[[[moved to politics]]]

[[[deleted]]]

I was hoping to see some informed discussion of Fair Tax here. It seems to me like a great idea on paper but fraught with practical problems. I'm curious if any trusted, nonpartisan accounting watchdog has reviewed their numbers and their assumptions.

One big problem with Fair Tax is that it imposes a vast one-time double tax on virtually all forms of savings at the point in time where consumption tax is imposed. Money that is earned today is taxed as income, then taxed again under consumption tax when it is spent. It seems to me that the Fair Tax guys are relying on this to make the numbers work. I can't imagine the economic dislocation that would accompany this transition, as people try to accellerate consumption and delay recognizing income near "zero hour".

Virtually the only form of savings that would escape double taxation is traditional IRAs and 401k's. Roth IRAs and 401k's would be double taxed just like any taxable accounts. This is an important consideration if you think Fair Tax could actually happen, and you are making choices about how to structure your savings.

Nice synopsis...I find it total bull**** how Mitt Romney's being asked if he'll be more loyal to the Mormon religion than the United States while Hussein Obama gets a pass on his muslim upbringing...<---No questions asked.Mormons built a trail west so the pussies in the media could drive their range rovers from new york to vail.

****ing Liberals

Put it over there... I'm gonna hide that one here

Sparo, not really.

Here's reality - the actual "end ticket" price on your receipt at the store would not materially change the day the FairTax was put in place.

So there is, in fact, no real double-taxation, in that your out-of-pocket wouldn't change at all.

What we'd change is how the tax is collected. Now, the same tax is collected, but its hidden. You don't see it, but its in the price of everything you buy.

Post FairTax, it would be visible as a "tax" item on your receipt.

This is a great thing, because it means that the politicians cannot raise the tax without you seeing it! Right now they can - and do.

BTW, yes, the numbers have been vetted. Get Boortz and Linder's book and read it - its all in there.

Great ticker as always Gen!
Thx

RE politic, Ron Paul is the answer.

yes, Ron Paul IS the answer

Take it to the split in Politics....

the actual "end ticket" price on your receipt at the store would not materially change the day the FairTax was put in place.

Why would you ever believe something like that? It flies in the face of any rational analysis. Corporate taxes are a tax on *profits*, a consumption tax is a tax on *sales*. Unless American corporations are suddenly making 100% margins, profits and sales are wildly different numbers. Eliminating a ~30% tax on profits will not pay for a new ~30% tax on sales.

Then there are commodities like gasoline, and imports. How can you possibly expect the prices on these to stay the same when a new 30% tax is imposed? Virtually everything at Wal-Mart is made in China under a their tax regime then shipped to the US and sold at 5% margins. Wal-Mart prices would go up ~28%. Gasoline prices would go up ~28%.

FairTax claims to eliminate embedded taxes in the labor inputs for production. But labor is still paying taxes, they are paying taxes when they consume rather than when they earn. Nothing goes away.

The idea that consumer prices (with embedded 30% tax) would remain the same under the FairTax plan is the financial equivalent of a perpetual motion machine. The only way you can conclude that consumer prices won't change is by assuming that consumer prices won't change. But look at what happens at the transition - corporations have inventory that was built in an income tax environment but sold in a consumption tax environment. Obviously prices have to go up at least temporarily. Follow that price increase through the economy and you'll see that there is no reason whatsoever for prices to subsequently fall.

BTW, yes, the numbers have been vetted. Get Boortz and Linder's book and read it - its all in there.

No, I meant an *independent* analysis. I'm not going to read a book that is so obviously biased in favor of the FairTax. I've already read their web site so I have my doubts about the intellectual quality of their work. What I would love to see is a thorough analysis by a respected economist.

Just out of curiosity I went to Amazon.com to read some reviews. This book has the most bi-modal distribution of reviews I've ever seen. ~600 one star reviews, ~600 five star reviews, nothing in between. Interesting... but not something that makes me want to run out and buy their book.

There have been several independant economic analysis don on the Fair Tax.

Search and you will find. There have been in fact several analysis run on the Fair Tax compared against our current system, against the Forbes Flat Tax, and against a number of other reform proposals.

So far all that I have seen have concluded that the Fair Tax as presented both fairly represents what will actually happen AND that it results in the lowest embedded costs while remaining revenue neutral with the current system.

In the transition corporations are given an escape on already-taxed product; this is a one-time credit.

Help me out, I did Google searches for "fairtax independent analysis", "fair tax independent analysis", "fairtax economist analysis", nothing. Well, I did find one somewhat independent analysis but it was critical of FairTax:

http://www.factcheck.org/taxes/unspinnin....

Wikipedia is a remarkable trove of information, as usual:

http://en.wikipedia.org/wiki/FairTax

From everything I have seen, there is a far more intellectually honest, more practical, and less manipulable way to tax consumption and that is the Hall-Rabushka flat taxes that have been so successful in Eastern Europe.

Flat taxes are tremendously regressive.

The whole point behind the Fair Tax (and the one the critics ignore) is that by removing taxes from businesses you will cause HUGE increases in employment and productivity, plus capital investment.

You CAN'T ignore this - it would make America THE Corporate Tax Haven.

<i>Flat taxes are tremendously regressive.</i>

So is a consumption tax! You can't praise FairTax yet criticise flat taxes as regressive. Some flat tax schemes are less regressive than FairTax because they tax investment.

Hall-Rabushka flat tax is economically equivalent to a tax on consumption but far easier to implement, avoids the horrible distortions of the transition from taxing income to taxing consumption, avoids the double tax on supposedly tax sheltered savings, etc. If you don't like flat taxes you don't like consumption taxes either. The only reason FairTax might sound better is better marketing -- achieved through bald faced lies and economic impossibilities.

I'm not ignoring the question of taxing investment. Hall-Rabushka also eliminates tax on investment, just like FairTax. Seriously, look into it.

BTW while I'm at it, I should say that, as a relatively new reader, your blog is a high point of my day. Great stuff. Thanks!

Wrong Sparohok.

You didn't bother reading the FairTax.

That is obvious, because if you did you'd know that for anyone below the poverty line they would pay zero tax, for those 2x the poverty line in earnings they would pay half the FairTax rate, and so on.

Your claim that the FairTax is regressive leads one to wonder - what is your agenda with this? And to call the authors "liars" when in fact you haven't read the document?

You're kidding me.

Oh come on Mr. Denninger! There's no need to tell me what I have & haven't read. That's rude, unjustified, unsupported not to mention completely and utterly incorrect. Sure, it's your forum, but there are certain bare minimum standards of civility I've come to expect in intelligent discourse with intelligent people.

I read the web site, I've read a great deal of support and critique, I know the proposal backwards and forwards. I've been discussing it knowledgably in half a dozen posts here. A few grand in prebate doesn't make a tax progressive. Under a consumption tax, or a Hall-Rabushka flat tax for that matter, Warren Buffet would spend a tiny fraction of his income in taxes and his secretary would spend 20% or more. That's what I call regressive.

Most flat tax proposals have a similar concept to the prebate, and are similarly progressive for people near the poverty line. You can use exactly the same scheme with a Hall-Rabushka flat tax as you can with FairTax. The only difference is that H-R is enforcable, practical, and implementable, whereas FT isn't for all kinds of reasons.

This talk of agendas is both hostile and hypocritical. You're the one who called flat taxes regressive. You brought up regressiveness as a critique of a tax scheme. I hadn't so much as breathed the word "regressive" until you raised the question. My only agenda is to give you an answer. Please, let's tone down the rhetoric and keep this friendly.

"A few grand in prebate doesn't make a tax progressive. Under a consumption tax, or a Hall-Rabushka flat tax for that matter, Warren Buffet would spend a tiny fraction of his income in taxes and his secretary would spend 20% or more."

Buffet is an exception. Most rich people actually spend their money. Buffet drives a midclass sedan.
In my opinion I would rather Buffet keep more of his money as I think he would use it better than the government. Now Paris Hilton, on the other hand...

My opinion is a FairTax coupled with an estate tax would be ideal.

Sparo, you just called a Congressman and a National Radio Host a liar.

You dare argue with MY civility? You're the one who led with the charge of lying!

And no, I won't back off on that. You want civility? Go edit your post. There's a button there marked EDIT. Then let me know, and we can try that again.

Warren Buffet would spend a tiny fraction of his income on taxes? So what? If he doesn't SPEND that income, he must do something PRODUCTIVE with it FOR EVERYONE ELSE.

Why do you (and everyone else, it seems) want to PUNISH investment? Oh, you say you don't? The hell you don't! Taxing income does exactly that. It punishes success in that the more successful you are the more tax you pay.

How about we get our heads out of our ass and think about what we should provide incentives for and what we should NOT provide incentives for.

How about we provide incentives for INVESTING - whether it be putting your capital at risk in the market or at risk by starting a business? How about we provide incentives for SAVING - which powers investment, because for each dollar I deposit in a savings account the bank can loan $10.

How about we make taxation and the amount you pay a PURELY VOLUNTARY measure? You want to live large? Cool - you get a large tax bill. You want to live like a pauper even though you're Warren Buffett? Cool - your behavior HELPS SOCIETY in that the investment of your wealth provides jobs FOR OTHERS, so we don't tax that behavior!

What's wrong with that paradigm again?

H-R is enforceable? Hmmmm..... how enforceable is our current income tax? Tell me how you tax pimps, drug dealers and bookies? Fair Tax does - they go to the store, they pay tax.

Flat taxes do nothing for complience costs and keep the "hidden" nature of taxes that are embedded in goods and services. That's both stupid and makes it EASY for politicians to raise taxes.

Fair Tax makes it REALLY HARD to raise taxes because it is both instantly visible and subject to immediate public view and "comment."

Woah woah woah... take it easy Mr. Denninger.

On the topic of civility, the congressman and radio guy are not party to this conversation. I'm not being uncivil to their persons, and in any case they are public figures with no reason to expect civility from me. I'm sure you were aware of this principle when you dropped a well deserved F-bomb on Larry Kudlow today. :) So I don't think bringing them into this serves any purpose but misdirection.

You and I are having a conversation, and I'm trying to be polite to you and I think it would be great if you try to be polite to me. But, I can live without it. Enough said. On to more important things.

I don't want to punish investment. I never said I wanted to punish investment. A Hall-Rabushka flat tax, the counterproposal I am suggesting to FairTax, does not punish investment. I've pointed this out a few times now. However, any tax which does not punish investment is going to be quite regressive in a broad sense. That's fine with me, but you criticized my tax proposal as regressive so I have to set the record straight.

H-R is a more enforcable consumption tax because (among other reasons) income involves far fewer economic actors and far fewer individual transactions than consumer spending. This is easy to see - most people get one paycheck every two weeks from one company but consume in dozens or hundreds of individual transactions in the same time period.

The enforcement paradigm for a flat tax is vastly simpler than the current tax system. H-R can be filed on a postcard. In volume of transactions and paperwork alone it is far simpler to enforce than FairTax.

You say it is hard to raise FairTax rates because it is instantly visible. That contradicts your very first statement in our discussion that consumer prices would not appreciably change when FairTax is imposed. If customers can't see it, if they never write a check for it, why would they complain about a tax increase?

They can't see it?

Let me guess - sales taxes don't show up on your receipts at the store?

You keep claiming that you've read all about the Fair Tax, but then you keep saying things that indicate quite clear that you have not!

Btw H-R double taxes you. You pay tax on income and you also pay tax embedded in the products you buy.

Tell me again why this is superior to the Fair Tax (which taxes you only once, and it can't be hidden, since its on the receipt!)

Karl - he is only argueing to delay your posting of the ticker...
(He's*****ing ALL of us off)

Ticker's been posted..... :)

Fair enough, I misspoke. They can literally see the tax, but they have been assured that net consumer prices are not changed by the tax rate. In terms of their personal finances, it's a no-op. At least that's what you and the FairTax guys are claiming.

Regardless of the effect of FairTax on prices, I don't think there's much question that an income tax, particularly a flat tax, is more visible and quantifiable to the taxpayer than a sales tax. Do you know offhand much you paid in 2006 in sales taxes? How about income taxes? Speaking for myself, I would be hard pressed to estimate my annual sales tax outlays within a factor of two, but it would be trivial for me to add up the total income taxes I paid to the penny.

I think we can both agree that the current tax code is very effective at obfuscating changes in tax policy. But I don't see anyone here standing up for the good ol' 1040.