Posted on 10/21/2004 1:45:31 AM PDT by Remember_Salamis
Replace Social Security payroll tax with national sales tax
By Laurence J. Kotlikoff Wed, Oct. 20, 2004
With Iraq on the front burner, domestic policy is getting short shrift in the presidential campaign. Two issues – the tax system and Social Security – deserve much more attention.
Notwithstanding recent tax cuts, our tax system places a huge burden on middle-class Americans, reducing not just their take-home pay but also their incentives to work and save. And Social Security is a walking time bomb with no obvious means, apart from highly regressive payroll tax hikes, of covering two-fifths of its future benefit commitments.
To his credit, President Bush addressed tax and Social Security reform, albeit briefly and separately, in recent weeks. He indicated that a national retail sales tax is worth exploring and suggested letting workers invest some of their Social Security taxes in private accounts.
Sen. John Kerry objected. A sales tax, he said, would raise the tax burden on the middle class. And privatizing Social Security would leave the elderly’s retirements subject to volatile financial returns. As a student of the tax and Social Security systems, I see where Sen. Kerry is coming from. But I also see a way to combine both reforms to meet his concerns.
The three-part plan, which has been endorsed by more than 150 top U.S. academic economists, is titled the Personal Security System. Part 1 replaces Social Security’s payroll tax with a federal retail sales tax. Part 2 eliminates any further Social Security benefit accrual, paying (with the sales tax receipts) only the benefits now owed current retirees and current workers. Part 3 sets up an individual account system, but one Democrats as well as Republicans can support.
Kerry should love Part 1. The payroll tax is highly regressive. It taxes only wages, and only up to $87,900. For Bill Gates, who makes $87,900 in minutes, payroll taxes are a pittance. But with a retail sales tax, Gates would pay taxes on every dollar he earns, as well as on his entire $61 billion in wealth, the minute he spends these funds.
Mathematically speaking, a retail sales tax is equivalent to taxing all wages plus all wealth because both are ultimately spent on goods and services. Hence, replacing the payroll tax with a sales tax is the same as a) eliminating the payroll tax ceiling, b) taxing wealth at the payroll tax rate, and c) taking advantage of the expanded tax base to lower the payroll tax rate. What more could a Democrat want?
But what if Gates saves his earnings and his wealth and spends it later? This delays, but doesn’t reduce, his tax payments since the interest earned on this saving is also taxed when spent. What if Gates gives his money to his kids? Again, there’s no tax avoidance; the kids pay the tax when they spend the gifts or inheritance.
How about the elderly who live off Social Security? Won’t they be hurt by having to pay higher sales taxes at the store? No, because their Social Security benefits are adjusted annually for price increases, including those arising from higher sales taxes. The same would hold for other transfer recipients were their benefits adjusted for inflation. Congress could go even further and rebate all sales taxes up to the poverty level.
Part 2 phases out the existing Social Security system, which served us well for decades but is well past its prime. Why keep in place a retirement system with 2,528 rules that no one understands, that discriminates against working women, that redistributes income capriciously, that is two-fifths underfunded, and that requires highly regressive payroll tax hikes to sustain?
Part 3 replaces the current Social Security system with a fully funded modern alternative. Specifically, the contributions workers formerly made to Social Security are split 50-50 between spouses and invested in individual accounts. The government provides matching contributions for low earners.
All account balances are invested in a single global market-weighted index fund, providing all workers the same fully diversified portfolio and rate of return. The government fully guarantees the downside; workers can only gain from investing in the market. At retirement, PSS balances are gradually sold off and converted to inflation-indexed pensions. The Social Security Administration handles all paper work, investing and pension conversions. Wall Street plays no role and collects no fees.
This plan gives Democrats and Republicans most of what they seek via tax and Social Security reform and provides a great boost to the economy. Most important, it gives our children a transparent, efficient and equitable retirement system that won’t drive them broke.
-------------------------------------------------------------------------------- Laurence J. Kotlikoff is chairman of the Department of Economics at Boston University. He wrote this on behalf of the non-profit organization Americans for Fair Taxation to distribute to newspapers.
FairTax-related bump!
It's interesting that at the bottom of the page it states that he wrote this for AFFT. So this appears to me that AFFT is floating the idea of a partial NRST.
Plan Bs are always a good thing, A_G.
In political tactics; when you think about, if Bush changed S.S. so it was funded by a sales tax, he would be able push through to have illegal immigrants get S.S. more easily because they would be paying their share when they bought something and the issue would not cause anywhere near the poltical firestorm that it currently causes now.
NO. This is simply a scam to continue to tax the heck out of the largest and highest tax paying group in the country...the Boomers. WE've paid enough. LEt's take it out of the pensions of the politicians who have stolen all those trillions we've paid in.
ALL law abiding taxpayers should LOVE an NRST. Under an NRST, paying your fair share is unavoidable - unless you live like a hermit. Illegal income, cash businesses, illegal immigrants, etc., would all pay their freight.
Not a chance! No NST until the 16th amendment is repealed. No way, no how!
And HERE is the problem with it. NO part of the federal bureaucracy is eliminated. Instead of this continuing government boondoggle, invest the money in REAL IRA's, and get the government out of it.
Not a chance! No NST until the 16th amendment is repealed. No way, no how!
Damn good point!!! The Dems will go into a spending frenzy during transition and then when we try to stop the SS tax they will be screaming, "Who's going to pay for the tax cut?!!!"
Teach folks how to save for their own retirement properly and be done with social security completely.
less than $100 a month through your working lifetime invested will make you a millionaire.
If I'm reading him right then the money that I'm currently paying in Social Security would go into a savings acount to be managed and invested outside of the government. OK, I don't have a problem with that. But in addition I have to pay a new sales tax to fund existing Social Security recipients, probably along the lines as the same percentage as my current Social Security. So that means my Social Security costs double. I'm supposed to sign on for a massive tax increase. How reasonable is that?
It's interesting that at the bottom of the page it states that he wrote this for AFFT. So this appears to me that AFFT is floating the idea of a partial NRST.
Then it would be good to ask them. I'll be back on that.
Plan Bs are always a good thing, A_G.
Not when they fail to serve the primary purpose. To eliminate the income tax.
So the idea is to have a National Sales Tax in addition to the National Income Tax.
Just as many of us predicted. Once a sales tax is introduced, we'll have both and the fairtax clowns will cheer it them on.
Yep, fools and their money are soon parted.
Statement of Laurence J. Kotlikoff,
Professor of Economics, Boston University, and
Research Associate, National Bureau of Economic ResearchTestimony Before the House Committee on Ways and Means
Hearing on Fundamental Tax Reform
April 11, 2000
Chairman Archer and other distinguished members of the Committee on Ways and Means:
I'm honored by this opportunity to discuss with you the nation's need for tax reform and the role that consumption taxation, particularly a federal retail sales tax, could play in enhancing the economy's economic performance and improving its distribution of resources.
Our nation's economy has been performing remarkably well in recent years, but our economic success is no reason to be complacent about a tax system that is extraordinarily complex and highly distortionary and that plays a critical role in an overall fiscal system that is likely to visit enormous burdens on our children and grandchildren.
The complexity of the tax code doesn't just drive taxpayers crazy. It also costs them a significant amount of time - time that could be spent working or time that could be spent enjoying life. Having just spent three days doing my taxes, I have a refreshed sense of the substantial costs to the man in the street and the nation as a whole of complying with the federal income tax code.
The distortions of our tax system also diminish the nation's well being, but in ways that are less transparent. Today, almost all American households are in combined federal, state, and local marginal income tax brackets of roughly 50 percent. Because governments are collectively confiscating half of every dollar most workers earn, most workers work many fewer hours than they would were their tax payments independent of their labor earnings. And since the government is confiscating half of every dollar of income most savers earn on their non tax-favored retirement accounts, many Americans choose to spend today rather than save for tomorrow.
Tax Reform's Importance for Fiscal Sustainability and Generational Equity
Eliminating complexity and distortions would be cause enough for reforming the federal income tax, but there is a much more pressing reason: notwithstanding recent wishful projections about future government surpluses, our fiscal house is not in order. Indeed, getting it in order would require not cutting federal income taxes, as some in this chamber advocate, but immediately and permanently raising them by over 25 percent. That assessment comes not from academia, but from the Congressional Budget Office and the Federal Reserve Bank of Cleveland. A joint CBO-Cleveland Fed generational accounting study, to be published next month in the American Economic Review, shows that such a tax hike is needed to achieve generational balance - a situation in which our children and grandchildren will face tax rates that are no higher than those we face.
The 25 percent or greater requisite tax hike is derived under the assumption that growth in federal purchases of goods and services keeps pace with growth in the overall economy. This responsible assumption can be contrasted with the irresponsible one underlying the projection of very large surpluses over the next few decades. The irresponsible projection, whose surpluses are routinely cited by advocates of tax cuts and spending hikes, assumes that, as a share of GDP, federal spending will decline by 20 percent by the end of this decade and by 30 percent by roughly 2040.....
Go to THOMAS to read the rest.
Having just spent three days doing my taxes, I have a refreshed sense of the substantial costs to the man in the street and the nation as a whole of complying with the federal income tax code
Funny thing is, even with this latest payroll tax to sales tax scam he'd still have to fill out those income tax forms.
No thanks. If AFFT is behind this, they need to seriously re-think it. The whole point of the NRST is to eliminate the income tax -- having a national sales tax plus the income tax simultaneously will simply ensure that we're saddled with both permanently.
Wrong again, lewis (why am I not surprised). Looks like the majority of FairTax supporters are against this idea.
But when has a fact ever stopped you?
Laurence J. Kotlikoff is chairman of the Department of Economics at Boston University. He wrote this on behalf of the non-profit organization Americans for Fair Taxation to distribute to newspapers.
You're just running from this article like scalded dogs because it exposes what many of us already know as your real agenda.
ancient_geezer and myself have already come out completely against this idea
Don't cry to me about it.
You two are some of the biggest AFFT enablers here. If you've been stabbed in the back by frauds you thought were friends (it's not like you haven't been warned) you're crying to the wrong person.
Once a sales tax is introduced, we'll have both and the fairtax clowns will cheeritthem on. [emphasis mine]
I called you on this, and instead of admitting that it's only Remember_Salamis who is in favor of the idea, you post an out-of-context quote that has nothing to do with any FR board member.
You had an easy out, and chose not to take it... you could have said that by "fairtax clowns", you were really referring to the AFFT organization. We all know that would have been a lie, but I would have given you a pass on that one. Instead, you repeat the "fairtax clowns" smear as being directed at FR board members, proving my point for me directly.
Seriously, lewis, why do you even try? The more you post on these threads, the more foolish you make yourself look.
Boomers: The worst generation in American history. It's always "me me me" with you guys. I find it ironic that the "greatest generation" had the "worst generation". ME and my fellow twentysomethings will have a great time paying high taxes and cleaning up your mess while you guys get pumped up on viagra and relive your hippie youth in your 60s.
I'll bet this article is the result of that gathering of pinheads.
This plan actually self-privatizes, here's how:
IF you save money instead of spend it, you will have a larger retirement (you still get the same amount of SS $$ regardless of how much you spend). This can be combined with "super 401ks" so that people can invest COMPLETELY tax-free. Many don't realize this, but your pre-tax deductions today are still hit with payroll taxes.
One odd thing about the proposed sales tax is tax increases are automatically built in. If revenues aren't enough, the sales tax just increases.
"As far as I know, Remeber_Salamis is the only supporter of this concept who posts to the Tax Reform threads."
-- I'm conflicted over the idea actually. I feel replacing the payroll tax with a NRST is a godd idea in and of itelf (especially since it will rpove that it works), but I'm also worried about being left with both taxes.
I guess it comes down to who we think will be running the country in the future.
I'll bet this article is the result of that gathering of pinheads.
Hardly lewislyn.
The Congressional Research Service is doing a full economic study of HR25 to adjust the rates and bring projections of its effects up todate with current economic conditions and has nothing to do with the above idea.
I guess it comes down to who we think will be running the country in the future.
In which case you had best be looking to stick with primary goals, repealing the income tax. The future holds no guarantees as to who will be in running the country at any particular time.
The key is to place impediments to returning to the income tax once we get rid of it. The Social Security thing is a totally secondary issue and in myview would have been better to have been left out of consideration as regards the NRST in the first place, for much the same reasons as Von Mises had in his recomendations to Austria at the end of WWII.
He recommended doing away with income taxes and using excises & retail sales taxes same as the system proposed in HR25. Von Mises however chose to leave their Social Security payroll excises on business in place preferring take on that system as a second step to converting the Austrian economy from a socialist system to one based in free enterprise and a capitalist economy.
| Ludwig von Mises as Policy Analyst: Monetary Reform, Fiscal Policy, and Foreign Exchange Controls by Richard M. Ebeling Heritage Lecture #754 http://www.heritage.org/Research/PoliticalPhilosophy/hl754.cfm#pgfId-1023417
|
As long as we retain and income tax, we've have missed the primary goal. Everything else is just trimming.
You don't understand the difference between "can" and "has to have". The 16th amendment made it so that government "can" have a income tax, NOT that government "has to have" an income tax.
Understand the difference?
I understand the difference perfectly well. I also understand that if it can have an income tax, it will have an income tax. I am a strong supporter of the Fair Tax, but I will oppose it with my last breath as long as the possibility exists that we will ever have both.
I'm glad I'm not the only one that can see the possibilities. I don't trust the dems with the chance to add the NST without getting rid of the income tax at the same time.
I don't trust the dems with the chance to add the NST without getting rid of the income tax at the same time.
You don't have to trust them, as the legislation repeals the income tax as well as related payroll taxes.
H.R.25Fair Tax Act of 2003 (Introduced in House)
TITLE I--REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND ESTATE AND GIFT TAXES
|
as well as set the conditions for repealing the 16th amendment and prohibiting the use of the income tax in the future.
SEC. 2. CONGRESSIONAL FINDINGS.
|
Laying the groundwork for Article 5 procedures in amending the constitution through Sam Johnson's proposed amendment to the constitution for ratification:
H.J.RES.61
Title: Proposing an amendment to the Constitution of the United States to abolish the Federal income tax.
Sponsor: Rep Johnson, Sam [TX-3] (introduced 6/24/2003) Cosponsors: 5
Latest Major Action: 9/4/2003 Referred to House subcommittee. Status: Referred to the Subcommittee on the Constitution.
Like Dr. Strangelove; 'sometimes you just have to learn to love the bomb'. In that with a sales tax there are two possiblities. If was have a sales tax that gets rid of income tax (and maybe S.S. tax) we will be a much freer people. But if we have both a income and a sales tax it will be to much of burden on the citizens and the tax system, along with the economy and government at the federal level will collapse fairly quickly and we will start over from scrach.
Either way, the current income tax system with cease to exist.
Everyone thought Ronald Reagan was off his rocker when he said "...tear down this wall!", but down it came.
I will NOT accept anything less than repeal of the 16th amendment before I agree with the NST. Only an idiot would believe that the politicians in Washington wouldn't take advantage of having both taxes available to them.
I would prefer to not let them cause the collapse of the economy and federal government in the process.
You will note that this article is not refering to H.B. 25.
You have no idea what is takes to get the Constitution amendmented, it takes nothing less than a near act of God to get it changed.
Given the level of election fraud the democrats are setting up for the this election alone, a amendment change in this climate, which requires two-thirds of the total voter to okay on, is currently next to impossible right, but a simple bill passed into law could be used to get rid of the IRS and income tax (and maybe S.S. tax).
You have no idea what I know, but you seem to believe that you do. You must be a Democrat.
I happen to be fully aware of what it takes to get the Constitution amended, and I assure you that that is the reason I am insisting on the repeal of the 16th amendment. I want it to be nearly impossible for the money grabbers in Washington to bring back the income tax once we are rid of it. It is well worth the effort.
You will note that this article is not refering to H.B. 25.
I do note that and because the proposal of the does not repeal income tax statutes, or even move in that direction, I am against it.
Repealing the income tax statutes is the only condition under which an NRST should be undertaken. Keeping income taxes in place with an NRST just magnifies the problems from and individual liberty viewpoint.
I want it to be nearly impossible for the money grabbers in Washington to bring back the income tax once we are rid of it. It is well worth the effort.
However, there is the fact that one can insist on conditions that prohibit the removal of income taxes altogether. Unfortunately we have 100yrs of history telling us that merely proposing repeal of the 16th amendment without a viable tax system to take the place of the income tax is a no go situation.
Obsolete the income tax, then prohibition on the Constitutional level becomes a viable potential. Without a replacement system in place, it just isn't going to happen this side of judgement day.
You're right, I cannot read your mind. But the way you talk about amending the Constitution you make it sound as easy as tieing one's own shoe laces. It's not. As I said before, there is to much election fraud by the democrats to do it right now.
but you seem to believe that you do. You must be a Democrat.
Name calling... (sarcasm) Oh yea, that is really going to improve your side of the arguement.
You are right, I shouldn't resort to name calling. It's just that I get a bit testy about people who assume that I am either ignorant or stupid. Twice, you have made that mistake.
I have made no suggestion that amending the Constitution is easy. In fact, it is the difficulty that makes it imperitive. We must make the effort to amend the Constitution so that we can have that difficulty protecting us from those who would have us living under a NST and an income tax.
The Fair Tax, which is the proposal that I am in total agreement with, will make that happen. The proposal in this article is a half measure that will leave the income tax in place. This is the first of many attempts by the libs to co-opt a great plan and replace it with something that will only make the situation worse. Expect many more as the Fair Tax plan grows in popularity. Expect the libs to pull out all stops to derail the plan. This one bill will do more damage to the leftist agenda than anything in the past century.
One question, do you honest feel that taxpayers (E.I. us) could afford both a income and sales tax?
Now there is a movement in D.C. to get rid fo the IRS (and may take S.S. tax with it). From what info I can gather the first public push for it by the Republicans in mass numbers will be 2005 if Bush wins.
Of course if Kerry is able to use his 10,000 lawyers (Democrat figures, NOT mine) to steal the election, I don't think we will have to worry about income tax because by April 1st we will be hip deep in blood from a civil war.
"One question, do you honest feel that taxpayers (E.I. us) could afford both a income and sales tax?"
It would begin as a small percentage, and would gradually go up. That would, of course, carry us further towards socialism. Don't forget, the original income tax was only about 2%. The libs are only too well aware of the procedure for boiling live frogs.
As far as the civil war beginning in April, I'm not sure I would go that far. Obviously, we would have a major challenge ahead of us, but hopefully the shooting wouldn't start that quick.
DUMP THE IRS!!!!!!!!!!!!!1
You might notice two things.
1. I am a "fairtax clown"
and
2. I'm not cheering them on.
The leftist have quit the waiting game, they want us citizens paying high taxes NOW.
As far as the civil war beginning in April, I'm not sure I would go that far. Obviously, we would have a major challenge ahead of us, but hopefully the shooting wouldn't start that quick.
I would have believed you yesterday, but today Fox News reported that the Democrats are financing their 10,000 lawyers with OUR MONEY through collect federal taxes. Disenfranchising us at the ballot box with our own money is enough to get even my blood boiling.
"The leftist have quit the waiting game, they want us citizens paying high taxes NOW."
We ARE paying high taxes now, and they want to make it even higher. By giving them a new tax to raise, they can get our money coming and going.
The FairTax plan has to be an all or nothing venture. Anything less will not work.
Not are high as it was, the Bush taxcut is lowering taxes across the board.
Perhaps, but you have taken a stance where you criticize anyone who says that they want to get rid of the IRS for the soely reason being that they have a different approach to the issue.
You're hurting the cause (which is getting rid of income tax and the IRS. )and by extention, you're hurting yourself.
By attacking people on your side of the issue, your making it just that much harder for the rest of us to get the job accomplished.
and
2. I'm not cheering them on.
You left out:
' I've been duped '.
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