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Johnrgt
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I just heard LP’s interview of Congressman Bill Archer (_The Leonard Peikoff Show_, June 17, 1996)

Does anyone know of studies, surveys, articles, etc., which offer insight into the advantages and/or disadvantages of replacing the current income tax system with a consumption tax (federal sales tax)?

Thanking you all in advance,

JohnRGT

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I just heard LP’s interview of Congressman Bill Archer (_The Leonard Peikoff Show_, June 17, 1996)

Does anyone know of studies, surveys, articles, etc., which offer insight into the advantages and/or disadvantages of replacing the current income tax system with a consumption tax (federal sales tax)?

Thanking you all in advance,

JohnRGT

Absolutely, John. Here is a published article written by a friend of mine, and the EZOP of the Political/Opinion/News board that I am an administrator for. As you probably know, there is a movement afoot within Congress being sponsored by John Linder of Georgia. It is called the Fair Tax Initiative. Here is the article I was alluding to: (Note- I have Mr. Fallin's expressed permission to use and post this article whenever and wherever I deem appropriate)

NATIONAL SALES TAX PROPOSAL IN LAYMAN'S LANGUAGE

--------------------------------------------------------------------------------

WILLIAM PENN FALLIN

EDITORIAL COLUMNIST

COFFEE COUNTY NEWS

1-27-03

NATIONAL SALES TAX UPDATE

Congressman John Linder ® Ga. has again introduced his bill to eliminate the 16th Amendment which authorized the income tax. And with it, eliminate ALL INCOME TAXES IN EVERY PHASE OF OUR LIVES. Here is a brief synopsis of his proposal which is receiving bi-partisan support in Congress.

For full details go online to www.FairTax.org

The FairTax is a consumption tax designed to replace the entire federal income tax system, including personal, payroll, corporate, self-employment, capital gains, gift, and inheritance taxes. The FairTax allows Americans to keep 100% of their paychecks, dramatically reduce basic retail prices, and fully fund the Federal government, including Social Security and Medicare.

With the FairTax, you will take home 100% of your paycheck. No income taxes or payroll taxes will be withheld from your paycheck, pension, or Social Security check.

Did you know that hidden income taxes (corporate etc.) currently make up 20% to 30% of retail prices? It's true. According to Dr. Dale Jorgenson of Harvard, hidden income taxes are passed on to the consumer in the form of higher prices, from 20% to 30% higher than they would otherwise be for everything you buy. Therefore, when the FairTax Act abolishes the federal income tax, prices will drop 20% to 30%. The proposed FairTax rate is 23%.

Instead of paying 15.3% of your paycheck in payroll taxes, plus an average of 28% of your paycheck in federal income tax, for a total of about 43% of your paycheck going to the federal government, you pay only a 23% consumption tax each time you purchase a new product or service for your own personal consumption.

At this 23% rate, the FairTax will pay for all current government operations, including Social Security and Medicare. With the FairTax, if you choose to buy any new product or service for yourself, a consumption tax of 23% will be added to the price. If you choose to buy a used car, resale home or used anything you do not pay the FairTax. Business owners who buy something for strictly business purposes (not personal consumption), will pay no consumption tax.

Perhaps most importantly, to ensure that no American will pay tax on necessities, the FairTax plan provides a monthly rebate for every registered household to cover the 23% consumption tax spent on necessities up to the federal poverty level. This is how the FairTax completely untaxes the poor, and lowers the tax burden on everyone else.

This system partially works by eliminating legal loopholes and it collects from those "illegals" who currently OPERATE "OFF THE BOOKS." When tax cheats, thugs, gangsters and common thieves use any of their ill gotten gains and buy anything new they will pay 23% taxes like everyone else. Income tax cheating will be a relic of the past. Everyone will pay the 23% tax whenever they buy anything new. Like current state sales taxes it's extremely difficult to beat. That factor alone will produce tens of billions in new revenues now being lost.

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Adding a new type of tax in the US is a bad idea. Any change to the tax system -- other than simply lowering *rates* -- is mostly a distraction. Forget simplification, just reduce the rates...slowly down to zero, and we won't have to worry.

I agree. I've learned much about the "Fair Tax" from Neal Boortz, who is currently writing a book about it, which he hopes to have out in February (that's what he keeps saying on his radio program). It is tempting to pounce on the idea of abolishing the I.R.S. and removing all of the "hidden taxes" that exist at all levels of production, but it is the issue of the immorality of taxation that must be exposed and popularly accepted. Accepting an entirely new system surrenders that issue in principal, and would be a big mistake.

If someone is truly willing to accept a new tax-scheme in the name of decreasing the tax burden and allowing people to keep more of their own money, then what argument is there against simply gradually lowering tax rates and abolishing the various taxes? If anyone were to argue against that, then I would have to suspect that ending taxation and protecting property rights are not their true goals.

Taxation has to be defeated morally, in principle. Publicizing the various ways the gov't could be paid for without it (and how the gov't is vastly larger than it has any moral right to be) is more important than suggesting and promoting a new, more efficient way for the gov't to rob people.

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I think a new tax scheme only needs be better than the system it replaces to make implementing it logical.

Further, isn’t the battle for the abolishment of taxes a separate debate, one that can be moved in the right direction by implementing a CT intelligently?

John

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I think a new tax scheme only needs be better than the system it replaces to make implementing it logical. 

Define "better".

The only scheme that is really better is one where everyone pays less with the new scheme than with the old one. So, rate-reduction is the only fair approach.

Further, isn’t the battle for the abolishment of taxes a separate debate, one that can be moved in the right direction by implementing a CT intelligently? 

All these debates about types of taxes are dry bones thrown to the masses to distract them from the real issue.

Tell my grand-father that now that he's finished paying taxes on his income, we're going to raise the taxes on his consumption. CT is simply someone else's social engineering: "let's make the masses consume less and save more... it's good for them... we have to induce them to be rational...we're rational...we know best..."

Enough to make the best socialist proud.

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First, I need to make clear that I am not fully convinced of the advantages of a CT scheme – that’s why I started this thread.

Since everything is something one tax scheme has to be better than another. While I obviously believe that taxation is destructive and that a lot of the talk about improving the tax code is rhetoric, I have no problem with the claim that one system can be far less harmful than others.

Rate-reduction is built into the Consumption Tax. Further, simply reducing the rates of the current scheme would do nothing to alleviate the disproportionate tax burden the current scheme places on the backs of the most able – an altruistic policy that ends-up hurting everyone, especially those it pretends to want to help.

You make it sound as if your grandfather’s savings wouldn’t increase in value by the dramatic increases in both productivity and the size of the economy said to be inherent in a Consumption Tax. Further, just as eliminating Social Security will require continued compensation to those already retired after SS withholding is eliminated, I would think that a reasonable “buy out” program can be devised for switching to a CT scheme.

One of the main advantages of a CT, if implemented correctly and the road kept clear, is that the FedGov wouldn’t have other sources of income. Thus, all the hidden costs of government would be made obvious at every purchase. That can only be a good thing.

John

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Since everything is something one tax scheme has to be better than another. 

Better to whom? Not to the person who has to pay more tax.

Further, simply reducing the rates of the current scheme would do nothing to alleviate the disproportionate tax burden the current scheme places on the backs of the most able – an altruistic policy that ends-up hurting everyone, especially those it pretends to want to help.

If taxes are more "fair" if the absolute amount per person is the same for all persons, then reducing the rate will make them more "fair". If taxes are more "fair" if the ratio-of-wealth per person is the same for all persons, then a CT is less "fair".

You make it sound as if your grandfather’s savings wouldn’t increase in value by the dramatic increases in both productivity and the size of the economy said to be inherent in a Consumption Tax. 

You will have to explain this in more detail and without economic arguments that are typical of economists -- i.e., arguments that are not induced from reality.

One of the main advantages of a CT, if implemented correctly and the road kept clear, is that the FedGov wouldn’t have other sources of income.  Thus, all the hidden costs of government would be made obvious at every purchase.  That can only be a good thing.

What can be less hidden than an income tax where one has to sit down once a year and compute how many thousands one has given the government.

As for the idea that the government will not have any other source of income once a CT is implemented... do you seriously think this will happen? If the politcal will ever exists to make CT the only tax, then the politcial will will probably also exist to do away with taxes as such, and instead to discuss government financing in a free economy. In the meanwhile, CT will end up as just another tax.

I too was once seduced by the idea of a CT and the idea of a flat-tax and so on. Then, I realized that I'm being duped. For me, it is rate reduction or naught.

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Lets look at the Consumption Tax proposal of Congressman Archer in the late 90s.

His thrust was to replace the Individual Income Tax, plus the Corporate Tax, plus the Estate Tax with a Consumption Tax. Archer, as Chairman of the House Ways and Means Committee, said any number of times that he would not allow a CT on the scene unless the other three were eliminated.

As stated, I think I see great advantages of this plan over the current scheme.

1) No more social engineering and “favors” through tax exemptions.

2) No more graduate tax rates that punish productivity.

3) The elimination of the IRS; no more financial records of every American in DC; a reduction of government payroll; no more audits; no more accounting fees; etc.

4) Unburdening industry of the cost of government, making US business much more competitive (Archer anticipated that a 15% sales tax would provide the revenues generated by the tax mechanisms he would trade-in for the CT. It’s not fantasy to think that with such a drastic reduction of the cost of doing business, the whole economy would boom. Further, since they wouldn’t have to pay for government expenses, American corporations would be more competitive on the international scene. Such a dramatic increase in productivity will increase everyone’s buying power.)

5) The “option” of structuring one’s expenditures to decide when and how one will pay one’s taxes.

I see thses advantages as very benficial to all. Further, it wouldn't be the first time that industry, taking advantage of a tiny improovement, improoved all our lives by entire orders of magnitude.

As for Hopeful’s other points in his last post:

Why would you call detached-from-reality-pontificators economists?

I think dealing with a CT several times a day is more likely to make the magnitude of government burden clear to everyone past the age of ten. While the huge amounts due on tax returns should be shocking, it’s a once a year issue – worse, too many get “refunds” or a cushioning of the “shock” because withholdings were never repealed after WWII.

I don’t see why a political will to establish a CT as the only source of government revenue means that there’s a will to reduce taxes overall, or to do away with taxes altogether.

Re flat tax, I qoute Archer from the LPRS inteview:

BA: “Exactly…Let me give you a good example [of how quickly the flat tax starts resembling the current system]: Steve Forbes, [who ran for the Republican Presidential Nomination twice on a strict flat tax], went in to see [Republican presidential candidate,] Bob Dole, and when he came out he said that Dole should recommended a two-rate system. <Then> Phil Graham realized that home mortgage interest was a sacred cow politically, and that charitable deductions were sacred, so he recommended that those two things be deductible [in a flat tax system.] Then, of course, the rate goes-up. The tree’s already growing before it even starts.”

If you could, Hopeful, please guide me to the articles, surveys, stats, theories that discouraged you Re CT.

All the best.

John

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Adding a new type of tax in the US is a bad idea. Any change to the tax system -- other than simply lowering *rates* -- is mostly a distraction. Forget simplification, just reduce the rates...slowly down to zero, and we won't have to worry.

In the description of Objectivist Richard Salsman's campus talk "A New Tax Policy That Advances Capitalism," advertised in ARI's speaker's bureau, there is the following:

“Indirect taxation” at a rate which is the same, proportionally, for all citizens, is the only tax system consistent with the U.S. Constitution and a capitalist fiscal policy.

(It is about 3/4 of the way down on ARI speaking events, and you have to click on the talk's name to get the description.)

I have been unable to discover the argument for this policy, an exact description of it, any implications (based on the argument I don't know) it may have on the morality of taxation, or pretty much anything about it... Despite its apparent opposition to Objectivism's "no-tax" policy, it's a talk by an Objectivist I have a great deal of respect for, and apparently sanctioned by ARI since it's published there and in ARI's speaking events, so I wouldn't entirely discount a federal sales tax without hearing more details on this particular speech.

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... Objectivist Richard Salsman's campus talk "A New Tax Policy That Advances Capitalism," ...

Thanks for the reference. Will attempt to check on this over the weekend.

For now, I have a question of those who support a CT (jedymastyr, Johnrgt,...) , so that I better understand your position:

Suppose we end up with a CT, and a much, much smaller and less complicated Income tax which (say) impacts only less than 1% of current tax-payers, and which has a maximum rate of (say) 1%, would you say such a combination is a better place to be than where we are today?

If you answer "no" , as I expect you will, then I think I am clearer about your position.

If you answer "yes", then I have a further question: is there some way to increase the two percentages that I mentioned as examples to a point where you will answer "no, it is worse than before".

more later...

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Suppose we end up with a CT, and a much, much smaller and less complicated Income tax which (say) impacts only less than 1% of current tax-payers, and which has a maximum rate of (say) 1%, would you say such a combination is a better place to be than where we are today?

The rate of the CT will definitely be more than 20%.

Since CT is on all the goods bought by a consumer, IMO, the move will primarly benefit the rich with the benefits decreasing as the income of a person falls.

The worst hit will be the poor and the working students at least for a while until the big business manages to produce enough higher income jobs through increase in productivity.

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Hi Hopeful,

Let me say it again:

I started this thread becasue I was looking for more literature on CTs. I am not a proponent of CTs yet, though I like what I see so far.

I don't want ANY other revenue source for the FedGov outside a CT. Archer's plan, however, seems like a good place to start. He calls for the replacement of three seperate taxes with a CT. Aren't two of the three the bread and butter of poltiics?

According to Archer's numbers, only a 15% CT was necessasy to bring in the same revenue generated by the three taxes he was looking to repeal back in the late 90s.

Let's say that the CT number ends-up being 20% or more in the current economy. That's that much more government expense shifted away from industry, ie, that much more opportunity for industry to soar.

Let's say that the midle and lower classes find that number overwhelming. If it's reduced, the governmnet's budget goes down as people have more money to spend/invest.

CTs are not the way the truly free fund their government, but it's looking a whole lot better than the present system.

Another source to look into:

Archer on LPRS:

"Dale Jargenson, Economics Professor at Harvard testified that if we did this [CT thing], we could see real national economic growth that would increase as much as eight percent per year above what it would otherwise be.”

(Lets not take this quote apart, debating over "as much as", what he means by 8%, etc. Rather, lets see if one of us can find out what Jargenson's points are and how he supports them -- assuming he's still pro CTs, that is...;-) )

Take care, Hopeful.

My thanks to all who've participated.

Regards,

John

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I don’t think we should infer that because ARB sells a given lecture, ARI agrees with any and all views expressed in that lecture.

There was a time when SRB's catalog made it plain that the fact that Dr. Peikoff's material was listed in the catalog did not mean that Dr Peikoff endorsed all viewpoints expressed in all the material in the catalog.

John

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I don’t think we should infer that because ARB sells a given lecture, ARI agrees with  any and all views expressed in that lecture.

Perhaps not--but keep in mind, this isn't just a lecture ARI is selling at the ARB. This is a campus talk Richard Salsman is listed as being able to give, and it is listed on the page of campus talks ARI recommends for Objectivist clubs. That of course does not mean ARI endorses it still, but it's a stronger support than just selling the lecture. In fact, I wish they sold the lecture--I would like to hear the talk. He is one of my two or three favorite Objectivist lecturers, so I'm thinking he has at least an interesting argument to offer.

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those who support a CT (jedymastyr, Johnrgt,...)

I don't necessarily support a national sales tax--I am undecided on the issue. I can't come up with an argument for it that satisfies me, but the issue isn't fully clear to me. I am familiar with the Objectivist arguments against taxation in general, which I find very convincing.

It may be possible to somehow have an indirect tax that require the imposition of force against someone (why would this be called a tax, then, since tax seems to imply force?). The only way I can imagine this not requiring force is if the tax is optional.

All I'm saying is that, though I agree with the view that taxes are as a whole wrong, I would want to hear Mr. Salsman's lecture before ever finalizing my position on that. He may only support an optional tax (like that set forth in "Government Financing in a Free Society"), but I don't see why he would call it a tax since the word tax implies a requirement. So, though I overall don't agree with any tax whatsoever, I want to hear Mr. Salsman's talk and consider the issue "open" right now.

If anyone has heard Mr. Salsman's talk on the subject or knows his basic argument, please enlighten me.

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