1. on Page 140: "... to the existing federal income tax system? The popular perception is that the introduction of a national retail sales tax (NRST) or a Hall-Rabushka type flat tax (FT) in place of existing federal income taxes will significantly increase the tax burden ..."
Yep that is often the "popular conception" alright, only in a revenue neutral situation the NRST only replaces one tax with another without adding to overall tax burden. There is the the exception of course for for the flat tax with its higher costs imposed at multiple levels of production as compared with the NRST with taxes imposed only once at the retail sales level for final use or consumption of new goods and services.
The NRST is not collected on purchases of goods or services for business use unlike the business income tax, Business Transfer tax and flat tax situations where all businesses get a financial hit just trying to arrange to avoid paying more taxes than they are required to. Indeed the overhead costs associated with dealing with those taxes are often a greater burden on business than the tax that is actually remitted to government. Unfortunately the ability to report a paper loss in avoiding a federal tax still engenders the overhead costs of realising that paper loss condition or whatever other mechanism is used to reduce a corporate tax bill, even to the extent of the costs removal of headquarters to foreign tax havens. The extent that businesses and individuals go to avoid that next increment in tax payment is sometime amazing.
Of course popular conception often has little to do with reality. and your elipsis at the begining and end of this statement leave one wondering what is said about perceptions other than the popular one.
I'm sure we will will find out in do course, and how NRSTs & Flat taxes rate against the existing federal in come tax system.
"Belief and sincerity do not define truth; it exists despite belief and sincerity."
- Joshua David Mather
2. on Page 141: "... and increase the real wage. Third, estimated consumption by income level is used to allocate the tax burden of an NRST. Although this method is in accord with the procedure used by other studies of an NRST, it conflicts with the ..."
Nice to know real wages increase rather than decrease under an NRST. Hmmm, you have held in the past that wages must decrease with NRST and consumption taxes. I find it more likely that wages remain unchanged unless there are substantial reasons to beleive that additional production capacity is needed to increase the demand for more workers and more hours worked by those who are employed. Then one might expect some upward pressure in wages to attract the necessary work force to sustain increase production, paid for of course out of economic expansion that occurs with a growing consumer demand that underlies rising production in the first place.
3. on Page 142: "... basis of long-run allocative and distributional factors.
Tell us, is that one continuous sentence from Page 141 above in the book, or are you indicating something missing in between with your elipsis? helps to keep things together and in context.
There is greater administrative familiarity with the VAT and FT than with the NRST.
Indeed this is true. Which leaves long-run allocation and distributional factor tables somewhat questionable in regards an NRST. Especially seeing that distributive static analysis has a lousy history of success in predicing anything concerning changes in taxation methods.
Indeed, some skeptics (Slemrod, 1996, and Gale, 1998b) argue that a high-rate NRST could not be administered effectively. Accordingly, the ..."
Well we do know about Gale and Slemrod, and the fact that Gale especially streches things just a tad bit in his Brookings papers, in not recognizing that NIPA:GDP measures exclude current income/payroll tax evasion as the activities of such are not reported to government to be recorded thus any tax rate based on NIPA measures discounts at least the same amount of tax evasion as the current tax code does. In fact Gale tends to overlook and stretches a lot of little things in his articles to create a tax systems that no Congress would ever enact. Of course the Selmrod was abit ahead the Fair Tax Act in '96 with analysis that is not related in any substantive way to the actual provisions of HR25 which did not see its debute until '97.
In fact the main thrust of the Selmrod '96 paper was to replace the current corporate income tax system with a VAT, not a particularly palatable situation, and actually would be no better than the current corporate tax system in preventing evasion of income and payroll taxes now. Most of the evasion occurs with the single proprietor and small business sector in the current system, there is no reason at all to believe that would change any under a VAT or Flat Tax looking at the Experience of the European Union and their 15-35% of GDP evasion/underground economy rates.
As the European experience is demonstating in spades, administering VATs is no mean little trick, with evasion rates apparently much higher than they or in any of the US retail sales taxes or even the Federal income/payroll tax system with its ~ 15% of GDP underground economy.
4. on Page 143: "... $540, and government expenditures or consumption are equal to $60. The replacement of a PCT of 10 percent with a NRST imposed at a tax-inclusive rate of 11.11 percent would have no real effects.
Interesting statement, I assume a PCT = Personal Consumption Tax, levied with the hapless citizen having to file reports with an IRS subtracting savings and investments from gross income to derive a the equivalent of a consumption tax base. Not exactly a no cost situation for the hapless citizen, certainly as compared to the NRST where only business in retail sales collects and remits the NRST along with any state sales tax to state tax administrators. The little guy just pays a the register and that is the end of his liability to the tax system.
The nominal price of consumption goods increases ..."
Interesting statement if the nominal price of consumption goods increases, and no real effects occur as a consequence of "replacing a PCT with an NRST imposed at a Tax-inclusive rate of 11.11 percent". Makes one wonder what comes after "The nominal price of consumption goods increases ..." doesn't it?
The statement seems abit disjoint as costs to upstream and intermediate businesses fall with repeal of income & payroll taxes, when the are replaced with a single stage tax at final retail sale releasing alot of dollars and resources to productive use instead of overhead costs. That is especially true for the NRST due to its high visibility and the removal of the high marginal tax rates that exist on wages removing the implicit subsidy encouraging leisure and consumption as opposed to demand for additional income to enhance one's taxfree savings & investment.
Of course if we are talking about Business Transfer Tax(a substraction method VAT) or a Flat tax which is essentially a wage tax with a BTT, and PCTs we would see rising prices where business costs rise in attempt to recover any additional cost factors associated with VATs, with the upward price pressure arising from increased consumption that is encouraged by removal of tax from individual savings and investment returns without comensurate incentives to put the tax moneys released back into investment or savings as the BTT & business Flat Tax tend to be perceived as paid by business in the eyes of the consumer.
5. on Page 145: "... the current period by persons in proportion to their current consumption just as it is under the PCT or an NRST. All consumption- based tax systems (PCT, NRST, VAT, and FT) are equivalent for each individual on a period by period ..."
At least insofar as revenues extracted by goverment.
However the exceptional visibility of the tax in the case of the NRST, and release of taxation from business enterprises create substantive modification of economic behaviours in both business and the consumer. Consumer being encouraged to save and invest taxfree, as opposed to the perceived tax on new goods and services. While businesses realise cost reductions from repeal of all business income and payroll taxes allowing them to reduce pricing to compete both with the desire of the Consumer to invest rather than spend, and other businesses looking to maintain profitibility through lowering prices to attract demand for goods away from competitors as well as attract dollars heading for those savings accounts.
6. on Page 146: "... project. Only the risk premium p is taxed under this response to the accelerated depreciation associated with expensing.
What project, what response?
Under the NRST, PCT, or FT the returns to risk taking, economic rents, above-normal earnings to entrepreneurial activity, and other investment activity will ..."
will do what??
7. on Page 154: "... tax burdens on the rich will be reduced if the present personal taxes were replaced by either the FT or NRST. Analyses in Which Consumption Is Used as a Proxy for Lifetime Income Poterba (1989, 1991) was the first to use ..."
Gee terrible, terrible, to have the rich bear lower burdens, interestingly the percent tax burden on all income levels under an NRST are reduced in respect to income/payroll tax systems due to greater economic efficiency at which the economy operates and grows, thus a lower percentage of GDP & personal income for the same revenue going to government.
8. on Page 157: "... rather than 16 percent." Feenberg, Mitrusi, and Poterba (1997) also use CES data to calculate the effects of implementing an NRST. They link the consumption data from CES to a more detailed income tax data base. The latter data set has ..."
Unfortunately the calculations in the Poerba paper were abit off of mark according to later remarks by Jim Poterba concerning them, for one the baseline tax law used for the NRST of that study was 1991, the initial baseline calculations for the Fair Tax Act was '94 with a number of provisions implemented in the AFT proposals that expand the consumption base about 50% greater than that used in the Poterba study. All in all the '98 Poterba study was interesting as far as a narrow tax base retail tax, but of little use in regards conclusions about AFTs Fair Tax Act.
It was alse noted by the Poterba '98 paper (NBER WP 5885 pp 19) on this subject that there is an extreme descrepency in income reporting in the low income brackets. Poterba could not attribute it to spending out of savings (same distribution of folks had little savings to report either). The surmise was that at the low end of income rankings of the Consumer Expenditure Survey(CES) one finds substantial unreported income most probably from underground cash economy, ratios of estimated expenditure to reported incomes run as high as $4.61 expenditure for each dollar of reported income at the less than $5k income ranking. That makes for little confidence in what is actually happening at low of distributions. The high end, according to Poterba '98, also appears to have significant errors associated with the broad top end ranges making distributive tables questionable as far as saying much about incomes and expenditures over $100K.
In between, is anyone's guess as far as I can see with a mixture of problems associated contributing to the large error factors that are always the rule with distributive-microeconomic analysis.
9. on Page 158: "... 1.4 percent ranked by consumption is estimated to have its taxes increased by 30 percent by the introduction of an NRST. Intertemporal Lifetime Approaches to Distributional Analysis Studies of the distributive effects of taxes based on the distribution of income for ..."
It would be of interest to know 1.4% of what ranked by consumption. And whether that is in upper range or lower range of whatever distribution is being referred to. Especially being based in CES data as implied in 8. page 157 above. knowing what the basis is critical to any understanding of this statement.
10. on Page 160: "... the current federal tax system.
Would be nice to now what they have to say about the current federal tax system. After all that is what one wishes to make comparisons against.
Our objective is to estimate the short-run distributive impact of substituting a fully comprehensive, single-rate NRST for the major federal taxes on personal income, estates and gifts, corporate profits, and payrolls . The estimates are based ..."
Nice objective but estimates based on what?? An NRST based on an artificially constructed taxbase not matching that of the provisions of the Fair Tax Act distorts and invalidates the results of any analysis. Garbage in, garbage out is always the rule.
11. on Page 161: "... coupled with a demogrant, indexation seems an overly generous means of protecting recipients of transfer income from the payment of NRST.
Once again the statement seems abit disjoint, so I assume the elipsis indicates that there was something between the statement above on page 160 and the pick up on 161. One always wonders in such situations.
However, we'll take it as it stands and guess that pretty much depends on how the recipients view having benefits taxed away where those benefits today are not subject to individual income or payroll taxation.
Since base product prices the Cost of Living Indexes as now constructed most assuredly would not reflect for the repeal of income & payroll taxation, to not index with the NRST inplace of the embedded tax burdens removed, would appear to be much more problematic. Poterba '98 suggested that the current CPI be adjusted by adding in individual income & payroll taxation as a cost, then any varience would be totally compensated across transition by removing the effective income/payroll tax rate and replacing it with the NRST rate.
To me that makes excellent sense and would minimize transitional problems in transfer payment indexing as well as Cola's that are used throughout the public and private sectors.
Estimating the Distribution of Tax Burdens under the Current Federal Tax System The basic source of data on the characteristics ..."
Another of those elipsis that would be nice to fill.
12. on Page 176: "... burden on low-income groups. One of these provides for a rebate on Social Security taxes. If the adoption of an NRST results in an increase in absolute prices, this is equivalent to the indexing of Social Security benefits for inflation. This ..."
Well since bothe the social security and medicare payroll taxes are repealed undee the Fair Tax Act, obviously this assumption is abit of mark to say the least. Not to mention the assumption that there would be an increase in prices with business competing for the consumer's dollar with both other businesses and taxfree savings and investment of the dollars.
13. on Page 177: "... at incomes below $25,000, although they are smaller than for the existing tax system and significantly smaller than for an NRST without any tax relief. The important point is that it is possible to design a demogrant system that will lower ..."
although what are smaller than for the existing tax system? elipsis again.
Since the Fair Tax Act obviously does provide substantive tax relief with its FCA demogrant at incomes below $25,000, this statement goes nowhere. Another case of garbage out apparently.
Looks like I'll just have to go borrow a copy of your book for a while. to see what was left out with all the elipsis. Though the appearence would be that the Chapter really says little of substantance pertaining to the the provisions of the Fair Tax Act as implemented in HR25.
Of course popular conception often has little to do with reality. and your elipsis at the begining and end of this statement leave one wondering what is said about perceptions other than the popular one.FYI, I cut and pasted this snippets from Amazon's search. If you want to read the whole book and are too cheap to pay the money, go to a library. I'm not going to type in the whole damn thing for you.
The popular perception is that the introduction of a national retail sales tax (NRST) or a Hall-Rabushka type flat tax (FT) in place of existing federal income taxes will significantly increase the tax burden ...""on low and middle-class income groups, while decreasing it at the high end of the income distribution."
Nice to know real wages increase rather than decrease under an NRST.Go to the library, you don't know what you are reading. (And you are making too much of this one paper. There are plenty others that come to the same conclusion.)
Tell us, is that one continuous sentence from Page 141 above in the book, or are you indicating something missing in between with your elipsis? helps to keep things together and in context."Moreover, if differenet consumption taxes are equivalent, the choice between them should be based on administrative, compliance, and short-run transitional considerations, bont on the basis of long-run allocative and distributional factors."
Well we do know about Gale and Slemrod, and the fact that Gale especially streches things just a tad bit in his Brookings papers, in not recognizing that NIPA:GDP measures exclude current income/payroll tax evasion as the activities of such are not reported to government to be recorded thus any tax rate based on NIPA measures discounts at least the same amount of tax evasion as the current tax code doesWell, it seems many respected economists (Jorgenson included) disagree with your opinion of Gale's work. Who's opinion should we trust? I guess you're just lumping Slemrod in with him.
Interesting statement if the nominal price of consumption goods increases, and no real effects occur as a consequence of "replacing a PCT with an NRST imposed at a Tax-inclusive rate of 11.11 percent". Makes one wonder what comes after "The nominal price of consumption goods increases ..." doesn't it?Go to the library. You don't know what you are reading.
The statement seems abit disjoint as costs to upstream and intermediate businesses fall with repeal of income & payroll taxes, when the are replaced with a single stage tax at final retail sale releasing alot of dollars and resources to productive use instead of overhead costs. That is especially true for the NRST due to its high visibility and the removal of the high marginal tax rates that exist on wages removing the implicit subsidy encouraging leisure and consumption as opposed to demand for additional income to enhance one's taxfree savings & investment.
Of course if we are talking about Business Transfer Tax(a substraction method VAT) or a Flat tax which is essentially a wage tax with a BTT, and PCTs we would see rising prices where business costs rise in attempt to recover any additional cost factors associated with VATs, with the upward price pressure arising from increased consumption that is encouraged by removal of tax from individual savings and investment returns without comensurate incentives to put the tax moneys released back into investment or savings as the BTT & business Flat Tax tend to be perceived as paid by business in the eyes of the consumer.
What project, what response?It was just an example, go to the library.
will do what??"Under the NRST, PCT, or FT the returns to risk taking, economic rents, above-normal earnings to entrepreneurial activity, and other investment activity will be taxed at the time the income is consumed."
Gee terrible, terrible, to have the rich bear lower burdens,It's just a distributional analysis. It doesn't comment on the morality of it. Are we not suppose to care about the distribution of tax burdens with a NRST?
interestingly the percent tax burden on all income levels under an NRST are reduced in respect to income/payroll tax systems due to greater economic efficiency at which the economy operates and grows, thus a lower percentage of GDP & personal income for the same revenue going to government.Yeah, when Santa Claus is Sec. of Treasury and the Tooth Fairy is Fed Chairman. What's the old saying about things that sound too good to be true?