only "FairTax expert" who disagrees with the FairTax plan.

The only other names I found with significant reputations outside of academia were Stephen Moore and Laurence Kotlikoff. You keep telling us this is an exceedingly diverse group of people all reaching the same conclusion, but it sure doesn't seem that way. Where's the diversity at?

I've done my research and reached my conclusion; the FairTax has not changed. At the time, the range of folks who agreed was enough for me. True, there were more nay-sayers then as there are now. They are not as persuasive as many tended to base their criticisms on things I found objectionable, or when I consider the source it became apparent that the person had a bias. That does not mean I found no viable criticism of the FairTax, you have pointed some out. I would never maintain that this system would be without its cons. But to me, when comparing the pros and cons with our current system, I find the FairTax to be the compelling option.

You'll have to forgive me, since this time I have lost all my my notes and source material that I kept on me. It was quite extensive. I have tried looking for some of the things that I remember, but I cannot find it. My zeal has diminished as I have come to the conclusion that the FiarTax is a pipe dream and has zero chance of ever being adopted.

I am satisfied that you have done a fair amount of research and you have a different opinion than I do. I can accept that. I do not think you are one of the 'villiage idiots' we have around here and am willing to accept that reasonable minds can come to different conclusions.

I said I was suspicious because libertarians were the primary proponents of the plan. I'm not suggesting that everyone involved in its formulation is an ardent libertarian. My point was that if this plan were so mathematically valid and credible there could be little reasonable criticism of it. That is far from the case. The assumptions underlying the plan have been viciously, viciously criticized as being unrealistic and excessively optimistic in the plan's favor.

The vast majority of economists think the FairTax is bunk. I find this especially damning: http://www.fairtax.org/site/News2?id=8351. In this open letter supporting the FairTax, you will note that most of the economists who supposedly developed the plan are not signatories!

It may well be. The system is so different that many assumptions have to be made. I do apologize for suggesting that you were mentally incapable of grasping the FairTax. That was unfair of me.

Even if I knew the FairTax would be insufficient for our governments needs I would still advocate its adoption. For one, I find that our current tax system is a burden on business growth. I think that is stupid.

I think the FairTax would be a major economic boom, if for no other reason than removing many of the things that impede economic growth. The only thing the FairTax would prohibit is an income tax, and probably corporate taxes too. If we found that the FairTax was insufficient, there would be many other options and we could add them as needed, when needed.

And someone pointed out earlier that the FairTax might be a plan to force a smaller government, I don't think that's the case, but I also don't think that's a bad thing.

I still maintain that the FairTax as described would be revenue neutral, or close to it. I think those that say it isn't have failed to properly consider how much this thing would make our economy grow by attracting global business.

Who wouldn't want to do business in the USA? Capital is fluid and follows the path of least resistance, and it stays where its well treated. We treat it like shit right now. In fact, there are many here who think its evil.

 

[tokeprep]

Im saying lowering the capital gains rates increases revenue from capital gains taxation. There is an equilibrium here that if you go too low, then you wont get anything. Im not sure where that might be, but 15% is probably as low as you can go. Likewise, I think you can go too high so you discourage such activity. That probably is somewhere north of 30%.

As I just pointed out, the opposite relationship also exists, which undermines your conclusion.

I see no contradiction, and I don't see any that you have pointed out.

I'll attempt to clarify.

As to capital gains and GDP, every chart I have seen looks as if there is no statistically significant relationship. Ill give you that. But I think that is an erroneous way to measure the merits of lowering, or the detriment of raising the capital gains (cg) rate. There are so many more factors that go into GDP than the capital gains rate.

It is possible to have a poor economy with low cg rates, and possible to have a good economy with high cg rates.

My point about capital gains is that it appears to me the country derives more revenue from a low rate than a high rate. So why on Earth would you want to raise them? Unless you don't think rich people should be able to keep that much of their money. There is no detriment to the country from low rates (how could there be if revenues are at least as high, if not higher.) If you can show me a way that having a low capital gains rate is somehow exploitative of the poor I might change my tune. The only argument I hear is that it is "unfair" that Warren Buffet's effective tax rate is lower than his secretaries.

This goes back to what is the purpose of a tax; revenue generation or social justice? It is clear from the chart that lower rates do not mean the government gets less money, but if you want to be fair about things then there is a different purpose than revenue generation.

You're telling us there is no significant relationship between GDP growth and capital gains rates. The periods of the highest capital gains tax collections were periods of high GDP growth. If higher capital gains tax rates wouldn't have affected GDP growth, isn't it reasonable to believe that capital gains tax collections would have been higher at higher tax rates in those periods of GDP growth?

I was thinking the same thing last night, about nursing homes and the like. But still, just because there aren't that many, statistically speaking, does not mean (in my mind) that those in a position to inherit are any less entitled to getting the money.

If anything, it means that letting the people keep all of the value of the estate is much less a reason for the government to need to see that as a means of revenue generation.

I don't believe in entitlements for anyone. You want it? Earn it. Everyone. Rich and poor. You want it? Earn it.

"Taking care of the poor" discourages them from being productive. "Taking care of your children" discourages them from being productive. We get the most prosperity when the most people are as productive as they possibly can be.

 

[tokeprep]

Economics made easy:

Well, it looks like there's supposed to be something there, now that I clicked reply, but I think my original reply would have been much funnier: "There's nothing there..."

 

[BigNBushy]

You cannot compare the present market to the FairTax market. Right now there is no artificial distinction between used and new cars for tax purposes. If you slap a 30% tax on the price of a $15,000 car, it now costs almost $20,000 while the used car is suddenly tax free. The effect on the market for new cars with such a significant artificial difference in price cannot be reasonably denied. Behavior would be altered because the environment would be fundamentally altered.

I would say that you could say that used cars could not exceed new cars in value. The market might be hard to predict with a new paradigm, but it would adjust and stabilize. I maintain though, that with the embedded taxes removed, the imposition of a 23/32 per cent tax would not mean a 23/32 per cent increase in price. This is the crazy part, some items might be cheaper under the FairTax, some might cost the same, I would say the majority would have a sticker price 5-10% higher than they are now, and a few might be more. But everyone would have higher purchasing power if for no other reason than they get to keep 100% of their pay check and they get a prebate each month for poverty level spending.

The tax savings are not as significant as you suggest they could be. Corporations are already gaming the tax system to pay as little as possible. As an example, in 2012 Ford paid 1.5% of its revenue as federal income tax. For every $1 in Ford's car sales, 1.5 cents was federal income tax. Add up all the other taxes Ford pays and it's still not going to be that significant a portion of the company's revenue. Not that it matters. Even if Ford pays no tax, Ford's employees take up the burden, and they'll demand extra compensation to make up for their new tax burden.

Wow, in my mind here there is a whole can of worms to deal with.

First, fords revenue =/= fords profit. Corporations only pay taxes on profit.

But I see the point you are making about ford. That the price from ford could only come down 1.5%. OK, well, Ford buys a lot of shit. Everyone that Ford buys from buys a lot of shit. The taxes ALL of those people way way way down the line shows up in the price of that car. Fords tax only make up 1.5%, but the aggregate tax burden of all of Fords suppliers here, and the suppliers of Fords suppliers, and their suppliers is what were talking about. This all adds up to something big. And all of those people have competitors. This will not permit them to simply realize extra profit and pocket the windfall. If they do, there is suddenly more room in everyone's bottom line, and the next time the contract comes up for bidding, a competitor will gladly submit a bid with a more favorable term for Ford. Competition, it works wonders.

Also, how much money do you think Ford pays accountants and lawyers to figure out how much tax they owe, and what they can get away with not counting as income? That is all saved too under the FairTax as those services are no longer necessary.

You bring up Fords employees. Ford will no longer have to pay their portion of the FICA taxes. So there ford is saving whatever 7.5% of their labor costs are... THATS HUGE!

Fords employees wont have an extra tax burden. They are already well paid, and pay plenty of income tax as is. They will experience an de facto pay raise as a result of getting to keep 100% of their pay check.

Only if you give up your claim of revenue neutrality could that possibly make sense. If nothing is saved on tax, in aggregate, there are no tax savings to split up.


If I were founding a country I can assure you I would not adopt the FairTax. The vast majority of economists would agree with me.

Well, I would, and business would flock from your country to mine, hahahaha, then all your base belong to us!

 

[BigNBushy]

If I a set up a corporation and have the corporation buy my Boeing 747, in order to avoid a huge tax bill, how does your policing agency evaluate whether my corporation is a real business? What if I charter out my Boeing 747 when I'm not personally using it? What if 50,000 of these part time airplane charter corporations spring up overnight? How much personal use of an aircraft is too much for it to be a legitimate business? What if I pay some consumption tax equivalent to my personal usage of the aircraft?

Now take my example and apply it to everything. I think your police agency would have to be much, much larger than you imagine, because people will always, always, always try to reduce their tax burden as much as they possibly can. Given the choice between paying and chancing getting away with not paying, they're usually going to chance it.

The tax system is exceedingly complex now because it started out relatively simple and people took advantage of it. Congress wrote new rules to cut out abuses and people found ways around them. Congress wrote more rules to cut out the new abuses and people yet again found ways around them.

The idea of a simple tax system is as unrealistic as the idea of Marxism. To suggest that it is possible is to deny human nature. We can certainly make the tax system simpler than it is now, but it won't ever be simple.

I will just say this, as Im watching AUburn dismantle FSU.

It seems like an easy problem to solve. We currently catch much more deceptive tax evasion schemes. I see this as a non-issue.

The tax code would not need to be complex if congress didnt want to grant favors and encourange and discourage things.

It is complex because it is being used just as much for social engineering as it is revenue generation.

There is no need to have deductions for anything.

A flat tax would be preferable to what we now have.

A graduated system with no deductions or credits would be preferable to a flat tax.

The FairTax (at least to me) would be preferable to them all.

Are you in favor of;

1) Our system as is

2) A graduated system with no deductions or anything

3) A flat tax

4) you tell me

Im not even going to give an option for FairTax because I know thats not your bag, baby.

 

[tokeprep]

Even if I knew the FairTax would be insufficient for our governments needs I would still advocate its adoption. For one, I find that our current tax system is a burden on business growth. I think that is stupid.

I think the FairTax would be a major economic boom, if for no other reason than removing many of the things that impede economic growth. The only thing the FairTax would prohibit is an income tax, and probably corporate taxes too. If we found that the FairTax was insufficient, there would be many other options and we could add them as needed, when needed. [/quote]

I definitely think the proponents believe their plan would be better for the country. I'm not disputing that. I just think they're deluding themselves. Basically, I don't think people really mind paying taxes. We pay as little as we possibly can and we do it begrudgingly, yes, BUT in the real world no one actually says "Fuck starting a business, I don't want to pay the taxes!" I am convinced that is mythology.

I think excessive rules/regulation and government entitlements are the problems that actually impede economic growth. Anyone who's ever started a business knows that government is immediately standing in the way, demanding forms, demanding payments, demanding compliance with strict rules under harsh penalties, etc. Paying taxes is easy, you just have to write a check. Filing half a dozen forms with multiple agencies before you can hire a single employee for your business, that's pretty annoying. I can only imagine starting a restaurant--God help anyone who has to go through that. If you're dedicated enough, you're willing to jump through the hoops. If you're not dedicated, well, you might be content to work for someone else instead, and you might be less productive.

I see government entitlements as a problem because they encourage people who could otherwise be vital and productive to be dependent on government payments. Limiting their productive capacity also limits their ability to consume, which undoubtedly has a negative impact on economic growth. I don't think it's a coincidence that as government entitlements and the number of people on the dole has risen GDP growth has been hampered even as productivity has soared.

And someone pointed out earlier that the FairTax might be a plan to force a smaller government, I don't think that's the case, but I also don't think that's a bad thing.

I still maintain that the FairTax as described would be revenue neutral, or close to it. I think those that say it isn't have failed to properly consider how much this thing would make our economy grow by attracting global business.

Who wouldn't want to do business in the USA? Capital is fluid and follows the path of least resistance, and it stays where its well treated. We treat it like shit right now. In fact, there are many here who think its evil.

But the employees bear the taxes, which means they demand more compensation, which undoes the tax benefit...