The Blue Board

This thread has turned exactly what I had hoped it would. Intelligent people having an intelligent discussion on a needed solution. I just want to say thank you to you folks that are offering your incite. Thank you.

That said, do you ever seeing of these solutions being adopted in the US?

I can't remember if its been discusses, so I'll just ask again:

Those in favor, would still support a fair tax if it was a VAT instead of a sales tax since the former would entail deadweight loss?

Lets go over the Fair Tax lies first:

#1 - The FT is voluntary. I say it is voluntary b/c you get the pre-bate up to the necessity/poverty level. So you can buy new things (ie food and not pay taxes on it). He is ignoring the fact that every dollar you spend up to the poverty level is not taxed. He brings up a good point about buying used and avoiding taxes that way too (ie make your money go farther and encourage re-use of things). This point is off target.

#2 - 30% vs 23%. This is a fair point. I do not know what the number is, but the CBO or some other independent (quasi) could come up with it. The number is supposed to be set so that tax revenue doesn't change. That is, take away the income taxes going into the gov't and add a X % Fair tax and the revenue in is the same. Set the number so this happens and everyone knows exactly what the gov't is taking from them. That makes them a little more thoughtful when going to the polls and that can't hurt. Most people have no idea that when they buy that $100 jacket that they are give ~ $22 to the gov't in embedded taxes. The FT is simple, everything (new) has X% built in (easy to understand).

#3 - Again valid point, but overstated. Apply common sense (not that the gov't will), but which is harder (takes more resources/people), collecting a variety of income tax rates from individuals and business based on the 70K + pages of IRS tax code with 1000s of loopholes or ensuring that businesses report/submit 23% (or whatever single %) of all new sales to the gov't? This is an easy question. Simpler rules applied to a much smaller population.

Then it goes into problems and so on. The author's biggest complaint is that it does nothing to shrink gov't (rev neutral), but I think it does. It is a simple system that everyone can understand and I think that helps gov't. Under the FT, the politician would have to say, I propose raising the FT rate 3% to pay for X, Y and Z. Working mom understands what that means to her and her kids. Now compare that to today, when there are pages added to the tax code all the time (new deductions and taxes). The article is from a site that pushes Austrian economics, so I generally like where he is coming from. I just think that he has unreal expectations and is still looking for a perfect solution. A key point of the fair tax is that it repeals the 16th ammendment (I know that take a lot more than a normal law to pass), thus eliminated income tax (ie federal income tax would be against the law again).

I understand the benefit of eliminating deadweight loss, but what can prevent mass fraud. The rate is higher than normal and theoretically, the higher it goes, the higher the rate of fraud.

Moreover, would there be a push on the Fed? I see it's philosophical differences getting in the way of the market's effect on purpose of the tax to encourage investment and saving by taking certain measures in monetary policy.

Again, I say that common sense dictates that the simpler the system is, the easier it is to track (the simpler our tax system is the easier it is to prevent fraud and abuse).

If the IRS were to audit every individual that didn't file on a 1040EZ (std deduction only), I would bet that ~50% or more would have some form of screw-up that led to them paying fewer taxes than the auditor would determine. Add those up and it gets to be some $$$. Now add businesses to the mix and it gets worse. Add those that didn't even file or got paid in cash and the amount of "fraud" goes through the roof.

Sales of new goods and services generally have a receipt. That is to protect the person buying as much as anything else. Wal-Mart has a list of vendors/suppliers and they have the same receipts as Wal-Mart. They will keep their receipts to show that they didn't sell the charmin or what have you to a consumer (no tax burden). So if Wal-Mart decided to lose some of those receipts and say that it only had 20K cases of charmin vice 30K (trying to keep the 23% or whatever on the 10k delta), it is easy to go back and check for an auditor. You don't have to think about the rules in the 70,000 + pages of the IRS tax code anymore. I think the total bill (with legalease and all) is around 100 pages. So it is simple to check, now you just need to add the big stick (loss of business license for a pattern of willfull fraud). I don't know if that is in there, but it should be.

Would there be fraud if we went to the FT? Yes. Is there fraud now? Hell Yes and I'd venture to say that it is more than what we would have. Either way, I am willling to try something besides the 70,000 pages of crap we have now. I want it simple so the most uneducated can understand exactly what the gov't is taking from them so they understand the ramifications of their actions at the voting booth.

You'll have to explain what you mean in the last point a little better. I don't really like the idea of the Fed using monetary policy (quantitative easing or ...) to manipulate the market, so you can probably guess me response, but you statement isn't 100% clear to me.