Good Name

My roommate Kriston Capps is having some difficulty explaining to his parents why the Fair Tax is not, in fact, fair. I think the talking point you want to hit here has to do with the effects of excluding savings and investment from taxation. Under the fair tax, Paris Hilton's maid winds up paying a bigger proportion of her income in taxes than does Paris Hilton. People who can afford giant mansions aren't going to pay 30 percent on that, people who can afford full-tuition for their kids at fancy private universities aren't going to pay 30 percent on that, people aren't going to pay 30 percent on their European vacations, they're not paying 30 percent on what they pay their maid or their gardner.

But ordinary people are going to see the price of everything they buy at the grocery store go up.

Comments

Plus, no middle-class worker pays anything like 30% in income taxes right now.

Posted by tree, | January 8, 2008 12:53 PM

You also have to pay tax on loan interest (including your mortgage).

They will have pay 30% on their giant mansions if they buy them new, but not used.

Of course Paris Hilton pays a smaller portion of her income now than does her maid, thanks to capital gains taxes being so low.

It's also worth pointing out that a 30% rate will leave us with a yearly national deficit in the range of a trillion dollars.

Posted by Anonymous | January 8, 2008 12:54 PM

tree, basically all middle-class workers pay 30% or more when payroll taxes are factored in.

Posted by Anonymous | January 8, 2008 12:59 PM

Re "Fair" Tax,

Isn't there some rule of politics that says the more nefarious the legislation, the more noble a name is pinned on it?

See, e.g, the "Patriot" Act.

Posted by Don Williams | January 8, 2008 1:01 PM

Wait, your roommate writes a blog called Grammar Police and you still have that many typos?

Posted by DG | January 8, 2008 1:03 PM

It's a massive tax hike on 80% of middle class working Americans, and a massive tax cut for the wealthiest Americans.

What's fair about that?

It'd also be interesting to see the geographic distribution of who would pay more more and who would pay less. I'm willing to bet that urban enclaves (full of very rich and very poor), as well as well-known rich enclaves would see their taxes cut, while places like New Hampshire, Maine, West Virginia, rural Montana, Missouri, Mississippi would all see their taxes go up.

Posted by anonymous | January 8, 2008 1:05 PM

Wow, it's going to be even harder to explain the Fair Wages, Fair Doctorin', and Fair Executions plans.

Posted by El Cid | January 8, 2008 1:05 PM

basically all middle-class workers pay 30% or more when payroll taxes are factored in.

But the "Fair Tax" is only supposed to replace the income tax, right? Thus, middle class folks would be paying 30% on all purchases, PLUS payroll taxes.

Either that, or this plan involves stripping social security and Medicare of their dedicated revenue streams AND running a gazillion dollar annual deficit, thus making it the objectively stupidest idea in human history.

Matt, I think Kriston's going to have a hard time getting across just how bad of an idea this is in academic economist terms. I think it's better to paint a bleak, dystopian portrait of national insolvency, black markets, Canadian smugglers selling flat-screen TVs and prescription drugs out of the backs of trucks, the military holding bake sales, senior citizens on fixed incomes resorting to prostitution to pay for their heart meds.

Mass hysteria.

Posted by LaFollette Progressive | January 8, 2008 1:10 PM

It depends on what the meaning of "fair" is.

Posted by Ron | January 8, 2008 1:11 PM

Anonymous, is the Fair Tax supposed to replace payroll taxes as well? I thought it was just income tax. Wouldn't it have to be higher than 30 percent in that case?

Posted by KCinDC | January 8, 2008 1:11 PM

My problem with it has to do with ownership shifting - those who are incorporated or with corporate ties can have all or most of their consumption paid for by the company as an expense. They will have no personal tax liability. Yet all of those wage earners will end up being the ones who end up paying taxes, because they won't have companies to absorb the ownership (and the tax liability) of their consumption. Think of poor people and old people - they will always end up paying tax on everything they buy. Compare that to the executive who has everything bought for him via 'expense account' or some such shennanigans - and will never end up owing any tax.

Posted by Ethel-to-Tilly | January 8, 2008 1:12 PM

If such a tax is ever implemented, the most popular question in the English language will become "How much if I pay cash?"

Posted by Brad L | January 8, 2008 1:13 PM

Here's something to keep in mind

According to Fair tax proponents, it simply shifts the tax from when you earn, to when you spend, and people are only taxed once per 'transaction'

However for money you've already spent time saving you end up being taxed twice on both sides of the transaction. So if you've worked your ass off for 20 years, saved $500,000, that money is suddenly only worth $300,000!

So the only way it could work is if everyone with money in the bank got reimbursed, or didn't have the pay taxes on money they spent from money they payed income taxes on.

or something.

Posted by Chad Okere | January 8, 2008 1:14 PM

Another thing that's tricky (i.e. underhanded and devious) about these schemes is that they generally get called "consumption" taxes. The implication of that word is that the fair thing to do is to tax you on what you use, i.e. "consume." The basic idea that you should be taxed for what you "use" seems fair, since the implication of "use" or "consume" is that you're taking something away from the public.

At the same time, it's easy to paint "income tax" as "the government taking away money that you earned and which is thus yours." Why should anybody, including the government, get to take away what's rightfully yours?

Otherwise reasonable people are often tricked by this formulation into thinking "you shouldn't take away my stuff, but if I'm going to be using stuff up it's reasonable that I should have to pay for it."

Back in the real world, however, "consumption" isn't using stuff up, it's powering the engine of the economy. "Fair" taxation ought to be based on how much people can afford to contribute to our shared government, and how much you can "afford" is, surprise surprise, based on how much money you earn.

Posted by Galen | January 8, 2008 1:16 PM

I tried explaining to my mom that she might consider also that President Huckabee is as likely to pass a complete revision of the tax system as he is to pass legislation to just give every American some pizza. It's, ahem, pie in the sky at best.

Posted by Kriston Capps | January 8, 2008 1:16 PM

By fair we mean "bloefully regressive." See also: payroll taxes.

Posted by norbizness | January 8, 2008 1:19 PM

In the long term, this would fuck over the rich as well (at least the CEO class) because this would reduce consumption and thus reduce the size of the economy and the cash flowing out of workers hand and into capital's and management's hands via purchases as consumers. Then again, when have Republican rich people ever looked at the long term?

Posted by Reality Man | January 8, 2008 1:19 PM

Maybe we can bring Steve Forbes back to campaign for the flat tax. It sounds similar enough to confuse the average person, they're both bullshit ideas and Steve Forbes's lack of personal charisma would suck the life out of both ideas like a black hole.

Really, if Huckabee wants to see an "Eat the Rich" moment hit American politics, this is the idea to do it.

Posted by Reality Man | January 8, 2008 1:24 PM

Under the fair tax, Paris Hilton's maid winds up paying a bigger proportion of her income in taxes than does Paris Hilton...

All those arguments can be applied to carbon, alcohol and cigarette taxes (possibly not in the specific case of Hilton, but in the case of her economic class vs. the working poor).

I'll be impressed when I see a post making the same case about those taxes.

is the Fair Tax supposed to replace payroll taxes as well? I thought it was just income tax. Wouldn't it have to be higher than 30 percent in that case?

My (limited) understanding of the Fair Tax is that, in theory, it eliminates all domestic taxation (payroll, income, corporate income, stock-related taxes, etc.) except, of course, itself.

And yes, it will have to be higher than 30 percent because too many people will try to avoid paying it.

Posted by Shinyk | January 8, 2008 1:25 PM

Hardly anybody pays as much as 30 percent of their income in total taxes, including payroll taxes. Calculate it yourself - it's easy. This is something more people should do, but hardly anybody does.

Just take the total federal income tax you paid last year (line 63 on your 2006 1040). Then add in your Social Security and Medicare taxes from your W-2 forms (boxes 4 and 6, include all W-2s in your household). This number represents the total tax you paid to the federal government. Take this number and divide it by your Adjusted Gross Income (line 37 on your 1040). This will give you the percentage of your income you paid to the federal government.

My wife and I are at a pretty high income level right now (+300K), and our percentage was around 25. If I add in my state income taxes (I live in Virginia, a high tax state), the percentage goes up to 28. I doubt very much that it has ever been over 30 - most years it has been closer to 20.

Posted by Ajax | January 8, 2008 1:26 PM

In the late 1990s, the Republican chair of the Ways & Means Committee asked the nonpartisan Joint Committee on Taxation to estimate what the sales tax rate would have to be on a national sales tax to replace other taxes. They estimated something like 50%.

The Fair Tax should be called the "Bring Back the Mafia Tax." Can you imagine how huge a black market would be if everything had a sales tax of 30%, 40% or 50% attached to it?

Can you imagine the sales tax bill on buying a house?

Posted by Joe | January 8, 2008 1:28 PM

You know what would be fair, economically sound, progressive, and awesome: the progressive consumption tax.

I don't understand why people get excited about having one tax bracket.* Brackets are the easiest thing in the tax code. The hard part is calculating what your "income" is. If all you wanted to do was to simplify it, just get rid of all the deductions and make the 0% bracket bigger.

* OK, it's because they're rich bastards and they're trying to trick us.

Posted by Chris M | January 8, 2008 1:29 PM

Kriston should just forward his mom the Bruce Bartlett analysis of what's wrong with the "Fair Tax".

Posted by Al | January 8, 2008 1:32 PM

The other confusing thing is that even the 30% number (if you use that rather than the $0.30/$1.30 = 23% figure touted by FairTax advocates) is utter horseshit. It would have to be much larger.

Posted by alkali | January 8, 2008 1:33 PM

The fair tax replaces income and payroll taxes (including the corporate side of payroll taxes). Anyone who pays an average of 15% in income taxes (about $50k for singles and $90k for couples) is actually paying more than 30% in federal taxes.

Also, the "prebate" would reduce the tax burden for those making less than $50k/$90k by a substantial amount.

So the main problem with the fair tax is not that it is a tax hike on working Americans - it isn't. The real problem with it is that is a half-trillion dollar tax cut that mostly benefits the very wealthy. The fairtaxers do some ridiculous hand-waving to claim that it is revenue neutral, but it isn't even close. To be revenue neutral it would have to be at least in the 50% range, and at that point it IS a substantial tax increase on most people.

Posted by Anonymous | January 8, 2008 1:39 PM

Perhaps we should stop using Paris Hilton as an example. Since her grandfather announced that 97% of his fortune is going to be donated to charity, she is going to have far less money in the future than she might have expected.

Posted by Vadranor | January 8, 2008 1:39 PM

One more thing to add to the discussion on fair tax vs. Paris Hilton.

If Paris starts a "non-profit" or a "charity," her hand-bags are tax-free (provided she buys them with the "Paris Hilton Center For Kids Who Can't Read Good" credit card). Inevitably the working poor pay thirty or more and the rich or well-connected (anyone who can leverage his or herself into non-profit status) pay...nothing.

I don't like taxes (or social programs), but this distribution is absurd.

Posted by Shinyk | January 8, 2008 1:45 PM

Well, it's certainly a stupid tax plan, but let's remember that Huckabee isn't exactly the world's greatest policy-wonk.

The amusing thing is that a pretty big fraction of all the (ignorant) lower/middle class Republican voters will probably vote for Huckabee, partly because of the plan, while a gigantic fraction of all the rich Republicans will do everything they possibly can to stop him, mostly because of "social" issues.

Marx was right about some things, but not all things...

Posted by RKU | January 8, 2008 1:47 PM

All those arguments can be applied to carbon, alcohol and cigarette taxes (possibly not in the specific case of Hilton, but in the case of her economic class vs. the working poor).

The regressive nature of these taxes is, indeed, mentioned.

However, as these taxes are largely designed to curb consumption (at least with cigs and carbon, and arguably with alcohol), this analogy really points out that the fair tax would be modeled after programs designed to reduce consumption. Is that really a good idea?

Posted by Brad L | January 8, 2008 1:57 PM

I was thinking about this question in the shower this morning and thought it could be pretty simple:

-Most middle class people spend most of what they make while rich people are able to invest a large portion of it. Very simply, rich people will pay less taxes than poor people.

-If you include state sales tax, you're going to be seeing sales taxes of around 40% in a lot of places. This will drive down consumption (the real engine of our economy) and/or massively increase the cash-based black market (hello criminal underworld).

-It's going to be incredibly hard to collect all the sales tax from every retailer in the country.
We already have some issues with state sales tax and federal income tax collection as it is. You would need the equivalent of the IRS on roids.

As far as the Flat tax goes:

-Most lower-middle income people would need to pay more taxes to maintain the same level of government income. Would you rather pay more taxes or spend a little extra time figuring them out.

Posted by Ben | January 8, 2008 2:03 PM

My roomie and I were discussing this last night and he was basically sold on this thought - how much of your income do you spend? If you spend all of it (like the poor and many middle class citizens) - it will all be taxed because you are purchasing things. If you only spend 50% of your income and save the rest (someone who has a much larger salary), you won't be taxed on the non-spent part. So look at your budget and see how little income you really don't spend for a reality check.

Posted by Julene | January 8, 2008 2:08 PM

The most solid argument against it is that people will start paying cash for items to avoid it. This is very common in Europe to avoid the VAT, and the rates for that are much lower than a national sales tax would be.

The fair tax talking point that the IRS would be eliminated is completely ridiculous. Collecting taxes on cash businesses is much MORE intensive, and requires INCREASED numbers of agents to do the detective work to demonstrate when companies aren't paying their share of taxes.

The unintended side effects would be massive. You're creating an economy that would favor individually owned businesses that can evade the tax, and punish large businesses that have to follow the rules. Imagine how much money corporations will spend to lobby against that, if passage becomes more likely.

Posted by DMoore | January 8, 2008 2:26 PM

That's how I've always described it. A consumption tax disproportionately affects those who, well, consume their income. It will help investors and hurt consumers. That might theoretically be a bonus if you want to bolster investment, but bolstered investment isn't necessarily going to help with the cratering demand for goods in your economy. They'll just invest elsewhere.

Posted by Demosthenes | January 8, 2008 2:33 PM

Yes!! This is perfect. I was having this exact conversation with my dad last night. Maybe someone can explain something to me.

For starters, I completely intuitively understand that when a middle class individual (or poor individual) goes to the grocery store, they pay 30% more than they would for goods, so it, in effect, lowers our purchasing power since we can buy less items with the same dollar value, and our purchasing power is already lower than a person in the upper class. And I agree it's a bad idea across the board.

However, I think it's bad for the above reason, my dad thinks it's bad because as a member of the "upper-middle class suburban entitlement" set, he's mad that "some rich person won't have to pay that extra 30% on a yacht".

That annoyed me at the time because I saw it as him just complaining about taxes - a common argument that drives me nuts. However, then you mention:

"People who can afford giant mansions aren't going to pay 30 percent on that...", which would seem to support my dad's claim.

But then on FactCheck.org, I see:
"With the FairTax’s 100 percent base, consumers would pay taxes on a great many things that may not intuitively seem like consumption. The list would include:
Purchases of new homes; Rent; Interest on credit cards, mortgages and car loans; Doctor bills; Utilities; Gasoline; Legal fees..."

Now, I'm all for the cynical argument of super-rich people getting away with stuff, but Matt (or any reader out there!), is there a way to explain WHY those people won't be paying the 30% tax on those things (giant mansions, etc)? I like to be really specific with my dad since he tends to just "have" opinions based on nothing.

Posted by Stephanie | January 8, 2008 2:33 PM

Sorry (genuinely) if I am being dense, but how does Paris Hilton or whoever not pay 30% on houses, vacations, etc., under this plan? I thought that was the whole point of it.

Posted by dense | January 8, 2008 2:33 PM

If Huckabee's plan is a sales tax, then why doesn't it come into play when someone sells me stocks, or when they sell me a billion dollar mansion?

Shouldn't it apply whenever you take money from your wallet, or just when you take money from your wallet for things that regular people buy?

As long as we are kicking around imaginary taxes, why not tax personal assests - isn't that the best way to guage who has the biggest stake in law and order and who does not?

Posted by Chuck | January 8, 2008 2:40 PM

The fair tax replaces income and payroll taxes (including the corporate side of payroll taxes). Anyone who pays an average of 15% in income taxes (about $50k for singles and $90k for couples) is actually paying more than 30% in federal taxes.

No one sincerely believes that if you eliminated the corporate side of the payroll tax that employees would get a massive pay boost, so it's ridiculous to include that in income. Also, payroll taxes are a deductible business expense, so how much they cost is highly variable.

Also, considering the average American household is in debt, (ie, they've spent more than their income) I don't understand how you can suggest that this approach wouldn't be a massive tax hike on them.

Finally, the tax code is so complicated that you can't do it on the back of an envelope. Middle-income families simply aren't paying anything approaching 30% of their income in total federal taxes. From the CBPP:

The average percentage of income that households in the middle fifth of the income spectrum paid in total federal taxes in 2000, before last year's tax cut was enacted, was close to the lowest on record for the period from 1979 to the present. These households paid an estimated average of 17.2 percent of their income in federal taxes in 2000, only slightly higher than the low point of 17.1 percent of income in 1983.

http://www.cbpp.org/4-10-02tax.htm

A 30% consumption tax would represent a huge tax increase for most families.

Posted by anonymous | January 8, 2008 2:41 PM

The Fair Tax would apply to all purchases, correct? All economic transactions? How many shares of stock are publicly traded every day? Would the government get a 30% cut of all of those transactions?

I'm going to guess the answer to that would have to be, no. So people who get most of their money from investing in the stock market would be getting that income entirely tax-free, instead of taxed at 15% as it is now.

Posted by Tel | January 8, 2008 2:42 PM

The Fair Tax applies to rent and home mortgage interest. So if you're going to grab your tax forms and try to flesh it out for yourself, put your mortgage interest deduction, which you will lose, into the "increase" column. Don't forget the 30% you're going to be charged.

Posted by Jalmari | January 8, 2008 2:50 PM

largely designed to curb consumption

Social engineering. Oh, great.

Well, what if those poor people who smoke cigarettes, drink liquor and drive gas-guzzling beaters from 1982 don't curb anything? They are still taxed regressively.

I seem to remember progressives arguing that regardless of Mr. Frost's irresponsibility in not having health insurance before his child's accident, he needed SCHIP because he couldn't afford health care now. And to a large extent, they were right. The circumstances that exist are more important than the circumstances we wish existed. Likewise, regressive taxation can't be defended by saying "in an ideal world, that wouldn't be the case."

If you want the state to curb consumption of sinful substances, the only economically fair way to do so is to amend the constitution and ban carbon and cigarettes and re-ban liquor. Might as well amend the constitution to ban rude comments, poor posture and left-handedness while you're at it.

Either the "perfection" of human behavior by the state is desirable or it's not.

Citizens are to be treated like children and parented by rubes like Huckabee and tinkerers like Clinton or to be treated as adults who can make their own decisions about their own lives.

Posted by Shinyk | January 8, 2008 2:56 PM

Social engineering. Oh, great.

They were your examples. Are you dinging me for observing that they are social engineering, or are you saying that a fair tax would not be?

Well, what if those poor people who smoke cigarettes, drink liquor and drive gas-guzzling beaters from 1982 don't curb anything? They are still taxed regressively.

This is absolutely true, and not disputed, at least not by me. You'd be wrong, btw, in assuming that I like these taxes. I'm just pointing out that they point to an additional negative consequence of the "fair tax" than simply being regressive.

Posted by Brad L | January 8, 2008 3:10 PM

The fair tax is definately nutso for all the reasons listed above. But I've never fully understood why a flat tax would always be a bad idea.

Couldn't you make it progressive by exempting the first, I don't know, 30K or so of income from any income tax, and then you'd make up the difference by cutting off the ability of the wealthy to play the uber deductions game?

I'm sure there must be a reason that wouldn't work, but I've never heard a clear explanation of why.

Posted by rufus | January 8, 2008 3:19 PM

I don't know what all you people are talking about when you say that people would avoid paying the Fair Tax by paying cash for stuff out of the backs of trucks and things like that. After all I heard a clip of Huckabee explaining that the Fair Tax would eliminate the underground economy and people not reporting their income.

All Kriston has to explain is that the rest of the Fair Tax makes even less sense.

Posted by snoey | January 8, 2008 3:48 PM

Rufus-- I haven't spent a lot of time thinking about this, but here's an attempt at an answer. The correlation of wealth to lifestyle exhibits something like diminishing returns: the difference between a $30K and $40K per year salary is the same percentage difference as the difference between a $30 million and $40 million per year income. But the effectiveness of that increase in changing somebody's lifestyle is a lot different. You can live a whole lot more comfortably at $40K than you could at $30K, and in fact the stuff you'd now be able to buy might be important stuff like healthier food, or housing that provides a more reasonable amount of space. But what can you afford with $40 million dollars a year that you couldn't afford with $30 million dollars a year? Plenty of stuff, but not much of it of importance. It's a lot better to have a tax system that takes a higher percentage of income from people who are getting less marginal utility from their wealth.

Posted by Galen | January 8, 2008 3:51 PM

Kriston could try pointing out to his parents that it's sort of like how they pay for all that socialism in the non-freedom loving nations across the pond. Depending upon their proclivities, while not entirely the nuanced truth, that might turn them off to it?

The Value Added Tax," or VAT in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the Community...

wikipedia:

VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. It has been criticized on the grounds that it is a regressive tax...

Posted by artappraiser | January 8, 2008 4:01 PM

You'd be wrong, btw, in assuming that I like these taxes. I'm just pointing out that they point to an additional negative consequence of the "fair tax" than simply being regressive.

I fly off the handle when I smell someone justifying either social engineering of any kind or regressive taxation of any kind.

If that isn't what you were doing, then I humbly apologize.

For the record, as stated above, I think the fair tax is unfair. I just wish more on the left would say the same about sin taxes.

Posted by Shinyk | January 8, 2008 4:24 PM

I seem to remember progressives arguing that regardless of Mr. Frost's irresponsibility in not having health insurance before his child's accident, he needed SCHIP because he couldn't afford health care now.

Hmmm, I don't remember Mr. Frost's irresponsibility. Was this the man that had started his own business? Bought a cheap house in a "not so nice" neighborhood, then fixed it up through the years? It wasn't about irresponsibility(Republican message), it was about not being able to afford health insurance, even though he had done things "the way you were supposed to"(according to Republicans).

But you knew that already.

Posted by Rambuncle | January 8, 2008 4:34 PM

Galen,

But what can you afford with $40 million dollars a year that you couldn't afford with $30 million dollars a year? Plenty of stuff, but not much of it of importance.

I can think of lots of important things to spend that extra $10 million on.

It's a lot better to have a tax system that takes a higher percentage of income from people who are getting less marginal utility from their wealth.

Why? If increasing utility is your guiding principle, you should forget about America's "poor," who in general are not seriously deprived of the material conditions necessary for a decent life, and focus instead on people in the developing world. An extra dollar for a poor African or Asian would buy far, far more utility than it would for a "poor" American.

Posted by Mixner | January 8, 2008 4:48 PM

As someone alluded to above, the worst effect of the so-called FAIR tax to the middle-class voter is what it would do to property values. Think the bursting bubble is bad now? Look what happens under the FAIR tax:

Say you have an outstanding mortgage of $200,000 on a property worth $250,000, and your mortgage payments are about $1,200 a month (with 80 percent of that interest). Right now, you can deduct the mortgage interest (about $11,500 a year)from your income tax, making the net cost substantially cheaper. Under the FAIR tax, not only do you lose this subsidy, but your monthly payment increases to $1,488 a month as the interest portion of the loan payment is being taxed at 30 percent.

OK, so maybe it's time to move. But thatnks to the FAIR tax, if you sell the property for $250K, you only receive $175K after taxes, so you have to raise the asking price just to pay off your mortgage. Meanwhile, thanks to the FAIR tax, the universe of people who can afford paying $250k for a property has shrunk considerably, since not only is their mortgage no longer subsidized, it's being taxed. To have monthly payments equal to what they can afford now, potential buyers would have to take out mortgages much smaller than what they can today, meaning they can make much smaller offers on properties.

(Indeed, this seems like double taxation: paying 30 percent on the purchase price and as much as 30 percent on the mortgage payments.)

This kind of effect cascading through the market would destroy the residential property market and likely bankrupt millions of ordinary Americans. Heckova job, Huckee.

Posted by jlw | January 8, 2008 5:13 PM

Certainly there are plenty of things you could spend $10 million on, but most of them are luxury goods. But maybe I should illustrate the point in a slightly different way: somebody with a $30K per year income would see much greater improvement to his life and living conditions with a $10K raise than would someone with a $30 million per year income with a $10 million raise. Not that the extra 10 mil wouldn't be nice, and be put to use, but we're talking about marginal utility here.

You are of course right that a dollar does more for a someone in the developing world than it does for someone in the United States, and if you want to propose that the UN levy a worldwide progressive income tax and then use that revene to provide social services I'll be the first guy on board.

Posted by Galen | January 8, 2008 5:16 PM

I fly off the handle when I smell someone justifying either social engineering of any kind or regressive taxation of any kind.

Hmm. We were partly talking past each other. I don't have your hard line -- I'd differentiate between, say carbon tax and alcohol tax, at least insofar as the former is meant to curb external costs that become a societal burden, while the former is meant to get individuals to behave a certain way for mostly normative reasons.

More generally, isn't pretty much all taxation a form of social engineering, albeit not so bluntly? I mean, isn't money for public schooling a form of social engineering?

Posted by Brad L | January 8, 2008 5:23 PM

it was about not being able to afford health insurance, even though he had done things "the way you were supposed to"(according to Republicans).

I don't necessarily feel like rehashing this, so I'll write three sentences and drop it.

Frost's chief impediment to affording health insurance was, as correctly noted by most on the left, due to his child's pre-existing condition. Before the pre-existing condition, he could have afforded health insurance (like many families in his economic and familial situation do), but chose not to, which can rightly be seen as irresponsible. None of that changes the fact that his children should not be punished for the father's lack of forsight and that there is no more ethical option for the well-fare of his children than having the state pick up the tab.

Posted by Shinyk | January 8, 2008 5:24 PM

Galen,

Certainly there are plenty of things you could spend $10 million on, but most of them are luxury goods.

Not at all. Obviously, you can spend $10 million on both basic goods and (some) luxury goods.

But maybe I should illustrate the point in a slightly different way: somebody with a $30K per year income would see much greater improvement to his life and living conditions with a $10K raise than would someone with a $30 million per year income with a $10 million raise.

And somebody living on $1K per year income would see much greater improvement in his life and living conditions with a $10K raise than would somebody living on $30K. So if "improvement in life and living standards" is your justification for redistributing income, you should give that extra $10K to the guy making $1K rather than the guy making $30K.

You are of course right that a dollar does more for a someone in the developing world than it does for someone in the United States, and if you want to propose that the UN levy a worldwide progressive income tax and then use that revene to provide social services I'll be the first guy on board.

I wouldn't propose that. I think it's a stupid idea. I'm suggesting that, by your argument about utility and improving living standards, the poor in foreign countries have a much greater claim on any money you seek to redistribute than the "poor" in America.

The fact that you're not advocating sending the $10K to starving Africans instead of a low-income American shows that you recognize that maximizing utility is not the only consideration that matters with respect to the distribution of income. Sure, an extra $10K might buy more utility for an American on $30K than an extra $10 million would buy for an American on $30 million. But that doesn't mean increasing utility in that way through forced redistribution (taxes) would be the right thing to do.

Posted by Mixner | January 8, 2008 5:50 PM

Here's another suggestion for explaining the Fair Tax to Kriston's parents: The Fair Tax would be one of the most drastic changes to the tax code in the history of the U.S. It's been experimented with, but only piecewise and on a small scale. Does it make sense to risk its failure on the largest economy in the world? (I know--let's try it in Iraq!)

Posted by RSA | January 8, 2008 6:11 PM

jlw: You would only pay tax on newly built houses, not on resold ones.

Posted by Anonymous | January 9, 2008 12:13 PM

To lowercase anonymous,

Who suggests that employees wouldn't make at least most of the corporate side of their payroll taxes? Especially if they are clearly factored into a massive tax change plan, anyone making over minimum wage would likely see almost all of their payroll taxes shifted into their paycheck.

You're right that I oversimplified (and exaggerated) the average tax burden. However the numbers you cite still leave out the corporate payroll tax, which would increase the percentage paid to just a touch under 23%, or almost exactly the same as fair tax when expressed tax-inclusively (as income tax is).

Then, when you factor in the fair tax prebate, they actually end up paying about 3% total in tax, or less than a fifth of what they are currently paying.

So, you're wrong, it would be a dramatic tax cut for working families. And for everyone else.

Posted by Anonymous | January 9, 2008 12:40 PM

Umm, I don't know how I got 3% there. It would be close to 7.5% after the prebate. Still less than half though.

Posted by Anonymous | January 9, 2008 12:53 PM

In reading some of these posts, I think some are missing the larger points of the plan or are just mis-informed. You need to do your research. The Fair Tax plan is far from perfect, but look at our current system! You think the cheaters don't have the advantage with that one?
Points to consider:
1) All consumers will pay consumption taxes, pimps, drug dealers, tourists, illegals, etc. Are they paying now? The prebate for all up to the proverty level, will relief the burden of the poor paying for the necessities of living.
2) If corporate taxes are removed, Dell can cut the price of their PC by 30%; they will be forced to remain competitive. If this happens, we will end up paying the same amount for a new PC as we are today. The difference is, my $800 weekly paycheck is REALLY $800, not $600.
3) The BIGGEST attraction to me is....I will finally have a CHOICE. I can spend my money or save my money. Currently I have NO CHOICE; the IRS just TAKES it.

Why are the achievers always penalized? Many of these people have worked 2-3 jobs putting themselves through law or medical school in order to have the life they want. Why do many assume that anyone making more money than others aren't deserving? It usually boils down to the choices you make in life.

Just a couple of things to consider. I say keep an open mind!

Posted by Ann | January 11, 2008 8:36 AM