RESEARCH HELP! "Fair Tax" flaws.

[johnaries]

I have some Libertarian friends at work who are creaming in their jeans over the "Fair Tax" BS.

My argument so far has been that the upper 1% uses most of their money to make more money rather than to purchase goods. Therefore, the amount of tax revenue we would lose from their income would not equal the amount they spend and the tax burden would be shifted to the Middle Class.

The only link I could find supporting this was a study initiated by Bush. They immediately jumped on that saying "Oh, now you're supporting Bush's opinion" to which I replied "Well, if it was such a bad idea that even Bush thought it was a bad idea, then it must have been a REALLY BAD idea!"

Perfectly logical to me, but they didn't buy it.

Unfortunately, most of the Google searches (fair tax myths, fair tax studies, etc.) I've done haven't been much help. Apparently, most people click on the sites that support the "Fair Tax".

Anyway, what I need to be able to prove is that people in the "upper class" bracket make a significantly higher amount than they spend and that they would be paying less taxes under a consumption tax than they do under an income tax.

Any help would be appreciated!

[CharmCity]

1. First, stop googling "Fair Tax"

It's one of those cute terms like "death tax."
Instead, look into consumption tax.
Here's a good start: http://www.econlib.org/library/Enc/ConsumptionTax.html

[johnaries]

3. Uh, DUH! Thanks! I should have realized that.

How often we (or at least I) overlook the most obvious.
We really need a "slapping myself on the forehead" smilie!

[SergeyDovlatov]

2. FairTax is just pushing money around

As long as government spends 3 trillion dollars a year, mode of taxation does not matter much.
If your friend believes that his taxes are reduced by this scheme, it is most probably because somebody else is paying more.

He may be receptive to Walter Williams (libertarian economist) comments on FairTax where he said:


The method used to finance the federal government is very important, but I've always argued that government spending is the true measure of its impact on our lives. If there were a Fair Tax, what's to stop Congress from deficit spending or inflating the currency? Deficit spending and inflation are simply alternative forms, albeit less obvious, of taxation.


http://www.ocregister.com/ocregister/opinion/nationalcolumns/article_1380973.php

[MiniMe]

4. It is a regressive tax and would affect the lower class and middle class most

Almost all of the lower class consumption is for necessities. Food, Gas, etc. You don't pay tax on money you save. With the rich getting richer, their fair share of the tax burden would fall on the lower and middle class.

[johnaries]

8. Yes, but can you supply me with some links to back that up?

I know it's common sense, but I'm dealing with people who don't have a whole lot of that "saved up", if you know what I mean!
My logical arguments slide off their backs like water off a duck...

[papau]

5. 99% of the income of the top 0.1% of returns is investment income - if it is not

taxed, who will make up the difference so that we collect the same anount of money in total.

And do not look to major consumption purchases by the rich to be taxed. We tried a luxury tax in the 90's - and found that the rich structure their method of purchase so as to avoid such a tax (having many homes, many not in the US, allows one to so easily).

Fair tax is a screw the middle class idea - indeed one that Bush's Texas loves - I once heard a Texas politician extol the sales tax because "it allows the poor to budget their tax - in any given month that they want to pay less tax, all they have to do is spend less" - and it was said as if he was giving me a wise and thoughtful answer.

The funny thing is the math - to cover the current take one needs around a 60% tax.

The fair tax folks claim they want to keep the regressive income tax called the Social Security payroll tax with its cap on wages taxed and its zero tax rate on investment income, so all they need replace is the newly reduced - post the Bush Tax cut for the rich - tax take from the FIT, cause they plan on keeping the current 500 billion deficit going and growing in the future (the annual increase in the national debt during every year of the Bush era has been $500 to $600 billion - the deficit coming down is bull - check the national debt numbers).

So that inadequate number is around 35% - a 35% sales tax. But they then redefine what the meaning is for the term "sales tax rate. If you buy a $100 item and pay $35 as tax that is not a 35% sales tax per these guys - they divide the 35 of tax by the total cash out of 135 and claim that is only a 26% tax. LOL - when they first did the calc they planned on such massive deficits that they spoke of a 17% fair tax rate - less than most folks top FIT bracket of 25%. But that is still a 20.4% tax (17/83) in terms of how we all use the term sales tax.

There is a lot out there on the massive flow of wealth to the rich that would occur with a fair tax - so Greenspan tries to get us to a consumption tax by advocating not taxing or very limited taxing of investment income under the Federal Income Tax (we call this a "growth" idea for the economy - LOL). And once again if the rich pay less you get deficits and/or the middle class paying more.

[Liberal Veteran]

6. And of course, what counts as "taxes"?

Why is every single penny I make subject to FICA as an average wage earner in the US, but a person making 200k a year is "off the hook" at a maximum FICA tax of $6,045?

So essentially, if I make 40K a year, my FICA tax rate is 6.2%, but someone making $200,000 is paying 3.02% in FICA taxes.

Then we get into consumption:

Does a family making 300k a year actually spend 6.7 times more than a family making 45K?

Let's look at food in the example. Let's say the average family spends 700 dollars a month on food making 45k. Does it necessarily follow that a family making 300k a year spends 5000 dollars a month on food?

They probably spend more, but how much more? Let's say they spend 3 times what the average family does on food alone. We'll say $2100. So now 8.4% of their income is spent on food, whereas the average family spends 18.6% of their income on food.

The fact is there ARE upper limits to most consumption. Yes, there are some very rich people who are spending sums undreamed of by the regular person for jewelry or designer clothes.

But what are they spending on things like food, medicine, utilities, gas?

Does a person making 300k a year pay more for a cellphone with unlimited minutes than a person making 45k?

Do they necessarily spend more money on gasoline? If I have a 20 mile commute at 45k from my humble home in suburbs, do I use less gas than a person making 300k who only drives 10 miles to work? Is he going to be buying better or more expensive gas? Not likely. He's probably going to stop at the same gas station I do.

Hell, the CEO of my company pays the exact same premium for his insurance making 6 million dollars a year that I pay making 40k a year.

Of course, my premium is pretty reasonable at about 1500 dollars a year, but it's still 3.7% of my yearly income. For him, it is 0.025% of his income. Still, he pays a 15 dollar co-pay for his medication and I pay the same.

So of course, my post-consumption income is going to be a considerably smaller portion of my yearly salary than his will be leaving him room to invest AND live very comfortably which FURTHER increases his cash and reduces the percentage of his money that goes toward consumption than I will just squeaking by.

And we won't even go into the ways the middle and lower classes get dinged here and there (generally we are going to pay more in interest rates for our mortgage and have a longer period of accrued interest than someone making a lot of money).


But of course, those are arguments for a progressive tax scheme.

Ultimately, we ALREADY pay the same consumption tax rate as people making the big bucks. In the final analysis, in my state, where a person pay NO TAX for food, a man who eats filet mignon every single night and snacks on imported caviar is paying no more for consumption than I am already.

[TahitiNut]

7. CTJ (Citizens for Tax Justice) has some good stuff.

Most analyses of the "fair tax" (i.e. a consumption tax) is found under "flat tax" ... which, like herpes, just keeps on breaking out on the ass of the body politic.

http://www.ctj.org/

http://www.ctj.org/html/publist.htm#flattax

[johnaries]

9. Ahhh, tahitinut! I can always count on you!

even if I disagree with you sometimes.

Thanks! :toast: