5 ms·

Honest question, why is it batshit-crazy?

nicwolff 10y ago
Because rich people spend a much smaller percentage of their income on taxable goods, so to be revenue-neutral the "fair" sales tax would have to be at least 30% (if you believe the FairTax fans) or over 50% (if you believe other economists).
smt88 10y ago
One reason is that it's impossible to enforce. If sales tax were that high, it would give retailers a huge incentive to under-report sales on the billions (trillions?) of transactions in the US each year. The same way it's hard to catch drug dealers for tax evasion, it's hard to catch retailers who want to avoid charging/paying sales tax. With the income tax, you have employers reporting and a far small surface area of cheaters to police. It's still a massive effort to police it, but not nearly as large as FairTax would be. FairTax is essentially a scheme to eliminate enforceable taxes, although I'm not sure its creators intended it that way.
- lsaferite 10y ago
  You think it's harder to enforce tax collection on businesses than individuals? With a significantly lower number of business you can audit their books more often. Additionally you can more easily monitor their bank account activity to detect tax evasion. Sure, cash-only businesses could try and avoid taxes, but they have a lot more to lose than a single individual that under-reports their income. Not sure how you think individuals are the easy ones to enforce. Also, in this world the tax code is tiny in comparison and loopholes are removed (mostly?).
pilom 10y ago
The biggest argument against it is that it is incredibly regressive. Poor people generally spend higher percentages of their income on stuff where rich people save higher percentages of their incomes. So for example, Joe makes 51k/year but spends 50k/year. At the 23% tax rate that FairTax proposes, he pays $11.5k - a $2.5k "prebate". This works out to an effective tax rate of ~18% (with today's tax plan Joe's effective rate would likely be about 7.5% for income taxes and 7.5% for Social Security and Medicare. I.e. a lower tax burden.) Compare that to a rich person. Susan makes 250k per year but only spends 150k/year and saves the other 100k. She pays 23% on the 150k = 34.5k minus the 2.5k prebate which makes for an effective tax rate of 12.8%. I.e. Susan makes more each year but pays a lower rate of taxes. These numbers get even more insane when you have 10 million in income but only spend 1 million a year. We basically are subsidizing investing and rich people are the biggest investors.
- aianus 10y ago
  > We basically are subsidizing investing and rich people are the biggest investors. What's wrong with subsidizing investing? Without investment in capital we'd all be subsistence farmers tending the fields for 12h a day. If some rich guy wants to make $100 billion and spend 1% on himself and 99% on improving the world for future generations through investment, that's great, no? I guess it comes down to whether you believe the government can invest those same dollars more productively than rich individuals.
  - smt88 10y ago
    It's not that subsidizing investing is bad. It's that we're subsidizing investing by shifting the burden to people who pay income tax. If someone makes $100M by inventing an amazing product, and someone else makes $100M by earning interest on the fortune he earned from his mother, which of those behaviors do we want to encourage? Earning money from investing is often a passive way of using money.
    - aianus 10y ago
      > If someone makes $100M by inventing an amazing product, and someone else makes $100M by earning interest on the fortune he earned from his mother, which of those behaviors do we want to encourage? What's the difference between inventing the product himself and investing in a founder who otherwise would have had to get a regular job? Remember -- he could have spent the principal on yachts, cars, and jets instead; that's the behavior we want to disincentivize.
- chrishynes 10y ago
  Don't forget the other 7.65% social security and Medicare that his employer pays on his behalf. So total tax burden for Joe now is actually over 20%... And 18% Fairfax would be much less regressive.
  - pilom 10y ago
    The fair tax proposal actually proposes removing Social Security and Medicare taxes as well so there would be no income tax of any kind. I stand by my numbers.
dragonwriter 10y ago
Well, at the rates usually proposed it's a massive tax increase on the poor (especially the working poor benefiting from the EITC) and middle class, and the rates usually proposed don't actually preserve revenue, so in reality it would be an even bigger tax increase on those groups. And it's an even bigger tax advantage to the capitalist class than the existing tax preference for capital income is. Which is why "FairTax" support lines up with support for other proposals that hurt the poor and benefit the rich.

Because rich people spend a much smaller percentage of their income on taxable goods, so to be revenue-neutral the "fair" sales tax would have to be at least 30% (if you believe the FairTax fans) or over 50% (if you believe other economists).

smt88 10y ago

One reason is that it's impossible to enforce. If sales tax were that high, it would give retailers a huge incentive to under-report sales on the billions (trillions?) of transactions in the US each year. The same way it's hard to catch drug dealers for tax evasion, it's hard to catch retailers who want to avoid charging/paying sales tax. With the income tax, you have employers reporting and a far small surface area of cheaters to police. It's still a massive effort to police it, but not nearly as large as FairTax would be. FairTax is essentially a scheme to eliminate enforceable taxes, although I'm not sure its creators intended it that way.

lsaferite 10y ago
You think it's harder to enforce tax collection on businesses than individuals? With a significantly lower number of business you can audit their books more often. Additionally you can more easily monitor their bank account activity to detect tax evasion. Sure, cash-only businesses could try and avoid taxes, but they have a lot more to lose than a single individual that under-reports their income. Not sure how you think individuals are the easy ones to enforce. Also, in this world the tax code is tiny in comparison and loopholes are removed (mostly?).

pilom 10y ago

The biggest argument against it is that it is incredibly regressive. Poor people generally spend higher percentages of their income on stuff where rich people save higher percentages of their incomes. So for example, Joe makes 51k/year but spends 50k/year. At the 23% tax rate that FairTax proposes, he pays $11.5k - a $2.5k "prebate". This works out to an effective tax rate of ~18% (with today's tax plan Joe's effective rate would likely be about 7.5% for income taxes and 7.5% for Social Security and Medicare. I.e. a lower tax burden.) Compare that to a rich person. Susan makes 250k per year but only spends 150k/year and saves the other 100k. She pays 23% on the 150k = 34.5k minus the 2.5k prebate which makes for an effective tax rate of 12.8%. I.e. Susan makes more each year but pays a lower rate of taxes. These numbers get even more insane when you have 10 million in income but only spend 1 million a year. We basically are subsidizing investing and rich people are the biggest investors.

aianus 10y ago
> We basically are subsidizing investing and rich people are the biggest investors. What's wrong with subsidizing investing? Without investment in capital we'd all be subsistence farmers tending the fields for 12h a day. If some rich guy wants to make $100 billion and spend 1% on himself and 99% on improving the world for future generations through investment, that's great, no? I guess it comes down to whether you believe the government can invest those same dollars more productively than rich individuals.
- smt88 10y ago
  It's not that subsidizing investing is bad. It's that we're subsidizing investing by shifting the burden to people who pay income tax. If someone makes $100M by inventing an amazing product, and someone else makes $100M by earning interest on the fortune he earned from his mother, which of those behaviors do we want to encourage? Earning money from investing is often a passive way of using money.
  - aianus 10y ago
    > If someone makes $100M by inventing an amazing product, and someone else makes $100M by earning interest on the fortune he earned from his mother, which of those behaviors do we want to encourage? What's the difference between inventing the product himself and investing in a founder who otherwise would have had to get a regular job? Remember -- he could have spent the principal on yachts, cars, and jets instead; that's the behavior we want to disincentivize.
chrishynes 10y ago
Don't forget the other 7.65% social security and Medicare that his employer pays on his behalf. So total tax burden for Joe now is actually over 20%... And 18% Fairfax would be much less regressive.
- pilom 10y ago
  The fair tax proposal actually proposes removing Social Security and Medicare taxes as well so there would be no income tax of any kind. I stand by my numbers.

dragonwriter 10y ago

Well, at the rates usually proposed it's a massive tax increase on the poor (especially the working poor benefiting from the EITC) and middle class, and the rates usually proposed don't actually preserve revenue, so in reality it would be an even bigger tax increase on those groups. And it's an even bigger tax advantage to the capitalist class than the existing tax preference for capital income is. Which is why "FairTax" support lines up with support for other proposals that hurt the poor and benefit the rich.