My LTTE: rebuttal to a national sales tax proponent

I'd like to respond to a letter from ___ promoting the so-called "Fair Tax" bill which begs the question: Do you work for a living Mr __?

Our current income tax, which is a progressive tax, demands a higher amount from those who enjoy more wealth. A national sales tax -- a regressive tax -- demands an equal amount regardless of your wealth. Which of these would be better for the rich? Let's see:

If your adjested income approaches the poverty line, you are currently able to deduct 100% of income and pay no federal tax. A national sales tax would hit the nations poorest wage earners the hardest; raising their taxes from 0% to 15% (20% after state sales tax is applied) since it is the poorest of us that have no savings after paying for the necessities of life. Meanwhile, the top tax bracket, earning $326,000 and up, would be taxed only on their purchases; if only $40,000 of this income is spent, that's a 0.018% tax rate!

Rising prices and falling wages make a national sales tax more devastating for working people. The middle class would no longer be able to rely on mortgage interest deductions, child credits, or education credits to offset their taxable income. Under a national sales tax, social mobility and the concept of the "self made man" will quickly become a thing of the past as the working poor struggle harder to pay the tax burdens of the rich.

Congressional Budget Office data confirms that in the last 30 years the average real income of the bottom 90 percent of American taxpayers actually fell by 7 percent. Meanwhile, the income of the top 1 percent rose by 148 percent, the income of the top 0.1 percent rose by 343 percent and the income of the top 0.01 percent rose 599 percent.

This elite minority of the super rich would of course benefit the most from the republican's national sales tax plan, as would corporations and trust fund babies; but why should wage earners pay even more to the further benefit of millionaires?

Is Mr. __ fooled by republicans promising lower taxes? Or is Mr. __ a very rich man hoping that the working class will take up more of his tax burden?

For more information about the detriment of concentrating wealth and power, visit www.faireconomy.org

Does your newspaper normally take letters that long? I've gotten several published, and the key is usually to be fairly short & succint.

You make a lot of great points, but I'd look into condensing it a bit.

Also - you might want to clarify the one paragraph on the tax for the poor going from 0-15%. I think most sales taxes say that the poor would get that money back. However, they'll have to pay the additional 15% up front, and then wait for the refund, if I'm not mistaken. With the income tax, you can at least change your withholding...

I'll try to trim it down...

In the example I printed, It specified an adjusted income approaching the poverty level.

Wouldn't that mean that a person/family with a gross income that is over the poverty level can have an adjusted income at or below that level and qualify for full income tax refunds...where a family with a gross level over the poverty line would not qualify for any refunds under the national sales tax?



It seems to read that way in HR 25.

Why? Because it eliminates the tax wedge on labor, which would lead to greater employment and wages.

It also completely untaxes exports, making US made goods relatively cheaper than they are now, which should increase exports and improve our balance of trade.

It eliminates the loopholes that give large corporations advantages over small corporations, fostering competition and lowering prices.

HR 25 proposes giving the exact same rebate to each family of the same size: Annually ~$3000 for each adult, ~$1000 for each child. (Actually, I think AK and HI residents get a little more, due to a higher poverty level).

The rebate means that people who spend less than poverty level get more money than they spent on taxes, people who spend at poverty level pay 0 taxes, with progressively higher rates approaching 23% of spending as spending approaches infinity.

Currently people who make poverty level wages and spend it all pay ~7% in payroll taxes. Furthermore ~15-20% of the price of things they buy go to pay taxes.

There are no adjustments to income, income is not calculated. 23% of what you spend is collected as taxes by the retailer.

So IMO, it is roughly as progressive as the system we have now, it increases employment and therefore wages, it's easier to administer, it (at first at least) doesn't have special interest loopholes, it allows tax-free saving, and it encourages exports.

My only beef is that it is not perfect. It will continue to produce real-estate inflation, and improved wages will be spent on increased rents or higher purchase prices. But, the solution to that is a state problem, and entirely within their ability to correct.

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Sales taxes are extremely regressive. Here in FL, by percentage of income, the bottom 20% pay 11.1%, the middle 20% pay 7.7%, and the top 1% pay 1.3% (LINK). ITEP can provide you with numbers for each state. William Gale of the Brookings Institute has an excellent analysis of how pie in the sky, their estimated rates are for the "Fair Tax". The actual rate to remain revenue neutral, especially exempting the poor, approaches 60% (LINK). The proponents of a national sales tax like to point out how the VAT taxes work in Europe but ignore the fact that we already have sales taxes at most state levels and Europeans also tax income. They don't operate on a pure sales tax and we don't operate on a pure income tax. The national sales tax proponents also ignore the fact that 2/3 of the US economy is driven by consumption and the lower the income the greater percentage you spend on taxable goods (even exempting food and drugs...see Florida's tax numbers again). The so called "Fair Tax" will depress consumption while providing a huge tax cut to the wealthy. You'd also have to restructure state taxes if this national sales tax went into effect.

It has a demogrant or rebate, based on family size and poverty level spending. Each family gets a check each month for the poverty level spending for that month, a couple hundred bucks. This makes the tax rate progressive by consumption.

Invested income is not taxed - - and here is my only complaint about the FairTax, but it's not a killer for me. Invested income generally allows someone to work, by being used to purchase capital, and raw materials, etc. Investment generally adds to the economy and the well-being of those associated with the economy.

My complaint is that some 'investments' are not productive. I could buy a vacant lot on the edge of development around Washington, DC, and do nothing with it. It would not employ anyone, nor improve anyone's life - conversely, it displaces the next person who wants to build even further afield, exacerbating sprawl and increasing wasted energy.

As it is, some investments are productive: they provide buildings, machines, equipment, training, etc. It is good for all of us not to tax these. Some investments are purely speculative in nature (and even some these are not all bad, as they allow risk to be bought and sold).

Brooking's Gale calculates the 67% rate based on some assumptions rebutted by the FairTax people. Some of it is he said - she said: Gale says evasion will raise it by 5%, FT says they've accounted for evasion. Gale says the state taxes will raise it by another 10%, FT says that this a a FEDERAL tax, states are free to do what they want. Gale says that exemptions will raise the rate by 22%, FT says that there are no exemptions, and future exemptions will be harder to 'hide' in the tax code, as well as being harder to sell to the public, because EVERYONE would have to pay the higher rate caused by exempting some special group. In short, while I respect Brookings, I don't think Gale's paper is particularly accurate or relevant.

What WOULD make the FairTax the Cat's Meow for me would for them to encourage the States to figure out their own means of taxation. I've already alluded to the types of investment, and the fact that increases in wages will lead to higher real estate costs. If states were to raise their revenue by raising the tax rate on UNIMPROVED land value, the speculative value of real estate would dissappear, as would taxes on sales, income, or productive investment. Perhaps against all intuition, taxing land value actually makes real estate more affordable, albeit denser - which also happens to reduce transportation energy costs.

The higher one's DISPOSABLE income, income after paying for the necessities of life, the lower your tax rate. A great boon for equity investors; a nightmare for the working poor.

People generally don't spend all or even most of their disposable income beyond maintaining a certain lifestyle, and the remainder of that cash goes into savings and investments, untaxed purchases producing more untaxed income that does not get spent.

And with the abolition of the estate tax, we end up with a formula for an elite overclass on one side and an immobile underclass on the other.

Furthermore, it's been proposed many many times that taxation tends to discourage certian behaviors. Is it really smart to discourage the consumer spending that accounts for 2/3 of our economic growth?

Finally, I'm very wary of any plan that "increases employment" via corporate tax reduction. In my experience, there is no such thing as a corporation that hires workers as a result of bigger profits or higher revenues. Corporations hire to increase production and increase revenues where there is room in the market. An injection of cash to corporations does not increase the size of the market. An increase in equity investment does not increase the market. Market demand is created by consumers spending $$, which is not encouraged under a sales tax.


You sure there's no income needs test in HR 25?

I cannot seem to find the text of the Omnibus Reconciliation Act of 1981
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`SEC. 303. MONTHLY POVERTY LEVEL.

`(a) IN GENERAL- The monthly poverty level for any particular month shall be one-twelfth of the `annual poverty level.' For purposes of this section the `annual poverty level' shall be the sum of--

`(1) the annual level determined by the Department of Health and Human Services poverty guidelines required by sections 652 and 673(2) of the Omnibus Reconciliation Act of 1981 for a particular family size, and

`(2) in case of families that include a married couple, the `annual marriage penalty elimination amount'.
----------------------------------------------

The really really big investors have all of their wealth incorporated and shift that, without paying income taxes on it, as they see fit.

I would have preferred it to retain the estate tax, but it seems we lost that one anyway: now we have no estate tax, and any earnings on the way to creating an estate are taxed.

Discouraging consumer spending is less than Ideal. Many economists have pointed out that taxes on land value and other non-produced forms of wealth are the least economically damaging, and in fact, may be beneficial.

I don't believe that the FairTax will increase employment by reducing corporate taxes. I believe that the FairTax will increase employment by reducing the cost of employment. If I have a $50,000 salary, I might take home $35,000, while costing my employer $55,000. That's a 57% tax on my take home pay. That is a tax that discourages production. It's my feeling that anything in the chain of production - consumption is relatively harmful economically.

There's no means testing: everyone gets 30% * Poverty level.

I'm tired of hearing "well the really wealthy just avoid most of their taxes anyway... Tough Luck." ...as if that makes it alright and an acceptable fact of life now. bullshit.

I'm not really surprised to see tax reform from the GOP that puts more burden on working classes when the real problem is tax avoidance of the wealthy.

If the "big fish" actually paid their fair share of taxes, the burden on the rest of us would not be so great. It's clear that really big fish currently don't pay on much of their income because they lobby congress to slant the tax code in their favor, effectively creating loopholes. Since it's mostly republicans that whore out legislation to special interests, what makes you think that a flat tax would be any more "fair"?

A better tax plan comes from (gasp) the DLC. They outline 419 billion in tax breaks for real working people in a revenue neutral plan that closes 68 loopholes for the "big fish" and corporations.

http://www.ndol.org/documents/taxreform_0412.pdf


"There's no means testing: everyone gets 30% * Poverty level."
...do you have a link for that?

Yes, the backbone of many "tax plans" are those two points - "the rich will always avoid paying taxes" and "screw 'em". That's why I've chosen to put some obstinate posters on ignore...

The simple way to look at this is, as you point out, WHATEVER the Republicans do is to benefit the rich at the expense of the lower classes. It's really that simple. I have seen NO exceptions to that rule. And while "Fair" tax calls itself grassroots and non-partisan, I ask why I can't see SQUAT about it that would offend Republicans...

Democrats have our own demons to fight (corporate influence) but at the core of Democratic politics, at least, is the understanding who VOTES...

"Tax simplification" - this is another farce. You can eliminate as many rules as you want - EVERY RULE was put there to stop someone from screwing the system over. ANY tax system will be 'gamed' and eventually, ANY tax system will become as complicated as people twist the system to their advantage - that's ANY tax system.

CURRENTLY, sales taxes are gamed. Look at all the people who buy from out of state to avoid sales taxes (illegally - they SHOULD pay but don't - and that's my point).

Trust me, if sales taxes jumped to 30%, people would start to do it on a wholesale basis...

No matter what bill is introduced in this environment, the amendments tacked on during the process will twist any tax reform bill into a vehicle to increase corporate profits.

The only safe move is to keep tax reform off of the table untill we've addressed the problem of corporate influence on congress. Obviously, the McCain-Feingold bill was not effective enough to keep corporate interest out of our legislation.

I've had enough of tax laws written by GE and energy bills penned by Enron execs.

The FairTax is pro business. We can't just *wish* wealth into creation, someone has to create it. The FairTax levels the playing field between big and small business. The FairTax would increase US employment.

It's not perfect. You guys ask for corporations to pay their fair share, what is their fair share? A percent of income? What is income? What are expenses? How does depreciation factor in? Each of these questions opens the door for a favorable loophole. Would you feel better if all corporations were forced to pay a 23% tax on all of their US consumer generated revenue?

With the FairTax, (as well as the current tax scheme) there are still major loopholes dealing with credit manipulation and other financial activities.

I agree that corporate influence in congress needs to end.

" The size of the rebate is determined by the Department of Health & Human Services’ poverty level multiplied by the tax rate."
http://www.fairtaxvolunteer.org/smart/faq-main.html#3

This opens the door for an economically effective Basic Income Grant.

Business of any size pays no tax. Period. Consumers do.

yeah I guess that DOES level the playing field *taxwise* between big and small business. And consumers fund the infrastructure used by all business.

And all consumers happily pay for corporations' (ahem, excuse me, businesses) cost of doing business. And the corporate profits...Go primarily to top execs and shareholders.

so FairTax is where consumers foot the bill to maintain the infrastructure essential to corporate america while corporate profits are retained by an elite few.

And how this is good for individuals who are not corporate execs or business owners or major stockholders?

oh, yes... they get a Basic Income Grant.

So the rest of us can live on welfare as wages fall and our jobs fail to provide a decent living wage.

HMMMMM...nosir, I don't like it.

But that is not necessarily true. There are some taxes that cannot be passed on to the consumer.

Taxes that are charges for that very infrastructure are not passed on.

The most direct way to charge for the use of that infrastructure is tax the value of the land that is created by that infrastructure.

You just made the assertion that currently people and not corps pay taxes 2 days ago right here:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=15670&mesg_id=15904

What's with all the contradictory posts? Are you sincerely debating policy or are you backpedaling or are you beginning to see the light that the flat tax is little more than class warfare waged on the working class?

The big winners under the FairTax are not the ultra-rich, and the big losers aren't the poor or middle class.

The big winners are small businesses, as they no longer face industry and company specific tax loopholes. Consequently competition improves and we all enjoy greater purchasing power parity through lower consumer prices.

The big losers are individuals and corporations who make the most of existing tax codes.

Most people will wind up about where they are: however, employment should increase, and with it, wages.