Fair Tax Questions
I have been doing a little research into the proposed fair tax. In theory I am all about this concept. I do have some questions that maybe folks more in the know can help answer. Most of these come from fairtax.org FAQs so the fact should be accurate.
1. My main concern is homes. The fairtax site talks about how mortgage rates will go down. I disagree, but that will come later. Even if things are as they say and people's payments go down by roughly 10%, adding 23% still makes it go up. Can any one in the US afford a 13% jump in home costs? Am I wrong in how this is figured?
2. Does anyone actually believe that companies will pass on their savings to the consumer? When capital gains taxes and corporate taxes havre been reduced in the past, have these breaks been passed on to us? If you show me, I'll believe you. Right now, I don't see it. I can see CEOs making even more money... that I can see.
3. If everyone's taxes go down - and these folks make it sound that way AND we do away with all corporate taxes- how can the tax base possibly go up? I'm asking this seriously. I believe that research has been doen. Can someone show me?
4. One time in the FAQs the document mentions a projected growth in the economy of 10.5%. That is insane. That is more growth than at any time in our history (I think). That is also a recipe for wild inflation. Has anyone looked at this? They say 4-6% growth is sustainable. What if we have major inflation or this 10.5% doesn't happen. Does this put us further in the red?
5. Will this balance the budget or pay down our debt?
6. They say that interest rates will go down. If we grow at 10.5% interest rated will have to go up to stem inflation, right?
ML,
E
I have been doing a little research into the proposed fair tax. In theory I am all about this concept. I do have some questions that maybe folks more in the know can help answer. Most of these come from fairtax.org FAQs so the fact should be accurate.
1. My main concern is homes. The fairtax site talks about how mortgage rates will go down. I disagree, but that will come later. Even if things are as they say and people's payments go down by roughly 10%, adding 23% still makes it go up. Can any one in the US afford a 13% jump in home costs? Am I wrong in how this is figured?
2. Does anyone actually believe that companies will pass on their savings to the consumer? When capital gains taxes and corporate taxes havre been reduced in the past, have these breaks been passed on to us? If you show me, I'll believe you. Right now, I don't see it. I can see CEOs making even more money... that I can see.
3. If everyone's taxes go down - and these folks make it sound that way AND we do away with all corporate taxes- how can the tax base possibly go up? I'm asking this seriously. I believe that research has been doen. Can someone show me?
4. One time in the FAQs the document mentions a projected growth in the economy of 10.5%. That is insane. That is more growth than at any time in our history (I think). That is also a recipe for wild inflation. Has anyone looked at this? They say 4-6% growth is sustainable. What if we have major inflation or this 10.5% doesn't happen. Does this put us further in the red?
5. Will this balance the budget or pay down our debt?
6. They say that interest rates will go down. If we grow at 10.5% interest rated will have to go up to stem inflation, right?
ML,
E
posted by Big E at 10:03 AM
5 Comments:
When I get back to Nashville, I want to enter a discussion about this because I think there are possibilities and I don't think it's a liberal vs. conservative issue (I don't think you do either). I'll post in comments Sunday or Monday.
Good. and I agree about this not being Dem v. Rep.
E
You are right, this is not a Left/Right issue. It is an issue that comes down to two questions:
1. Will it work?
2. Will it pass?
I am afraid that the answer to question two will not be the same as question one.
Ok... I am no economist, but I love to think about economics. So, I will give my best guess as to the answer to each question.
1. Mortgage rates will, theoretically, sink because the Fairtax gives an incentive for individuals to save. With more cash earning revenue, the necessity to charge high rates will be progressively lower and lower.
Even if this isn't true, the argument about the price of homes is that the amount of money that changes hands will not change under the fairtax. It is said that this is due to the removal of the taxes that are already "imbedded" in the price of a home (ie - corporate income taxes that are currently waged on entities who provide the components of a house), which would drive the base cost down. Add the decreased base cost to the sales tax and arrive at a total roughly equal that of a current house price.
2. I do believe that companies will pass on their savings, largely due to Sherman. While I am sure that some companies would take advantage of the ability to take quick profits, the still-playing-out parable of the airline industry should be a lesson to the wise not to do so. The companies who have gouged the consumers over the years are the same ones who are bankrupt or no longer in business. The ones who are thriving are the ones who offer very low fares and very good service. The reason they could do this is because there was market share left available to them by companies who insisted on running on excessive margins and piss poor efficiency.
Long story short, I believe that entrepreneurship (and the threat of it) will insure that either:
- Existing companies accommodate the removal of embedded taxes by lower prices
... or...
- Someone else will.
3a. I don't know that they are saying that everyone's taxes will go down per se. I think they are saying that you can choose to save or spend by choosing how much you consume beyond the necessities of living. Those who choose to live beyond the means of necessity will be taxed by consuming more, whereas those who do not will not be taxed at all.
3b. While corporate taxes exist on paper, they are passed on to the consumer in 100% of the cases of companies who stay in business. Thus the corporate taxes are already being paid by the people who consume goods (including goods that comprise the basic necessities of living). I think saying that this isn't true is much like charging a band fee for all necessary costs for the year, then answering the question, "Who pays for band camp?" with the statement, "The boosters do."
3c. I can't show you research showing that the tax base goes up. I can say that the reinsertion (*snicker*) of currently "protected" money into the American economy will help (ie - money held in off-shore accounts and tax-free holdings to avoid income taxes). Furthermore, no income will be "sheltered" as it currently is, because that won't be necessary... income won't be taxed. So it will be in the open, free to be spent (and judging by the rich people I have seen, spent very freely). Lastly, the amount of money in the pockets of individuals will increase, due to the lack of withholding. Because individuals have greater spending power due to their money not being withheld by their employer, those who choose to spend will have more cash to spend.
4. I think 10.5% is high, but the return of protected cash to the states, along with the return of companies who are moving to the favorable tax conditions of the U.S. would definitely cause an initial bump. Inflation isn't a problem as long as incomes are rising at an equal or faster rate. That's as much as I can say without a degree in the field.
5. The only way to pay down the debt and balance the budget is for the government to spend less than it brings in, which obviously isn't happening. There would certainly be a significant debate about the final rate before the tax was implemented, but a fundamental necessity of this tax's success is that it be true to its claim of being "revenue neutral." This will probably be the biggest argument there is if/when it actually hits the floor.
6. First, see question 1 about interest rates going down. If the need to stem inflation mitigates this, then perhaps they will stay equal, perhaps they will go up.
Bear in mind, though, that raises in interest rates are not universally bad. While they might be bad for your house payment, they are very good for your retirement.
Just an as yet undecided songwriter/arranger's take on what the arguments in favor of the fairtax are. I do know, however, that there has to be a better alternative to the current system.
Oh... and for the record Wolfie, I don't think this can be passed without too many politicians getting their hands on it. I have the same level of confidence in the American political system that I have in baseball, and that ain't much.
OK, I am just starting to look at this, but here is the one thing I see so far. According to the Federal buget the IRS is estimated to cost 10.5 Billion next year. One of the cornerstones of the fair tax idea is getting rid of the IRS. I like this idea. 10.5 billion going back into education, social security, and/or health care makes me happy. Or, for fun we could start paying down the national debt. That would be neat.
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