The Fair Tax

May 1, 2004 6:07 AM

The FairTax is a consumption tax designed to replace the entire federal income tax system, including personal, payroll, corporate, self-employment, capital gains, gift, and inheritance taxes. [more!!]
posted by hama7 (139 comments total)

The FairTax will allow Americans to keep 100% of their paychecks (minus any state income taxes), it will dramatically reduce pre-tax prices, and it will fully fund the Federal government, including Social Security and Medicare. (Find the actual bill and all other information here.)

With the FairTax, you will get to take home 100% of your paycheck (minus any state income taxes). No federal income taxes or payroll taxes will be withheld from your paycheck, pension, or Social Security check. Here's more.

There's exhaustive research.

Alexander Hamilton outlines the benefits of a consumption tax.

The Cato Institute's Emancipating America From the Income Tax How a National Sales Tax Would Work.

One of the first steps is to repeal the 16th Amendment.
posted by hama7 at 6:07 AM on May 1, 2004

So: "The proposed FairTax rate is 23%." and " At this 23% rate, the FairTax will pay for all current government operations, including Social Security and Medicare. "

I'm not an economist, but in Norway we have a 23% sales tax on everything except books (tax free) and food (half tax) and we still need income tax, capital tax and lots of oil to fund social security and medicare. Perhaps Americans consume more than Norwegians and that's how the sums'll add up?
posted by jill at 6:20 AM on May 1, 2004

The flat tax: a long-standing objectivist utopia. Why? Because it benefits the "self actualized" rich.

A 10% tax (and for the FairTax to work, it'd likely have to be significantly higher than that) paid on groceries impacts poor and working class families far more than a tax on luxury goods impacts the wealthy. What's another 10% on a diamond encrusted cell phone or sprawling mansion?

This inequity becomes more pronounced when one considers that the FairTax would allow for the full exploitation of investments with a rate of return that far outweigh the penalty incurred by the tax - investments inherently inaccessible to lower income households.

Thus under the "Fair" Tax:
Rich == Significantly Richer
Poor == Unduly Burdened
posted by aladfar at 6:27 AM on May 1, 2004

Rich == Significantly Richer
Poor == Unduly Burdened

That's a common misconception, I'm afraid, but easily allayed. A consumption-based tax would help more Americans become wealthy. By taxing consumption, you only pay taxes on what you purchase, not what you invest or save or earn. The possibilities are limitless. Here's an article which might address the points you've raised:

Consumption taxes and liberals - Bruce Bartlett
posted by hama7 at 6:37 AM on May 1, 2004

No one's ever not become rich because of taxes.

If you have disposable income that doesn't have to go towards feeding your kids you get off scott free tax-wise? Sorry, that little randian masturbation fantasy doesn't quite stand up to the laugh test.
posted by Space Coyote at 6:41 AM on May 1, 2004

The possibilities are limitless.
posted by stavrosthewonderchicken at 6:47 AM on May 1, 2004

So, if you live paycheck to paycheck then you end up paying 27% of your income in taxes, but if you have a fortune or have surplus money, then you only pay taxes on part of your income. The wealthier you are, in fact, the less you are taxed. That's not my idea of fairness.
posted by squant at 7:02 AM on May 1, 2004

How about this: Increase and enforce capital gains taxes, and income above $50,000.
posted by Space Coyote at 7:03 AM on May 1, 2004

They wanna add a 23% sales tax on top of the 4-6% state sales tax that already exist? Surely only a millionaire would support so regressive a proposition. A family of 4 with and income of 70k spend A LOT more of their income in taxable transactions than the millionaires who likely support this Fair Tax. You can only consume so much, all the rest just goes in your pocket, untaxed.
posted by crank at 7:04 AM on May 1, 2004

The Cato Institute has also published another detailed analysis of a comsumption tax:

Simplifying Federal Taxes; The Advantages of Consumption-Based Taxation - Chris Edwards

if you have a fortune or have surplus money, then you only pay taxes on part of your income.

You pay no taxes on income. Taxes are paid only when you purchase a product. Nothing could be fairer. It's proportional and allows savings to remain untaxed. Also, you would pay a consumption tax only on new products, so a used car would not be taxed (not counting state taxes).

all the rest just goes in your pocket, untaxed.

Isn't that wonderful?

People with less money can earn more money and keep it, becoming wealthier. There is no punishment for achievement, and uncountable incentives to earn.
posted by hama7 at 7:12 AM on May 1, 2004

aladfar - I think you may have missed the part where families below the poverty level would get monthly rebates. Also, for the naysayers, there's a simple argument for repeal of many of the taxes we now have - the rich are expert at exploiting loopholes that enable them to pay less money, percentage wise than ordinary people. As far as investment taxes and corporate taxes, there's a dirty little secret attached to those - the investors and the corporations don't pay them, you do when you buy the product.

This is an idea that makes a lot more sense than the current ramshackle, misleading, and weighted towards the rich system we currently have.
posted by pyramid termite at 7:13 AM on May 1, 2004

Here's the critical premise:

"Therefore, when the FairTax Act of 2001 abolishes the federal income tax system, prices will drop 20% to 30%. The proposed FairTax rate is 23%. So, instead of paying 15.3% of your paycheck in payroll taxes, plus an average of 18% of your paycheck in federal income tax, for a total of about 33% of your paycheck going to the federal government in Washington, you pay only a 23% consumption tax each time you purchase a new good or service for your own personal consumption above the federal poverty level."

I am reluctant to believe that retail prices are going to drop to this degree. These consumption tax proposals are horribly regressive. and always have a dubious collection of economic "research" to back them up.

Folks who don't want to ante up to live here certainly are free to vote with their feet.
posted by mygoditsbob at 7:18 AM on May 1, 2004

You pay no taxes on income. Taxes are paid only when you purchase a product. Nothing could be fairer. It's proportional and allows savings to remain untaxed.

Hama7, like all blindered proponents of this ideology, you forget that in this world there are fixed expenses. You *have* to have food: either you buy it or you pay for the raw materials and the land to grow it on. You *have* to pay rent/mortgage/property taxes. You *have* to have transportation. You *have* to have clothing.

Therefore, these taxes are not optional. They are, to a certain degree, obligatory/necessary/required/mandatory. For the poor, this means there is an undue burden placed upon their financial means, because they are penalized for purchasing the simplest things in life.

the rich are expert at exploiting loopholes that enable them to pay less money/I think you may have missed the part where families below the poverty level would get monthly rebates.

So the new loopholes would be built into the system from the start. This ridiculous tax plan would look like the current tax code in ten years or less.
posted by Mo Nickels at 7:51 AM on May 1, 2004

"punishment for achievement" is that other bit of doublespeak that doesn't actually mean anything.

Oh, people are still killing each other despite the fact taht murder is illegal, let's just abolish the 'punishment for survival' laws and make it simpler to enforce.

Morons.
posted by Space Coyote at 7:53 AM on May 1, 2004

mygoditsbob, i must correct your use of the term regressive. any flat percentage based tax is by definition progressive - the tax increases as the measure (the thing being taxed) increases. a regressive tax increases as the measure diminishes. these words, in a tax context, are merely descriptive. they carry no positive or negative connotation, but folks have become fond of referring to anything tax-related that they don't like as regressive.

you are right about the money though - prices will NOT drop 20 to 30%, instead corporate profit will increase by that margin, as the tax saving will be "pocketed", not passed along to the consumer.

i don't believe the current system can be undone by anything short of a total economic meltdown - the tax prep industry is worth billions, and the corporate world has too great a vested interest, and too much money and power, to allow it to be undone.


Folks who don't want to ante up to live here certainly are free to vote with their feet.

this, however, is pure bullshit. rich peoples bullshit. thinly disguised bigotry toward those who have acquired less. surely you are not advocating blind acquiescence in the name of patriotism? even (or perhaps, especially) in the best system in the world, there are thieves and scam artists at work. at what level of taxation do you recommend people move away? 40%? 60%? 80%? if one earns 40,000 a year and pays out half that in tax, should one shut up and salute the flag?
posted by quonsar at 7:58 AM on May 1, 2004

From the TownHall.com article:

In fact, over one's lifetime, consumption is roughly proportional to income, because over a lifetime we eventually consume all our income.

Um... yeah. That explains why people inherit money. Except not!

Here's another stellar bit:

Simultaneously, most of those who would be considered rich weren't after a few years -- 5 percent fell all the way from the top tax bracket to the bottom bracket.

I want to live in the world in which five percent is considered "most."
posted by Bryant at 7:58 AM on May 1, 2004

There was some discussion of the Fair Tax in this previous thread.
posted by split atom at 8:05 AM on May 1, 2004

The wealthier you are, in fact, the less you are taxed.
This was posted as a criticism of the fair tax proposal, but isn't it a pretty accurate description of the current, "progressive" system?
posted by Zonker at 8:09 AM on May 1, 2004

you forget that in this world there are fixed expenses.

Realize that even with the consumption tax, that products would still be cheaper than they are now, in addition to the countless other advantages listed above.

For the poor, this means there is an undue burden placed upon their financial means, because they are penalized for purchasing the simplest things in life.

With a consumption tax, they will not be poor for long. Nor will they be denied rebates if they are unable to support themselves.

"punishment for achievement" is that other bit of doublespeak that doesn't actually mean anything.

"The top 5 percent of Americans (average income of $379,800) pay 38.5 percent of the total federal tax liability, The richest 1 percent of Americans (average income of $1,050,100) pay 22.7 percent of the total federal tax liability." (More here) The wealthiest pay 61.2 percent of taxes, some studies put it higher. That's punishing achievement by taking more money from people who earn more.
posted by hama7 at 8:14 AM on May 1, 2004

That's punishing achievement by taking more money from people who earn more.

right. and it's rewarding poverty by taking less from the poor. what an ass.
posted by quonsar at 8:16 AM on May 1, 2004

and it's rewarding poverty by taking less from the poor.

You mistakenly believe that the "poor" will always be that way. Bill Gates was not always wealthy. The poor pay no taxes. A consumption tax punishes no one, but is a gigantic improvement on the immoral system currently in use.
posted by hama7 at 8:22 AM on May 1, 2004

I don't think anyone is saying that, hama. What they worry about is that if you're paying a 23% consumption tax, you are less likely to be able to save anything. After all, the group to which were referring already aren't paying much income tax.

And refunds only up to the poverty level? That's a joke.
posted by thebigpoop at 8:37 AM on May 1, 2004

hama7: immoral because you can't opt out? What makes income tax imorral? I have trouble seeing how contributing to national good is immoral. I've seen this trotted out as the argument against the income tax over and over again but inasmuch as elected representatives of the people put the taxes in place, I don't see how it's stealing from the people or whatever pseudo-moral argument there is.
posted by shagoth at 8:39 AM on May 1, 2004

Bill Gates was not always wealthy.

Err... yes he was, actually.
posted by sfenders at 8:39 AM on May 1, 2004

Bill Gates was not always wealthy.

so what? bill gates is little more than a criminal who belongs in jail!
posted by quonsar at 8:45 AM on May 1, 2004

This flies in the face of Engel's Law: (basically that) the poorer you are the greater a proportion of your income is spent on the basics of life. The richer you are, the less proportion of your income is spent on such items. Any tax that targets consumption of such goods rather than a person's ability to pay is inherently unfair.
posted by Blue Stone at 8:46 AM on May 1, 2004

you are less likely to be able to save anything.

If anything, you're more likely to save. Even low-wage earners pay federal income tax now, which would not be the case should the Fair Tax be enacted. Prices of products would fall to below their current level, because all the embedded taxes you're paying when you purchase a product , (the manufacturer, shipper, distributor, autmobile maker, et cetera are all taxed) would disappear. Current tax rates are higher than 23% now, in many cases. The incentive to investors, business, and individuals at any income level would be astronomical.

This flies in the face of Engel's Law

He was utterly wrong, as was his accomplice. Immoral, wrongheaded philosophies like his got us into the current mess.

I don't see how it's stealing from the people or whatever pseudo-moral argument there is.

Give me your car, then.
posted by hama7 at 8:59 AM on May 1, 2004

The other big gaping problem with this idea for organized, formalized thievery from the poor is that if you can afford it you can do your shopping elsewhere while making your money untaxed. It's perfect really.
posted by Space Coyote at 9:00 AM on May 1, 2004

Prices of products would fall to below their current level, because all the embedded taxes you're paying when you purchase a product ... would disappear.

But it's been stated before, why would businesses have any incentive to lower prices to their untaxed value? The entire basis of Fair tax that consumption is taxed, so you would end up paying as much, or more, for goods and services than you did before, because the tax is added back in when something is purchased.

I mean, this is pretty basic. People with low incomes who spend the great proportion of their income on rent, food, and other necessities are not getting any kind of break at all.
posted by contessa at 9:13 AM on May 1, 2004

"rebates"

If the purpose of a flat tax is to reduce the complexity of a tax system then a rebate based on income is the opposite of that.

Of course the problem lies in any system in which to enhance the 'fairness' of the system adds complexity.

I dont think that foodstuffs and such should be taxed, however what happens when you buy food stuffs for a business? that s a business expenditure not a personal one.

its all a mess in any case.
posted by MrLint at 9:34 AM on May 1, 2004

"The top 5 percent of Americans (average income of $379,800) pay 38.5 percent of the total federal tax liability, The richest 1 percent of Americans (average income of $1,050,100) pay 22.7 percent of the total federal tax liability."

The richest 1 percent of Americans also earn ~18% of total income. Not nearly as unfair as it seems. I can't find stats on the richest 5 percent, but I'd expect it to be in line as well.

(from the bleeding hearts at the Washington Post)
posted by zsazsa at 9:35 AM on May 1, 2004

There's been some confusion of the terms here regarding what makes a tax progressive or not. A flat sales tax is fundamentally regressive. That is, as a person's income decreases, the percentage of their annual income paid in taxes is higher.

Take as an example $100 worth of groceries. With a 20% flat sales tax, the total tax on this purchase is $20. For someone with an income of $10,000 per year, that $20 is 0.2% of his entire income for the year. For someone who makes $100,000 a year, it's only 0.02%. And for someone who makes $1,000,000 per year, it's an insignificant 0.002% of annual income.

A flat income tax retains a flat percentage of annual income across the classes, but even that places an undue burden on lower classes, which is why we have our current (though admittedly imperfect) progressive system with marginal tax brackets.

In my opinon, the best way to make the tax system fairer would be to end corporate tax loopholes and create punishments for corporations that move overseas to avoid taxes. Making corporations pay taxes isn't fair? Fine with me, just take away their corporate personhood and I'll stop complaining about them.
posted by stopgap at 9:44 AM on May 1, 2004

It's better than no reform but I find its ideological framework extreme and the practical implications unsatisfactory.

"The amount to be contributed by each citizen will in a degree be at his own option" (From Alexander Hamilton)

Most of the literature despises the idea that a citizen, by dint of the social contract is obliged to pay tax. Rather, it insists that a citizen must, by some voluntary action give "consent". This is a distinction without a difference, for the citizen is out of pocket whatever the means. Its only purpose is to express an unnecessarily pessimistic conception of government's role and impact. If it's your government and your community why should contributing towards it be so intolerable?

Further, it stems from one view of political equality - all citizens, as equals must pay an equal amount of tax. I can't agree; those with most to show for their participation in society should contribute more than those for whom life is a struggle to get by. You wouldn't expect to pay the same price for a 5-star hotel as for a 3-star so why should the rich pay the same as the poor? Some might say this is punishing those who work hard for their success; me I'd say that those who benefit most from society should be prepared to pay most for it.

The FairTax implicitly acknowledges the principle of progressive taxation in its exclusion of the most poor, but by limiting the influence of the principle to this one grudging exception, it shows less a genuine concern for eoncomic and political equality and more a pragmatic concern for the fickle public conscience.
posted by pots at 9:48 AM on May 1, 2004

"The top 5 percent of Americans (average income of $379,800) pay 38.5 percent of the total federal tax liability, The richest 1 percent of Americans (average income of $1,050,100) pay 22.7 percent of the total federal tax liability."

This gets quoted over and over again, as if it meant something; but it doesn't. Percentage of taxes paid by percentage of persons is not meaningful. We are not taxed on our personhood.

zsazsa has addressed the taxes vs. income comparison, which is a genuinely useful and relevant measure. As for total wealth, the disparity is much worse (presumably since the wealthy need to spend so very much less on the business of survival); 1% of Americans control about 44% of the wealth. Hardly an argument for a lower tax.

When you have little or no discretionary income, you have essentially no money to make money with. When, as in the case of the very rich, essentially all of your income is discretionary, it can all be in the form of investments that return value. Most of this country's wealth is in the hands of people who don't actually need to spent more than a minute portion of it to survive -- all the stupefyingly huge remainder (beyond luxury spending) simply goes on making more money for them. Taxing them at the same level as people who essentially need all of their income to survive would be insane.
posted by George_Spiggott at 9:59 AM on May 1, 2004

With a consumption tax, they will not be poor for long.

I'm all for chucking the current tax cose but this phrase is utter bullshit. There will always be poor people.

I'd be more willing to support this if food (with the exception of prepared) and shelter (under a certain dollar amount) were not taxed.

... and I'm pretty much a "fuck the poor" kinda guy.
posted by Mick at 10:00 AM on May 1, 2004

He was utterly wrong, as was his accomplice. Immoral, wrongheaded philosophies like his got us into the current mess.

Engel's Law: The observed phenomenon that when a family’s income increases, the proportion of money they spend on food decreases.

How can you logically refute this Hama?

You mistakenly believe that the "poor" will always be that way. Bill Gates was not always wealthy.

William Henry Gates III made his best decision on October 28, 1955, the night he was born. He chose J.W. Maxwell as his great-grandfather. Maxwell founded Seattle's National City Bank in 1906. His son, James Willard Maxwell was also a banker and established a million-dollar trust fund for William (Bill) Henry Gates III.

Surely there is some analogue to Godwin's Law holding that in any discussion of wealth Bill Gate's name will appear with a probability of 1...
posted by crank at 10:02 AM on May 1, 2004

Any system is going to favor the rich over the poor. The rich create the system. That's just the way that it is. The poor are supported because the rich feel guilty for their abundance, or more likely because the rich don't want the poor (who are the vast majority) to take up arms and re-allocate resources through violence.

So, given that the poor will get screwed in life one way or the other, the question is what is more fair -- to assign cost based on what somebody adds to the system, or to assign cost based on what somebody takes out of the system.

Income is reward for work or for risk. Income is a product of adding to the system. Consumption is what you take out of the system. It's better to penalize consumption than production.

It's not fairer (though I'm not persuaded it's less fair either). it's just where it costs should reasonably be placed. Charge me for what I take out of the system and reward me for what I put into the system.
posted by willnot at 10:06 AM on May 1, 2004

The top 5 percent of Americans (average income of $379,800) pay 38.5 percent of the total federal tax liability, The richest 1 percent of Americans (average income of $1,050,100) pay 22.7 percent of the total federal tax liability." (More here) The wealthiest pay 61.2 percent of taxes, some studies put it higher.

I thought the wealthiest pay 60% of the taxes because their incomes totaled 60% of the earnings. Percentage of tax liability by income bracket doesn't mean much without normalizing it for percentage of income.

Give me your car, then.

I won't give you my car, but I'd willingly give some portion of my income to the government to support an infrastructure that, despite sometimes being poorly managed, you and I benefit from immensley. You don't have to give if you forswear using all benefits, of course, but it can't just be you. Your dependents must also give them up. Any enterprise you have part ownership in cannot hire employees that use them either -- after all, you'd be benefiting from not having to pay employees a wage portion for services they receive from this infrastructure.

I really don't get the burden on the rich stuff. Maybe you need to move through more than the roller coaster I've ridden through the $3000-$50,000k yearly wage world to really understand it, but when I have more money, it's a considerably smaller burden to pay more taxes. In the last year and a half, I've gone from an income of less than $500 / month to over $2500 / mo. The current tax system charges me around $500 of that income. That's around 25%. It charged me almost nothing on that $500 a month, which was good, because $125 out of that $500 would have meant financial doomsday, which I came pretty close to anyway.

Don't get me wrong -- it's galling sometimes to give that money up, and I will use whatever understanding of the law I can to make sure I'm not giving anymore than I have to. But when the day is done and I understand the facts of the 1040, I don't have a problem giving more as I earn more.
posted by weston at 10:14 AM on May 1, 2004

Perhaps the name "FairTax" itself is the most telling part. If I established a new car manufacturing company and named it the "We Won't Rip You Off, Honest We Won't Motor Company", what would you know to expect when you met a salesperson at my showroom? :)
posted by Stoatfarm at 10:17 AM on May 1, 2004

Income is reward for work or for risk. Income is a product of adding to the system. Consumption is what you take out of the system. It's better to penalize consumption than production.

I should also add that I find framings like this intruiging. I do wonder if society would be better off if we taxed consumption rather than income. But... there's still the problem you get below the poverty level.

Also, when we talk about investment not being taxed... how is investment not a financial service (and therefore a service, and therefore taxable as consumption)? And we would tax expenditures on production/service capital too, right?
posted by weston at 10:20 AM on May 1, 2004

Bill Gates was not always wealthy.

Err... yes he was, actually.

You're missing the point! He wasn't always as wealthy as he is now -- and look how he's been punished for his success!
posted by namespan at 10:27 AM on May 1, 2004

I'm not an economist, but in Norway we have a 23% sales tax on everything except books (tax free) and food (half tax) and we still need income tax
Jill asked a very good question near the top of this thread, and it deserved to be answered. Just like with other issues we in the U.S. sometimes ignore the experience of other countries... Anyone remember the issue of gays in the military and how everyone here ignored the experience of, say, Australia or Israel?
So, just what would prevent a good old-fashioned income tax to be slapped on top of the "Fair" Tax? What mechanisms exist in Norway and other countries to, perhaps, have an income-based rebate of a consumption tax? Have other countries experienced upsets in, say, the real estate market as income tax-based incentives programs get phased out or updated?
I don't know the answers to these, but I might just want to find out if I were a fan of the "Fair" Tax, it seems to me.
posted by Stoatfarm at 10:36 AM on May 1, 2004

look how he's been punished for his success! - [namespan]

Are you serious? Would you say that Bill Gates, currently the richest man in the world, stands as an argument against attempting to become wealthy because he's been somehow punished? And I guess I'm not sure what punishment you're referring to, unless you're about to lay out a defense of monopolism.
posted by stopgap at 10:38 AM on May 1, 2004

We have to keep the taxes high enough to pay for various wars and what not. If we reduce taxes, we will not be able to afford to occupy other countries and police the world with ever better military hardware. In addition to being source of misery for everyone, the whole thing is really patriotic in the most pejorative sense of the word.

It seems like everyone has their own reasons for keeping the government fat, and despite the constant tug of war, the result is always the same. Everyone who has posted here is on the same side despite the bickering.
posted by thirteen at 10:50 AM on May 1, 2004

Maybe not everone on preview.
posted by thirteen at 10:52 AM on May 1, 2004

There's been some confusion of the terms here regarding what makes a tax progressive or not. A flat sales tax is fundamentally regressive. That is, as a person's income decreases, the percentage of their annual income paid in taxes is higher.

no. you are wrong, and you mix apples and oranges. you talk about a percentage sales tax, but then you want to measure its effect with regard to income. apples and oranges. as i stated above, the terms progressive and regressive, in tax lingo, are merely broad mechanical descriptors, not social judgements. and the terms only relate to income if income is what is being taxed. a flat rate sales tax is by definition progressive. as the thing being taxed (the SALE) grows, the tax grows. the obvious progressivity of the sales tax has nothing to do with anyones INCOME, nor does it relate in anyway to whether you think it is a "progressive" or "regressive" social practice.
posted by quonsar at 11:14 AM on May 1, 2004

In addition to being source of misery for everyone, the whole thing is really patriotic in the most pejorative sense of the word.

you know, I don't understand why conservatives are so anti-tax. it seems to me like they would want to give anything they could spare to help make the government as big and imposing as possible to make it easier to squash other governments for whatever reason.

actually, now that I think about it, I read an editorial by andrew sullivan in an issue of time (newsweek? can't remember) making the case for raising gas taxes...

But with soaring deficits and a war to pay for, taxes are not an option. They're a necessity.
posted by mcsweetie at 11:20 AM on May 1, 2004

to continue beating my dead semantic horse, one might impose a regressive sales tax on a scarce resource. as the availability of the resource diminishes, the amount of tax increases. this tax would function, after the well-known market forces of supply and demand drive the prices very high, as an additional deterrence to using up the remaining resource (or incentive to find alternatives). it's intent and function can be widely regarded as a good thing, which does not alter one whit that it is a regressive tax.
posted by quonsar at 11:21 AM on May 1, 2004

quonsar, I'm sorry but you're the one who's mistaken here.

"Regressive tax:
A tax that tends to take a larger percentage of the incomes of lower income citizens than it takes from the incomes of higher income citizens." - Auburn University

"A regressive tax is a tax which takes a larger percentage of income from people whose income is low." - Wikipedia

"tax levied at a rate that decreases as its base increases. Regressivity is considered undesirable in taxation because it forces poorer persons to pay a greater percentage of their income in tax than wealthier persons. Despite efforts to avoid regressivity, certain taxes, especially proportional taxes, tend to become regressive in practice. " - Encyclopedia Brittanica (might require subscription)

"A tax that takes a larger percentage of the income of low-income people than of high-income people." - InvestorWords.com (via Dictionary.com)

"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. Simply put, low-income people pay a higher fraction of their income in taxes than wealthier people if the tax is regressive and a lower fraction if the tax is progressive." - Cato Institute (yes, even them!)

[emphases added]
posted by stopgap at 11:24 AM on May 1, 2004

And for a specific application of the term to consumption taxes, there's this gem from a fairly thorough review of tax proposals in the Washington Post:

"Consumption taxes are by nature regressive because the poor must spend more of their money than the rich – while it is the rich who do most of the saving."

Case closed as far as I'm concerned. This is a really a pretty basic economic concept, and I imagine any entry-level economics course would cover this well if you still have questions.
posted by stopgap at 11:33 AM on May 1, 2004

Charge me for what I take out of the system and reward me for what I put into the system.

it's coy the way you omit from this neat equation of yours some essential assertions: the system itself is such that one must have excess money in order to "contribute" to the system and reap the rewards, while at the same time the sysytem demands payments for basic "consumption" that guarantee very few the opportunity to attain excess money. you know, aside from those who already have it.
posted by quonsar at 11:37 AM on May 1, 2004

"And I guess I'm not sure what punishment you're referring to, unless you're about to lay out a defense of monopolism."

Attacks from almost every failed competitor who can afford a lawyer, the weight of the entire US government at times attempting to crush his achievements and in many cases the ire of entire nations.

Bill Gates is representative of what happens to the US as a nation. Achievement is rewarded with anger, almost religious hatred and an fundamental jealousy that makes people want to see him and the US "brought down".

It's really not about Bill, or Microsoft, or the US. The successful are always attacked this way - and the top dogs always have to suffer the anger and hatred of those who cannot compete and refuse to see their blame in their own failure.

What I find most interesting is the monopoly hypocrisy. Many who hate MS point to the court rulings as if it was proof of MS's guilt - yet the same people (usually) will go on and on about how the court doesn't understand technology issues when someone gets nailed for the wholesale piracy of intellectual property.

For them the courts is infallible when it suits them, and clueless when it doesn't. It's all very amusing.
posted by soulhuntre at 11:46 AM on May 1, 2004

Therefore, when the FairTax Act of 2001 abolishes the federal income tax system, prices will drop 20% to 30%.

This one sentence is so atrociously incorrect that one must doubt the entire thesis of the document.
posted by five fresh fish at 11:50 AM on May 1, 2004

stopgap, i should have said "when first used in scholarly, non-partisan studies of economics, the terms described a purely mechanical function, and implied no social judgement." no matter what they are selling in economics courses these days, no matter how many "economic" institutions define them otherwise, i stand by the dead horse. encyclopedia brittanica defined it perfectly: tax levied at a rate that decreases as its base increases (or, i would add, vice versa). then it goes on to blather some garbage about income again, mucking the nice simple economic concept all to hell with a social agenda.
posted by quonsar at 11:59 AM on May 1, 2004

Attacks from almost every failed competitor who can afford a lawyer, the weight of the entire US government at times attempting to crush his achievements and in many cases the ire of entire nations.

*Snort*. I suppose Bernie Ebbers and Jeff Skilling are being "punished for their success" as well? Granted, Gates is not accused of crimes of the same order, but his company is being investigated for violations of law -- not being "punished for his success", except in your opinion.

The successful are always attacked this way

Yeah, like successful bank robbers, for example -- it's just so petty and vindictive the way these jealous policemen, prosecutors and victims try to bring them down. What are they, commies? They hate freedom, they hate innovation and success, and for that matter, they hate America!
posted by George_Spiggott at 12:06 PM on May 1, 2004

What I find most interesting is the monopoly hypocrisy. Many who hate MS point to the court rulings as if it was proof of MS's guilt - yet the same people (usually) will go on and on about how the court doesn't understand technology issues when someone gets nailed for the wholesale piracy of intellectual property.

more apples and oranges. the court rulings in the antitrust case dealt with antitrust issues, not technology issues. beyond gates bald-faced attempt to confuse the court with all that crap about IE being embedded in the OS, there was nothing much technical to confuse any court.
posted by quonsar at 12:23 PM on May 1, 2004

"tax levied at a rate that decreases as its base increases" sounds like what we're talking about. maybe it is a semantic thing, what is your defined base? I think most people would say it's income. certainly on an income tax. But if you switch to a consumption tax what is your base now? It would be somewhat useful to keep base=income for discussion purposes, and if so a flat tax is still regressive even according to that definition. I see your point though, there is really no technical reason to keep the base as "income", to be more technically correct it should be consumption amount or something like that, in which case this tax is not regressive.

I think people when talking about these terms now always use income as the base though, or even net worth sometimes.
posted by rhyax at 12:37 PM on May 1, 2004

Hmm... I can't be bothered actually reading this tripe, but if the only thing that's taxed is the purchase of products, here's a really easy way to pay no taxes whatsoever: become a corporation.

First, create a company. Second, "hire" yourself at $1m a year. Third, "invest" all that money back into the company. Fourth, enjoy a million dollars' worth of perks for the year. Pay no taxes, collect $200, and toast the memory of taxes with some warm brandy and a Cuban.

From the FAQ:
What is taxed? The FairTax is applied to the sale of all new consumer goods and services at the final point of consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed.

The benefits I would enjoy from my position as Chief Leisure Office of Fuck The Poor, Inc. would not be considered purchases, nor would my use of Fuck The Poor, Inc.'s overstock (a right clearly defined in my job description) be considered consumption. The final point of consumption for Fuck The Poor, Inc.'s products is the clearly defined "Sales Window" on the east face of the Fuck The Poor, Inc. corporate headquarters/executive officer living space, and all sales conducted from there are taxed.

For some reason, Fuck The Poor, Inc. has yet to turn a profit, but hey - business is about risk, right? And in the spirit of risk-seeking capitalism, I'll continue to sink $1m a year into this company, because I believe in what it stands for. God bless America, God bless the FairTax, and pass me one of those complimentary corporate hookers.

What a fucking sham.
posted by Coda at 12:50 PM on May 1, 2004

... most people would say it's income. certainly on an income tax. But if you switch to a consumption tax what is your base now?... I think people when talking about these terms now always use income as the base though...

yes, rhyax, the base is whatever is being taxed. a consumption tax is levied on the amount of consumption, measured as purchases. it's our deep concern over how taxation impacts the less fortunate in society that impels all this measurement against income, and that's a good thing, in my mind at any rate, it's an interesting thing.
posted by quonsar at 12:53 PM on May 1, 2004

Could the concept of the FairTax be made more progressive? Would that save it in mefi's eyes? Eg: food, basic transportation, clothes, and perhaps shelter (under certain limits - mansions would be taxed, rent would not) would be tax free, while things like Bentleys and Patek Phillipes and yachts would be taxed at a far higher rate than most goods.

Ignoring issues of whether a particular tax is progressive or regressive, which I think are irrelevant, to me the success of this tax could be measured by whether it a) eliminated more of the taxation penalty on the economy than the current system (eg the amount of potential transactions which do not occur for tax reasons) and b) whether it enabled more poorer citizens to invest, thus giving their wealth level an upward trajectory on average rather than a flat one. The second one is more important.

The main problem with "b" is that America's savings rate is actually a negative number - on average people are spending more than they are earning, putting themselves into debt. For some reason, keeping up with the jones is seen as more important now than it has ever been. Theoretically, the consumption tax would reverse this effect by making saving cheaper vis-a-vis spending, but I'm not sure people would be willing to give up their consumerist habits so easily.
posted by Spacelegoman at 1:14 PM on May 1, 2004

it's coy the way you omit from this neat equation of yours some essential assertions: the system itself is such that one must have excess money in order to "contribute" to the system and reap the rewards

Or excess time for more work, or a commitment to working harder given the same amount of time, or an idea to enhance efficiency so that the same amount of work produces more.

while at the same time the sysytem demands payments for basic "consumption" that guarantee very few the opportunity to attain excess money. you know, aside from those who already have it.

As opposed to the system we have now? Get real. I started with the basic assumption that people without resources are going to get screwed. That's just a fact of life. Show me a system where that isn't true that's actually real and not merely academic.

Why should the rich pay more? Do they use more public resources? No, I'd say less. Do they use more police, or do they put resources into private security forces to supplement the efforts of the police? Do they use more public education or do they put money into private education? Do they use more public assistance or do they use less public assistance?

Any progressive income tax based system starts from the premise that the one who can most easily bear the cost should contribute the most, but why is that true? Why should the rich contribute any more than the bare minimum needed to keep the masses from rising up in rebellion?

From each according to his ability and to each according to his need seems perfectly progressive to me, but it only works in an idealized world where people are scrupulous about self-identifying what their abilities and needs really are. It's never been my experience that people can (much less will) be scrupulous about that, so where does that leave us?

Who makes that choice -- you, me, bureaucracy? Whoever or whatever you give that power to is going to grow in power and scope exponentially, so be sure you choose well.

The wealthy create the system they prefer and it benefits the wealthy at the expense of the poor (or more appropriately at less of an advantage to the poor than they might otherwise prefer).
posted by willnot at 1:26 PM on May 1, 2004

America's savings rate is actually a negative number - on average people are spending more than they are earning, putting themselves into debt. For some reason, keeping up with the jones is seen as more important now than it has ever been.

it's the little glowing box in the corner. it makes them want stuff. it shows them how they're supposed to live. (in order to keep the profit machines sated). it's the insane idea that the equity in their home is money going to waste. or that it's ok to have anything they want right now as long as they pay twice what it's worth in weekly payments to a rent-to-own. it's the win at all costs sports programs in schools. it's the granting of small, inexpensive mercies on sundays while engaging in cut-throat economic terror in the name of free enterprise the rest of the week. its the worship of money, and those who accumulate it. it's the american dream.
posted by quonsar at 1:36 PM on May 1, 2004

Sorry, hama7, but the numbers you are using aren't accurate. If the top 5% pay 38.5% of taxes, and the top 1% pay 22.7% of taxes, than the only argument that you can draw from this is that the top 5% pay 38.5%.
You can NOT argue that the wealthiest pay 61.2 percent (which is 22.7 + 38.5) because the top 1% is actually going to be included in the top 5%.
Just a point of clarification.
posted by graventy at 1:50 PM on May 1, 2004

Of course, I mean that you can argue it, but you can't argue that the top 5% pay that amount of taxes.
posted by graventy at 2:04 PM on May 1, 2004

Bill Gates isn't the richest man on the planet.

...and I'm significantly more satisfied with the sofas, than the software.
posted by inpHilltr8r at 2:25 PM on May 1, 2004

Why should the rich pay more? Do they use more public resources? No, I'd say less. Do they use more police, or do they put resources into private security forces to supplement the efforts of the police? Do they use more public education or do they put money into private education? Do they use more public assistance or do they use less public assistance?

Actually, it's pretty easy to argue that the rich do use more public resources, especially the class that we'd call Capital. An individual receiving whatever social benefits the tax base pays for, receives a monetary benefit equivalent to the difference between his contribution to the tax base and the average contribution. An employer, however, receives that same benefit for each one of their employees -- because that's the amount of money the employer would otherwise have to pay them in order to give their employees access to those benefits. Not to mention that businesses use public services in the context of doing business.

Other good questions to ask: do the rich receive greater access to our nations lawmakers, executives, and other officials? Does industry -- even succesful industry -- in the US receive subsidies at both the federal and local level? Who has more at stake when it comes to the protection of private or intellectual property? Who benefits more from a large pool educated, capable labor? Who gets bailed out of savings and loan disasters?

We spend a lot of money in this country on the fortunes of the fortunate as well as the subsistence of the unfortunate.
posted by weston at 2:29 PM on May 1, 2004

Talking to people promoting these new tax schemes is like arguing with someone about their nifty idea for a perpetual motion machine. They believe that there is some magical method to reduce the tax burden. To the contrary, the federal government will need the same total tax revenue under any tax system. The only question is who gains and who loses. The wealthy like Steve Forbes are the ones promoting these schemes and since they will pay less taxes, everyone else will have to pay more to make up the difference. That is all you need to know about a proposed tax system -- if the wealthy do better, everyone else will do worse. Consider it the "Law of Conservation of Money".

The other canard you always hear is that a Flat Tax is about tax simplification. That is nonsense. The Flat Tax is about reducing taxes for the wealthy. Tax simplification is a completely separate issue. The current progressive income tax could be as simple as you like. Just remove all of the complicated tax laws and you have a one page tax form. You look up your income in a table and you are done.

The reason the wealthy pay a large portion of taxes is because that have a large portion of income. The progressive tax structure is inherently fair. Everyone - rich and poor alike pay exactly the same rate -- 10% -- on their first $7,000. Everyone pays the same rate -- 15% -- on their their next $21,000. Everyone pays the the same rate -- 25% -- on their next $40,000. You pay 28% on your next $75,000, 33% on your next $170,000 and 35% on everything above that. The rich and everyone else pay the same rate on their income in each bracket.

While a progressive income tax is inherently fair, the social security tax is not. Everyone pays 7.65% on their first $88,000. The wealthy pay not one dime to social security for their income above that amount, even if they make millions per year.

And make no doubt about it, social security is just another tax revenue source like income tax, property tax or sales tax. It goes into the general fund. The government is currently taking in more social security revenues than it is paying out and Bush is spending the surplus on bombs and bribes for Iraq.
posted by JackFlash at 2:41 PM on May 1, 2004

While a progressive income tax is inherently fair, the social security tax is not. Everyone pays 7.65% on their first $88,000.

That sounds just as fair as your explanation of the income tax. Everyone pays 7.65% on their first $88,000, everyone pays 0% on the rest. Just like everyone pays 10% on the first $7,000, 15% on their next $21,000, etc.
posted by kindall at 2:43 PM on May 1, 2004

Here's a bit of opinion that will re-enforce the prejudices some may have regarding the Grauniad, and which I believe may be on thread. Basically, the super-rich have more money than they can spend, so tax it and give it to the community who have less money than they need. It is difficult to muster much in the way of sympathy for someone who doesn't notice £4m ($loads) dissapearing from their current account.

Regarding the recent Joyti De-Laurey case:

'This is where De-Laurey was doing them a favour. The trio were far too busy with their 6am meetings and long-distance business trips to enjoy or even know how much money they had. It was just lying dormant in their accounts, doing nothing. Instead, De-Laurey took out their money for a brisk trot down to the shops - like exercising a dog, really.

Frankly, it was much better for the economy that the £4m was in circulation, providing employment and creating profits, being recycled into other hands. True, De-Laurey did spend the money on Cartier jewellery, but don't kid yourself the aggrieved trio were going to use it to help the homeless. For all the talk of De-Laurey wanting to "fund a lavish lifestyle", what do you think the trio were using it for? '
posted by asok at 2:46 PM on May 1, 2004

rhyax, maybe I didn't choose the clearest quote from the Encyclopedia Brittanica, but I would have thought the sheer volume of sources would convince people. Here's an extended quote from another EB article:

Taxes can also be distinguished on the basis of the effect they have on the distribution of income and wealth. A proportional tax is one that imposes the same relative burden on all taxpayers—i.e., where tax liability and income grow in equal proportion. A progressive tax is characterized by a more than proportional rise in the tax liability relative to the increase in income, and a regressive tax is characterized by a less than proportional rise in the relative burden. Thus, progressive taxes reduce the inequality of income distribution and regressive taxes increase it.
...
Sales taxes and excises (except those on luxuries) tend to be regressive, even though they may be nominally proportional, because the share of personal income spent on a specific good declines as the level of personal income rises.

To determine regressivity, the base is always income. Regressivity, by definition, refers to how the tax affects people of different income levels.

On preview, kindall, the social security tax is not "just as fair" because it is regressive. As income increases, (from $88,000 on up), the proportion of income spent on the SS tax decreases.
posted by stopgap at 2:54 PM on May 1, 2004

Jackflash - No tax system is _inherently_ fair. You're asserting that as if it's a fact, instead of your opinion. It's like saying "stealing is inherently wrong" - trying to place an intellectual concept (wrongness) into a definition of a physical action (stealing). It's a fallacy.

This doesn't mean that tax systems can't be more or less fair according to your particular beliefs, but trying to claim that your favoured system has "fairness" as part of it's intrinsic makeup is just crappy debating.
posted by Spacelegoman at 3:03 PM on May 1, 2004

Right, Spacelegoman: "Theoretically, the consumption tax would reverse this effect by making saving cheaper vis-a-vis spending"

It would also enable everybody else on the pay spectrum to save more cheaply by adjusting their spending habits accordingly, as this tax applies to new products.

The Tax Museum is a marvelous and invaluable resource (related to the equally notable Tax History Project), and an interesting testament to the comparatively low federal income tax rate for most of America's history. The dramatic and gargantuan increase of the federal tax rate in the recent past is disturbing, and merits consideration, if not outright alarm.

The Fair Tax not only provides an alternative to colossal government waste, but proposes to eliminate several sluggish bureaucracies in favor of letting individuals decide how much tax to pay and when. I can think of no better situation.
posted by hama7 at 3:14 PM on May 1, 2004

On preview, kindall, the social security tax is not "just as fair" because it is regressive.

Sure it's "just as fair." There's no discrimination at all. Everyone pays 7.65% on the first $88,000, and everyone pays 0% on the rest! Surely it can't be unfair if everyone pays the same!

My point is, that's exactly as reasonable as the argument that the income tax is fair because everyone pays the same amount of the first $7,000, the same amount of the next $21,000, and so on. It blithely ignores the fact that not all people make the same amount of money!

A tax that the rich pay more of is not "more fair," it's unfair toward the rich. As someone else pointed out, "progressive" is a descriptive mathematical term and has nothing whatsoever to do with "progress" as the common man thinks of it. Still, the terminology persists, because it deceives people who aren't aware of its origin. After all, you don't want to be against progress! For honesty, people should call it "unfair toward the rich" taxes and "unfair toward the poor" taxes.
posted by kindall at 3:22 PM on May 1, 2004

Of course the rich make unfair use of government programs and resources, so charging htem more for the privelage, as it were, certainly isn't unreasonable.
posted by Space Coyote at 3:59 PM on May 1, 2004

hama7 - I fail to see how the "Fair Tax" is a solution to colossal government waste. If your position is that the proposal will result in less overall tax burden then the same result can be achieved by lowering governmental expenditures. If you think that the tax collection overhead cost will be any less using the consumption tax, then you've never had to fill out the reports and undergo audits relating to state and local sales taxes.

Funny thing about all these proposals is that the people who stand to benefit the most are always able to find supporters who, through their lack of understanding, will actually stand to lose under such a plan - as evidenced by most of the posters here in support of the proposal.

How many here will be buying a home (goods taxed)
Renting an apartment (goods? services? taxed)
Will be attending college (services taxed)
Will be needing medical care (services taxed)

The list goes on. This type of tax not only hurts the poor, it hammers the middle class all to the benefit of the wealthy.

Class warfare is alive and well in the 21st century. The 'Fair' tax is one more assault on the poor and middle classes by the oligarchy.
posted by mygoditsbob at 4:01 PM on May 1, 2004

The successful are always attacked this way - and the top dogs always have to suffer the anger and hatred of those who cannot compete and refuse to see their blame in their own failure.

Perhaps that's because those 'who cannot compete' recognise that the system handicaps them. I'm perpetually amazed by Americans who have bought into the ideological duplicity that poverty is always an indicator of personal failure, and wealth a sign of moral superiority. Welcome to the new Gilded Age.

But what I find truly hilarious here is that our busybodying thread-caretaker hama7 hasn't offered his radical take on Korean fiscal policy, since that's where he fucking well lives.
posted by riviera at 4:03 PM on May 1, 2004

If your position is that the proposal will result in less overall tax burden then the same result can be achieved by lowering governmental expenditures.

Who's lowering expenditures? Certainly not even the republicans, who have historically stood for such cuts on economic and moral grounds. No more, unfortunately. They work for us, not the converse.

Class warfare is alive and well in the 21st century.

It's a morally bankrupt proposition based on flawed and extinct social engineering theories, but, yes, is still being foisted (by guess who?) on the unsuspecting in order to raise taxes, expand a confiscatory government, and to create a dependent, helpless class for votes.

Regardless of that, the Fair Tax makes the proponents of confiscatory tax rates and governmental bulk uneasy, because the decision-making ability is out of their hands, where it should be.

poverty is always an indicator of personal failure

Not a soul has suggested that, and poverty is not a permanent condition which needs a nanny state to solve it. As has been suggested above, nothing will solve it, yet the American "poor" are wealthier in some cases that entire industrialized nations.

Nothing about the Fair Tax penalizes those who are unable to provide for themselves, try as you might to misconstrue it.

hama7 hasn't offered his radical take on Korean fiscal policy

Korean fiscal policy is none of my business, though I do admire the low (but could be lower) overall tax rate of 10% on average. I am American, so American policies concern me most, no matter where I am.

our busybodying thread-caretaker

Indulge me just this once. It's not as if it's a regular occurrence.
posted by hama7 at 4:32 PM on May 1, 2004

because that's the amount of money the employer would otherwise have to pay them in order to give their employees access to those benefits.

Which might be relevant if the employer needed to provide access to all of those benefits in order to secure the labor, but historically, that's simply not the case.

Funny thing about all these proposals is that the people who stand to benefit the most are always able to find supporters who, through their lack of understanding, will actually stand to lose under such a plan - as evidenced by most of the posters here in support of the proposal.

It's not about what benefits me the most. It's about what's fair. I don't expect my friend to buy my dinner when we go out just because he makes more than I do. Maybe he can better afford it, but I'm the one who's eating it.

Or, would you advocate for reallocating all personal property equally amongst the worlds 6+ billion people? I mean really, wouldn't that benefit the most people possible? If a progressive tax is fair and correct, then the dissolution and reallocation of all public and personal property is more fair and correct. Isn't it?
posted by willnot at 5:15 PM on May 1, 2004

so hama7, when do you explain how this 20 to 30% price decrease is going to come about? though several people, including myself, have called this statement ridiculous and without historical precedent, you've neatly avoided addressing it.
posted by quonsar at 5:18 PM on May 1, 2004

quonsar - since there's no tax on corporate proffits, the corporation is able to lower the cost and still achieve the same margins. Why wouldn't the corporation just pocket the difference? There will be competitive pressure combined with supply and demand. If the consumer has to pay 20-30 percent more as a result of tax, then prices will have to drop, or consumers will have to purchase less.
posted by willnot at 5:36 PM on May 1, 2004

I do admire the low (but could be lower) overall tax rate of 10% on average.

Nonsense. Most Koreans pay income tax in the range of 15% to 30%. It would appear that the actual reason our friend Mr 7 doesn't talk about fiscal policy in Korea is that he doesn't actually know much about it.
posted by stavrosthewonderchicken at 5:43 PM on May 1, 2004

A big problem I see with the Flat Tax is instability during recessions. The Flat Tax acts as a disincentive to consume. During a recession, consumption declines, so under the Flat Tax tax revenues also decline. Thus, the government must raise taxes the next year, providing further disincentive to consume, further reducing consumption, further reducing revenues, further increasing taxes, etc.
posted by Ptrin at 6:03 PM on May 1, 2004

Mr 7 doesn't talk about fiscal policy in Korea is that he doesn't actually know much about it.

Nor do I care much about it, except that it is low, and in many cases lower than the U.S. Be that as it may, I know exactly what fraction of my paycheck was delivered to the Korean spendthrift left-wing North Korean support system, and even one won was too much, but it usually was about 10%. I do not live there now.

though several people, including myself, have called this statement ridiculous and without historical precedent, you've neatly avoided addressing it.

By eliminating the embedded taxes on products, the price will fall, for it can do nothing else if restrictions are rescinded, which I, and others on the Fair Tax website have explained in detail, but the market, by which I mean competition, will force prices down even further. Everybody wins.
posted by hama7 at 6:15 PM on May 1, 2004

Bullshit. Canada went to the metric system. Many things measured by weight or volume were rounded-down in size, sometimes significantly. On the whole, prices stayed the same or rose while consumer got less.

There is no way on the face of this planet that lowering taxes is going to result in an equivalent lowering of product prices. Not. Gonna. Happen.
posted by five fresh fish at 7:03 PM on May 1, 2004

There is no way on the face of this planet that lowering taxes is going to result in an equivalent lowering of product prices.

But of course you're willing to admit that raising taxes on a given product, let's say tobacco, is an underhanded way to discourage consumption. Then certainly, by that reasoning, the converse is also true; that reducing taxes encourages consumption. Right?
posted by hama7 at 7:24 PM on May 1, 2004

Just for illustrative purposes, I whipped up this quick graph showing percentage of income paid as federal tax. It's pretty easy to see how the income tax system is progressive while payroll taxes are regressive. (By the way, the term "progressive" isn't normative, implying that the tax system produces "progress." Rather, it refers to the simple fact that the percentage of income paid in taxes progresses as income increases.) Notice that someone who makes the median income (I used $42,228, but that number is two or three years old) pays about 17.5% of income in federal income tax. Also, the red line would approach 35% and the teal line would approach 0% as income increases to infinity. The red triangles show where the marginal rates change.


Willnot: If a progressive tax is fair and correct, then the dissolution and reallocation of all public and personal property is more fair and correct. Isn't it?

You argue for a slippery slope that doesn't exist. Just as laissez faire capitalism is a flawed system that leads to extreme wealth disparities and loss of workers' rights (i.e. the Gilded Age), pure socialism or communism is a flawed system that leads to fascism and/or authoritarian government. I see a progressive tax structure as a system that allows for meritocracy within society (though I tend to dispute the idea wealther people = better people), while at the same time allowing government to provide for basic needs. While richer people pay a higher percentage of their income as taxes, they are still making a higher income, and have therefore benefitted from capitalism more. Consider that they could be living under a system that does redistribute their wealth to the poor, and you can see that a higher tax rate is a small price to pay for the benefits of capitalism.

Changing the subject slightly, does anyone have a link to that study a year or two ago that added up all local, state, and federal taxes and found that all income groups pay roughly the same percentage of income in taxes? I feel like it was first printed in the NYT, but I know it showed up on a lot of blogs. I think it would show that radical changes of the federal income tax system would need to be coordinated with other federal and state taxes to make sure that the total tax rates paid were still at least proportional, if not progressive.
posted by stopgap at 7:53 PM on May 1, 2004

FWIW : expatriates in Korea pay substantially less tax on their income than Korean citizens are required to pay, but also do not receive many of the corresponding benefits of citizenship such taxes are supposed to fund. The 10% tax that hama7 paid on his income while here was less than half as much as he would have paid were he Korean.
posted by stavrosthewonderchicken at 8:20 PM on May 1, 2004

Anyone that believes that flat taxes are anything but a screw-the-poor is a failure at basic maths.

Take four representative samples from the population: one low-income (~$15000), one middle-income (~$50000), one high-income (~500000), one extremely high-income (~5 million). Take representative essential costs: sum of home, food, transportation. Take representative extra costs: sum of entertainment, travel, etc.

You will find the low-income earners have bugger-all left over to put toward savings -- which are supposed to cover disaster and retirement -- while the high-income and above has savings that are multiples of the low-income earner's yearly wage, let alone savings.

Now do some taxation on those folk and look at the end-of-year surplus for each. You'll find a flat tax leaves the poor with sweet fuck-all, while the wealthy still save more money than you can reasonably hope to ever earn.

In a flat-tax scheme the poor are doomed to poor health, poor healthcare, miserly retirement years (should they be so lucky), and a likely early death.

In a progressive-tax scheme they're still poor, but they can at least save enough to deal with healthcare emergencies, get to retire, and might even be able to afford to live past the age of seventy-five.

In both the flat-tax and progressive-tax schemes, the wealthy remain wealthy. They still get to retire into a wealthy lifestyle, still get to have the best of health care, and still give their children a healthy inheritance.

The difference is that with progressive taxes, the poor don't die young.

of course if you hate the poor, that's probably not what you want...
posted by five fresh fish at 8:41 PM on May 1, 2004

Then certainly, by that reasoning, the converse is also true; that reducing taxes encourages consumption.

Um, no, because the price/consumption curve is asymmetrical, and varies according to the price range of the item; and because, as others have mentioned, while sellers generally use tax increases to factor in price increases, in order to deflect the blame, they also use decreases in taxation to factor in price increases, in order to hide them from consumers.

Now, while some tax differentials encourage consumption as a form of arbitrage -- for instance, crossing a state or national border in order to buy things that are cheaper on the other side -- such things are on the economic margins, and also factor in the inconvenience cost of that arbitrage. That is, those who take booze cruises to Calais may not end up buying any more wine than they would anyway, except perhaps to 'compensate' for the cost of the trip.

And incidentally, the reason why arbitrage works against the poor -- they usually can't afford the up-front costs to offset potential savings -- also applies in more general terms: there's less opportunity to invest, to buy in bulk, or to make purchasing decisions -- consumption decisions -- that are less costly in the long run. (For instance, if you have bad credit, or not much in the way of savings, you may find yourself going from banger to banger, paying more in repairs than it would have costed to save up and buy a better car; or you end up paying higher in rent than a mortgage.) So any move towards an end-user consumption tax essentially writes into the tax system the workings of loan sharks.

Anyway, the Fair Tax model has all the bad stuff associated with VAT, and none of the good stuff. People who live as corporatised entities -- and who already write off much of their everyday costs -- will benefit to the detriment of people who can't claim their packed lunches as business expenses. Let alone the three Martinis.
posted by riviera at 10:03 PM on May 1, 2004

I say institute a flat tax. The wealthy will learn why progressive taxes developed when the class formerly known as "middle" rises up and executes them French Revolution-style.
posted by moonbiter at 10:29 PM on May 1, 2004

Or to paraphrase Tyler Durden: "Look. The people you are after are the people you depend on. We cook your meals. We haul your trash. We connect your calls, we drive your ambulances. We guard you while you sleep. Do not fuck with us."
posted by moonbiter at 10:33 PM on May 1, 2004

Er, quote, not paraphrase.
posted by moonbiter at 10:33 PM on May 1, 2004

moonbiter - don't assume this. Look to Guatemala. Other models might approach this problem more aggressively = "I say institute a flat tax. The wealthy will learn..."
posted by troutfishing at 10:45 PM on May 1, 2004

It's the tyranny of the fucking poor: they have all you rich fuckers right where they want you, ready to take over at a moment's notice with their unfair tax plans.

It's not immoral to tax people who make more money--on the contrary, it is common sense. To suggest that taking more money from people who make more money somehow penalizes achievement blindly ignores the fact that skill and hard work often have little to do with achievement, especially in America. Someone born into the upper middle and upper classes of such a caste system is presented with a plethora of opportunities that simply aren't available to those below them: most exceptions to this rule are both truly gifted and incredibly lucky, something our privileged often aren't.

While many on the right will attempt to characterize American's economics as a system of achievement and reward (even delving into the realm of absurdity as Grover Norquist has done in the recent past), other--more compassionate, I would posit--individuals might understand that this uneven system allowed them to flourish in the first place.

Others, as has been shown in this thread, will continue to believe that they have instead worked harder to get where they are (networking at the country club with dad's friends is hard! I had to work co-op at a big law firm one summer!) and deserve to hoard their money. These people are diseased and foul, empty cavities that have been hollowed out by a team of ravenous insects. That's the only explanation I've come up with thus far, anyway.
posted by The God Complex at 11:24 PM on May 1, 2004

troutfishing: I'm being a bit tounge-in-cheek when I write the above. Personally, I worry about a future dystopia that resembles a technological feudal state, with wealth concentrated in the hands of a tiny, well-armed aristocracy while a majority of poor just consider being poor their lot in life and do nothing about it (not unlike most of human history).

I think that modern technology changes that equation, though. Terrorism shows us that small groups of disgruntled people can make very big waves. I'd rather like to believe that we know enough to avoid social strife if we just pay attention to history. That we can head off such things before they become crazy.

But then, I would also think that the people that are all gung-ho about American hegemony and all of that would learn from history too. For example, there are tens of millions of civilian reasons in this century that the Europeans seem to be a bit more hesitant to use force in any situation than the U.S. is. However, such reasoning falls on deaf ears in many circles. This tells me that our young American society may never learn this lesson until we actually experience the true fruits of war.

Similarly, all of this social experimentation that the Fair Taxers want to implement seems to be based in an ideology that is ignorant of history, and how tax burdens were distributed in the past, and why the current systems developed the way they did. So something tells me that it is not until it is tried out and proven horribly, disasterously wrong that such idiotic proposals will die out.
posted by moonbiter at 11:34 PM on May 1, 2004

So something tells me that it is not until it is tried out and proven horribly, disasterously wrong that such idiotic proposals will die out.

...you have a more optimistic view of humanity than I. Being proven wrong has never stopped anyone from selling their own view of the world, nor has it ever stopped anyone from buying into that flawed worldview.
posted by aramaic at 12:20 AM on May 2, 2004

A lot of the arguments against the flat tax here are somewhat flawed - for one thing, everytime a corporation is taxed on something it ends up being included in the price of the product, something that rich and poor pay equally alike for. This cost is a hidden flat tax.

A lot of people also seem to think that if the 20 to 30 % of a price that is taxes were eliminated, the companies would just pocket the money and not pass the savings on. This would require all product makers to agree not to do so - aside from such collusion being illegal, it's unlikely. The first company to pass on the savings will increase market share and earnings at the expense of his competitors - needless to say, his competitors aren't going to stand by and let that happen.

All of the rest of the arguments seem to boil down to "the poor will spend a higher percentage of their income in consumption taxes than the rich". This totally disregards the monthly tax rebates for the poor that are part of this idea - give these rebates to people for the first 15-20,000 bucks of income and the effect, even for the middle class, would be more fair. Even someone making 50,000 a year would see a 30% or so discount on his flat tax bill.

The argument that such a tax will automatically mean that "the poor will die young" because they won't have health care misses something basic - that the lack of government health care is not a function of what is taxed, but what the taxes are spent on.

The greatest benefit of this idea is that it will simplify our god-awfully complex tax code and that it will give people a CLEAR idea of exactly how much money the government is taking from them so they can have an easier time deciding if they're getting their money's worth. Do you actually know how much of your income ends up in the government's hands? I don't.

The argument about regressive taxation ignores that many of our taxes - property taxes, sales taxes, business taxes hidden in the price of products are regressive already. Perhaps an additional flat tax on income over 100,000 might allieviate this.

There are two issues that no one's touched on - one - in a world where people are concerned about the ecology and our resources, a consumption tax could be beneficial for keeping waste and frivolous use down. Two, that this is going to be pretty hard to enforce in the service economy - people will be doing things "under the table" for others and no taxes will be paid - (a lot of that goes on right now). Oddly enough, the poor are more likely to commit such evasions than the rich ...
posted by pyramid termite at 5:40 AM on May 2, 2004

In both the flat-tax and progressive-tax schemes, the wealthy remain wealthy.

Guess what? The wealthy are wealthy now, and they should be. It's their money, not yours. The Fair Tax does not address wealth redistribution or other immoral schemes to soak the wealthy and provide for their proletariat "according to need", because those schemes do not work, as has been proven time and time again every time it has been tried. The government which "redistributes" miraculously becomes rich. I wonder how?

The Fair Tax allows people not only to keep what they earn, but also to fund necessary federal programs like defense, and others which are constitutionally mandated. It also allows them to see exactly how much of their money goes to the government.

works against the poor

It does not. The Fair Tax works for everybody in the system. It would be to the American economy what liquid oxygen is to a rocket. Nobody is left behind.

It's not immoral to tax people who make more money--on the contrary, it is common sense.

Let's say I steal your car, or something else valuable to you. That's morally wrong, regardless of your income. How is taking your money, solely by virtue of your making more than me, any less morally wrong, especially if the government confiscates it and spends it? It's immoral, yet it goes on. Government confiscation is variously applauded by those who believe in punishing wealth and achievement, and by those who want to expand a dependent voting bloc, and thrives on the fact that its adherents know laughably little about economics, or the detrimental effects of dependency.

It's also worth pointing out that every respondent in this thread is wealthy.
posted by hama7 at 6:19 AM on May 2, 2004

Institute for Research on the Economics of Taxation.
posted by hama7 at 6:38 AM on May 2, 2004

A couple of things I don't think have been brought up yet, not having much to do withany morality or social justice issues, more with the law of unintended consequences.

1) The idea that prices would automatically fall is I think somewhat wishful thinking. In some markets, where the producers of a given good are actually paying full income taxes to the federal gov't (which is certainly not true universally) and the high number of producers means that individual producers have almost no control over the price of their goods, this would probably happen. Think coffee. In markets where neither of those conditions were true (think automobiles) prices would probably not budge.

2) This proposal, if ever enacted, would decimate the US' tourist industry. It would encourage those who could to vacation (and spend big money) outside the US, and would discourage any foreigners from coming here, since prices would jump (see point #1) and hotel rooms would go from being overpriced to being highway robbery.

3) The luxury/leisure industry, with products like yachts, high-priced stereo equipment and cashmere sweaters, would be seriously imperiled. People who could afford the stuff would almost certainly develop sources for it overseas where they wouldn't be paying the 25-30% sales tax.

4) Tax evasion, a phenomenon which right now is largely limited to those who can afford their own accountants, would become pervasive. The IRS wouldn't go out of existence, they'd simply change their focus to make sure everyone was reporting sales of everything; businesses, particularly small ones who could skate under the radar, would have huge incentives to disguise sales and thus be able to keep the portion that would otherwise go to the feds.
posted by deadcowdan at 7:12 AM on May 2, 2004

Repeat this until it penetrates:

Consumption taxes are always regressive. By their very nature.

No amount of shuffling money from one column to another changes this fact.

It's very simple actually. (In general) savings rates increase with income. The more money you make, the more money you save.

This is easily proven by showing a family at subsistence spends 100% of their income, virtually every penny on necessities.

The more well off can pick and choose whether to buy that plasma tv or not, and make decisions based upon the tax rate and other factors. The poor do *not* have that opportunity... they are buying necessities.

All this allows is for the rich to accumulate wealth EVEN FASTER than they already do. I don't think the rich need help with this, they already excel at it.

Anyone who can't grasp this very simple concept has no business dipping their toes in the economic arena. Lookie what I found! A hidden efficiency! We can lower prices because the supply chain is being double/triple/jillion taxed!

Heh.

Hama, you've already shown your libertarian colors by comparing taxation to theft. You've been brainwashed by an economic TimeCube. You are free to believe whatever you like, you're a grown man (I'm assuming).

But you're wrong.

And any reasonable person would reflect upon almost universal renouncement by numerous sources as well as almost every participant in what I imagine you consider to be a reasonably well learned and intelligent community.

Put another way, if you think we're all idiots and too thick to understand TaxCube, then why insist on throwing your pearls before swine?

The whole "Taxation is theft!" angle is played out and is so middle 90's.

At the absolute, and I mean ABSOLUTE BEST, it could perhaps, POSSIBLY, be so finely tuned and rebated as to be cash neutral to the lower class, and would still greatly accelerate the wealth gathering power of the wealthy. At the expense of what? The Treasury.

That would be like voting in an administration who's stated goal was to rob the treasury and disperse it to favored corporations.

Oh wait...
posted by Ynoxas at 9:01 AM on May 2, 2004

As of this comment, you can officially say that not every respondent is rich. (I'm sure there are lots of others, but I'm the only person whose bank statements I have access to. And, yes I am aware that on a global scale I am very rich, and I am eternally grateful and do what I can to work towards alleviating global inequality.)

Me, I'm not poor but comfortable, mostly because I am single and have no dependents. I had an income of just over $18,000 USD in 2003, of which I paid about 8% after deductions. That was still $1500 - three months rent on a single room. But I know I'm not poor because I have known real poverty - I'm a student on scholarship but I've had to lend my mother money to pay her rent.

Rebates are a nice bone to throw - but of course, the minute you add rebates, all that vaunted simplicity disapears. More paper will be slain and red ink spilled over trying to get rebates. Sure, I get a rebate, fine. Does someone whose household makes $30,000 a year but has to spend $9000 on childcare? Does the the family of five who make $40,000 a year but live in the Northeast where everything is more expensive than in Canada even? What is "the poverty line"? You make one line, and the people who are working and struggling to get by fall on the wrong side of your arbitrary line - isn't that punishing them for trying?

Aside from the points that have been made by 9/10 of the posters up to this point - that any flat tax or tax on consumption would be an undue burden on those who already struggle to pay for rent, food and clothes out of the scraps North America likes to call low wages. It's even in the bible - the poor woman who gives two pennies has paid her due, since it was all she could afford. The current system is far from perfect, but it tries to recognise that people are in different situations, and that while I can happily pay %8, people with children with my income couldn't, but people making much more could pay 20-30% without noticing.

But most of all - since when is income tax too complicated? Sure the US forms aren't very friendly. I've done Canadian and I've done American and I can say that our forms are a little easier because we have colour codes and labels that make sense. But I still did my American tax on my own - the state office even helped me with some obscure questions. If your income tax is that complicated, you make enough money to hire an accountant or bookkeeper.

And lastly - theft is taking your belongings illegally, and since the legitimate government made the law, I don't think you could call any tax actually illegal (We could have a debate about the Ship Money of Charles I, but that was a different situation). Maybe you think taxes are a kind of moral "theft, and that is your right. Personally, I believe entire concept of making excess profit off the labour of others and the resources of our joint planet is moral theft - feel free to hand over all money you make above the amount necessary to feed and clothe your family. Good thing I don't rule the world, eh? Best for all of us to vote for what we think is best, and get some moderate compromise that is better than any extreme position.

Taxes will never be legal theft until the government votes that they are so. Yet, funnily enough, even at the greatest tax backlashes of the last few decades, there has never been a majority in North America who thought we should eliminate the income tax. Maybe they realise that they are getting out better as it is, and have very little desire to return to the nineteenth century. Dickens was bleak for a reason.
posted by jb at 9:33 AM on May 2, 2004

Tennessee is already on its way. they have no income tax but as a result they have the highest sales tax in america at nearly 10%. what effect has this had on the state? the poorest citizens pays three times as much tax as the richest and the state ranks near the very bottom of the nation in things such as graduation rates (48th), home and community based care (50th), and in the "Most Livable State" index (46th). (all via Tennesseans for Fair Taxation)

and for the record, I am very much not rich. I make a little as a librarian's assistant, somewhat because I can't work as many hours as I'd like between school obligations and caring for my father. but the good news is that I live in Georgia, as if I were living in Tennessee over 10% of my income would be spent on taxes despite the lack of an income tax.
posted by mcsweetie at 9:47 AM on May 2, 2004

I think an earlier poster said it best: call it all for what it is. It's either an unfair to the wealthy or unfair to the poor tax.

There is no middle ground, period: what is "fair" to the wealthy requires the poor to hurt; what is "fair" to the poor requires the wealthy to pay more.

And so that is where we have to define our society: is it one that cares for the disadvantaged, or one that snubs them?

I vote for a society in which we care for the disadvantaged.

And I think someone else put it best: "These people [who want an unfair to the poor tax system] are diseased and foul, empty cavities that have been hollowed out by a team of ravenous insects."

You have to be pretty fucking self-centred and willfully ignorant of poverty to support a screw-the-poor taxation system. How horrible.
posted by five fresh fish at 10:01 AM on May 2, 2004

Quote from Reverend William J. H. Boetcke:

You cannot bring about prosperity by discouraging thrift
You cannot help small men by tearing down big men.
You cannot strengthen the weak by weakening the strong.
You cannot lift the wage-earner by pulling down the wage-payer.
You cannot help the poor by destroying the rich.
You cannot keep out of trouble by spending more than your income.
You cannot further the brotherhood of man by inciting class hatred.
You cannot establish security on borrowed money.
You cannot build character and courage by taking away men’s initiative and independence.
You cannot help men permanently by doing for them what they could and should do for themselves.
posted by hama7 at 10:17 AM on May 2, 2004

I believe you mean William J.H. Boetcker, who is also attributed the following quote:

"Your greatness is measured by your kindness."

With that said, reading his other quotes lets you know squarely where he stands in the owner/worker situation.

We should enrich the owners so they can continue to pay the workers. Ah, I get it now. Where have I heard of this before, maybe the early 80's.....
posted by Ynoxas at 11:11 AM on May 2, 2004

Oh great, you played the Rev. William JH Boetcke card.. the debating equivalent of an atomic bomb. Devastating!
posted by Hildago at 11:12 AM on May 2, 2004

the debating equivalent of an atomic bomb. Devastating!

Thanks for your invaluable contribution.

I do not know how many times I can repeat that the Fair Tax system is incredibly beneficial to everyone. The "poor" will not be penalized, everyone will benefit, the expense of several bureaucracies will evaporate, leaving more money for the taxpayer. It's quite straightforward.

If people are so concerned with the "poor" being bilked, then why not contribute some of your own hard-earned money to a charity, or better yet, start a new one. If it's a good cause, people will be more likely to contribute. After all, charities which contribute money directly to the needy run a much better percentage per recipient than the federal government, which extracts an enormous administration fee for itself, and a tiny percent of what was confiscated from taxpayers finally makes its way to its intended recipient. Charities are a far better option.
posted by hama7 at 12:05 PM on May 2, 2004