12-02-2003 21:57									#1
	Fair Taxation Got spare money?

What's up with this consumption tax idea? Ive read an overview of it, but it seems too good to be true. Can it really work the way they say it will? How can the govt remain fully funded while we pay less tax?

http://www.fairtaxvolunteer.org/smart/sketch.html

	12-02-2003 22:01									#2
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It will work. After Bush cuts all programs that help middle America and the poor.

	12-02-2003 22:06									#3
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Ah ha. The old Value-Added Tax, a.k.a. national sales tax, has surfaced again!

It works this way, the lower and middle classes spend a greater percent of their income on consumer goods than do the wealthy (who, of course, pay most of the income tax, all of the estate tax, etc). Thus, if the VAT were to replace the income tax [etc], the result would be a massive shifting of the tax burden from the rich onto those who are least able to afford it.

Last edited by Zkribbler on 12-02-2003 at 22:45

	12-02-2003 22:11									#4
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no one needs to reply to refute what zkribble stated...its true. i never thought id see republicans trying to increase the tax base...

	12-02-2003 22:17									#5
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23% VAT?! Federal sales tax in Canada is 8% (with the Provinces levying their own taxes. In Ontario, we paid a total of 15% sales tax). In the UK, VAT is 17.5%. Then again, we also have income taxes....

	12-02-2003 22:30									#6
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Well I can point out a few things since I come from a place with a 7 % consumption tax ( the GST)

-- a 23% premium on new homes versus existing will be a HUGE disincentive on new home construction- Here they actually give a rebate of about half the GST (up to 350,000 home cost IIRC) to lessen this disincentive

-- If something is revenue neutral compared to the existing system, it is self evident to say that the same amount of tax is being paid overall-- it is just redistributing who pays. This may be good or bad depending on the system and your personal point of view. It would seem to discriminate in favor of those that already have acquired their major assets

-- This again seems like it would be toughest on the middle class, who make enough to not be exempt but are not rich enough to find ways around things

-- The rich may "consume" things in other places and in fact will have an incentive to do so ( unless the proponent is right and prices drop when people are no longer paying " the hidden income tax cost of goods).

-- Some rich people could avoid taxation entirely by earning income in the US and spending it elsewhere

-- Administration of consumption taxes is never easy . Imagine I buy wheat and other items (taxed) to make and sell flour ( taxed) which is then made into and sold as a cake ( taxed again). Since the cost at each stage must include the taxes paid, this can lead to astronomical prices. Imagine a product that goes through 7 or 8 stages before its finished-- the price could double or triple if the tax is appplied to the full value of the good each time it is "consumed". To avoid this you need to account for input tax credits so that each good or service is only taxed once ( actually it is taxed several times but previous tax paid is credited back). Compliance on this issue is a major problem in Canada


-- Overall it seems thay paint too rosy a picture-- prices will drop, compliance will increase, even interest rates will go down etc without much in the way of support for the argument.

	12-02-2003 23:15									#7
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but double taxation of corporate dividends of the rich are unfair

	12-02-2003 23:51									#8
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Yes, let's replace progressive taxation with regressive taxation. Great idea. We can switch back to feudalism next!

	12-02-2003 23:55									#9
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cancel the income tax?

holy ****....



anyway, didn't you have VAT before that?

	12-02-2003 23:58									#10
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It's not just a question of distribution of the burden. Some burdens allow more economic growth than others, even though they might be the same value. Extra economic growth increases the tax base for the future and makes us all better off, which is highly desirable.

Thus, if the VAT were to replace the income tax [etc], the result would be a massive shifting of the tax burden from the rich onto those who are least able to afford it.

Not necessarily true. As stated above, there can be offsets paid by the government to lower income individuals.

	12-02-2003 23:59									#11
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Even the Bushies couldn't hoodwink people into going along with this regressive plot.

	13-02-2003 00:00									#12
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I support wealth tax. Consumption tax is a gimic and evil.

	13-02-2003 00:01									#13
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Hell-o Robert Nozick!

	13-02-2003 00:02									#14
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DanS,

Sure if you believe in trickle down economics. I don't think many people do.

edit: who is proposing this ofset? That might be a good idea. I haven't thought about it.

	13-02-2003 07:59									#15
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quote: Yes, let's replace progressive taxation with regressive taxation.

Sounds like someone needs a dictionary.

Regressive taxes would mean that the rich are taxed at a lower percentage than the poor. These are equal taxes, and although they are still unfair, at least this way everyone is getting screwed equally, instead of the poor and middle class making out at the expense of the upper class.

	13-02-2003 08:07									#16
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Bah! I have enough problems paying State sales taxes. Screw paying a Federal sales tax on top of that!

	13-02-2003 08:11									#17
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quote: Originally posted by David Floyd Sounds like someone needs a dictionary. Regressive taxes would mean that the rich are taxed at a lower percentage than the poor. These are equal taxes, and although they are still unfair, at least this way everyone is getting screwed equally, instead of the poor and middle class making out at the expense of the upper class.

Because the rich spend less of their income than the poor do?

	13-02-2003 08:12									#18
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Sorry, don't see your point. We're talking about equal taxation, not equal amounts of wealth. Naturally poor people are poorer than rich people.

	13-02-2003 08:17									#19
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quote: Originally posted by David Floyd Sounds like someone needs a dictionary. Regressive taxes would mean that the rich are taxed at a lower percentage than the poor. These are equal taxes, and although they are still unfair, at least this way everyone is getting screwed equally, instead of the poor and middle class making out at the expense of the upper class.

*shakes head*

	13-02-2003 08:18									#20
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quote: Originally posted by David Floyd Sounds like someone needs a dictionary.

Regressive Tax: A tax that takes a larger percentage of the income of low-income people than of high-income people.

If people with low incomes spend 100% of their incomes on consumer goods, while people with high incomes spend 10% of their incomes on consumer goods, then the poor would essentially be subject to a 23% income tax while the rich would essentially be subject to a 2.3% income tax. Hence, a regressive tax.

	13-02-2003 08:20									#21
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You have problems with math?

Assume rich people save 20% of what they earn
Assume poor people save 10% of what they earn

Rich people will pay 0.23*0.8 = 18.4% of their income in taxes

Poor people will pay 0.23*0.9 = 20.7% of their income in taxes

The actual difference in savings rates is probably a lot higher, so the difference is bigger.

	13-02-2003 08:21									#22
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i.e. what loinburger said

	13-02-2003 08:24									#23
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quote: Regressive Tax: A tax that takes a larger percentage of the income of low-income people than of high-income people.

That's a misuse of the word "regressive".

quote: If people with low incomes spend 100% of their incomes on consumer goods, while people with high incomes spend 10% of their incomes on consumer goods, then the poor would essentially be subject to a 23% income tax while the rich would essentially be subject to a 2.3% income tax. Hence, a regressive tax.

Untrue. There would be no income tax. They'd both be subject to the same 23% consumption tax.

Frogger,

The point of taxes is not to punish wealth acquisition, but to fund government, correct? Therefore, what do you care who ends up with more disposable income?

	13-02-2003 08:26									#24
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quote: Originally posted by David Floyd That's a misuse of the word "regressive".

Do a google search on the words "regressive taxation"

You have no clue what you're talking about.

	13-02-2003 08:28									#25
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No, I fully understand that over the years, the word "regressive" has been hijacked, and that is precisely the point - it is called regressive taxation because it's supposed to be "bad", and "regressive" has negative connotations.

	13-02-2003 08:29									#26
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To put this into a more concrete economic perspective: Economic activity (measured by GDP) is a flow. GDP can be measured either by income or expenditure, and for real GDP, both are equal. So if you want to tax economic activity (basically, the government skimming off the top of the flow of goods and services) you can do so from either end: you can tax income or you can tax expenditures. Economically, both should be the same: they both tax the same thing.

The big differnece, however, is that taxing consumer goods is not taxing expenditures: it is far easier to remove money from a consumer tax than from an income tax by investing it; expenditure equals consumption plus investment. However, Investment can only be done by those who can afford things that are not necessities of life: naturally, lower income groups spend more money on food and shelter.

So, low-income groups pay essentially what they would under a flat-tax system (since income equals consumer expenditure) but high-income groups pay less (since for them income equals savings plus consumer expenditure). So it is acutally a regressive tax structure.

	13-02-2003 08:30									#27
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quote: Originally posted by David Floyd That's a misuse of the word "regressive".

Lodge your complaints with the people who run this site, along with this one, this one, this one, and the other six billion people on the internet who use the correct definition of the term.

quote: Untrue. There would be no income tax. They'd both be subject to the same 23% consumption tax.

A consumption tax that would take a higher percentage of the incomes of those with low incomes than those with high incomes. Hence, a regressive tax.

	13-02-2003 08:31									#28
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quote: Originally posted by David Floyd Frogger, The point of taxes is not to punish wealth acquisition, but to fund government, correct? Therefore, what do you care who ends up with more disposable income?

It's the economy stupid.

He's trying to tell you that it's the lower income groups who spend more of their money. If you tax them you are going to cut comsumption and its 2/3rds of the economy.

	13-02-2003 08:32									#29
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quote: So, low-income groups pay essentially what they would under a flat-tax ssytem (since income equals consumer expenditure) but high-income groups pay less

If one person earns 1 million dollars, and pays a 23% tax, that's $230,000. If another person earns $10,000, 23% is $2300. Explain to me again how the rich person is paying less than the poor person?

Now if you want to argue that taxes are primarily designed for wealth redistribution and punishing wealth acquisition, fine, make that argument and we can talk about that. But if you don't agree with that statement, then, again, what do you care how much money people have left after paying an equal percentage?

	13-02-2003 08:32									#30
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You're spinning your wheels, David.

Progressive taxation: taxation in which higher income earners pay more of their earnings in taxes as a percentage than lower income earners

Proportional taxation: taxation in which all income levels pay the same percentage of their income in taxes

Regressive taxation: taxation in which the higher income levels pay proportionally less of their income in taxes than lower income levels

The classic example of progressive taxation is the income tax in force in most Western countries. The classic example of regressive taxation is the sales tax.