Fair Tax

Surely, you’ve heard of the fair tax.  It’s big in libertarian circles and in many conservative ones as well.  It is an initiative to replace federal income tax with a federal sales tax.  Proponents say that it taxes wealth, that it is progressive on consumption.  A “prebate” would be paid up to the poverty level to compensate the poor.

I have a few problems with it however.

On the surface, it sounds like a great idea.  Think about it, you get a check to pay for the tax up to the poverty level, and if you spend more, you pay more tax.  Buy a Kia, and you pay Kia tax, buy a Bugatti and you pay Bugatti tax.  But it’s not really progressive on consumption is it?   A progressive tax is one that is greater on greater amounts of money.  A properly instituted progressive tax is the only truly “fair” tax.  The “Fair Tax” is a constant 33% tax, and no matter how much you spend, a regressive tax (one that is more advantageous to the wealthy because they have a much greater amount of money to pay it) still is inequitably applied to those less able to afford it.

Let’s take a few minutes to understand the differences between progressive and regressive taxes.  Let’s make up a few people, some hypothetical circumstances, and use them to understand this issue.  They will all live in Oregon so there aren’t additional sales taxes to bother with calculating.

Person A, we’ll call him Abe, is a low wage earner.  He graduated high school but was unable to attend college and now works delivering Xerox copy machine supplies for 25,000 a year.  Scrimping and saving and being a good steward of his money, he is able to fully fund his Roth IRA with $5000 every year.  The current federal poverty level is $11,000 and under the “Fair Tax” plan, he would receive a prebate for the tax he spent on buying stuff with that money.  He spends $5000 per year on rent and various non-taxed payments and spends the remaining money on what he needs to survive.  The money he has to pay taxes in is thus $4000.  With the “Fair Tax” he will spend $23 out of every $100 spent on sales tax and will be paying $920 in taxes.  That figures to be 3.7% of his income.

Person B we will call Bill.  He is an engineer and makes $100,000 a year.  He fully funds his Roth IRA, spends $25,000 on his house which he is buying and will own and on other non-taxed stuff.  He is also able to invest $10,000 which yields a return of 10%.  Like Abe, he doesn’t have to pay taxes on that $11,000 and so he has to pay taxes on $49,000.  Thus he pays a total of $11,270 in tax, 11.3% of his income.

Person C, Cal does pretty well.  He is a CEO of a company and makes 1,000,000.  He lives reasonably and invests 500,000 at a rate of 10% return.  He spends another $200,000 on things that aren’t taxed leaving $300,000 in taxed expenditures.  He will pay $69000 in tax, 6.9% of his income.

Person D, Don does really well.  He is one of those Wall Street CEO’s you hear about and he makes 50,000,000 a year.  He is able to live on about 10% of that a year and the rest is reinvested at a rate of 10%.  He pays tax on that 10% of his income that is spent and will pay $1,150,000 in tax, 2.3% of his income.  As you can see, if Don chose to, he could stop working altogether and live on the returns from his investments at his current level of comfort.

Finally I will tell you about Person E, Ed.  He founded a software company that went huge and he now makes a sh!t ton of money.  He makes 10,000,000,000 but he only lives on $100,000,000 of it in lavish opulent wealth.  He pays 23,000,000 in tax, 0.23% of his income.  Because he is able to invest so much, he gets $900,000,000 from the investments he made last year, increasing his income to 10,900,000,000, and his actual tax rate is 0.21%.

Do you see where this is going?  The more you make, the less of it you need to live on.  I could make a billion dollars a year and still live in my same house and drive my same motorcycle.  I could not do that when I was working for Xerox.  Yes, the poor get a better deal under the “Fair Tax” because they make less, but the poor currently pay virtually no tax, and in truth often get Earned Income Tax Credits.  The “Fair Tax” wants to tax them.  It places a burden upon them they already can’t carry.  I know I didn’t include it, but the rich guys still get the prebates like everyone else!

Regressive taxes work that way.  As you may have picked up in this analysis, high earners can also afford to invest a large amount of their money and through that earn even more.  I can’t do that, I have to spend a quite large fraction of my family income on a house and cars to get to work and school and food, and speaking of school, I have tens of thousands of dollars in student loans still out there.  By the time I graduate, I’m basically going to be a house and a half in debt.

With a single sales tax rate, you can’t make this tax progressive in the long run.  Even if you jacked the “poverty level” up to $100,000, it would still be a boon for the ultra-rich.  Consider this also:  the “Fair Tax” is supposed to increase the rate of investment.  Who benefits the most from increased rates of investment?  A related question: Who would benefit the most from the privatization of Social Security?  The Wall Street people benefit, the ones who already have vast amounts of money and like to play with it in ways detrimental to all of us.  Either way, they win, commoners lose, the middle class pays more money and bears the burden.  Just like today, the tax rate for capital gains is only 15%.  Who makes the most in capital gains but the ones who have capital, the wealthy.  It’s another system, a gift of the Bush Tax Cuts, which empowers the rich to concentrate wealth and allow them to get out the door without paying their tab.  It truly is “redistribution of wealth”.  But the wealth is going upward.

A properly instituted progressive income tax is the only logical solution.  Consider the great age of our country.  The greatest time for the advancement of civil rights, the greatest time for the advancement of workers rights, the creation of social security, Medicare, the EPA and all of that good stuff.  During that time, the top marginal tax rate was between 70-90%!

Libertarian ideas work in a window.  I’ve said that before.  And you must realize, this is a libertarian idea, and it does work, but only in a small window.  That window reaches up to a million dollars or so and down to a few tens of thousand.  But like other libertarian ideas, if you’re on the low end of the hill, the system works against you, and if you are on the top of the hill, the system works in favor of you.  A properly balanced system will work FOR you.

Be concerned about who pushes ideas.  This is not a bi-partisan idea.  This is a conservative libertarian republican idea.  It benefits the insanely wealthy the most, and the commoner the least.  Most right wing ideas do.

Finally, I’m not gonna tear down an idea without offering one in its place.  It’s a modern version of what we had in the 50’s, 60’s, and 70’s. 

The amount of tax on the amount of money made below the state poverty level is tax free. 

The money made between that and 40,000 is taxed at 10%.  The amount made between 40k and 60k is taxed at 15%. 

The amount made between 60k and 80k is taxed at 20%. 

The amount between $80k and 100k is taxed at 25%. 

The amount between $100,000 and $250,000 is taxed at 30%. 

Between 250k and $1M is taxed at 50 %. 

Between $1million and $2 million is taxed at 60 %.  Between $2 million and 100 million is taxed at 75%. 

Finally, the amount above $1 billion is taxed at 90%. 

Additionally, there is no distinction made between earned income and capital gains.  It counts for total income, anything that you get during the year that you didn’t have at the beginning of the year.

This plan represents a pretty decent tax break for anyone making less than $250,000 which is in line with Obama’s current plans, and sets a truly progressive tax system which will make our system work again like the libertarians want it to work now.  It’s not that I think they are lying and want to destroy our economy, I really think they have the best interests of the country at heart, they are simply fundamentally mistaken about the results of their plans.

Now don’t take this as gospel truth, I definitely plan on revising this in the future and making and spreadsheet and all that, but this is just something to show you in which direction we should be going, and how to get to a place where you really can rise above if you put your mind to it.  

Remember, it is far better to make a billion dollars at 90% tax than it is to make 100,000 at 10%.  Higher taxes on the rich is not punishing them for making more money, it’s requiring them to pay for their footprint in the world. 

Equal is regressive.  Equitable is progressive.  The “Fair Tax” is not fair.

WiredForStereo

Yes Yes YES!!!!

Now this is what I voted for! Obama's tax plan may come to fruition.

Remember the campaign promises, lower the taxes on people who make less then 200 grand, and raise taxes on those who make more than 250.

This begins to undo the damage that Bush did with his tax cuts for the rich, and is hopefully on the way to undoing the damage that the Reagan tax cuts did. Remember before Reagan, the top marginal tax bracket was taxed somewhere on the order of 70%.

The good and bad: Obama may have trouble getting reelected if he raises taxes, the Republicans have this habit of duping the commoners into believing that tax cuts for the rich are a good thing. However, with the economic problems following the Bush years of tax cuts, people are seeing the problems. Jon Stewart is pointing out the hypocrisy in it. We all know Jon Stewart has more pull any of the other talking heads.

Hopefully, this will restart the trend that followed the Great Depression. The have nots realized that the key was taxing more the people who have more money. That tax policy is what made America great, and the reversal of that policy is what made America what it is today, just good. I hate to use the "S" word, but the best tax policy is one that leans just a bit more in the social direction.

And for those of you who use the word "capitalism" too much, remember, this country was founded on the principles of democratic rule, not capitalism. Don't confuse the two. Capitalism is not what makes our country great.

WiredForStereo

“We Want Another Reagan Conservative! What? No We Don’t." A Treatment on Taxes and Other Money Stuff.

Ignore political and conservative biases for a minute, we are gonna try to work this out using simple logic. The Facts as I see them are these.

The United States is neck deep in national debt. None of our thinking citizens wants this.

Many conservatives favor stuff called supply side economics, or Reaganomics, or basically tax cuts for the rich to make more money.

The gap between rich and poor widens.

Celebrity worship and greed fueled a now bursting housing bubble.

Government spends too much money, much of which is wasted.

I’d like to say first of all that I am not one of those dorky single guys that live at home with their mom. I live 2200 miles from my mom. I don’t sleep between Star Wars sheets, I don’t own a video game younger than ten years old. I have two associates degrees and a job. My wife has two bachelors degrees and a job. While I work only part time, my wife and I are paid adequately for the specialties we both have. I’m not trying to brag here. I am just trying to say that I understand fully what it takes to make a life. I am not some moron whose mouth runneth over and has no idea what they are talking about.

On the other hand, guys who come up with supply side economics are guys who have degrees in Political Science. That’s right, not economics, not math, they are fully equipped to be politicians. A few definitions should follow. Supply side economics is essentially the belief that if you make incentive to produce products by lowering taxes on the producers, you will get enhanced economy as a result. It is really saying “we’ll let you keep more of your money, so you should invest it so you can make even more money which we’ll then take our share of.” The past two double term republican presidencies have been big into this, also recessions. The basic problem is this: If you give someone more money, chances are, they’ll just want more money. More money is usually gotten by laying off people, paying people less, and moving production over seas, and likely a combination of all three. If all the money moves overseas, then we don’t get any of it.

We poor people (read “middle class”) don’t understand this. Why? Because it doesn’t make any sense. If you want more money, you take more taxes. The reason why the conservatives tell us that it is working is they cut taxes in one area, then look at all revenues to see the result. Sure, the US is taking in more money than ever before, but it is not coming from the area where they cut taxes, which as you might imagine is bringing in less money. It makes sense. It’s like saying “I’ll plant less corn in the garden this year” and then taking the gross weight of the production of the whole garden and then saying “Wow, look at all the new corn we have by planting less.” You aren’t making more corn. You are making less. The difference is, you can distinguish corn from peas, dollars all look the same. So when a politician tells you there are more dollars, you automatically think, “Well, I don’t understand it, but it seems to be working!” Additionally, it doesn’t matter that we are taking in more money than ever, we are also more in debt than ever, go figure.

I have a friend in our church small group who always brings up the “punishing productivity” argument whenever we have this discussion. He says that keeping taxes high on the rich punishes them for working hard and making more money. Since we are making sense today, I’ll admit, that does make a little sense, but only a little. However, every dollar has two sides. If you lower taxes on the ones who can afford it, you punish those who cannot. What it says is “Oh, you have money, here, have some more,” and “You over there don’t have much, give me some of it.” Do you see the problem? You may be rewarding productivity, but you are punishing misfortune. Most physically hardworking families whose jobs are strenuous but not well paying are not there because they don’t work hard. They are not being supported by welfare, they are not popping out kids left and right so they can get tax rebates and welfare checks. The whole “working hard” paradigm is completely meaningless. Working hard does not equal more money. The hardest work I’ve ever done paid well less than $10 an hour, and the easiest work I’ve ever done pays more than that. What’s the difference? Education, skill, perseverance, paying dues, work ethic, opportunity, and actually enjoying the work I’m doing. I would also like to say from a spiritual perspective that giving tithe, offerings, and works of service to God makes a ton of difference as well because he is the one who makes that whole list up there possible. See the book of Malachi.

This Supply Side Economics, or Reaganomics, or Trickle Down Economics stuff is just bogus. I don’t remember who it was that said this, but it is not the rich who are owed because of their success, it is them who owe us who made them successful. You can’t get rich by yourself but you need underlings, people whose work you profit from. No one person can have the skill or more importantly time to be every employee of a multi-million dollar company. There is almost always someone profiting from someone else, and the some ones who make more money should have to pay taxes at no less a percentage rate than the person from whom they are profiting.

It is not like buying toilet paper bulk, so you actually pay less per roll. In fact it is the reverse. Let’s just assume a 10% tax because it is easy to calculate, in reality it is much higher. A person making $20,000 is not very able to pay $2,000 in taxes, while a person making $2,000,000 is very easily able to pay $200,000. In the same way, a person is more able to pay $10,000 if they make $100,000 that if they make less. It is very simple. In fact, if a person making $2,000,000 can live like a person making $100,000, which anyone can, then they can afford to pay far more. Of course, I am not suggesting that we force people who make a lot of money to live as if they don’t, but I AM suggesting that they do it themselves.

The big overriding problem above all this is the problem of people with money, oh, I mean people with our money. If the government wants to cut taxes, please do, but you must also cut spending. I don’t have any credit cards, so I really can’t spend more than I have without immediate consequences. So we live what most of us would call “within our means.” Why can’t our government do the same? All of the presidential candidates right now are proposing new spending when we already are having a deficit every year. And all the republicans are proposing tax cuts. What nonsense! All of it is nonsense!

The solution.

As far as taxation goes, I can see no better option than the Fair Tax. The more you can afford to buy, the more you can afford to pay, and there are no arbitrary percentage rates for anyone. If you buy a $20,000 car, $4,600 of that is taxes, if you want to buy a $100,000 car, $23,000 is taxes. So simple. Please, buy a $10,000,000 house, we need the $2.3 million in tax revenues. It works everywhere. If all you can afford is a $2 box of macaroni, then all the tax you’d pay is $.46, but if you want a $40 steak meal, then you pay $9.20. It is just like giving a tip, only slightly more than we would often give, but hey, it’s taxes! I know it is hard to really work out the math, but, you must stop to calculate that the value of money will be different. If you were to make $40,000 a year, right now, that is something like $28,000 after taxes. With the Fair Tax, if you were to make $40,000 a year, you would be making $40,000 a year. Wow, that was easy, and there wasn’t any stress in April.

Tax this!

WiredForStereo