Bush supporters' aftermath thread

Einherjar wrote:

FreeDuck wrote:
I agree with you, dtom, and so transitively agree with fox and dys. I want to say, though, that the idea is not to soak the rich, but to ensure that we are not only taxing earned income, ie. wages. It's fairness and simplicity that I'm after.

Interest is exponential, which means that wether you tax earnings before investment or consumption afterwords is irrelevant.

Someone who knows more about this than me might have something more to say, but if you are living off of the interest of a sizeable fortune and you don't pay taxes on that interest then you are doing better than the guy who is living off of a paycheck which has already been taxed. You may have paid tax on that money at some point before, but that will be all you pay if there is no tax on interest or consumption.

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Imagine the revenue enhancement that would occur if the Federal Government were to legalize, regulate, and tax pot and hookers.

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..and classify drug dealers as small businesses.

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Quote:

Imagine the revenue enhancement that would occur if the Federal Government were to legalize, regulate, and tax pot and hookers.

I think about this all the time. The revenue stream would be immense, the safety would increase exponentially, but so would the bitching by the religious...

Cycloptichorn

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Going back to a previous comment, money put into savings is not 'worthless' at all. It provides a rich underpinning for loans for people to buy cars, houses, furniture, etc. and such purchases stimulate the economy and create jobs. And it provides resources for people to expand their businesses and start new ones. Banks can only loan so much of what they have on deposit and remain solvent.

And any of you who have an interest-bearing account know that the income from such interest is fully taxable.

The only way to deal with disparity of income and wealth is to adopt policies that provide incentives for the rich to spend and/or invest their money or put it to where it is available to the rest of us and thereby create an environment in which the rest of us have more opportunity to become rich.

Income is a pretty broad term ranging everywhere from wages, profit from self-employment income or a business you own, capital gains from assets and investments, and interest paid to you from any source as well as some gifts, prizes, gambling winnings, and other such windfalls. With some exceptions, it can all be taxable as income.

Once the bulk of the tax shifts to any other basis than income, you start running into the problems already outlined here, plus you encourage more bartering with goods and services that sidesteps all forms of taxation. If you're going to be assessed a 5 to 8% sales tax on your new couch, you'll live with that and write a check. Make that a 25 to 40% tax, however, and you might find a more creative way to obtain that couch.

The idea of Friedman's lump sum subsidy to the poor as Thomas outlined bothers me. I'm thinking more on that and will figure out why.

There simply has to be a better and more simple way to do it than the way we're doing it though. But there is no such thing as a truly simple plan.

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FreeDuck wrote:

Einherjar wrote:
FreeDuck wrote:
I agree with you, dtom, and so transitively agree with fox and dys. I want to say, though, that the idea is not to soak the rich, but to ensure that we are not only taxing earned income, ie. wages. It's fairness and simplicity that I'm after.

Interest is exponential, which means that wether you tax earnings before investment or consumption afterwords is irrelevant.
Someone who knows more about this than me might have something more to say, but if you are living off of the interest of a sizeable fortune and you don't pay taxes on that interest then you are doing better than the guy who is living off of a paycheck which has already been taxed. You may have paid tax on that money at some point before, but that will be all you pay if there is no tax on interest or consumption.

Lets say I live in a country with a flat 50 % incometax. (to keep maths simple) You live in a country with a 100 % consumption tax. We both pay one dollar in taxes for every two dollars earned and spent.

Let's say I now earn 200 dollars, pay 100 in taxes and invest the remaining 100 dollars. Likewise you earn 200 dollars and invest all of it. What we have both invested in doubles in value, (again to keep maths simple) and we both sell. I then have 200 dollars to spend (100 * 2) while you have 400 dollars of which half wil be taxed uppon consumption, leaving you with 200 dollars worth of merchandise.

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Foxfyre wrote:

The idea of Friedman's lump sum subsidy to the poor as Thomas outlined bothers me. I'm thinking more on that and will figure out why.

My understanding is that it is a lump sum for everyone, not just the poor. If one's income is lower, however, the lump sum would be a larger percentage of one's income.

Doesn't Alaska have something like this?

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Yes.

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Perhaps we should encourage people to, I don't know, stop buying things they can't afford?

The whole concept of credit needs to be re-vamped. There are a lot of people who are going to be smacked here in a couple of months/year when the intrest rates start climbing again...

Cycloptichorn

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I completely agree. We in this country have some pretty unhealthy spending habits and the chickens are going to come home to roost eventually.

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Cycloptichorn wrote:

Perhaps we should encourage people to, I don't know, stop buying things they can't afford?

The whole concept of credit needs to be re-vamped. There are a lot of people who are going to be smacked here in a couple of months/year when the intrest rates start climbing again...

Cycloptichorn

Yup, will cause a lot of shops to go bankrupt though.

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dyslexia wrote:

well ok but my money put into savings (investments) generates unearned income and that's what I live on today.

Sure, but that unearned income would be taxed as soon as you used it for consumption under a consumption tax system. I'm also not sure what you're saying. Under the present system, investment is taxed as capital gains when you realize those gains (maybe not a great system, but investment is still taxed).

Regarding the consumption tax, aside from some of the distributive problems that have already been discussed, and which might be reduced by a rebate (as posted by Thomas), there are also some problems with market distortions under a consumption tax, even if services are included. Specifically, not everything has the same elasticity of demand, and a flat sales tax would affect the consumption of some things much more than others. <this isn't my original observation, but I have no clue where I got it, so take my sourceless ramblings with a grain of salt>. Ideally, I think we would want to maintain the consumption habits of consumers as if there were no taxes. Thus, the very sensible intuition that we shouldn't tax food and medicine under a consumption tax, as proposed by Gunga earlier, might be backwards. Things like food and medicine, for which the demand is typically inelastic, should be taxed at a HIGHER rate if we want the consumption tax to equally effect every purchase decision. Raising the tax rate for these inelastic goods and services is totally politically unviable, but we would otherwise see distortions.

Anyway, that's just a thought. I have no idea how these concerns would play out in the real world.

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Judicious use of credit is a healthy and essential component of the American economy. It makes perfect sense to choose a home wisely and obtain a mortgage to buy it - the interest and taxes are deductible and the house appreciates in value and you build equity, all of which benefits are lost to those who pay rent. Likewise, it makes sense to borrow to buy a car necessary for the wellbeing and/or safety of your family or to earn a living.

I have no problem with borrowing to invest in a business or other income producing ventures provided one does so prudently and with wisdom.

As far as spending beyond ones means for nonessentials, however, I don't see that as a government problem but as a personal integrity problem. I use a debit card for food and fun; I use a credit card exclusively for other purchases in order to have the insurance and other benefits associated, but those credit card companies get not a penny of interest from me as I pay off the bill within the grace period. That has not always been so. I've been in inappropriate debt too and it's no fun. Getting out of such debt is well worth the effort.

Evenso, there are good reasons to use credit.

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Taxing essentials heavily would also amount to regressive taxation, as poor people would spend more of their money on such essentials than would rich people. I think the distortions would largely take the form of more spending on services unaffected by the tax (if such exist) instead of luxury goods.

That was directed at steppenwolf.

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dys writes

Quote:

well ok but my money put into savings (investments) generates unearned income and that's what I live on today.

Tell me about these nontaxable earnings from investments. Smile

It is true that the last tax restructure courtesy of the Bush administration dropped many thousands of lower income people/families from the tax rolls so people making a very modest income off investments plus maybe a small social security check probably aren't paying much, if anything, in federal income taxes. The rest of retirees do pay taxes on any investment gains that we make available to use plus 80% of their social security checks (courtesy of Bill Clinton's administration thank you very much.)

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Einherjar wrote:

Taxing essentials heavily would also amount to regressive taxation, as poor people would spend more of their money on such essentials than would rich people. I think the distortions would largely take the form of more spending on services unaffected by the tax (if such exist) instead of luxury goods.

That was directed at steppenwolf.

True on both accounts. Heavy taxing of essentials would amount to pretty severe regressive taxation, and taxing services would be very difficult. My point was that even a consumption tax that taxed services would create distortions, not that I actually think a brutal taxation of essentials would be fair.

I don't have a solution for either of these problems.

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I don't see how an all encompassing flat consumption tax would create distortions, as the relative price between any two things are unaffected.

Since relative taxation of essentials would not result in major distrotions one could make the tax sort of progressive by exempting say food or medicine. I think I would prefer Thomas' lump sum subsidy though.

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Einherjar wrote:

I don't see how an all encompassing flat consumption tax would create distortions, as the relative prices between any two things are unaffected.

If two products have different price elasticities of demand, then a 20% increase (or whatever) on each product will affect consumption differently. We would still have the same amount of consumption for something with a highly inelastic demand, like medicine, but less consumption for something with a more elastic deman, like most entertainment. The result might be a shift in purchasing decisions that wouldn't reflect our tax-free preferences. The idea is that a 20% increase in price doesn't have the same affect on all goods.

I could be wrong here, but I'm not sure how (I may just be suffering from lack of creativity).

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Einherjar wrote:

Interest is exponential, which means that wether you tax earnings before investment or consumption afterwords is irrelevant.

It is relevant, though, whether you tax it once or tax it twice, which is what is currently happening.

Foxfyre wrote:

The idea of Friedman's lump sum subsidy to the poor as Thomas outlined bothers me. I'm thinking more on that and will figure out why.

You could re-interpret it as a flat income tax with an offset that applies on the left side of the offset too.

tax = tax_rate * (income - offset)

Note that 'tax' becomes negative when 'income' is smaller than 'offset'. When represented like this, does it still bother you?

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Off course, but you'll get this from any kind of taxation. People have less money to spend, and choose to cut consumption of luxury items. A lump sum tax would have the same effect, although due to less welth redistribution luxury consumption would increase some, and whatever is between esentials and luxury would decrease a bit.

Perhaps the closest thing to a non distorting tax would be "smart taxes" taxing variables assosiated with what the money is being used for. Taxing gas for road maintinance for example.

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Bush supporters' aftermath thread

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