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Love it. Absolutely love it. The only thing better would be no income tax and a flat consumption tax (a la FairTax).
The taxation system is broken. Trying to fix it will only complicate it more. Scrap it and start over. Roll back the expenditures and roll back the taxes to match
Consumption taxes also collect revenue from underground and black market sources. Prostitutes and drug dealers don't pay income tax, regardless of the rate; however, they still have to buy food, water, clothes, etc. like the rest of us and taxes will be collected from that consumption.
In theory I like the idea of a consumption tax, but there are several major problems. First, anyone with any level of savings has already paid taxes on that money, so a conversion over to a taxation system based upon consumption would require double taxation. This leaves those with savings at a huge disadvantage. Think of the 65 year old man who has worked for the last 45 years to build his nest egg and has paid income taxes on all of it. Now suddenly everything is 20% more expensive to him which means his retirement savings is basically worth 20% less. I know there are clever ways to offer rebates and adjustments in an attempt to get around this issue, but none of them are very clean.
Second, when you add taxes to some items you are promoting the idea of saving rather than spending. For example, if I knew I had to pay a 10 - 15 or 20% tax on a new car... I would be more likely to purchase a car and drive it until it died and I was forced to replace it. Plus, if consumption taxes are only on NEW items rather than used as has been suggested in the past by the Fair Tax people, then nobody would ever want to buy new cards or new appliances or new televisions. The prices in the used market would rise to compensate, but the net effect is people would hold on to their items longer and wouldn't buy as much new stuff. That is great for the environment, but horrible for the economy.
The Fair Tax people had a fancy way around real estate, but again imagine having to pay 15 or 20% tax on a new home. Who would ever move knowing the huge penalty for doing so? Land and real estate wouldn't change hands as often which means people are less mobile which means a slow down on growth. Again there are ways around this issue, but none of them are clean.
I think Fair Tax works great on paper, but in practice is not much better than a traditional income tax system.
You raise some good points. For your first point you touched on the solution: rebates and adjustments post-change. That will fix the problem in the cleanest way possible. No matter what we do someone will be at a disadvantage for some amount of time because they have been planning for the current tax situation. Any change to that will alter their plans. It's just how it is and isn't a logical reason not to change it. If the majority benefit from a change, a change should occur.
As for the second point, dealers of new merchandise would have to lower their prices to compensate for the higher tax on new goods. This will benefit the consumer. The used product market will be fine and prices will not rise exorbitantly, as they will find an equilibrium to satisfy both supply of the product and the demand on that product. There are still many, many goods that cannot be bought used. Food is an example of this.
For the third point you misunderstand the Fair Tax system. You're already paying for your home with after-tax dollars. With the Fair Tax you get your whole paycheck all the time so the increase in consumption tax is offset by the fact that you have a larger amount of dollars in your pocket. Additionally, you would not have to pay yearly taxes on the property that you purchased (rented, more like...because if you don't pay your taxes they'll take your house), so the "true cost" of owning property decreases under the Fair Tax.
The Fair Tax is great both on paper and in practice. The problem is everyone is afraid to change the status quo. That's terrible.
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[–] zambeezy 0 points 2 points 2 points (+2|-0) ago
Love it. Absolutely love it. The only thing better would be no income tax and a flat consumption tax (a la FairTax).
The taxation system is broken. Trying to fix it will only complicate it more. Scrap it and start over. Roll back the expenditures and roll back the taxes to match
[–] ilikemyname [S] 0 points 1 point 1 point (+1|-0) ago
I agree! Tax based on consumption would be much more appropriate. Completely based on choice.
[–] zambeezy 0 points 1 point 1 point (+1|-0) ago
Consumption taxes also collect revenue from underground and black market sources. Prostitutes and drug dealers don't pay income tax, regardless of the rate; however, they still have to buy food, water, clothes, etc. like the rest of us and taxes will be collected from that consumption.
[–] Eyevory ago
In theory I like the idea of a consumption tax, but there are several major problems. First, anyone with any level of savings has already paid taxes on that money, so a conversion over to a taxation system based upon consumption would require double taxation. This leaves those with savings at a huge disadvantage. Think of the 65 year old man who has worked for the last 45 years to build his nest egg and has paid income taxes on all of it. Now suddenly everything is 20% more expensive to him which means his retirement savings is basically worth 20% less. I know there are clever ways to offer rebates and adjustments in an attempt to get around this issue, but none of them are very clean.
Second, when you add taxes to some items you are promoting the idea of saving rather than spending. For example, if I knew I had to pay a 10 - 15 or 20% tax on a new car... I would be more likely to purchase a car and drive it until it died and I was forced to replace it. Plus, if consumption taxes are only on NEW items rather than used as has been suggested in the past by the Fair Tax people, then nobody would ever want to buy new cards or new appliances or new televisions. The prices in the used market would rise to compensate, but the net effect is people would hold on to their items longer and wouldn't buy as much new stuff. That is great for the environment, but horrible for the economy.
The Fair Tax people had a fancy way around real estate, but again imagine having to pay 15 or 20% tax on a new home. Who would ever move knowing the huge penalty for doing so? Land and real estate wouldn't change hands as often which means people are less mobile which means a slow down on growth. Again there are ways around this issue, but none of them are clean.
I think Fair Tax works great on paper, but in practice is not much better than a traditional income tax system.
[–] zambeezy 0 points 1 point 1 point (+1|-0) ago
You raise some good points. For your first point you touched on the solution: rebates and adjustments post-change. That will fix the problem in the cleanest way possible. No matter what we do someone will be at a disadvantage for some amount of time because they have been planning for the current tax situation. Any change to that will alter their plans. It's just how it is and isn't a logical reason not to change it. If the majority benefit from a change, a change should occur.
As for the second point, dealers of new merchandise would have to lower their prices to compensate for the higher tax on new goods. This will benefit the consumer. The used product market will be fine and prices will not rise exorbitantly, as they will find an equilibrium to satisfy both supply of the product and the demand on that product. There are still many, many goods that cannot be bought used. Food is an example of this.
For the third point you misunderstand the Fair Tax system. You're already paying for your home with after-tax dollars. With the Fair Tax you get your whole paycheck all the time so the increase in consumption tax is offset by the fact that you have a larger amount of dollars in your pocket. Additionally, you would not have to pay yearly taxes on the property that you purchased (rented, more like...because if you don't pay your taxes they'll take your house), so the "true cost" of owning property decreases under the Fair Tax.
The Fair Tax is great both on paper and in practice. The problem is everyone is afraid to change the status quo. That's terrible.