Democrats & Liberals Archives

Harmful Stimulants

Bush and even the Democrats are jostling to put forward new economic stimulus packages. I think it’s fairly foolish, and I’d even say that to the face of the candidates and politicians we like. We’ve bought so far into the myths of supply side economy, that despite years of failure to see the promised economic benefits, we still jump at it. It’s time to start biting the bullet, and accept the price of years of abuse of the financial system.

In medical terms, stimulants can be harmful because they put stress on the systems of the body, because they drain reserves of energy, preventing the body from resting. You build up debts in your systems, debts that could cause collapse of those systems.

Some stimulants work by encouraging the person's system not to sedate or inhibit itself. But even that, even that failure of inhibition can be unhealthy.

People are holding back on purchases, trying to cut spending because they are hurting, and uncertain about whether they'll have the resources to keep up these activities.

We've had an expanding economy for years now, but nothing like that lasts forever, or even should last forever. At some point, the bills come due. At some point, people become overworked, over-leveraged, and their necessities become overpriced.

The tax cuts that Bush has put forward have contributed to a weak dollar, to renewed inflation. His economic policies concerning interests rates have created a situation where people are being lent money they can't pay back. But the complexities of modern lending make it difficult for most people to judge that for themselves.

Moreover, part of the business he's drummed up has been business based on essentially driving up the prices of homes, energy costs, and pushing policies that while good for some industries, has driven up the price of others. Your gasoline's newest additive is driving up the price of your food.

The consequence of all this economic stimulus over the Bush years has been an economy running on fumes, growth dependent on consumer spending people are unable to afford without further debt they don't need.

Having worked against wages and healthcare, having encouraged a heavily credit based economy, and having based much of their strategies on tax cuts that lead to deficit spending, the Right's economic policies have essentialy turned America's economy into the equivalent of a twitching stimulant addict.

America needs to go to economic detox, not get a new dose of stimulant. We need to accept the inconvenient truth that our economy is in bad shape and that by treating the symptoms and not the underlying problems, we're only making the final reckoning worse. If we want to reduce our suffering, we need to come together to work out ways to ease the problems, to give people a chance to recharge their economic batteries, get the economic waste and corruption out of our system.

We don't need to go back to the policies of the 80's or 90's, because to be honest, many of those brought us to this unfortunate crossroads. We need to return to a sense that not everything that's good for profits is good for the economy, and that the reckless pursuit of economic growth without consideration of it's underpinnings and dependencies will only doom us to see less and less of it as time goes on.

It is not this coming (or already present) recession we must consider, but the pattern of our growth over the next few decades. Were I only approaching this in terms of politics, I could end here. But I can't.

We have to consider energy. Whether or not oil prices come down, we have to consider that we are near the end of cheap, plentiful fossil fuel energy. We used it for a reason: hydrocarbons represented low-cost concentration of energy. As that supply dwindles, and as the political and environmental hazards of our dependence become ever more evident, these will weigh in on the economy. Should we wait for market forces to do their work, or toss carbon taxes on top of everything and hope they work by themselves? The Republican economic policies, which included keeping CAFE standards relatively low for vehicles they turned around and gave tax breaks for, encouraged people to buy vehicles that were economic trouble waiting to happen. Worse yet, they let Detroit become dependent once more on gas-guzzlers for their economic bread and butter, a move that history should have told them was foolhardy. American can either become the victim of it's forced energy discipline, or it can become the beneficiary of it. We can either continue to prop up the economic engines of the past, or we can help create the engines of the future.

We have to consider wages. The only thing that's allowed America to continue growth without an equal rise in wages has been the credit card. But when we lose our jobs (much more common in today's Chainsaw-Al inspired downsizing environment) we're stuck with credit card bills we can't continue to pay. Worse yet, Credit Card companies actually target those who are in bad financial shape for additional credit, reversing the old notion that credit should only be given to those who could pay it back. Because of this, the market has been free to push prices beyond what people could pay if they could only operate on a cash basis.

Getting wages back to the point where people can live on the cash they have, is a critical step in halting our economic downturn. But the Republicans instituted an onerous Bankruptcy reform bill which essentially assumes now that the poorest half of those who file for bankruptcy are trying to cheat the system, presupposing a crime before it's been committed, of people who they have no evidence against.

The Republican's long war against the lucky duckies is part and parcel of our current economic problems. They've focused on banishing welfare queens and Earned Income Tax Credit cheats much more than they've focused on the big offenders, or saying no to the people who ask for all kinds of leeway in conducting their economic affairs.

The Republicans have held the banner and pushed the policies, starting with the Reagan years, for free market economics based not on staying out of they way of chosing winners or losers, but instead allowing companies to cheat on their figures, and vest themselves in conflicts of interest that make them and their friends money, but don't work to the benefit of the average investor. They've also allowed markets of all kinds, From media, to oil to consumer retail, to become much more consolidated, and therefore much less responsive to consumer and market forces. They've also gutted union protections, which while undoing one kind of constraints also prevents workers from exercising the upward pressures that are part and parcel of what keep wages an an appropriate market value, rather than underbid, which means people are on the bad side of inflation.

The economy is about more than taxes and giving corporations whatever they want. It's about our sustainable market activity. That tends to get abstracted when all economics boils down to is political and corporate self-interests. The broader view is necessary, and those who want to actually do some good have to work from that broader view, and recognize that there are real world problems that have to be solved before we can get back on our feet financially.

The time has come to leave the financial fairyland of the supply side.

Posted by Stephen Daugherty at January 20, 2008 11:24 AM
Comments
Comment #243387

Stephen

I think we agree. Stimulants are stupid. The government should do the usual things Central Bankers do and let the rest sort itself out.

For example, the prices of homes needs to come down. Let it be.

Posted by: Jack at January 20, 2008 4:10 PM
Comment #243392

The administration is using the problems that they have created to call for more of the voodoo economics that have caused the problems in the first place.

I do not understand how stricter bankruptcy provisions will do anything. Are they going to start putting people in prison for debt? It would make more sense to put the lenders in prison, but they are the ones buying the legislation.

Housing prices here are ridiculous. New condos cost double the price of existing condos. Part of the new price includes additional inside parking. It used to be that you could have one floor of parking for four floors of apartments, and two floors of parking would be enough for 5 to 8 floors of apartments. A new building is being built here with 3 floors of parking for 5 floors of apartments.

There are many small houses in suburbia that were built after WW2. These are being sold for high prices for the value of the property and either torn down or expanded upwards and outwards if the existing foundation is strong enough and the local zoning permits. An empty lot is actually worth more than a lot with a small house on it, especially a split-level.

Big, bigger, and biggest are substituting for buying what you actually need. Hummers, Escalades, and Denalis abound. I saw a funeral procession recently in which every vehicle was a truck or a van. A neighbor who was upset at his sons enlistment in the army after high school, drives 2 trucks almost big enough to live in.

All fueled by what? We buy the oil. They buy us, and our international relations are concentrated on making sure the oil keeps flowing. We put corn product in our fuel, and the price of food goes up, because why think anything out in advance when we have been putting corn products in everything we eat for decades, because we always had more of it than we ever wanted. Its time to go on the grapefruit diet.

Posted by: ohrealy at January 20, 2008 6:43 PM
Comment #243395

I find myself agreeing with this. Why should we run full steam ahead until something else puts the breaks on.

Let’s apply some breaks now, before we have another depression.

Let’s examine corporate-personhood. Let’s examine the election process. Let’s examine the federal reserve.

Let’s examine the way we educate our children.

When we can finally admit our findings to ourselves we can do something about them.

Posted by: Weary Willie at January 20, 2008 6:54 PM
Comment #243400

Short Term Fixes: That’s what you here now in one form or another from almost every presidential candidate. These “fixes” mostly include tax refunds and or breaks.

Okay folks I’m no economist but my ole brain starting looking at this the way most would look at personal finances. WoW I am so deep in debt now that I cannot even see the light at the end of the tunnel, damn what am I going to do? Hmm let’s see, ah I will give back part of the money folks have paid me already. Basically this is what the politicos are saying. It does not sound like a good plan to me.

As a last thought, if we still had a debtors prison the US government would have been incarcerated a long time ago.

PS: My father never bought anything that he could not pay cash for and Americans have got to get off the credit card binge they are on.

Posted by: TBM at January 20, 2008 7:18 PM
Comment #243404

Bruce Bartlett, an official in the Elder Bush’s administration, basically says the one time tax rebate probably won’t do much good because people will either pay down debt with it or save it.

He also mentions that tax cuts were taken off the table because of the effect they might have on inflation. It’s instructive to recall that of the three Republican presidents that went for tax cuts, two of them, Reagan and Bush 41 ended up raising taxes all over again to avoid a fiscal meltdown.

You pay for what you want, or you pay for trying to get a free lunch you didn’t earn.

Posted by: Stephen Daugherty at January 20, 2008 10:14 PM
Comment #243405

TBM,

Your dad bought his house cash? If so, I’m impressed. Of course, it could have just been a doublewide. My sarcasm is meant to question your assertion, not your dad. He sounds like a smart person.

The error you are making is the same one many make when talking about economics.

Personal debt and the macro economic effects of deficits are not the same thing and do not behave in the same ways.

It would really be worth your while to take an Economics 101 course or read a basic economics book at the library. It was this kind of thinking that led us into the depression.

Posted by: googlumpugus at January 20, 2008 10:50 PM
Comment #243411

Googlumpugus,

I question your assertion as to the cause of the depression. I seem to remember it being caused by a near total collapse of the stock market caused by overstretched margins and excessively depleted capital market.

In regard to personal debt, my dad was a product of the Depression (born 1910), and he as well as most of his contemporaries was extremely averse to personal debt. He had a couple of credit cards that he treated as debit cards, paying off the balances every month, paying the house off 12 years early, etc. He never went in debt for other than long term items, house or car, and always paid off as early as possible.

At the same time, he was a yellow dog Democrat who voted a straight party ticket for 50 years and never complained about government spending.

I think a lot of our contemporaries have somewhat the same attitude, except deby is much more acceptable to them. It looks like we are paying the price for wanting everything now and paying with plastic. nd the price is going to be excessively high.

Posted by: Old Grouch at January 21, 2008 6:58 AM
Comment #243413

After almost 80 years, there still is no clear consensus about the cause of the Great Depression. We know that the New Deal programs did not end it (some of the worst years were 1937-8), but we still really do not know how to avoid or even mitigate such a big downturn.

Politicians just like to spend money and give tax cuts. That is why they are jumping on the bandwagon. Government action like this is usually a bad idea. In fact, government action during the Depression probably deepened the downturn. But it gets votes.

Posted by: Jack at January 21, 2008 7:12 AM
Comment #243414

Jack-
I agree that some of the New Deal programs may not have been all they were cracked up to be, but some served their purpose, including regulations that took investing and made it a much safer enterprise. Unfortunately, some people developed the theory that anything that kept people from making the money they’d like to make was an interference in the free market.

While, of course, giving tax cuts and running deficits was not. Not once have such tax cuts matched the magnitude of the revenues they lose with the revenues they gain. But of course, politics being what it is, nobody could resist throwing that nice counterintuitive, but oh so tempting promise out there, that you could have your cake and eat it to.

Not be to be too derogatory, but that’s been the basic means by which the whole Republican Economic policy has been sold. You folks said that if we let it, the market would police bad behavior, raise wages, raise benefits, solve healthcare, and so on and so forth. The market didn’t. Instead, it worked against people, and though it’s taken some time for people to really feel the effects, due to the vast availability of easy credit, they’re feeling it now.

That is why few people really ever bought your rosy forecasts. Wealth has an insulating quality to it, and its easy for wealthy policy makers and upper class citizens to write off the early signs of economic exhaustion, because they don’t feel things until the companies start suffering for the economic damage done to the middle and lower classes.

The rest of us have faced the rise in food prices, in gas and electricity prices head on. We dealt with the consequences of easy home equity loans, and subprime mortgages, of being laid off. It used to be that 40 hour work weeks and coming home in time to have a nice time with the kids was the norm, that it would be an extraordinary thing if you didn’t get a check-up from the doctor on a regular basis. People of my generation, particularly, have seen these declines in motion, and it angers us to be told that things are better than they use to be. We know better.

Things have gotten screwed up, and the lack of confidence from the average consumer is not the result of some abstract downturn, but a very real crisis of sustainability in our system. People are working too hard, for too little, with too many potential pitfalls like ill-health being able to entirely de-rail folks economically. As your generation ages, the wear and tear that this system imposes will only cause more problems for the economy.

Posted by: Stephen Daugherty at January 21, 2008 9:55 AM
Comment #243418

The assertion that we do not know what caused the depression frightens me. There has been a concerted effort by politically conservative types in recent years to rewrite Keynesian economics.

It is sad that people are so far removed from the 1930’s to not understand the consequence of such BS. It IS well understood, by anyone with even basic economic understanding that the depression was caused by a serious monetary contraction. It was resolved by the massive spending and thereby increased money supply created by WWII.

Attempts to return to Taft or Hoover’s policies is unsound economics. Pure and simple.

Those that believe balancing the budget is a sound response to a contraction, simply do not understand macroeconomics.

This does not mean that sound fiscal or monetary policy is unrestricted spending.

Applying personal fiscal virtues to a macroeconomic policy is simple ignorance. Keynes is not the answer to everything, but he did understand the Depression, and created Macroeconomics. Please educate yourself, this kind of ranting is dangerous. Foolishness such as this WILL recreate the conditions for a depression.

Posted by: googlumpugus at January 21, 2008 10:33 AM
Comment #243424

Stephen

The New Deal was an essential building block in the American character. Those programs united our country and probably made winning WWII possible. My father was in the CCC. He told me how they brought boys from all over America into the military style discipline and when he was drafted into the Army in 1942, he was immediately given a leg up because of his CCC experience.

The New Deal policies, simply, did not address the problems of the economic downturn. The economy was in as bad shape in 1937, after five years of New Deal, as it was in 1929. We also have a mistaken view of Hoover. Hoover was an interventionist by the standards of the times. He deployed government resources to address the problems of the economy too and spending grew rapidity under his administration.

What solved the Great Depression was WWII. Even the great liberal economist John Kenneth Galbraith quipped that Hitler solved the depression in Germany and then exported the recovery.

We made some good choices in the late 1940s, embracing free trade and enacting regulations appropriate for the times But nothing lasts forever. By the middle 1970s, the system conceived in the Depression and enhance in the post-war recovery was just running out of steam. We had outgrown many of the regulations.

We have just become so fantastically richer. The Economist magazine had a good article re pointing out the average wage earner in 1941 had the buying power of someone at today’s poverty line. That is how far we have come.

We can no longer lift people out of poverty because hardworking people have already lifted themselves. Our problems are now those of affluence. Our poor are overweight; our middle classes are burdened with big screen TVs and late model cars.

Googlumpugus

A monetary contraction. That is a lot like saying a guy died because he stopped breathing. What led to this monetary contraction and why didn’t it end for more than ten years?

Do you understand what caused the Great Depression and what made it persist until the advent WWII? Do you think it was the stock market crash in 1929. Was it (as Keynes thought) a consequence of the Treaty of Versailles and reparations? Did it come from the overproduction and subsequent collapse of the farm economy in the 1920s? Maybe it was because the Fed did not create liquidly and let banks fail. How did the gold standard affect international trade and how why did all that gold end up in the vaults at the Federal Reserve of New York? Did the Smoot-Hawley tariff really deepen it? Did the rise of fascism exacerbate the downturn? Did the extraordinarily bad weather of the middle 1930s keep it going?

And if you want to educate yourself and me, tell me which of the New Deal programs recreated a growing economy?

If you really know what caused the Great Depression, you are the only one who does and you might do the world a favor by enlightening us as to the definitive cause and the solution to our economic woes in general.

You also do know, of course, that the economic policies of Taft and Hoover were very different. Hoover’s economic policies were a lot like Roosevelt’s, just less expansive. Taft was only Vice President during the Panic of 1907, when the stock market fell by almost 50%. The Federal government didn’t do much of anything about that. I suppose that was the Taft policy. Maybe that is why the country recovered the next year.

The Panic of 1907 helped create the conditions for the Federal Reserve in 1913. In 1929, the Fed did not do its job right. They are responsible for the monetary contraction part of the equation. Today the Fed is adding liquidity. This is good and probably sufficient to handle the current unpleasantness. If the politicians get into the give away mode, we will have troubles.

Posted by: Jack at January 21, 2008 12:03 PM
Comment #243425

This is the aricle from “The Economist”. As usual, it is thoughtful and a little iconoclastic. Maybe a little too iconoclastic and thoughtful for those who know it all already and are just looking for supporting arguments.

Posted by: Jack at January 21, 2008 12:13 PM
Comment #243427
Our poor are overweight; our middle classes are burdened with big screen TVs and late model cars.

How I love glittering generalities. What hogwash.

Posted by: womanmarine at January 21, 2008 12:25 PM
Comment #243430

womanmarine,
Not glittering generalities, just unpleasant truth. Check out the data on personal debt by income level and the NIH/CDC report on the growing obesity crisis in the US.

Posted by: Old Grouch at January 21, 2008 1:21 PM
Comment #243436

The smirking chimp told us to give all our money to the rich!!!!!!!!
They will take care of all of us!!!!!!!!!
We did what he said and now everything is great!!!!!!!!!
It does not get any better than this!!!!!!!!!
The wing nut economic policies always get the same results!!!!!!!!
Remember the roaring 30s and 80s!!!!!!!!!
Even my stocks are doing great in this wing nut boom!!!!!!!!
My house is worth less now than when I bought it!!!!!!
Now is the time to live it up!!!!!!!!!

Posted by: Outraged at January 21, 2008 3:13 PM
Comment #243439

Jack,

I do know. It was the monetary contraction.

It doesn’t matter what caused the contraction, When dying of a heart attack, it doesn’t matter if the cause was a big scary monster or too much butter in your diet.

What matters is expanding the money supply.

The New Deal did not restore the economy, because it was too little, too late. It did have some moderating effects. What fixed it, and finally convinced the world that Keynes understanding of aggregates was correct, was the war effort.

Jack said, “You also do know, of course, that the economic policies of Taft and Hoover were very different. Hoover’s economic policies were a lot like Roosevelt’s, just less expansive. Taft was only Vice President during the Panic of 1907, when the stock market fell by almost 50%. The Federal government didn’t do much of anything about that. I suppose that was the Taft policy. Maybe that is why the country recovered the next year.”

Huh? Jack you are confusing a number of things here. The most significant is that the stock market crash caused the depression or any depression, and that Hoover and Roosevelt shared economic policies. They both were capitalists, other than that, I have no idea what you are talking about.

I’m beginning to understand why conservatives have been such failures in economics.

Posted by: googlumpugus at January 21, 2008 3:46 PM
Comment #243440

BTW, Jack,

It’s not a secret that monetary contractions and expansions are what create the business cycle. It’s what most central banks spend all their time analyzing and why we’ve had unprecedented expansion and stability of economies around the world.

I know it’s not popular in conservative circles to spread little facts around like that, it’s much better to blame anti capitalist legistlation and socialist policies and those “loose” morals on economic woes. It fits in with their propoganda.

Posted by: googlumpugus at January 21, 2008 4:00 PM
Comment #243451
What fixed it, and finally convinced the world that Keynes understanding of aggregates was correct, was the war effort.

No, what fixed it was the relaxing of international trade and attacks on business. The war effort just got us to where we could get beyond the problems that were created.

Even though Keyes was proven wrong, its still amazing that he is so widely listed has right. His view was that the massive deficit spending was needed, but he also said that the reason for this was because we could not expand economically anymore, that we had hit a wall.

His prediction, based on his views, that we would fall back into a depression once the war was over was WRONG. His views were WRONG.

Had the trade barriers and attacks on business still been around after the war, he would have been right and we would have fallen back into a depression because those were the things keeping us from recovering, not the inflationary practice of deficet spending.

A lesson we refuse to accept today, one we will repeat by continuing to spend ourselves into bankruptcy.

Posted by: Rhinehold at January 21, 2008 4:59 PM
Comment #243456

Perhaps the eloquent words of Thomas Jefferson best sums up the founder’s outlook toward corporations. . “I hope we shall take warning from the example of England and crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our Government to trial, and bid defiance to the laws of our country ”

http://www.spiritone.com/~gdy52150/corplaw.htm


One of the most damaging acts to ever occur in this country was the case of Santa Clara County v. the Southern Pacific Railroad Company in 1886, in which the Supreme Court gave corporations many of the rights and protections of an individual, but not the responsibilities of an individual. This has paved the way for untold greed and exploitation.

http://www.riinsrants.info/culture/

..in 1978 the Supreme Court ruled in First National Bank of Boston v. Bellotti that corporations have a First Amendment “right” to influence ballot initiatives and other political campaigns.

http://www.pbs.org/now/politics/corprights.html

As Ishmael’s pupil asks when Ishmael has informed him that those who want to save the world from destruction by humanity are unable to do so because they cannot find the bars to their cages: “What do we do next?” While the agenda for action in arenas we the people define is long, complicated and still unfolding, a good place to begin is to take away corporate personhood. That means working toward the reversal of Santa Clara, and for those who say it cannot be done, I would remind them that for half a century “separate but equal” was established judicial doctrine.

Our political democracy is indeed mythical; we live instead in a plutocracy in which the rich with wealth accumulated more often than not through corporate mechanisms are effectively dominating, if not controlling, the electoral process. Reversing Santa Clara will not restore our democracy overnight, but getting corporations of all kinds — large and small, profit and non-profit — out of politics will go a long way toward doing so.

http://dieoff.org/page62.htm

“What if…,” asks Jane Anne Morris of Democracy Unlimited in Wisconsin, who may be the only corporate anthropologist at large in North America:

**corporations were required to have a clear purpose, to be fulfilled but not exceeded.

**corporations’ licenses to do business were revocable by the state legislature if they exceeded or did not fulfill their chartered purpose(s).

**the act of incorporation did not relieve corporate management or stockholders/owners of responsibility or liability for corporate acts.

**as a matter of course, corporation officers, directors, or agents could be held criminally liable for violating the law.

**corporation charters were granted for a specific period of time, like 20 or 30 years (instead of being granted “in perpetuity” as is now the practice.)

**corporations were prohibited from owning stock in other corporations in order to prevent them from extending their power inappropriately.

**corporations’ real estate holdings were limited to what was necessary to carry out their specific purpose(s).

**corporations were prohibited from making any political contributions, direct or indirect.” (Rachel’s Environment and Health Weekly, #488, April 4, 1996)

http://dieoff.org/page62.htm

Posted by: Weary Willie at January 21, 2008 5:07 PM
Comment #243462

My understanding of the Great Depression comes from my own family. They always said that the depression preceded the stock market crash when banks started closing, and ended when Roosevelt became POTUS and straightened out the banking system. Jack has already mentioned the other factors involved. I always thought we needed to go back to having a Bank of the United States.

Several years after WW2, Ford Motor Company was basically bankrupt, but they were not allowed to go under because bankers did what needed to be done to keep them in business. A lesson was learned from the depression. It is only since that generation has started dying out that we are forgetting it again.

Posted by: ohrealy at January 21, 2008 6:12 PM
Comment #243470

WWII:
1) boosted American industrial productivity.
2) reduced the available supply of consumer goods.
3) vastly increased American saving.
4) weakened the European industrial base.
5) destroyed or weakened the European colonial empires, which were protectionist economic environments.
6) And perhaps most importantly, gave millions of Americans the opportunity and wherewithal to attend colleges and trade schools.

And that is by no means an exhaustive list of what WWII did.

What the reforms of the Great Depression did, though was scare people into defining the trustworthiness, and not merely the current profitability of a business as a virtue. It also inspired people to put the ball in their own court, rather than leave policy the province of special interests. Businesses seeking the profit of their short term interests can often do things that are foolish or inordinately risky over the long term.

clarancec-
I think your argument boils down to “don’t listen to Steve because he’s a smartypants who thinks too much of himself”.

The best way to show me up as just some kid spouting off ivory tower academics, though, is to argue my points on the facts.

If you can’t, then why should people reject what I’m saying, and embrace your sensibilities?

Posted by: Stephen Daugherty at January 21, 2008 7:55 PM
Comment #243474

How many Watchblog Solutions have been seen in policy or debate?

1. I spent an entire weekend on this computer formulating a response to one question:

When is the President of the United States allowed to be a dictator?

I surched and copied and pasted until I had a response.

Monday, the next night, on C-span, I see Arlen Specter and his counter part debating this very issue and the debate was very near verbatim the discussion on Watchblog.

I,wink, Watchblog does make a difference.

Posted by: Weary Willie at January 21, 2008 8:32 PM
Comment #243487

Rhinehold,

Of course you are completely right. That is why monetarism is completely dead. No central banks believe money supply has any significance whatsoever. Keynes was really an idiot. No, really.

What a load of BS.

You are engaging in exactly what endangers our economy and fosters a repeat of the Depression.

Yes, trade policies and economic ebviroments matter…but that doesn’t cancel out money supply or supercede it.

Keynes wasn’t wrong or proven wrong. There WAS NO contraction of money supply after WWII. Keynes wasn’t a political prognosticator. He wasn’t someone with a solution to everything. He WAS an economist who created Macoeconomics.

Of course we’ve had no restrictive trade policies in the ensuing 60 years since WWII, and no business cycles. There have been no liquidity crunches and no Federal Reserve responses.

Voila, Rhinehold has proven Keynes wrong and solved economic theory. It’s all about restrictive trade. Well that and the Constitution violations. You’re a genius and savior. How come the Central Banks don’t agree with you?

Posted by: googlumpugus at January 22, 2008 12:30 AM
Comment #243490

Wow, googlumpugus, you’ve certainly given my statement a lot more weight than intended…

I said that Keyes was wrong about the notion that money supply is all that is needed to fix the depression. His notion, which was wrong, was that we had reached the end of capitalist expansion, that we would not see growth anymore unless it was done through defecit spending.

Are you saying that was a correct statement?

That doesn’t mean that EVERYTHING he said was wrong, or that the field of economics is 100% mistaken, etc. Only that the idea that we can just spend ourselves out of harsh economic times, which is what our current administration is suggesting again, does not SOLVE anything. It just gets us along to a point where we can solve the issues.

Of course we’ve had no restrictive trade policies in the ensuing 60 years since WWII,

None like we saw during the Hoover and Roosevelt administrations, no. No where near.

As for the ‘Central Banks’ not agreeing with me, let’s look at a quote:

The United States currently has the highest combined statutory corporate income tax rate among OECD countries. Bill Archer, former head of the House Ways and Means Committee, asked Princeton University Econometrics to survey 500 European and Asian companies regarding the impact on their business decisions if the United States enacted the FairTax. 400 of those companies stated they would build their next plant in the United States, and 100 companies said they would move their corporate headquarters to the United States. In addition, the U.S. is currently the only one of the 30 OECD countries with no border adjustment element in its tax system. Proponents state that because the FairTax is automatically border adjustable, the 17% competitive advantage, on average, of foreign producers would be eliminated, immediately boosting U.S. competitiveness overseas and at home.

Our trade deficit is disturbing and definately a factor in what is going on in our economy. It is simply cheaper to send our jobs overseas than to keep new plants here in the US. If we would address this issue I believe that our economy would expand much more than it is now, and I don’t think I’m alone in that, “Eighty economists, including Nobel Laureate Vernon L. Smith, wrote an open letter to the President, the Congress, and the American people, stating that the FairTax would boost the United States economy.”

So you can act like a spoiled child that someone questioned the INFALLABILITY of Keyes, but yes he was wrong in some of his assumptions.

Posted by: Rhinehold at January 22, 2008 12:54 AM
Comment #243493
You are engaging in exactly what endangers our economy and fosters a repeat of the Depression.

How so, exactly? Am I suggesting the implementation of another Smoot-Hawley Tarriff? Am I suggesting we allow banks to fail or not be insured?

What exactly am I ‘engaging in’ that will set us into another depression, other than daring suggest that Keyes isn’t all-knowing?

Posted by: Rhinehold at January 22, 2008 1:19 AM
Comment #243494

OK I give would somebody please educate me here. Why is it lately that every time a post is made on the current economic conditions and the repubs role in causing these conditions since the ‘80’s we end up on how the dems lengthened the duration of the depression?
Is it some kind of bait and switch thing or am I missing something here?

Posted by: j2t2 at January 22, 2008 1:23 AM
Comment #243506

Rhinehold-
First, what makes you think you’re escaping Keynesian economics? The tax cuts are basically a variation on that theme, intentional deficit spending meant to stimulate the economy, prime the pump. The main difference is that people like you are told that somehow things will magically balance themselves through increased growth. The only difference between you and a Keynesian is that you’re being unrealistic about where the money’s coming from.

I don’t think that our problem in this country is that people are overtaxed. I think our problem is that people are underpaid, and overbilled, that easy credit has allowed prices to rise faster than people’s ability to pay them without going into debt. The other problem is that we’ve made it more difficult to get an accurate reading of what this is doing to the economy. We’re focusing on high-end numbers that have more to do with investors and their sentiments than the conditions among what is supposed to be the foundation stones of our economy, the middle class.

The “FairTax” stuff is questionable at best. The rates are advertised to be exactly at the percentages that the focus groups found people would support. That, however, is not necessarily a revenue neutral number. Either the so-called “FairTax” increases, which would have a greater effect on the poor and middle class, with their greater need for the money they got, or you deficit spend, in which case you start building up debt that threatens inflation or tightens the money supply by raising interest rates.

The “Fair Tax” is trying to get something for nothing. It’s trying to replace taxes biased towards the middle class and poor with those biased towards the rich, and sell people on a fairy tale that as it’s never done before, such a tax “relief” will stimulate the economy into record growth.

America needs to resolve the problems underlying its current economic decline, not create new ones by piling on further debt to satisfy radical tax-dodgers.

Posted by: Stephen Daugherty at January 22, 2008 9:17 AM
Comment #243510

Weary Willie “One of the most damaging acts to ever occur in this country was the case of Santa Clara County v. the Southern Pacific Railroad Company in 1886, in which the Supreme Court gave corporations many of the rights and protections of an individual, but not the responsibilities of an individual. This has paved the way for untold greed and exploitation.”
Weary, truer words were never spoken.

Posted by: j2t2 at January 22, 2008 10:19 AM
Comment #243524
what makes you think you’re escaping Keynesian economics?

When did I say I was?

The main difference is that people like you are told that somehow things will magically balance themselves through increased growth.

People like me? I’m the one on here not calling for tax cuts, wanting us to focus on decreased spending and cutting our debt. I guess one of us confused to what I am saying…

The “FairTax” stuff is questionable at best. The rates are advertised to be exactly at the percentages that the focus groups found people would support.

What a load of crap that you simply can’t back up. It was determined by research by competent economists. The documentation is available to anyone to read, though most often it doesn’t get read because talking points and partisanship is more important to some people.

The “Fair Tax” is trying to get something for nothing.

No, it’s trying to find a less onerous way of funding our national government by taxing something that people have a choice in and don’t require them to provide information to the government that they don’t need. It is a way to help people avoid some taxation when they are in hard months so that they can take care of their family on their own and make up for it when they get back on their feet. It is a way to help eliminate the problem with embedded taxation that we all pay but can’t see accurately. It is a way to actually eliminate the tax burden of the poor, something an income tax is incapable of doing because of those embeddeed taxes.

It’s trying to replace taxes biased towards the middle class and poor with those biased towards the rich

Really? Because I thought the income tax we had now was biased towards the rich already? Isn’t that what the Democrats tell us?

The FACT is that the poor will pay no tax under the Fair Tax unlike any income tax scheme. The rich will pay more as a result of purchasing new instead of used as the middle class may.

, and sell people on a fairy tale that as it’s never done before, such a tax “relief” will stimulate the economy into record growth.

No where have I said that the Fair Tax was ‘tax relief’ or that we should be utilizing tax relief? I am definately not saying that.

I think you are debating someone else…

But it would tax visitors and illegal aliens that are getting by with a free ride now, again something that no income tax scheme could do. And it would bring businesses back here instead of sending them overseas, which would boost our economy.

What is your suggestion to fix our economy other than ‘priming the pump’ ala Keynes? How on earth does that help our HUGE MOUNTING DEBT at a time when we are technically bankrupt!?

America needs to resolve the problems underlying its current economic decline, not create new ones by piling on further debt to satisfy radical tax-dodgers.

What? Seriously? {Content deleted to pass Watchblog standards}.

And as a result, you and your ilk are going to continue to run our country into the ground, which is already bankrupt, until we become citizens of New China. It will most likely happen by 2040…

Posted by: Rhinehold at January 22, 2008 1:11 PM
Comment #243525
how the dems lengthened the duration of the depression?

It wasn’t the Dems, it was FDR. He had a lot of opposition in his own party and had the war not come about it is very likely he would not have won re-election in 1940.

The idea of attacking business and attempting to confiscate all new wealth at a time when there is such high unemployment is something that even most democrats can accept as bad practice…

Posted by: Rhinehold at January 22, 2008 1:15 PM
Comment #243539

Rhinehold-
My Ilk? I’m sorry, but my party has been counseling fiscal discipline all along. We liked the balanced budget. We liked being the party that could keep a rein on its spending, not go on a reckless shopping spree. In principle the Republicans are the tightest tightwads, the champions of smaller government. In reality, the results have actually tended to move in the other direction. We paid down deficits, balanced budgets, even reduced spending. We would sometimes raise taxes, but you know something? Taxes are less of economic problem than inflation. With lower taxes, you might keep more of your money, but without getting people to agree to simultaneous spending cuts, which your natural allies never do, it’s irresponsible, and it ends up taking with the left hand of inflation what it gives with tax cuts.

The Fair Tax is not fair. When FactCheck.org Looked at it, they found the following:

1)Rates would have to rise to a real tax rate of about 34-39% This would be an increase in real tax rates for most people.

2)Everything would be taxed, even the interest we are charged. Taxation would intrude even in places once considered exempt. Any exemption would require an offset in the overall rate.

3)More of the tax burden would fall on the Middle Class, even by the Fair Tax proponent’s own admission.

4)The Fair Tax only works if it’s revenue neutral, and if it’s revenue neutral, nobody’s really keeping any more money than they already were. The only thing that would make all these goods and services cheaper are paycuts. Given the nature of the tax, it’s not a fair deal for Americans who currently pay less under the current system.

And let’s really examine what might make the current system seemingly unfair and over-complicated? Could it be years of tax shelters written into the law? Could it be all the different little tax breaks that Republicans use in the place of subsidies, or right along side them? The complications in taxations rise from the unwillingness of some of the well-to-do to pay the greater share, a greater share their incomes makes relatively painless.

The so-called Fair Tax only reinforces precisely what most people would think unfair about the current tax system: the lower share the rich pay.

As for getting rid of the IRS, tell me something: who’s going to manage the huge bureaucracy required to actually administrate this tax? I mean, this is not going to be easy in the least. How is the Federal government going to get a chunk out of just about every transaction every American makes, without some kind of centralized or distributed service of Bureaucrats.

If we go with your plans, things will likely go exactly as I’ve said: we will pile on more debt to satisfy radical tax dodgers.

You either raise taxes, with a greater burden falling on the middle class, and that money leaking from every pore of our economic lives, or you run huge deficits.

What we really need to do is get our current system revenue neutral, stop spending more than we take in. We need to dump the Iraq war, discipline spending in the Pentagon (which I think people have been just cowardly about) and start taking care of the real problems in our economy, rather than nursing grudges against the tax-man.

Posted by: Stephen Daugherty at January 22, 2008 2:38 PM
Comment #243542

We need to decide what our economy needs to do…grow constantly or serve all our people…infinte growth has its consequences…do we need “more” or do we want to be “better”…do we need “stuff” or do we need family & community and clean air/water???

Posted by: Rachel at January 22, 2008 2:56 PM
Comment #243546

Factcheck.org got several things wrong and have been responded to (I noticed you didn’t mention or include AFT’s responses from the factcheck.org website), let me explain.

1)Rates would have to rise to a real tax rate of about 34-39% This would be an increase in real tax rates for most people.

This is based off of President Bush’s administration numbers. Something to take seriously, hmm?

AFT says this about that (god I love the Kennedy quote…)

Does the FairTax rate need to be much higher to be revenue neutral?

The proper tax rate has been carefully worked out; 23 percent does the job of: (1) raising the same amount of federal funds as are raised by the current system, (2) paying the universal rebate, and (3) paying the collection fees to retailers and state governments. Unlike some other proposals, this rate has been independently confirmed by several different, nonpartisan institutions across the country. Detailed calculations are available from FairTax.org.

BTW, How did AFT respond to Factcheck.org, which you didn’t include?

FactCheck has also relied upon unnamed sources, as well as the discredited President’s Advisory Panel on Federal Tax Reform, to wrongly conclude that the FairTax uses unsound accounting principles to arrive at the FairTax rate. Those more familiar with the science (and art) of economics accept that all conclusions in economics are conditioned upon assumptions and that much debate surrounds each assumption. But FactCheck skips over the point and counterpoint of the debate on whether taxing the government, as just one example, is sound (as is currently practiced at the federal level with FICA taxes and every purchase) and accepts unnamed critics’ contentions that this (and other methods) is not only unsound but that the FairTax did not take the apparent (but illusory) required increase in federal spending into account when calculating the FairTax rate. Inexplicably, FactCheck rejected the assurance by our chief economist that both revenues and spending were carefully accounted for and, instead, posits that an “accounting trick” is employed despite the fact that this assertion has been vigorously proven wrong in debate and published study.

Oh, and http://www.beaconhill.org/FairTax2006/TaxingSalesundertheFairTaxWhatRateWorks061005.pdf for example.

Some people will not listen to a highly researched and heavily backed, be economists, plan as being valid and instead will look for anyone for contrary evidence. It’s a lot like the ‘flat-earthers’ that I hear about in the environmental arena of debate…

2)Everything would be taxed, even the interest we are charged. Taxation would intrude even in places once considered exempt. Any exemption would require an offset in the overall rate.

Yes, this is true. There would, and should, be no exemptions. Though I’m not sure why ‘interest we are charged’ would be taxed, as it is not a new good or service, but if it falls under those subjects…

3)More of the tax burden would fall on the Middle Class, even by the Fair Tax proponent’s own admission.

There is a lot in that statement that would need to be addressed by a very long reply, I’ll let AMT’s rebuttal stand for now but would welcome honest debate about the topic, if that is actually sought after.

Similarly, can a proposal that entirely untaxes the poor but also offers the elimination of the corporate income taxes and capital gains taxes be fairly described as “regressive”? FactCheck embraces one traditional view, wrongly applied in this case, that any tax proposal that does not impose higher rates on the wealthy can fairly be described as “unfair” or even “regressive.”

In our view (and that of many economists), the true measure of the fairness of a tax is not what the rate may be but rather how much wealth each income segment, at different periods of life, has left to spend on itself after taxes are paid. By this measure, the FairTax is the only tax proposal that actually increases the purchasing power of every income segment while delivering the greatest improvement to the poor, the second greatest improvement to those in the middle class, and the smallest – but still significant – relative improvement to those at upper-income levels.

This calculation, unlike critics’ flawed descriptions of retail consumption taxes, incorporates the “progressive” benefit of eliminating the FICA taxes, looks more deeply at spending at different periods of a citizen’s life, and takes into account the elimination of not only the significant cost of compliance with the complexities of the income tax system but the FairTax effects of lower interest rates, elimination of downward pressure on wages, untaxing capital accumulation, investment, and growth. Although all of our $20 million of research was made available to FactCheck.org, the article relies on critics’ contentions to the contrary for its assessment of “who benefits,” largely without disclosing those critics’ assumptions or research. We flatly reject as flawed FactCheck’s narrow conclusions of who benefits under the FairTax.

BTW, the independant study backing this up (and d.a.n. refused to review) which finds “Compared with our existing federal tax system, the FairTax, as proposed in H.R. 25/S. 25, would significantly reduce marginal taxes on work, dramatically reduce marginal taxes on saving, and substantially lower overall tax burdens on current and future workers. Moreover, it would do this without limiting tax progressivity. Indeed, the FairTax would make our tax system more progressive.” is located at: http://people.bu.edu/kotlikoff/Comparing%20Average%20and%20Marginal%20Tax%20Rates%2010-17-06.pdf

4)The Fair Tax only works if it’s revenue neutral, and if it’s revenue neutral, nobody’s really keeping any more money than they already were. The only thing that would make all these goods and services cheaper are paycuts. Given the nature of the tax, it’s not a fair deal for Americans who currently pay less under the current system.

This makes almost no sense. Yes, it would be revenue neutral and no, people would not be ‘making more money’. The poor would be paying absolutely no taxes instead of now. I find it interesting that you are against this notion somehow…

And let’s really examine what might make the current system seemingly unfair and over-complicated? Could it be years of tax shelters written into the law? Could it be all the different little tax breaks that Republicans use in the place of subsidies, or right along side them? The complications in taxations rise from the unwillingness of some of the well-to-do to pay the greater share, a greater share their incomes makes relatively painless.

It also has to do with trying to do as you suggested in an earlier thread, use the government to ‘drive society’ into doing what you want it to do. THIS is what makes it the most complex IMO. Attempt to force behavior, people find a way around, attempt to fix that hole, people find a way around, etc. Instead of either taxing at a flat rate or not taxing income at all, what we have now as a result of both Democratic and Republican mindnumbing idiocy in regards to how people view taxes is a broken mess of oppressive taxation that accomplishes nothing for either side but promises enough to either side that they are both willing to fight for it to remain.

As for getting rid of the IRS, tell me something: who’s going to manage the huge bureaucracy required to actually administrate this tax? I mean, this is not going to be easy in the least. How is the Federal government going to get a chunk out of just about every transaction every American makes, without some kind of centralized or distributed service of Bureaucrats.

Again, from the fairtax FAQ

Retail businesses collect the tax from the consumer, just as state sales tax systems already do in 45 states; the FairTax is simply an additional line on the current sales tax reporting form. Retailers simply collect the tax and send it to the state taxing authority. All businesses serving as collection agents receive a fee for collection, and the states also receive a collection fee. The tax revenues from the states are then sent to the U.S. Treasury.

Of course, then you remake your incindiary statement

If we go with your plans, things will likely go exactly as I’ve said: we will pile on more debt to satisfy radical tax dodgers

Those poor, trying to dodge taxation, they should be put in jail!

What we really need to do is get our current system revenue neutral, stop spending more than we take in. We need to dump the Iraq war, discipline spending in the Pentagon (which I think people have been just cowardly about) and start taking care of the real problems in our economy, rather than nursing grudges against the tax-man.

It has less to do with ‘nursing grudges’ than it does in trying to create an atmosphere where people see the taxation they pay and being able to actually eliminate the tax burden on the poor.

I know, you have no interest in this, but assigning machevlian motivces to people who are trying to do what they think is the best thing for the poor in this country, is little different than those you rail about who claim democrats are ‘tax and spenders’, which you cry and bemoan about.

The simple fact is that when the discussion gets to those tactics (ie, selfish, nazi, racist, etc) it usually means the one calling the names has run out of legitimate arguments…

As for the Democrats being the purveyors of fiscal responsibility, it’s almost as if I’ve walked into a twighlight zone… It has been the ‘backroom deals’ of the Republicans and Democrats that have put us into bankruptcy, it didn’t just happen overnight and it didn’t just happen in the past 6 years.

How do you expect to raise the pay of everyone in the US, offer healthcare for all (and pay the unfunded mandates that would result) and ensure that business doesn’t just pass that increased tax burden back down onto the poor and middle class exactly?

No? Didn’t think so…

Posted by: Rhinehold at January 22, 2008 3:43 PM
Comment #243553

Rhinehold,

Your responses are much more reasoned than your original notion that Keynes had it all wrong. Keynes did have some things wrong, but mostly he was correct. I’m glad you haven’t rejected Monetarism entirely, which evolved from Keynes work. There are those among Libertarians who do reject it. They are dangerous, in my opinion.


I do not agree with your analysis of the Depression. It was largely increasing the money supply that reversed the contraction. We’ve argued this before. Yes, restrictive trade and business policies did contribute to the depression, as they acted to further restrict money supply. But the largest factor was the psychology of hope and stability that a stable money supply creates. Work is work. Product is product. Money is paper that should reflect a reasonable relationship between the two. None of these things acts in a vacuum, which is why markets aren’t so easily predictable or stable.

Keynes was correct about aggregates and the artifice of a monetary system. A deficit is meaningless when it is money owed to one’s self. That being said, there are psychological factors to economic cycles that do not follow these principles. My biggest fear with the balanced budget types is exactly the mistake I see many people in this thread and in economic discussions make, which is that they equate national budget discipline with household budget discipline. They are simply not the same animal and do not behave in the same ways. Hoover and even Roosevelt fell prey to these misconceptions. Many politicians use that metaphor to blast incumbents.

Keynes notions of spending your way out of a depression were dead on for his time. He had to overcome great resistance to this idea. It was a lack of understanding of this concept, that deepened and prolonged the depression.

We’ve thus far avoided another depression, inspite of bank runs and serious contractions because central banks have adopted Keynes ideas regarding money supply.

Restrictive trade is well understood as a barrier to expanding economies. The problem with trade though it involves parties of differing interests, and does not always result in win-win situations. Sometimes wars even happen, like WWII.

You are correct that irresponsible credit and hidden taxation through monetary policy are damaging to an economy, but it can be equally wrong to overreact when trying to correct these issues. Stability is in everyone’s interest.

I am disturbed by the obsessive belt tightening rhetoric I hear in politics today. A more appropriate dialogue would be responsible and moral leadership in business. A business that does not benefit the society it exists in, even more than it benefits it’s investors is a drag on the economy. This takes us back to Adam Smith’s ideas on Capitalism.

Posted by: googlumpugus at January 22, 2008 6:08 PM
Comment #243560

Stephen, Rhinehold and anyone else who is interested in how our tax system is continually being rigged to only benefit the wealthy, I have a few book recommendations for you.

Two books from David Kay Johnston:
Perfectly Legal : The Covert Campaign to Rig Our Tax System to Benefit the Super Rich—and Cheat Everybody Else
And:
Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)

The first book is about the inflow of tax dollars and of how our tax system takes from the middle class and the poor and funnels the majority of our money to the rich. The second book is about the outflow of money from the government — of how our government directs spending to benefit the wealthy. How they often do so without ever actually cutting a check that would make us all aware of exactly what they are doing.
Basically, the two books focus on a whole series of laws and rules and regulations (that most people know nothing about) that enable many corporations and the very rich to cheat us out of most of what we should be getting in exchange for our taxdollars. Often it is simply a clear-cut case of the rich blatantly stealing from us, raising the prices of everything on us, and giving nothing at all in return. A truly blatant example of this that many people are aware of is how Blackwater and Halliburton have been shamelessly stealing our taxdollars in Iraq.
Be aware however, if you are middle class or poor and you read these books, you are sure to become enraged. I know I did.

One book from Thom Hartmann:
Screwed: The Undeclared War Against the Middle Class - And What We Can Do about It

Thom Hartmann, as many on the left know, is a great radio talk show host and writer, and highly intelligent Liberal Democrat. Hartmann, just like Johnston in the other two books, is very much aware that all this cheating and stealing that has been going on is frequently a bi-partisan outrage. While the GOP is absolutely shameless about stealing our tax dollars to benefit the wealthy, a significant portion of Democrats are also guilty (because of course, these are people of their own class, and who donate large sums to their political campaigns). This is why, despite their claim of being the party that best represents the interests of the working poor and middle classes, a certain number of Democratic politicians will often be seen saying one thing, but voting right along with the Republicans in just large enough numbers to get legislation passed that is intended to benefit the wealthy or actually allow them to steal from us.
To become aware of who these politicians are, liberals need to ignore much of the rhetoric that spills from their mouths, and instead begin keeping track of exactly how these people vote on a whole variety of issues. This really is the only way to become aware of who is who among the Democrats since the rhetoric and the votes often don’t match up.
Btw, politicians (such as the Clinton’s) who have done things like champion NAFTA are exactly the kind of politicians who should not be trusted by Democrats who like to see our members of Congress voting to protect the interests of the poor and middle class.

I for one am a Democrat who would NOT like to see taxes be continually raised on the middle class in order to get the things that we need and want. I think we are already paying plenty, even though we are only getting a pathetic fraction of what we should be receiving in exchange. Therefore, I don’t think “raising taxes on the wealthy” is what it should be called, but rather taking our money back from the thieves who have been stealing from us for at least the last twenty years.

Posted by: veritas vincit at January 22, 2008 7:41 PM
Comment #243569

googlumpugus:

Keynes was correct about aggregates and the artifice of a monetary system. A deficit is meaningless when it is money owed to one’s self. That being said, there are psychological factors to economic cycles that do not follow these principles. My biggest fear with the balanced budget types is exactly the mistake I see many people in this thread and in economic discussions make, which is that they equate national budget discipline with household budget discipline. They are simply not the same animal and do not behave in the same ways. Hoover and even Roosevelt fell prey to these misconceptions. Many politicians use that metaphor to blast incumbents.


I agree with much of your sentiment. Household budgets and national budgets are two different animals. For one thing nations have very long lives. They become young or old again depending on many things from birth rates, to immigration to plagues and war!!

I would not go so far as to say deficits are meaningless. Deficits effect the soul. It’s a measure of fiscal discipline. I am comfortable with our current debt load (USA). It would be fine with me if deficits were such that they were managed in such a way as to increase the debt/gdp in times of recession/depression/war, and then decreased as a percentage of gdp in expansions, and peace time.

One of the benefits I see in responsible deficit/debt management is a reduction in the standard deviation of the economy. Responsible debt management works like a shock obsorber by paring down the highs and lifting the lows.

On a larger scale I don’t believe our government borrowing has been nearly as irresponsible as our government spending. Spending and waste is an entirely different animial.

Posted by: Craig Holmes at January 22, 2008 10:19 PM
Comment #243570

Rachel:

We need to decide what our economy needs to do…grow constantly or serve all our people…infinte growth has its consequences…do we need “more” or do we want to be “better”…do we need “stuff” or do we need family & community and clean air/water???

I think we are getting treated to one of the best campaigns in a long time. This is exactly the essense of what is beling debated.

Posted by: Craig Holmes at January 22, 2008 10:22 PM
Comment #243571

Rhinehold-
The 34% number is not off of the Bush numbers, but off of the Fair Tax numbers, properly interpreted. As FactCheck explained it, The FairTax advocates figure the percentage this way:
23+77=100 means a 23% tax. They figure the percentage of the sales tax from its proportion to the final value.

But, nobody figures sales tax that way. If we figured the tax rate, as a percentage of the original price of the item added to it, the $23 of tax would amount to 34% of the original value. As for the higher number, that isn’t Bush administration, either. That’s Brookings Institution.

You bring out that item about 80 economists, and my first response is to ask how many economists currently live within our borders.

So let’s see: According to the Department of Labor approximately 15,000 people are employed as economists in this country. Assuming your numbers reflect actively employed and working economists, you’re citing the support of a little over half a percentage point of all the professionals in the business.

As for who would be given an advantage or disadvantage?

AFT’s Burton agreed that those earning more than $200,000 would see their share of the overall tax burden decrease, admitting that “probably those earning between $40[thousand] and $100,000” would see their percentage of the tax burden rise.

Not to quibble or anything, but those between 40,000 and 100,000 represent a big chunk of the middle class.

As for my fourth point? It’s pretty simple: you can’t get something for nothing. If the Fair Tax replaces every dollar coming from some other tax with another dollar, you would end up paying the same in taxes. And no, the poor already pay no taxes on their income, if not negative taxes, due to the EITC. It’s funny that you’d find me against at notion that by definition I’m already for.

As for economic policies? What I’m big on is government as a force for clarification and disclosure, for keeping Businesses from employing byzantine schemes to hide assets or liabilities, for preventing them from getting into conflicts of interests, and for occasionally pushing technological development and scientific endeavors that are in the common interest.

I’m big on consumer protections, on environmental protections, on government protecting the people’s interests, rather than simply siding with corporations and molly-coddling them. But I believe the more elegant and simpler the law is within reason, the easier it is for the law to succeed at its goal.

There’s this woman named Temple Grandin, an Autistic who has helped to design about a third of the slaughterhouses in the country, and she put forward an interesting point of view: instead of drowning people in regulations, put together control points. She points to a maze of regulations about what kind of surfaces that could be used in slippery places in the slaughterhouse, and she says, that what they should really do is score the system on whether it succeeds or fails to do a certain significant thing. If a cow slips in a trough, the surface has failed. How the business solves the problem is up to them; that they must is not.

To me, it is no big deal to leave the means of meeting obligations up to the companies. But they should have certain obligations to the public, because the alternative is a conflict between business and society that ultimately ends in things being worse for both.

The conservatives have caused a lot of pain for themselves and for their special interests by allowing this state of affairs to go on; the injustices and greivances have soured an entire generation, not to mention the mood of the country, on the notion of giving corporations leeway on regulation and other things. People are acting in their interests, so long defered, and are angrier for the fact that they weren’t listened too or heeded earlier when things were better and the problems not so critical.

The tax situation is one example of where Bush did not listen. Most people were more concerned about the effects of excessive deficit spending than they were about unfair taxes. The average person is not that mad at the IRS. Sure, it’s an inconvenience, but most people don’t obsess over it, don’t display this hypersensitivity to not keeping every dollar they make.

As for your argument about the poor? See above, but I think you should be ashamed of chiding me about name calling when you’ve already decided to assume (wrongly, on the facts) that I believe in taxing the poor a lot. Currently they pay no income tax; payroll taxes are their main concern, and the Earned Income Tax Credit does a lot to make up for that.

As for the rest? We’ll think of something, but it will probably be better than this Fair Tax of yours. As a person who used to be a Republican, I can understand a dislike of high taxes. But the kind of tax phobia that’s developed over my lifetime within the party, and within some outside of it strikes me as kind of insane.

I mean, there’s got to be a balance. Pay for it one way or another. Pay as you go. If you drop a tax, drop the spending with it. raise the spending, raise the tax. Some folks, though, want to do radical rewrites of the laws, which all mysterious benefit the rich more than anybody else, and get slapped with monikers like “Fair” with the explanation being that if everybody’s taxed the same, it’s fair.

But that’s like saying handing fifty pounds to an adult and fifty pounds to a kid and expecting them to carry it the same is fair. For the kid, the burden is heavier, and he or she has less to lift it with. The adult has grown muscle and other resources to better manage the weight. Fairness in the placing of burdens must take into account the needs of the person faced with the burden.

The progressive tax system already does this. Those who can carry more without discomfort do so. Those who can’t carry much of anything, carry nothing at all, really. Those of us inbetween, carry an appropriate load.

We all have to carry the burden. Until we decide as a nation that we no longer will tolerate large government, it will remain, and it has to be paid for someway. If our attitudes remain on self-indulgent tax reforms, that will only serve to delay fiscal responsiblity.

Posted by: Stephen Daugherty at January 22, 2008 11:29 PM
Comment #243576
The 34% number is not off of the Bush numbers, but off of the Fair Tax numbers, properly interpreted. As FactCheck explained it, The FairTax advocates figure the percentage this way: 23+77=100 means a 23% tax. They figure the percentage of the sales tax from its proportion to the final value.

No, the number in that case is 30%, and it is all completely and totally explained (and has been since day 1) on the website and in the FAQs.

And no, the poor already pay no taxes on their income, if not negative taxes, due to the EITC. It’s funny that you’d find me against at notion that by definition I’m already for.

Actually, that is not true.

Let’s say someone goes to purchase a gallon of milk. There are payroll taxes, income taxes, etc in many steps of the process of getting that milk to them (store workers, truck drivers, plastic companies, etc). Each of these steps will pass on that tax that they are paying, as a part of their price, to the next step. It has been calculated that about 30% (like that number?) of each dollar ANYONE spends contains tax offsets in them.

The result? The poor still pay taxes. A lot of taxes, an effective 30% tax rate.

You may like that idea, I don’t.

The conservatives …

You realize that you keep mentioning ‘the conservatives’ and yet you are debating a libertarian… It’s like watching a politician spending debate time attacking their other opponents as often as they can.

See above, but I think you should be ashamed of chiding me about name calling when you’ve already decided to assume (wrongly, on the facts) that I believe in taxing the poor a lot.

I think taxing them 30 cents for every dollar for things that they buy is a lot… Apparently you don’t?

If our attitudes remain on self-indulgent tax reforms, that will only serve to delay fiscal responsiblity.

Again, you find wanting to absolve those below the poverty line of all taxation while increasing the economy of the US by 10% each year for 5 years is ‘self-indulgent’. I’ll just let that go for what it’s worth.

Posted by: Rhinehold at January 23, 2008 12:27 AM
Comment #243585

Craig,

I agree completely and was alluding to the same idea when I used the words psychological factors.

Posted by: googlumpugus at January 23, 2008 5:58 AM
Comment #243587

Rhinehold-
You talk about the hidden taxes, right? Well, those hidden taxes will still be there, just replaced by your new tax. It would have to do that, as well as compensating for the person’s direct taxation, in order to remain revenue neutral. That is, unless you want to take the taxes in a non-neutral direction. You can’t get something for nothing. Either somebody has to pay a much bigger bill to compensate for all the hidden taxes you magically took away, Nobody pays it and it becomes a cause of deficit spending, or everybody pays basically the same amount they did before, in taxes and in “hidden” taxes.

And who would enforce this tax? We’d still need something, because there’s a natural way to evade such a tax, one that’s popped up in ever country with a strong sales tax in place (which 34-39% qualifies as): smuggling and black market sales.

Or, why give up over a third of your money to the government when you can keep more of your own money! That’s another thing the FactCheck people pointed out: your calculations unrealistically assume that with this gargantuan sales tax, everybody will comply. What typically happens though, is smuggling and black market sales.

But of course, I’m just quibbling, I lack vision, I’m against the poor, I’m just some tax addicted Democrat… It doesn’t matter whether your people are using a very misleading, unorthodox way of calculating the rate, or that most of the middle class will see their taxes rise, even by the supporters own admission. It doesn’t matter that the rich will be the biggest gainers in this system(again by the supporter’s own admission), or that the poor already see compensation for what tax burden they do have, in addition to being some of the primary beneficiaries of the money paid out. Right? Facts don’t matter, allegation about my evil inclinations do.

Your tax is another variation of the same theme, the spoiled rich complaining about what a burden they’ve been given, though our income taxes are some of the lowest in the industrialized, and they themselves have more than enough economic wherewithal to pick up this burden. Your idea of fairness is to put a fifty pound pack on a child’s back and the same on an adult’s back, and call that even. Raw percentage doesn’t determine true fairness, though, the ability to carry the burden does. Your tax would increase the burden on most of the people who should be paying less, who spend most of their money on what they need, rather than what they want. You might talk about a gimmee to the poor, but how about the working class? Your tax lands right on top of them and makes things worse.

And it doesn’t do so because of any character defect on your part. You yourself have nothing to do with it. It’s this damn plan you’re supporting here. You haven’t examined the basics of it closely enough. You haven’t asked whether some people have let their ideology convince them that fudging the facts is worth the ethical quandaries. You haven’t really asked yourself how we will deal with the Black Market it will create (as all high sales taxes do), or whether this is really any different than Bush’s tax cuts for the rich.

But you also haven’t asked the fundamental question: can America afford more economic growth that comes from disadvantaging the working class? Already, the inequalities weight heavily on them, and more wealth is concentrated at the top relative to the rest of the economy than at any other time since the Great Depression. I don’t think the current economic troubles are coincidental with that condition. I think anytime you get artherosclerosis of the middle class economy, the rest of the economy gets a heart attack. We are a consumption-based economy, one that depends on a middle class with extra dollars to spend on top of fulfilling their needs. Do we need a new means of disadvantaging them, a tax system that can’t reasonably be adjusted to allow the tax burden to devolve more upon those who can shoulder a bit more?

The progressive tax system has the virtue of being adjustable. Sometimes that leads to an unjust distribution, like we have now, sometimes, though, it can lead to burdens being distributed according to strength. Thats the beauty of the current system, if you leave it alone.

Posted by: Stephen Daugherty at January 23, 2008 8:44 AM
Comment #243596

The current deficit is $250 billion…the “rebate” will add another $100 billion to that figure…we’re robbing ourselves and putting ourselves into deeper debt…

Posted by: Rachel at January 23, 2008 10:22 AM
Comment #243601
You talk about the hidden taxes, right? Well, those hidden taxes will still be there, just replaced by your new tax. It would have to do that, as well as compensating for the person’s direct taxation, in order to remain revenue neutral.

Yes, except we would be able to see them, know how much we are paying, and be able to have the poor not pay them. That is something we can’t do with the current tax system.

It doesn’t matter whether your people are using a very misleading, unorthodox way of calculating the rate

Only unorthodox if you are not comparing it against income tax, which is why AFT has from day one explained the different in detail so that people whould not get confused. As AFT says about the Factcheck article

The FairTax, in truth, represents a very different kind of federal tax proposal that defies common definitions because it entirely changes the paradigm of taxation at the federal level. Can a consumption tax be fairly compared to a tax on income, for example? An “apples to apples” comparison suggests that in order to do so, both must be expressed in either “inclusive” or “exclusive” terms (whether the amount of tax is included in the calculation of the total or excluded). This is a difficult challenge because sales taxes are almost always expressed in an “exclusive” manner, but income taxes are almost always expressed in an “inclusive” manner.

Although 85 percent of the admittedly unscientific sample of letter writers noted in FactCheck’s article understand the difference, although explanations of the two calculation methods abound on the FairTax Web site, and although every other tax proposal (as well as the income tax itself) is described in “inclusive” terms, FactCheck unfairly spins even our ubiquitous notes on this distinction as somehow misleading the public. We would have preferred a more fair, neutral, and accurate description that “comparisons with income tax rates are difficult because…”.

So, they are misleading (only 85% of the people get it) and hiding the ‘real rate’ (even though they have had the details about it available since day one…

or that most of the middle class will see their taxes rise, even by the supporters own admission.

You again don’t want to talk about the different between marginal rates, effective rates, lifetime rates, etc. And the increase you mention is done without context, even Factcheck saw that the increase was, what, 1%?

It doesn’t matter that the rich will be the biggest gainers in this system(again by the supporter’s own admission)

I guess I’m not following this logic? If we eliminate the tax requirements of the poor completely instead of making them pay a 30% effective sales tax, change the middle class rate every so slightly (hard to say since it is partially up to the individual how much they pay) and not overtax the rich (the people who fund our economy) based on income (which even you admit they can easily avoid now) by getting them when they purchase, then the system is bad?

or that the poor already see compensation for what tax burden they do have, in addition to being some of the primary beneficiaries of the money paid out.

No, you simply choose to refuse the fact that they pay an effective 30% sales tax now. Then argue against the system because it doesn’t help the poor. I’m not sure how much sense that makes, but by all means if you don’t mind continuing to force the poor to pay that taxation and are ok with the current system as it is, then don’t support this one. But the least you could do is quit lying about it as you are doing now…

Right?

Nope, as I’ve explained.

Facts don’t matter

Apparently not since you simply ignore the ones I provide, several times, and continue to argue your old arguments.

allegation about my evil inclinations do.

Faint outrage, Stephen, since you started with the supporters of the fair tax being ‘chronic tax dodgers’…

though our income taxes are some of the lowest in the industrialized, and they themselves have more than enough economic wherewithal to pick up this burden

Right, that’s why we have one of the weakest dollars I’ve seen, a bankrupt country because we can’t collect as much as we spend and are entering a recession?

And you further again ignore the fact that most corporate income taxes are passed on to the consumer, and the fact that The United States currently has the highest combined statutory corporate income tax rate among OECD countries which pushes our companies to send jobs and new plants overseas…

We’re doing GREAT.

You might talk about a gimmee to the poor, but how about the working class? Your tax lands right on top of them and makes things worse.

The Beacon Hill Institute at Suffolk University concluded in a 2007 study on distributional effects that “replacing income and payroll taxes with the FairTax would make the United States federal tax system more progressive than it is now and would benefit the average individual in almost all expenditures deciles.

In a study on tax base and rate, the Beacon Hill Institute concluded that the FairTax would offer the broadest tax base and increase the federal government’s net base to $9.355 trillion from $7.033 trillion of taxable income, which allows the FairTax to have a lower tax rate than current tax law.

A study on marginal and average tax rates by Kotlikoff concluded that the FairTax would reduce most households’ average lifetime tax rates. Economists from Boston University and the Centre for European Economic Research concluded that the long term effects of the FairTax would reward low-income households with 26.3% more purchasing power, middle-income households with 12.4% more purchasing power, and high-income households with 5% more purchasing power.

Yeah, hurt those workers by increasing the economy and their overall spending power…

And you fail to address the fact that this tax is more stable than income tax through the good times and bad.

Posted by: Rhinehold at January 23, 2008 11:52 AM
Comment #243627

Rhinehold-
First, this is supposed to be some kind of uber-sales tax, so it’s deceptive to describe the rate as if it’s removed, rather than added. Income taxes are described that way because the tax rates remove money from the income stream, rather than adding it to purchase prices and service fees.

Second, the expansive definition of what can be taxed is just out of this world. Interest can be taxed. Medical services can be taxed. Religious donations, and other charitable acts can be taxed. Where do the taxes stop? And who pays for this magnificent system to track every transaction in America, to ensure compliance?

Your language is of an orthodox religionist speaking to a heretic. But you see, I don’t believe this tax will do what is promised. If the basic math doesn’t balance, if the expectations are unrealistic, and nobody’s figured out the costs of actually getting the damn thing to work, or what the economic effects of having the government get a cut of just about every transaction in America are, then all your emotional appeals are just so much browbeating.

Thank you, no. and the stability of the tax is not a virtue. The progressive tax, with its multiple rates, can relieve pressure from the poor and middle class fairly easily. The fair tax, by comparison, is spectacularly rigid. You adjust one rate, or nothing at all.

Spectacularly rigid also describes the attitudes of many supporters of this measure. I’m naturally wary of unproved dogmatism, and this smacks of it. You don’t answer questions, you just keep on going as if nothing had happen, or as if the person had just not rubbed together enough of their few brain cells to actually get the idea. The current system is far from perfect, but imperfection is relative, and relative to the current system the Fair Tax is a poor substitute.

Posted by: Stephen Daugherty at January 23, 2008 3:59 PM
Comment #243632
First, this is supposed to be some kind of uber-sales tax, so it’s deceptive to describe the rate as if it’s removed, rather than added. Income taxes are described that way because the tax rates remove money from the income stream, rather than adding it to purchase prices and service fees.

And it is described both ways. When comparing with an income tax, the 23% is used. When defining how much would be taxed, the 30% is used. Again, you can say it is ‘deceptive’ all you want, but I think most people, as the unscientific poll done by the Factcheck people proved, can read beyond a 5th grade level for now.

Second, the expansive definition of what can be taxed is just out of this world. Interest can be taxed. Medical services can be taxed. Religious donations, and other charitable acts can be taxed. Where do the taxes stop? And who pays for this magnificent system to track every transaction in America, to ensure compliance?

First, with an income tax, all of these things are ALREADY TAXED. It is just not seen because you see a final price, not a detail of what taxes are passed on. There are places that are actually starting to require that people put that information on their products, I would be happy to see this start to be the norm, then perhaps it wouldn’t be like pulling teeth to get progressives to understand this simple fact.

And it can be ‘paid for’ by putting some of the money spent on the IRS to do this. The prebate ‘business’ can be sold to the highest bidder (Visa, Mastercard, etc) who would easily be able to handle the payments and would want this business to get their card to be the one of choice used.

To be honest, Stephen, you really sound more like a conservative (resistant to change) than a progressive here… I know, being a progressive requires that you have to fight this kind of change because income measurment is the best way you think you can distribute wealth, but I just find it amusing that you are sounding like a republican talking about climate change…

Thank you, no.
And that’s all you have to say. Instead, you attempted to make incorrect, inaccurate statements about the plan that you display you really know nothing about.
The progressive tax, with its multiple rates, can relieve pressure from the poor and middle class fairly easily. The fair tax, by comparison, is spectacularly rigid. You adjust one rate, or nothing at all.

Except, it doesn’t change that easily, does it, or we wouldn’t be having knock down, drag out fights that end up with us entering a recession, would we?

The Fair Tax adds in ‘flexibility’ by not taxing used goods. If you can’t afford, individually, to pay as much this month because of personal reasons that are your own and no one else’s business, you look to purchase used goods instead of new. THEN, instead of relying upon a bureacracy that is slow and ineffective, you get immediate relief as you determine you need it, not a rich politician on the payroll of large business determines it.

You don’t answer questions, you just keep on going as if nothing had happen

I think everyone reading this exchange will see that I’ve attempted to answer every single ‘question’ you’ve rasied to the best of my ability. Please, if you have something that isn’t getting answered, ask it now and I don’t then perhaps your projection will stick. Otherwise, all you’ve done is question motives and morals of those who support changing a system that is oppressive, unfair and does not work as evidenced by the current state we are in…

Posted by: Rhinehold at January 23, 2008 4:22 PM
Comment #243669

Rhinehold-
I like things to be present plainly, honestly, and openly. I like to see my government leaving less to chance and getting its ducks lined up in a row. I don’t like chronic policy screw-ups.

I also have no love for plans and policies which are defended by emotional appeals, unscientific polls, semantic ambiguities and all that other happy horses***. Not to be too crude about it.

Take a look at my arguments. Function is important to me. Discipline is important to me. result matter a lot. Dogma to me is dispensible, in no small part because I don’t put my trust in what people think, but rather what can be established factually.

You’re not establishing facts. You’re defending how you came to facts that I don’t think deserve the name. You’re defending lousy inferences and tricks of language and accounting.

Right off the top of my head, I see the issues of slowed spending, as you essentialy add income and payroll taxes on top of products. I see Americans all of a sudden finding items like food and medical services, not typically taxed out of pocket rising sharply in cost. Gas costs a dollar more, so on and so forth.

Most people never see the money that goes to income and payroll taxes. It’s gone before it reaches their hands. Sales Tax, particularly in my neck of the woods, becomes an issue. You buy a $10 movie, you can expect to tack on an extra 80-something cents. Same goes for any meal. All of a sudden people feel the pain, and they react. Buying used items means productivity would be discouraged.

You folks aren’t thinking systematically. You’re assuming certain things must happen a certain way. That’s what got us into this current economic mess: tax policy based more on wishful thinking and desired consequences, than informed theory and predictable response. Nothing inherent in the progressive tax has caused this problem with the deficits; that’s entirely caused by those who are more interested in getting out of their taxes than keeping accounts in Washington straight.

I’m not going to support a plan so ill-thought out. I expect people to know what they’re doing, and take real-world conditions into consideration.

Posted by: Stephen Daugherty at January 23, 2008 9:40 PM
Comment #243675
I like things to be present plainly, honestly, and openly.

I’m not sure how much more plain, honest and open the AFT can be. The amount of research and information available on their website is immense, it just needs to be read. Most of the ‘questions’ you have rasied are answered in detail, explained much better than I most likely can. Remember, this is not what the people who developed the plan went into with. Their question to the economists they hired was to develop a new tax plan from scratch, this is the result of millions of dollars of initial research and millions more in supporting research being done. That you call it ‘ill thought out’ is hilarious to me, to be honest.

I also have no love for plans and policies which are defended by emotional appeals, unscientific polls, semantic ambiguities and all that other happy horses***. Not to be too crude about it.

Everything has emotional supporters. Should I get into the attacks and comments from progressives on YOUR side of political spectrum? Do we want to judge progressives on that?

Take a look at my arguments.

I have, and I’ve answered them, and you’ve blown them off without addressing them. Which is ok I suppose, but then to come to me and say that I don’t answer your questions is insulting.

Function is important to me. Discipline is important to me. result matter a lot. Dogma to me is dispensible, in no small part because I don’t put my trust in what people think, but rather what can be established factually.

And I’ve been dealing in facts and economics research. Again, it’s like you are simply assuming that I’m doing something and arguing against it. Perhaps if you tried actually addressing what I’ve said it would help things out?

Sales Tax, particularly in my neck of the woods, becomes an issue. All of a sudden people feel the pain, and they react. Buying used items means productivity would be discouraged.

If added on without the removal of income (and other) taxes, yes I would agree. But remember, they are no longer going to have those to pay. The net cost each month for what they bring home compared to what they will buy will nearly the same, with a prebate given to them to offset the taxes paid on essential products. It’s how free markets work, I’m sure you agree that if a product no longer costs as much as it used to and the market has active competition that the price of the final product will go down. We see that in the IT industry every day, how much are computers now compared to 1990?

You folks aren’t thinking systematically. You’re assuming certain things must happen a certain way. That’s what got us into this current economic mess: tax policy based more on wishful thinking and desired consequences, than informed theory and predictable response. Nothing inherent in the progressive tax has caused this problem with the deficits; that’s entirely caused by those who are more interested in getting out of their taxes than keeping accounts in Washington straight.

Then this system is not for them, because everyone, except the poor, still pay taxes! what a stupid argument, Stephen, I really expect better than that from you. Here are a couple you could start with, if you are really interested…

http://www.fairtax.org/PDF/FairTax-Fundamentals_and_facts-070122.pdf

http://www.fairtax.org/PDF/MacroeconomicAnalysisofFairTax.pdf

I’m not going to support a plan so ill-thought out. I expect people to know what they’re doing, and take real-world conditions into consideration.

The plan that you call ‘ill-thought out’ has been researched and peer reviewed for over a decade. There are years worth of research and factual evidence backing up the research, all looked at by economists and is supported more every day by more and more of them. Resarch done by Harvard, Boston University, Suffolk University, etc. All of it made available, unedited, for everyone interested to see.

Those who aren’t interested in having their questions about the system actually answered I imagine would never go look at it.

I’m beginning to think that perhaps you are in that category. Which again, is fine, but the hautiness and contempt that you throw at me just for daring dirty your side of the blog with ‘this’ is not appreciated.

Posted by: Rhinehold at January 23, 2008 11:09 PM
Comment #243684
But, nobody figures sales tax that way.

BTW, I just wanted to point out that this is correct… Well, except for all of those countries that do not…

Tax rates can be presented differently due to differing definitions of tax base, which can make comparisons between tax systems confusing. Some tax systems include the taxes owed in the tax base (tax-inclusive), while other tax systems do not include taxes owed as part of the base (tax-exclusive). In the United States, sales taxes are quoted exclusively and income taxes are quoted inclusively. Value added tax (VAT) countries display this tax inclusively; however, Goods and Services Tax countries do not. For direct rate comparisons between exclusive and inclusive taxes, one rate must be manipulated to look like the other.
Posted by: Rhinehold at January 24, 2008 1:06 AM
Comment #243706

Rhinehold-
An emotional appeal is an argument that bases it’s premises on what people are supposed to feel, rather than supporting it by proving the point factually and logically. One example: we must stay in Iraq because otherwise we’re abandoning the Iraqis. Well, doesn’t that just make you feel bad? And some people might just take it as self evident fact.

Just not the people you’re trying to convince. They might instead look, say, at the fact that many Iraqis want us gone. That complicates things, since the concept of abandonment centers on an obligation one is supposed to fulfill. Also, there are many strategies that don’t require us to remain in Iraq militarily to stick by these people and help them out. Also, there’s the whole argument of whether we’re helping at all. If we’re not helping, and they don’t want us there, then an argument that suggests we’re abandoning the Iraqis by leaving is weakened.

Similarly, arguments concerning the “Fair” Tax suffer the same problem. One obvious problem is the use of the IRS as a boogeyman. An argument from hatred and dislike of the agency itself and government in general is problematic, because whatever tax you put forward, somebody’s going to have to handle the money, somebody’s going to have to enforce the law, and somebody’s going to have to measure compliance.

And nobody’s going to do that for free, much less be able to do it for free. Do we put the burden on the taxpayer to write up the forms, the businesses, the state agencies? Why should the state take up the expense and the trouble of doing this, with their own problems to take care of?

The Rate also assumes that nobody’s going to cheat. Everybody cheats, though, especially when sales taxes get involved. When you get above ten percent, you will see a black market develop, where people bypass the compliant businesses and buy and sell without the tax involved. Don’t assume that in a day and age where millions download music and movies with virtual impunity, that such will not happen.

It’s not that nobody cheats on the income taxes we currently have, mind you. No, it’s that the proponents of this bill base their low rate on an ideal situation which will never exist, especially as the rate of this uber-sales tax rises. The rate given is unrealistic, especially if revenue neutrality is the goal.

If it is not, then let me point you towards the last ten years as a reliable indication of what happens when you try to “starve the beast”. It’s like trying to starve a dog by not giving him food, a situation he remedies by digging under the fences and then rooting through somebody else’s garbage.

Personally, I have no love for deficits. They’re universally acknowledged to be bad for the economy, when they’re structural and permanent.

The high rate required to recover money lost through tax avoidance and maintain revenue neutrality itself would add on to the costs of many items and services. This would exert a slowing effect that would very likely dilute if not eliminate growth generated by freed money. Additionally, if neutrality is not sought, then the freed money from that end would be haunted by the effects of inflation and/or high interest rates, both of which would drive up the prices of goods and services, a problem that would be further compounded, literally you could say, by the fact that the “Fair” Tax would tax interest and would respond to the increase of the price of consumer goods with increases of its own.

This, of course, assumes that this tax is manageable. Assuming that, we would have a tax whose rate would have to rise considerably from the promised low rate in order to be revenue neutral, and that would weigh heaviest on those whose spending is supposed to drive this consumer economy. Namely, the Middle Class.

This is a tax that has no flexibility to deal with different socioeconomic classes differently, to institute temporary taxes that can be abolished or renewed by themselves. It essentially puts all the eggs of revenue in one basket, and doesn’t respect the load bearing capabilities of those it imposes its burden on.

Simplification is a good thing, but nothing says we can’t simplify and set right the current tax code. There’s a reason most states don’t try and run things off of consumption taxes. It tends to scare business off. I know that I have a tendency to get very guarded about purchases when they’re really expensive, because all too often, the tax on the item would make what would otherwise be affordable too much for the money I have.

This article on France’s VAT illustrates some of the problem: an increase in that, to maintain stable prices, will either require price controls, or greater unemployment (since businesses would have to reduce payrolls to make up for what it will cost to keep prices low.)

You can’t get something for nothing.

Posted by: Stephen Daugherty at January 24, 2008 12:06 PM
Comment #243722
Similarly, arguments concerning the “Fair” Tax suffer the same problem. One obvious problem is the use of the IRS as a boogeyman. An argument from hatred and dislike of the agency itself and government in general is problematic, because whatever tax you put forward, somebody’s going to have to handle the money, somebody’s going to have to enforce the law, and somebody’s going to have to measure compliance.

And nobody’s going to do that for free, much less be able to do it for free. Do we put the burden on the taxpayer to write up the forms, the businesses, the state agencies? Why should the state take up the expense and the trouble of doing this, with their own problems to take care of?

Nobody said that it was going to be done ‘for free’. .25% of the collected tax would stay with the states to help with collection and compliance. But, the new tax system would be lowering the number of collection points from every single business to retail stores only. Of course, this information is made available on the AFT website, if you wanted to know it instead of making assumptions, which is what you seem to like to do.

http://www.fairtax.org/site/PageServer?pagename=about_faq_answers#25

The Rate also assumes that nobody’s going to cheat. Everybody cheats, though, especially when sales taxes get involved. When you get above ten percent, you will see a black market develop, where people bypass the compliant businesses and buy and sell without the tax involved. Don’t assume that in a day and age where millions download music and movies with virtual impunity, that such will not happen.

Again, more assumptions. No one at AFT is saying that there will be no cheating, in fact this has been figured into the rate and code of the bill and thought about ahead of time. Figuring that in with the fact that instead of having to check all of the individual tax returns AND business returns, we would be eliminating the individuals, that frees up a lot of the busy work that we no longer have to contend with and can focus our efforts on the smaller number of businesses that would be reporting retail taxes.

http://www.fairtax.org/site/PageServer?pagename=about_faq_answers#44

http://www.fairtax.org/site/PageServer?pagename=about_faq_answers#48

http://www.fairtax.org/PDF/FairTax-Fundamentals_and_facts-070122.pdf

You can’t get something for nothing.

No one is trying to, other than you trying to state things about that plan that aren’t accurate and stating them as fact when they can be easily debunked by just looking for the information before assuming the assumptions are valid.

Do the work, it took me all of 5 minutes to read the FAQ section of the website and get the answers to the assertions you’ve made. Or, continue to argue against something without having even checked the validity of your arguments if you want, but it makes one wonder what the REAL driving force behind your aversion to the system is…

Posted by: Rhinehold at January 24, 2008 2:45 PM
Comment #243726

“but it makes one wonder what the REAL driving force behind your aversion to the system is…”

Maybe because people will start paying attention and asking questions?
Take tax money before you give it to a slave and he learns to forget about it and does not question.
Take it from him after it is in his hands and he starts asking questions and demanding answers.

Or, maybe its because the Fair tax does not promote class warfare like the current system does? And we all know who plays that card every chance they get.

Posted by: kctim at January 24, 2008 3:19 PM
Comment #243743

Rhinehold-
These are among the newly taxed transactions:

Purchases of new homes
Rent
Interest on credit cards, mortgages and car loans
Doctor bills
Utilities
Gasoline (30 percent in addition to current taxes, which would not be repealed)
Legal fees

Additionally, Among the replaced taxes would be the Corporate income tax, the Estate Tax, among others. purchase between businesses and corporations would be exempt.

And of course, people making over 200,000 would see their actual real tax decline.

I see in the documentation that the Fair Tax people ask themselves the question of whether the Fair Tax would be fair. My, aren’t they a disinterested party in the answer to that question! I’m sure they wouldn’t be biased.

I’m also sure, though, that most people would disagree with their assessment. An overwhelming percentage of Americans think the Rich and corporation pay too little in taxes.

Also, beyond the fairness issues, which are a relative measure indeed, there’s the issue of compliance, and the legal wrangling over what constitutes a corporation.

It is possible for people, especially rich people of means, to make corporations of one kind or another, that have little real economic purpose beyond things like real-estate speculation, or the avoidance of taxes.

There are probably plenty of lawyers, accountants and rich folks out there who are going to find ways to get things they want without having to pay taxes.

Another possiblity that comes to mind is the conflict of interest that comes from being paid fees to take care of these things. Would that not be an incentive for businesses to overcharge, for government not to intervene in cases where consumers are being overcharged (after all, they ARE getting a cut.)

My feeling is, this tax would do little as legislated to put a check on the ability of the rich and powerful to dodge taxes. They might get hit on it with some things, but I think they’d certainly find ways around it. They could, for example, start nominal corporations, or have their companies, which they own, purchase their homes for them.

And who would be there to stop them? Who would audit these claims, make sure that cheating wasn’t going on? Nobody, if you folks got your way. Or fifty different state agencies with fifty different standards and approaches, who might be underfunded and be laissez faire about collection (since they want to attract businesses) or overzealous about it (since they want their own cut of the kitty)

Do I seem rather stubborn? Of course I do. The tax fails on several levels. First, it’s policy presented with a lack of real clarity as to what it entails. Second, it takes all flexibility out of federal taxation, turning every tax rate decision into a knockdown drag-em out fight. Third, it misses precisely those persons in the economy that most people would say are paying less taxes than they deserve to pay. Fourth, for all it’s clarity in theory, in practice it’s going to be incredibly difficult to get the kind of compliance necessary to justify the low percentage. Black markets and the creativity of folks with professional help on their side will ensure that.

And finally, lets face facts: dividing one complex bureaucracy into fifty different ones is not a recipe for simplicity, and there will be secondary consequences to that which may complicate whater projected growth might come of the change in the tax code. It will introduce politics into these matters in a way you wouldn’t believe, and people and businesses might move from one place to another trying to find the laxest enforcers.

It’s not merely a matter of complex academic projections, it’s an understanding of how history shapes real economics, an understanding I don’t see in the “Fair” Tax.

Posted by: Stephen Daugherty at January 24, 2008 6:01 PM
Comment #243756
Rhinehold- These are among the newly taxed transactions:

Purchases of new homes
Rent
Interest on credit cards, mortgages and car loans
Doctor bills
Utilities
Gasoline (30 percent in addition to current taxes, which would not be repealed)
Legal fees

Well, these are already taxed. You just don’t see them.

Additionally, Among the replaced taxes would be the Corporate income tax, the Estate Tax, among others. purchase between businesses and corporations would be exempt.

Yes, because these taxes get added to prices of goods and services and eventually paid for by the consumer. The idea is to put that all out in the open so it can be a) seen and b) allowed that all below the poverty level can be exempted from paying them. Unlike the current plan.

And of course, people making over 200,000 would see their actual real tax decline.

In reality, everyone would because of the a) increase in economy and b) increased tax base. But we all know about the emotional desire to ‘make the rich pay more’ that the progressives have. For no other reason than they earn more, nothing else.

I see in the documentation that the Fair Tax people ask themselves the question of whether the Fair Tax would be fair. My, aren’t they a disinterested party in the answer to that question! I’m sure they wouldn’t be biased.

Gee, guess not. I guess all of that research is just bogus, never mind what it all says because the people who propose the plan say it results in what they think is fair. Just ignore all of it, it doesn’t matter…

I’m also sure, though, that most people would disagree with their assessment. An overwhelming percentage of Americans think the Rich and corporation pay too little in taxes.

And interestingly enough a lot of people, through grassroots campaigns (because getting rid of the income tax would end the powerplay that both parties use in their games with each other would lower their power so it has to come from the grassroots…) are starting to support the plan.

And if they do, considering your view of democracy, that would be a good thing, wouldn’t it? I mean, the majority of people getting together and deciding on something and enacting it?

Let’s let the communication occur and let the people decide. If they reject it, as you say, then you really don’t need to do much, do you?

Also, beyond the fairness issues, which are a relative measure indeed, there’s the issue of compliance, and the legal wrangling over what constitutes a corporation.

I’ve shown you parts of the code written to deal with those things, what ‘legal rangling’ are you talking about exactly?

It is possible for people, especially rich people of means, to make corporations of one kind or another, that have little real economic purpose beyond things like real-estate speculation, or the avoidance of taxes.

That’s actually illegal in HR 25, as I linked to before.

Since you obviously didn’t click on the link, I’ll just paste it for you here:

Since business purchases are not taxable, how does the FairTax keep individuals from pretending to have a business so they can buy things tax free?

The FairTax has several features that make it difficult and very risky for persons to have a scam business in order to purchase items tax free. First, in order for any person to purchase items tax free for business purposes, the business has to be a registered seller and possess a registered seller certificate issued by the state sales tax authority. Registered sellers are expected to file monthly or quarterly sales tax returns with the state (depending on sales volume). The certificate enables the business to purchase tax free from wholesale vendors, but the vendor must retain a copy of the registration certificate to justify not having collected tax on the sale. When a business purchases items for business use from a retail vendor, they have to pay the tax on the purchase and take a credit against the tax due on their monthly sales tax return. They must keep invoices/receipts to document what they purchased and the amount of the purchase. They might also make note of the purpose of the purchase on the invoice.

Also, as registered sellers, they are subject to the possibility of being audited by the state. During such an audit, they will have to produce the invoices for all the “business purchases” that they did not pay sales tax on and will have to be able to show that they were bona fide business expenses. If they cannot prove this, then they will have to pay the taxes that should have been paid when the items were purchased, plus interest and penalties. The probability of being audited will be much greater than it is under the current system with its over 140 million tax filers. Under the FairTax, there will be less than 20 million businesses that will be filing sales tax returns and thus subject to the possibility of being audited. Thus, the probability of tax cheats getting caught will be much greater than it is today, making tax evasion riskier than it is today. Additionally, while the FairTax has much stronger taxpayer rights than does the current tax system, the FairTax legislation provides for a number of fines and penalties for noncompliance. It also authorizes a mechanism for reporting tax cheats and obtaining a reward. An example would be 1-800-TAX-CHET.

Another potential scam would be to have a “fake” family business in order to buy things for family members tax free. The FairTax has a specific provision to prevent this. Although it does not prohibit businesses from providing taxable property or services as gifts, prizes, rewards, or as remuneration for employment, the gift, reward, etc. is considered to be the conversion of property or services from business use to personal use and is therefore taxable. Likewise, there is a similar provision to prevent abuse of employee discounts. Under the FairTax, employer-provided employee discounts over 20 percent are taxable. The term “employee discount” means an employer’s offer of taxable property or services for sale to its employees or their families for less than the offer of such taxable property or services to the general public. If the employee discount amount exceeds 20 percent of the price to the general public, then the sale of such taxable property or services by the employer to the employee is considered the conversion of property or services to personal use and is subject to tax. The taxable amount is the amount by which the discount exceeds 20 percent of the price to the general public.

Which is already accounted for in the code… You see, smart people have been thinking about these thinks for over a decade, you’d be surprised that these people might have thought of something so basic before…

There are probably plenty of lawyers, accountants and rich folks out there who are going to find ways to get things they want without having to pay taxes.

Unlike the current system? Except, in the current system, we have to look at millions of individuals and businesses. In the new system, we just have to audit and monitor the businesses…

Another possiblity that comes to mind is the conflict of interest that comes from being paid fees to take care of these things. Would that not be an incentive for businesses to overcharge, for government not to intervene in cases where consumers are being overcharged (after all, they ARE getting a cut.)

LOL, like pork that the current system puts in front of congressment and results in billions of dollars in losses each year?

You’re making arguments for the fair tax, IMO, not against it…

And who would be there to stop them? Who would audit these claims, make sure that cheating wasn’t going on? Nobody, if you folks got your way.

Err, nobody? Where do you get that from? Another one of your ‘facts’ that you didn’t bother checking?

Or fifty different state agencies with fifty different standards and approaches, who might be underfunded and be laissez faire about collection (since they want to attract businesses) or overzealous about it (since they want their own cut of the kitty)

Oh n0, the states are so the suck… How could we possibly trust the states to do ANYTHING!?!

Do I seem rather stubborn?

No, I think you seem rather closeminded and uninformed.

The tax fails on several levels. First, it’s policy presented with a lack of real clarity as to what it entails.

? It’s extremely clear. You can disagree with it but having the balls to say that is amazing…

Second, it takes all flexibility out of federal taxation, turning every tax rate decision into a knockdown drag-em out fight.

OMG. The knock down drag-em fights exist NOW, this system eliminates those completely. It puts the flexibility into the hands of the individual for their own individual need, not a wedge issue for the two major parites to use to keep us separated.

The reason we HAVE class warfare is because of our current tax system, not because it doesn’t exist.

Third, it misses precisely those persons in the economy that most people would say are paying less taxes than they deserve to pay.

Everyone says that someone else should pay more, geesh, that’s the exact reason we need to END the class warfare in this country, not advance it. It’s like the people who created the Fair tax calling it Fair… you don’t buy that but you want me to buy this? Amazing…

Unless you need that power for your own partisan needs and power plays, using people against each other to get elect….. Oh, wait a sec…

Fourth, for all it’s clarity in theory,

Wasn’t your first point that it lacked clarity?

in practice it’s going to be incredibly difficult to get the kind of compliance necessary to justify the low percentage. Black markets and the creativity of folks with professional help on their side will ensure that.

*shrug* you have nothing to back up your assertions and you refuse to address the parts of the system that specifically addresses the points you raise. What would you call someone like that if you were debating them, Stephen?

And finally, lets face facts: dividing one complex bureaucracy into fifty different

less complex

ones is not a recipe for simplicity

No, that’s exactly the recipe for simplicity, making it simple

and there will be secondary consequences to that which may complicate whater projected growth might come of the change in the tax code.

None of which you can provide, yet they must exist because this system just can’t work, you’re sure of it. Nevermind that people have been looking at this system for over a decade and attempting to address these issues, by your reasoning we should never change anything…

How very conservative of you, Stephen.

It will introduce politics into these matters in a way you wouldn’t believe

*SNORT* Are you actually reading the things you write? Politics *IS* the current system. BECAUSE of the desire of people to try to tax others more than themselves and the use of class warfare of the current system has created a new breed of politics that is TEARING THIS COUNTRY APART.

It’s not merely a matter of complex academic projections, it’s an understanding of how history shapes real economics, an understanding I don’t see in the “Fair” Tax.

Yet, you have shown that you really haven’t looked into it, so people should take that opinion with that knowledge in mind.

In fact, as always, I say people should look at it themselves, not listen to what you or I say, because we both are just stating what we know to be true which may not fit in with their knowledge of the truth… Always look into it yourself, IMO.

And as I’ve stated before, you’re free to not like it, but I would suggest you not like it for the real reasons, not the ones you’ve invented that are easily debunked.

Posted by: Rhinehold at January 24, 2008 9:18 PM
Comment #243817

Rhinehold-

Well, these are already taxed. You just don’t see them.

So, knowing exactly what’s coming out is better than having everybody pay their fair share? I don’t buy it. This tax basically shifts the burden onto the consumer. You say, well the rich spend more. Well, they also save and invest more. They also own companies, who you’ve exempted from taxes, which allow them to just make whatever profits they want, and contribute only OUR money.

This is a consumer based-economy, which means, most of the spending is done by middle class citizens. This is a tax cut for the rich and for corporate America, once again funded by a tax increase on the middle class.

And that’s if it works. That’s not what people want, or would call fair. So you say it costs us. It won’t cost us any less, though, than under the current system. What’s the advantage of knowing, if you get screwed, and every subsequent tax increase beats you down more than it beats them?

And yes, it will increase, because your ideal tax base and tax compliance will not come to pass, and people, understandably, will not abstain from putting their clever little minds to getting around it.

In reality, everyone would because of the a) increase in economy and b) increased tax base. But we all know about the emotional desire to ‘make the rich pay more’ that the progressives have. For no other reason than they earn more, nothing else.

Reality? It’s all still hypothetical. Increased growth does not necessarily mean increased personal wealth or happiness. Look at the average person. They’re working harder for less, their job security, healthcare and multiple other factors are worse off. I don’t see how transferring the tax burden onto the Middle Class helps this. The rich won’t feel the pain when they consume. Wealth is like fiberglass in terms of economic insulation. And what if the economy doesn’t always grow? Well then, to keep everything revenue neutral (like you promised in your FAQ) you have raise taxes on everyone. But I guess that works out in the end, since making people poorer exempts them from more taxes!

The very use of the word “Fair” with this tax is propaganda. It’s an emotionally loaded word, and really doesn’t much to do with the nature of the tax. You could say the same about the “Progressive” tax, except that actually is a technical term that applies appropriately to taxes where shares of the burden rise with wealth. That it speaks of forward movement is an added bonus, rather than the entire point of using it.

Rich people, as a rule, spend less of their money. Which means they gain more money. Which causes economic problems because such sclerotic distribution of money ensures that the poor get poorer and the rich get richer.

Oh n0, the states are so the suck… How could we possibly trust the states to do ANYTHING!?!

I love how some on the right just love to dump things in the states laps that the federal government should be doing. You multiply bureacracies, multiply standards, and make every move one state makes a federal others will squabble over them about. You make enforcement subject to fifty different standards, and make collection and enforcement a fifty part system.

That simplifies things!

Because of course, the other portion of the fairness equation, it seems, is to have the tax the same everywhere. Nice in theory, but when you hand the mandate to all kinds of different state governments with different attitudes, things get a little complicated. There’s a reason the Founding Fathers settled on a federal system for nationwide policies. A system where everything national goes fifty different ways is a system where nobody can work out the law for themselves. As things develop, and states legislate, you’ll see the tax become inconsistent between different states. And how is that fair, much less smart?

LOL, like pork that the current system puts in front of congressment and results in billions of dollars in losses each year?

And nothing I’ve read so far remotely talks about dealing with Pork, which is an appropriation problem separate from tax policy. Even if it did something about it, you don’t think states would do what it took to make sure all that nice money kept coming in? (after all, that’s why people tolerate pork to begin with!)

The reason we HAVE class warfare is because of our current tax system, not because it doesn’t exist.

Our current tax policy did not exist until 1916. I assure you, concerns about class inequities long pre-date the current tax system.

This is your problem: everything gets distorted through this lens. Why is it, you think, that the progressive income tax, the inheritance tax, and all these different issues came to be? Do you think that early America was some egalitarian paradise, that the industrial revolution didn’t come with some strong degree of change in socioeconomic class structure?

My God, what you call class warfare, that is conflict between the priorities of the rich, the middle class, and the poor, are as old as this country. It was one of the first political issues dealt with. Look up the Bank of the United States, find out why it’s not here anymore.

You cast it as some sort of envious discontent, and it is that, but only in part, in large measure, it’s that heedless actions by the rich, and by businessmen can have a disproportionately bad effect on other people. The problem of land speculation, for example, is again as old as the rest of the country.

The clarity of the terms by which this tax is described is dubious. You use a rate that comes from a rather non-traditional way of measuring consumption taxes in this country. We add them, unlike france, which has a VAT, which is unlike your tax in that it does tax the corporations and their transactions.

The clarity of the theory, that is it’s thrust of ideas, is pretty clear, but it’s also devestatingly naive. It doesn’t factor secondary effects, it makes unrealistic expectations of people’s behavior and of the necessary tax rate.

Have you really debunked my concerns, or dismissed them? Ask somebody how they measure a sales tax. Ask a lawyer what happens when you split up enforcement and collection duties between all the states. Ask a historian whether class conflict is a product of taxes.

I started this topic with a challenge to look beyond taxes, growth as an abstract goal, and the state of the stock market in judging the health of our economy. The Fair Tax utterly fails to deal with things on this level. It is a product of the kind of thinking that has tried to support greater and greater growth with disregard for the misery, the unsustainability of these approaches.

Posted by: Stephen Daugherty at January 25, 2008 9:48 AM
Comment #243866

We had a revolution 230 years ago, in part because of a consumption tax on tea, 3 pence per pound, which had 240 pence back then. Maybe the UNfair tax will result in heads on pikes, or the modern equivalent. My suspicion is that the main purpose of this proposition is to reduce the revenues of the Federal Government into insignificance.

Posted by: ohrealy at January 25, 2008 7:18 PM
Comment #243887
the main purpose of this proposition is to reduce the revenues of the Federal Government into insignificance.

Posted by: ohrealy at January 25, 2008 07:18 PM

Where do I sign up?!

Posted by: Weary Willie at January 25, 2008 8:37 PM
Comment #243888
We had a revolution 230 years ago, in part because of a consumption tax on tea, 3 pence per pound, which had 240 pence back then.

What a completely ignorant statement…

We had a revolution 230 years ago, in part, because a consumption tax was applied on tea on a segment of society that was not represented in the tax being passed.

It was passed ‘unfairly’. Not because it existed, most people did not have a problem with a sales tax (they much preferred them to income taxes I can assure you) but because they had no say in when where and how the tax was applied, or any say as to where or how the revenues were spent.

Posted by: Rhinehold at January 25, 2008 8:46 PM
Comment #243891

Rhinehold-
The tax was beside the point. It’s really shameful how much people have tried to make a political myth out of it.

The fact of the matter is, the tax issue folds into the whole issue of colonialism. For years, the Colonies in the Americas had relative freedom from Britain, and enjoyed a fairly harmonious relationship. What happened is that the French and Indian War lead them to put taxes on American goods and services, while granting them no political representation.

But that’s not the end of it. What eventually degenerated everything into revolution was the way the British handled the Americans when they balked at this. Taxation without representation wasn’t the straw that broke the camel’s back. It was treating the colonies like possessions, and reacting harshly to their protests at that which eventually lead people to openly fight the British.

From there, the British let the war become sort of like the Iraq war, a long drawn out, mildly bloody but highly frustrating attempt to impose their order on a mostly autonomous land.

Posted by: Stephen Daugherty at January 25, 2008 8:59 PM
Comment #243893

That analogy is just bullshit. A cheap shot.
I almost started to listen to that post!

Posted by: Weary Willie at January 25, 2008 9:07 PM
Comment #243896
So, knowing exactly what’s coming out is better than having everybody pay their fair share? I don’t buy it.

I contend that people will be paying their fair share with this tax system. And my figures back this up.

This tax basically shifts the burden onto the consumer.

Where it already is.

You say, well the rich spend more. Well, they also save and invest more. They also own companies, who you’ve exempted from taxes, which allow them to just make whatever profits they want, and contribute only OUR money.

Which we already do because those corporate taxes are being paid for by the consumer in the price of the service or good they purchase. It’s not really that great of a shift.

Do corporations get a windfall with the abolition of the corporate tax?

Corporations are legal fictions that have not, do not, and never will bear the burden of taxation. Only people pay taxes. Corporations pass on their tax burden in the form of higher prices to consumers, lower wages to workers, and/or lower returns to investors. The idea that taxing a corporation reduces taxes on, say the working poor, is a cruel hoax. A corporate tax only makes what the working poor buy more expensive, costs them jobs, lowers their lifestyle, or delays their retirement. Under the FairTax Plan, money retained in the business and reinvested to create jobs, build factories, or develop new technologies, pays no tax. This is the most honest, fair, productive tax system possible. Free market competition will do the rest.

Continuing on…

This is a tax cut for the rich and for corporate America, once again funded by a tax increase on the middle class.

That’s not what the research says. You keep ignoring that the baes would expand. It is possible that ‘the middle class’ as defined by the quintile system would pay up to a percentage more of the total tax, but the would be paying less tax because the individual tax payments would go down. That is not ‘funding a tax break’ no matter how you break it down.

And that’s if it works. That’s not what people want, or would call fair. So you say it costs us. It won’t cost us any less, though, than under the current system. What’s the advantage of knowing, if you get screwed, and every subsequent tax increase beats you down more than it beats them?

LOL, perhaps people would know that their representatives not giving them money but taking away to give it back to them and demand more care about how they spend that money?

Or just because open government is necessary for a ‘democracy’ to operate?

Why do you want to keep people in the dark?

And yes, it will increase, because your ideal tax base and tax compliance will not come to pass, and people, understandably, will not abstain from putting their clever little minds to getting around it.

Soo, you say it won’t work because you don’t think it will work because… well, just because I guess.

Ok, you’ve convinced me, I’ll stop trying to get it passed!

In reality, everyone would because of the a) increase in economy and b) increased tax base. But we all know about the emotional desire to ‘make the rich pay more’ that the progressives have. For no other reason than they earn more, nothing else.
Reality? It’s all still hypothetical.

Yeah, because we haven’t tried it yet… are we suppose to never try anything we haven’t tried before? Again, how ‘conservative’ of you…

Increased growth does not necessarily mean increased personal wealth or happiness.

*yawn*

Rich people, as a rule, spend less of their money. Which means they gain more money. Which causes economic problems because such sclerotic distribution of money ensures that the poor get poorer and the rich get richer.

What planet is this true on?

Our current tax policy did not exist until 1916. I assure you, concerns about class inequities long pre-date the current tax system.

Yes and no, there were income taxes before 1916…

This is your problem: everything gets distorted through this lens.

And your’s through your lens.

Why is it, you think, that the progressive income tax, the inheritance tax, and all these different issues came to be?

Because people thought that they could raise money to pay for good intentioned programs from those who could ‘afford it’. Except, we know TODAY that it doesn’t work that way… But we never changed it, we just kept adjusting the policies when we saw it wasn’t working instead of abandoning it and going another way. Because those other ways ‘hadn’t been tested’. Best to stick with the way that will target the rich than have the middle class pay for it, even though they still do… It makes them feel better I suspect.

The clarity of the terms by which this tax is described is dubious. You use a rate that comes from a rather non-traditional way of measuring consumption taxes in this country.Wow, this is getting old. Is that really your problem with this tax system, that they explain the tax in two different ways so that it can be matched against the income tax?

I seriously can’t believe that, but you keep bringing it up over and over, even though it has been shown that both ways are explained in full and detailed to the nth degree on the website…

We add them, unlike france, which has a VAT, which is unlike your tax in that it does tax the corporations and their transactions.

France isn’t the only one. In fact, most of them, as I detailed, use the tax-exclusive rate…

It doesn’t factor secondary effects, it makes unrealistic expectations of people’s behavior and of the necessary tax rate.

So you say, without a shred of evidence, and despite the examples that these have been studied by several groups of economists for over a decade…

Have you really debunked my concerns, or dismissed them?

Dismissed them? How many links, directly countering what you assert, have you been shown? I’ve seriously tried to show you that your assertion that this is ‘ill thought out’ after over a decade of study after study after study by groups like Harvard, Boston University, Suffolk University, etc…

And you’ve responded with… a gut feeling based on those debunked assertions?

Ask somebody how they measure a sales tax.

Dear god, you really do have a problem with that, don’t you? Amazing…

Ask a lawyer what happens when you split up enforcement and collection duties between all the states.

Why doesn’t the current congress ask for an elminiation of state bordres, btw? Just curious, since it seems that are an outdated concept…

Ask a historian whether class conflict is a product of taxes.

Today’s is. In a country that is free of most of the external forces that create class warfare and even the poor are better off than many middle classes in most of the other countries in the world, we still have class warfare? Why?

I started this topic with a challenge to look beyond taxes, growth as an abstract goal, and the state of the stock market in judging the health of our economy. The Fair Tax utterly fails to deal with things on this level. It is a product of the kind of thinking that has tried to support greater and greater growth with disregard for the misery, the unsustainability of these approaches.

And anyone reading will have to decide for themselves if your gut feeling is more sturdy than the decade of research I’ve presented you with by the economists I’ve mentioned…

I’m pretty sure if Nancy Pelosi herself came and supported the idea (yeah right, give up her power? LOL) that you would still find fault with it…

Posted by: Rhinehold at January 25, 2008 9:18 PM
Comment #243903
Taxation without representation wasn’t the straw that broke the camel’s back.

I that why we said “in part”, not “in total”.

Posted by: Rhinehold at January 25, 2008 9:44 PM
Comment #243908

Ignorant statement? Calm down or go back to writing endlessly in the independant forum, where they seem to be begging anyone else to write something besides the R-man.

Taxation without representation was a slogan promoted by the wealthiest colonists, slave traders and smugglers, like John Hancock, who had no way of buying himself a seat in Parliament, like the original Pitt.

The legal position of the colonies varied over 2 centuries, most were bankrupt commmercial entities that had become Crown Property very early on. When William of Orange became king in 1689, he gave most of the colonies back their charters, except Maryland, which got its charter back in Queen Anne’s time after agreeing NOT to tolerate Catholics.

There were 4 French and Indian Wars, sometimes referred to as King Williams War, Queen Annes War, and King Georges War in 2 parts, the first part starting as the War of Jenkins Ear, and the second part starting in Canada. Ignorant people do not know how close the Brits came to losing everything.

The 1763 peace treaty agreed to some rights for the Catholic Quebecois, which was considered intolerable by our colonists. Since the war started in the Western Hemisphere, and was prosecuted there to protect the colonies from the French, the London government, with a Parliament that represented the interests of only about 500 people, decided to collect some revenues there.

Since the Hancock types were smuggling tea in from the Dutch, the British East India Company had more tea than they could ever sell, and the government could not afford to let them go under, so they persuaded the government to give them a monopoly in North America, where they could have undercut the Dutch and still given the government its revenue, but that would have cut the smugglers out of the business.

Revolutions, started out by conservatives defending their right to hang on to every cent, have sometimes ended very differently than they started out.

Posted by: ohrealy at January 25, 2008 10:53 PM
Comment #243909

Everything you said was accurate right up until the last line, ie your ‘summation’.

And then you make a leap that the lat Evil Kenevil would have been proud of.

The revolution was not about a ‘sales tax’, nor was it about ‘trying to hang on to every cent’.

It was about, among other things, having laws passed against you that you have no say in. More than taxation, it was about the lack of other rights, including forced sequestering of military forces in citizen’s home.

But, have fun with your ‘rich people are scum’ crusade, I hope it works out for you…

Posted by: Rhinehold at January 25, 2008 11:09 PM
Comment #243910

R-man, rich and conservative are not the same thing. I do not see where you get “rich people are scum” from anything that went before, but the wealthiest segment of our society is more segregated from the rest of the population than ever before.

50 years ago, I could walk up to the door of the wealthiest family in town, descendants of some former Chicago bigwig that got a great land deal from the railroad, and borrow a boat to go sail out on the lake. 40 years ago, they moved to a community with a 4 acre minimum and I never saw them again, but I voted for a member of the family in the IL Democratic primary this month.

Also about 40 years ago, I went to work with my brother in Chicago at a company owned by a prominent person who was one of Nixon’s principal supporters, a liberal philanthropist Rpblcn. Years later, he retired and his son took over the business. He moved the company out to a location in a suburb which was convenient for him, but inconvenient for nearly everyone who worked for him. He died before his father, who took charge of the company again, and moved it back into the city, where the employees had access to public transportation.

The only irritating thing about rich people comes from the fact that they always have people working in their houses, and they are used to “performing” in front of them, which produces some pretty silly behavior, especially among the younger people.

The rights you referenced in the revolutionary era were like a sales promotion trying to get popular support. Many people, probaly a third of the colonists, never supported the revolution, and some left the country to become the English speaking population of Ontario afterwards.

Posted by: ohrealy at January 26, 2008 12:07 AM
Comment #243912

And your point is…?

Posted by: Rhinehold at January 26, 2008 12:29 AM
Comment #243919

Rhinehold-
Contend all you want, most people will disagree about your definition of fairness. This so-called Fair tax comes from people who idolize the old days of laissez faire government, without giving serious thought as to why and how people got sick of all that.

The Average American has had to swallow quite a bit of rollback in terms of rights and expectations. Americans of my parent’s generation could expect to work for a company for life. With mine, they can expect to whereever the cheese gets moved. Used to be, your executives salary wasn’t much greater than your own. Nowadays, you can expect top execs to earn ten times more thant they used to, while you only earn three quarters more than you did in the old days.

Used to be, they were careful about credit; it wasn’t just given out, or worse, targeted at those who have no earthly business with a charge card. Now, declaring bankruptcy means you’re guaranteed to get an offer.

Corporations are a legal fiction, true enough. So is citizenship; nothing inherent in the real world makes you a citizen. Hell, the nation is a legal fiction. But it’s a fiction we honor by our laws, like all the rest. We give Corporations the status of a legal person, able to sue, own property, and do many of the things that us non-legal fiction persons can do under the law. Why should a person in the eyes of the law be exempt from the requirements made of us less fictional elements of American society?

You’re missing something here. When we pay taxes, those taxes often pay for things in the community. They don’t just disappear. Deficit spending sends those dollars overseas nowadays, so in a sense, we only really lose those tax dollars when we don’t choose to pay them; we pay them out to people in other countries as interests, as payment on national debt. It’s become a huge part of our national budget, around the level of the DOD in its funding.

The money circulates though. Trick is, getting it circulating at the right rate, and there are many ways to encourage growth. Some are good, some are bad. Some are on the backs of the Middle Class, some are done in concert with their interests. For the past few decades, we’ve submitted to getting somewhat screwed, letting government roll back some of our protections, and doing more of what the big corporations want us to do so everybody could enjoy big profits, make big money. We did this, not from some altruistic support of capitalism, but because we, like anybody else, like making money.

What you’re suggesting once more asks those between 50,000 and 200,000 to just close our eyes and think of England, once again. But as the last few years has demonstrated, just because we get growth, doesn’t mean it gets spread out equally. Should I believe that somehow things will not happen as they’ve happened before, that the rich won’t simply keep the money they more of?

Or should we acknowledge by policy that a Rich person is not bound to hand extra money they get to employees? Maybe, while we’re at it, we should also acknowledge that our economy depends upon mass markets serving the Middle Class, more than luxury markets serving the rich. Did I mention wealth was a legal fiction, too? It’s only some collection of laws that says that people own what they do, keep the money they do. It’s a legal fiction that establishes the value, combined with a market value that’s nothing more than a score kept on the basis of the rules of that fiction.

But getting back to my point, why is it the Middle Class is expected to let itself get screwed? What kind of happy horses*** is this? Even Adam Smith would tell you that the door swings both ways! Sooner or later, it had to happen: we just got tired of getting screwed.

Now you talk about keeping people in the dark, but until people start hurting financially, it’s an academic problem. And people managed to survive just fine when taxes on corporations and the rich were sky-high. That presents a little problem. As bad as the tax code might be, a lot of its complexity doesn’t really touch our lives, any more than the complexity of the computer program you’re writing on concerns you as you type. If you’ll end up paying more just to know the full bill, what have you gained? Any one of those taxes can be reduced or eliminated in its own right, if the public sees fit. You don’t have to know everthing to know enough to act in your interests.

As for my comments concerning the increase of the rates, which will come from the non-ideal tax base and compliance, I guess, I’m telling you it won’t work the way you got it because you won’t get your ideal conditions. I mean, I could hope that somebody asks me tomorrow to option a screenplay for them, or ask me to write a novel from some of my online stories.

But if I plan my spending around this, people will be understandably skeptical of my good sense, because of the unlikelihood of the favorable events.

You won’t get your ideal tax base, nor your ideal amount of compliance. Things will complicate as they do in real life. Anything that can go wrong, will go wrong. And as a result, to keep the tax revenue neutral, you’ll need to ask for more money form those who do pay. Because your rate is flat, and unfavorable to the Middle Class, then, it will mean that every adjustment to compensate for lossed revenue will just squeeze them harder. That’s part of what I really hate about the tax. It’s definition of fair means we get hit first.

As for the distribution of money that I discussed, it’s actually an application of modern networking science. Inevitably, they found that models of economic behaivor in networks lead to some individuals become richer. However, the systems that worked best allowed the broadest flow of that wealth. Being more egalitarian didn’t mean that the rich went away. The way economic networks operated ensure that we would always have the rich with us.

Because people thought that they could raise money to pay for good intentioned programs from those who could ‘afford it’. Except, we know TODAY that it doesn’t work that way… But we never changed it, we just kept adjusting the policies when we saw it wasn’t working instead of abandoning it and going another way. Because those other ways ‘hadn’t been tested’. Best to stick with the way that will target the rich than have the middle class pay for it, even though they still do… It makes them feel better I suspect.

Look, when somebody’s not screwing with the tax code to get people money they’d probably get anyways even if they weren’t so impatient, the system works fine; Clinton’s tax increase helped balance the budgets. A tax system can work if you’re willing to raise taxes. Otherwise, of course it will screw up. That’s just basic arithmetic.

Speaking of things really getting old, tell me: when’s the last time somebody figured a sales tax for you inclusively in this country? We can bring up France, but not because either of us live there. Here, all the sales taxes I know are figured by adding a percentage on, not taking one off. I should know, I’m a Texan, resident of one of the last few states that has a sales tax.

It’s an attempt to hide information, the way they formulate it. If this was the usual way consumption taxes were figured in this country, if people were familiar with that, it’d be one thing, but the deliberate choice of this unusual presentation seems an effort to hid inconvenient information.

When I talked about asking a lawyer about what happens when you split enforcement and collection fifty ways, the point was supposed to be obvious: they’d all do it differently according to local politics. But this isn’t something being done by local governments, but federal. It’s supposed to operate across state lines; for all intents and purposes, borders aren’t supposed to exist for federal regulations. It’s supposed to be the same in TX as in LA. I have no objection to states keeping their border, but I do have an objection to the Federal government giving up on its responsiblities and creating fifty more bureacracies to do the job. That’s just a phantom shrinking of government which just makes the states more top heavy from unfunded mandates form the Federal government.

As for Class Warfare? That’s just a propaganda buzzword for the conflict that happens all the time in every place. There will always be tensions, as long as one person has more things than another.

Finally, on the subject of Nancy Pelosi, I’m sorry to throw a lugwrench into the system, but I came out explicitly in this political cmapagn against somethings she’s for.

Posted by: Stephen Daugherty at January 26, 2008 2:45 AM
Comment #243929

Stephen,

Your repeating of the mantra that ‘this will screw the middle class’ is falling on deaf ears since I’ve already displayed to you that the middle class would be better off with this tax. It’s like a natural reaction to those on the left, anything they want to do will help the middle class, anything they oppose will screw the middle class, no matter the truth of the matter.

Further, your other two points, that this hasn’t been well thought out and the tax rate is discussed in both inclusive and exclusive terms are equally inaccurate.

Contend all you want, most people will disagree about your definition of fairness.

That’s for the electorate to decide, isn’t it? Not you or I. Though, the way this system has been gaining grassroots support is impressive and possibly counters your argument…

This so-called Fair tax comes from people who idolize the old days of laissez faire government, without giving serious thought as to why and how people got sick of all that.

Another incorrect statement, it comes from Economists who were tasked with only one purpose, develop a tax system that was fair and efficient. Assigning any other motive or grouping is invalid.

The Average American has had to swallow quite a bit of rollback in terms of rights and expectations.

And this plan gives them some of those rights and expectations back.

I should know, I’m a Texan, resident of one of the last few states that has a sales tax.

I think this line is the most telling…. Let me quote some FACTS for you.

In the United States, a general sales tax is imposed in 45 states plus the District of Columbia (accounting for over 97% of both population and economic output). Most states also collect a variety of local sales taxes including county, city, and transit taxes. The United States has a large infrastructure for taxing sales that many countries do not have

One of the last few?

You get so much wrong in your assertions, they are countered and you go off on the same tirade again and gain, its makes people (well, at least me) think you are against this for other reasons but since you can’t articulate them, either you don’t know that you are doing it or you know those reasons wouldn’t be supported, that you use the standard arsenal of Democratic nonsense of ‘this will screw middle class’ unlike the current system that really does and ‘you haven’t really thought this out’ when there have been very few programs discussed at the national level that has been thought out more and detailed in an open manner.

There will always be tensions, as long as one person has more things than another.That’s a very telling statement, Stephen. There is so much in that statement that differentiates the progressive view on society with other views that I think it should be taught in all political science courses…
Posted by: Rhinehold at January 26, 2008 12:28 PM
Comment #243938

On the Sales Tax argument, let me make my apologies, I was wrong. At the same time, one thing seems true of them all, according to the research:

If they are not dealing with specialty items, They are at ten percent or lower, and they are all figured additively.

It bespeaks a certain character to private enterprise: they set their price, and the tax is an arbitrary, number on top of that price. Business makes its decision of what it wants to charge, then the state takes a cut above that. This, rather than having the government’s hands already in your pocket while you’re making the decision what to charge people.

The “Fair” Tax uses the inclusive figuring, which is of course a lower looking rate than the exclusively figured number, as it’s prime selling point. Look here, just 23%! But that’s only if you’re taking it out of the value of the item, which you must mulitiply by the fraction remaining to get the real price of the item before taxes.

But in reality, what’s really happening, is they’re paying the price of the item, plus a proportion on top of it. When figured that way, the true rate is about the same, but yields a larger proportion, which actually accurately reflects how much people are paying on top of the retail price of the item. You can chide me for keeping people in the dark, but your definition seems purposefully obscure. It’s like those stores that sell something for x.99 instead of rounding to the next dollar, or as my local grocery store does, give out the price as x items for x bucks (Ten items for ten dollars, instead of just saying one dollar apiece)

You’re marketing me on this, not really squaring with me. You’re so wrapped up in your advocacy, that you don’t see how I might find this cynical manipulation.

As for Economists? Don’t make the mistake of thinking That all economists think alike:

But this is not all. The maximum “FairTax” rate assumes that individuals spend 100% of their income and have no savings. Yet, the wealthiest quintile are the most able, and most likely, to save. Thus, their effective tax rate under the Fair Tax will be less than 23%. For example, if these individuals average saving 10% of their income then the FairTax average rate falls to 20.7%. Thus, I think it is very likely that the wealthiest Americans receive a significant tax break from the FairTax.

I would add to that that the money in three percentage points off of a rich man’s income tax is far more than the same three percent from a middle class person’s income. Additionally, if we’re being revenue neutral about it, what the rich save and don’t spend comes out of our pockets instead.

I always get suspicious of economic plans where people are counting on the economy to piece together like a railroad set. The economy is an imperfect translation of human wants and needs into action. It doesn’t get much more non-linear, complicated, and confounded than that. Economics is known as a soft science for a good reason.

Politics is little better. I did, however, tell you that two things that the public would not stand for, tax breaks for the rich and for corporations, are an inherent part of your plan. You might have grassroots support among a minority, but nothing more than that. You folks are always overestimating people’s support.

As for those rollbacks and whatever that the middle class has gone through? Well, by a reasonable definition, this would be one of them, since it inevitably puts more of the tax burden on those who spend more of their money; a necessity, often enough, not a luxury nowadays. A frugal poor person might be able to avoid the tax, but with prices what they are on necessities, with the average debtload people are carrying, saving is often easier said than done.

For the last thirty years, it seems, the Middle Class has had to content itself with indirect benefits as you have promised here. My experience is that the indirect benefits have been rare in showing up. Why? Because almost always, it seems to be this noblesse oblige on the part of the rich and the elite in terms of what they let us have, and their pattern of behavior, as growth, deregulation, and tax cuts have putatively given them more money to give to us is that they they have laid us off, kept wages stagnant, raised the cost of consumer items, shipped manufacturing and certain service jobs overseas, and kept more and more of the money an economic resources for themselves.

How stupid do I have to be not to see that what the Rich are doing is not altruistic job and wage generation, but instead working for their own interests. Some are better than that, of course, but the way corporate law shapes the priorities of a company, there is an almost irresistable pressure among companies to externalize and minimize any and all things that reduce profit on the bottom line. Only when moral problems become a problem for that bottom line, or the law at a federal, state, county or municipal level poses a tough enough obstacle, do corporations move away from that.

In short, we have to make it hurt for them to indulge their interests at our expense in order to preserve our interests. This is the nature of the conflict, and people are coming to see things this way overall.

The economic theory of the right, being based on heavily biased supply-side thinking, of course, doesn’t encourage people to think things out on this side. People are encouraged to place themselves naked in the storm, to let the system chew them up. The economic reality, though, is that, even if they do agree to this, when this willingness is inevitably tempered or eliminated by abuses of that trust, people will act, or call for action, to protect those interests.

But of course, this is just the average person we’re talking about. Market fundamentalism assumes that the person will just walk away from whoever’s overcharging, but that’s not always feasible. I mean, who do you walk to in order to avoid $3 a gallon gas? When behavior becomes industry standard, and there are so few competitors going after the same dollar, the market becomes steadily more inefficient in discouraging misbehavior. So the market lags as a corrective mechanism, if it ever becomes activated to that purpose in the first place.

But still, people want to see their interests fulfilled. Sometimes, they end up cheating, as is the case with downloaded music and video, taking inordinately high priced items and distributing them for free.

Sometimes it comes in a public outcry, or in the catastrophic collapse of an industry or industry center as people formerly deprived of options flock to what they consider the better deal. People flocking to foreign car dealerships to get the more fuel efficient vehicles is one example. Now you could say the market found a solution and punished those who didn’t serve the public’s interest, but that’s a rather two-faced way of going about it. The market is fickle; years before, SUV’s were hot sellers. affordable gas made the inefficiency easy to deal with.

You could say, though, that the market is dynamic, responding to each time period with the appropriate mix of incentives. In reality, though, that is an ad hoc rationalization. Sure, in some terms, it may have been optimal. But not all market systems are optimal in any essential sense, just workable in the current economic environment.

There are elements of any such environment that are predictable. Fuel Efficiency is one of them. CO2 emissions were long a concern, as was the decline of cheap oil. The immediate economic pressure just wasn’t there yet, though.

The Iraq war illustrates something about long term problems: waiting until things are problems often means waiting too late. Here, with gas prices and fuel efficiency regulations, things are no different. If standards had mandated greater fuel efficiency ahead of time, the economic and environmental result would have been considerably reduced.

The preceding indicates the way I think about economics and government. That is, systematically. To think things out in my terms is not merely to work out what all your solutions to the problems might be, It’s also figuring out and researching how these systems actually behave, and using that to educate your guess.

Instead what I see with the “Fair ” tax is a system built on the premise that taxing money before you got it is evil, but taxing it afterwards is better.

I’d say, you’re losing the use of it either way, so what’s the difference?

I know. You’ll probably say it’ll allow people to keep more of their money, to know what’s being taken out, to save, but are you keeping track of current economics? People are largely not saving not because they won’t, but because they can’t. The stagnant wage growth has made that difficult, especially with the new services that have become de riguer in our new economy.

Personally, I’ll tell you that a consumption tax would do somebody like me few favors, because of my current unfortunate economic position. People hit hard times in their lives, and taxes like this would hit them hard everyday. Imagine, also, used goods becoming the rule in our economy. Think of the safety considerations of that, the wear and tear, the avoidance of new purchases for items.

You look at my concerns, though, as if I’m some grumpy liberal troll on the bridge taking potshots at those who made good in life, an envious, greedy competitor for what you feel you (or the rich and the corporate) have a right to.

Without even realizing it, you’re a class warrior to, fighting for the rights of the elite, the capitalists against the greedy, good-for-nothing rabble. Not that you’d put it that way, or even necessarily think of it that way. But that’s where the sensibilities of the Fair Tax and other flat tax proposals come from: rich people who want the government and the tax code to cater to their interests, who believe they are the center of this economy, the driving force, not the average consumer, nor the employees who do all the work they spend their lives planning out and directing.

Ideally, society would think about its interests together, but things are not ideal. However, the approach of the ideal is not out of the question. The realization has to be made, though, that compromise must be reached between interests, not one side’s desires forced on another. Additionally, the more each side takes care of the other side, the more each side profits. That’s the whole point of business: people serve each other’s interests, and each party tries to gain optimally from that.

The Fair Tax is more gain at the expense of the Middle Class, which at this point has had enough of this one-sided flow of economic prosperity.

Posted by: Stephen Daugherty at January 26, 2008 5:04 PM
Comment #243939

If the VAT is included in the price of the product, won’t the states be taxing the full selling price of the product, including the federal tax?

10 for 10 dollars sounds like Albertsons to me.

Posted by: ohrealy at January 26, 2008 5:47 PM
Comment #243955

Stephen,

You still keep making false assumptions, that have been shown to be wrong, or at least highly suspect, and use these as the basis for being against the system.

You say that the majority of people won’t want it because it screws the middle class. It doesn’t, as I’ve pointed out. Let me quote you a little bit of history you may not know…

The idea which eventually prompted the FairTax Bill started in 1995 when three successful Texas businessmen got together for lunch. Their typical lunch discussion consisted of complaining about the current tax system. This time they decided it was time to put their money where their mouth was and do something about it. They started with $4 million to begin the research necessary. They knew that they needed to thoroughly research every possibility through academic and market research to come up with the optimum solution. Economic research was done by highly regarded economists form Stanford, Harvard, and MIT and institutions like the CATO Institute and the Heritage Foundation.

They test marketed their tax idea in three cities. Their final research showed that Americans in general greatly dislike our current tax system. Over 69% of taxpayers wanted the current tax system replaced and 89% preferred the FairTax over the current system when fully informed about the FairTax. The final result was the FairTax bill. Americans for Fair Taxation (AFFT) was formed in 1995 to promote this FairTax bill.

Now, I can see why you want to misinform people about the system, because people like it when they hear the truth about it. So the best thing to do is hammer home with the ‘it will hurt the middle class’ mantra that is ingrained into the progressives of the Democratic Party. It reminds me of the ‘Republicans want to kill old people’ nonsense in the 80s.

The “Fair” Tax uses the inclusive figuring, which is of course a lower looking rate than the exclusively figured number, as it’s prime selling point. Look here, just 23%! But that’s only if you’re taking it out of the value of the item, which you must mulitiply by the fraction remaining to get the real price of the item before taxes.

Since you apparently can’t get over the fact that the AFFT group explains the system in both inclusive and exclusive terms on their website and in the bill, let me explain simply why it was done. You keep wanting to assign motives, which are incorrect, in order to paint the system in a bad light (They’re lying to you, they’re trying to trick you!) when they have been clear about both rates since day one.

Simply put, the goal is to replace the imbedded taxes that we all pay for each and every good and service we already buy. The economists figured out that 23% of every dollar we pay for each and every good and service was the amount of tax we paid, including evasion and compliance costs.

So, to show that the system was replacing this 23% of every dollar with a point of sale tax, they used the 23% figure. It also works when you are attempting to compare the 23% effective sales tax with the effective income tax, because they are both inclusive. It provides an apples to apples comparison.

But no one has tried to decieve anyone about the after-price tax being 30%. There is no motive to ‘fool’ anyone into anything. It is spelled out in several places on the website and other documentation concerning the system.

I know the FairTax rate is 23 percent when compared to current income and Social Security rate quotes. What is the rate of the sales tax at the retail counter?

30 percent. This issue is often confusing, so we explain more here.

When income tax rates are quoted, economists call that a tax-inclusive quote: “I paid 23 percent last year.” For every $100 earned, $23 went to Uncle Sam. Or, “I had to make $130 to have $100 to spend.” That’s a 23-percent tax-inclusive rate.

We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes. That rate is 23 percent.

Sales taxes, on the other hand, are generally quoted tax exclusive: “I bought a $77 shirt and had to pay that same $23 in sales tax.” This is a 30-percent sales tax. Or, “I spent a dollar, 77¢ for the product and 23¢ in tax.” This rate, when programmed into a point-of-purchase terminal, is 30 percent.

Note that no matter which way it is quoted, the amount of tax is the same. Under an income tax rate of 23 percent, you have to earn $130 to spend $100.

Spend that same $100 under a sales tax, you pay that same tax of $30, and the rate is quoted as 30 percent.

Perhaps the biggest difference between the two is that under the income tax, controlling the amount of tax you pay is a complex nightmare. Under the FairTax, you may simply choose not to spend, or to spend less.

This is easily obtainable in the FAQ of the website. Your attempt to assign motive where there clearly is none is no different than others saying that Democrats are trying to pass universal healthcare in order to eliminate capitalism in the US. It is an assignment of motive that does not match facts and I’m sure you would not stand for it just as I am not.

I always get suspicious of economic plans where people are counting on the economy to piece together like a railroad set. The economy is an imperfect translation of human wants and needs into action. It doesn’t get much more non-linear, complicated, and confounded than that. Economics is known as a soft science for a good reason.

And it was the different economists that put this together, not just the tax but the cost of the implementation (that you said they hadn’t thought of) and compliance, etc.

Does the FairTax rate need to be much higher to be revenue neutral?

The proper tax rate has been carefully worked out; 23 percent does the job of: (1) raising the same amount of federal funds as are raised by the current system, (2) paying the universal rebate, and (3) paying the collection fees to retailers and state governments. Unlike some other proposals, this rate has been independently confirmed by several different, nonpartisan institutions across the country. Detailed calculations are available from FairTax.org.

And they are there, all you have to do is look at them and then tell me where in those calculations they are lacking. You can’t and you don’t, because your aprehension is not based on facts, but gut feelings. “This just can’t be right” because you don’t want it to be.

As for Economists? Don’t make the mistake of thinking That all economists think alike:
But this is not all. The maximum “FairTax” rate assumes that individuals spend 100% of their income and have no savings.

What planet did you scrounge this guy up from? The system simply does NOT assume individuals spend 100% of their income. It’s ridiculous, especially when there are provisions to not tax used items. Obviously people are going to avoid taxes when they can get away with buy used instead of new (houses, cars, etc). Those who can afford it (the rich) will continue to do so, which is how it works ‘in the real world’.

His entire argument is flatly incorrect and does not match what the system calls for and is figured out to do. It’s simple propaganda, not unfamiliar ground concerning this system, but it is no different than what Republicans do when trying to fight things like the Marriage amendment, Flag burning, etc. Make up a bunch of false accusations and run with them. And the Democrats, obvsiously, are no different.

As for me being an advocate… I think you’re mistaken. MY goal would be to see spending cut back and an end put to overtaxation. Currently 41 percent of the income generated in the United States goes to the FEDERAL government. That’s way too much. There is no reason why we couldn’t run this country on a smaller budget and let people keep their money. In fact, I oppose FDR for being the first president to actually tax the middle class. It should never have happened…

But I’m also dealing in realities. We have a debt that is increasing so quickly that the head of the GAO already has us bankrupt. Our current system IS NOT WORKING and is punitive to the poor and middle class. I support changing that, changing it so the poor actually doesn’t pay taxes (a fact you quickly conceeded and gave up on caring about I noticed) and also gives the middle class a way to avoid taxes when THEY think it is necessary, by not taking used items. Between that and the prebate, the middle class can actually work around the hard times they have themselves, not sit around waiting for the government to possibly help them, maybe, if they ask real nice…

The Fair Tax is more gain at the expense of the Middle Class, which at this point has had enough of this one-sided flow of economic prosperity.

You can keep spouting your propaganda, but it doesn’t match the figures…

http://www.fairtax.org/site/PageServer?pagename=about_faq_answers#49

Is the FairTax progressive? Do the rich pay more and the poor pay less as a percentage of their spending?

Absolutely, as you can see in Figure 6 below — where the graph shows annual expenditures for a family of four and the corresponding FairTax effective tax rates. The poor actually pay less than zero-percent retail sales tax on their spending. Much like with the earned income tax credit of today, the rebate may give them more money than they actually spend on retail taxes. Especially if they are frugal and buy mostly used products. On the other hand, the wealthy approach a maximum of 23-percent retail sales tax on their spending.


Posted by: Rhinehold at January 27, 2008 12:32 AM
Comment #243984

Rhinehold-

You say that the majority of people won’t want it because it screws the middle class. It doesn’t, as I’ve pointed out. Let me quote you a little bit of history you may not know…

Three cities, huh? Which ones? Scientific polling tends to spread things out and randomize their sample, so as not to bias their findings with local differences in politics that may skew their survey away from an accurate representation of the nation. Additionally, if I read your account correctly, those survey results are from 1994, 14 years ago. We balanced a budget and unbalanced it in that time. Even just a few years ago, when asked whether they’d choose more tax cuts or a reduction in deficits, they chose the latter.

So, even if your survey results were from a representative, scientifically established sample, they would be badly out of date. Additionally, if they were told the specifics, that corporations and the rich would get out with more of a tax cut, if somebody explained the fact that those who saved a lot, like the rich would end up paying less taxes, with their effective rates raised to compensate, I don’t think they would be so strong in their support, if it was strong to begin with. This last decade and a half has been tough on a America’s goodwill towards the privilege.

Adding to the list of problems, your rate doesn’t account for the taxes the government will pay to itself:

The fact that the sales tax, even by its proponents’ own figures, entails a 30 percent tax rate is only the beginning of the math problems. Allegedly, almost a third of the projected sales-tax revenues are supposed to come from taxes that the government will pay to itself.

Build a road, pay yourself a tax. Buy some planes for the Air Force, pay yourself some more.
And so on. Unfortunately, that can’t work. Without these phantom governmental tax
payments, the sales tax rate would have to jump to 42 percent to break even.

Or almost twice the rate people are really willing to pay in a “Fair” Tax.

For 2005 (a relatively low-tax year), we calculate that the required break-even sales tax rate would be between 45 percent and 53 percent, depending on how certain tax-base issues are resolved. A recent analysis by William Gale of the Brookings Institution finds that to match expected federal revenues over the upcoming decade would require a sales tax rate of about 60 percent. That figure is consistent with earlier analyses by Citizens for Tax Justice and the congressional Joint Committee on Taxation.

Sixty percent. But wait, you argue, people would simply be paying the taxes they were paying before!

Not quite. Not by a long shot actually.

The bottom 80% of wage earners would pay, on average, $3200 more, with 51% of an increase over all the taxes they pay now. And the rich? The richest 1% would keep, on average 225,000 more.

You’re not merely replacing embedded taxes, you’re increasing them sharply.

It’s kind of screwy that you need to explain the use of an inclusive figuring of the tax, when you can just stick with the better strategy of not complicating your message.

Figure it the way most sales taxes are figured, the way they actually know best. Then, while you’re being honest, account for the amount of money that the government’s going to pay itself. Then, account for the money that’s going to be necessary to cover noncompliance. Then raise the rate to cover the noncompliance THAT creates.

And so on and so forth. Tell them that if they’re not in the top fifth of earners, that they’ll pay half again as much taxes. I’m sure they’ll love that.

Oh, but all that’s incorrect right. Anything that disagrees with or dissents with the Fair Tax is wrong, right? No room for disagreement, no room for alternative analysis. Never mind that the rich are less likely to spend money, more likely to save, that most Americans would see their taxes increase.

I’m all for reforming the tax code, especially as regards the regressive payroll taxes, but your approach not only throws the baby out with the bathwater, but replaces it with a hungry cave troll that’s going to eat the average American out of house and home.

Posted by: Stephen Daugherty at January 27, 2008 11:39 AM
Comment #244038

You seriously believe that the elimination of the income tax to be replaced by the new sales tax suggested would result in over 60% rates?

Do you think that math adds up, really? Honestly? How much do you think we are we paying in income taxes now? The research that I read is suspect in a number of areas, from the opening political attacks on the system that they are supposed to be ‘unbiasedly assessing’ to referencing a non-published document to other issues…

And their website, detailing how they are non-partisan, links to other organizations that are not as non-partisan…

The legitimacy of this organization is questionable, to say the least. I’ll take a further look at their numbers to see what other wrong assumptions they made to get the numbers they did.

As for how the tax will screw the middle class, check out this case study by the Beacon Hill Insititute.

http://www.fairtax.org/PDF/TheFairTaxAndMiddleAmericans—CaseStudy.pdf

Posted by: Rhinehold at January 27, 2008 10:48 PM
Comment #244051
You seriously believe that the elimination of the income tax to be replaced by the new sales tax suggested would result in over 60% rates?

Yes, I do. Is their any real reason besides your personal opinion to believe otherwise?

Your example has a problem: it’s fiction. It’s about a fictional family, with extrapolated economic information. Case Studies are supposed to be empirical exercises, their credibility built on things that have actually happened, not on information concerning things that have not happened yet to people who don’t exist.

The objections raised by my author use real information, and real problems with the assumptions of the authors. The other author, the one who spoke about the Savings problem was relating economic common sense: if a person doesn’t use all his money, with a consumption tax in place, their effective tax rate will go down.

It’s common sense that the rich save more, so by simple logic, we can see the validity of the argument that this will be an effective tax cut for the rich.

So to is it common sense that the government’s purchases would add nothing to the tax base, and that such purchase should be excluded in determining the rate. Did they misfigure? You don’t answer that question. You simply accuse them of political bias.

You’re directing the argument ad hominem, instead of answering the objections. Given all these problems that remain unanswered, I think our readers have the right to ask two questions: do these economists and Fair Tax advocates know what they’re talking about, and if any do, why are those people not making those allowances?

Or, put more simply: why should anybody buy into the “Fair” Tax if the math doesn’t add up with their submitted rate? This seems like the behavior of people who are more interested in carrying out their agenda and/or proving their assumptions, and removing obstacles to that, than with determining what’s best by critical methods that may undermine their agenda, undermine their assumptions.

The Right has become highly defensive about it’s policy and its assumptions, to the point where they will actively deceive, or recklessly move forward with agendas to ensure that they get their way. They have come to fear what happens when things happen otherwise.

It is no mere coincidence that the Right has had such a succession of catastrophic failures. Having finally gotten their way with Bush in office, the Republicans and others on the right jumped at the chance to get things done their way, the way they thought was best. However, with their lack of true critical analysis, this ensured the failure of many of these policies, as academic and ideological principles failed to translate into good real-life policy.

The Fair Tax seems like another idol of partisanship, advocated by folks as if it were gospel truth, but with all kinds of holes in the argument.

Posted by: Stephen Daugherty at January 28, 2008 8:55 AM
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