Talk:FairTax/Archive 2

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Old talk archived

Since the talk page was getting quite unwieldy, I archived all sections where the most recent date-stamped post was older than 30 days. It's a somewhat arbitrary cutoff, but seemed appropriate here. I won't be offended if anyone wants to move old sections back. Feco 18:16, 27 July 2005 (UTC)

I've moved some additional threads to the archive. I didn't entirely move it based off a cutoff date. Some discussions looked completed and others looked like they required further discussion. As above, feel free to move the sections back if you think they should be. Morphh 17:41, 4 October 2005 (UTC)

Tax Exclusive/Tax Inclusive

This is a popular topic that has been discussed at some length on this talk page. Please read Talk Archive before posting on this topic. Morphh 17:41, 4 October 2005 (UTC)

Other effects section (aka 'unintended consequences')

I added a section on the effects of the proposal that aren't immediately obvious or that apply to scenarios outside the scope of the proposal. The info on muni bonds is 'original research' in the sense that I don't have a citation to go with it. The muni tax advantage is common knowledge to anyone with a basic education in the field. The tax advantage will disappear if the income tax also disappears. Similar analysis was done with proposals that would eliminate taxes on investment income... so I can dig up a link to that if anyone really cares. Feco 17:20, 8 Jun 2005 (UTC)

I think a reference is necessary, because this section appears to be completely wrong. State and local debt does not offer a lower yield due to a "tax discount". Corporate debt has a higher yield to offset the "tax penalty" and because Corporate debt is riskier than public debt. If the recipient of interest on Corporate debt did not have to pay income tax on that income, Corporate debt would offer a lower yield. So public debt interest rates will not rise when the income tax is removed; Corporate debt interest rates will fall. Interest rates on public debt will still be lower than Corporate debt due to the lower risk. The gap will be much narrower, however. kellis91789 17:22, 22 Jun 2005 (UTC)

Everyone who has ever considered as an investor or otherwise learned about municipal bonds knows that there is a tax advantage to investing in them that makes a discounted rate of return acceptable. It is common knowledge to anyone familiar with tax free bonds. Common knowledge does not require specific reference. Calling part of the interest premium on corporate bonds a "tax penalty" is not common use in the financial markets, so that is a POV interpretation. If someone goes to the trouble to add an appropriate reference for the tax discount of municipal bonds, I wouldn't complain either, in fact, that would be my preference. --Unfocused 16:47, 22 Jun 2005 (UTC)

Here is a reference that explains that interest rates non-municipal debt would be expected to drop by 25 percent if income tax on this form of income is removed. It talks about how the increase in available capital due to additional savings would also reduce interest rates, but does not quantify how much they would fall due to that factor. It also discusses how interest on municipal debt would rise due to having to compete with Treasury debt. Municipal debt is deemed riskier than Treasury debt and less risky than Corporate debt. This is strictly due to reduced demand for municipal bonds compared to other bonds when all become tax-exempt. It also discusses how Stock Market values would increase with the removal of income tax on dividends, profits and interest income, and corporate refinancing of debt. http://www.kansascityfed.org/PUBLICAT/ECONREV/pdf/4q95golb.pdf

I'd like to add the following paragraphs to the "Other Effects" section.

"John E. Golob of the Federal Reserve Bank Kansas City describes the effects on interest rates that would follow implementation of a tax like the FairTax and elimination of the Income Tax. He concludes interest rates for personal, Treasury and corporate borrowing would fall by 25% while municipal borrowing interest rates would rise to slightly above Treasury rates. Reduced Treasury note rates would result in some decrease in Federal debt payments as the Federal government could refinance some of the outstanding national debt at lower rates.

He also concludes that Stock Market values would rise. The value of existing bonds would also rise. The result would be an increase in the values of public and private pension holdings. This would benefit individuals, governments and corporations by reducing their outlays to fully fund their pension plans." kellis91789 23:52, 23 Jun 2005 (UTC)

Mortgages, home buying, and related details subsection

Unfocused left in an edit summary: "Other indirect effects - purchases of "first time home buyers" isn't really a relevant detail. The article is about the FairTax proposal in general, not 'FairTax for 1st time home buyers'."

Morphh replied: "Other indirect effects - purchases of "first time home buyers" isn't really a relevant detail. The article is about the FairTax proposal in general, not 'FairTax for 1st time home buyers'."

  • I added that line as first time home buyers usually indicates a lower income family. Since a home puchase is sometimes much of a family budget, I thought it might be relevant to show that it would be tax free and thus help lower income families. I guess they can infer that themselves though. Another thought is that statistics show in 2005, 3/4 of all homes sold are existing homes. So It seems important to me that the FairTax article show that most low income families and 3/4 of purchased homes will not be effected by the statements made by the opponent view regarding homes. Since much of taxation is about progression, burdens of the poor, etc., seems like it should be included. Morphh 18:58, 18 July 2005 (UTC)
The purchase price of the used home isn't taxed, but the mortgage and any loan fees are. The FairTax would tax "financial intermediation services," both explicit and implicit fees. Interest is an implicitly charged fee so the amount of interest above the "basic interest rate," as determined by the Sec. of Treas., would be taxed under the FairTax. Unless a person is paying cash for a home, I think it is a stretch to say that used homes can be purchased "tax free." Tom Joad 2k 13:42, 19 July 2005 (UTC)
Hmmm - Hadn't thought of that... Morphh 15:32, 19 July 2005 (UTC)

I can agree that it's worth mentioning that most sales of homes are of existing homes, and that FairTax wouldn't be collected from those sales. A good cited source regarding that statistic (existing home sales vs. new construction) would be most welcome, although I wouldn't argue against adding the 3/4 figure even if left uncited for now.

  • I got both statements from AFT page 7. I'm not sure where they got it though. Morphh 21:09, 18 July 2005 (UTC)

Regarding the income distribution of home buyers, I think it really depends on how it's phrased, because it'd be getting pretty esoteric for an article that's about taxation overall, rather than low income home buying ability.

Finally, wouldn't you agree that prices of "used" homes would rise to approach the after-tax prices of similar new homes, so there would be little, if any benefit to "used" home buyers? In my area, every time I see the new home market rise for any reason, I've seen a corresponding increase in the value of my "used" home. I know that every time the local builders increase their prices, my neighbors who are selling somehow decide to increase the asking price of their homes when they put them on the market. Unfocused 20:09, 18 July 2005 (UTC)

  • I would agree with you on this. I expect that the market will make adjustments. New construction will have to drive out those tax costs and lower prices to compete with existing homes. Existing homes will probably increase in price as there is more demand for them. I expect the same thing would happen for vehicles. I'm not sure what AFT's thoughts are on this and I haven't read anything particular to it. Just going off of capitalistic common sense - I think your correct. The first statement is irrelevant and the second statement may add some though for other reasons. - I'd quickly have some nice equity in my home - Morphh 21:09, 18 July 2005 (UTC)
But what would that equity be worth in real terms? If you were to sell your house, any house you could buy would be inflated by roughly the same percentage. Tom Joad 2k 13:53, 19 July 2005 (UTC)
Off the top of my head - Once you have 20% equity in your home you can drop PMI insurance. I expect that it might also effect net worth / debt ratio which may allow lower interest rates and such.  :-) Morphh 15:32, 19 July 2005 (UTC)


I'm not sure what everyone's thoughts are behind the comments, but it seems like the analysis is triangulating on at least one key point. I'm going to try to phrase it here more explicitly so we can discuss before adding to the article: FairTax will be assessed only on newly-built homes, so used homes are exempt. The cost to buyers for a new home will rise overnight by 30%. There will be no similar, direct effect on used homes. However, the value of used homes will rise overnight as a result of the increase in new home prices, since the two are close substitutes. If we say that a 5-year old home changes hands at a given discount to an identical new home, the new homes' 30% rise in value will lead to the same rise in value of old homes. (Since FT's effect on homebuying-related services will apply equally to new and used homes, those effects can be ignored for this analysis.) The imposition of FT represents a windfall gain to current homeowners (the experience an overnight capital gain) and a windfall loss to those who will buy a used home in the future. (All else equal, current homeowners who will sell their current home and buy a used home in the future see their gains and losses roughly cancel). It's a transfer of wealth from party A to party B. For a very simliar historical parallel, look at the auction prices for race horses and art as the IRS has added/removed/added capital gains tax on such investments. Feco 19:35, 27 July 2005 (UTC)

The transition to the FairTax should not be as harsh as a 30% change overnight. The bill includes allowing businesses to claim what they have in inventory for taxes to allow prices to immediately drop. So new homes will not shoot up 30% overnight as new homebuilders will claim the embedded taxes of those homes. They'll drop the price of the home by that amount and add the 30% FairTax resulting in the new home price which should not be much more. While I agree that used homes will stay in line with new homes and that prices may go up, such inflation as you describe doesn't seem likely. Also keep in mind windfall gain to every American as they have a full paycheck. It is not like a 30% increase in price with no increase in income. The buying power has not decreased. Morphh 18:10, 29 July 2005 (UTC)
The FairTax would also allow the faster accumulation of a down payment as savings and investment are not taxed. Morphh 19:33, 29 July 2005 (UTC)
After reading the FairTax book, they state that an estimated 25% of the current cost of new homes is embedded taxes. In addition, homebuilders can claim all inventory as these homes have already been taxed. If they have 1 million in homes, the home builders would not pay tax on the first 1 million in sales. This allows for an easier transition. Morphh 13:20, 8 August 2005 (UTC)

Mortgage rates

Also, I noticed this section has been removed a couple times for POV. While I did not write it, I see the point the author is trying to make. Perhaps we could help reword it to make it less POV. "Mortgage payments (principal and interest) will be made with pre-tax dollars that would eliminate the NEED for a "deduction". It should be noted that under the current system no deductions are ever taken for payroll taxes. However, with interest payments not taxed under the FairTax, mortgagees will get a tax effect that is similar to the current mortgage interest deduction." Morphh 01:27, 24 Jun 2005 (UTC)

I don't think the removed graf really belongs. It's an absolute fact that the elimination of mortgage interest deduction will raise the effective cost of home ownership. For people in fixed mortgages, possible lower interest rates in the future have no effect. Feco 1 July 2005 05:17 (UTC)
I'm not sure I completely understand so please correct me if I'm out there. From the AFT FAQ... "Income tax deductions only have value because they reduce income tax liability. Under the FairTax, there will be no tax liability to offset, because individual taxpayers will no longer pay taxes on their income. There will be no need for tax deductions because income is irrelevant. Homebuyers won’t be disadvantaged, however. In fact, they will be greatly advantaged over current tax law. The home mortgage interest deduction exists only to ensure taxpayers can pay interest with pre-income tax dollars. That is why it permits a deduction against income for income tax purposes. However, the mortgage interest deduction provides no deduction against payroll taxes, which is what most first-time homebuyers pay the most. Hence, homebuyers must pay interest with the money left over after payroll taxes. Under the FairTax, interest is completely untaxed. Homebuyers can pay for mortgage interest with both pre-income and prepayroll tax dollars, more than doubling this benefit." FAQ No itemization or paperwork required. In addition, American families currently pay the mortgage principal out of after tax dollars. Under the Fairtax, they could pay the entire principal with pretaxed dollars. I know this is a biased source but it seems logical. So, I'm not sure that I agree that this would raise the effective cost of home ownership. As far as interest rates, people could choose to refinance if the benefit was sufficient - I know I did a couple of years ago and saved a bundle. Morphh 1 July 2005 17:22 (UTC)
There is an opponent view on this under "other indirect effects" but we have not posted the proponent view listed above. It does cover interest rates but there is no section in regard to the income tax deduction. Also, the newly added section would now require an advocate view that the cost of building the home would decrease so new homes would not experience the full sales tax increase as suggested in the article. Here is the section I am refering - "The current federal tax regime allows individuals to deduct the interest cost on home mortgages. This tax break reduces the actual cost of home loans. Since FairTax ends income taxation, the cost of a home loan will no longer be reduced by the tax deduction. Additionally, a newly constructed home would have FairTax tacked onto the sale price. However, supporters argue that lower interest rates will more than make up for this change." Morphh 13:43, 10 July 2005 (UTC)
I removed the statement about a new home having the Fairtax tacked on. This seems repetitive since all new goods will have a Fairtax "tacked on". Since the additional proponent rebuttal is elsewhere in the article as it applies again to all new goods, it seemed that it should not be discussed twice. (Such as you'd have your full paycheck, cost of goods and services decreasing as embedded taxes are removed, etc.) I would like to still add the additional information on the mortgage deduction but I don't believe I have enough knowledge at this point to write it. I'm reading up on this area and will try to write something soon if no one else has a chance to do so. Morphh 22:29, 10 July 2005 (UTC)
I think what you removed was poorly phrased, but definitely belongs somewhere in the article. People think of housing as "real estate" and not "goods & services". If I hadn't seen it on a FairTax opponent web site, it wouldn't have come to my mind. A thirty percent increase in the price of a new home is certainly a very notable change in the tax code, especially when you consider how economically "sticky" housing prices are (in that they can rise very quickly, but seldom fall nearly as fast, due to mortgages, perceived equity/ownership value, and other market perception effects). Unfocused 03:39, 11 July 2005 (UTC)
Fair Enough - I'll just add a little bit on the "However statement" so it doesn't state that proponents think a lower interest rate is going to make up for the change of adding a 30% tax. We need to keep this in mind when editing. If you change one of the arguments, then we have to look at the other side as well. The change instantly makes one side look like an idiot as their argument no longer makes any sense. Morphh 13:04, 11 July 2005 (UTC)

I think the current version missed the key point: right now, dollars paid to mortgage interest (a hefty chunk of the average family's lifetime expenditures) are uniquely privledged. A mortgage dollar really has a net cost of only ~70 cents, because it's offset by a tax deduction. So I'm faced with a choice, pay $1 on consumption, which represents a $1 econonmic cost out of my pocket, or pay $1 in mortgage interest, which represents a 70 cent economic cost out of my pocket (thanks to the tax benefit). This is what makes mortgage interest unique. Despite all the other presumed beneficial effects of FT, it will eliminiate this unique feature of mortgage interest. Under FT, $1 spent on a mortgage is exactly equal to $1 spent on beer. I think this fact deserves to be called out by itself, in its own bullet point. The other, presumed beneficial effects (which seem to be a rebuttal in their current form) can certainly have their own bullet point, but they don't address the end of mortgage deductions. Feco 19:41, 27 July 2005 (UTC)

The government takes 25% from you and then gives you back your 25% at the end of the year and calls it an "interest deduction". But when the government doesn't take your 25% (and therefore doesn't give it back) and you pay the interest, this is somehow no longer the same benefit. Is this the logic? The current system does not allow you a deduction on your payroll taxes 7.5%. I'd say that the government is taking and giving you a 32.5% deduction under the FairTax. With the current income tax, you only get this deduction for interest. Under the FairTax, you get this deduction for Interest and Principle. Yes, part of the principle may have the FairTax built into the cost, however, it is estimated that 25% of the current cost of the home is already embedded taxes. I guess I can see the point that $1 dollar spent here has the same weight as a dollar spent there. However, only a very small amount of the interest if any would contain the FairTax so I'm not sure the "beer" analogy is fair. The beer would contain the full FairTax and the interest would not. All that with a lower interest rate and no itemization paperwork. The article requires another update. I just added a quick counter position, however, I don't think either works well. While I don't see the major loss, the mortgage deduction is unique under the income tax. However, the FairTax in this regard does have some uniqueness as well. Morphh 02:35, 8 September 2005 (UTC)
I don't follow your statements above. Right now, mortgage interest enjoys a unique privledge. On a 30-year mortgage, interest is not insignficant. Interest dollars have a net economic cost of ~70% of their cash value. This compares with almost all other consumers' choices, which cost 100% of their cash value. Think of housing as a good (good H) and everything else as a good (good X). The mortgage deduction "artificially" reduces the price of good H. Consumers (with limited lifetime income) enjoy two benefits... an income effect and a substitution effect. The "artificial" discount on home prices makes it seem that consumers' incomes magically increased... it's like they have more money overall to spend on all goods. This income effect can be ignored, b/c it will also be present if FT is enacted (taking as true all statements made by FT proponents). The subsitution effect, however, cannot be ignored. Under the current regime, they are likely to shift more of their consumption towards the artifically cheaper good H. This is one of the publicly-stated goals of interest deduction (as well as FHA, Fannie Mae, Freddie Mac, etc). The government believes that homeownership has all sorts of positive externalities for the country as a whole... this is why the government enacts policies to favor and encourage homeownership. FT would remove the incentive to consume more of good H (buy more homes). At the margin, this will reduce the amount of spending on homes. Consumers will chose to buy smaller, cheaper homes or not buy at all (continue to rent)... housing demand & spending will fall. Since all of this emerges due to economic agents' decision making at the margin, there's no need for the pro-FT rebuttal. Regardless of the positive spillovers from enacting FT, a smaller proportion of consumer income (whatever the total amount) will be spent under FT than would be spent under the current system. It seems you're trying to rebut a self-evident economic fact. Feco 04:32, 8 September 2005 (UTC)
I believe I understand what your saying. Since the income tax is used for social engineering, it gives favor to home ownership. While the FairTax would also decrease the cost equally so, it does not force social engineering and thus favoritism of home purchases. I think this is a worthy addition as long as if we present a decrease home cost under the income tax we also include the differences in end cost for the FairTax. It is not even to present this substitution effect as an income tax benefit in a reduced home cost without stating the FairTax has the same end cost. These are two different areas, social engineering and actual cost to consumer. After the substitution effect description, it could be stated that opponents believe the FT would remove the incentive to buy homes and/or reduce spending on homes. Then we could add the proponent view that increased savings, decreased interest rates, and a natural desire for home ownership would continue, if not spur, growth in the home market. -- Example of end cost: (Using your percentages) Lets say we have a $7000 interest payment. Under the income tax, you must earn $11000 to pay for the $7000 (estimations for simplicity - $1000 Payroll, $3000 Income). At the end of the year, the Government gives you back the $3000 you payed on this income. Your end cost for the $7000 interest was $8000 as you still payed $1000 in payroll taxes. Under the FairTax, you would earn $7000 to pay for $7000 (interest would essentially be tax free - minus the possible small amount described by Tom Joad 2k above for financial services). Morphh 02:01, 9 September 2005 (UTC)

Proposal to split the mortgage bullet point into two halves

To maintain readability on the mortgage/homeowner bullet point, I think it should be split into two points. Point A should address the transition effects (windfall gains to current homeowners at the expense of future homebuyers). Point B should address the enduring effects (mortgage interest will use its unique deductibility). NB- I figure this proposal should be discussed in its own little space here. I'm going to make content-related comments in the appropriate subsections above. Feco 19:21, 27 July 2005 (UTC)

I don't see why this would be nessicary - I don't even know if there would be enough on the two topics to justify a split. But is you think it would work, don't let me discourage you. Be Bold in editing! Try doing it yourself!Trevdna 14:27, 11 October 2005 (UTC)
Wiki boldness should be tempered by professional courtesy in certain situations. There had been much discussion regarding marginal analysis of before/after scenarios in the mortgage market. Making a significant content change in the midst of such discussion didn't seem to be a good idea. So I put the floater on the talk page, let it sit for a week, then made the changes. Feco 16:24, 11 October 2005 (UTC)
OK, you know more about this than me. Good job. But what I didn't get was once you made the change, why not archive this section, so it didn't worry people or tak up any more space? -Trevdna 16:21, 13 October 2005 (UTC)

FT effects on money and capital markets (from Fed paper)

The Fed paper analyizes three tax reform proposals. It doesn't specifically analyze FT, but some of the conclusions can be generalized to apply to FT. Facts from the paper are included and cited in the wiki article as it stands now, but I think there has been some cherry-picking of facts. Here's the full set of facts that I would like to see in the wiki article:

  • Money markets
    • interest rates would generally decline by an unknown amount. This would be driven by declines in fixed income markets (trickle-down effect) and changes in the credit demand/supply eqm.
  • Fixed income markets
    • taxable yields would fall to around 3/4ths (I think it's bad practice to use percentage figures when talking about rates) of pre-change levels
    • previously tax-exempt munis would change. They would see spreads reverse (currently below Treasurys), but would have to yield higher than Ts. Since Ts would fall, but munis would reverse, the net effect on muni rates is indeterminate.
    • generally falling yields would lead to capital gains for FI holders
    • rising FI prices would make calls worthwhile for corporate/government issuers. This could play hell with pension fund & investment portfolios as their duration is yanked from under them. Such action will likely reverse some of the capital gains experienced as duration has to be rebalanced.
  • stock markets
    • all stocks would feel upward price pressure, since the value of future income claims increases since taxes are no longer assessed
    • many specific stocks would feel downward pressure:
      • companies that currently enjoy favorable tax advantages (esp. extractive, manufacturing, pharma) would lose those, thus reducing future earnigns
      • companies with lots of undepreciated assets (mature companies, capital-intensive industries) would lose depreciation benefit, reducing future earnigns
      • companies with LT liabilities (mainly pensions) would see their pension costs increase as pension discount rate falls
    • would favor some stocks at the expense of others:
      • would encourage dividend payers at the expense of share buyback-ers
      • would benefit divident payers (mature or value) at the expense of capital gainers (young or growth)


I would like to add a section detailing other unintended consequences that don't seem to be addressed by FT proponents.

  1. Elimination of jobs from government and private income tax professionals.
  2. How this legislation will affect currently tax exempt entities: religious organizations, native peoples, non-profits, etc.
  3. How FT adresses out of country purchases.
  4. How the elimination of seperate payroll withholdings will affect medicare and social security

Would this be the best section for these topics? I haven't explicityly seen these issues addressed elsewhere. I think most of my sources will be the text of the legislation itself. Ph47f3 06:39, 12 August 2005 (UTC)

Sounds good - Number 1 might not be unintended.
2. Should not effect tax exempt entities that much. They will have a tax exempt ID and will be able to purchase goods and services tax free. Just like goods and services that are part of an manufacturing process. With an increase in charity and lower prices, they should do quite well.
Actually, non-profits would pay the FairTax on their purchases unless those purchase were being made for resale; to produce, provide, render, or sell taxable property or services; or in furtherance of other bona fide business purposes. So, if a soup kitchen were buying food to serve to homeless, they would pay the FairTax on the purchase, but wouldn't charge the FairTax when they gave it away. If the same soup kitchen were buying food to make meals to sell, they wouldn't pay FairTax on the purchase, but would charge it on the sale. Also, if a charity gives away "taxable property or services" for a contribution, they must pay the FairTax on the fair market value of the property or service. Tom Joad 2k 15:22, 15 August 2005 (UTC)
3. Doesn't tax out of country purchases - however, US Customs might if you try to bring the good back to the States.
4. Doesn't change or effect it - just changes method of tax collection - separation is an illusion. However, the FairTax is a very effect way to solve the funding issues of these programs. This again may be intended. Morphh 14:07, 12 August 2005 (UTC)

FT Effects on US GDP

One big effect: FT would remove depreciation/investment incentive from corporations. In the C+I+G+NX equation, I (corporate investment) tends to be the deciding factor between GDP growth and GDP shrink. Since FT would remove some incentives for I, this would lessen the net injection effect of Corporate I. Feco 20:03, 27 July 2005 (UTC)

I think this should certainly be flushed out more... I've looked for info on FT proponent/opponent sites with no luck. To reiterate, the economy relies on the "recycling" of money through the system. Anything that pulls money out is considered a leakage. Anything that puts money in is considered an injection. Injections are goverment spending (G), investment (I) and exports (EX). Leakages are taxes (T), imports (IM) and savings (S). Historically, goverment has been a net injector (runs a fiscal) deficit, so G exceeds T. Net exports (EX-IM) has been a leak (trade deficit). The key element that decides whether/how the economy grows is savings vs. investment. Households are almost always net savers. Business must pick up the slack by boosting their investment (I) to more than exceed savings (S). I must more than cover S, as well as the fact that our trade deficit tends to exceed our budget deficit (so that's another net leak). Business I is predicated on the fact that it's tax deductible... $1 in investment has a net cost to business of ~$0.70. Removing deductibility raises the cost back to $1. Like any other market, when the cost of something goes up, quantity falls. It seems to follow that FT would unequivicably make the econmy more prone to recession by raising the cost of I, which is the main factor that keeps us out of recession. Feco 19:24, 7 September 2005 (UTC)

Effects on the States

Something needs to be mentioned about the effects of the FairTax on the States. A little known fact of the FairTax is that "all input purchases made by general government entities, including the acquisition of labor services (other than that used to produce education), would be subject to taxation." [1] In other words, state and local governments would pay the FairTax on their purchases and the wages and salaries they pay their employees. William Fox and Matthew Murray in A National Retail Sales Tax: Consequences for the States estimate the states "would pay $346.2 billion in NRST to the federal government, an amount about 50 percent greater than current state and local general sales tax revenues." They estimate to pay the NRST, states would have to double the size of their sales tax base and raise their rates an average of 2 percent.

There also might be some constitutional questions (e.g., intergovernmental tax immunity) about the federal government taxing the consumption of the states in this manner.

It seems obvious to me that the "revenue neutral" FairTax rate proposed is only accomplished by taxing the consumption of the states, which would require the states to either increase their taxes or reduce the services they provide to their citizens. --Tom Joad 2k 15:29, 19 July 2005 (UTC)

Dynamic scoring

An article on dynamic scoring definitely should be written. I agree that it is a significant concept in tax policy. If the original FairTax rate was calculated using dynamic scoring, then that should be mentioned in this article, but if not, any mention should probably be very brief, unless it has become a main point in the pro-FairTax arguments. --Unfocused 15:39, 17 Jun 2005 (UTC)

I completely agree that wiki needs an article on dynamic scoring. WSJ ran a great article on that subject around Sept 2002, but I don't have access to their archives that far back. The subject of the article was a new dynamic scoring system (acronym was MEG) that experts recommended to the government. On another front, the classic example of where dynamic scoring would've helped is the luxury yacht tax of the 1980's... static analysis said a high tax on yachts would bring in lots of money... instead, people stopped buying. The New England yacht business was decimated, to the point that Ted Kennedy later got subsidies passed to rebuild the industry. Feco 1 July 2005 05:20 (UTC)
I believe the AFT research does use dynamic scoring as I remember them criticizing the JCoT for not using it. Morphh 1 July 2005 16:20 (UTC)
I think I incorrectly stated above that the AFT used Dynamic Scoring. It looks like everyone is using JCT methodology. I agree that we should have a section on dynamic scoring or perhaps a new article on the subject. Here is a recent article about that very topic Doesn't Anybody Know The Score? Morphh 17:47, 4 October 2005 (UTC)
I'm pretty much a layman. What the heck IS dynamic scoring? Trevdna 14:20, 11 October 2005 (UTC)
In layman terms, it is the method used in incorporating the economic growth effect of the plan into plans results. A static scoring methodology would use current investing and spending trends to project the rate. A dynamic scoring methodology would include the economic effects of the plan such as increased investing, stronger exports, larger GDP, etc. The article above describes this idea well. The plan is to be revenue-neutral but what if the economy booms. We end up with more money in the Government's hands then planned. A dynamic scoring would attempt to project the revenue-neutral rate using modeled economic changes. I believe they have gotten around this in the bill by including a formula that would recalculate the rate periodically. This would automatically decrease the rate to meet expected revenue even with the economic boost. William Gale projected 27% from his rate of 31%. A 4% decrease when using dynamic methodology. Others estimate the FairTax rate would be around 18%. There are not many references for the Dynamic numbers so I don't intend to include such figures but I like the idea of including the methodologies. Morphh 15:44, 11 October 2005 (UTC)
I'm going to make a stub based on that explanation, k?Trevdna 16:08, 11 October 2005 (UTC)
Ok, I did it. But I think I might have missed the point, despite plagarizing about half of it from your reponse. Could you check it out? Trevdna 16:39, 11 October 2005 (UTC)
Good deal :-) I'll try to work on it a bit tonight. I need to do some research on it. Morphh 17:17, 11 October 2005 (UTC)
I gave it a broad-brush revision. It's now generalized. There are pages and pages of content that could be added, but I don't have the time to do so right now. The nature of dynamic scoring itself makes writing an article about it difficult. DS is a dream if you have the so-called OBBG model (omnicient: built by god)... for everyone else it's a very tricky proposition. Most so-called dynamic scoring models are really static/dynamic hybrids, simply b/c the technical hurdles involved in dynamic scoring are tremendously high. DS is great in theory, very difficult in practice. As a result, there are a billion different implementations... with lots of commentary to match. Last time I checked, the CBO does sort-of DS... they allow for substitutions while holding overall output growth fixed. JCTR proposed a DS method called MEG a while back, but I think it was shot down by critics. etc Feco 17:59, 11 October 2005 (UTC)
Wow. Great job (if a little technical at times). I don't think ANY of my old stuff got left it. But it's better now. Great job, guys. (The OBBG thing is kinda funny.)
Anyway, now that it has its own article, if you guys don't have any objections, I figure this little discussion topic can be archived. Or (if applicable) transferred to the dynamic scoring article. What do you think? Trevdna 22:16, 11 October 2005 (UTC)

Roth -vs- Traditional IRAs

I wanted to chime in here one more time on what I think is now an excellent article. I agree with the previous poster that this represents a pretty objective article now and should be marked as such. Kudos to the primary authors for their quality work.

One thing that I would like to see expanded, however, is the discussion regarding the differential effects that the transition to FairTax would have on, for example, Roth IRAs and Traditional IRAs (or any other investment made with post-tax as opposed to pre-tax dollars). As the article notes, Roth holders will essentially get double taxed because the contributions are made with post tax dollars AND they would pay the FairTax; they are taxed twice. Traditional IRA holders, by contrast, have received a tax deduction at the time their contributions were made (and presumably could have re-invested that deduction in a non-retirement asset for an even higher return) and would pay the FairTax when they purchase goods with their distributions. The Roth –vs- Traditional comparison, in my opinion, is particularly salient because the Roth plan was designed specifically for middle income Americans (income limit of AGI $95,000 filing single) whereas there are no income limits for Traditional IRA holders. As such, a strong argument can be made that the transition to FairTax would be more likely to penalize the retirement savings of middle income (more likely to be Roth holders) than high income (more likely to be Traditional IRA holder) citizens (as well as any other pre- as opposed to post-tax investment). This will undoubtedly be one of the biggest bones of contention as regards this bill and it merits a more complete discussion in the article. As far as specifics are concerned, I think a mathematical example would be worthwhile. Something as follows (just a first shot) would be an appropriate addition perhaps:

Citizen A: Traditional IRA Holder Citizen A is a 30–year old high income American in the 33% tax bracket. Citizen A contributes $3000 to a Traditional IRA and, in return, receives a $1000 tax deduction. Citizen A invests the $3000 in Index 500 shares held in his Traditional IRA and also invests the $1000 deduction in Index 500 shares in a cash account. This $4000 investment compounds at 11% annually until Citizen A retires at age 65, at which time the assets are valued at $154,300. During Citizen A’s career, the government transitions from an income tax to the FairTax. Citizen A spends the $154,300 and pays the 23% FairTax. Total purchasing power = 0.77 * $154,300 = ~$118,800.

Citizen B: Roth IRA Holder Citizen B is a 30-year old middle income American in the 28% tax bracket. Citizen B contributes $3000 to a Roth IRA and invests the funds in Index 500 shares. No Federal tax deduction is receive for this contribution; Citizen B has already paid tax on this investment (an additional $840) in exchange for the right to not pay tax on the investment at the time it is withdrawn. Citizen B’s investment (which should be thought of as a $3000 investment plus an $840 real option to avoid future tax) achieves the same annual rate of return as Citizen A’s and is worth $115,724 at the time of retirement. FairTax is assessed on purchases, leaving 0.77 * $115,724 = ~$89,000 of purchasing power.

It would be best to make the example such that the total invested in the Traditional and Roth (investment plus tax paid) was equal, but this is a pretty fair approximation of the predicted (and generally agreed upon, from what I have gathered) relative effects. In this example, using perhaps the most common investment vehicle in the United States and its approximate expected annual rate of return, the Traditional IRA holder would have $118800/89000 = 133% of the real purchasing power of a Roth IRA holder. I’d argue that this merits a more complete discussion in the article.

Impact on tax compliance costs

The article presently states:

The cost of preparing and filing all business and personal tax returns is estimated at over $250 billion each year. FairTax supporters argue that a simplified tax system will reduce these compliance costs and return a larger share of that money to the productive economy. If these costs are eliminated, free market pressures will force prices down an average of 22% for goods and 25% for services. FairTax supporters state that consumers' net cost will be near zero because the new sales tax will be largely offset by falling compliance costs translating into lower retail prices. Such logic is endorsed by a recent letter to the commission on tax reform by dozens of leading economists. [2]

I looked at the footnote, but could not find the 22%/25% quote on deflation, and I am not convinced that there is any $250 billion (the footnote quotes $225 billion in compliance costs, however) on earth that could have an effect equivalent to more than $2.5 trillion on the U.S. economy. The person who put this in needs to source it. Adam Faanes 21:11, 4 September 2005 (UTC)

You are correct - This section is in need of some help. This paragraph makes it sound like the 22% - 25% is only embedded compliance costs. The embedded costs in goods and services is made up of many factors to include corporate taxes and I believe even the 7.5% the employer pays in payroll taxes. The main research done on this was by Dr. Dale Jorgenson, Professor of Economics at Harvard University and past President for the American Economics Association. This paragraph also does not make the distinction that the estimated average of 22% is on domestic goods and services. While international free market pressures will force foreign prices down, they will not enjoy the same 22% reduction in cost as domestic products. This is a FairTax argument for benefits in decreasing our Trade Deficit. From what I have read, $225 and $250 billion is a low estimation of our current compliance costs. The average number seems to be $350 billion with a high estimation at $500 billion or 1/3 of collected taxes. I'll try to find some sources on these estimations. Unlike the current system, the FairTax includes much of the compliance costs in the taxes collected and therefore part of the FairTax rate (giving the State and the business each 1/4 of 1% of taxes collected). Morphh 19:43, 6 September 2005 (UTC)
Found this quote - Updated numbers probably put it around $225/$250 or $450/$500. "For example, Americans spent over $200 billion in 2003 filing IRS paperwork. Approximately the same amount of money was spent that year calculating the tax implications of business decisions. That means over $400 billion was spent just to collect roughly three times as much in tax revenues." Morphh 16:02, 7 September 2005 (UTC)
The numbers on compliance costs don't worry me all that much - it's the quote on how much deflation we'll see. I'm still not convinced that the elimination of (even as much as) a $500 billion industry could cause prices to deflate by nearly a quarter across the board. Perhaps the unemployment of all the out-of-work tax professionals will cause a drop in demand, but still, a $2.5 trillion change seems wholly out of proportion to me, even assuming that the $250-$500 billion quotes are reasonable. The program puts a lot of stock on the idea that the compliance costs would have multiplier effects on the economy, but a multiplier effect of 5 (which requires a high estimate of compliance costs) would be quite surprising. The deflation numbers come up again in "Supporting theories of effect;" the article quotes Dale Jorgensen (sic) as saying that deflation could be between 15-25% again, but this too is unsourced.
The program's allure (if I understand it correctly) is in the elimination of these compliance costs. Beyond that, all it can accomplish is to shift the tax burden around. So it's very important to source any statement about price shifts since, really, that's the crux of the entire plan.
This program also seems like a recipe for recession (if not depression) in the sense that it eliminates any and all disincentives to save and penalizes consumption. I would be curious if there are any macroeconomic studies looking at that side. Adam Faanes 03:56, 8 September 2005 (UTC)
I belive the theory is that i (nominal interest rates) will fall, favoring C (consumption) over S (saving). Of course, falling i doesn't necessarily have an effect on r (real interest rates), so the real C/S tradeoff is indeterminate. The same applies to I (investment) Separately, I've been thinking about the fact that I is the key factor that determines whether the economy grows or shrinks. It seems that FT would remove incentives for I, so may predispose the economy to recession. See the section entitled FT effect on US GDP.Feco 04:38, 8 September 2005 (UTC)
If the program does what it says it does - reduce prices while raising savings - it's not indeterminate; deflation, if it's in the 23%-25% range, would force real interest rates way up while the nominal plummets when the markets are flush with cash. If that's true, you're not just in a recession, you're in a ridiculous liquidity trap. Adam Faanes 06:52, 8 September 2005 (UTC)
The theory goes that prices will fall 25~30% as embedded costs of all taxes are eliminated. The same prices will rise as the new, explicit tax is levied. The net change in out-of-pocket price is supposed to be zero. Feco 20:59, 8 September 2005 (UTC)
This is one area that pretty much all economists seem to agree on all the way up to Alan Greenspan. A National Retial Sales tax will boost the economy significatly. Perhaps you have something figured out that the leading economic minds haven't but I'm going to go with the Federal Reserve Chairman who said “a consumption tax would be best from the perspective of promoting economic growth” because it would encourage saving and the capital formation that the economy needs to expand and modernize. Morphh 00:20, 9 September 2005 (UTC)
I don't believe this to be the crux or allure of the entire plan. Many feel a national sales tax has many benefits over an income tax system. They think it is a fairer way to collect taxes, would boost the economy, decrease the trade deficit, increase personal privacy, increase savings, assist the poor, tax wealth, remove loopholes, visible to citizens, free companies to make business decisions, brings money and companies home, and of course decreases time and paperwork for the average citizen. Many feel the income tax is unconstitutional and it is one of the pillars of Karl Marx's socialism. Certainly part of the goal is to create an efficient way to fund the government - I think many would agree that our compliance costs border on stupidity. If prices fall by 22% - great deal, if not - I'm still even. Much of the allure is that it ends income taxation and all its problems. Morphh 00:54, 9 September 2005 (UTC)

Effects on distribution of tax burden

The recent delete / revert made me read this area a little closer. I have a problem with the following statements. "The federal income tax system is progressive on income. Sales taxes, while uniform on spending or consumption, tend to be effectively regressive on income." & "These conclusions are apparently contradictory; according to Gale, the FairTax proposal is regressive on income and progressive on sales.

The first sentence starts off with "Sales taxes" and the sentence of itself may be true (while I think it would be neither regressive or progressive but flat - I'm not debating that point). The first problem with this sentence implies that the FairTax is just another Sales Tax. The FairTax is not like any other Sales tax in that it includes a subsidy. A statement about "Sales taxes" should not be in this section. It should state "FairTax".

The second problem comes in with the definition of progressive. Progressive, as defined by wikipedia, is a tax that is larger as a percentage of income for those with larger incomes. Regressive, as defined by wikipedia, is the opposite when the amount of the tax is smaller as a percentage of income for people with larger incomes. What Gale and the paragraph is trying to state is that low income families spend a higher portion of their income on goods and services while middle to high income families tend to save a portion of their income. This is not the definition of progressive / regressive system. A low income family may spend $25,000 on goods and services consuming 100% of their income but will pay a tax rate of 0%. A high income family may make $100,000 and spend only $80,000 on goods and services and save $20,000. They are consuming 80% of their income on goods and services and may pay a tax rate of 15%. The article makes the argument that since the low income family consumes 100% and the high income family consumes 80%, this is a regressive tax. However, this is not the definition, the low income family is paying 0% and the high income family is paying 15%. This is the definition of progressive. Now it is possible that the family making $100,000 may choose to only spend $20,000 making it regressive to income but this is an unlikely scenario and not what is presented in this section. For most Americans, the higher the income the more you spend in consumption. Regardless of what percentage is put away for savings, this follows the definition of a progressive system. Morphh 22:03, 21 September 2005 (UTC)

While I'm at it, the proponent view needs to be improved debating the above opponent logic. Aside from the definition, this idea that (to use my example) the 20% not spent on consumption makes it "regressive" is myopic. Income not spent on consumption falls into few categories and can be compared to the income tax system. Savings (tax deferred), Donations (exemption), Investment - Education/New Jobs (exemption). How are these terms much different from the current system? Yet for the FairTax, it makes it "regressive" and bad. I just added a new line to the article on a truly regressive system, the payroll tax! This also doesn't address all the corporate taxes and embedded costs that get applied in a flat manner under the current system. Morphh 00:10, 22 September 2005 (UTC)

This is what I propose. Remove the two references to the FairTax being regressive on income unless someone can cite a credible source that states that high income individuals will spend less then low income individuals. This is not a matter of what percentage of their income they spend on consumption but how much income they spend on consumption. For most Americans, this would follow a progressive system. You could make the argument that someone wealthy with little income could consume a lot and thus his tax rate would be regressive to income in comparison but I believe this is a proponent view of taxing wealth. With such logic, would the income tax be regressive to consumption? It think it is fair to state that the income tax is progressive to income and the FairTax is progressive to consumption. There is a difference, however, I don't think we can flip it to state the other is regressive in such a general manner. Doing so is inaccurate and deceptive. I do believe the rest of the arguments in this section and that of MPC, while sometimes confusing, are valid arguments. I would, however, like to add a proper rebuttal. :-) Morphh 14:11, 23 September 2005 (UTC)

The terms progressive and regressive with respect to taxation are standard terms in the field of economics with generally accepted meanings among economists. According to these conventional definitions, the "Fair Tax" proposal would pretty clearly be regressive. Your proposal may be logically consistent with respect to itself (so far as it goes, which isn't far enough to seriously consider the question), but it is isolated from the semantic outside world which includes a set of formal tools that people use to compare the relative merits of different taxation schemes. Attempting to subvert or circumvent standard terminology in an stealth effort to promote a political view is, to borrow your phrase, "inaccurate and deceptive." Gwl 04:06, 27 September 2005 (UTC)

I'm not trying to subvert or circumvent standard terminology. Economists often refer to taxes as "regressive" or "progressive," but the confusion over the terms' meanings requires careful definitions. The definitions that most economists use rely on the average tax rate. A tax is regressive if the average tax rate falls with an increase in income, proportional if the average tax rate is constant, and progressive if the average tax rate rises with income. I don't see how you could say that someone paying no taxes would be paying a higher tax then someone rich. This is unlike a normal sales tax, what your definitions reference. This is about "tax burden". How could you be regressive to zero tax liability? In addition, the FairTax would become even more progressive when looked at over a lifetime and not annually. However, these are points that should be discussed in the article and I will concede the second sentence on FairTax regressiveness as a matter of opinion by Gale. The first sentence should be removed. Morphh 15:05, 27 September 2005 (UTC)

Revenue-neutral rate studies

I know we have discussed this before to some degree but I wanted to bring up the latest research I could find from Gale - May 16, 2005. We currently have him at a 50% inclusive rate / 100% exclusive. The recent article states a 31% inclusive / 44% exclusive, as compared to the FairTax bill. When he adds in current evasion rates and a couple other things, it brings the rate up to 39% inclusive / 65% exclusive. I think these numbers should be used or to be more accurate use the first numbers but then state that it does not include evasion. We address evasion estimates in the tax compliance section which quotes Gales projections with evasion added. He does quote if state and local purchases were omitted the rate would be 45% inclusive / 85% exclusive but at that point he is no longer quoting the FairTax plan as written. I think it is reasonable to add in costs for evasion and such but I don't think it is accurate to add in exemptions and legislative changes. This should however be noted in our disclaimer that legislative changes to this bill could modify the rate. I'm not sure if it should be mentioned or not but the JCT estimation did include exemptions on food and such. This does not reflect the FairTax bill as written, however, they have not provided an alternate rate that does. This rate should be included but we may want to state a little more then a "similar" proposal as food / medicine makes up a nice chunk of consumption. In addition, I incorrectly stated above that the AFT used Dynamic Scoring. It looks like everyone is using JCT methodology. I agree that we should have a section on dynamic scoring or perhaps a new article on the subject. Gale does seem to provide some dynamic numbers which put the rate at 27% inclusive / 36% exclusive - increasing with time. Here is a recent article about that very topic Doesn't Anybody Know The Score? Morphh 02:56, 29 September 2005 (UTC)

I've made the changes discussed above. Also added the information on scoring with links, however, they do not have articles yet. I figured it would be better to create a new article on this topic. Perhaps this should be a single article that discusses both methodologies. Anyway, I added the footnote so their is some reference for the terms. Morphh 00:03, 11 October 2005 (UTC)

Predicted Major Benfits of FairTax

Help! (Since I'm obviously a newbie here,) I have a part of the article I want to write (and have), and know what it is I'm trying to say, but am having trouble saying it. Could someone go back over it on the main page and make it better (and if it's too POV, change it as well?) This was something that I had been thinking about for a while, and thought it couldn't go left unsaid if we really wanted to make this a complete article.

This is the part in question:

Predicted major benefits of FairTax

Supporters of the FairTax note various benefits, that would come from the passage of the FairTax, that have not been disputed as hotly by critics as other effects.

Manufacturing and other jobs gained

As the collected taxes turn to consumption, rather than a plethora of other taxes, the United States becomes the most tax adventageous nation to produce in, rather than Bermuda, the Cayman Islands, or other countries generally noted as tax shelters for manufacturers or other companies. Thus, it becomes cheapest for companies to do their business in the United States, rather than overseas. This would produce a rush of businesses, manufacturing plants, and other economical pluses.

Thanks for your help!Trevdna 22:34, 11 October 2005 (UTC)

I've been wanting to add something on this and the impact on import / export (trade deficit). :-) Morphh 01:33, 12 October 2005 (UTC)

I added the part I did - could you help me make it better? I don't know what your thing is about, but A)BE BOLD!, and B) I'll do what I can, if you tell me what I can do (but you'd probably do better anyway).Trevdna 03:24, 12 October 2005 (UTC)

Trevdna- I rm'ed the graf you added. Since it was logged to an anon IP addy, I didn't check the talk page for comments beforehand (remember to sign in before editing wikipedia). In any case, the economic logic in the graf was largely inaccurate. Offshore tax havens are used by companies (manufacturers, financial, and everyone in between) as a paper device. No economic output is generated in Bermuda by Tyco. When a company "moves" offshore, the only thing that moves is their coporate income tax. See transfer pricing.
Morph- I couldn't find much on FT.org's site about effects on the balance of payments. Consensus on US CA deficit is that it's due to one or more of: 1) non-US savings glut 2) US savings shortage 3) non-US investment shortage 4) foreign CBank currency manipulation. FT would likely impact only #2... however the mechanism that improves US's CA deficit through growing US savings is counter to the rest of FT logic. To whit, a rise in US savings significant enought to impact CA deficit would be due to a severe loss of confidence in the economy... drop in consumption/output, etc. Feco 03:51, 12 October 2005 (UTC)
Your assertion that reducing the savings rate would be a sign of decreased confidence in the economy doesn't jibe with what economists say. An increase in savings and investment rather than consumption can lead to further growth and more consumption: See Golden rule savings rate. The article should probably mention this somewhere, as it's one of the main arguments behind consumption taxes. Scott Ritchie 20:56, 10 December 2005 (UTC)
Read again: I don't say falling savings rate would be sign of decreased confidence. I say the opposite. The most likely driver of rising savings (which is necessary to fix CA deficit) would be falling confidence. Most golden rule theories assume ye old benevolent central planner, who is notably absent from the economy. Without him (her), it's politically difficult to force savings up when it's below the ideal, b/c rising savings equals falling consumption for the current generation. Refer to intergenerational accounting in the US to see why it's unlikely that today's voters will bite the bullet in order to benefit future generations. Feco 16:44, 11 December 2005 (UTC)
Such things don't require central planning at all, merely changes in taxation policy. Consumption taxes, for example, discourage consumption, wheras capital gains taxes discourage capital gains, a form of saving. The important thing to note about the golden rule rate is that a decrease in the consumption propensity can actually result in an increase in overall consumption, even for the current generation, due to an increased return from capital. Scott Ritchie 18:43, 11 December 2005 (UTC)
My thoughts on the trade deficit were more in line with imports and exports. By removing the embedded taxes from our goods and exporting them tax free, U.S. companies would become more competitive overseas. Imports would have the FairTax applied to them, so local U.S. companies would be on a level playing field. This would help the huge imbalance in import / export partly exasperated by our tax system disadvantaging U.S. companies. I think the point that Trevdna was trying to make was that the U.S. would become a destination for companies instead of the opposite based on our tax policy. When Chrysler and Daimler Benz merged they headquartered in Germany because the tax burden would be at least 20% higher if they were headquartered in the United States. Income tax is not the only consideration. Their is large costs in compliance and decisions that revolve around taxes. These factors result in a less competitive company. They move to where they can be most cost effective and in many cases this is not the U.S. due to our current tax system. Morphh 13:51, 12 October 2005 (UTC)
Tread carefully around your logic on imports/exports. All else equal, export volume will only rise if export price falls. Whether the rise in volume pays for itself (in terms of trade balance) depends on a lot of things. Briefly, your export volume gain (priced at 'old' prices) must exceed lost revenue on the price decline (assessed on new export volume). Feco 18:52, 12 October 2005 (UTC)

Old Price x Old Quantity = Old Revenue , New Price x New Quantity = New Revenue , New Price < Old Price , New Quantity > Old Quantity , New Price = (Old Price - Price Fall) , New Quantity = (Old Quantity + Output Gain) , Substitute: (Old Price - Price Fall) x (Old Quantity + Output Gain) = New Revenue , Simplify: OPOQ + OPOG - PFOQ - PFOG = NR , Substitute: OR - PF(NQ) + OP(OG) = NR

Overlooked the obvious... taking the 30% price decline as given, export volume increase must be close to 43% to cause gain in total export earnings. Feco 19:06, 12 October 2005 (UTC)

OP.OG > PF.NQ , OG / NQ > PF / OP , OG / (OQ + OG) > .3 , (OQ + OG) / OG > 1/.3 , (OQ/OG) > 2.3333 , OG/OQ > ~43%

Too deep - You lost me. :-) Morphh 20:25, 12 October 2005 (UTC)

hmmmm.... thinking about international pricing effects threw me in a different direction. See the next section on cross-border tax avoidance. Feco 19:07, 12 October 2005 (UTC)

This article describes some of my thoughts with regard to this. In part, I think this is one of the strongest aspects of the FairTax plan and it is discussed very little in the Wikipedia article. Globalization, Loss of American Jobs to other countries. Estimations on US Economic growth, increased investment, decreased unemployment, world tax haven. The expected impact the FairTax would have on these areas. Morphh 14:43, 21 December 2005 (UTC)

Cheat FairTax by crossing the border?

Assume I live in El Paso. I can buy a Ford for $10,000 pretax. After FT is assessed, I pay $13,000. I can cross the border into Mexico. FT is not assessed on US exports. I pay $10,000 USD-equivalent in Mexico for an identical car. I drive it back across the border. Since it's a used good, I don't think I would have to pay the tax. Likewise, the FT bill in Congress doesn't make major changes to borders and import duties, so there's no real mechanism for addressing things like this. Finally, I could always set up two companies to run the same basic system... it would allow for title to pass to a new entity as it cross the border, cementing the car's status as a used good. Feco 19:14, 12 October 2005 (UTC)

You would end up paying whatever VAT or sales tax Mexico has. U.S. Customs would get you for the Tax when you try to bring it back. I think setting up a company to do so would be tax evasion and against the law. I'll pose this question to AFFT and see what they say. Morphh 19:49, 12 October 2005 (UTC)
Nope, won't work. As an individual you'll still have to pay customs on the imported good plus sales tax. Take an internal example. If I buy a car in Georgia, but I live in South Carolina, I don't pay Georgia Sales tax on the vehicle. Instead I pay South Carolina sales tax, since it is an interstate purchase. Similarly if you bought a car in Mexico, but you live in Texas you would not pay Mexican sales tax, you would pay Texas Sales Tax (assuming you wanted to have it registered in Texas). At which time the Texas department of Revenue would also hit you with the National Sales Tax. If you set up a company to do so no taxes either way, but the moment either you or your company took RETAIL ownership of the vehicle the tax would be due in whichever state the operating company was in. Wynler 19:55, 12 October 2005 (UTC)
AFFT responce: An automobile (or any durable good, for that matter) is considered “used” and not taxable only if it meets one of the two following conditions: (1) it is already owned by a consumer for nonbusiness purposes on the day before the FairTax goes into effect, or (2) the FairTax has already been paid on the purchase of it.
So, once the FairTax goes into effect, you cannot go to Mexico and buy a Ford car and drive it back into El Paso, TX tax free. The Ford car does not meet the criteria of “used” just because you bought it and drove it into the US. As stated above, to be “used” and not taxed, the car must have had the FairTax paid on it. Back in El Paso, when you sell the Ford car so you can buy a Chevy truck, there would be no tax on it since you paid tax when you bought it. Under the FairTax, consumption is taxed only once.
The FairTax has a provision that says that the FairTax will be collected in conjunction with customs duties. The Tax will be collected when the Ford car is imported by you for use in the US. The customs folks would know that it was purchased in Mexico because you would not have a current US registration for the car. I presume that checking your vehicle registration and your driver’s license would be standard procedure at border crossings between the US and Mexico and Canada. Morphh 20:17, 12 October 2005 (UTC)

Featured Article?/ Expanding the lead section

OK, in my opinion, this article is better than many applying for peer review right about now, except for maybe two conspicious problems.

The first is that there is no picture at all, so it could not be a main page featured article. I'm looking for permission from the publishers to use an image of the FairTax Book. (If anyone has any other relevant pictures, graphs, tables, etc., those would probably go a long way.)

The second thing is that the lead section appears too short. This article is fully long enough (look at the criteria at the lead section - the article falls squarely within the 2 paragraph lead section range), and definately it. For the added paragraph, I was thinking something like so:

"Supporters of the FairTax argue that the FairTax will jump-start the economy. Critics worry that it will shift more of the tax burden towards the poor. Due to its unprecedented structure, the FairTax has been closely scrutinized[or is the article on scrutiny too "stubby" to link to?] by various people and organizations. Since it is a very novel [is this word too POV?] idea, there are many possiblities for accompanying unintended effects (positive and negative)."

Please let me know what you think on these things.--Trevdna 00:22, 28 October 2005 (UTC)

You could use the Americans for Fair Taxation logo. Here is a link where it can be retrieved. Click on one of the groups and you should see a big logo. Sorry :-), I don't really care for the added paragraph. Seems to compare two different issues and present them as the large debating issues. I'm not even sure that supporters are arguing much on the first topic as even critics in most cases feel a national sales tax would increase the economy. I'm not sure we can state the level of scrutiny the plan has received - seems POV and relative. In my view, most of the "scrutiny" has been on their own made up NRST plan and not the actually FairTax. We've done well in the article to debate the actual FairTax and not alternative modified plans. Morphh 18:20, 28 October 2005 (UTC)

Do you think that picture would work?

And further more, do you have any ideas for another paragraph (or do you think conventional wisdom should be ignored and we should have a mono-paragraph lead)? --Trevdna 06:48, 29 October 2005 (UTC)

I think the article as it stands has two key problems:
  1. It falls in the fuzzy area between purely descriptive articles (here's the legislation, here are the pro and con sides' arguments) and in-depth analytical articles (here's the legislation, here's the rationale of the pro and con sides, here's the generally accepted neutral economic facts that apply and the consequences they predict... reader, YOU look at it all and you decide). I think the article right now needs a lot more analytical content if it's going to have any anlysis at all.
  2. The macro structure of the article and the micro structure of single sections tend to reflect the he said/she said polarized nature of the debate. Careful reading shows echos of one side's argument, the other side's counter argment, the first side's couter-counter argument, etc.
I would vote against featuring this article for those two reasons. Feco 14:20, 29 October 2005 (UTC)
You're right. I can't think of a good way to remedy it, either. I've been thinkig about it for a while, but there's really nothing I can think of that wouldn't entail either cutting a lot of hard work out, or adding more hard work, which requires a skill level greater than I posess.
Does anyone have any ideas for this, as to how we can remedy the problems Feco outlined? I've thought about getting a peer review, but I realized it would be overlooking a great resource (not to mention a little offensive) not to ask you guys to help figure it out. However, if we can't think of anything to do to it, it might be helpful to get some fresh eyes on this article. I still have great enthusiasm for this article, and feel that it could definately (sooner or later) work as FA. Does anyone have any ideas??? Trevdna 17:18, 9 November 2005 (UTC)
Sounds like more work then I have time for... I'd love to help though. One section that I do think we should add is charitable contributions. It seems there are a few things that undecided politicians seem to mention when asked about the FairTax. Charity & Home mortgage interest deduction. I think these two areas should have a small subsection. We have a short piece on the Home mortgage - perhaps we can break it out from under "other". Morphh 19:25, 9 November 2005 (UTC)

Entitlements

1)The first paragraph states that monthly entitlements will go to every citizen. The reminder of the article states that entitlements will go to every household. There can be a big difference between the two. I haven't read the book. Is households correct? Then the first paragraph should be changed. But I'll leave this to someone who knows for sure.

2) if only households get entitlements, is there then a marriage penalty? (marry and/or move in together, you get less entitlement?)

In public policy discussions, the proper terminology is household, not family. An unmarried individual living alone is one household. Two unmarried individuals living together are one household. From what I understand, the subsidy will be based on federal poverty calculations, which look at household size rather than family/dependent numbers. Feco 14:11, 27 November 2005 (UTC)
I think there is currently a $1 dollar difference between two married and two single. The married end up with an extra dollar every month. So I guess you could say their was a "single" penalty but its not enough to even mention. Morphh 05:26, 28 November 2005 (UTC)

FairTax and status quo tax burden comparison

If the paragraph below is to be included, should it also have the average effective rate of the FairTax? I think the income used is around $40,000. This would put the average effective rate for the FairTax at around 12%. This paragraph gives me the impression of comparing the Average tax burden under the current system to the Maximum tax burden under the FairTax. I think that is what the sentence that was removed was trying to correct. Perhaps it can be reworded to make sense. The current paragraph: "The current tax code's complexity makes it difficult to calculate a precise percentage tax burden for an average taxpayer. Under the current tax law, the average taxpayers' direct federal tax liability is around 23% of income. The average income tax rate was 14.23% of adjusted gross income (AGI) in 2001. [9] An employee's share of payroll taxes equals 7.65% of (unadjusted) wage income." Here is the sentence that was removed. "With a FairTax 23% maximum rate and the average effective FairTax rate greatly decreased due to the monthly subsidy checks, a tax burden comparison can be examined."

A well-sourced median consumption amount would be excellent here. (Note that median is much better than mean in this case... I'm assuming that the income number referenced above is also a median number). However, a median household's consumption is only partially informative WRT effective tax rate.... since household size will effect the rebate's size, I'm not sure how it's possible to come up with an ex ante median effective tax rate. I do think it's useless to use median income figures to forecast anything relating to FairTax. Since FT is a consumption tax, income doesn't really apply. Feco 19:27, 28 November 2005 (UTC)
Sounds good - I was just thinking of taking the median income and making the statement that if they spent all available income on new goods and services it would be this effective rate. However, spending all income on new goods and services for the average income would not be the norm. Your suggestion would be more realistic. Morphh 02:33, 29 November 2005 (UTC)
I was thinking... If we did find some estimate of household consumption, it probably would not be based on new goods & services only. It would probably include all consumption. According to the US Census real median household income was $43,318 for 2003. Based on The Tax Foundation, the average income tax rate for 2003 was 11.90%. We could say something like... "In comparison, if a married couple earning $43,318 a year spent all their income on taxable goods and services, they would pay an effective FairTax rate of 12.5%." (I estimated that %) Morphh 02:19, 1 December 2005 (UTC)
The assumptions are multiplying here. I've begun to think that there's no reasonable way to come up with a median effective tax rate under FT. If I recall, there used to be a marginal to marginal comparison in the article, which is probably the best we can do here. Feco 02:27, 1 December 2005 (UTC)

Also, after all these changes we may need to review the footnote order. Morphh 05:26, 28 November 2005 (UTC)

Umm... I don't understand much of what you guys just said. I don't mean to impose a tall order, but is there any way to say what you just said, so that someone not trained in economics (namely, me) could tell what you mean? Trevdna 18:32, 1 December 2005 (UTC)

In a nutshell, it's easy to compary the statutory tax rates between income tax and FairTax. It is much more difficult to compare average (median) effective tax rates under either system. In the case of the income tax, the code's complexity means individual payers' effective rates will vary widely from their bracket-specific marginal rate. In the case of FairTax, individual payers' effective rates will rely on several factors (family size, total spending, spending allocation). Does this help? Feco 13:50, 3 December 2005 (UTC)
I'm thinking because of this, we should just remove those sentences. They seem to offer no value without comparing it to the FairTax. A little tough as I know both I and Feco worked on that piece but it just seems to make sense to me to remove it. Morphh 02:57, 5 December 2005 (UTC)

Effects on tax code compliance

FairTax supporters state that underground or illegal economic activity is largely untaxed under the current tax system. Economists estimate that the underground economy in the United States exceeds $1 trillion annually. By imposing a sales tax, underground economic activity will be taxed when proceeds from such activity are spent on legal consumption. For example, the sale of illegal narcotics will remain untaxed, but drug dealers will face taxation when they use drug proceeds to buy food, clothing and cars.
FairTax supporters' own logic, however, states that the cost of some taxes are already included in domestic retail prices which are inflated to recoup from the consumer businesses' tax and compliance costs. This reasoning suggests that the FairTax will only partially change the taxation of the underground economy on domestic goods and services. The FairTax will replace tax costs embedded in those domestic retail prices with a visible sales tax. In doing so, FairTax supporters state the underground economy will be paying their share of otherwise uncollected income and payroll taxes.

I have italicized a portion that doesn't make sense to me. How is that relevant to the section? Embedding the costs of taxes into prices doesn't matter when we're talking about the underground economy that isn't paying taxes (and therefore no embedding is occuring.) Also, how does the reasoning suggest this? Whose point of view is this?

That whole second paragraph is a bit iffy. Some of it is redundant with earlier sections. I think I'll just replace it by changing that last sentence and merging it with the first paragraph. Scott Ritchie 13:34, 10 December 2005 (UTC)


Here's the logic. (I'm aided by the fact that I recall the discussion that produced the graf): AFT says that retail prices currently reflect all taxes other than personal income taxes and individuals' share of payroll taxes. By elminating all those other taxes, retail prices should drop roughly 25% from their current position. This drop is due to all the embedded taxes falling out. FT will stick a new 30% tax on the top of the new, reduced base pricing. This raises prices back to the original level. So the licit consumption of criminals (clothes, food, cars) will be going to the same goods at the same prices. If they were paying for the implit taxes under the old regime, they're paying the explicit taxes under the new one. Thus, FT does nothing to increase the rate of uptake on illegal economic activity. In a nutshell, this argument tries to force AFT's logic to be internally consistent. Feco 14:49, 10 December 2005 (UTC)

Your missing all the complaince cost in that estimation (500 billion). I also believe it is an average of 22% embedded taxes. Morphh 16:00, 10 December 2005 (UTC)
The percentage numbers can be tweaked as necessary, the underlying point is valid. Stating that FT will recapture large chunks of the underground economy ignores the fact that embedded taxes are already capturing a chunk when underground money is spent legally. I'm not sure how compliance costs fit into the picture... right now, criminals are repaying corporations for their compliance costs... in theory it's netting to zero as a different bucket of money... nothing spills over to the repayment-for-taxes bucket. Feco 16:38, 10 December 2005 (UTC)
Sorry, but this still sounds like original research to me. It also sounds wrong. If you have a person paying income tax AND embedded taxes as well as a person paying only embedded taxes, then switch it so that all income/embedded taxes are replaced with the FairTax, there absolutely has to be an increase in the burden born by the person not paying income tax. You're right that people in the underground economy (drug dealers, etc.) are paying a share of the embedded tax burden as though they were in the legal economy, but both FairTax proponents and detractors agree that this isn't the only burden in the economy - there's an income tax, too. Scott Ritchie 20:49, 10 December 2005 (UTC)
There's plenty of room to wiggle on the details... the point remains valid. Stating that FT will significantly increase the tax capture of underground economic activity contradicts the logic that FT will effect no change on final retail prices. It's true the the underground economy doesn't pay income taxes now, but there will be no income taxes under FT. If FT shifts the tax burden on to higher consuming individuals, you have to assume that participants in the underground economy are relatively higher-spending retail consumers on average before you can say they will pick up more of the total tax burden than they do now. So how does one hypothetically break down your average drug kingpin's purchases between business and pleasure? I don't think there's any way to realistically analyze how FT will affect the underground economy's share of tax burden. It's too complex of an issue. Feco 16:16, 11 December 2005 (UTC)
Perhaps an example can make this clearer for you: A drug dealer currently makes 100k in income, and an electrician makes 130k. If the electrician pays 30k in combined income/payroll taxes and the drug dealer pays 0, then they both ahve the same after income-tax income (100k). If they both have the same propensity to save and consume, they'll be paying an equivalent amount of embedded retail taxes. If, for instance, they spend 80k on consumption and embedded tax costs represent 10% of sales*, they both effectively pay 8k in retail taxes; this makes the drug dealer have a total tax burden of 8k, and the electrician 30+8=38k.
Now, if we implement the FairTax and replace that 10% consumer-faced embedded sales tax, the producer's s share of the embedded tax, and the income/payroll share of the tax, things change. Most noticably, the electrician has 125k in after-income tax income, wheras the drug dealer still has only 100k. If we set a revenue-neutral FairTax rate, we'll need to collect 38+8=46k in taxes. This means a FairTax rate of over 10%, meaning an increased burden on the drug dealer, an increase in real income on the part of the electrician, and, yes, an increase in retail prices (though the electrician has gained more purchasing power, and can thus consume more goods inspite of the higher prices). The end result of this policy was to shift some of the drug dealer's consumption to the electrician, without changing the productivity of the economy (or the amount of inflation).
This is, however, ignoring the reduction in compliance costs, an important (though not essential) argument of FairTax proponents. This example only addressed the portion of the embedded tax born by the consumer that ended up in the government's hands; there's a significant chunk born by both the consumer and the retailer that isn't being returned as tax revenue to the government, as it's merely a cost. Removal of this cost is an equivalent of technology growth, which results in lower prices to counterract the increase. Since we have the same amount of real purchasing power before considering these costs, such a reduction in price would mean GDP growth through the technology growth. Scott Ritchie 19:10, 11 December 2005 (UTC)
I still don't get the relevancy of the example. FT proponents believe retail prices will be roughly unchanged. The embedded compliance costs are estimated at $500 billion, or 6.1% of 2004 PCE (this assumes all compliance costs are passed fully to retail consumers, ignoring demand elasticity). If prices are rougly unchanged when all is said and done, prices must fall by 6% (compliance costs) and 17% (embedded taxes) to a new base. Prices then rise 30% off of that new base as FT is added, leaving a net change of zero. (1 - 23%) of $1.30 is $1.00. 130% of $1.00 is $1.30. Since the government captures the money freed by elimination of compliance costs, it's debatable how to analyze it. Consumers (as opposed to earners) bear a much higher share than the 10% example you provided. Again, there's room to argue about the exact details, but it's misleading to say imposition of FT will shift significant new tax burden onto the underground economy. Regarding the analogy with technology, the removal of dead-weight costs doesn't have any effect on productivity. Feco 01:16, 13 December 2005 (UTC)

Standard deduction & mortgage interest

The analysis of mortgage interest deduction utilization needs to be sliced better. We're only interested in the filings of those taxpayers who own their own homes. In a perfect world, we could get the IRS data with adjustments for married filing jointly and separately distortion. [3] says 37 million payers claimed mortgage interest deduction in 2002. [4] says there were 70 million owner-occupied housing units in 2000. Granted the data are dirty, but the proportions should be roughly accurate. Ideally, the treatment in the article should be something like X percent of filers eligible to claim the mortgage interest deduction did so. We don't have access to data necessary to come up with the X%, and I've been unable to find mention of such a calculation online. But the current construction "Most don't take the deduction..." is misleading in the context. Feco 14:39, 10 December 2005 (UTC)

In addition, the elimination of preferential deductibility will only affect the housing market going forward. The effect on seasoned mortgages doesn't really matter, because most holders of seasoned mortgages are likely to keep their current home for the foreseeable future. They're not affecting the housing market. I think the figure of relevance is the proportion of new (<5 years) mortgages held by those who take the deduction. My guess is it would be upwards of 70%. Also consider the proportion of ARMs in that group. Assuming that today's new buyers are like yesterday's new buyers, the loss of mortgage deductibiliby would pull a significant amount of money out of the market. It effectively raises the cost of housing (an overall negative income effect) while shifting spending away from housing towards everything else (substitution effect). Feco 14:57, 10 December 2005 (UTC)

Way way WAY too many external links

Someone really needs to trim down the external links section. There are far too many that only cursorily mention the FairTax. Wikipedia is not a place for a list of endorsements. Scott Ritchie 14:30, 10 December 2005 (UTC)

I agree that the article sections should be removed. New articles come out every day. I guess I see the point as external reference articles but you could fill up page with such links if desired. I do see some value in the Associations but perhaps this can be performed in another manner. Morphh 21:08, 29 December 2005 (UTC)

Charitable Giving

Feco wrote "what's the mechanism fm. GDP to giving... G? C? I? NX? or DPI net C,S? Even taking GDP growth as true, it's non-sequitur to assume automatic growth in giving" in response to removing "Since the FairTax would encourage GDP growth, supports argue that charitable giving will increase under the FairTax." The line right before it states that "FairTax advocates state that total philanthropy as a percentage of GDP has held steady at around 2% for at least two decades regardless of changes in income tax deductibility." Opponents tend to argue that the FairTax will decrease charitable giving by removing the social engineer aspects of the deduction. However, based on this historical information charitable giving holds to around 2% of GDP. This is not an assumption of growth in giving - its historical fact. This is the mechanism fm GDP to giving. Regardless of deduction incentives and changes over the years, giving trends GDP. Therefor, a boost in the GDP growth rate will subsequently be followed with an increase in charitable giving. That is what this sentence is trying to state and it states that it is a supporter's POV. Morphh 15:53, 10 December 2005 (UTC)

If the 2% figure holds, there should be a high Coefficient of determination (Correlation) between nominal GDP and nominal charitable giving. I can get GDP data from www.bea.gov, but I haven't been able to find a decent multi-year sample of total charitable donations. Based on what I've read here [5], I think there needs to be better quantification of the predicition. Excerpts from arnova:
  • Since 1998, charitable giving has been 2 percent or more of gross domestic product (GDP) following more than two decades below that mark. For 2003, total contributions are estimated to be 2.2 percent of GDP. The all-time high was 2.3 percent of GDP in 2000. Relative upward shift in giving at a time when GDP growth slowed to zero and dipped into recession... should be opposite
  • Bequest gifts represent 9.0 percent of the 2003 total estimated giving. The increase is surprising because of concerns raised about lower bequests as the estate tax started phasing out in 2001. It occurred because charitable bequests increased in value as household net worth rose by an estimated 6.9 percent (4.3 percent adjusted for inflation) in 2003 and because of the distribution of some very large estates. A few issues in here... wealth vs. income effects, and skewing due to outliers... also effects of the estate tax.

I'm not comfortable with using a historical percentage of around 2% (assuming flucutations from 1.75% to 2.25%, that's a huge range of variation) to forecast the future. The statement needs to be strongly qualified in its current form unless backup can be provided. Feco 16:34, 10 December 2005 (UTC)

I'll see what I can find to help qualify it. The intent was to show that raising income growth has more to do with boosting charitable contributions than tax incentives. Morphh 18:04, 10 December 2005 (UTC)
There has to be some mechanism. If charitible giving is primarily due to income, you'd look at disposable personal income. If giving is due to wealth, you'd look at net household wealth. Both of those figures won't necessarily grow at the same rate as GDP. And there's still the breakdown between personal giving and corporate giving. Until there's some firmer evidence than the "around 2% of GDP" stat, I'll pull the sentence in question. Feco 16:23, 11 December 2005 (UTC)
I'm not sure I understand why it is important to break down the mechanics of charitable giving. Why is the presented GDP statistics not acceptable evidence? I find many articles on total philanthropy as a % of GDP but I haven't found where they break it down. I'd even be fine with removing the 2% figure and just saying that philanthropy historically trends GDP. This seems to be the common consensus. Morphh 18:54, 12 December 2005 (UTC)
We can't tell if philanthropy trends GDP. Based on the article I linked above, I know giving swung from somewhere below 2% to 2.3% in 2000 (at minimum a 15% change in less than 5 years). I don't know what the downside swing range is. We don't know the time frame used. There's no mechanism that translates GDP directly into donations. There are mechanisms that translate personal income and household wealth into donations (writing checks and creating endowments). If there's any useful predictive relationship, it can be quantified. If there's no predictive relationship, it's purely speculation. Feco 01:24, 13 December 2005 (UTC)
While I have not had the time to completely read it yet, I believe this article may provide some of the details we're looking for. At the least, it describes the basis for the sentence. I have a book that says "over the past 23 years, giving as a share of personal income has hovered around 1.83%. This measure reached as high as 1.95% (in 1989) and as low as 1.71% (in 1985, the year before non-itemizers' ability to deduct charitable contributions was permitted). The narrow range has persisted even through the top marginal rate has fluctuated in that period between 28 and 70%." It goes on to quote the average 2% of GDP figure. Morphh 02:35, 13 December 2005 (UTC)

Savings, investment and welfare; incentive effects

Why does the section on Savings and investment and welfare keep getting deleted. Niether are POV, and both are factual. By not taxing savings and investment you encourage savings and investment. By offering payments with no regard to an income cap you provide no incentive to cease ones earnings to maximize payments from the government. These are facts. Why do they get deleted from the unintended consequences?

(Gibby 08:34, 11 December 2005 (UTC))

Perhaps they are intended consequences. :-) Personally I think welfare may be a strong word with regard to this situation. This is the government giving you back your money. I define welfare around giving you somebody else's money. Perhaps a better title would be something like "Saving, investment & productivity incentives". The FairTax is intended to be revenue neutral and will continue to fund today's social programs. Government spending is another battle. Morphh 13:12, 11 December 2005 (UTC)
Morphh has one part right: the removal of taxes on saving is directly written into the law as an intended effect. Precisely, the bill penalizes taxable consumption, thus favoring tax-exempt consumption and saving. Guessing how people will allocate current income between the three choices (S, Ct, Cxt) is hard to do. It's also hard to figure how expectations of taxes on future spending out of savings will alter behavior. Again, there's no way to quickly summarize the effects of FT on such a complicated system. Regarding welfare, FT has nothing to do with it. Based on the figures in the article, a single-member household will get ~$2000 as a tax refund over the course of one year. This is far below the minimum required to live, even if they were keeping all of that refund. Thus, true welfare programs would have to continue, and FT has no effect on those programs' (dis)incentives to work. Feco 16:34, 11 December 2005 (UTC)

Fair enough guys, glad to hear your views and understand where you are coming from (Gibby 18:01, 11 December 2005 (UTC))

Let's be careful here, and not confuse welfare programs with consumer welfare. We may want to describe the FairTax's impact on both in the article. Scott Ritchie 18:17, 11 December 2005 (UTC)

Progressive/regressive language

I'm not comfortable with the use of progressive and regressive regarding a consumption tax. Those terms apply to income distribution. Income distribution doesn't map directly to consumption distribution. Here are the items that bother me:

  1. "This entitlement payment is meant to ensure that Americans have effectively no net tax burden for spending on necessities up to a limit equal to the federal poverty level and further make the overall policy effectively progressive in nature."
  2. Much of the body graf in the "Effects on distribution of tax burden" section.
  3. The one-sentence section under "Eliminates regressive nature of the Payroll Tax".

I have some ideas for what I would like to see done with those sections, but I'm curious if anyone else has similar concerns over the progressive/regressive terminology. I'll give this a day or so before I post my thoughts. Feco 16:59, 11 December 2005 (UTC)

I understand your concern. Politions, advocates, & opponents use this terminology in debating the FairTax so I think we have to apply it in those terms. There is some historical discussion on this topic in the talk under "Effects on distribution of tax burden" Morphh 18:02, 11 December 2005 (UTC)
Factually speaking, critics of a consumption tax declare them to be regressive. IN the spirit of making the FairTax a passable law it had to be revenue neutral...and they knew they had to overcome the stigma of regressive taxation. That is why they implemented the prebate. That is why social security is paid from general revenues rather than a (factually) regressive payroll tax. (Gibby 18:04, 11 December 2005 (UTC))
Income distribution doesn't map 1:1 with consumption distribution, however that doesn't stop usage of the terms progressive and regressive from applying. It all depends on the particular group's marginal propensity to consume. You'll frequently find people criticizing sales taxes as regressive, for instance, while by the same logic the FairTax must be progressive. There is an interesting caveat, however, that we may want to mention: while the FairTax is progressive over the majority of income ranges (in particular the low and mid income ranges), the progressivity/regressivity becomes less determinate as the prebate becomes less significant. As an example, if we compare someone with an income of 2 million to someone with an income of 3 million dollars, the prebate is only about 1% of their tax burden, so a very small change in marginal propensity to consume might alter the progressivity/regressivity. This only applies, however, to the super wealthy. Scott Ritchie 18:12, 11 December 2005 (UTC)

Part of 'other indirect effects'

Several subsections under 'other indirect effects' seem out of place now that they have been stripped of their bullet points. These two stick out most especially at me:

State and local government debt

States and municipalities would see their cost of debt increase. Currently, the federal income tax system provides tax advantages to state and local government bonds. Specifically, the interest paid on such securities is exempt from federal taxation. This tax discount allows state and local governments to issue debt at low yields, which reduces their interest costs. By eliminating income taxes, FairTax removes the tax advantage of holding state and local bonds. Issuers would have to offer higher interest rates to attract investors.

This seems very much like original research. Does anyone agree/disagree with me? If it isn't originbal research, can anyone give me a verifiable source? If it is, I don't think there will be any alternative to deletion. --Trevdna 18:06, 12 December 2005 (UTC)

Real interest rates

John Golob, formerly of the Federal Reserve Bank of Kansas City, analyzed several different tax reform proposals in the 1990s. Some of his conclusions can be applied to FairTax. Golob concluded that replacement of personal and corporate income taxation with consumption taxes would lower interest rates by approximately one-fourth. If rates were 4% before the change, they would be around 3% afterwards.

This seems awkwardly placed - should it be moved or merged somewhere else (predicted benefits anybody?) --Trevdna 18:06, 12 December 2005 (UTC)

Come to think of it, should this one also be moved/merged as well?

Eliminates regressive nature of the Payroll Tax

The current payroll tax only taxes the first $90,000 of income from wages, and none earned from capital investments or interest, making it a regressive tax. Under the FairTax, it would be eliminated.?

--Trevdna 18:38, 12 December 2005 (UTC)

  1. sigh...: Municipal_bond#Comparison_to_corporate_bonds. Even better [6]. WP:AGF
  2. perhaps all of the Golob conclusions on money and capital markets should have their own section, provided both the good and bad is included. There's a link to his PDF on the talk page or in talk archives.
  3. elimination of payroll taxes is a direct effect (not an indirect one). Does analysis of payroll taxes' progressivity belong in this article, or in their article?

Feco 01:31, 13 December 2005 (UTC)

Which article is "their article"? --Trevdna 18:06, 22 December 2005 (UTC)

POV Check Tag

I removed the POV Check Tag added by 68.60.6.235 at 03:48 on 15 January 2006. It is required by this tag that a post be made in the talk explaining the reasons why you believe this article does not comply with Wikipedia's neutral point of view policy. It would be proper courtesy to post ahead of time in the talk to allow editors to make corrections to the article, dispute your suggestion, or concur with the tags placement. Morphh 14:14, 15 January 2006 (UTC)

New 'criticism and controversy' section?

It occurs to me this article may work better if we had a new section, titled 'criticism and controversy' beneath the 'predicted benefits' section, for several reasons:

  1. It would reduce any POV problems people have with it, and go a long way toward making this a totally fair and balanced article.
  2. It could improve article structure and layout drastically.

Please discuss. --Trevdna 15:14, 17 January 2006 (UTC)

THere really isnt any POV...but I say yes to the criticism page or section, I think hearing all sides of the debate is positive. Not to mention the criticism of the Fair Tax is absolutly rediculous! ^_^ (Gibby 17:31, 17 January 2006 (UTC))

I'm fine with such an addition if it, like the 'Predicted benefits', is not really discussed elsewhere in the article. Currently most of the criticism is included in the topic of discussion. Even the predicted benefits section has some criticisms included. I also think we should stay away from a philosophy discussion of politics if possible which some criticism may stem from. I'm not for restating all the criticisms with substance in a single section if they are already discussed elsewhere with both views presented. I would be for moving the current topics of 'State and local government debt', 'Financial Markets', & 'Effect on law enforcement and crime' into such a section. These are largely criticisms with little rebuttal. Perhaps a generic paragraph at the top reflecting the main common criticisms with links to the section discussing it. Then have subsections below (like those above) that are not discussed further in the article. Morphh 18:54, 17 January 2006 (UTC)

Disagree- There may be a weak case for subjective criticism of the entire proposal to go in its own space. For example, an assertion that the plan is unfair b/c it shifts tax burden to lower-income households. However, critical analysis of the proposal itself should go in the main body of the article as appropriate. Likewise, counter-analysis of factual and statistical data should go right beside the original analysis. Finally, identifications of "cherry-picking" favorable facts from third-party sources (by both pro- and anti- sides; see the Golob and Gale cites as an example) must be called out. Feco 01:19, 18 January 2006 (UTC)

You make a good point, Feco. Looking back over the article, it does look pretty well documented as is. It was just an idea, and I'm pretty convinced it wouldn't be a good one.--Trevdna 19:12, 18 January 2006 (UTC)
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