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The Fair Tax - 23% tax rate, 100% retarded
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None of this is even remotely true. Not even the tiniest, if-you-squint-at-it-while-on-the-right-drugs, littlest bit of true. It's all complete fucking bullshit that anyone with two brain cells should be able to smell a mile away. Fuck, the last two things are contradictory statements. One is A, and one is B, and God himself couldn't create a universe in which A and B could both exist, they're that mutually exclusive.
Also, thanks Jeffe for the sig.
While everything you are saying is 100% correct, I think you're presenting it in a negative light.
In an attempt to put it objectively:
People are going to choose the investments that they believe will give them the best return (usually monetary return, but there are other aspects as well). Taxing capital gains is going to decrease their net returns by the ammount of the additional taxes. As long as that ammount does not negate the value advantage that the particular investment has, it will have no effect on that person's habits.
The risk here is that if the taxes are high enough, the return will be reduced to the point where it is more lucritive to go do something else entirely with your money.
That's why people generally hedge their bets by investing in both high and low risk stocks. The high risk ones have a bigger potential payout, but they could also tank, so they buffer it with stocks with lower returns, but have a small chance of diving. If all of a sudden there's no buffer, or the risk is too great for the reward, the money goes elsewhere.
The "Fair Tax" plan does levy a federal sales tax on new "essential goods" used for personal consumption, it just offers rebates (or "prebates") to everyone for purchases "up to the poverty line" (according to Huckabee's version). So "essential goods" are only effectively untaxed if you're dirt poor.
The federal "poverty line" for single people is just over $10K a year, FYI.
For those of you who believe cutting taxes increases revenue
I didn't discount risk and reward, I simply skipped past it, rather than explaining it.
The effect is exactly the same if you want to consider risk versus reward explicitly. The rewards are decreased while the risks remain the same, but as long as the current investment is still the one with the most favorable outcome, there is no reason why some one would change investments.
True to a point, but you're discounting non-monetary incentives. If I see a twenty sitting across the street, I'll go across to pick it up. If you decrease the denomination, I'll be less likely to go to the effort. I mean, I probably won't even bend over to pick up a penny that's right under me. It's not worth my time.
Different people have different thresholds for action. Hell, a rich guy might not even cross the street for anything less than a hundred. Now, it's true that raising taxes on the capital gains will pretty much be a binary thing for a given person. I might not change my behavior at all if you raise the tax from 10 to 15%. But nationwide, many people will, and that aggregate behavior will result in correspondingly less investment.
I think we're more or less on the same page - capital gains taxes of some sort are a good idea, provided they're not too high. But I'm reading you as saying that we can raise the tax rate a certain amount without having any effect on investment at all, and that I disagree with. Small increases will have small effects, but the effects will be there. It's just that the good coming from that tax hike might outweigh the decrease in investment.
It has been found that this is equaled out by the fact that many others will just do more work to get the same amount. If the tax also raises prices, they'll actually work even more to afford the same amount.
I file a 1040EZ, takes about fifteen minutes.
And most of that is clicking "next" in the free TurboTax.
I wasn't discounting non-monetary incentives, at least it was not mu intention. I lumped them in with the general "value" of the return.
Personally, I own some Israel bonds that, while being pretty low risk, aren't necesarily the best maximization of my investment potential. However to me personally, the value of investing to Israel makes up for any other associated value gap. Honestly, I would have to reach a point where I was losing money on those bonds before I would decide not to invest in them, because of the non-monetary value to me.
Edit: And what I was saying was that small increases will have no major effects. There will definitely be some people whose investmentsare affected, but if done properly, as you and I both agree on, the effects will be overwhelmingly positive.
Say Samsung has created a HDTV built out of gold and custom made for Richie Rich. Richie Rich doesn't want to pay tax on it so Samsung gives the TV to Bob in accounting with the instructions to sell it to Richie Rich used. Richie Rich then buys it and Bob keeps the money but he doesn't get a paycheck for the next two years to balance that out.
It's fraud but how would you prove it?
There is such a thing as forensic accounting.
Exactly.
The real reason is that the rich people who were really behind capital gains tax reduction and possibly elimination are greedy fucks. But thats neither here nor there.
Yes. Uh, thanks. But what's step one?
Follow the paper trail. That's ALWAYS step one.
The fair tax - a 23% sales tax on "all" goods - is retarded for the following reasons:
So, the argument is that even with a sensible rebate system that doesn't fuck the poor/middle class completely over, there wouldn't be enough taxes generated, right?
Something off the fairtax website that's confusing me.
http://www.fairtax.org/site/PageServer?pagename=about_faq_answers#2
If I'm understanding that correctly, they want to replace all of those taxes with just the flat tax? That's...well, down here they have the relevant to what jeffe said question,"Is consumption a reliable source of revenue".
Aside from the fact that unless I'm reading it terribly wrong, their chart isn't matching what they're saying, it seems like they're only comparing income taxes with all the projected fair gains tax, instead of all of the taxes it mentioned it was replacing.
On the black screen
So as far as I know, one of the arguments for this is a reduction in black market incentives (by which I mean untaxed income, not necessarily untaxed sales).
I am aware that the burden, regardless of this point, falls heavier on the poor than the rich and is regressive, however nonetheless it doesn't invalidate this positive as I understand it.
(Again, please don't crucify me, I wouldn't support a 23% flat tax)
Is this something someone can refute, or is it just the general feeling (my feeling as well) that this positive does not outweigh (or come close to outweighing) the negatives?
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There wouldn't be a tax on purchases imported from abroad, so you'll just see more European widgets come into vogue since all the tax sheltered rich will start doing their shopping in Milan. If you want to implement a flat tax then look into the NIT. It's the only one that's practical, progressive, and feasibly implementable. Not that it doesn't have plenty of kinks to be worked out as well.
The aim of the flat/fair tax as mentioned by its proponents, though, is to allow people to have a lower tax burden and therefore more money to get themselves out of debt, invest, spend, whatever. However, if you end up instituting such a proposal and all it ends up doing is create more hardship for those you were wanting to lift the tax burden from then yes the negatives outweigh any positives gained. Considering what one advocated for didn't happen in implementation, one's plan is a failure.
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Embedded taxes absolutely do exist. But believing that companies will lower their prices (thus reducing what would be pure profit) because their own costs may have gone down (it all depends on if their suppliers lower their prices, too... pyramid scheme basically) is farcically naive. Since when do corporations lower prices out of a sense of generosity?
Thank you.
Er. What do you mean by rich people?
The kind of super-rich multi-millionaire types who hide their income in complex accounting can easily avoid a sales tax, because they can easily spend much of their money abroad or importing. Subsistence produce doesn't really constitute a large percentage of their expenditure. In fact, my hunch would be that they would be better off than before.
Most middle-class comfortably-well-off people are in pretty much the same boat, as most of their luxuries can be imported, or already are. How a flat tax deals with imports would be a major issue, because it would also have a major impact on trade.
What's left is services, food, petrol, housing and so on. How the tax dealt with mortgages, renting and so on would be a big thing, because that is a large percentage of most budgets. But essentially, being rich still would give you the opportunity to avoid tax.