JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive)

self | August 25, 2005 | RobFromGa

[Kellis91789]

Well ... he did suck me into arguing with him. About as useful as trying to argue with someone who insists 2 + 2 = 5.

[pigdog]

From the arithmetic standpoint Looey has "argued" almost exactly such things as the complex example you cite.

One time he defined a problem, solved it for "the numbers" and was in error by 400%. More recently he opined that 100 - 22 = (pick a number other than 78).

That's why it is frequently called "Looey 'rithmetic".

[proteusguy]

I find it fascinating that economists get so confused over simple things like take home pay. Notwithstanding possible misinterpretations of Dr. Jorgenson's testimony - it is quite clear to me that if you were hired as an employee with a gross $1000/mo salary and are paying $400/mo in withholding taxes once the FairTax act comes into effect that employee would then receive the $1000/mo salary that he contracted for in his employment agreement. The savings to the employer would be the matching Social Security withholdings (7.25% or thereabouts), the enourmous cost savings of dealing with withholding tracking, quarterly tax reporting, complex tax avoidence/differance savings/investment plans, and the resulting pass through savings in costs of upstream materials and services used in the standard operation of his business. Of course the biggest benefits of all would be the end to the terrible erosion of our capitalist free market system and the increase in personal freedom for each individual who no longer has to submit his personal financials to government bureaucrats.

[RipSawyer]

What's to stop the politicians from placing "special" taxes on expensive items, like a luxury tax? For example, a car that's over $20,000 has a luxury tax of 100%.>>>>>>>>>>>

I certainly don't favor that but are you aware of what South Carolina did many years ago? They mandated that the state sales tax applies only to the first $6000.00 of the purchase price on automobiles, boats, and airplanes etc., basically all the big ticket items. This means that a low-paid individual who rakes and scrapes to make payments on a $6000.00 used car to drive to work pays the same tax as a rich person who buys a $60,000.00 or even higher priced car. I actually saw one legislator on television explaining his vote for this measure as follows, "that is fair to everybody because everybody has to buy a new car sometime". I can never forget that utterance, it must rank up there with the stupidest things ever said by politicians.

[frdalesmith]

"Naturally, you will be mobbed and maligned by the Kool-Aid drinkers who live under the illusion that taxing items at 23+% (for starters) won't have a negative effect on purchases. And they also think it won't create a burgeoning black market."

Of course a 23% tax will have a negative effect on purchases. However, more income will have a positive effect on purchases. If prices do not fall beyond the embedded costs for corporate taxes and compliance costs, employees will bring home their current gross pay.

A black market already exists, one of income. Under the FairTax, a black market for income becomes unimportant. The black market for purchases would become important. However, the black market for purchases would be easier to police since there are fewer retailers than employers.


"They'd just as soon want you to forget that the "fair tax" notion has been run before and consistently discovered to be an abysmal failure. But they're willing to risk tanking the U.S. economy for a regressive tax scheme. What cretins..."

Chile currently has a consumption tax and its economy is very good. Argue all you what about the regressivity of the FairTax. But you'd be wasting your time because the FairTax is progressive. Regressive means that the tax rate decreases as the tax base increases. Under the FairTax, the tax rate for someone spending at the poverty level (let's assume $10,000) is 0% since the prebate returns all taxes paid. Someone spending $20,000 would only pay an effective rate of 11.5% ($2,300 divided by $20,000). Someone spending $30,000 would only pay an effective rate of 15.3% ($4,600 divided by $30,000). Someone spending $100,000 would pay an effective rate of 20.7% ($20,700 divided by $100,000). From this, it is obvious that the effective tax rate goes up as spending goes up. Therefore the tax cannot be regressive.

[frdalesmith]

"Unless you're poor, or a business that isn't retail or doesn't perform a service...."

I believe the quote was referring to PEOPLE realizing what government costs. Even the poor, if they spend money, will receive a receipt that will have the amount of the FairTax clearly visible.


"Doesn't everyone have w2's, check stubs, tax returns, 1099's etc.? What would a government check for everyone every month and a worthless receipt thrown away in the bag you carried it home in prove?"

Yes they do. How many people ever really look at the tax burden each and every time they receive a paycheck? Most people are only concerned with their take-home pay. In fact, many people don't even consider the money withheld from their gross pay as THEIR money. IMO, many more people will check the amount of tax on each receipt that the receive. They will be much more informed about the true cost of their government.

The prebate isn't meant to prove anything. Its purpose is to make the tax PROGRESSIVE. The receipt will probably prove nothing, for those who don't bother to look at it. When someone looks at the pay stub, they are seeing their tax burden, what, once or twice a month? When they look at a receipt, they are being reminded of their tax burden every time they purchase a taxable item.

[lewislynn]

How many people ever really look at the tax burden each and every time they receive a paycheck?

I don't know but sometime somewhere they'll see a tax return or a 1099, or a W2 and I'll bet it's a lot more than the ones who look at the tax somewhere on a receipt at the bottom of a bag. And I'll bet more people can tell you what they paid in income taxes than they can sales taxes.

Then again, if you're implying the Fairtax would be so exorbitant that it couldn't be overlooked, then that defies everything the Fairtax claims it would be...

IOW, the Fairtax claim is everyone gets a government check...every month, takehome pay increases, and prices remain about the same. And you think that will somehow wake up the ones who never look at a paycheck stub?

[Toddsterpatriot]

Chile currently has a consumption tax and its economy is very good.

Are you sure about that?

Chile

Click on each topic for more information :

TAXES - ACCOUNTING

 

Corporate tax

Tax rate for resident companies	The corporation income tax legislation provides 2 types of taxes. The First Category Tax is levied on income derived from commercial, industrial and agricultural activities, mining, fishing; investment and real estate. The tax rate is 17%. The Second Category Tax refers to incomes arising from wages, salaries, overtime payments, bonuses, fees, gratuities, profit sharing and any other form of remuneration. It is a progressive rate which highest rate is 40% applicable on monthly basis.
Tax rate on long-term capital gains	Capital gains are included in gross income subject to First Category tax with certain exceptions.
System governing groups of companies and dividends paid by subsidiaries to their parent companies	The amounts distributed or remitted to non-resident or non-domiciled shareholders are subject to a 35% additional tax with a credit of the current rate of the First Category Tax.
Tax rate on branches	Branches are subjected to a tax at the rate of 35%,

Income tax

Fiscal year

The fiscal year begins on January 1-st and ends on December 31 of the same year.

Income tax rate

The rate is progressive from 0% to 40%.
The rate depends on monthly units of levy (the value of a unit in CLP is revalued each month):

Lower than 13,5 units	0%
13,5-30 units	5%
30-50 units	10%
50-70 units	15%
70-90 units	25%
90-120 units	32%
120-150 units	37%
Beyond 150 units	40%

Tax deductions or other allowances

Tax credit of 10% and other fixed deductions are allowed.

 

VAT rates

Standard rates	19%
Reduced rates	Are exempted of VAT exports, certain financial services, insurance, news services, technical services, consultancy and transport.

 

Other important taxes

Name of tax	Rate
Municipal tax	0,25% to 0,50% (of assets)
Other taxes	Inheritance or gift tax, mining tax, property tax, sales tax on luxury goods, stamp duty

 

 

Accounting

Introduction
Chilean financial accounting is tax returns orientated.

General accounting principles
- stocks: they are calculated with the " First in - First out " method.
- fixed assets: buildings, shares and bonds bought by the company.
- capitalization interests : interests incurred on fixed assets (shares and bonds).
- depreciations : there are several calculating methods for depreciations.
- investments and long-term fundings.
- research and development costs : they must be registered and paid off over a period of more than 6 years.
- interests for bills relative to accounts receivable and payable.
- provisions for redundancy payment.
- long term contracts.
- extraordinary costs : they appear in the profit and loss account.

Obligations and publications
Companies have to produce their their annual financial statement to the shareholders.
The account books must be published in Spanish and use the Chilean currency as reference.

Certification and auditing
External audits are compulsory for companies with capital and foreign investors with repatriated profits.

Professionals and representative organizations
The main representative body is the association of the Chilean bookkeepers: "the Association of Accountant in Chile".

FITA-Chile

[dculling]

If you go to the link below it will take you to a Google preview book where on page Dale Jorgenson explains the household income variables for his econometric model. Quote: Finally, the income of the household sector is the sum of incomes from the supply of capital and labor services, interest payments from governments and the rest of the world, all net taxes, and transfers from the government. I read "all net taxes" as "take home 100% of your pay." I'll have to email Jorgenson I guess before I accuse anyone of purposefully spreading misinformation. http://books.google.com/books?id=SHZF-VNri5YC&pg=PA56&lpg=PA56&dq=%22House+Committee+on+Ways+and+Means%22+Jorgenson&source=web&ots=n6L27ffnsc&sig=LeVwQtq0x3mnfuqGukbHfU5ynV0#PPA62,M1

[e_castillo]

Thanks for saying this. Some wierd math going around here.
Saying that Employers would not let workers keep the taxes which are no longer being paid to Ucle Sam is really beyond normal thinking. This is theory and nothing else.

I think the main thing People should remember is that a plan is far different than an actual law.

[dculling]

Here’s a better link. The first one had all the search terms in it lol.

http://books.google.com/books?id=SHZF-VNri5YC&printsec=frontcover#PPA62,M1

[MortonMark]

No, no increase in take home pay is possible, for the fairtax math to work. But thats the Catch 22.

If people increase their take home pay — then its not the Fairtax plan. Its some other go-round. Fairtax plan is for workers do voluntarily give up 30% of their pay, and then pay the high sales taxes with what they have left.

Thats the only way prices will go down. So —prices won’t go down. People won’t give up big chunk of their gross pay for that deal.

Fairtax MATH depend on all the workers donating their money to the employer. Whatever money workers USED to pay in taxes, they have to pay to the employer for the math to work. Otherwise, the math doesnt work.

This whole idea of lowering prices is a figment — its not even in HR25. It has nothing to do with HR 25. Employers could do this now — or later. Workers could do this now — or later. Nothing to do with HR 25. Its blowing smoke

[RobFromGa]

Hi Dimples, I had a reason to see some of my FairTax threads from 2005 and you were involved in the same fight in a big way. What a hoax, 15+ years later, I appreciate working together.

I need to get on FR more, I just saw some of your latest Wall Street posts and I really love the intelligent discussions. Off to buy some GameStop...

Your FRiend, Rob