“Fair tax” baby-steps
By JR Hoeft | Thursday, April 2nd, 2009 | PolicyWhat might be over-looked in the budget discussion is this proposal from within the Ryan alternative GOP Budget:
- Tax Reform. Our budget does not raise taxes, and makes permanent the 2001 and 2003 tax laws. In fact, we cut taxes and reform the tax system. Individuals can choose to pay their federal taxes under the existing code, or move to a highly simplified system that fits on a post card, with few deductions and two rates. Specifically, couples pay 10% on their first $100,000 in income (singles on $50,000) and 25% above that. Capital gains and dividends are taxed at 15%, and the death tax is repealed. The proposal includes generous standard and personal exemptions such that a family of four earning $39,000 would not pay tax on that amount. In an effort to revive peoples’ lost savings, and to create an incentive for risk-taking and investment, the budget repeals the capital gains tax through 2010 for all taxpayers. (h/t: WSJ)
During last night’s conference call with Rep. Bob Goodlatte, I asked him if he thought such a proposal is meant to demonstrate that the GOP really is committed to being a party of fiscal discipline…and whether or not such proposals stand a chance of passing in the future.
Also, be sure to read Jim Riley’s post on this subject. He says:
This is the way that tax reform must happen. Give people a choice between the old tax system and the new and let the old way shrivel up. It won’t be long before nearly everyone is opting for the flat tax.
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Conservative to the core; liberal with his opinion! J.R. has been involved in politics for over a decade and has worked on several campaigns in Hampton Roads. He has served on the Executive Committee of the Republican Party of Chesapeake and the Central Committee of the Republican Party of Virginia. He is also the director of “Blogs United” in Virginia. E-mail J.R.. Follow J.R. on Twitter.
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6 Responses to "“Fair tax” baby-steps"
(The Fair Tax replaces income tax with a tax on consumption)
What headlines could we have seen if the Fair Tax was passed during the Bush administration?
1. US companies see stock values soar as they gain tax advantages.
2. 401k and retirement funds on road to a full recovery.
3. How illegal immigrants paying taxes affects the economy and public services.
4. Drug lords paying consumption taxes & helping to balance the budget.
5. All of President Obama’s appointees have paid their taxes.
Only with the Fair Tax could number 5 be true.
I don’t understand what is fundamentally wrong with the Ability-to-Pay Principle. I understand the code is complex, and I fully support changing that. But what is the justification behind a flat income tax? And how is Ability-to-Pay unfair?
And why eliminate estate tax? To me, it just seems like this tax liberates otherwise stranded capital. I wish everyone was like Buffet with their personal wealth. Barring that, for extraordinarily large estates, it seems fair to allow that capital to free up so that other’s have the opportunity to use it and generate even more wealth. Also, the vast majority of folks (91.9% of Americans, this based on a 2000 paper that the Federal Reserve Bank of Cleveland did) receive an inheritance of $0. Why this is a bread and butter issue for Republicans mystifies me. The overwhelming majority of Republicans would never have to pay a dime of estate tax in the base case.
tx2vadem(wish you had a name), the tax code must be complicated. Many people appointed to the Obama administration may be competent for their job descriptions but, apparently the tax code is far too difficult for them to understand, let alone pay.
Flat Tax is what some Republicans favor. It does simplify taxation. While it does answer to charges of unfairness and charge everyone the same rate, it does nothing about “underground economies”. I don’t favor the Flat Tax.
Some politicians have a lot of vested interest in the current tax code. Flat Tax is about as far away as they can possibly see changing. I guess some politicians don’t like the fact that they WOULD be paying taxes under Fair Tax. There are no loop holes.
Why eliminate the Estate Tax? Even if your study is correct?
There is just something sick about the government making nice sized revenues because people die. I find it to be a bad thing that the government has incentive to hope people die. Big Government Necrophillia.
There is also something fundamentally human about wanting to keep what you earn and pass it on to your family or charity upon death. Who wants what YOU worked for to be stolen by the government only to fund some inefficient government program that makes some connected buereaucrat insanely wealthy. Basic charities make far better distributions of disposable assets. It may cure cancer instead of building a Navy base in West Virginia or a bridge to nowhere but, charity isn’t perfect like our politicians are. (sarcasm intended)
“To me, it just seems like this tax liberates otherwise stranded capital. I wish everyone was like Buffet with their personal wealth. Barring that, for extraordinarily large estates, it seems fair to allow that capital to free up so that other’s have the opportunity to use it and generate even more wealth.” – tx2vadem
Sounds like socialism to me, tx2vadem. You liberate people not capital. As a Libertarian that appreciates the free market system and capitalism, I reject your notion of wealth redistribution in order to give others a chance to grow wealthy by robbing the dead. Even “stranded” capital is likely funding a mortgage or growing in treasury notes/cds/money market accounts. The credit market does make use of that “stranded” capital you speak of.
Ending the ghoulish practice of feeding off of our dead seems like the right thing to do.
Ability to pay, hmmmm. Beats me. Maybe you should ask Obama’s appointees why they think Ability To Pay is unfair.
Britt, you can call me Tex if you like. =) Both you and Darrell point to Obama appointees, but I am not defending them. And I pointed out that the code is complex, and I favor eliminating that complexity. Geithner and company cannot hide behind the complexity of the code for their mistakes. I don’t know how it could be anymore absolutely clear that self-employed folks need to pay self-employment taxes. His employer made it very clear too that he was an independent contractor. So, what more can you do?
On underground economies, you are required to report even your ilicitly earned income on your 1040. Now, if you are running a cocaine distribution business and you are laundering that money offshore, chances are you are probably not reporting that. A consumption tax, as you suggest, would catch that. So, Texas has it set by charging around 8.25% sales tax in its cities. I like the idea of a consumption tax though. You could mitigate the regressiveness of the tax by some sort of mechanism for the poor like the EITC. But I don’t know if you guys would like that.
On the estate tax, it’s not my study it’s the FRB of Cleveland’s. There is a copy here. The Federal Reserve also has a study that shows only 7% of families have a net worth over $1 million. You get a unified credit of up to 3.5 million this year; so that basically excludes everyone but very wealthy people (a tiny percent of the population, I know Republicans are all about minority rights). You can deduct charitable contributions too. So, if you choose to give this all to 501c3 organization, you can avoid the tax. And you still get to pass on $3.5 mill to the kids. Plus, you can set up a trust to ensure that your spouse gets all of your assets tax-free. So, I think the code addresses your concerns currently.
In my mind, this really prevents trust fund babies and social pariahs like Paris Hilton. I fundamentally think we are a meritocracy or should strive for that. The talent that produces this wealth does not necessarily manifest in the offspring of said talent. It would seem to diminish a meritocracy if we keep wealth accumulating in a set number of families. That would seem to perpetuate an aristocracy.
The tax also prevents these large pools of capital from just continuing accumulation without tax and without really providing much benefit other than to the inheritors. The free of tax issue will definitely be a problem if you want to do away with Capital Gains and Dividend taxation. And providing capital to entrepreneurs through programs like those from the SBA does not seem like socialism to me. Not that the government will necessarily use the money to fund economic growth initiatives like this, but it doesn’t necessarily have to go into what I would consider a socialist program like foodstamps.
Last on the credit market usage of the money, if it is circling around on the secondary market, it is not funding any new debt. Sure, it’s providing liquidity, but it can do that even if it isn’t in a set 400 families’ hands.
Hello Tex!
You make some good points. While I still disagree a little, I appreciate your rational arguements. Sometimes ya only get name calling in response.
I do know that some prostitutes(not talking about politicians here) do report income even though it is illegally gained. For the most part it is my understanding that the government is intentionally lazy when it comes to enforcing the law on good taxpaying call girls. That said, the vast majority of those employed in illegal activities don’t file earnings reports. Being law breakers anyway, they could care less about a law requiring them to file. The Fair Tax has no problems in that regard. In this regard it brings in capital stranded in underground economies whether law breakers like it or not.
The Fair Tax does have a rebate feature that covers up to the poverty level. Not what was originally wanted when the Fair Tax was constructed but, the arguement of taxing the poor was anticipated.
Its been a while since I’ve read one of the Fair Tax books. But, I don’t think it taxes capital gains etc. I guess that is covered by any consumption (yachts, mega mansion purchases, jewellery etc) they engage in. True enough, it might be a long while before that might be broken up. I think I understand your arguement here but, I see it as a property rights issue. The owner may possibly let it sit and provide some liquidity to the market as it endlessly accumulates. I know the govt. wants their cut but, it isn’t theirs to take or manage. The owner owns that capital. If you do believe in a meritocracy, then the merit only has value when the creator of wealth gets to decide how it is used.
Back to the “Death Tax”, again this to me is a property rights/theft issue. Either you have the right to own the creation of your labor, or you do not. The fact that a small majority is affected by this isn’t relevant. When you jest about Republicans caring about minority rights, I with all seriousness point out that some do and some don’t. Some Republicans like some Democrats are perfectly content with tyranny of the majority. If you allow the death tax due to the wishes of the majority, then how do you outlaw a majority wish to have slaves, prevent certain genders to vote etc. I assure you, there are Republicans (and Democrats)that are perfectly fine with preying on the minorities of any issue. I am not fine with that. I appreciate the fact that we live in a Constitutional Republic and not a true “democracy” with mob rule.
Who doesn’t hold “trust fund babies” and social pariahs with low regard? They do benefit unequally(not unfairly). Still, if mommy and daddy want to spoil their little princess, that is for them to decide. There are countless among the mega wealthy that give vast portions to charity before they die and after. While I’m not impressed with the Paris Hiltons of the world I do respect the property rights of her parents. Besides, if Paris Hilton widdles away a fortune on extravagance, that is of itself returning that unearned capital back to the market, however slowly.
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