Democrats not ruling out higher taxes for rich

[Saturn5]

WASHINGTON (AP) -- Democrats are not ruling out raising taxes for the wealthiest people to help pay for tax cuts for middle-income families, House Speaker Nancy Pelosi said.
She spoke of pursuing an estimated $300 billion that people owe in back taxes, eliminating deficit spending and reducing wasteful federal spending.
"As we review what we get from ... collecting our taxes and reducing waste, fraud and abuse, investing in education and in initiatives which will bring money into the Treasury, it may be that (repealing) tax cuts for those making over a certain amount of money, $500,000 a year, might be more important to the American people than ignoring the educational and health needs of America's children," Pelosi, D-California, said in an interview aired Sunday. (Interactive: What House Democrats pledge to pass in the first 100 legislative hours (http://javascript<b></b>:CNN_openPopup('/interactive/us/0701/dem/frameset.exclude.html','620x430','toolbar=no,locat ion=no,directories=no,status=no,menubar=no,scrollb ars=no,resizable=no,width=620,height=430');))
A budget rule, known as the pay-as-you-go rule, that was approved by the Democratic-run House on Friday requires that tax cuts have corresponding cuts in government spending or tax increases elsewhere to pay for them. (Full story: New budget rules could straitjacket Democrats (http://www.cnn.com/2007/POLITICS/01/05/congress.rdp.ap/index.html))
"What we're saying is Democrats propose tax cuts for middle-income families. And we want to have 'pay-go,' no new deficit spending. We're not going to start with repealing tax cuts, but they certainly are not off the table for people making over half a million dollars a year," Pelosi said.


Republicans: New budget rules will raise taxes

The Senate's top Republican said most GOP senators oppose this budget rule because "it almost guarantees that the majority, if it enacts it, will try to raise taxes."
"The last thing we need to do is to be raising taxes in this country, and 'pay-go' is the first step toward raising taxes," said Senate Minority Leader Mitch McConnell, R-Kentucky. "I think there will be very few, if any, Republicans who will support raising taxes.
Last week, the president challenged Democrats to join him in balancing the budget within five years and urged them to cut thousands of pet projects from future spending bills.
"If the president's willing to join with us to fight waste, fraud, and abuse, collecting the taxes, closing the loopholes, we can start there," Pelosi said. "What we'd like to do is come to the table as I say, put all our priorities on the table."
Bush's spending decisions also came under fire from the new chairman of the House Appropriations Committee, Rep. David Obey, D-Wisconsin.
"How can you ever expect to get to a balanced budget if you're spending $100 billion a year on Iraq borrowing the money to do it, if you're giving $50 billion a year in tax cuts to people who make over a million bucks a year and paying for that with borrowed money?" Obey said.


Democrats prepared to dig into Katrina fraud

Elsewhere on the legislative agenda, the chairman of the House Oversight and Government Reform Committee is getting ready to investigate suspected government fraud, particularly in federal contracts in Iraq and the Gulf Coast after Hurricane Katrina struck. But Rep. Henry Waxman, D-California, is not preparing to hand out subpoenas at first.
"I don't think you issue a subpoena first. You negotiate, and you try to get the information you need," said Rep. Henry Waxman, D-California.
Democratic Rep. Charles Rangel of New York, the new chairman of the tax-writing House Ways and Means Committee, is seeking GOP cooperation in making inroads on bloated tax laws.
"We have to look at all of the deductions, all of the credits, and to come up with what we think we can do," he said. "Is it going to be difficult? You bet your life."
Pelosi appeared on CBS' "Face the Nation." Rangel, Waxman and Obey were on "This Week" on ABC while McConnell spoke on "Fox News Sunday."

http://www.cnn.com/2007/POLITICS/01/08/democrats.agenda.ap/index.html

[Debacle]

One can understand liberals' desperation, of course, since every other one of their claims against tax cuts has failed.

First, liberals screeched that the tax cuts would starve the federal government of revenues critical to maintaining their pet bureaucracies. Unfortunately for them, the tax cuts actually increased incoming federal revenues by sparking economic growth.

This duplicates the lessons learned from the 1980s, when Ronald Reagan's supply-side tax cuts increased federal revenues 27% between 1980 and 1989, according to OMB data. Economist Arthur Laffer, who created the Laffer Curve by asserting that tax cuts increase federal revenues by stimulating economic growth, should take a well-deserved bow. Regardless, the lesson is the same in 2006 as it was in the 1980s – tax cuts spur economic growth and increase incoming revenues. .....

Faced with this reality, liberals next claimed that the tax cuts were failing to spur employment growth or create jobs. Remember when they mocked the 2004 White House prediction of 2 million new jobs that year? Lo and behold, the White House prediction actually underestimated 2004 job creation by 10%. Gross Domestic Product has grown approximately 4% for over three years now, well above the historical 3.2% GDP growth average. As a consequence, the unemployment rate stands at 4.7%, which is lower than the average unemployment rate for the 1970s, 1980s and, believe it or not, the media-celebrated 1990s.

Exhausted of arguments against tax cuts, liberals retreat to their old, trusty standby: class warfare. According to them, tax cuts were "for the rich," and wealthy Americans "don't pay their fair share."

There's just one problem: the opposite is actually true. Wealthy Americans actually pay more than their fair share of the nation's taxes.

As reported by the Wall Street Journal, upcoming I.R.S. statistics reveal American tax realities, and liberals once again have egg on their faces. In 2004, Americans in the top 1% income bracket earned 19% of the nation's income, but paid 36.9% of the nation's federal taxes, according to that analysis.

Similarly, the top 0.1% of Americans earned 9.1% of the nation's income, yet paid some 17.4% of the nation's federal taxes. Further down the brackets, the top 5% of American earners earned 33.4% of the nation's income, but paid a remarkable 57.1% of the nation's federal taxes, according to the report.

In contrast, the entire bottom 50% of income-earners (those with incomes below $44,389) brought in 13.4% of the nation's income, but paid only 3.3% of the nation's federal taxes. Indeed, the majority of American families earning under $40,000 actually pay no income tax at all, and many also receive a subsidy in the form of the Earned Income Tax Credit.

Furthermore, the IRS data obliterates the media-fueled myth that wealthy Americans earn a greater portion of the income pie since President Clinton left office. During President Clinton's tenure, the portion of national income earned by the wealthiest 1% of Americans reached a post-World War II high of 20.8% in 2000, up from 13.8% when he entered the White House in 1993. During the Bush Administration, in contrast, the wealthiest 1% of Americans have seen their portion of income drop to 19%. Similarly, the top 0.1% of Americans saw their share of national income fall from 18.9% in 2000 to 17.4% in 2004. (source:www.cfif.org)

[Mibrilane #56]

I can sense Saturn chomping at the bit to rebut your well-stated factual post...

... as soon as he can find an article on MSNBC or CNN that counters what you stated. :wink:

[NJCardFan]

I don't think you get it, Debacle. You see, according to people like Saturn, income is distributed and not earned. To them, if you are "rich" or wealthy then you either stole your money, inherited it, got it by some stroke of luck, or got it on the backs of the working class. They just can't believe that someone actually made some choices in life to get what they have. The really funny thing is that the leftist elite in this country who are millionaires actually gained their wealth the very way they admonish the wealthy. Let's look at some facts. John Kerry(D-Mass) recieved his wealth from his wives, and one of which, Theresa Heinz Kerry, recieved her money from her late husband Republican John Heinz who's family is the famous Heinz. Sen. John Rockafeller(D-WVa) got his money from his family who gained their wealth in oil. Sen. Edward Kennedy(D-Mass) got his money from his father who got it bootlegging. Of course this is ok because they are all Democrats.

Also, those that you mentioned who receive the "earned" income credit actually not only don't pay a dime in taxes but actually receive more money through that income redistribution ponzi scheme. While people like me who have the audacity to make $50K+ a year and who are also married get penalized and have to pay more to the gubment even though I have the higher single rate deducted from my paycheck every week. Of course underachievers like Saturn see no problem with this. They believe that some slob sitting at home downloading crumb snatcher after crumb snatcher they can't afford are more entitled to my money than I am even though I work and put my *** on the line day after day. This is the liberal Democratic creedo. Reward irresponsibility and punish achievement.

[Saturn5]

Ronald Reagan's supply-side tax cuts




The federal deficit ballooned from 2.7% of GDP in 1980 to 6% of GDP in 1983, the largest peacetime deficit in history, and was still 5% of GDP in 1986.

[Mibrilane #56]

The federal deficit ballooned from 2.7% of GDP in 1980 to 6% of GDP in 1983, the largest peacetime deficit in history, and was still 5% of GDP in 1986.
That's it?

[Avondale Red Rage]

I can sense Saturn chomping at the bit to rebut your well-stated factual post...

... as soon as he can find an article on MSNBC or CNN that counters what you stated. :wink:

Are you saying Debacles cut and paste was his own?

http://www.cfif.org/htdocs/freedomline/current/in_our_opinion/Wealthier-Americans-Pay-More-than-Their-Fair-Share.html

[Mibrilane #56]

Are you saying Debacles cut and paste was his own?
No, I was poking fun at Saturn's tendency to clip articles to respond to other people's articles.

[arizona_cards_11]

Are you saying Debacles cut and paste was his own?

http://www.cfif.org/htdocs/freedomline/current/in_our_opinion/Wealthier-Americans-Pay-More-than-Their-Fair-Share.html

Maybe you didn't see the (Source: ) part of Debacle's post.....

[Mibrilane #56]

Maybe you didn't see the (Source: ) part of Debacle's post.....
It could have been clearer that it was an article, but it has far too much information in it to be an off-the-cuff post (sorry, Debacle, but even you don't go into that level of detail) and there is the source at the bottom. Interesting website, that.

I'm taking the position that the economy is hardly perfect (it never is and likely never will be), but it is hardly the dire straits that "progressives" would have one believe. Bush Derangement Syndrome and solid economic analysis rarely mix - just ask Paul Krugman.

If Democrats are so hot and bothered to raise taxes on the rich, I suggest that rich Democrats all band together and voluntarily pay higher taxes. It is, after all, what they want, isn't it? That way, they can feel good about having higher taxes for the rich, and the rest of us can feel good about not having higher taxes, and if any of us should happen to get rich, we're not going to be punished for it. It's the best possible solution, methinks.

They could call it the Democratic Unearned Monetary Balance Tax.

[NJCardFan]

It could have been clearer that it was an article, but it has far too much information in it to be an off-the-cuff post (sorry, Debacle, but even you don't go into that level of detail) and there is the source at the bottom. Interesting website, that.

I'm taking the position that the economy is hardly perfect (it never is and likely never will be), but it is hardly the dire straits that "progressives" would have one believe. Bush Derangement Syndrome and solid economic analysis rarely mix - just ask Paul Krugman.

If Democrats are so hot and bothered to raise taxes on the rich, I suggest that rich Democrats all band together and voluntarily pay higher taxes. It is, after all, what they want, isn't it? That way, they can feel good about having higher taxes for the rich, and the rest of us can feel good about not having higher taxes, and if any of us should happen to get rich, we're not going to be punished for it. It's the best possible solution, methinks.

They could call it the Democratic Unearned Monetary Balance Tax.

Like that's going to happen. You see Mib, the Democrat millionaires in office will be exempt from this. After all congress and the senate can opt out of the social security mess, something Joe Sixpack is not allowed to do.

[Reckon]

I'm for a flat-tax on all income without discrimination against wages - meaning a lower tax rate based on a wide tax base of wages, interest, dividends, capital gains, gambling gains, and inheritance. It has to be a great idea since neither party would support it.

[NJCardFan]

I'm for a flat-tax on all income without discrimination against wages - meaning a lower tax rate based on a wide tax base of wages, interest, dividends, capital gains, gambling gains, and inheritance. It has to be a great idea since neither party would support it.


Why should inheritance be taxed? That money has already been taxed. Someone put it away and then left it to loved ones when they passed and you think the government is entitled to it? This is why a sales tax is better. It let's the people decide what and how much is taxed as it should be. After all we are a democracy, are we not?

[Reckon]

Why should inheritance be taxed? That money has already been taxed. Someone put it away and then left it to loved ones when they passed and you think the government is entitled to it? This is why a sales tax is better. It let's the people decide what and how much is taxed as it should be. After all we are a democracy, are we not?

I think it doesn't get any better than taxing somebody who receives money for doing absolutley nothing. A flat tax that doesn't make any exceptions to income keeps the tax base broad and tax rates low. The national sales tax bills I've seen proposed all include taxes on services as well as material goods. Under those sales taxes, first you'd have to eliminate birth defects, cancer, diabetes, being hit by a drunk driver, etc. before telling me about people being in control of their tax bill.

[Saturn5]

Why should inheritance be taxed? That money has already been taxed. Someone put it away and then left it to loved ones when they passed and you think the government is entitled to it? This is why a sales tax is better. It let's the people decide what and how much is taxed as it should be. After all we are a democracy, are we not?

The same reason gifts are taxed. New income.

Most money is taxed continously. A company is taxed for income, then pays their workers, who are then taxed on that income, who then buys something at the store, and the same money is taxed again. It's new income for those recipients, therefore taxable.

[Saturn5]

No Free Lunch: Why Reagan's Tax Cut Didn't Boost Tax Revenues or Unleash the Economy
by Bernard Sherman
March 23, 1999 (the Fairfield Ledger); Revised 2003
PART ONE: Why Reagan's 1981 tax cut was not what caused the 1980's boom
I know someone who practices long-distance healing. She believes that by concentrating her thoughts (from a safe distance) she can cure your health problems. Imagine running into her when you're on the fifth day of a nasty cold. "I'll start praying!" she promises; two days later, your cold is gone. How much credit should you give her? It's obvious: colds last seven days with or without voodoo. When A ("healing") precedes B ("no more sneezing") it doesn't prove that A caused B.
The principle applies to the 1981 Reagan tax cut. Yes, the economy did nicely from 1983-89. But did A cause B? A close look at the evidence shows that the cut played little more role in sparking the boom than long-distance healing would in curing a cold.
Consider some of the other restoratives at work:
Business cycles One was the alternation of recession and growth known as the business cycle - the growth-bust cycle that has been going on since the dawn of capitalism. Ronald Reagan's first term began during a terrible recession. As always before and since, the recession ended. Did it end because of something Reagan did? And when the recovery came, did the economy grow faster than it would have without Reaganomics?
Answering these questions takes discrimination. We shouldn't be impressed, for example, by the zippy 7.5% annual growth in 1983, the year of the rebound; that kind of catch-up growth usually follows recessions, as idled factories and laid-off employees get to work again. So it was typical of business cycles that the quickest growth in Reagan's term came right when the recovery started. And since the 1981-82 recession was exceptionally bad (the worst in the postwar era, a "double-dip"), the rebound was likely to be extra strong with or without a tax cut.
For similar reasons, comparing just the "growth" phase of the Reagan business cycle to the growth periods of the previous cycle would distort the picture. Again, especially strong growth is what normally comes after an especially bad recession. Instead, we need to compare entire business cycles, including both the boom and the bust phases. When you make the comparison, prepare to be underwhelmed: nothing special happened in the Reagan-era cycle. The average growth rate was about the same as in the previous Ford-Carter cycle. If you compare decade to decade Reagan's era is even less impressive: growth was actually lower in the Eighties than the Seventies.1.
Oil prices Now to our other question: did the strength of the recovery result from the 1981 tax cut? To assert so is to ignore the other elements that played more crucial roles.
One factor was oil. Since World War II, whenever oil prices have risen by 60% or more, a recession has almost always followed.2 So imagine the blow in 1973-74 when oil prices shot up 400% because of the Arab oil embargo.3 Then consider the second shock in 1978-81 when oil prices rose another 125%, this time because of conflict in Iran and Iraq. Not much can stress our economy like a spike in oil prices, since we depend on the stuff for so much of our technology. And not much can help like oil prices coming back to earth, as they did during Reagan's presidency - but not because of his tax cuts. Better cold medicine than falling oil prices would have been hard to find.
Interest rate drops Yet it did come along. Reagan's most important stroke of luck was Federal Reserve Board policies, which reversed course in....wouldn't you know it, 1982. A main cause of the early-80s slowdown had been the Fed's historically stratospheric interest rates. Short-term US interest rates shot above 14% in 1981, almost double what they had been three years earlier. Why? Because Carter-appointee Paul Volcker, Fed Chairman from 1979-87, focused the Fed on one goal alone, whipping runaway inflation (which had reached as high as 12.6% from one year to the next). He succeeded at a cost: an economic slowdown, then called the "Volcker Recession." With interest rates so high, businesses wouldn't borrow to invest, and residential investment fell by 40%, reaching its lowest level in 13 years.(After all, a 30-year fixed mortgage would have cost you 18.5%.)
By summer of 1982 Volcker felt that inflation had been tamed and that his interest rates were endangering the economy, so he started to lower them (not because of the tax cut). Short-term rates dropped to 10.6% in 1982, and to below 6% by 1986. Economists explain that Fed policy has a quicker impact on the economy than tax policy, which takes a while even to go into effect. (Indeed, the full Reagan tax cut was phased in over three years.) The falling interest rates made it easier for businesses to borrow, invest and create jobs; and most important, the lower rates caused residential investment to rise by a stunning 46%. What led the 1980s boom was that people were buying housing because mortgages were finally affordable. The "Reagan expansion" was really the Volcker expansion.
Etc., etc. Other developments contributed to the growth of the economy too. For example, a wave of deregulation (which began in the Carter years) probably helped spur economic growth. So, very likely, did the extra demand caused by a 40% increase in defense spending under Reagan. Other factors such as exchange rates have been mentioned as well. Then there are the "demand-side effects" of the tax cut, which I'll discuss next. The economic revival, then, had many well established causes other than the supply-side effect of tax cuts. To insist that the 1981 tax cut was the single magic bullet is to take a leap of faith into the supply-side belief system, not to make an obvious statement.
Why the Reagan years undermine supply-side claims Evidence shows that even the small contribution to the recovery made by the 1981 tax cuts supports not supply-side theory, but instead mainstream economics. To understand why, consider a peculiarity of supply-side thinking. You might have heard that tax cuts stimulate the economy by allowing people to spend the extra money they now have left in their pockets; most economists accept this effect. But this "extra money" idea is not supply-side economics. It's old-fashioned Keynesian "demand-side" economics, in which people have more money to spend, thus increasing demand. Reagan's tax cuts probably did have a minor impact on the economy this way.
Yet true supply-siders deny that government policy can do anything, overall, to boost demand. Instead, supply-side cuts are supposed to do their magic because lower tax rates give people the incentive to work longer hours, save more money, and be more productive. While nobody denies that tax cuts can have at least some such effects, supply-siders argue that this is all that the Reagan tax cuts were really about.
They exaggerate greatly. If supply-siders were right, the Reagan tax cut would have been followed by spikes in how much people saved, how many hours they worked, and how productive they were. But none of these spikes happened. Savings rates actually declined during Reagan's term, in spite of tax incentives for saving.4 People did not work longer hours in response to tax cuts - a finding replicated in major independent studies from the Brookings Institute, the Federal Reserve, and the University of California. And productivity growth rates remained sluggish. (Indeed, the numbers from 1951 and 1995 show the opposite of what supply-side theory predicts: productivity growth dropped pretty much in lockstep with marginal tax rates. Productivity growth took off in the mid-1990s - after Clinton's tax hike. I'm not arguing for cause and effect - I think it was coincidence - but it does show that supply-side thinking is too simple to fit the real world.)
By an honest supply-sider's standards, then, the tax cut failed. But how about the commonly quoted argument that the tax burden on individuals and businesses fell in late-20th century America, and that this explains the growth of the economy in that era? Again, data undermine these claims. For one thing, the total tax burden in the US - that is, including all taxes, such as payroll, state, and local, as well as Federal income tax - has not changed much since 1950, hovering around 25-30%. As for income taxes, research raises doubt about the simple assertion that higher tax burdens reduce growth. One major study found that US income tax revenue as a percentage of the total economy rose from 2 percent in 1913 to 15 percent in 1942 - but that this increase had no effect on the average growth rate of the economy. And it is worth noting that the periods of highest economic growth in the 20th-century US have been exactly those periods with the highest marginal tax rates, such as the 1950s. Again, this is not cause and effect, but it does not fit supply-side thought, or any other simple assertions about how taxes affect the economy. More evidence against the supply-side mantra - "cut taxes, watch the economy grow" - comes from looking at a much larger sample of countries than just the US. Economists Joel Slemrod and Jon Bakija compared economic growth rates with tax levels in 25 major countries from the years 1970 to 1990. They found no relationship between overall tax levels and growth rates. (They also found no link between tax rates and the size of the economy.) Some of the lower-tax countries had fast growth - but so did some of the most heavily taxed countries. And some low-tax countries had low growth.
Research on marginal tax rates, the extra tax added as income increases, has found conflicting results. But I don't doubt that there was good reason to reform tax law in some way or another in 1981: the runaway inflation we talked about earlier was pushing too many people into higher brackets, and the top marginal tax rate was so high, at 70%, that it was contributing to the tax code's incentives for fruitless investment (called "distortion," and harmful to the economy). Still, the 1981 law did not reduce tax-caused distortion at all, because it added special preferences and exceptions to the tax code. The tax-shelter industry grew markedly after 1981. Thus, the cut did not cause the 1980s boom through reducing distortion. And the top marginal rate was cut to so low a level that it caused severe deficits.
PART TWO: Why the Reagan tax cut reduced tax revenues and caused the deficit
"The [1981 Reagan] tax cut did not cause tax revenue to rise... tax revenue fell... the government began a long period of deficit spending... the largest peacetime increase in the government debt in U.S. history. Fads can make experts seem less united than they actually are." N. Gregory Mankiw, now head of George W. Bush's Council of Economic Advisers, in his 1998 book Principles of Economics (New York: Dryden. pp. 29-30, in the section "Thinking Like an Economist: Why Economists Disagree: Charlatans and Cranks")
The 1981 tax cut didn't cause the boom. But what about the other key supply-side claim: that Reagan's tax cut actually increased federal tax revenues? A close look at the data shows that it didn't. Instead, what boosted Federal tax revenues during the 1980's was not individual income taxes but payroll taxes (the tax taken out of your paycheck to pay for Social Security and Medicare). What caused the 4.3% average growth in payroll tax revenues was not a tax cut but a big tax increase, the Social Security Reform Act of 1983. Try explaining that with supply-side theory.
Similarly, corporate tax revenues plummeted after Reagan's tax cut - in contradiction to the "cut taxes, increase revenue" ideal. Corporate tax revenue surged only after the 1986 tax-reform law, which got rid of a lot of tax-sheltering opportunities. This broadened the base of what gets taxed, and thus allowed Congress to reduce the top corporate tax rate without losing revenues. But for a number of corporations, the act did not lower taxes. In fact, it limited depreciation deductions, eliminated the investment tax credit, and strengthened the "alternative minimum tax." Popular tax-sheltering approaches suddenly became useless or illegal.
That pesky deficit The loss of income tax revenue after the 1981 tax cut explains why the lunch wasn't free: Reaganomics created budget deficits bigger than anyone had imagined.5 At its peak in 1983, the annual deficit reached 6% of GDP, a size associated with banana republics. The 1986 tax law helped reduce annual debt, but not enough, because all that annual debt continued to build up. Relative to the GDP, the size of the accumulated debt almost doubled in the Reagan years, going from 27% of the total US economy to over 40% by the end of the Reagan presidency and to almost half the economy by 1993. The typical Reagan supporter blames Congress for the red ink, but that's unfair: Congress added only a fifth to Reagan's own budget proposals, which were not frugal, since they increased defense spending by 40%. (You may regard that as a good thing, but you can't deny that it added to the deficit.) Put lunch on a credit card year after year and soon the interest payments will cost more than the food. By the early Clinton years the government was actually spending within its means; what was causing the massive deficit by then was the huge and mounting interest on the preceding debt.
Conclusion If you still believe in Reaganomics, remember what supply-siders predicted in 1993, when Bill Clinton raised taxes on the wealthy by 41%. Newt Gingrich told us the tax increase would bring on a severe recession, The Wall Street Journal told us the budget deficit would go sky high, and Forbes told us to take our money out of the stock market, because it was headed for a deadly crash. The predictions couldn't have been more wrong - we actually got an expansion longer than Reagan's, a stock-market boom, and a budget surplus. But if supply-side economics were true, the predicted disasters are exactly what should have happened. Supply-siders who nowadays try to credit the Clinton boom to "delayed effects" of the Reagan tax cuts have no evidence to back them up. Besides, they conveniently overlook the partial reversal of Reagan's cuts by the first George Bush (who raised marginal tax rates on the top bracket from Reagan's 28% up to 31%) and Clinton (who raised them to 39.6%), as well as increases in payroll taxes; these tax increases indisputably did not choke off economic growth.
The Reagan 1981 tax cut neither caused the economic boom - other factors deserve the credit - nor boosted tax revenues. It did cause a whopping increase in the Federal budget deficit. And it gives no more evidence for supply-side theory than recovery from a cold would for long-distance healing. Whether the increased deficit was a serious problem or not is another question, and an interesting one (I'll post some thoughts on this soon). But the clear lesson of the Reagan era is that if you want tax cuts, you need to be honest about their consequences. They are not an economic turbocharger, and they will eventually force you to shrink the size of the government. You can't have it both ways - granting big tax cuts and still maintaining a powerful military and expensive entitlement programs like Social Security and Medicare. You have to choose. That's because the bill for lunch, no matter how long you defer it, always comes due sooner or later.

To Come: (1) Did Reagan prove that deficits don't matter? (2) Why trimming domestic spending won't solve America's growing deficit problem.
- Bernard Sherman (http://homepages.kdsi.net/~sherman/index.html)(Footnotes to be added as author's time allows - they do exist- but scroll down for some of them)

__________________________________________________ __________________________________________

FOOTNOTES (at least, the beginning of them):
1 The last business cycle before Reagan ran from 1973 (the last quarter before a mid-seventies recession started) to 1979 (after four years of growth, and right before the double-dip recession). For the Reagan-era business cycle, the starting peak is 1979, before the recession, and the ending peak in 1989 (when a new recession was about to start). When you compare these two broad business cycles, you find that the growth rate was about the same. Also, Joel Slemrod and Jon Bakija measure the average growth rate in a different way: they simply compare decades. As they note, the growth rate in the 1980s was actually slightly lower than that in the 1970s (see p. 97 of Taxing Ourselves; data taken from the U. S. Bureau of Economic Analysis.)
2 .There's one tiny exception - a one-month blip in 1987 - but it hardly disproves the rule.
3. Crude oil prices: See http://www.wtrg.com/prices.htm for detailed graphs and numbers.
4. See Jane Gravelle, The Economic Effects of Taxing Capital Income (MIT Press, 1993) for detailed discussion.
* From N. Gregory Mankiw (1998), Principles of Economics (New York: Dryden). pp. 29-30: "An example of fad economics occurred in 1980, when a small group of economists advised presidential candidate Ronald Reagan that an across-the-board cut in income tax rates would raise tax revenue. They argued that if people could keep a higher fraction of their income, people would work harder to earn more income. Even though tax rates would be lower, income would raise by so much, they claimed, that tax revenue would rise. Almost all professional economists, including most of those who supported Reagan's proposal to cut taxes, viewed this outcome as too optimistic. Lower tax rates might encourage people to work harder, and this extra effort would offset the direct effects of lower tax rates to some extent. But there was no credible evidence that work effort would rise by enough to caues tax revenues to rise in the face of lower tax rates. George Bush, also a presidential candidate in 1980, agreed with most of the professional economists: He called this idea 'voodoo economics.' Nonetheless, the argument was appealing to Reagan, and it shaped the 1980 presidential campaign and the economic policies of the 1980s.... Congress passes the cut in tax rates... but the tax cut did not cause tax revenue to rise... tax revenue fell... government began a long period of deficit spending... largest peacetime increase in the government debt in U.S. history. Fads can make experts seem less united than the actually are... when the economics profession appears in disarry, you should ask whether the disagreement is real or manufactured... some snake-oil salesman who is trying to sell a miracle cure... " --Thinking Like an Economist: Why Economists Disagree: Charlatans and Cranks
5. That nobody imagined the deficit was partly because Volcker tamed inflation better than anyone expected him to. The purpose of the 1981 tax cut was partly to fight "bracket creep" - people finding themselves paying higher tax rates purely because of inflation - so controlling inflation reduced government tax revenues below what had been expected.
[B]Some resources:
Crude oil prices: See http://www.wtrg.com/prices.htm
Economic data galore: http://research.stlouisfed.org/fred2/
GDP data: See http://www.swcollege.com/bef/econ_data/unemployment/unemployment_data.html
In-depth background on taxation: See the book, Taxing Ourselves by Joel Slemrod and Jon Bakija (MIT Press: Second ed, 2001). The particular study I mentioned is summarized on pp. 99-103.
The Office of Tax Policy Research: http://www.otpr.org/
Paul Krugman;s critiques of supply-side tax cuts: his books Fuzzy Math and The Great Unraveling; also the following article, not yet collected: http://www.nytimes.com/2003/09/14/magazine/14TAXES.html?ex=1071378000&en=7518baae53cb75b0&ei=5070
Economics research: A great summary is the book Re-Inventing the Bazaar: A Natural History of Markets by John McMillan (Norton, 2002).
zero sum game idea -- government versus markets.

http://homepages.kdsi.net/~sherman/rushmore.html

[NJCardFan]

I think it doesn't get any better than taxing somebody who receives money for doing absolutley nothing. A flat tax that doesn't make any exceptions to income keeps the tax base broad and tax rates low. The national sales tax bills I've seen proposed all include taxes on services as well as material goods. Under those sales taxes, first you'd have to eliminate birth defects, cancer, diabetes, being hit by a drunk driver, etc. before telling me about people being in control of their tax bill.

So, in other words, people who receive welfare, "earned" income credit, should be taxed, right?

[Reckon]

So, in other words, people who receive welfare, "earned" income credit, should be taxed, right?

I meant what I wrote, I'd be happy to see all income taxed and especially that gained by people for doing nothing. Of course I am also against discrimination against people and so no income should be tax at a greater or smaller rate than any other regardless if gotten through wages, investment, inheritance or welfare. Toss social security in there too - the portion over and above the recipients' contribution.

Now that I answered your question, will you answer mine? Two young couples living next door to each other are both expecting a child. If one of the couple's child is born with a birth defect should the government burden that couple with a greater tax responsibility than the other?

[Avondale_Larry]

Here we go again with the national sales tax crowd.

Remember, the "fair" tax was invented by Texas millionaires to benefit Texas millionaires. Just because some of you fell for their ponzi scheme doesn't mean it's a fabulous idea.

And you might mention, when discussing the estate tax that the first $2,000,000 is excluded from taxation.

That's right. If your rich uncle gives you $2,000,500, (money which you did nothing whatsoever to earn, except win the lottery of having a rich relative) you pay tax on $500. Boo hoo. You can afford it.

http://en.wikipedia.org/wiki/Estate_tax_%28United_States%29

[NJCardFan]

I meant what I wrote, I'd be happy to see all income taxed and especially that gained by people for doing nothing. Of course I am also against discrimination against people and so no income should be tax at a greater or smaller rate than any other regardless if gotten through wages, investment, inheritance or welfare. Toss social security in there too - the portion over and above the recipients' contribution.

Now that I answered your question, will you answer mine? Two young couples living next door to each other are both expecting a child. If one of the couple's child is born with a birth defect should the government burden that couple with a greater tax responsibility than the other?

I'll answer your question with a question: So, what you are saying is that someone else should be entitled to money I worked for? Just because I either don't have a child or don't have one with a birth defect that I should pay more taxes?

[Reckon]

I'll answer your question with a question: So, what you are saying is that someone else should be entitled to money I worked for? Just because I either don't have a child or don't have one with a birth defect that I should pay more taxes?

So WHAT YOU ARE SAYING is that you are all for the taxation of health care services to alleviate your burden, but you have no problem carrying the tax load for some lazy bum that inherits his dough from daddy.

[NJCardFan]

So WHAT YOU ARE SAYING is that you are all for the taxation of health care services to alleviate your burden, but you have no problem carrying the tax load for some lazy bum that inherits his dough from daddy.

Why do you hate people with money so much? So, what you are saying is that money that I save for years and years and years should be just given to the government? Is it pure jealousy on your part because you don't have a millionaire parent to leave you with anything? And, since you want to call someone who inherits their parents wealth "lazy bums", please cite examples. Besides the Hilton sisters, please name me one person who inherited alot of money while just sitting on their ***. The class envy on these boards is utterly amazing.

[Reckon]

Please tell us NJ, how believing in the equal tax treatment of income (regardless on which basis it is derived) is being hateful and jealous of the rich?

[NJCardFan]

Please tell us NJ, how believing in the equal tax treatment of income (regardless on which basis it is derived) is being hateful and jealous of the rich?

Because you are taxing money that's already been taxed. Saying inheritance should be taxed is like saying you should be taxed if I lent you $5. Chew on that one a bit because there is absolutely no difference.

[Reckon]

Do you understand that we have an national income tax and not a national personal property tax? For example, the stock worth billions of dollars that Bill Gates holds has never been taxed. And certainly when he dies his heirs won't have paid any prior tax on the portain that he doesn't give to charity and they receive.

[Saturn5]

Please tell us NJ, how believing in the equal tax treatment of income (regardless on which basis it is derived) is being hateful and jealous of the rich?

that's his pat answer to anyone who disagrees with his argument against the estate tax. Avondale Larry has it exactly right. It's only on everything earned above 2 mil AND there are special exceptions for inheriting farmland.

So even though nearly all income is taxed multiple times, because this particular tax supposedly is unfair to the rich, he's outraged by it.

Flimsy argument to say the least.

[SeeingRed]

The solution is simple: Fair Tax.

[Cardsfan2000]

The solution is simple: Fair Tax.

SeeingRed, this is an example of why you need to stop acting like you speak for the entire military. You are certainly in the vast minority among your fellow troops in your staunchly conservative stances on fiscal issues....
True most in the service are conservative but they are also populists.

[SeeingRed]

SeeingRed, this is an example of why you need to stop acting like you speak for the entire military. You are certainly in the vast minority among your fellow troops in your staunchly conservative stances on fiscal issues....
True most in the service are conservative but they are also populists.

What the hell are you talking about? My comment had nothing to do with anyone else's opinion but my own. Window licker.

[Reckon]

The solution is simple: Fair Tax.

I'm trying to get a notion why those that favor the Fair Tax want to (1) subject those that are retired on fixed income to double taxation and (2) why they would wish to subject those having catastrophic health bills with taxation laid upon those bills?

Just curious. It's inpossible to get some other people on this board to provide a strraight answer.

[NJCardFan]

I'm trying to get a notion why those that favor the Fair Tax want to (1) subject those that are retired on fixed income to double taxation and (2) why they would wish to subject those having catastrophic health bills with taxation laid upon those bills?

Just curious. It's inpossible to get some other people on this board to provide a strraight answer.

How do you figure? Social Security is a pre-tax deduction as are pension, 401K, and other retirement deductions. So, please tell me where they are "double taxed". Now, on the flip side, I am already "double taxed". I get taxed in my paycheck, then I get taxed on all my services(phone, water, cable), then I get taxed again on the same dollar if I buy a sandwhich. But you think this is better.

As for these catastrophic health bills(you seem to be focusing on one demographic while I seem to be focusing on everybody), we already pay taxes on medicine and such but these taxes are hidden taxes. Same with a loaf of bread. But, alas, we should all pay higher taxes because someone might get sick. Nice.

[Reckon]

How do I figure? Unlike you, I figure that any worker who spent 45 years earning a living and paying his income taxes should not be hit by new federal taxes on his purchase of goods and services, especially for medical services that tend to mount during people's golden years.

[Mibrilane #56]

How do I figure? Unlike you, I figure that any worker who spent 45 years earning a living and paying his income taxes should not be hit by new federal taxes on his purchase of goods and services, especially for medical services that tend to mount during people's golden years.
ANY change in taxation will always adversely affect those who have already been taxed - that's just how it is.

[kjbad]

Interesting thread...to understand the concept behind higher taxes, you need not look any further than former President Clinton himself:

Source: http://www.newsmax.com/archives/ic/2005/11/7/140306.shtml

Bill Clinton: Bush Tax Cuts 'Immoral', 'Unethical'

Ex-president Bill Clinton is blasting President Bush's economic policies as "immoral" and "unethical," saying he blames administration tax cuts for increasing hostility towards the U.S. around the world.

"I hear all this talk about family values and all this stuff," Clinton told an audience at the University of Minnesota on Saturday, before explaining how an old friend had been hurt by cuts in subsidies for Americans in need while the wealthy got tax cuts.

"I resent it," Clinton said, his voice rising in anger. "I think it's immoral, I think it's unethical."

"Nobody ever explains what the meaning of those tax cuts are," he told the crowd. "So we're going to give them their tax cuts first and then go ask the Chinese to loan us money to help save the lives of the young men and women we send into combat."

The Minnesota crowd applauded as the ex-president continued to paint the White House as fiscally irresponsible in a way that shortchanges other countries.

"We think it's important to help poor people in the world but we're going to suck up 80 percent of the savings in the world, which could be going to invest somewhere else because we think tax cuts for people who make a million dollars a year are more important," he railed.

"I don't think it's ethical. And I know it's terrible economics," Clinton declared, before tying the Bush tax cuts to increasing U.S. unpopularity around the world.

"Until this country walks away from it, we are going to pay the price. They know we do this. Don't you think people around the world know we do this? And don't you think this has something to do with the way they look at us?"

Clinton touted his own economic record, saying it compared favorably with the supply side policies implemented under President Reagan and Bush 41.

"When I was president we moved 100 times more people out of poverty than in the previous twelve years and 50,000 more jobs and had middle class incomes rising and more millionaires and billionaires than ever before," he claimed.

"So we can go forward together - but not if people like me demand a free ride while we send the children of middle class America and poor America around the world to put their lives in danger, and refuse to pay for it."

"That's wrong, it's just wrong," Clinton insisted.

Now I know that Clinton doesn't speak for every Democrat, but this view that we are somehow taking something away from the world is what drives a lot of commentary on the supply side economics. As a tax-paying American, I vehemently oppose that view.

[NJCardFan]

Reckon, I respect your position and all but on this subject, let's just agree to disagree. Think about it. Neither a flat tax or the fair tax is going to happen anyway.

[SeeingRed]

I'm trying to get a notion why those that favor the Fair Tax want to (1) subject those that are retired on fixed income to double taxation and (2) why they would wish to subject those having catastrophic health bills with taxation laid upon those bills?

Just curious. It's inpossible to get some other people on this board to provide a strraight answer.

The price on goods wouldn't increase hardly any. I wasn't aware that the Fair Tax Plan had anything to do with medical bills.

[Reckon]

The price on goods wouldn't increase hardly any. I wasn't aware that the Fair Tax Plan had anything to do with medical bills.

FairTax backers claim that prices wouldn't rise, but they never mention that for these embedded tax savings to happen, wages would need to be cut by the amount the FairTax would provide in way of payroll tax savings.

As far as medical bills go, both out-of-pocket medical expenses and premiums paid for health care insurance would be taxed.

[NJCardFan]

This might answer a question:

What about senior citizens, retired people, and anyone on a fixed income?

As a group, seniors do very well under the FairTax. Low-income seniors are much better off under the FairTax than under the current income tax system.

Some erroneously believe that people who live exclusively on Social Security pay no taxes. They may not know it, , but they are paying hidden corporate income taxes and employer payroll taxes whenever they buy anything. Under the FairTax, seniors pay $0.23 out of every dollar they choose to spend on new goods and services.

Plus, seniors, like everyone else, receive a monthly rebate, in advance of purchases, for taxes paid on the cost of necessities which more than pays for all of the taxes they would pay if they received the average Social Security benefit amount and spent it all. If seniors choose to work, they are freed from regressive payroll taxes, the federal income tax on wages, and the compliance burdens associated with each. They pay no more hidden taxes on goods or services, and used goods are tax free. There is no income tax on their Social Security benefits.

The income tax imposed on investment income and pension benefits or IRA withdrawals is repealed. Pension funds, IRAs, and 401(k) plans had assets of $12 trillion in 2004. An income tax deduction was taken for contributions to most of these plans. All beneficiaries and owners of these plans expected to pay income tax on them upon withdrawal but are not required to do so under the FairTax.

All owners of existing homes experience large capital gains due to the repeal of the income tax and implementation of the FairTax plan. Seniors have dramatically higher home ownership rates than other age groups (81 percent for seniors compared to 65 percent on average). Homes are often a family’s largest asset. Gains are likely to be in the range of 20 percent.

The FairTax makes the economy much more dynamic and prosperous. Consequently, federal tax revenues grow. This makes it less likely that federal budget pressures require Medicare or Social Security benefit cuts.
http://www.fairtax.org

There are about 50 FAQ's on the site. All it takes is little research.

[SeeingRed]

The Fair Tax would require so much change and would really change the face of our country. That scares people and I think that's what scares a lot of the left from it. That, coupled with the fact that a lot of them scam out of paying taxes anyway.:poke:

[Avondale_Larry]

They could have called FairTax "ScrewThePoorAndMiddleClass" Tax, but it wouldn't have duped nearly as many proponents.

There are two basic problems with any pay-as-you-go tax scheme-- it disincentivizes spending. Lower spending equates to a dip in the engine that drives our economy--consumerism.

Think that doesn't work? Look at the targeted taxes placed on things like cigarettes. It causes many casual smokers to quit or at least cut down. Why do you think in states like Arizona the cigarette industry spent millions to fight this particular tax? They knew it would cause people to spend less of their disposable income on smokes. If you want to send the economy down a bottomless pit, tell people it's a bad idea to spend their money.

The second reason is each of us has basic needs in life, notably shelter and food. Uncle Sam is kind enough to pay both of us BAH and BAS to cover those needs. Even though my base pay is close to twice yours (and mine is one third that of a General), all of us are assumed to need about the same to eat.

Now the General may eat steaks and caviar and an Airman Basic may eat beans and top ramen, but food is a necessary expense. No one can survive on zero food. No one with a decent job can possibly spend every cent they earn in the grocery store. All of us are somewhere in between The same is true with shelter. Bill Gates has a $40 million house. Even if he had a mortgage payment, that payment would be far less percentage-wise than what you pay every month for a place to live.

Bust out a calculator and do some googling if you don't believe me.

This means that those of us (like you and me) in the lower income brackets spend far more of our income on food and shelter than the richest one percent.

Still don't think that's fair? Gates and other uber-wealthy live in the most free society in the world. They (and more importantly their investors) don't have to worry about a coup de etat screwing industry or a foreign country invading. Courtesy of people like you and me.

The Department of Defense (and police, fire, and other public entities) provide that security. That comes with a price. Bill Gates doesn't want to close down business and move to Colombia or Pakistan. He was successful simply because he lives in a free society. He's earned more and should be quite happy about paying more.

The "FairTax" would drop Gates and the other multi-millionaires tax burden to virtually nothing as a percentage of their income. They'd still pay more than you or I, because Porches are expensive. But overall, they would save billions of dollars. Now who do you suppose would pick up that tax burden?

For the record, I have nothing against Gates or any other rich guy. I'd love to be one one day. But I recognize that people get rich in America because of our economy, and our economy is the product of a free society. And living in a free society comes with a heavy price.

[SeeingRed]

Points well taken. However, when in the original Fair Tax proposal, it states that prices on common goods would only go up maybe a few cents due to implimentation of the tax. So with that being said; how does that effect me in a negative way? How does that effect the government in a negative way? If a gallon of milk is $.15 more, big deal (granted I'm on WIC so I don't have to pay for milk, but still). I'm sure for a little while, like you said, it will discourage spending, but after a while it will become common-place and people will spend like they're used to. Granted, the rich will be taxed less percentage wise, but at the end of the day the government will still pull in more tax money than they do now with the POS IRS.

[KidStallyn]

I personally think we should tax the poor more money. Perhaps it would give them some motivation to educate themselves, get better jobs and pay fewer taxes. As it stands right now, what's the incentive not to be poor....you get a higher minumum wage now....you can suck the government dry with food stamp and other subsidies (paid for by the rich and their higher taxes). People need to realize, that minimum wage is not something to strive for....and education doesn't stop at high school. Go to college, get a degree, and open the door to a better life. If you don't, I hope you enjoy the phrase, you want fries with that, because there isn't a good paying employer whos going to hire you for anything but an hourly wage. Why would they take a chance on you and pay you a high salary job when you dont think enough of yourself to take the time to get a degree. The fact you don't have a higher level degree on your resume tells them all they need to know about you. It tells them your lazy and not a good candidate for their higher paying jobs.

[SeeingRed]

The minimum wage bill, as I understand it, has not been passed. It has been proposed, but not passed. Taxing the poor more is just stupid...since their income consists of welfare and foodstamps...paid for by your local tax payers.

[KidStallyn]

The minimum wage bill, as I understand it, has not been passed. It has been proposed, but not passed. Taxing the poor more is just stupid...since their income consists of welfare and foodstamps...paid for by your local tax payers.
So what...making them pay for thier foodstamps is a bad thing.....Why should I be penalized because someone dropped out of high school, got married had 5 kids and cant afford to live....Don't penalize me for thier stupidity and terrible choices......

I made the choice to goto college, get a degree (which I had to pay for myself by earning money at part time jobs since I did not get any grants, scholarships, etc). I chose to go into the military and become an officer in which I served 5 years. I chose to leave the service and take a high paying engineering job here in Arizona. I chose to save money so that I could open my own business. I chose to leave engineering firm A and go to engineering firm B becasue they made me a smoking offer loaded with incentives.

Or, I could have chosen to drop out of high school....See folks, life's about choices....You choose what path you go on, life doesn't choose for you.

[SeeingRed]

But theoretically, you should pay more taxes (percentage wise) because you make more money. I certainly don't want to pay more taxes, but I don't use my social status or my job as leverage. I'm in the military as well, have an A&P license, and am almost done with my associates, but that doesn't mean I am (or should be) exempt from paying as much in taxes as the rest of the people. This is exactly why the Fair Tax would be beneficial...no one gets taxed more than others because EVERYONE needs to purchase household goods, food, clothes, etc. The economy would do surprisingly well I think, if this were implemented.

[KidStallyn]

But theoretically, you should pay more taxes (percentage wise) because you make more money. I certainly don't want to pay more taxes, but I don't use my social status or my job as leverage. I'm in the military as well, have an A&P license, and am almost done with my associates, but that doesn't mean I am (or should be) exempt from paying as much in taxes as the rest of the people. This is exactly why the Fair Tax would be beneficial...no one gets taxed more than others because EVERYONE needs to purchase household goods, food, clothes, etc. The economy would do surprisingly well I think, if this were implemented.

That's all I'm saying.....I'm tired of carrying everyone elses lazy dead weight...It's hard enough to carry my own...

[SeeingRed]

That's all I'm saying.....I'm tired of carrying everyone elses lazy dead weight...It's hard enough to carry my own...

The Fair Tax would alleviate (sp?) that pressure.

[Avondale_Larry]

The Fair Tax would alleviate (sp?) that pressure.


It's a Zero Sum Game.

The federal government needs some money to operate every year. There are numerous sources of income, (tariffs, corporate taxes, etc.) Less than half of our total income is from federal income tax (1.1 of 2.8 trillion (2007), according to Wiki).

For the purposes of this discussion, let's assume it's an even trillion bucks.

Most of the web sites I looked at agree that the upper 25% of Americans pay 58% of that tax burden. God bless 'em, they're coughing up 580 billion dollars a year.

That other $420 billion is paid by the rest of us.

Now these very people who designed and sold you on the FairTax are the ones whose tax burden would go down. Do you honestly believe anything else?

They tell you that by closing loopholes, we'll save money. Who is currently using the loopholes that Fairtax claims to close? Yep, the same millionaires who are currently pushing for a national sales tax.

So I'll ask you again, if we lose a chunk of that $580 billion, who will make up the difference?

Please go and look at the annual budget for the entire Department of the Treasury (including the IRS) before you pass on the fairtax.org lie that that will help much. It was $11.1 billion in 2004, or less than one half of one percent of the 2004 budget (Wiki only cites DOT's 2004 numbers. Google somewhere else if you want 2007)

[Reckon]

I agree that the sole emphasis of those proposing the FairTax is the elimination of inheritance tax and all taxes on investment income. I also don't buy the story that a 23% percent tax on goods and services (that excludes purchases if done for investment purposes) will not be felt by consumers. But then, when it comes to promises during a campaign for anything, my stance is like Reagan's towards the the Russians, "Trust, but verify."

By the way, in present legislation submitted to the House, that 23% is only guaranteed for 2007. After reading the bill I'm at loss on the 3 components making up the rate for future years. Bill backers, a little help please?

While I doubt the majority of folks will fall for this scheme, my worry about these people's call for a national goods and services tax is that we'll end up with it while also keeping the income tax. It will be the source of those in power to continue and expand the preferential treatment of inheritance and investment income in comparison to wages.

If those wanting this tax would are really sincere, I'd like to see them get to work eliminating the income tax first. I'd back them to that end.

[Reckon]

I forgot to add one thing last night about how much I trust these FairTax folks and all their answers. It's about their tax-inclusion method of defining the rate.

That 23% rate I quoted above is the tax-inclusion rate. Let me explain through use of an example....

Say I buy a car or incur a hospital expense of $25,000. At 23% that translate into a $5,750 federal tax obligation, correct?

Afraid not. Not by the math of the FairTax'ers. I'd be taxed $7,467.53 - that 23% they are trying to sell is based on not only the cost of the goods and services, but the federal tax obligation is also included to make the rate more attractive.

That's all I need to know about the validity of FairTax claims and is part of the reason I think of its backers as cumps.

[Debacle]

I forgot to add one thing last night about how much I trust these FairTax folks and all their answers. It's about their tax-inclusion method of defining the rate.

That 23% rate I quoted above is the tax-inclusion rate. Let me explain through use of an example....

Say I buy a car or incur a hospital expense of $25,000. At 23% that translate into a $5,750 federal tax obligation, correct?

Afraid not. Not by the math of the FairTax'ers. I'd be taxed $7,467.53 - that 23% they are trying to sell is based on not only the cost of the goods and services, but the federal tax obligation is also included to make the rate more attractive.

That's all I need to know about the validity of FairTax claims and is part of the reason I think of its backers as cumps.

How do you come up with $7467.53 in tax?

First, in your example of the $25,000 car. Under FairTax 23% of that price goes to taxes or $5750, the remaining $19250 is the actual cost of the car.
This is a "tax-inclusive" rate, exactly how income tax is currently done.

Under a "tax-exclusive" scenario, this same $19250 car would have to have a sales tax rate of almost 30% to generate the same tax revenue.

FairTax is demonstrated in "tax-inclusive" fashion because that is how the current income tax is derived on income. For example one doesn't get taxed 15% on top of their wage(like a sales tax or tax exclusive)...one gets 15% of their wages taxed (tax-inclusive).
http://fairtax.org/images/faq/FAQ3.jpg

[Avondale_Larry]

How do you come up with $7467.53 in tax?

First, in your example of the $25,000 car. Under FairTax 23% of that price goes to taxes or $5750, the remaining $19250 is the actual cost of the car.
This is a "tax-inclusive" rate, exactly how income tax is currently done.

Under a "tax-exclusive" scenario, this same $19250 car would have to have a sales tax rate of almost 30% to generate the same tax revenue.

FairTax is demonstrated in "tax-inclusive" fashion because that is how the current income tax is derived on income. For example one doesn't get taxed 15% on top of their wage(like a sales tax or tax exclusive)...one gets 15% of their wages taxed (tax-inclusive).
http://fairtax.org/images/faq/FAQ3.jpg

And of course "choose to spend" is the real deal-breaker in this whole thing.

Remember the Luxury tax of a few years ago? Those who could afford things like yachts decided not to buy them when they knew a big chunk of the expense would go to Uncle Sam. They didn't buy slightly-less-expensive-yachts. They didn't buy any yachts, at least not in America.

This put thousands of middle-class yacht builders out of business. (http://www.time.com/time/magazine/article/0,9171,973305,00.html)

Fortunately, there's enough of us who understand the law of unintended consequences to remind our elected officials how the economy works every time the "flat tax" or "fair tax" dittoheads start speaking out.

[Reckon]

How do you come up with $7467.53 in tax?

First, in your example of the $25,000 car. Under FairTax 23% of that price goes to taxes or $5750, the remaining $19250 is the actual cost of the car.
This is a "tax-inclusive" rate, exactly how income tax is currently done.

Under a "tax-exclusive" scenario, this same $19250 car would have to have a sales tax rate of almost 30% to generate the same tax revenue.

FairTax is demonstrated in "tax-inclusive" fashion because that is how the current income tax is derived on income. For example one doesn't get taxed 15% on top of their wage(like a sales tax or tax exclusive)...one gets 15% of their wages taxed (tax-inclusive).
http://fairtax.org/images/faq/FAQ3.jpg

Just divide the price of the good or service by 0.77 to come up with the total cost. Take the difference to calculate the tax amount.

$25000 / 0.77 = $32467.53
23% of $32467.53 is $7467.53.
$32467.53 - $7467.53 = $25000.

That's right, when the FairTax folks talk 23% that means 30% under the method that sales taxes are normally calculated. Of course that 30% tax on a car becomes 0% for somebody with a little ingenuity and I sure got no problems with that.

[SeeingRed]

If you want to know more about the Fair Tax and how it works EXACTLY so you can stop making radical assumptions, go to www.boortz.com and buy the book.

[NJCardFan]

If you want to know more about the Fair Tax and how it works EXACTLY so you can stop making radical assumptions, go to www.boortz.com and buy the book.

Or go to www.fairtax.org.

[Reckon]

Why buy a book when it is so easy to see that any efficiency gained by the FairTax would be more than offset by people getting around the law? What dope would going out and buy a new car or some new furniture straight out? Under the FairTax, if a car or furniture dealer wants business then they'll have to accept offers to lease it for a few months, and after that, sell it to the renter as used. The only tax obilgation would be on the few months rent.

Mainly those that do make straight purchase of a car would be those owning a business who could buy their car and claim it as a business expense and not be taxed at all.

Likewise, many folks will be hitting Mexico or Canada once a month to stock up on household items. Many will be checking the internet for items when shipping charges from foreign countries are more economical than a 30% tax.

Book! We don't need no stink'n book!

[Avondale_Larry]

If you want to know more about the Fair Tax and how it works EXACTLY so you can stop making radical assumptions, go to www.boortz.com and buy the book.

The Fairtax book and fairtax.org are both written by proponents of a national sales tax.

You haven't done any independent research on this, have you? A couple of us (laymen in economics, to be sure) have poked fatal holes in the plan with some common sense and a little googling. If the plan is so airtight, surely someone like you who has read the book and visited the site should be able to set us straight.

But you can't.

Have you read the book? More importantly, have you looked at both sides of a subject before you wholeheartedly support it?

[SeeingRed]

The Fairtax book and fairtax.org are both written by proponents of a national sales tax.

You haven't done any independent research on this, have you? A couple of us (laymen in economics, to be sure) have poked fatal holes in the plan with some common sense and a little googling. If the plan is so airtight, surely someone like you who has read the book and visited the site should be able to set us straight.

But you can't.

Have you read the book? More importantly, have you looked at both sides of a subject before you wholeheartedly support it?

I am reading the book right now. I have done research on the Fair Tax and have compared it with the current system. Undoubtedly, both sides have pros and cons; that goes without saying. It is MY belief and MY OPINION that the Fair Tax would be of better benefit to the country's economy than the current system. Opposers will be opposers. I'm not out to change anyone's mind, that's why I don't feel like typing out a long diatribe to try and "set (you) straight".