Fair Tax
MOOSE:
Speaking of taxes, what do you guys think of the Fair Tax?
Summary:
- Eliminates withholding and income tax. You'd take home everything.
- Eliminates Social Security tax and employer's match.
- Creates a 22-25% federal sales tax on everything: homes, cars, sandwiches, legal services, etc.
- Claims to be "revenue neutral" (i.e. the economists who have studied it claim that it wouldn't add/reduce the federal debt).
- Marginally progressive: Everyone would get a check from the government on April 15. The check would be approx. $5000, which is meant to cover the tax on everyone's first $20,000 spent (i.e. theoretically the "first" $20,000 that everyone spends is on clothes, food, etc. In other words, if you earn $20,000 a year and spend it all, you'd essentially not be paying taxes.)
posted by UCLaw98 @ 2:45 PM
3 comments
3 Comments:
This reply is to your summary, not to the actual proposal. Take it for what it is worth.
First, we have to assume away some things. First, it could never pass, intriguing though it be. Second, I would guess there are serious commerce clause issues associated with such a tax.
Here's a question: how do states raise funds? Federal grants? That, in turn, is quite bothersome. Note the one-time red-state advantage in homeland security funds vis-à-vis blue cities (has that been rectified?). Unless the federal government takes over all responsibility for all social services, it is an abysmal idea.
Another issue: although perhaps revenue neutral, I wonder if there isn't some de facto effect of sales taxes versus income taxes in the sense that people realize when they are purchasing something what the actual cost (meaning tax) of it is. If it inhibits purchases, that will have dramatic economic impact that will, in turn, have a drastic effect on tax revenues.
Apart from all that, I like it, but I'm not sure I like it any more than I like any tax scheme that would help me at the expense of others.
And, check out:
http://volokh.com/posts/1156261829.shtml
Very different issue, but interesting.
-Max
Just picking off points:
State Funds.
Not sure that I follow. States could still raise funds exactly as they do now.
Incentive/decentive to spend.
Agreed. I went so far as to read the book, just to familarize myself with the issue. In their defense, they spend a good portion of the book discussing this very fact. OTOH, they aren't too convincing.
Their basic argument is that if it causes people to save more -- well that's a good thing. And the cost of capital will come down and there will necessarily be more investment. I don't really buy it; for a lot of reasons, not the least of which is that in a recessive economy no one invests. And it has little to do with capital's cost. (See, e.g. Japan 1990-2005).
-Moose
Re: phase-in for the elderly.
I think that you could phase in a Fair Tax to offset the elderly problem that Bud mentioned. For instance, you could grant anyone over 65 a double/triple/etc. Apr 15 hand-out.
Re: incentive to save/401K.
Under this program ALL of your money is essentially a 401K, except what you spend. Theoretically every dollar you dont spend this year is saved tax free. It's the ultimate incentive to save. Plus, I'm sure that my market would help too. I'll bet banks would offer 20 and 30 year Certificates of Deposit with healthy interest rates that would be branded as "401K CDs," which cannot be touched until one's 65th birthday without enormous penalty. Employers would partner with these banks, etc.
-Moose
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