Health care costs are skyrocketing due to trial lawyers and insurance companies and unfunded mandates from the government to provide free health care to those who can't or won't pay for their services. The manner of collecting revenue has no bearing on either of those behaviors.
The declining savings rate has much to do with being taxed by the government. When you are reduced to subsistence living (paycheck to paycheck), there isn't much left to save. The progressive income tax screws the upper income category so they have less disposable income to spend in the establishments that employ the lower income people. Again, less disposable income means less opportunity to save. If the "fair tax" is actually "revenue neutral" as it claims, the amount of disposable income is theoretically identical. As for taxing the interest on savings accounts, that doesn't really add up to much money. Especially if there isn't much money left to save.
Social security is a Ponzi scheme that is destined to fail by design. The number of persons entering the game is less than those sucking benefits out of the system. That disparity will be growing. A federal sales tax is no guarantee that the problem will be solved. It still comes down to a lopsided distribution with more consumers than producers.
Going back to the single item where I agreed with you, the "fair tax" will require a huge government agency to track millions of taxpayers. Who will enforce the tax collection? Who will decide what is taxable? What agency can disburse over 300 million checks each month? How much does such an agency cost? As a tax collection model, the "fair tax" appears simple, but the shear magnitude of persons involved is going to be a problem. That involvement will need to happen daily.
Your post validates the statement I made at the end of my post:
“C. Most Americans have no idea of the seriousness of these trends nor of their connection to tax policy.”
Here are my responses to the specific points that you raised.
“The ‘trade deficit’ is largely due to having more disposable income in our economy. More disposable income will result in more trade deficit.”
That statement shows a complete misunderstanding of what the trade deficit is. A trade deficit indicates that imports outweigh exports. If disposable income is rising and that increase is spent on domestically produced goods, then it does not contribute to the trade deficit; in fact, it shrinks it. Chinese disposable income has been increasing. Why doesn’t China have a growing trade deficit?
Our trade deficit is due to a combination of factors, one of which is a tax system which places US producers at a disadvantage vs their foreign competitors in an increasingly global marketplace. The US is the only one of 30 OECD countries which has no border adjustment element in its tax system and our trade deficit is larger than the other 29 combined. In fact, the other 29 have a net trade surplus. Neither China nor India are in the OECD at the present time.
“The federal budget deficit is due to leftist spending money like drunken sailors. They have no accountability or limits on their behavior. They spend money they don’t have. The manner of collecting revenue will have no impact on that misbehavior.”
There is no doubt that fiscal discipline is sorely lacking and is a major contributing factor to the budget deficit. I disagree that it is “leftists” only who are responsible; it seems to me that Republicans have been just as culpable. More to the point, however, it is also true that in the late 90’s when the US economy was growing at a relatively robust rate (4+% per year), forecasts were for budget surpluses into the future. During this decade, economic growth has been much slower and deficits have reappeared. Coindidence? Hardly. By significantly increasing the rate of economic growth during the first few years after passage, the FairTax would have a highly positive effect on the federal budget position. To ignore the rate of economic growth and its impact on the federal budget would be just as short-sighted as ignoring the need for fiscal restraint.
“Health care costs are skyrocketing due to trial lawyers and insurance companies and unfunded mandates from the government to provide free health care to those who can’t or won’t pay for their services. The manner of collecting revenue has no bearing on either of those behaviors.”
Our current tax system provides a powerful incentive for employers, rather than individuals, to provide health coverage. This causes many consumers to think of healthcare as “free”. This, in turn, leads to the fact that the US has one of the highest, if not THE highest, utilization rates in the world. This is one of the major factors in our high rates. Do you know the one area of medicine where prices have not risen faster than inflation over the last decade or two? Cosmetic surgery. I imagine that you can guess why. That isn’t to suggest that converting to the FairTax would fix the problem, just that this is one major contributing factor.
“The declining savings rate has much to do with being taxed by the government. When you are reduced to subsistence living (paycheck to paycheck), there isn’t much left to save.”
This seems to contradict your previous argument that increasing disposable incomes are responsible for the trade deficit. How are disposable incomes increasing if everyone is “living paycheck to paycheck”? Do you know what the individual savings rate is in China? It’s between 30 and 40%. Ours is between zero and -1% (as of a year or so ago). Our income levels are much, much higher than China’s by any measure. Every economic study has confirmed that savings and investment would be higher under the FairTax than under the current system.
“Social security is a Ponzi scheme that is destined to fail by design. The number of persons entering the game is less than those sucking benefits out of the system. That disparity will be growing. A federal sales tax is no guarantee that the problem will be solved. It still comes down to a lopsided distribution with more consumers than producers.”
The FairTax taxes consumption, rather than production. Therefore, if we grow our economy enough to double it in the first 15 years after passage (which has been suggested as a goal), then we double the base to draw SS & Medicare revenues from. Given the demographic bubble that we face, with fewer workers entering the workforce than retirees drawing benefits, that simply has to be part of the solution. If we maintain the current foundation of these programs on payroll taxes, the combination of benefit reductions and tax increases that it would take to save the systems are going to be draconian.
“Going back to the single item where I agreed with you, the ‘fair tax’ will require a huge government agency to track millions of taxpayers.”
Your statement shows a lack of understanding of how the FairTax operates. The government will have less incentive to “track millions of taxpayers” than they do under the current system. Individuals and families will be required to file periodically for the rebate. This is a very simple form that should literally take no more than 60 seconds to complete. Those forms will have to be data entered into a computer and checks (or wires) will have to be generated via an automated process each month. The Social Security Administration already does this on a smaller scale and I hear very few complaints from retirees about the process.
If a citizen/taxpayer does not file for the rebate (which is their choice), then no “tracking” is necessary on the part of the federal government - unlike the current system.
As I said in my original post, most Americans have no idea of the relationship between tax policy and these adverse economic trends, not do they appreciate the seriousness of these trends. Some of them have the potential, either individually or collectively, to cause an economic crisis much bigger than the one we are experiencing today. However, our recent history suggests that the American people won’t demand that their elected leaders address these problems until we are experiencing a crisis. We ignored Allen Greenspan’s warning of “irrational exuberance” (which he uttered in Dec of 96) until the collapse of the tech stocks (which occurred primarily from March 2000 to March 2001). We ignored the warnings of regulators who testified before congress of the risks posed by Fannie Mae and Freddie Mac in 2003. I would hope that we could be more pro-active and far-sighted this time.