Anarchist/Statist Union: realistic, libertarian solutions to the USA's problems

[Pointedstick]

It's not that I hate this system, but it's ripe for political influence in the future.  It's very arbitrary to consider some sales a taxable event but not others.

News Flash: we're talking about politics; everything is up for political influence in the future! This is the anarchist-statist union thread, not yet another anarchist thread.

[moda0306]

It's not that I hate this system, but it's ripe for political influence in the future.  It's very arbitrary to consider some sales a taxable event but not others.

News Flash: we're talking about politics; everything is up for political influence in the future! This is the anarchist-statist union thread, not yet another anarchist thread.

Yes... I realize that... but I think things should generally have some logical basis, as a matter of principle... not just because it's ripe for tomfoolery by future players.  If we're going to make arbitrary taxation decisions, why not have some reasonable basis?  Sales are necessary for an economy to function, so saying that this falls under the "taxing things we don't want" criteria is a bit of a stretch.

The economics around the income tax are far more logically consistent than that of the sales tax (as suggested by a fair tax), to me.

[Pointedstick]

Sales are necessary for an economy to function, so saying that this falls under the "taxing things we don't want" criteria is a bit of a stretch.

I agree with you on that, and that's why I don't tend to get real excited by the FairTax. If I were to follow my own advice of pushing for sales, income, and corporate taxes to be replaced with taxes on "things we don't want," (or perhaps, "things more personally than socially beneficial"), that would mean taxes on pollution, crime, dividends, interest, capital gains from the profitable sale of liquid assets, inheritance, estates, unused real estate, drugs, stuff like that.

[WiseOne]

But all that's even more arbitrary than the Fair Tax rules, is it not?

No tax is going to be completely fair or without its negative aspects.  I just really like the idea of taxing consumption rather than income, not because I consider consumption to be bad but because I think income-producing activity should be encouraged over and above consumption.

If that's all there was to it then I'd probably be indifferent, but the Fair Tax strikes me as a magic bullet that would simultaneously fix a lot of headaches.  Here are a few examples:

- The FAIR tax would be handled through states, as an add-on to the state sales taxes.  The IRS would be reduced to collecting the revenue from the states, and sending out "prebate" checks to citizens.  Instant bureaucracy reduction.

- The annual ritual of doing tax returns would be abolished, except for states that insist on sticking with the income tax.  A lot of CPAs would have to find some other work to do.  You get your first two weeks of April back.  H & R Block, Turbotax etc ... sorry guys.

- Payroll taxes, W2 forms, and employer withholding of taxes all disappear - again, except for states with income tax.

- Retirement accounts & HSAs - GONE, because investment gains and income are no longer taxable.  All of your money is now fully under your control.  Think about how much time & effort you put into managing all your different retirement accounts.

- Illegal aliens, organized crime members etc would suddenly start paying taxes, and collectively this would be a significant slice of revenue (specific info on the fairtax website).  This reduces the tax burden on the rest of us, and moreover will make being an illegal immigrant that much less attractive.

- Corporate income taxes in the US reduced to zero and payroll taxes eliminated = huge shot in the arm in terms of global competitiveness, and will attract new businesses here as well.

- It's a lot harder to cheat on the FAIR tax than it is on your income taxes, and also a lot harder to make a mistake as it comes up automatically at the cash register.

[MachineGhost]

If you are a commercial entity and you are buying raw materials to produce a widget that will be sold - no, that is not taxed - that would be a "value added tax" which specifically taxes industrial production.  The Fair tax avoids that.

That's good as VAT taxes are truly evil but my first thought was how easy it would be to avoid the Fair Tax just by reclassifying a "new" good/service as "used".  It would actually require far more enforcement by the IRS than we have today to make sure everyone isn't going along with the path of least resistance.  I thought the point was to get the IRS out of our life, not invite it in.

A "use tax" is a novel ideal too, but again I can't see how that is feasible without amping up the IRS enforcement.

If you start interjecting "fairness" into the tax situation because you think trust fund kiddies are spoiled rotten narcissistics like the Kardashians, then you wind up social engineering winners and losers.  So may I suggest what seems evident?  The flat tax.  One percentage to rule them all.

To me, the Fair Tax seems like the politicalized version of a flat tax.

[MachineGhost]

Yes... I realize that... but I think things should generally have some logical basis, as a matter of principle... not just because it's ripe for tomfoolery by future players.  If we're going to make arbitrary taxation decisions, why not have some reasonable basis?  Sales are necessary for an economy to function, so saying that this falls under the "taxing things we don't want" criteria is a bit of a stretch.

The economics around the income tax are far more logically consistent than that of the sales tax (as suggested by a fair tax), to me.

No one seems to like it but we could be logically consistent and just apply consumption taxes to financial transanctions only since they operate in largely a bogus shadow economy.  I've brought this up several times before, but no one seems enamored.  "They" rather our actual labor and real assets be taxed.  Whatever.

[WiseOne]

If you are a commercial entity and you are buying raw materials to produce a widget that will be sold - no, that is not taxed - that would be a "value added tax" which specifically taxes industrial production.  The Fair tax avoids that.

That's good as VAT taxes are truly evil but my first thought was how easy it would be to avoid the Fair Tax just by reclassifying a "new" good/service as "used".  It would actually require far more enforcement by the IRS than we have today to make sure everyone isn't going along with the path of least resistance.

I think for most situations it'll be pretty easy actually.  If you bought it retail, it's new.  Amazon makes it very clear which items are used.  Craig's list and thrift stores are used goods.  The main issue is probably going to be ebay, etsy and similar sites, with individuals selling used stuff and online "stores" selling new stuff.

Still think this wins over Barrett's 49 page tax return, but still open to hearing about real showstoppers.  I get what you're saying about the flat tax, but almost every proposal I've seen would increase taxes on middle wage earners and reduce it for people at the top end.  This is a sentiment that many in the GOP favor, but I personally don't think this is fair. 

[MachineGhost]

Still think this wins over Barrett's 49 page tax return, but still open to hearing about real showstoppers.  I get what you're saying about the flat tax, but almost every proposal I've seen would increase taxes on middle wage earners and reduce it for people at the top end.  This is a sentiment that many in the GOP favor, but I personally don't think this is fair.

Really?  How does a 17% flat tax increase taxes on the middle class?  I think they pay around 25% right now.

Or how about the Neutral Tax?  http://www.neutraltax.com/

Back in the real world, the #1 risk of the Fair Tax (national sales tax) is it will be added onto of all our existing taxes.  That is what is likely to happen.

[Pointedstick]

As of 2010, the average effective federal tax rate for a middle quintile household was 11.5%, 8.3% of which were payroll taxes.

http://www.taxpolicycenter.org/taxfacts ... ?Docid=456

The basic problem here is that over time, the tax code has turned into another welfare scheme such that large numbers of people in fact pay negative taxes, or get back enough in the form of refunds that it feels that way. Think of the EITC, and child tax credit, the standard deduction, personal exemptions, etc. Any "revenue-neutral" tax that does not disproportionately fall on the wealthy will result in most people paying far, far more taxes than they are now. It's an incredibly clever way to get people to support a high tax rate: exempt them from most of it while keeping the sticker rate to emotionally habituate the masses to the notion that such a high number isn't so burdensome.

[MachineGhost]

Wow, Houston we got a problem!  Where is the incentive for reform???

[Pointedstick]

Wow, Houston we got a problem!  Where is the incentive for reform???

There's none from the bottom, that's for sure. That's why it doesn't get done. It's only a "problem" for people like us with above-average incomes, lots of investments, and complicated business taxes.

[moda0306]

As of 2010, the average effective federal tax rate for a middle quintile household was 11.5%, 8.3% of which were payroll taxes.

http://www.taxpolicycenter.org/taxfacts ... ?Docid=456

The basic problem here is that over time, the tax code has turned into another welfare scheme such that large numbers of people in fact pay negative taxes, or get back enough in the form of refunds that it feels that way. Think of the EITC, and child tax credit, the standard deduction, personal exemptions, etc. Any "revenue-neutral" tax that does not disproportionately fall on the wealthy will result in most people paying far, far more taxes than they are now. It's an incredibly clever way to get people to support a high tax rate: exempt them from most of it while keeping the sticker rate to emotionally habituate the masses to the notion that such a high number isn't so burdensome.

The federal income tax code is as you say, but if my memory serves (the link that shows the info is really hard to find), if you combine the total federal, state and local tax loads for people of various income ranges, the overall tax code is quite flat, as the federal income tax only makes up about 25% of total taxes collected.

The payroll tax is a huge regressive one, though I'm willing to bet they credit both the employer and employee half of FICA/Medicare to the employee being the one paying it.  Throw in state income taxes (far fewer credits w/ flatter rates so FAR flatter than fed), sales taxes, property tax, and other miscelaneous taxes, it sways the payments far more back to the side of the poor/middle class.

Also, to throw another wrench in the analysis, I think one question that really needs to be asked is "who is really paying the tax?"  If I remember correctly from my economics class, if something has very little demand-elasticity to price (which is often the scenario when something is a base need and/or you have a quasi/fully-monopolized industry)... any tax on the owner of the means of production is essentially, long-term going to fall on to increased prices on the consumer, rather than any material hit to the producer.

It seemed to me back then that the mid/long-ter affect of taxes were a lot less about "who pays them on paper" and a lot more about "who in this scenario has the most economic bargaining power"... the advantage usually going to the party with the most elastic price-elasticity curve.

This all was incredibly interesting to me, as you could use supply and demand curves to essentially "prove" who was "paying" for a tax hike.  This obviously was indicating mid/long-term trends and not short-term emotional and price adjustments, as in the short-term, tax hikes can affect the "desired" party the most, but as that tax gets "priced into the market," it affects the party who has the least amount of bargaing power as prices rise.

Here's a pretty cool description of the effect.

http://www.investopedia.com/exam-guide/ ... ffects.asp

[Greg]

In general, I'd be fine with paying the current taxes I am, I juts wish things were less ambiguous/difficult on those doing taxes themselves. I'd also rather pay a portion of my taxes to pay for people that sit at the IRS and I can ask questions to directly and get answers straight from the horse's mouth rather than "while I am a CPA, I can't guarantee that the IRS will agree with my thoughts towards your taxes". It'd be the ultimate in liability protection for me and then you could do away with a lot of the CPAs/general wastes of usable hours towards figuring out complicated tax stuff. I hate that it takes me hours and hours to do research for taxes just so that I feel legal.

I'd rather just do what I think is correct, buy liability protection from the IRS so I don't get audited, and leave it at that.