Posted on 10/19/2006 5:11:50 PM PDT by pigdog
As specified in Congressional bill H.R. 25/S. 25, the FairTax is a proposal to replace the federal personal income tax, corporate income tax, payroll (FICA) tax, capital gains, alternative minimum, self-employment, and estate and gifts taxes with a single-rate federal retail sales tax. The FairTax also provides a prebate to each household based on its demographic composition. The prebate is set to ensure that households pay no taxes net on spending up to the poverty level.
Bill Gale (2005) and the President’s Advisory Panel on Federal Tax Reform (2005) suggest that the effective (tax inclusive) tax rate needed to implement H.R. 25 is far higher than the proposed 23% rate. This study, which builds on Gale’s (2005) analysis, shows that a 23% rate is eminently feasible and suggests why Gale and the Tax Panel reached the opposite conclusion.
This paper begins by projecting the FairTax’s 2007 tax base net of its rebate. Next it calculates the tax rate needed to maintain the real levels of federal and state spending under the FairTax. It then determines if an effective rate of 23% would be sufficient to fund 2007 estimated spending or if not, the amount by which non-Social Security federal expenditures would need to be reduced. Finally, it shows that the FairTax imposes no additional real fiscal burdens on state and local government, notwithstanding the requirement that such governments pay the FairTax when they purchase goods and services.
(Excerpt) Read more at people.bu.edu ...
The reason that they didn't address the 20-25% rises in prices is because from the outset they assumed that everyone would have their income and payroll taxes removed from the costs of the goods and services. In other words, they assumed that gross wages would drop to current takehome pay levels, and people would not see a large pay increase, they'd have about the same amount of money as now.
But then the marketing arm of the FairTax cult got moving and started promising "keep 100% of your paychecks". Once they did this, the marketing people didn't realize that prices wouldn't be able to drop and so they promised the "Prices will stay the same" as well. Even though these two things are both impossible to achieve at the same time, as the FairTax people have now fully admitted.
Under the original idea, where the cost of goods was reduced by the full amount of income and payroll taxes, there wouldn't have been large price increases necessarily, and so there wouldn't be an automatic negative effect on after-tax savings. But people's wages would have to drop to current takehome levels and they've decided that this would not be easy to sell to the average FairTaxer whom they've promised the bigger paycheck to.
If you look carefully at the Faritax site, and the latest FAQs, as well as the revised Boortz/Linder book, they are non-commital on what will happen to wages-- they are open to the idea the wages will drop to current takehome levels at the discretion of the private employers.
As I suspected, you are playing some sort of semantic word game. I say that every wage earner getting a 15-25% increase in take home pay, and almost all prices going up 18-30% at the same time is inflationary. And that dollars are devalued.
And that it punishes anyone that holds any wealth outside of a tax-deferred account.
You seem to disagree and think this is not a problem and that it is not inflationary because we don't know for sure what the Fed will do.
You fabricated an assertion and attributed it to me. You simply made something up so you could argue it. That's interesting.
I did not describe parity - you did. Your own quotes of my post deflate your argument. I described a 23% tax and a 30% tax. That isn't parity. I didn't say it was. YOU did.
If you want to discuss something I've said, you should try to be sure I said it.
No word games. Just observing that the shattering jolt that would be felt worldwide in all securities markets due to instant US inflation of even 15% would be stunning. I'm just curious why all economists any of us quote have not observed that themselves. In fact, the only place I have ever encountered the theory is right here, reading your posts.
Call that what you want, but that is the wage and price impact that I see you all promoting.
Whether the economists understand what you all are selling is a questionable point. Did you see that they found a bunch of economists-- 650 of them!!!-- on the record supporting minimum wage hikes too. Not all economists are very bright, and if you wave money in front of some of them, they'll get even stupider.
Case in point, from Club For Growth, Oct 13, click on link for article:
Russ Roberts is on a roll. In response to the petition signed by 650 "economists" who support an increase in the minimum wage, Roberts wants to start the Society of Real Economists. Brilliant.
I am actually amazed that the AFFT can spend some $22 million on economic research and only bag 75 economists. That is almost $300K per economists.
So, IF you believed that the FairTax would cause 15% inflation in wages and prices, then you would be against the FairTax plan? Or would you still support it despite the "shattering jolt that would be felt worldwide" and the "stunning" effect on all security markets.
groanup, If you believed that this 15% inflation would happen, would you still support the FairTax anyway?
I have no problem with that given that "We could just as well have allowed for monetary accommodation, so that there would be no fall in producer prices under the FairTax. Doing so, however, would merely have made the algebra more complicated without changing the results." but I suppose you do.
Want to play word games? IF the income tax was PROVEN to be a burden on economic growth and that such growth would have been far greater in the 20th century without it, would you still support the income tax?
I'm sure that the income tax is a burden on economic growth, that's why I'm always in favor of reduced taxes. The problem is the obscene amount of money that the government collects-- that is what burdens the economy. So, I would still support the income tax, and work to reduce it and to reduce spending.
I've answered yours, now answer mine. I'm not the one dodging, weaving, spinning and ducking, that has been you along, unwilling to say anything substantive on the record.
If the FairTax were proven to cause 15% or more inflation, would you support it?
"Transitional issues are often perceived to present a formidable obstacle to the enactment of a consumption tax reform. Although a wide variety of transitional problems would arise with such a reform, most discussions have focused on two issues. First, in the absence of transition rules, the enactment of a consumption tax reform might result in a one-time fall in equity prices. Under a value-added tax or national retail sales tax, this would most likely occur due to inflation in the form of a one-time tax-induced increase in consumer prices that would reduce the purchasing power of existing real assets."
Spoken like a true believer in the Free Lunch theory of the the Holy FairTax. Everyone comes out ahead! More Christmas for All! (And you don't even realize how stupid that sounds)
I seem to recall having seen 15% and greater inflation rates in the U.S. fairly recently (can you say Jimmy Carter?). Was that because of the fact that we had an income tax at the time?
There is no free lunch theory and never has been but there surely is a way to tax that is FAR better than the current communist inspired income tax system you are so passionately in love with. Most peole realize that. The fairtax is the best proposal to date for doing that and until someone come up with a better proposal (I'm all ears) I'm going to continue working to implement it as keeping the income tax is simply not an option if we are ever again to be a truly FREE nation.
Price Accommodation and Short-run Contractions Under a Retail Sales Tax or VAT
Holding prices fixed, these firms would need to reduce payments to workers to retain profit levels. In fact, many firms would not have enough of a profit margin to pay the tax without something else — either prices or wages — adjusting. Consider, for example, a grocery retailer that may have a 1% or 2% profit margin now owing a tax equal to 20% of receipts. This firm simply does not have the cash to pay the tax. If it is difficult to lower wages (and presumably it would be), a significant one-time price inflation, to allow these costs to be passed forward in prices instead, would be required to avoid a potentially serious economic contraction. Note that the price increase, were it possible to implement correctly and precisely, would solve the transition problem because although prices would rise, individuals would have more income to purchase the higher priced goods — and demand would not fall. It is difficult, however, for the monetary authorities to engineer such a large price change. Moreover, even with the monetary expansion in place to do so, the imposition of such a tax would be disruptive if firms are reluctant to immediately raise prices, again leading to an economic contraction. That is, firms could contract their business, or even close down, until output had contracted enough to raise prices.
These disruptions are not minor in nature — imagine the difficulties of engineering and absorbing a one-time price increase that is likely to be close to 20% (the level, approximately, that might realistically be needed to replace the income tax). Even if such an inflation could be managed, there are always concerns that any large inflation could create inflationary expectations — it's hard to manage a single one-year price increase. In fact, economists who judge a consumption tax to be superior to an income tax may nevertheless be skeptical about the advisability of making the change because of these transition effects.
What?
I may have been born in the morning but it wasn't yesterday morning. You haven't even come close.
as has been pr oven hundreds of times,Oh gee there's a well thought out line we don't see very often from Fairtaxers
the VAST majority will see increased purchasing power with their net wages under the FairTax!Will see? So now "net wages" instead of "100% paychecks" is a given.
That's an interesting economic comment coming from someone chastising others for making economic comments but hypocrisy is the order of the day in the Fairtax world...or are you an economist?
Kotlikoff said (almost verbatim) what Jorgenson said about wages so now you have to change, overnight, the "100% paycheck" (gross pay) lie used for years to the "net wages" lie, and you said you have no intention of going round and round. You started it...Oh wait that means we're supposed to accept Bigun's word as gospel and just go away.
According to Bigun, as of this morning, the official Fairtax position on wages is no longer 100% paychecks but instead everyone would continue to get their "net wage"...How exciting!
Fairtax sales plan= lies, distortion, disorganized mess, complete joke.
And in a previous paragraphs toward the top he says that inflation effects have not been sufficiently modeled. And in almost the next paragraph (in front of your quote) he says that the tendency would be for asset values to fall. Which is it?
Gee, that is pretty much what I have been saying for years since I first was exposed to the fairtax and I am not even one of them there 'experts'. I am just one of them dumb business owners who have no idea that the fairtax is actually the best thing since sliced bread and everyone is a winner except them illegals. Those illegals will pay for all those extra thousands of dollars everyone gets in their paychecks and prebate. I am not sure how 300 million ride on the backs of 11 million, but I am told the fairtax will make it happen.
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