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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 s
by 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 agoIt'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 agoDon'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 agoThe 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.
- lsaferite 10y agoBut Susan still paid 3.5x as much in actual dollars. I guess I just fundamentally disagree with taxing my labor (or investing acumen). I'd be fully on-board with a high consumption tax though.
- pilom 10y agoI guess I look at it as Susan gets 5 times as much benefit from a stable society (they would both lose their incomes if society collapsed or the country were bombed, etc) and thus should pay _at least_ 5 times as much as Joe.