The "Hidden Tax" Myth & It's not a "Fair Tax" it's a National Sales Tax

[norml]

Those selling it sell it by claiming that...

1. The sales tax rate would be low and stay low.

2. The rebate would be generous and would remain generous.

3. Prices would fall because the "Hidden Tax" would be removed.

While I seriously doubt all three of these claims I'll mainly deal with the "Hidden Tax" fraud.

1. I've never known prices to fall after a tax cut, have you?

Since the last big top heavy tax cut prices have gone up, haven't they?

2. Conversely if there is such a thing as a "Hidden Tax" in which taxes are passed down to consumers through higher prices, then why not really simplify things by having all taxes collected that way by taxing only the biggest of businesses and the highest of incomes and letting the taxes trickle down through this mythical "Hidden Tax"?

[gmoney]

1. Because you're punishing initiative, blah, blah, blah...

In a way, this battle's already lost, because with the abolition of the estate tax and the near abolition of capital gains tax, the savvy wealthy are already avoiding paying their share and avoid remunerating society for the advantages they've enjoyed courtesy of the American infrastructure, funded by taxpayers. Educated workers, roads, utilities, airlines, internet, mail service, hospitals... the list goes on and on.

Somehow, the Ayn Rand crowd imagine that all that fundamental stuff just happened and that everyone is born with an equal opportunity to exploit it for financial gain. You might be able to make a living, but unless you're connected and get huge government contracts/handouts, the odds of becoming really wealthy are worse than the odds for the lotto.

You're right... the flat tax is a disaster waiting to happen, but something tells me the freeps are going to be able to sell it to all those folks who believed that George W. Bush would end terrorism and create good jobs in America.

[whistle]

2. So, the Federal Government's 2006 budget is $2.9 trillion....

...with a $620 billion deficit for a total spending of over $3.5 trillion. That represents $11,734 in Federal revenues that have to be collected per person in the U.S. Exactly how will the government get these revenues every year?

[papau]

3. 33% sales tax??? - Say $11,734 per person is 33% of after payroll

tax income assuming zero savings, and assuming a small exemption for food and rent.

Seems fair.

[dcfirefighter]

5. How about a 6.4% tax on land values?

I only want to raise $1T, i want to eliminate the payroll tax.

Though we could auction the many rights (corporate welfare rights) that teh US government gives away as favors to the priveleged and raise enough to eliminate the deficit, and should, that is not my focus.

According to the Federal Reserve (pdf), there's $31 Trillion in Real Estate. Simplifying here a bit, but a 3.2% tax on real estate would raise $2T.

Actually, such a tax would be rather harmful, you could expect many buildings would be allowed to crumble, and few people would build new ones at such a severe property tax: carpenters, laborers, masons, plumbers, electricians, and related construction trades would be unemployed by the millions. What if we didn't tax buildings, but rather only the non-building portion of real estate value?

Unfortunately, the Fed doesn't separate such values. But, I know that less than 15% of the US is 'built up areas', that is cities, towns, and suburbs. Of course those areas are where the value is, but, in those areas, land values might represent 25-50% of realestate. In nonbuilt areas, land represents nearly 100% of real estate. I feel confident that land represents well over half of all real estate value in the US, but to be conservative, i'll use 50%.

This would require a land value tax of 6.4% right?

well not exactly. See, at a tax like that, people aren't as willing to pay the seller as much - the value is there, and the buyer is paying it, it's just going to the government rather than the mortgage company. Even this isn't exactly true: if such a tax replaced payroll taxes and income taxes, property values would likely grow overal, and certainly shift into cities as the speculative value of vacant lots downtown disappears, and the sprawl pressures are relieved inward and upward rather than outward. So let's just leave it at 6.4%

median household income = $43,318
payroll tax employees share = $3,314
payroll tax employers share = $3,314 (this adds to the cost of employment, and therefore reduces employment, and therefore average wages)
median home value = about $150,000
land value of median home, estimated = $50,000
tax on land value of median home = $3,200

Not much of a change, huh? Not at first, it is after all a revenue neutral proposal.
#1 eliminating the payroll tax would very nearly eliminate unemployment. With low unemployment, wages would rise.
#2 The tax can be avoided by building relatively more house on less land - small lots rather than big ones, duplexes rather than single family homes, condoes & rowhouses instead of detatched homes.
#3 The tax inherently falls on landOWNERS, not tenants: those families below median are much more likely to be renters - they see an increase in wages while their rent likely stays the same. Such a tax .
#4 Families well above the median are likely to own multiple properties (while others own none) and will see their tax rise. Furthermore, most million dollar houses are actually half million dollar houses on half million dollar lots.
#5 Most real estate, and most real estate value, is owned by business entities.

[papau]

6. What prevents rent increase to cover tax?

It would lead to more open space not owned by anyone - or owned by the gov - a good result.

[dcfirefighter]

4. The 'Hidden Tax' argument is predicated on

fair competition. In perfect competition, competing firms undercut each other until there is no profit left, and prices only reflect the cost of production, including wages, salaries, raw materials, etc.

Many products in the US, especially those from super sized corporations do not exist in a competitive atmosphere: their producers have lobbied for and recieved extensive government protections against competition. Prices won't drop much. Get rid of these protections (corporate welfare) and prices will drop with no other changes to the tax code.

The FairTax does infact get rid of many of these protections, however, the previous poster is correct in the assessment of the elimination of the estate and capital gains taxes.

Regarding the propisition that we could only tax the biggest of businesses and highest of incomes (I think you're being a little sarcastic here, but I'll bite). It wouldn't work, because businesses would reorganizes such that their size was just under the taxable size, and incomes would be changed in form so be some form of untaxable benefit.

If there were one bottleneck point in the whole economic cycle where taxes could be raised with a minimal (if any) negative effect on the economy, it would be taxes on the factor of production Adam Smith and Karl Marx referred to as 'Land'. The concentration of wealth is highly skewed, more so than incomes. The concentration of ownership of 'Land' is even more skewed. Any tax on it is extremely progressive, and can be made more so by allowing a personal exemption (or preferably, a universal rebate a la the bemoaned FairTax).

Now barring me being made Universal and Benevolent Dictator, the best course of action, imo is:
1) Fracture the Republican Party by having the DP take up the campaign against Corporate Welfare and Wasteful Military Weapons Programs (Kevlar flack jackets and refurbed armored personnel carriers are much cheaper than useless missle defense, stealth ships, airplane/helicopters that won't fly, etc.)
2) Reduce Federal spending greatly, balance the federal budget.
3) Campaign in individual states to allow state & local property taxes to bear more heavily on land than buildings (already O.K. in PA & MD, on the table in OR).

Programs that benefit localities, such as public safety, transit, and education generate more land value than they cost.

[papau]

7. changed in form problem is noot if all income is taxed the same

wages and investments taxed the same rate at 100 cents per dollar as taxable income.