Conservatives get pinged a lot for only caring about the wealthy but the truth is that we just differ on economic principles and methods of helping the poor. I am excited that conservatives are beginning to come out and present alternative methods of fixing the tax code and move away from Keynesian Economics.
Much has been said about the Fair tax which essentially removes all income tax burdens and places the tax burden on purchases. In essence, the more you buy the more you would be paying in taxes. Or said differently, the wealthy which want to buy yachts and airplanes will be paying more in taxes then someone that only pays for food. This is referred to "consumption tax". The fear being that this tax will encourage people to reduce spending and put more emphasis on savings. This is not a bad thing but the concern I have is spending/buying goods and services is what grows the economy.
I favor a similar plan which is a flat income tax. Everyone would pay the same % and that would greatly simplify the tax code. The IRS spends over $10 billion dollars per year to essentially explain and enforce the tax code so that could be greatly reduced. In addition we loose billions of dollars to tax fraud. One part of the fraud would not be helped; fraud committed by cash transaction also called "underground economy". Our current system does not "prevent" underground economy but simply makes it illegal. The general consensus is though that people who cheat the system now will likely try to cheat any system. People think the current system is unfair but if we have a fair system more people might be persuaded to do the right thing.
It is important though to recognize the pitfalls of the Flat Tax and therefore it needs to be combined with a form of deduction or as I favor the Negative Income Tax. Combining the Flat Tax with the Negative Income Tax(NIT) would be a powerful tool to help the poor and could eliminate the welfare trap. The NIT also provides a vehicle for assuring "a livable wage" which is a popular movement that I do support although not through "tax the rich and give to the poor" which in my opinion slows down the economy.
Critics say that both vehicles have been tried although to my knowledge never at the same time. Nixon tried the NIT in addition to the current tax code which would not work. The Flat tax has been proposed by both Democrats and Republicans in different primaries. Jerry Brown (D) did it 1992 and Steve Forbes (R) did it 4 years later. Like I said don't think its ever been tried before together so would be interested if someone has more data on this.
Conservatives care for the poor and this would be a conservative policy which would help the poor, simplify the tax code without hurting the economy.
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Comments: 48
It's quite telling that those who support tax reductions for millionaires never seem able to look at all combined taxes. There's a very good reason for this. The federal income tax is only one tax. When all taxes are combined, it's found that the lower 1/3 of the nation, the middle 1/3, and the upper 1/3 pay roughly 16%, 17%, and 18% respectively. Hardly the "unbalanced and unfair taxation of millionaires" that some would have us believe.
Or, said differently, the wealthy who want to buy yachts and airplanes will be paying more in taxes than someone who only pays for food, but the person who only pays for food might be spending 100% of his income on necessities, while the wealthy spends extra income on frivolous purchases. I like that you consider a livable wage in the discussion but still think an honest assessment would have to admit that pretending a percentage of income evens the score between the wealthy and the barely getting by is not consistent with caring about the poor. Until the conversation is honest, it isn't productive.
In order to make up the shortfall that would come from dropping the top tax rate on those that control the majority of the wealth in this nation, it would be necessary to raise everybody else's rate. It's unavoidable.
Examinations of the so-called "fair tax" have revealed that, based upon our current GDP and government expenditures, the initial rate would have to begin at least at 23%, but would quickly be raised, as dramatically reduced revenue became evident.
Personally, I think that 15% is plenty for me and 90% of the rest of America to be paying. I can surely see why the upper 10%, and in particular, the upper 1% would be in favor of a flat tax, but for anyone else, it's a vote against their own best interests.
Its not really a shortfall but a method of equalizing taxes for everyone. The negative income tax becomes the equalizer which is why I support both items together. Independently I would have to agree with you that it would hurt average americans.
(Paraphrased) REPLY BY DAN R. MASTROMARCO (LL.M., Taxation, Georgetown, principal in the Argus Group, adjunct professor at the University of Maryland, International Management Program, and research consultant to Americans for Fair Taxation - FairTax.org) TO:
"A National Sales Tax Doesn't Add Up" by Bruce Bartlett, December 29, 1999
Many engaged in true tax reform find Bartlett-type attacks exasperating, if not embarrassing. I'd like to convey perspective of both flat taxers and sales taxers who believe that such attacks are counterproductive, but first provide some political history by which to frame said perspectives.
For years Conservatives have posited that a VAT is bad policy (when liberals were discussing it), fearing it would become additional to an income tax (it was called a "money machine"). Circa 1980, conservative intellectuals touted Hall-Rabushka "subtraction method" [H-R] VAT which taxed business value added at the business side and labor value added at the labor side. Unlike European VATs (identical in scope), H-R became favorite of Dick Armey and Steve Forbes. It eliminated steeply progressive tax rates and tax on savings. Because of the prior VAT criticisms, H-R was packaged as the "flat tax" and is sold as an income tax to this day, rather than the VAT that "its DNA characterizes it as."
Some conservative commentators have called for the repeal of the 16th Amendment and for the adoption of the flat tax, (despite the fact that it is styled as a direct tax and could not be adopted with such repeal). Mr. Bartlett has called the national sales tax [ie, the FairTax] a VAT (which it isn't), castigated VATs as evil, and has said that sales taxes have become VATs in Europe (which they didn't). In the next breath, he "throws his arms around" the flat tax (which is a VAT). He quotes Bill Gale that the [FairTax] would have to be imposed at 60 percent, but glaringly fails to recognize that if the two bases are the same, he would have to impose that rate for the flat tax to be revenue neutral. In truth, all economists know that the two plans differ NOT in economic effect or base, but in administration.
An income tax taxes savings and investment multiple times. Both flat tax and FairTax are neutral as to savings and investment, tax income only once, and are both consumption taxes. Both are single rate taxes, have nearly the same base, and would improve the U.S. standard of living. Neither redistributes wealth.
While some have even suggested that they are the same plans under different names, the flat tax taxes value added at each stage in the production process, but the FairTax prefers to tax it when it is added up at the end and eliminate the need to make everyone a taxpayer and collector.
Substantive commonalities between the flat tax and FairTax doesn't mean that there are NO key political and policy distinctions that could be exploited in pitting one against the other. If FairTax supporters wanted to retaliate in response to the Bartlett-type critique, they would have MUCH material with which to HONESTLY do so:
• The flat tax will make small firms and farmers pay the tax even if they have no profit
• The flat tax is opposed by many small business groups
• The flat taxers implicitly support big government by disguising even more of the overall tax burden as the current law
• The flat tax has been kicking around for nearly 20 years
• The flat tax makes everyone a taxpayer and collector, while the FairTax exempts 115 million filers [2000 figure] from ever having to deal with the IRS
• The flat tax is regressive, but the FairTax would enable everyone to keep his full paycheck.
• The flat tax has not only stalled, it has lost public and Congressional support.
• The FairTax is instantly understood, while even some proponents of the flat tax don't understand it
• There are no transition rules developed for the flat tax and they would be very difficult to craft
• The flat tax taxes exports and relieves imports from tax
• The flat tax confuses tax reform with temporary tax reduction and makes both twice as hard
• The flat tax retains the entire income tax apparatus which erodes as quickly as you can say, "tax bill"
FairTaxers could advance these truthful points without resorting to bigotry associated with a cultic religious organization. However, for the most part, FairTax supporters have chosen not to attack the flat tax, but rather accentuate the commonalities between the plans - despite the above-noted differences. The reason is that, in the battle for tax reform, the real enemy is our current system.
Income tax advocates look down upon the articles of Bruce Bartlett with smug chortling, as Bruce is doing their work for them. The IRS and the liberals who want an income tax to ensure (1) taxes can be raised without the American people knowing it, and (2) wealth can be redistributed from the middle class to the poor, do not even need to fight us - we're killing ourselves!
Perhaps Mr. Bartlett believes that the flat tax will help elect Republicans, effect tax reform, and provide tax cuts; however, the real effect of his criticism is to divide conservatives, to delay serious national consideration of tax reform, and to fertilize the roots of the income tax.
(Paraphrased from http://snipr.com/mastroflatvsfair - Addit'l at FairTax.org Whitepaper http://snipr.com/fairvsflat - May republish in whole, or part. -Ian)
I think you miss the point. We should be thankful that wealthy spend money of "frivolous" things. If people would stop buying private airplanes then you would destroy an entire industry with thousands of jobs.
Again, the negative income tax would "offset" the flat tax and allow for more tax dollars to the poor. In essence, the wealthy pay into the system and the poor get paid from the system. I might not be doing a good job explaining this...so you can look at:
http://en.wikipedia.org/wiki/Negative_income_tax
Again, I want to make sure you understand...I am not a proponent of the NIT ONLY...this was tried by Nixon but he wanted to use it in addition to our current system which would not work. I think you need BOTH the Flat tax AND NIT for this to work.
I do agree with the items you listed but my point is...as far as i know, the Huckabee plan does NOT include deductions or what I would favor which is Negative Income Tax. The NIT means that essentially NOT everyone has the same tax bill. In essence they would pay the same tax (Flat Tax) but then with the NIT they would receive a credit which could be set to equal a "living wage".
Like I have been saying...either Flat Tax or Fair Tax alone is a bad idea... The flat tax would not require a constitutional amendment because the government is still collecting taxes even though the poor would actually be receiving money back in form of a credit from the NIT.
This is only part of the cycle. What first and foremost grows the economy is businesses locating in this country, not vacating this country. The Fair Tax would make the USA a tax haven for businesses, growing the economy, creating more middle class jobs, providing more money for citizens to spend...
It might even give a chance for "Made in the USA" products to be competitive world-wide. You do know those labels that say "Made in the USA" are made in China!
Another way to put it is that if you fine people a given amount for some crime, let's use speeding as an example. If the penalty is $100, you are practically bringing ruin on the person who makes minimum wage. On the other hand you do not affect a rich person enough to make them even think about modifying their behavior if they do not want to. Sweden uses this principle in setting fines for crimes.
The other principle is a moral principle. That is if we have to have a just society we need to encourage and allow people to get ahead. In a capitalistic society the measure of all things is capital, ie money, so opening avenues for people to make it if they want to and work hard should be important to us.
Sadly, we have moved into a sick stage of capitalism, political corruption, where those that have made it now use their influence to hold other back, with the result of decreased competition for themselves, and assured place in society without challenge, and extremely low labor costs, meaning that their control over the government and its citizens has grown to the point of near "fascism".
Sadly again most of the people are not intellectually sophisticated enough to realize how this had affected them. They are more influenced by absurd promises that if they pay lower taxes it will help to make them rich and change their lives.
Paying lower taxes, particularly now when we in deficit spending is a trick that actually has most of us paying higher taxes, and feed the common society less, in fact starving it in favor of the very people who have torn it apart for their own selfish benefit.
As in a democractic society one of the main dangers is that the masses will appropriate the wealth of the rich, in a capitalistic society the danger is that capitalism and freedom is short lived unless the power of both ends of the spectrum is monitored and controlled.
Right now we have a monied class that spends it entire existence in ways to subvert and take over the system. Of course not all of them. For example Warren Buffet if famous for trying to point out how the tax system is unfair and should be changed.
To tax very wealthy people incrementally more is fair.
I would however support an idea that I just had, at least for discussion. A flat tax when we have a balanced budget, and that is after social needs have been taken care of, for example, after we have paid the bill for health care, then, we use the progressive tax only if we are in deficit spending. This wrinkle I think would help motivate the wealthy to be more responsible, and also to take care of the rest of the country, so they can actually save money. Then in times of irresponsiblity, or war, the wealthy who hurt less when they are taxes, are tapped to fix problems in the society they created. In short, we have to motivate everyone to fix things in order to get to a flat tax ... work for it, something the rich seem to have forgotten how to do these days.
Why? Simply because it is simple and something that everyone can understand.
Why is that important? It gives more power to the people and takes it away from the government (the real reason liberals hate this idea). When the people can understand what will be taxed and how it will be taxed, then they can do what they do best and that is live their lives rather than worry about adhearing to a tax code which is so complicated that no two people can agree on the details within it.
Would it hurt "the poor"? Depends on how you look at it. I truly believe that we do a disservice to "the poor" by excluding them from the tax system. They need to as much a part of funding the services our government provides (to the extent of the flat tax) as possible.
Now, please understand, when I say "the poor" I am not including the destitute. We are a compassionite society and we take care of the neediest, but we have made far too many people feel that they are owed money from others simply by their mere existance. That is not good for the future of our country.
(in fact see http://www.gather.com/viewArticle.jsp?articleId=281474977227179&nav=Namespace for a very interesting perspective on this)
The problem with any progressive tax is that it punishes achievers and those who want to better their own situations. Why should we, as a society want to do that?
If you really want to "GET" the rich, an income tax is not what you want. Many, if not most of the "rich" don't earn their money after some point - they live off unearned money (tax free interest from muni bonds, etc.). What you want is a tax on WEALTH not income. Then you can really soak 'em.
we are not talking about social equality or people screwing others. $1 dollar will always be more for some and less for others. I am talking about economic principles and a current tax system that does not work. Entitlement spending and especially spending on health care are rising "at an unsustainable fiscal path" according to CBO http://www.cbo.gov/ftpdocs/88xx/doc8877/Chapter1.4.1.shtml#1069114
so that system obviously needs to be changed.
You can also complain about the Bush tax cuts but the fact of the matter is that total government revenue is up to all time highs. http://www.cbo.gov/budget/data/historical.pdf
Now the one area I agree with you is with PAYGO and even republicans in congress have completely forgot what a fiscal conservative is. But looking at democrats in power, I do not see any fiscal responsibility either...so we are all losers and need drastic changes. What I am advocating has to my knowledge not been tried. Right now I do not see an economic policy from ANY candidate that I can fully support so I am looking for OTHER methods and that's what I want us all to debate.
You do not understand economic Victor, flatly if you do not get this point.
If you think that a dollar is a dollar, think on this basic human trait.
If you have 100 apples, and I have 100 oranges, we both have 100
pieces of fruit. If I you want orange juice for breakfast, how many
apples are you going to be willing to give up for an orange, and do
you think that the logical argument that a piece of fruit is a piece
of fruit is going to keep me from getting more than 1 apple for the
one orange I sell you, ie. making a profit.
Economics is not "equalnomics" or what is theoretical, economics
is really the study of human behavior, and human behavior says
that a dollar to the richest man in the world is a different thing
than it is to the poorest man in the world. In some countries that
dollar is the person's total income.
Thank you for the link. This is exactly the kind of out of the box thinking I am hoping for...does not seem our candidates can come up with a lot of new ideas.
The problem I see with the idea you presented is that in my case I spend every cent I make. I barely put money into my 401K and federal savings account. So people who make more would have the benefit of taking advantage of their money earning interest in the bank reducing their overall tax while people like me (am sure am not alone) do not get that benefit and that does not seem fair.
Now I am confused...I agree with you...and have. My point was that this is not what I am talking about here. I know that while there are some economic laws like supply and demand a lot of economics is perception...or as you call it human behavior.
This article though is about economic principles and theories that our glorious candidates have not come up with.
sorry have not responded to you but you point out a significant loop hole in my thinking...thank you. Goods imported would not have the same taxes levied on them (with flat tax and NIT) as our products would...so somewhere that needs to be equalized. Thats what I am talking about people...together we can come up with a sound policy
We can certainly agree on that, but then again, like the ministers and religion, the scientists on science, the economists on economics, no one agrees on much of anything and most are not willing to disclose their motivations or biases, not even to themselves, so it does not do politicians any good most of the time to talk to public as if they are half-way intelligent.
We are in a mess, and really I mean the whole planet.
maybe I am just an idealist but deep down I do believe that the "good" politicians do listen. If they choose not to listen then I know that at least I have tried rather then just sit there and watch the boob-tube or complain about things.
> we are never given a challenge without a solution.
Michelle, I think a lot of people believe that, and it makes
matters worse because they do not think that it is
possible that consequences can be massively fatal.
I don't know how probably it is, but it is possible that
we have already destroyed all life on planet Earth by
global warming, or at least human life.
I wish I had faith there was was a solution to
everything. Read the book "Collapse" by Jared
Diamond to find out how fatal and how often
humans have extincted themselves.
Thanks thats a different twist on the "Fair Tax". The difficulty is pushing through a constitutional amendment (repealing the 16th Amendment). Not saying I am against that...but just saying its difficult and highly unlikely.
However, I'm MORE in favor of a new, taxless system. I believe it is possible to change things, change has occurred in the past. Better things should replace outmoded attitudes and ideas. May the best ones win.
; )
Do you think 1% would be enough? Some states charge in excess of 7% sales tax. How are going to fund all the progrms with only 1%?
I have heard many comments on VAT-type systems, pro and con and have, of course, experienced them when outside the US. The major pro, in my view, is that necessities would not be subject to tax, aiding the lower income brackets. the major con, again in my view, is the addition of VAT into the cost of goods sold.
Did I mention that this would probably encourage monopolies and huge vertically integrated sluggish corporations that would pay no taxes and drive everyone else out of business ... yeah, WalMart! Ever thing of that?
Let me tell you, criticising the administration in power is the American way....It is what distinguishes America from many other countries and the fact that it is done is a cherished right.
Personally, I love America, and I want it back. I will continue to be as much of an activist as I can towards that goal and if you choose to interpret my criticism or anyone else's as hatred, then that is your right.
However, I would strongly dissuade you from impinging on Americans' right of free speech. You, for example, are perfectly free to say, as you did, that "conservatives care for the poor," and I am perfectly free to say that frankly, I don't see that happening.
Anyway, this is meant to be taken in a positive way, hopefully...As far as the tax ideas are concerned, even though they've been bandied about for decades in America, I would have to see how various income levels would be affected before commenting...
I 100% agree and I have never deleted a comment. Now not quite sure why you bringing this up here or why bring it up at all because I do not have a problem with people expressing ANY opinion. Its the "America is evil" or "Bush suck" or "Wish they would cut Cheney's head off" statements that I find counter productive. I have read many of your posts and sometimes I agree sometimes I do not. But I do not think that I ever came to anyone's post and limited their free speech??? May have shot down their arguments but that also is free speech. I guess I am not quite sure why you come to "my post" which is talking about economics and feel like you need to "warn" me about impeding on free speech...anyho got any ideas on taxes or economics you wish to share?
Carla,
Thanks for the post. selfishness is not something that can be outlawed... I think the crux of the matter is that we have different ideas on what helps the economy = people most. I believe that you can help more people with a strong economy. As you can see over the last few years, we have brought in more money then projected. Bush has also increased entitlement funding to its highest levels ever. The problem is on the spending side and we(conservatives) have done a horrible job...although after 12 months of democrat control we do not see them doing any better. I am a strong supporter of the line item veto because the "earmark" issue is just getting out of hand. Average bill has over 100 earmarks which are "special little projects" politicians hang on bills and some of them are a complete waste of OUR money.
I am squarely in the middle class so I understand what you are saying. I think you miss the fact that I am advocating for BOTH the Flat tax and negative income tax. NOT one or the other. The flat tax would hit everyone but then the negative income tax would effectively reduce the amount owed by a form of credit. Someone making below a certain level would ONLY receive a credit which is an effective method, I believe to ensure a minimum wage which I would like to see at the "livable wage" level.
BTW...took both my sox off to calculate this but 17% of $500,000 is $85,000 not exactly chump change. Now multiply this by the number of people that would normally hide this money in tax shelters...or fake deductions etc.
I'm glad some people think 15% is fine, I disagree and wonder why is it that such people don't just agree THEY can pay extra into the revenue styraem and let the rest of us use our money as we see fit. Those who whine about the rich are simply envious and no one should make financial planning on that line
engineering, any way we set up our economy has social
engineering effects, in the case of what we have now it
allows unlimited wealth to be accrued by rich people and
tends to keep the poor, poor, and the middle class shrinking.
So, it is not whether or not there is social engineering,
it is how you evalute the effects of what is there. The
criteria I would use is how does it enable people to
contribute to the economy, and how does it contribute
to political abuse, and justice.
We would not be talking about this if there were
not problems, and you are calling any solution to
it bad, so it is easy to see where you are coming
from.
For example, say health insurance and groceries each cost a family $10,000 a year. That would be 80% of a 25K wage. Wouldn't it make sense, by flat/everyone is the same logic, that everyone pay 80% of their salary for health insurance and groceries? Especially when the 25K earners work the same number of hours as the 200K earners, so it's not like they can just work ten times as much to survive.
Sorta like the people who support the Iraq war are paying for it and letting the rest of us spend out money as we see fit?
At every stage in life and salary I seemed to do OK spending what I was left with in taxes. I never had thoughts of cheating my country or strangling it so I could have a tiny bit more to buy some new consumer item. I'll never understand how people can live and die over taxes ... and it is always people who are doing far more than alright as well.
I agree with you bruce that people do a lot of whining about taxes..but the bottom line is that its not just taxes. What we do with taxes has a direct impact on the entire economy. You can disagree with the bush tax cut as much as you want...and for the record I did not agree with giving a check to EVERYONE but the fact is that the tax cut actually increased the revenue. This is not an isolated thing. It happens in cities, happens in states and yes happen national. If companies are encouraged to buy things by increasing depreciation schedules then it trickles down to vendors, manufacturers etc.
Bruce K thinks its fair for wealthier people to pay more...this begs the meaning of fair...who decides its defination?
The majority of the country today pays no income tax and many of them get EIC, a wealth transfer. More and more of tax policy is set to have less and less pay more and more. At what point does a real minority pay for everyone else's entitlements and the rest of government spending? We are getting closer to that magic border when the evil rich simply boogie up (England 60s/70s) and then what? Soak the fools who didn't bribe a congressman or flee?
The more you tax the more you drive off producing individuals. Just look at what is happening to US industries for the last 30 years...Regulation and taxes are economy killers.....