Tax Fairness

yetanotherchick wrote:

The fairtax proposal only taxes new goods, so a used house or car would not be subject to the tax. I have no idea how many people would still find it worthwhile to buy completely new houses but I'm sure that housing companies would find a way to make it appealing enough.

most, if not all, consumption tax proposals don't actually tax consumption directly (e.g., at the cash register). by not doing so, they are more difficult to evade.

in general, the consumption tax would operate just like an income tax. you'd fill out a return showing your income from all sources, and then you'd get a deduction for all of your savings (in substance it is identical to expanding the current deductions for traditional IRAs and 401(k)s - which is, incidentally, taking place).

there'd be a mechanism for netting savings, so you couldn't just draw down savings from one account and boost savings in another to claim significant savings in a given year.

i'm sure borrowing in some complex would be a useful scheme to avoid a consumption tax, but typical borrowings, like a home mortgage, wouldn't do much for you. you'd be able to consume the amount of the loan tax free in the year of the loan, but in future years, your loan payments would be taxed as consumption, including interest (because that money is not going into savings).

long story short, there is no problem with a consumption tax and big ticket items like houses. it's a complete red herring, except to the extent that a consumption tax might lead to less consumption overall and indirectly effect housing prices.

Remember that the consumption tax would also suppress consumption, which will hurt the economy. But who knows, maybe reducing consumption would be a good thing in out crazy consumer culture...

Also, remember that a lot of states use sales tax to get revenue. These states will most likely have to ditch that plan an move to an income tax, so people won't necessarily be getting away from it.

I also argue that the rich should be paying more because they indeed gain more from having our government than people with less wealth. Why is this? Well, they take advantage of the system that our government has set up more than lower income families. Examples include the roads they use for shipping products across the country and the justice system that enforces their contracts. National Security also benefits them more, as a stable country benefits the rich more than the poor.

So to end my rant, progressive taxes are just fine. It is indeed fair for the rich to pay more than the middle class and the poor. They are getting more out of the system.

If you want to argue for a less progressive tax system, fine. Argue for a less progressive tax system.

A tax cut to stimulate the economy should at least benefit the middle class as a percentage cut to the percentage cut for the upper class. A tax cut that decreases the burden on the upper class isn't going to stimulate the economy as much as one that cuts the same percentage to everyone.

After Bush's tax cuts, the upper class paid less of the burden of taxes and the middle class paid more of the burden.

Many Men wrote:

Remember that the consumption tax would also suppress consumption, which will hurt the economy. But who knows, maybe reducing consumption would be a good thing in out crazy consumer culture...

Also, remember that a lot of states use sales tax to get revenue. These states will most likely have to ditch that plan an move to an income tax, so people won't necessarily be getting away from it.

we are moving into purely academic points, so the level of disagreement here is quite low. nevertheless, i'd argue that a consumption tax wouldn't really lower the level of consumption too much. start with the premise that i've already laid out (and that i've laid out in detail on this board before) - a consumption tax is the same as an income tax with an unlimited deduction for traditional IRAs/401(k)'s (the same is true for Roth style IRA/401(k)'s, but believing that usually takes a little more evidence).

then ask what percentage of taxpayers are actually able to max out their allotment for IRAs/401(k)'s. i would bet, without looking it up, that the number is well below 50%, most likely below 20%. so i'd argue that for those who aren't already maxing out, their level of consumption wouldn't change (b/c their tax wouldn't change; or at least their tax base wouldn't change, their rate might).

what would really happen under a consumption tax, for the large majority of americans, is that the tax base wouldn't change for those in the bottom 80% or so of incomes (again, because they already spend as much as they can and they don't save even when it is tax-preferenced to do so) but it will shrink substantially for the wealthiest americans. someone who makes $1 million per year doesn't need to spend most of her income. in fact, she probably only spends 10-20% of it, maybe 50% at the high end. so her tax base would shrink from $1 million to between $100,000 and $500,000.

on the other hand, properly constructed, a consumption tax would tax consumption from capital gains the same as consumption from income, so it would raise the tax rate on some trust fund babies.

this idiot would like data on that. that is a laughable claim. there is no way that 50% are not paying.

I didn't look up this stat, but I believe the top 50% pay for 99.7% of all taxes, I believe this is the fact they gave in my income tax class. I think it was top 1% pay 25% top 10% pay 50% and top 50% pay 100% roughly.

Sounds about right. It shouldn't be shocking, though. In addition to those who are very poor, think about all the kids and students between the ages of 16 (or even younger) and mid 20s who work part time jobs. They will pay little in taxes or even nothing (if they make less than the standard deduction plus one personal exemption (and aren't claimed as a dependent by their parents)). Or think about the elderly, who are on a fixed income, often very small, and are also paying little or nothing in income taxes. These groups are a large part of our population.

Absurdity...that is what this argument is about. To claim that 50% of the people don't pay taxes is obvious....and the figure will only igher as a larger percent of the aging America goes onto Social Security or continues to earn minimum wage. How much tax do you expect to squeeze out of the youth, infirmed, aged and minimum wage Americans? The obvious is that they can't squeeze anything out of those turnips....so, how much more do the right wing nut jobs expect to squeeze out of the rest of us who make ($30,000 to $200,000 a year). This is the group who is paying more than their share already--oh yes, did the argument forget about that nasty little SS tax that shuts down at $10,000? Did those folks forget to call this a tax, did they? Very convenient. Let's have all those who make less than $30K stand up and see how much can be squeezed out of them. Let's see if we dare take any more from the $30K - $200K folks (they already pay SS tax on everything up to $100K. Oh no, lets not ask for any more from those $150K to $100 million a year folks, because they already pay "more than their share" to pay for our little wars (up to 1/2 Trillion and rising). Absurd....get educated folks!

Sorry for that typo, the SS tax ends at right around $100,000. Anyone making more than that goes back to income tax (no SS tax) on every dollar beyond.