On Oct 15, 2010, at 4:39 PM, [email protected] wrote: > Ernie: > This is a discussion I will keep out of.
Age brings you wisdom. :-) -- Ernie P. > --------------------------------------------------------------------------------- > > > In a message dated 10/15/2010 12:19:32 P.M. Pacific Daylight Time, > [email protected] writes: > On Oct 13, 2010, at 6:29 PM, David R. Block wrote: > > 12) Repeal the Income Tax amendment and implement the Fair Tax as put forth > > by John Linder and Neal Boortz. > > > > I'm not going to copy from The Fair Tax Book, or the book Fair Tax: The > > Truth in copious amounts. They wrote the books, and I don't have any > > problems with it that I have been able to find. > > I'm a big fan of Fair Tax: > > http://www.fairtax.org/site/PageServer > > http://en.wikipedia.org/wiki/FairTax > > But I still have a couple concerns about it, which Billy hints at: > > > Regressive taxes, how wonderful. Tax the poor to lighten the burden on the > > rich. > > Why didn't I think of that ? > > Actually, that's not quite true. It would actually *reduce* the tax on the > poor, especially as it would reduce hidden taxation costs in prices. It > would also help the working poor by eliminating Social Security payroll taxes. > > The problem is that it increase taxes on the lower middle class, who spend > most of their income but currently pay virtually no income tax. The rich who > invest/save large chunks of their income would generally pay less than they > do now. For example, FairTax Calculator says my family would pay only $30K > in taxes, versus close to 100K now: > > http://www.fairtaxcalculator.org/index.php > > That money has to come from somewhere. This redistribution would almost > certainly lead to economic growth and job creation, but it would still be > regressive (except for the very poor). > > http://www.factcheck.org/taxes/unspinning_the_fairtax.html > > I do think there is a way to fix the FairTax, though: > > 1. Make a national Sales Tax replace the Payroll Tax > > The payroll tax is what hits lower income Americans and complicates hiring. > If we replaced all payroll taxes with a FairTax-like national sales tax of, > say 10%, it should achieve most of the economic benefit without becoming > overly regressive. At a guess, it should at least reduce taxes for those > making less than $75K per year, which seems sufficiently progressive, and > gets us into the range of those who pay more on income taxes than payroll > taxes. > > This still leaves the problem of how to account for Social Security when we > only capture spending rather than income, but for now let's assume that's a > solvable problem. > > 2. Create a financial tax to replace the income tax. > > Most income tax only affects the rich already. If we are going to tax the > rich -- which we have to do, since they have most of the money -- we should > do it in a way that encourages appropriate behavior. > > What do we want the rich to do? Generate value to the economy, by either > working or investing. Including taking risks that the poor and middle class > do not. This implies we should penalize the rich for being selfish or safe. > > The FairTax would tax all spending from the rich, which is a good first step. > Still, a 10% FairTax wouldn't bring in enough revenue. The remainder would > have to come from taxing either a) wealth or b) financial transactions. > > 2a) Wealth Tax > > If we don't want to penalize investments, a "wealth tax" means taxing either > property or savings (defined as FDIC insured). > > We could model this on FairTax, in that we set a baseline exemption based on > the federal poverty level: > > http://aspe.hhs.gov/poverty/09poverty.shtml > > To convert income to wealth, use the treasury rate. For example, if the > poverty level is $10,000, and the treasury rate is 5%, then the "wealth > exemption" is $10K/.05 = $200,000. > > To obtain a "fair" tax rate, I propose again indexing to 10% of the treasury > rate, e.g. 0.5% for a treasury rate of 5%. > > For example: > > * a $1 million home would have $800K taxable, which at 0.5% comes out to > $4,000 per year. > > * an individual with the maximum 250K in FDIC-insured deposits across two > banks ($500K) would have $300K taxable. They would pay $1,500 a year on a > national wealth tax, which effectively reduces their interest from ~1.25% > ($6,250 per year) to 0.95% ($4,750). Annoying, but hardly devastating, and a > good stick for prodding the rich to take riskier or longer-term investments > to earn better yields. > > I have no idea whether a national property tax would be legal, but making it > legal would be a fair exchange for repealing the 16th amendment. :-) > > http://en.wikipedia.org/wiki/Sixteenth_Amendment_to_the_United_States_Constitution > > 2b) Financial Instrument Tax > > I was intrigued by Billy's proposal a few years ago for a tax on financial > transactions. > > http://en.wikipedia.org/wiki/Financial_transaction_tax > > The simplest and most effective (and FairTax-like) would probably be some > kind of Transfer Tax, paid by the seller (to encourage holding investments > longer): > > http://en.wikipedia.org/wiki/Transfer_tax > > Apparently we had one as late as 1966 of 0.4%, for stocks: > > > The United States had a tax on sales or transfers of stock from 1914 to > > 1966. This was instituted in The Revenue Act of 1914 (Act of Oct. 22, 1914 > > (ch. 331, 38 Stat. 745)), in the amount of 0.2% (20basis points, bps). This > > was doubled to 0.4% (40 bps) in 1932, in the context of the Great > > Depression, then eliminated in 1966. > > It's been reconsidered recently, but never went anywhere: > > http://online.wsj.com/article/SB125512957855977163.html > > Unfortunately, at the tax rate we are proposing (0.5%), it would (inferring > from that article) only raise around $500B, vs. the $1250B from corporate and > individual income taxes we need to replace. > > http://en.wikipedia.org/wiki/2010_United_States_federal_budget > > We could increase that by covering more than just stocks, but I suspect there > isn't much other wealth out there to tax. > > I am also worried about pushing that rate higher, as capital is even more > flighty than people. Taxing transactions at too high a rate risks killing the > financial industry; we only want to maim it, so it can't run as fast. :-) > > Perhaps if we had a low (0.5%) rate for direct asset transactions (e.g., > stocks) but doubled it for indirect (e.g., derivatives) it would do better, > and also dampen speculation. Of course, it could have the perverse effect of > making derivatives seek *higher* returns to compensate, though even 1% on a > 13% Junk Bond doesn't seem like it would dramatically alter behavior. > > And it still may not be enough, but it should at least get us into the > ballpark. Maybe the magical stimulative effects of eliminating payroll and > income taxes would do the rest. Plus, simply adding friction to high-end > financial instruments seems like a good thing. > > Again, the Right hates it, but if tied to an elimination of the income tax, > that might turn them around. And maybe capital flight is not a horrible > thing, as long as it didn't completely kill the revenue stream. Frankly, I'd > rather have rich people living and working here and storing their money > abroad than vice versa. > > An interesting feature of tying wealth taxes to treasury rates is that they > would be counter-cyclical -- low when the economy is week, but high when it > is strong. That's good from the perspective of stimulating/dampening the > economy, but hard on financial management, as government revenue dries up > when you need it most, aggravating deficit spending. > > The only solution I could think of offhand is -- in a world with a > hypothetical balanced budget -- ensuring some portion of this revenue is > dedicated to a rainy-day fund. e.g., anytime treasury rates exceed 10%, the > surplus revenue automatically goes into a counter-cycle fund that can't be > tapped. But rainy days funds are notorious for being leaky. > > Still, this seems like a viable model that addresses the concerns of a pure > FairTax and a mere financial transaction tax, at least at first blush. > > What do the rest of you think? > > -- > Centroids: The Center of the Radical Centrist Community > <[email protected]> > Google Group: http://groups.google.com/group/RadicalCentrism > Radical Centrism website and blog: http://RadicalCentrism.org > > > -- > Centroids: The Center of the Radical Centrist Community > <[email protected]> > Google Group: http://groups.google.com/group/RadicalCentrism > Radical Centrism website and blog: http://RadicalCentrism.org -- Centroids: The Center of the Radical Centrist Community <[email protected]> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org
