Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-08-2008, 07:12 AM   #21
Full time employment: Posting here.
 
Join Date: Oct 2007
Location: New York
Posts: 898
The blogger has an interesting idea but he himself seems to be uninformed about the tax code. Look at this:

"Currently, only the first $95,000 of income is subject to payroll tax. Payroll taxes are for such things as Social Security, Medicaid and Medicare."


Medicare tax base capped at 95k? Yeah, right. Then why did I pay more in Medicare tax than Social Security tax last year?
__________________

__________________
Money's just something you need in case you don't die tomorrow.
Maurice is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-08-2008, 01:39 PM   #22
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,811
I read the “Fair Tax gaining steam” thread above. I wasn’t around in 2005 to get a comment into it, but I can’t resist putting a comment here.

I think the “FairTax”, aka a “national retail sales tax”, has some significant costs and very few benefits. One cost is transitioning to something so different from our current system. Another is the likelihood that high wealth people won’t pay their “fair share” of taxes. Time and energy spent trying to install a sales tax would be better spent trying to reform the income tax.

Here are the purported benefits of a sales tax, and my comments:

“A sales tax is dramatically simpler than our current individual income tax.”
That’s true if you compare a theoretically pure sales tax to our current immensely complicated personal income tax. However, all those complications are in the income tax because they are politically popular. Any sales tax is subject to the same political forces as the income tax. (In fact, the FairTax already has one complication -- education expenses are exempt.) Over time, a sales tax will be just as complicated or simple as an individual income tax, depending on our political will in either case.

“A sales tax is dramatically simpler than our current corporate income tax.”
That’s true, and a small part of the difference is inherent in the nature of the taxes. However, if you really don’t like corporate income tax, it can be eliminated without redoing the entire tax code. ERD50 has one approach. Another would be to simply tax dividends and capital gains at the full rates on individual returns, with some provision to prevent deferring capital gains indefinitely. This approach also assures that high wealth people pay some tax on income that they may not spend.

“We’ll get better compliance with a sales tax than an income tax.”
Compliance rates go down when tax rates go up. A high sales tax rate, as proposed in the FairTax, will result in significant incentive to avoid the tax. Compliance also depends on complexity. An individual income tax and sales tax with equal rates and equal complexity will have about the same compliance rates.

“A sales tax doesn’t need the IRS”.
Nonsense, all taxes require enforcement. Equivalent sales and income taxes need about the same enforcement (see paragraph above).

“Wealthy people will finally pay their ‘fair share’ “.
I expect that wealthy people will pay less under a sales tax, simply because they spend a lower percent of their incomes. I haven’t seen any study which shows how wealthy people currently avoid income taxes, and how this avoidance would be easier to fix with a sales tax than with changes in the income tax.
I believe there is considerable debate among economists about the actual incidence of corporate income taxes (important because the top 1% of US families own about 50% of stocks). The FairTax people believe they are entirely transferred to prices. Other people believe they are entirely paid by stockholders.

There’s one other thing that you won’t find explicitly on the FairTax site, but is often suggested. That’s the notion that we’ll all pay less with a sales tax, but it will raise the same amount of revenue for the gov’t. This is obviously wrong when you say it bluntly. But it is often implied.
In the "gianing steam" thread above, a FairTax opponent gave examples of situations where he thought the sales tax would be higher than the income tax. In every case, the FairTax advocate claimed this wouldn't happen. But there must be some cases where taxes go up, and there have to be enough to equal the dollars lost in the cases where taxes go down. I can’t find any calculation like that on the FairTax site, probably because they want everyone to think they will come out ahead.
__________________

__________________
Independent is offline   Reply With Quote
Old 01-08-2008, 02:05 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
Good points, but I'll take a bit of exception on a few of them:

Quote:
Originally Posted by Independent View Post
“We’ll get better compliance with a sales tax than an income tax.”
Compliance rates go down when tax rates go up. A high sales tax rate, as proposed in the FairTax, will result in significant incentive to avoid the tax. Compliance also depends on complexity. An individual income tax and sales tax with equal rates and equal complexity will have about the same compliance rates.


It's true that the NST rate would be high - but the amounts are relatively small and spread out over many purchases and across many sellers. So cheating on a single purchase may not add up to much overall.

That's one reason I don't like the Estate Tax and Cap GAins Tax - it can be a big chunk at one time and just screams 'avoidance'.
Quote:
“A sales tax doesn’t need the IRS”.
Nonsense, all taxes require enforcement. Equivalent sales and income taxes need about the same enforcement (see paragraph above).
You're assuming that the NST gets as many exceptions as the current tax code. Maybe, but until then it is simpler. It's pretty bad when you cannot even rely on the IRS themselves to provide an answer to a tax question.

Quote:
“Wealthy people will finally pay their ‘fair share’ “.
I expect that wealthy people will pay less under a sales tax, simply because they spend a lower percent of their incomes.
This depends on how much the wealthy are taking advantage of loopholes. In some ways, this might at least have the appearance of 'fairer'? I don't know the numbers.

Quote:
That’s the notion that we’ll all pay less with a sales tax, but it will raise the same amount of revenue for the gov’t. This is obviously wrong when you say it bluntly.
Not obviously wrong at all. When you factor in the cost of compliance, the cost of avoidance (we are paying for corporations to hire accountants and lawyers to lower their tax burden, and then we end up paying the tax that they didn't), and the added tax revenue from illegal activities that are not taxed now , but will be when those thugs spend their money - the average guy/gal may end up paying less overall tax.

But I still don't think it has a chance - but if Huckabee can get support for it, he may use it as a lever to simplify the current tax situation. At least he's talking about it.


-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 01-08-2008, 03:02 PM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,194
I also don't think it will happen, but the threat is enough for me to limit my Roth conversions.

Imagine that it did happen, and it was announced "Starting in one month, there will be a 23% national sales tax." You thought people bought a lot of stuff now. It would be like one month of supermarket sweep for cars, houses, etc. Prices would jump.

That would be something to see.
__________________
Al
TromboneAl is offline   Reply With Quote
Old 01-08-2008, 04:36 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
T-Al, if the impossible happened, they would need to phase it in. Maybe 1/2% per month to make it small enough to avoid panic buying. So we'd still have 4 years of filling out tax forms - but they ought to be able to simplify them each year as the amount goes down, deductions and so on would have less impact.

Actually, I was thinking about this in the car today. An NST sure seems a lot fairer for people who have variable incomes year-to-year. If you know you are in a feast or famine career, but are smart and spend based on average earnings, you would be better off.

Currently, you get hit with high progressive taxes in the feast years, and pay little/nothing in the famine years. But you aren't living different - so why should your taxes be so different.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 01-08-2008, 07:08 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,811
Quote:
Originally Posted by ERD50 View Post
Good points, but I'll take a bit of exception on a few of them:



It's true that the NST rate would be high - but the amounts are relatively small and spread out over many purchases and across many sellers. So cheating on a single purchase may not add up to much overall.

That's one reason I don't like the Estate Tax and Cap GAins Tax - it can be a big chunk at one time and just screams 'avoidance'.
You're assuming that the NST gets as many exceptions as the current tax code. Maybe, but until then it is simpler. It's pretty bad when you cannot even rely on the IRS themselves to provide an answer to a tax question.

This depends on how much the wealthy are taking advantage of loopholes. In some ways, this might at least have the appearance of 'fairer'? I don't know the numbers.

Not obviously wrong at all. When you factor in the cost of compliance, the cost of avoidance (we are paying for corporations to hire accountants and lawyers to lower their tax burden, and then we end up paying the tax that they didn't), and the added tax revenue from illegal activities that are not taxed now , but will be when those thugs spend their money - the average guy/gal may end up paying less overall tax.

But I still don't think it has a chance - but if Huckabee can get support for it, he may use it as a lever to simplify the current tax situation. At least he's talking about it.

-ERD50
I guess I can make the obvious comments - Yes, I'm assuming an NST is eventually as complex as the current individual FIT. I figure the voters, lobbyists, and politicians don't change. The few years of simpler NST aren't worth the complexity of the transition.

OTOH, I can see an argument for dropping the corporate FIT. That gets rid of all the corporate lawyer and accountant costs that you mention. But we can do that without converting to an NST.

I don't have any good data on the tactics rich people use to avoid income taxes. I can see some ways of avoiding some sales tax, such as buying your yacht while you're living at your vacation home in Bermuda, and registering it there.

The notion of getting some tax money on the back end from current "illegal activities" is appealing. I don't know how much is involved. I don't know how much of that money would be spent buying from individuals who are avoiding the sales tax.
__________________
Independent is offline   Reply With Quote
Old 01-08-2008, 07:52 PM   #27
Recycles dryer sheets
 
Join Date: Jun 2007
Posts: 97
Quote:
Originally Posted by REWahoo View Post
Loss leader, better (lower cost) sourcing, mis-pricing, who knows? You can't judge the overall pricing/profit strategy of a retailer or industry by looking at one product out of thousands.

But it's not just one item, it's practically all of them. This was simply the most obvious. It's not really the kind of item that gets people into stores either. I could see a 20% difference, but I found this a bit much. Maybe they're going for broke to try to compete with Wal-Mart.

Quote:
Imagine that it did happen, and it was announced "Starting in one month, there will be a 23% national sales tax." You thought people bought a lot of stuff now. It would be like one month of supermarket sweep for cars, houses, etc. Prices would jump.
I think it'd be hard to say for sure if that would happen. If you know you're going to have a lot more money next month to pay for what you buy (even though the cost will go up), you might be more likely to hold off. I think you'd see certain people buying more and others holding off, so it might balance itself out. Eh, what do I know, I couldn't believe that a co-worker purchased a car a week or so ago just to avoid the new sales tax rate, up 20% this year.

Nevertheless, it'd be fun to watch!
__________________

__________________
starter82 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Presidential Candidate Limericking maddythebeagle Other topics 0 12-26-2007 08:35 PM
Series EE Savings Bonds--Taxation RetireeRobert FIRE and Money 6 12-12-2007 01:35 PM
Potential Presidential candidate? FinallyRetired Other topics 3 07-21-2007 10:07 PM
Trust Taxation - Canada My Dream FIRE and Money 32 11-08-2006 05:30 PM
State Taxation on Pensions and S.S. maddythebeagle FIRE and Money 5 07-25-2005 04:41 PM

 

 
All times are GMT -6. The time now is 03:47 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.