Skip to comments.Neal Boortz supports fair tax proposal?
Posted on 12/17/2004 4:38:48 AM PST by JOHN W K
ANSWERING A FAIR TAX QUESTION
During yesterday's show a caller asked what would happen to her 401K funds if the Fair Tax bill became law. No income taxes had ever been paid on that money residing in her 401K. If, by the time she starts drawing that money out, the income tax is history, will she have to pay some sort of penalty? One month ago I would have rattled off the answer. No. No penalty. No taxes. You take the money and run. Yesterday, however, I was a bit more cautious. I've spent many hours over the past weeks studying the history of the income tax, the history of withholding, and various schemes for tax reform including, of course, the Fair Tax. I wanted my answer to be dead-on accurate, so I deferred until I could dive into the bill.
(Excerpt) Read more at boortz.com ...
That seems to ignore the fact that a large portion of our economy is based on imports; compared to a roughly $11 trillion GDP in 2003, our imports of goods were at around $1.2 trillion. Those goods' production costs are not dictated by our tax structure (although their final cost to us is subject to import duties.)
A M E N brother!!! Must be an echo in here!
I have expressed the same sentiment on these threads many times in the past and STILL believe that everything else is just chatter!
Someone has to order that product. Someone has to unload the boat. Someone has to haul that stuff on a truck to a distribution center. Someone has to haul it to the retail outlet on a truck. Someone has to stock and sell the product. Someone in America may have designed it. That product was purchased very cheaply overseas but a lot of people still had to handle it and manage its handling. I'm certainly no expert on this stuff but its concievable to me that the embedded tax cost could actually be higher as a percentage of the total cost of the product.
It would be interesting to see a good study done on the subject.
Very good information on that subject can be found here.
Hope you enjoy it as much as I did.
It would be interesting to see a good study done on the subject.
20-25% figure is the amount that prices would decline with the replacement of all corporate income & payroll taxes with an NRST.
It is not just a result of the tax revenue legally incident on business, but the sum total effect of relieving business from the requirements to comply with the current tax code, this includes the overhead costs incured as a result of accounting, planning, costs inherent in attempts to avoid the taxes, litigation fees and fines that result from arguing with the IRS et. al. when they think you are wrong, the loss of sales that results as a consequence of higher pricing necessary to recover these costs as well as finance the tax.
The following comprehensive study compares the flat tax, and NRST with the baseline '96 federal tax law they would replace.
Revised April 12, 1999.
This paper was prepared for presentation at the
In Hearings on Replacing the Federal Income Tax (1996), held by the Committee on Ways and Means in June 1995, testimony focused on alternative methods for implementing a consumption tax. The consumption tax base can be defined in three alternative and equivalent ways. First, subtracting investment from value added produces consumption as a tax base, where value added is the sum of capital and labor incomes. A second definition is the difference between business receipts and all purchases from other businesses, including purchases of investment goods. A third definition of the tax base is retail sales to consumers.
The three principal methods for implementation of a consumption tax correspond to these three definitions of the tax base:
We have simulated the impact of implementing two different versions of a consumption tax at the beginning of 1996. The first is the Armey-Shelby Flat Tax. The Armey-Shelby proposal levies taxes on the difference between business receipts and the sum of business purchases and business payrolls. Labor income is taxed at the individual level. An important feature of the proposal is the system of personal exemptions at the individual level that we have described.
The second proposal we have considered is the National Retail Sales Tax. The tax base is the same as in our simulations of the Flat Tax. However, the method of tax collection is different. The Arrney-Shelby Flat Tax preserves the existing structures of the corporate and individual income taxes, but alters the tax base. The National Retail Sales Tax eliminates corporate and individual income taxes; retail establishments would collect the taxes. This would require a broad definition of these establishments to include real estate developers and providers of services, such as medical, legal, and personal services. Most important, no personal exemptions are provided.
PDF page 25-27:
2. Figure 4 compares the consumption tax rates for revenue-neutral substitution of the Armey-Shelby Flat Tax (FT) and the National Retail Sales Tax (ST) for existing income taxes. The Flat Tax rate is 25.1 percent in the year 1996 and remains virtually constant through the year 2020. The National Retail Sales Tax rate rises from only 15.7 percent in 1996 to 21.4 percent in the year 2020. Only the Flat Tax includes a system of personal exemptions, so that the tax rate is considerably higher, especially at the initiation of the tax reform. Second, the consumption tax base for the Flat Tax grows at nearly the same rate as government expenditures, while the tax base for the Sales Tax grows more slowly, reflecting the increased importance of investment.
3. Figure 5 compares the impacts of the Flat Tax and the Sales Tax on GDP. Under the Flat Tax the GDP is only 0.6 percent higher than the Base Case in 1996; the impact of this tax reform on GDP gradually rises, reaching 1.3 percent in 2020. Under the Sales Tax the GDP jumps by 13.2 percent in 1996, but the impact gradually diminishes over time, falling to 9.0 percent in the year 2020. The short-run differences between these two tax reforms are due mainly to the impacts on labor supply, while the long run differences also reflect the impacts on capital accumulation.
4. Figure 6 compares the impacts of the two tax reform proposals on consumption. The impact of the Flat Tax in 1996 is to increase consumption by 3.5 percent, relative to the Base Case. This impact gradually diminishes over time, falling to 1.3 percent by 2020. While it may seem paradoxical that consumption increases with a rise in the consumption tax, the marginal tax rate for low-income taxpayers is reduced to zero, stimulating consumption. By contrast the Sales Tax curtails consumption sharply in 1996, resulting in a decline of 5.6 percent, relative to the Base Case. However, the level of consumption overtakes the Base Case level in 1998 and rises to 5.5 percent above the Base Case in 2020.
5. Figure 7 compares the impact of the two tax reform proposals on investment. The impact of the Flat Tax in 1996 is to depress investment by 8.6 percent, relative to the Base Case. Investment recovers over time, eventually reaching a level that is only 1.7 percent below the Base Case in the year 2020. Substitution of the Sales Tax for existing income taxes generates a dramatic investment boom. The impact in 1996 is a whopping 78.5 percent increase in the level of investment that gradually gives way by the year 2000 to a substantial increase of 16.5 percent, relative to the Base Case.
6. Figure 8 compares the impacts of the tax reforms on exports, while Figure 9 compares the impacts on imports. It is important to keep in mind that net foreign investment, the difference between exports and imports in nominal terms, is exogenous in our simulations, while the exchange rate is endogenous. The Flat Tax results in a very modest decline in exports of 0.5 percent in 1996, relative to the Base Case, but exports recover rapidly and exceed Base Case levels in 1997, rising eventually to 4.6 percent above these levels in 2020. Imports initially rise by 2.0 percent, relative to the Base Case, in 1996, but this impact declines to only 0.3 percent by 2020. The Sales Tax generates a substantial export boom; the level jumps to 29.2 percent about the Base Case level in 1996, but declines by 2020, reaching 18.9 percent of this level. Imports in 1996 exceed the Base Case level by 2.5 percent, but fall to 1.3 percent below this level in 2020.
7. The inter-temporal price system provides the mechanism for re-allocations of resources in our simulations. Figures 10 and 11 give the impacts of the tax reforms on the prices of investment goods and consumption goods and services. Under the Flat Tax the price of investment goods drops by more that 6.8 per cent in 1996 and the price decline continues, falling only modestly to a little over six percent by 2020. The Sales Tax produces a reduction in investment goods prices exceeding twenty percent in 1996, rising gradually to between twenty-five and thirty percent over the period 2000-2020. Under the Flat Tax prices of consumption goods and services decline by more that 4: 5 percent in 1996, but this price reduction falls over time to around three percent in 2020. The Sales Tax reduces the price of consumption by a little over three percent in 1996, but this price decline increases to more than ten percent by 2020.
8. The implied subsidy to leisure time is equal to the marginal tax rate on labor income and would drop to zero when the individual income tax is abolished. Individuals sharply curtail consumption of both goods and leisure under the Sales Tax. Figure 12 shows that labor supply (and demand) jumps initially by thirty percent in 1996. This labor supply response recedes to a level of around fifeen percent by 2020. By contrast the Flat Tax generates an increase in both consumption and labor supply. The labor supply response is only two percent in 1996, but gradually rises to more than five percent by 2020.
9. Since producers would no longer pay taxes on profits or other forms of income from capital and workers would would no longer pay taxes on wages, prices received by producers under the Sales Tax, shown in Figure 13, would fall by an average of twenty percent in 1996. Figure 14 shows that prices received by producers would fall by an average of twenty-five percent by 2020. The impact of the Flat Tax on prices received by producers is much less dramatic. Prices decline in the range of six to eight percent for most industries in 1996 and five to seven percent by 2020.
Neal Boortz ANSWERING A FAIR TAX QUESTION: OK. Now I've done the research, and here's your answer: You take the money and run. No taxes. If you are sitting fat and pretty with a 401K plan or other deferred income plan when the Fair Tax hits you will be able to withdraw the cash with no penalty and no tax consequences. Not such a bad deal, huh?
H.R.25 (the Fair Tax Act) repeals the entire federal tax code regarding income, payroll and gift/estate taxes, including those parts covering the IRA's, 401K plans etc. Your money is yours not the federal government's under the Fair Tax Act.
A Taxreform bump for you all.
If you would like to be added to this ping list let me know.
John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.
There are NO, I repeat NO, voluntary taxes.
ALL taxes are collected either on payday, or at the cash register, and both times, WE have no say in the process.
We can adjust the amount at payday, by adjusting dependents, allocating pre-tax deductions for 401K's but we pay taxes on a NON-VOLUNTARY basis.
Under the FairTax, those imports will finally be taxed, at the point of sale.
And with the huge burdens imposed on our products under the current monstrosity removed, our products are going to immediately become MUCH more competitive in the world market AND in our own.
A total WIN/WIN!
The article you linked upthread is a total lying joke.
Income taxes, flat or otherwise, are fundamentally flawed from their very inception.
If you go out into the pasture, find a big fat juicy cowpie and flatten it, it is still a cowpie.
-- Because then you will have the government saying what is and what isn't a necessity. Why would medical expenses be a necessity to a healthy person? Why would shelter be a necessity to a person who already owns their home free and clear? OR how about a farmer who grows his own food? On top of that, if Congress can decide what it and what isn't a necessity, the lobbyists will make the FairTax Code as complicated as the current code. Apples would be taxes, buyt the Citrus lobby would see to it that oranges weren't, for example.
In regard to Neals comment that It doesn't matter that paying taxes will be voluntary under the Fair Tax plan , let us explore this concept a little bit further.
-- You miss the entire point. If a person only buys enough consumable items up to the poverty line, he in effect PAYS NO TAXES. Any level of consumption above that will raise his rate above 0%. This makes it completely voluntary.
-- Again, we arrive at your argument that an indirect tax on a necessity is in fact a direct tax. Well, that may be true IF IT WEREN'T FOR THE FAMILY CONSUMPTION ALLOWANCE! Basically, the FCA is an exemption on necessities; it's just that individual Americans get to decide what is and what isn't a necessity for themselves. Do you believe that Americans are uncapable of making such a decision? By not exempting individual goods, the government's ability to conduct social engineering is vastly reduced.
-- Now, we obviously disagree on the FairTax. I believe that the FairTax is the best tax system that could realistically be implemented. The perfect tax system in my opinion, however, would be a constitutional requirement that states pay their share of the budget according to their representation in Congress. As a student of the Constitution, you are fully aware of the beauty of the concept of apportionment. Under such a system, the BEST method of taxation would emerge within the states: States would strive to find the most efficient, cost-effective way to collect taxes. However, I don't think that this plan could ever be implemented; or if it was implemented, how would it be enforced?
-- By the way, what is your plan for tax reform? How would you reform the system without budget cuts???
Would that be a flat tax with or without the payroll tax?
Keep in mind that the Payroll tax is anything but flat.
And even if we exclude the Payroll Tax question, the flat tax is still regressive and NOT flat. All corporate taxes (including compliance costs) are embedded in the price of goods. Those at the lower end of the economic totem pole consume more as a percentage of their income.
The only true flat tax is the FairTax! People can decide what tax rate they are willing to pay.
The ONLY reason that the United States of America is in the position in the world that she is is because that we, the people enjoy the highest level of freedom of all the nations of the world and have since we were born as a nation. Rush keeps beating this thru our heads, but I knew it long before Rush came on the scene. So does it not stand to reason that if we do well as 40-50% slaves, we would do a lot better if we were free-er....say if we were only 10-20% slaves? free from the internal revenue service and with less regulations.
Besides......studies have outcomes based on the agenda of the one doing the study, or the one who is paying for the study......no "study" is completely unbiased. The only way we will know for sure what the economic impact of anything is to try it....anything else is opinions and guesses.
It's funny you should say that. He's writing a book on the topic now, so I'd say he's studied up on it a bit. ;oP
That give's my family a tax bill of > $26,000.
Talk about burdoning the poor. That is the entire income for some families and pocket change to others.
So the wealth of an individual (whether measured in income or in consuption) should make no difference?
I do agree that unprocessed foods (raw materials for making meals) should be untaxed. There would be a huge surge in people cooking meals from food bought at the local farmer's market.
I would happily give up the rebate to leave primary housing and unprocessed foods untaxed.
On rum, per gallon,or a dollar; on all other spiritual liquors; on molasses; on Madeira wine; on all other wines; on common bohea teas per Ib.; on all other teas; on pepper; on brown sugars; on loaf sugars; on all other sugars} on cocoa and coft'eeon all other articlesper cent, on their value at the time and place of im-pui tation. That there ought, moreover, to be levied on all vessels in which goods, wares, or merchandises shall be imported, the duties following, viz. On all vessels built within the United States, and belonging wholly to citizens thereof, at the rate ofper ton. On all vessels belonging wholly to the subjects of Powers with whom the United States have formed treaties, or partly to the subjects of such Powers, and partly to citizens of the said State*, at the rale of On all vessels belonging wholly or in part to the subjects of other Powers, at the rate of
-- You have just proved our point for us. these taxes levied were CONTEMPORARY! They had to summarily be picked and chosen. Presumably, under your system Congress would have to do that same thing now. And what would they choose??? What would they not choose??? They would most likely choose the items that their political contributors wanted, or those that would benefit the party. Your source doecument does not tell us what should and should not be taxed in 2005. Congress would have to do that!
APRIL 9, 1789.]
[H. OF R.
OF DEBATES IN CONGRESS.
Duties on Imports.
Introduce to the committee a subject, which appears to me to be of the greatest magnitude; a subject, sir that requires our first attention, and our united exertions.
No gentleman here can be unacquainted with the numerous claims upon our justice; nor with the impotency which prevented (he late Congress of the, United States from carrying into effect the dictates of gratitude and policy.
The union, by the establishment of a more effective government, having recovered from the stale of imbecility that heretofore prevented a performance of its duty, ought, in its first act, to revive those principles! of honor and honesty that have too long lain dormant.
The deficiency in our Treasury has been too notorious to make it necessary for me to animadvert upon that subject. Let us content ourselves with endeavoring to remedy the evil. To do this a national revenue must be obtained; but the system must be such a one, that, while it secures the object of revenue, it shall not be oppressive to our constituents. Happy it is for us that such a system is within our power; for I apprehend that both these objects may be obtained from au impost on articles imported into the United States.
In pursuing this measure, I know that two points occur for our consideration. The first respects the general regulation of commerce; which, in my opinion, ought to be as free as (Fie policy of nations will admit. The second relates to revenue alone; and this is the point I mean more particularly to bring into the view of the committee.
Not being at present possessed of sufficient materials for fully elucidating these points, and our situation admitting of no delay, I shall propose such articles of regulations only as are likely to occasion the least difficulty.
The propositions made on this subject by Congress in 1783, having received, generally, the approbation of (he several States of the Union, in some form ov other, seem well calculated to become (he basis of the temporary system, which I wish (he committee to adopt. I am well aware that the changes which have (taken place in many of the States, and in our public circumstances, since that period, will require, in spine degree, a deviation from the scale of du-1ies then affixed: nevertheless, for the sake of that expedition which is necessary, in order to embrace the spring importations, I should recommend a general adherence to the plan.
This, sir, with the addition of a clause or two on the subject of tonnage, I will now read, and, with leave, submit it to (he committee, hoping it may meet their approbation, as an expedient rendered eligible by the urgent occasion there is for the speedy supplies of the federal treasury, and a speedy rescue of our trade from its present anarchy.
Resolved, As the opinion of this committee, that the following' duties ought to be levied on goods, waves, and merchandise, imported into the United States, viz: 9
On rum, per gallon,of a dollar; on all other spirituous liquors; on molasses; on Madeira wine; on all other wines; on common bohea teas per lb.; on all other teas; on pepper; on brown sugars; on loaf sugars; on all other sugars; on cocoa and coffeeon all other articlesper cent, on their value at the time and place of importation.
That there ought, moreover, to be levied on all vessels in which goods, wares, or merchandises shall be imported, the duties following, viz. On all vessels built within the United States, and belonging wholly to citizens thereof, at the rate ofper ton.
On all vessels belonging wholly to the subjects of Powers with whom the United States have formed treaties, or partly to the subjects of such Powers, and partly to citizens of the said States, at the rate of
On all vessels belonging wholly or in part to the subjects of other Powers, at the rate of
Mr. BOUDJNOT.The necessity of adopting some measure, like the one proposed by the honorable gentleman from Virginia, is too apparent to need any argument in its support. The plan which he, has submitted to the committee appears to be simple and sufficiently complete for the present purpose; I shall, therefore, for my own part, be content with it, and shall move you, sir, that (he blanks be filled up in the manner they were recommended to be charged by Congress in 1783. My reason for this is, that those sums have been approved by the Legislatures of every State represented on this floor, and of consequence must have been agreeable to the sense of our constituents at that time; and; I believe, nothing since has intervened to give us reason to believe they have made an alteration in their sentiments.
Mr. WHITE.I wish filling up the blanks may be deferred until the business is more matured; nor will this be attended with a loss of time, because (he forms necessary to complete a bill will require so much as to give gentlemen leisure to consider the proper quantum of impost to be laid, as well on the enumerated articles as on the common mass of merchandise rated ad valorem; for, as was hinted by my colleague, something may have occurred to render an alteration in the sums recommended in 1783 in some degree necessary; and if so, time will be given to consider the subject with more attention in the progress of the bill, and no unnecessary delay can arise; wherefore, I move you, sir, that the committee now rise, report progress, and ask leave to sit again.
Mr. MADISON.I do not consider it at this moment necessary to fill up the blanks, nor had I it in contemplation at (the time I offered the propositions. I supposed that most of the gentlemen would wish time to think upon the principles generally, and upon the articles particularly; white others, who, from then-situation and advantages in life, are more conversant on this.
-- Thank you!
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