High Tax Rates Won’t Work in Today’s Economy

[Sanguine]

Finally, an article from CATO that I agree with.

By Chris Edwards
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Rep. Alexandria Ocasio-Cortez is making headlines calling for raising the top individual income tax rate to 70 percent to fund a Green New Deal. Sympathetic commentators are saying that such a high rate on the wealthy is no big deal because the top tax rate used to be 70 percent and above. Noah Smith at Bloomberg says the congresswomen’s plan would be “a return to the 20th century norm.”

The problem is that globalization has dramatically changed the economy over recent decades. High tax rates were not a good idea back then, but they would be disastrous now.

Before the 1980s, capital controls under fixed currency exchange rate regimes kept money bottled up within countries, keeping taxpayers in national economic prisons. That regime broke down, and today trillions of dollars flows over borders under flexible exchange rate systems, while industries and entrepreneurs have become highly mobile. Tax bases are far too movable these days for governments to sustain yesteryear’s excessive tax rates, as I discuss in Global Tax Revolution....

https://www.cato.org/blog/high-tax-rates-wont-work-todays-economy

[LMAO]

Plus in many cases there was enough deductions that you did not pay 70%. We see when taxes get too high for anyone’s comfort level there’s pushback. A perfect example of this is  people leaving high tax states to move to lower tax states

[Bigun]

If we would stop taxing on the input end and start taxing on the consumption end instead our economy would take off like no one alive today has never seen!

Http://fairtax.org

[berdie]

If we would stop taxing on the input end and start taxing on the consumption end instead our economy would take off like no one alive today has never seen!

Http://fairtax.org

I agree.  I'm a big fan of a consumption tax. Then everyone would have some "skin in the game".  But how would it work?

[roamer_1]

If we would stop taxing on the input end and start taxing on the consumption end instead our economy would take off like no one alive today has never seen!

Http://fairtax.org

That's right.

[jmyrlefuller]

I agree.  I'm a big fan of a consumption tax. Then everyone would have some "skin in the game".  But how would it work?

A 30% tax on every consumer good in the country—which still probably wouldn't cover our federal budget—coupled with a basic income guarantee they like to call a "prebate."

Want to buy milk and bread? Tax.

Want to buy stock? No tax.

[Hoodat]

My problem with a consumption tax is that the incentive for the seller is to not report sales, whereas with an income tax, the incentive for an employer is to report income.

[Sanguine]

A 30% tax on every consumer good in the country—which still probably wouldn't cover our federal budget—coupled with a basic income guarantee they like to call a "prebate."

Want to buy milk and bread? Tax.

Want to buy stock? No tax.

You don't have to tax some basic items, and we haven't covered our federal budget in a long time.

[GrouchoTex]

If we would stop taxing on the input end and start taxing on the consumption end instead our economy would take off like no one alive today has never seen!

Http://fairtax.org

No doubt.

[roamer_1]

My problem with a consumption tax is that the incentive for the seller is to not report sales, whereas with an income tax, the incentive for an employer is to report income.

Quite the other way around. Sellers are already used to taxes, a robust system already exists, and is far better off to report the sale as to leave it in inventory.

However, I am against a federal tax at all - If they want money, have em get it from the state, and let the state tax me.

[InHeavenThereIsNoBeer]

I agree.  I'm a big fan of a consumption tax. Then everyone would have some "skin in the game".  But how would it work?

And how do you implement it without screwing the people who already paid half their income under the income tax model?

[InHeavenThereIsNoBeer]

Quite the other way around. Sellers are already used to taxes, a robust system already exists, and is far better off to report the sale as to leave it in inventory.

However, I am against a federal tax at all - If they want money, have em get it from the state, and let the state tax me.

Yep.  Let the state get it's hands on our money (aka "their" money) and they'll have an incentive to see less go to DC.  Then repeal the 17th, increasing the power of the states.

[roamer_1]

Yep.  Let the state get it's hands on our money (aka "their" money) and they'll have an incentive to see less go to DC.  Then repeal the 17th, increasing the power of the states.

That's right - and legit.

And get rid of property tax too, btw... Straight up retail consumer tax only... that is te way it all stays transparent, and the whole government has skin in the game for keeping the economy roaring.

[Sanguine]

And how do you implement it without screwing the people who already paid half their income under the income tax model?

I don't understand the question.  @InHeavenThereIsNoBeer

[thackney]

I don't understand the question.  @InHeavenThereIsNoBeer

@Sanguine @InHeavenThereIsNoBeer

If you spend all of your income producing days in an income tax, you are screwed in your retirement when they switch to a consumption tax.

[Sanguine]

@Sanguine @InHeavenThereIsNoBeer

If you spend all of your income producing days in an income tax, you are screwed in your retirement when they switch to a consumption tax.

Oh, I see.  Good point.  That would include me in the "screwed" category.  Sounds like it needs to be introduced on an age-adjusted basis.

[Bigun]

And how do you implement it without screwing the people who already paid half their income under the income tax model?

@InHeavenThereIsNoBeer

Got to the link and read then get back to me.

http://fairtax.org/faq

[Bigun]

@Sanguine @InHeavenThereIsNoBeer

If you spend all of your income producing days in an income tax, you are screwed in your retirement when they switch to a consumption tax.

@thackney

How so? 

[roamer_1]

@Sanguine @InHeavenThereIsNoBeer

If you spend all of your income producing days in an income tax, you are screwed in your retirement when they switch to a consumption tax.

Not if food, or at least basic food is not taxed, same with medicines.
You might get whacked on house repairs and buying a motor home or whatnot, but the living part of it should not be taxed anyway.

[Bigun]

Quite the other way around. Sellers are already used to taxes, a robust system already exists, and is far better off to report the sale as to leave it in inventory.

However, I am against a federal tax at all - If they want money, have em get it from the state, and let the state tax me.

Which is pretty much how the Fairtax would work.

https://fairtax-structure-psyclone.netdna-ssl.com/client_assets/fairtaxorg/media/attachments/56c4/aea2/6970/2d06/a71c/0000/56c4aea269702d06a71c0000.pdf?1455730338

[Sanguine]

@InHeavenThereIsNoBeer

Got to the link and read then get back to me.

http://fairtax.org/faq

I'd forgotten that @Bigun.

[Bigun]

Oh, I see.  Good point.  That would include me in the "screwed" category.  Sounds like it needs to be introduced on an age-adjusted basis.

@Sanguine

Lots of people say things about this that are patently untrue in reality.  Lots of relevant papers that you should read:  https://fairtax.org/research-library/taxes-and-tax-reform

[thackney]

@thackney

How so?

Switching to a system that pays 30% tax at the retail counter will deplete the savings built up under a different system of taxing during the income producing days.

From http://fairtax.org/faq

I know the FAIRtax rate is 23 percent when compared to current income taxes. What will the rate of the sales tax be 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.

You earn your income in the first system then pay the tax again in the second system. 

[Bigun]

Switching to a system that pays 30% tax at the retail counter will deplete the savings built up under a different system of taxing during the income producing days.

From http://fairtax.org/faq
You earn your income in the first system then pay the tax again in the second system.

The problem with that is that you are already paying a consumption tax although they don't call it that. The Corporate income tax is a functional VAT! Every dollar that corporations spend to pay that tax, and ALL the costs associated with it winds up in the prices of every good and service manufactured in this country today. You pay in every loaf of bread or gallon of milk you buy whether or not you realize it. 

I worked all my life under the income tax system and now retired I would give anything to be free of the income tax and the IRS!

[thackney]

The problem with that is that you are already paying a consumption tax although they don't call it that. The Corporate income tax is a functional VAT! Every dollar that corporations spend to pay that tax, and ALL the costs associated with it winds up in the prices of every good and service manufactured in this country today. You pay in every loaf of bread or gallon of milk you buy whether or not you realize it. 

I worked all my life under the income tax system and now retired I would give anything to be free of the income tax and the IRS!

You clearly don't working in Ranching as a side income like I do.  30% tax on tractor, no way.

[Bigun]

You clearly don't working in Ranching as a side income like I do.  30% tax on tractor, no way.

When you wring out all of the taxes and compliance costs you are currently paying, the cost of that tractor, including taxes, will be the same or less than you would pay for it today. Same for houses, cars, and any other long supply chain item.

[Hoodat]

Quite the other way around. Sellers are already used to taxes, a robust system already exists, and is far better off to report the sale as to leave it in inventory.

A seller would have a big incentive to sell things out of the back of the store, off the books.  I can see a thriving black market economy developing.  Just like smuggling and selling Virginia cigarettes in New York.

[Sanguine]

A seller would have a big incentive to sell things out of the back of the store, off the books.  I can see a thriving black market economy developing.  Just like smuggling and selling Virginia cigarettes in New York.

Well, don't they now?  What would be the difference? 

[Free Vulcan]

Not only is capital highly mobile today, but the rapid pace of tech means continuous and often large capital reinvestment is required, something high tax rates kill faster than an orchid in Alaska in January.

[Hoodat]

Well, don't they now?  What would be the difference?

A federal sales tax on top of a state sales tax would push the overall sales tax upward 25%.  Saving 25% is a much better incentive over saving 7%.  Which is why people smuggle Virginia cigarettes into New York instead of Pennsylvania or New Jersey.

[roamer_1]

A seller would have a big incentive to sell things out of the back of the store, off the books.  I can see a thriving black market economy developing.  Just like smuggling and selling Virginia cigarettes in New York.

The cash economy is already there and thriving... to include labor, so what's the difference?

[roamer_1]

Well, don't they now?  What would be the difference?

Zackly. GTMA
 

[roamer_1]

A federal sales tax on top of a state sales tax would push the overall sales tax upward 25%.  Saving 25% is a much better incentive over saving 7%.  Which is why people smuggle Virginia cigarettes into New York instead of Pennsylvania or New Jersey.

There is only state tax. The feds would have to get their rake out of the states... Giving the states the power, not the feds.

[jmyrlefuller]

You clearly don't working in Ranching as a side income like I do.  30% tax on tractor, no way.

Most every business has gamed the deduction system already. Corporations do not operate under the same income tax system as most Americans do. The deductions and loopholes available to them are far different than what is available to someone making a middle-class income.

The FairTax has no deductions. That's why they propose the Basic Income as a substitute, disguised as a "prebate." It is a recipe for rampant inflation.

[Hoodat]

There is only state tax. The feds would have to get their rake out of the states... Giving the states the power, not the feds.

So what is to stop the state of Illinois from implementing a 27% sales tax, and then not turning over a penny of that to the federal government?  Or why should a state like New Hampshire which soundly rejects a sales go against the will of the people and start charging one?

[roamer_1]

So what is to stop the state of Illinois from implementing a 27% sales tax, and then not turning over a penny of that to the federal government?  Or why should a state like New Hampshire which soundly rejects a sales go against the will of the people and start charging one?

Exactly. That is how it is supposed to be. And if folks don't like it, go where it's better.

Can't hardly do that now. You'll pay Fed no matter where you go.

[Fishrrman]

Title and premise:
"High Tax Rates Won’t Work in Today’s Economy"

The article misses the point. That point is: it doesn't matter whether the economy can support higher taxes. All that matters is that taxes be higher.

We've reached the point in history where the takers nearly outnumber the makers. Where tax-revenue consumers almost outnumber the tax-revenue generators.

The "constituency" of the occassional-communist doesn't care about low tax rates, because many of them have never PAID taxes. Quite the contrary, the higher tax rates are on the revenue-producers, the MORE money for "benefits" there is for them to use up.

So... the higher the rate of taxaton she wants to impose, the MORE likely they are to support and vote for her.

Kabish...?

[thackney]

When you wring out all of the taxes and compliance costs you are currently paying, the cost of that tractor, including taxes, will be the same or less than you would pay for it today. Same for houses, cars, and any other long supply chain item.

Are you really trying to claim prices would be the same, but no income tax would be collected?

You forget all that business buys, that would now have a sales tax attached. 

I tell you what, I won't vote for anyone pushing this nonsense.

[InHeavenThereIsNoBeer]

Are you really trying to claim prices would be the same, but no income tax would be collected?

You forget all that business buys, that would now have a sales tax attached. 

I tell you what, I won't vote for anyone pushing this nonsense.

Oh, there'll be an income tax.  But a small percentage, and only for the highest earners.

At first.

[Bigun]

Are you really trying to claim prices would be the same, but no income tax would be collected?

You forget all that business buys, that would now have a sales tax attached. 

I tell you what, I won't vote for anyone pushing this nonsense.

You must enjoy being a slave!  Enjoy!

PS: I didn't forget anything but YOOU are apparently too lazy to read and learn.  The Fairtax would be collected at the point of final retail sale only!

[Smokin Joe]

You don't have to tax some basic items, and we haven't covered our federal budget in a long time.

IMHO, just don't tax what the prebate would cover, and do away with the prebate and eliminate another bureaucracy. No tax on food, primary housing purchase, clothing, energy (heating/cooling/cooking/refrigeration), and medical care. Motor fuels and electricity for cars could still be taxed (as it is now).

[Hoodat]

The cash economy is already there and thriving... to include labor, so what's the difference?

There is a disincentive in place for not reporting income.  Income is a cost to the employer.  A sale is a benefit.  If an employer fails to report income, then he is failing to report a write-off.  Not so with sales.  Sales are not write-offs, but instead something requiring taxes be paid.

[Smokin Joe]

There is a disincentive in place for not reporting income.  Income is a cost to the employer.  A sale is a benefit.  If an employer fails to report income, then he is failing to report a write-off.  Not so with sales.  Sales are not write-offs, but instead something requiring taxes be paid.

Point well taken. One of the big selling points for the legalization of pot in Colorado was the revenues from taxes on the sales. Problem is, off the books sales continue, and by some sources account for 50% or more of actual sales--and that doesn't count 'hard' drugs.

[Bigun]

IMHO, just don't tax what the prebate would cover, and do away with the prebate and eliminate another bureaucracy. No tax on food, primary housing purchase, clothing, energy (heating/cooling/cooking/refrigeration), and medical care. Motor fuels and electricity for cars could still be taxed (as it is now).

You want the government to determine what your necessities are?  I don't! I think I can do that FAR better than they could or would.

[Smokin Joe]

You want the government to determine what your necessities are?  I don't! I think I can do that FAR better than they could or would.

They have to do so to determine what the prebate is anyway. The categories I mentioned are intentionally broad and would be exempt. No tax. And there would be one less government bureaucracy, 'The Ministry of Prebates' would never happen.

Otherwise, someone has to determine how much will be 'prebated', someone has to distribute those prebates, keep track of address changes, etc., handle complaints, track/prosecute fraud, etc.

Just stop that before it starts.

 Don't tax the basic necessities: Food (Whatever you eat, no tax), Shelter (just one home to live in--you want ten, pay the tax on the other nine, You want a huge house, fine, no tax---even a really big house is going to be filled with taxable stuff), Medical care, clothing (because they won't let you run around naked, and you'd freeze to death without it here), and the energy to heat/cool your home.
Whether you use more or less of those, is up to you, but it isn't taxed. and no army of gubmint employees to determine how much you get prebated on however much they think you need.

[jmyrlefuller]

The only thing the FairTax is any good for doing is selling books for a horribly flawed scam that will never get passed into law.

[Sanguine]

The only thing the FairTax is any good for doing is selling books for a horribly flawed scam that will never get passed into law.

You're right.  Our Income Tax system is so much better, and Constitutional to boot.

[Bigun]

They have to do so to determine what the prebate is anyway. The categories I mentioned are intentionally broad and would be exempt. No tax. And there would be one less government bureaucracy, 'The Ministry of Prebates' would never happen.

Otherwise, someone has to determine how much will be 'prebated', someone has to distribute those prebates, keep track of address changes, etc., handle complaints, track/prosecute fraud, etc.

Just stop that before it starts.

 Don't tax the basic necessities: Food (Whatever you eat, no tax), Shelter (just one home to live in--you want ten, pay the tax on the other nine, You want a huge house, fine, no tax---even a really big house is going to be filled with taxable stuff), Medical care, clothing (because they won't let you run around naked, and you'd freeze to death without it here), and the energy to heat/cool your home.
Whether you use more or less of those, is up to you, but it isn't taxed. and no army of gubmint employees to determine how much you get prebated on however much they think you need.

Sorry @Smokin Joe but you are just plain wrong about that.  Please watch the short videos https://fairtax.org/about/how-fairtax-works

Sorry...

[Bigun]

The only thing the FairTax is any good for doing is selling books for a horribly flawed scam that will never get passed into law.

Really?  Why are you so in LOVE with the Marxist Income tax and it's necessary attendat IRS?

[roamer_1]

There is a disincentive in place for not reporting income.  Income is a cost to the employer.  A sale is a benefit.  If an employer fails to report income, then he is failing to report a write-off. Not so with sales.  Sales are not write-offs, but instead something requiring taxes be paid.

You are kidding right? VERY large jobs are often paid in lunch buckets of cash every two weeks... In such cases, the entire job is off the books... The single major problem working a cash job, is that the parts for those jobs also must be cash, and are never delivered direct - the reason being that sales are uniquely tracked far more successfully than labor is.

How do you think the cash labor market works, and why? How is it that the hordes of illegal aliens continue to find work? Because labor is the most expensive aspect of most jobs, and cash labor costs literally half of the cost of legit labor, simply by avoiding the taxes and 'withholding', even when paying a good hourly wage.

OF COURSE there is a massive attraction toward using cash labor.
Sales, on the other hand, are tracked from manufacture right to your shelves, entirely beyond your control... Every single piece on the store shelves are individually serialized, and often 'floored' (sorta like leasing) by secondary sources - The only way out of today's sales tracking is called 'shrinkage', which allows for a certain small amount of loss due to damage on the shelf or from theft, and even that is guarded by algorithms... Or a planned burgling of one's own inventory, where a staged break-in can convert that inventory into street level cash, and the flooring gets paid by insurance... There are not many other ways to keep sales off the books...