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Ed from OC

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Rumormill, via Drudge Report, has elimination of the IRS as a centerpiece of the GOP domestic agenda for the second Bush term.

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"The Speaker of the House will push for replacing the nation's current tax system with a national sales tax or a value added tax, Hill sources tell DRUDGE.

'People ask me if I’m really calling for the elimination of the IRS, and I say I think that’s a great thing to do for future generations of Americans,' Speaker of the House Dennis Hastert explains in his new book, to be released on Wednesday."

This is FANTASTIC news. I hope it is true. And I hope they do more than use it as a campaign item, as Bush did with privatizing social secrity in the 2000 election.

If Bush pushes for this, then I will be almost certainly voting for him in November.

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Rumormill, via Drudge Report, has elimination of the IRS as a centerpiece of the GOP domestic agenda for the second Bush term.

From Drudge's mouth, to god's ears!

If Bush ran on that as part of his platform he would surely be re-elected. Unfortunately, I do not believe it. I doubt they have what it takes for such a radical stance.

p.s. I'm voting for Bush, anyway.

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I don't like the idea of instituting a new method of taxation (even if it's called "fair"). I'd rather advocate a steady decrease and the eventual abolition of current tax rates and codes. Even if it is a lower rate and more "streamlined", setting up a new tax system just grants the premise that taxation is proper, and it merely shifts problems to a whole new "can of worms" (who decides what is a "fair" tax rate, for example).

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If Bush ran on that as part of his platform he would surely be re-elected. Unfortunately, I do not believe it. I doubt they have what it takes for such a radical stance.

But it was Bush who openly argued for social security privatization in the last election. If that hadn't been the case, I would agree. I think it is possible.

Come to think of it, this could be a trial balloon to sniff out how much support there is for this position. It certainly wouldn't hurt to let Washington know how we feel.

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It's a horrid idea. The real proposal is to add a national VAT. Pretending that they might eliminate the income tax is just the candy that these vermin are sprinkling on the proposal to make it seem nice: there is not one reason to believe that the income tax will go away. Read my lips, no new taxes.

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It's a horrid idea. The real proposal is to add a national VAT. Pretending that they might eliminate the income tax is just the candy that these vermin are sprinkling on the proposal to make it seem nice: there is not one reason to believe that the income tax will go away. Read my lips, no new taxes.

I was going to respond as follows (see below), but David's post is much more on point and gets to the sinister nature of these political games. Great call, David!

I'd love to see the IRS eliminated, but I am not very optimistic of it getting through the Congress. To be cynical, it's probably a tool of the Republicans to fire up the base before November, knowing full well that it won't happen. There are plenty of precedents. The 1994 plan to eliminate the federal Department of Education is a good example. Not only has it not been eliminated, the budget for that department (under Republicans) has more than doubled!

--George

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When Americans go to buy something, they will be constantly reminded of the taxes that they must pay on it. I predict with a system like this, more people would advocate lower overall taxes eventually, as taxation wouldn't be so "invisible".

Kind of like how we are all rebelling against the ridiculous taxes on income, gasoline, cigarettes, and alcohol? Notice that the main reasoning for the Fairtax is that the current tax system is "broken". They don't care about reducing taxes. They actually see the Fairtax as collecting more taxes, as being more efficient than the current broken system, in which a large percentage of people slip past the IRS radar.

Besides, the government would simply require sellers to incorporate the tax into the price of the goods. Then the tax would be mostly invisible. Isn't this what they already do in many European countries?

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They don't care about reducing taxes. They actually see the Fairtax as collecting more taxes, as being more efficient than the current broken system, in which a large percentage of people slip past the IRS radar.

Reforming the tax system and cutting taxes are two different issues. FairTax only deals with the former. From the brochure:

FairTax intentionally makes no decisions about the level of government spending . . . The FairTax is designed to improve the fairness, competitiveness and efficiency of the method of collection, and not to change the amount collected.

While the FairTax plan does not cut government, it is important to understand that two factors will encourage efficient government. First, the rate will fall because of an improved economy. Second, Americans will be better equipped to determine if a tax cut is needed when they can see for the first time how much they really pay. By removing hidden taxes imposed upstream, eliminating withholding on income and making federal taxes visible on each sales receipt, taxpayers might exert downward pressure on the government. One of the reasons why taxes are at record levels in the U.S. today (and even during a period when legislators claim they have lowered taxes) is because many taxes are not visible to the consumer.

That second paragraph is important, because it is the basic reason why I support the FairTax. I would agree with Charles T if it was indeed just a system to make coercive taxation easier. But it isn't, and those two important factors explain why: (1) It will improve the economy and save us all money; and (2) by replacing a variety of taxes (some hidden) with a single tax, Americans will realize how much they are paying and be more likely to want to abolish coercive taxation.

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The problem with a VAT is that it's not seen. The taxes in Europe are high and the people don't complain because the tax is invisable. A flat tax would be better and no witholding would be best. Withholding was set up during WWII and was kept because if people didn't get the money they wouldn't complain about writing a check. Think about all the people who are happy to get a refund, as if it wasn't a interest free loan to the government.

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  • 2 months later...

From what I know, Bush is seeking to implement either a flat tax rate (same tax rate for all income groups) or a national sales tax or both. The proposals are very vague right now.

Do you think this is better than the IRS for the average person?

As far as I see it, the low-income groups would be the hardest hit by this.

Not to mention that a national sales tax will decrease consumer spending and slow down the economy.

The measure will be particularly beneficial to the wealthy and those in the middle-higher income group.

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In theory, I'd like to see a national sales tax replacing and eliminating the income tax. A few years back Richard Salsman gave a lecture on taxation, and I wish I had my notes on that. By my imperfect recollection and own opinion, the major benefits of the sales tax is that it's very noticable to the public (not a stealth tax) and that it is not a tax on capital or productivity. Thus it's pro-growth long term.

There are some major hurdles to a national sales tax in my opinion. I don't think people consider the sticker shock of paying a large sales tax on the sale of their car or house. A large sales tax on housing would totally change the way people think about relocating around the country.

I've never seen a VAT being a country's sole source of revenue. The VAT seems designed to be a stealth supplementary tax to boost total government revenues without people realizing it.

A flat tax would be better than a progressive income tax, but the many influence groups that benefit from the current setup (e.g. the many people who depend on the mortgage interest tax shield) would have to be fought. And the biggest obstacle to this or any other tax change would be the code of altruism.

The only way to make a major change for the better in taxation is to convince most people that egoism, independence, and productivity is superior to altruism and dependency. Altruism demands a large government budget and thus large taxation. As long as government spending is >30 - 40% of the economy, people will consider it scandalous for "the poor" to contribute an equal share of that.

Given the huge current share of government spending in the economy, and given that altruism will be the dominant ethics for at least another generation, I think the best a politician can acheive near-term is tax simplification, with fewer special deductions hopefully being offset by lower overall tax rates, and possibly a bit less "progressivity". Major tax reform and cuts would have to be simultaneous with major government spending cuts, both of which would have to come after an ethical revolution against altruism.

I predict that any politician who now tries to smuggle major anti-progressivity into a tax reform law under the cover of efficiency/simplicity will be evicerated by altruist politicians who will spell out every anti-altruist implication of the changes.

As for Bush now, I suspect he'll let some Republicans come out with sales tax/ flat tax proposals, let them take the heat, and then compromise back to get slightly more flattening and more simplification of the current income tax, combined with making some existing tax cuts permanent. I think the current talk is just part of a negotiating strategy, where you start out asking for much more than you expect to get.

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I think A.West is on target here.

For a sales tax to completely replace the income tax it would have to be at least 20%, maybe more like 30%. That would severely affect the housing market, especially labor mobility. It would probably also affect the market for cars and other big-ticket item; people would keep cars etc. much longer.

More importantly, such a tax would be very regressive. Since the poorer people are, the more of their income they spend, the effective percentage rate would actually be highest for the poor and decrease as income increased. I don't have a problem with that, but most people would. The result would probably be that certain basic items like food would not be taxed. That would drive up the tax rate on everything else.

There is also the issue of smuggling. Smuggling of cigarettes from low-tax to high-tax jurisdictions is already big business; I can only imagine how much smuggling there would be into the US of small high-price items like cameras.

In any case, what really matters is cutting government spending.

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Rumormill, via Drudge Report, has elimination of the IRS as a centerpiece of the GOP domestic agenda for the second Bush term.

The vital question of tax policy is, as Walter Williams says, "not how but how much." It will do us little good to switch to another form of revenue collection if we are still being looted at the same rate.

Furthermore, to complain about the income tax while doing nothing about deficit spending is to choke on a gnat after swallowing a tiger.

As Williams says, "The debate over what form of taxation we should have somewhat legitimates the level of government spending; and I have always argued, as a number of colleagues have, that it is spending, not taxation, that is the true measure of the burden of government. You see this by recognizing that there is no necessary reason why government has to tax in the first place. At one extreme, Congress could raise all the resources it needed simply by printing currency, or could borrow and require its citizens and other entities to hold a portion of their holdings in government securities, as is done in some countries. Of course, there would be severe problems associated with either one of these methods of taxation, but the bottom-line point is that government spending, not taxation, is the proper measure of government activity, and that is the major problem that needs to be addressed."

Williams on the Flat Tax

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Not to mention that a national sales tax will decrease consumer spending and slow down the economy.

There are some major hurdles to a national sales tax in my opinion. I don't think people consider the sticker shock of paying a large sales tax on the sale of their car or house. A large sales tax on housing would totally change the way people think about relocating around the country.

Listen, I'm no economist, but won't any hike in prices of goods/services be offset by the elimination of all other taxes? Plus, FairTax.org seems to be arguing that pre-tax prices will actually go down:

All goods and services already contain the embedded costs of the current tax system in their prices. When these embedded taxes are removed, prices come down. Dale Jorgenson, Ph.D., former chairman of the Economics Department at Harvard University, has projected an average producer price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax. In addition, the FairTax lowers compliance costs by an estimated 95 percent and the removal of these costs will force prices down even lower.

http://www.fairtaxvolunteer.org/smart/faq-main.html#17

As far as I see it, the low-income groups would be the hardest hit by this.

More importantly, such a tax would be very regressive. Since the poorer people are, the more of their income they spend, the effective percentage rate would actually be highest for the poor and decrease as income increased. I don't have a problem with that, but most people would. The result would probably be that certain basic items like food would not be taxed. That would drive up the tax rate on everything else.

I don't understand why people keep making this argument. The nat. sales tax advocates have repeatedly said that there would be a complete rebate every month for the poor.

There is also the issue of smuggling. Smuggling of cigarettes from low-tax to high-tax jurisdictions is already big business; I can only imagine how much smuggling there would be into the US of small high-price items like cameras.

The national sales tax is national, so it would be uniform across the country. Anyway, used items are not taxed if I remember correctly.

In any case, what really matters is cutting government spending.

Reforming the tax system can lead to that.

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The vital question of tax policy is, as Walter Williams says, "not how but how much."  It will do us little good to switch to another form of revenue collection if we are still being looted at the same rate.

While I agree we should aim to lower the overall tax burden (and rein in federal spending), one of the hidden costs is simply dealing with the complexity of the system. As I hear it, most companies spend more money complying with the tax code than they spend paying taxes. If we shifted to a flat tax, even at the same nominal rate, we would take a buge burden off the back of businesses.

For individuals, the same applies. How much time is spent factoring taxation into financial planning? How much uncertainty about the future hinges on the details of arcane tax regulations? How much whim can the government exert over all of us through this complexity? How much invasion of privacy can the government get away with, in their pursuit of tax revenue?

I would say the "how" impacts the "how much", not just in terms of explicit tax bills, but also in the extent of violation of the principles of limited government and individual rights.

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A flat tax would be better than a progressive income tax, but the many influence groups that benefit from the current setup (e.g. the many people who depend on the mortgage interest tax shield) would have to be fought.

One idea I had to deal with that issue is to offer a flat tax as an alternative tax. Set up the rules for both the current progressive income tax and for a flat tax, with the proviso that a citizen can pay the tax burden determined under either.

For some, who have set up their financial houses to take advantage of the current system, the net tax may remain lower under the present system. For others, who are not yet in that state, the flat tax would be lower.

And in between, people who marginally benefit from the current system would switch to the flat tax, trading a little extra money for the simplicity. Would it be worth an extra 1 or 2% in taxes? I think over time many would think so. This would lead to a natural shift into a flat-tax-only system (or perhaps a hybrid, with a very limited number of deductions, such as college tuition, medical, or mortgage).

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I don't like the idea of instituting a new method of taxation (even if it's called "fair").  I'd rather advocate a steady decrease and the eventual abolition of current tax rates and codes.  Even if it is a lower rate and more "streamlined", setting up a new tax system just grants the premise that taxation is proper, and it merely shifts problems to a whole new "can of worms" (who decides what is a "fair" tax rate, for example).

Great thought. I could not agree more. These tax-methodology debates are distractions. Now, Bush says he is going to simplify the code. A waste of time. Reduce the rates and at some point who will care!

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Reforming the tax system can lead to that.

Since spending and tax collection are two distinctly different activities, there is no reason to suppose reforming one will have any influence on the other. In the past century there have been over a dozen major tax "reforms," without any effect on stemming federal spending. The only measure that would pose any serious threat to spending is not tax reform but tax abolition.

While I agree we should aim to lower the overall tax burden (and rein in federal spending),  one of the hidden costs is simply dealing with the complexity of the system.  As I hear it, most companies spend more money complying with the tax code than they spend paying taxes.  If we shifted to a flat tax,  even at the same nominal rate, we would take a buge burden off the back of businesses.

If the ideal tax is a simple tax, then we need look no further than the poll or head tax. How much paperwork and accounting are required to assess every citizen $100 for the cost of running the government? The poll tax would not only relieve businesses of a tax burden, it would take it off their backs entirely.

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Since spending and tax collection are two distinctly different activities, there is no reason to suppose reforming one will have any influence on the other. In the past century there have been over a dozen major tax "reforms," without any effect on stemming federal spending. The only measure that would pose any serious threat to spending is not tax reform but tax abolition.

Apparently you didn't read my first post in this thread. It answers your objection in its entirety.

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While the FairTax plan does not cut government, it is important to understand that two factors will encourage efficient government. First, the rate will fall because of an improved economy.

Well, it would have a long way to fall. As pro-laissezfaire economist Bruce Bartlett has noted, "When Congress’s Joint Committee on Taxation scored the Linder proposal four years ago it estimated that it would actually require a tax-inclusive rate of 36 percent, not 23 percent, to equal current federal revenues. Calculating the rate in a normal, tax-exclusive manner would mean a 57 percent rate." Bartlett on the Fair Tax

Second, Americans will be better equipped to determine if a tax cut is needed when they can see for the first time how much they really pay. By removing hidden taxes imposed upstream, eliminating withholding on income and making federal taxes visible on each sales receipt, taxpayers might exert downward pressure on the government. One of the reasons why taxes are at record levels in the U.S. today (and even during a period when legislators claim they have lowered taxes) is because many taxes are not visible to the consumer.

But it is far easier simply to evade sales taxes than to elect tax-reducing legislators. And one of the great virtues of the Internet is that evading sales taxes is just a click away. Sales tax avoidance is already a big problem for the states. When the tax rate soars to 30, 40 or 50 percent, the number of evaders will increase proportionately.

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As pro-laissezfaire economist Bruce Bartlett has noted,

Here's a PDF rebuttal of Bartlett's article if you're interested:

http://www.fairtaxvolunteer.org/smart/BartlettRebuttal.pdf

But it is far easier simply to evade sales taxes than to elect tax-reducing legislators. And one of the great virtues of the Internet is that evading sales taxes is just a click away. Sales tax avoidance is already a big problem for the states. When the tax rate soars to 30, 40 or 50 percent, the number of evaders will increase proportionately.

Actually I thought the resistence to tax evasion was one of the key strongpoints of a national sales tax (if indeed you really consider it a moral problem). The number of federal tax returns will decrease dramatically because only businesses will fill them out. Not only does that mean lower overhead cost, but it also means the government has a greater chance of catching evaders.

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