Should taxes be indexed to inflation?

[RandBlade]

These calculations attempt to be as technocratic as possible, but that becomes harder and harder as the stakes go up. Also, not sure why you're assuming that the benefits inflator would be the same as the tax index inflator. These would likely be separate bureaucracies pursuing their own separate interests.

You're not demonstrating that the stakes are going up rather than down when they cancel each other out. There's a reason that the government is discussing Chained CPI and that is because of how high the stakes are now. Cancelling the incentive will reduce the stakes.

[GGT]

I have?

Nope. A consumption tax, the 'Fair Tax'.

Is it really "fair" when low/middle income folks pay a higher percentage of their income on essentials like food or fuel, or their wages automatically deduct contribution taxes for SS or Medicare?

[Dreadnaught]

You're not demonstrating that the stakes are going up rather than down when they cancel each other out. There's a reason that the government is discussing Chained CPI and that is because of how high the stakes are now. Cancelling the incentive will reduce the stakes.

I don't see how it's a given that they cancel each other out. When you increase the complexity and latitude that the bureaucrats can operate under, it's quite possible for them to push for both more spending and more taxing.

[Veldan Rath]

Is it really "fair" when low/middle income folks pay a higher percentage of their income on essentials like food or fuel, or their wages automatically deduct contribution taxes for SS or Medicare?

Spoken like a person who has not read the Fair Tax. (hint: prebate and SS and Medicare would no longer COME OUT OF YOUR PAYCHECK)

Anything else you want to misrepresent or just get wrong?

[Flixy]

Spoken like a person who has not read the Fair Tax. (hint: prebate and SS and Medicare would no longer COME OUT OF YOUR PAYCHECK)

Anything else you want to misrepresent or just get wrong?

It is regressive, though. Higher incomes spend less on consumption.

[RandBlade]

Spoken like a person who has not read the Fair Tax. (hint: prebate and SS and Medicare would no longer COME OUT OF YOUR PAYCHECK)

Anything else you want to misrepresent or just get wrong?

The fact that many of the claims made by Fair Tax are demonstrably BS and have major black holes as a result. Which you've just shrugged off every time without answering so not going to bother going into details again.

[earthJoker]

I have?

Nope. A consumption tax, the 'Fair Tax'.

Consumtion taxes are always flat. I wonder how you would add progression into a comsumtion tax without a shitload of bureaucracy.

I don't see how it's a given that they cancel each other out. When you increase the complexity and latitude that the bureaucrats can operate under, it's quite possible for them to push for both more spending and more taxing.

The reason for that is simple. Inflation is almost always positive. So taking unless the bureaucrats decide to set the calculated inflation to a negative value, the tax payer is always better of than the status quo.

So all you have to do, is to limit the inflation adaption to positive values.

[RandBlade]

Consumtion taxes are always flat. I wonder how you would add progression into a comsumtion tax without a shitload of bureaucracy.

You don't. In their method they just screw the Middle Class.

[earthJoker]

So you say, Veldan doesn't understand his own proposal?

[Veldan Rath]

No kidding that the tax is flat, but I was responding to GGT that I want a flat income tax.

Again to make it 'progressive': Prebate, no extra bureaucracy needed thank you.

And no it does not screw the middle class (but hey we are doing fine now eh?), as many purchases a middle class family would make would not apply. (Used cars, homes, etc)

[RandBlade]

If you're looking at progressive/regressive etc then as income rises the percentage taken falls. Now a prebate can fix that for some of the poorest in society but then you're left with a u-shape. The very poor benefit due to the prebate being a high percentage of their income, the very rich benefit as the tax doesn't target them ... Those in the middle pay the most.

[Veldan Rath]

So?

Actually wait, it does not target the rich? The rich don't buy the next newest shinny thing? Really? The don't have expensive surgeries that are elective (thus out of pocket)? They don't buy new cars, boats, houses, fly all over and back?

Also, with the hidden embedded taxes in everything we buy due to income taxes, we the middle are already paying it...and everyone gets the prebate...I don't care where you are in the middle class, depending upon the size of the family, the prebate is significant.

Anyway, I really wasn't invested is arguing the merits of the Fair Tax, just disagreeing with GGT that I support a flat income tax. (If GGT just meant Fair Tax as a flat tax...then my bad, but it still was not a correct representation)

[earthJoker]

No kidding that the tax is flat, but I was responding to GGT that I want a flat income tax.

I see nothing in her post that hints torwards income tax.

Again to make it 'progressive': Prebate, no extra bureaucracy needed thank you.

That's only progressive on the low end. But extra bureaucracy IS needed, you need to define the prebate value, and if (as the Wikipedia article said) the prebate should cover the poverty level, it needs to be adjusted to inflation as well.

And no it does not screw the middle class (but hey we are doing fine now eh?), as many purchases a middle class family would make would not apply. (Used cars, homes, etc)

How would you exclude those purchases? In general, purchase taxes need more bureaucracy than income taxes.

[Veldan Rath]

sigh..again see above how I addressed that. When the Flat Tax was bandied about I've always heard/seen it as an income tax.

we have something called the IRS, they wold be re-tasked.

for exclusion: simple, the Fair Tax applies only to new goods not used.

Is it perfect? No, but if we want serious tax reform, just tinkering on the edges of the MONSTER we have created is not going to solve it.

[earthJoker]

for exclusion: simple, the Fair Tax applies only to new goods not used.

Ha, the coolest tax I ever heard of. So I have this company in Delaware, I sell everything I produce to it for 1$, I pay taxes for 1$. Then I resell the used product for 1 million and tax nothing.

[RandBlade]

Ah you're making one critical flaw in the logic:

You're assuming the flaws in putting all your eggs in one basket will have been thought through.

[Veldan Rath]

Ha, the coolest tax I ever heard of. So I have this company in Delaware, I sell everything I produce to it for 1$, I pay taxes for 1$. Then I resell the used product for 1 million and tax nothing.

And if I pay people under the table (including myself) I don't have to pay income tax!!!!1111WOOT

[Enoch the Red]

And if I pay people under the table (including myself) I don't have to pay income tax!!!!1111WOOT

You just aren't thinking big enough. Remember, the government already owns all of your income, and what you've thought you've earned is really what the government has allowed you to keep. The solution then is to give all payroll authority and corresponding banking information to the government and let them deduct and withdraw as they see fit. Then require itemized and substantiated reasons for any cash withdrawals, in triplicate. Problem(s?) solved.

[Dreadnaught]

The reason for that is simple. Inflation is almost always positive. So taking unless the bureaucrats decide to set the calculated inflation to a negative value, the tax payer is always better of than the status quo.

So all you have to do, is to limit the inflation adaption to positive values.

That doesn't really do it for me because there is still the ability to make huge impacts. EG, increasing revenue by keeping one calculation of inflation very low (.1%) and then increasing spending by keeping pension inflation calculations high (1%).

It seems appropriate to use this thread to post the obituary of the father of Public Choice Theory, who was a Nobel laureate for his ideas on this subject and died today-

January 9, 2013, 7:32 p.m. ET JAMES BUCHANAN 1919-2013
Economist Who Argued Public Officials Are Ruled by Self-Interest Dies
By STEPHEN MILLER

James Buchanan, who won the Nobel Prize for economics, helped found the field of public-choice theory, which examines how bureaucracies and elected leaders make decisions. He died Wednesday at age 93.

Among his conclusions was that public officials often act in their own self-interest instead of the public's interest. Thus, he argued, bureaucracies tend to grow and politicians tend to favor new spending and tax cuts, leaving the bills for the future.

To prevent such choices, Mr. Buchanan advocated a constitutional amendment requiring a balanced federal budget, to force politicians to curtail spending.

Within the field of economics, Mr. Buchanan's ideas were seen as a challenge to John Maynard Keynes, who called for government intervention in the economy, including running up budget deficits, to provide stimulus in lean times.

Mr. Buchanan came to wide notice during the presidency of Ronald Reagan. He was cited as an influence by Sen. Phil Gramm, a Texas Republican who co-sponsored the Gramm-Rudman-Hollings Balanced Budget Act of 1985.

When it awarded him the 1986 Nobel Memorial Prize in Economic Sciences, the Royal Swedish Academy of Sciences said that Mr. Buchanan had "transferred the concept of gain derived from mutual exchange between individuals to the realm of political decision-making."

Raised in Tennessee, Mr. Buchanan served in the Navy during World War II on the staff of Adm. Chester Nimitz. He said that he had been drawn to socialist ideas early on, but adopted free-market principles while studying at the University of Chicago with Frank Knight, who also mentored Nobel laureates Milton Friedman and George Stigler.

In 1962, with co-author Gordon Tullock, Mr. Buchanan published "The Calculus of Consent," which challenged the idea of government as a force for good. Experience showed, Mr. Buchanan later said, that "government did not behave benevolently; bureaucracies expanded exponentially; the welfare state itself created more demands than it satisfied."

After teaching at the University of Virginia and the Virginia Polytechnic Institute and State University, Mr. Buchanan moved to George Mason University, where he was director of the Center for Study of Public Choice.

Because much of his work occupied a kind of no man's land between economics and other disciplines, and because he was identified with conservative causes, Mr. Buchanan said he was surprised to be awarded the Nobel Prize.

"If Jim Buchanan could win a Nobel, anyone can," he was fond of saying.

http://online.wsj.com/article/SB1000...501877074.html

[earthJoker]

And if I pay people under the table (including myself) I don't have to pay income tax!!!!1111WOOT

That would be illegal. My example is legal. Come of with a better example.

That doesn't really do it for me because there is still the ability to make huge impacts. EG, increasing revenue by keeping one calculation of inflation very low (.1%) and then increasing spending by keeping pension inflation calculations high (1%).

0.1% is very close to 0%. 0% is the value you get if you don't take inflation into account at all. That means the impact is not huge at all, its minimal. Again 0% is the status quo (what you want). Now you tell me why the bureaucrats would set the inflation too high, it's not in their interests.

And the calculation of the pension inflation is another thing. At least over here pensions and taxes are two different pairs of shoes, as pensions are not paid through taxes.

[Veldan Rath]

That would be illegal. My example is legal. Come of with a better example.

What you are suggesting would also be a form of tax evasion. As soon as your competitors saw what you were doing, your ass would be reported to the new incarnation of the IRS.

Again, I'm not the one to defend the Fair Tax, (as I said before). I'm not inclined to really go through the books, and prepare a defense, when the only reason I brought it up was to correct GGT assertion.

I know the idea of shifting a lot of power away from the government makes certain people quake in their boots.

[earthJoker]

What you are suggesting would also be a form of tax evasion. As soon as your competitors saw what you were doing, your ass would be reported to the new incarnation of the IRS.

No if my competitors see what I do, they will do the same. It's legal after all (Starbucks just used that argument recently in the UK).

I know the idea of shifting a lot of power away from the government makes certain people quake in their boots.

Totally irrelevant to my arguments. And not true for my case, I am not in favor of big government, I am just not for a night watchman state.

[GGT]

No kidding that the tax is flat, but I was responding to GGT that I want a flat income tax.

Again to make it 'progressive': Prebate, no extra bureaucracy needed thank you.

And no it does not screw the middle class (but hey we are doing fine now eh?), as many purchases a middle class family would make would not apply. (Used cars, homes, etc)

A "prebate" doesn't necessarily make a flat tax progressive, or fair, or any less bureaucratic-intensive.

[RandBlade]

And if I pay people under the table (including myself) I don't have to pay income tax!!!!1111WOOT

Which is why it's best to put lowest possible rates of tax on all major transactions as it results in the least incentive to evade the taxes (when the cost of getting caught is pretty fixed and includes prison) or avoiding it (legal but often expensive). Putting all your eggs in ANY one basket (it doesn't matter which) is idiotic as the benefits of evading that cost skyrocket at no extra cost.

[earthJoker]

Which is why it's best to put lowest possible rates of tax on all major transactions as it results in the least incentive to evade the taxes (when the cost of getting caught is pretty fixed and includes prison) or avoiding it (legal but often expensive). Putting all your eggs in ANY one basket (it doesn't matter which) is idiotic as the benefits of evading that cost skyrocket at no extra cost.

In a black/white world, it's not easier or less easier to evade taxes. It is possible, period. And as it is possible, it doesn't matter how hard it is. Isn't it easy if your world is black and white.

I just want to say again. You don't have to care about illegal ways to evade, if you have a legal one. The legal one will always be preferred to the illegal (at least by those who have a brain).

[GGT]

Well stated, EJ. The US has all sorts of legal ways to evade taxes. One is parking assets in Switzerland....

[earthJoker]

No that's not legal (by US law), and FACTA will close that. With FACTA you can't use banks to hide money from the US at all. You need some pupped company in one of the corporate havens: http://en.wikipedia.org/wiki/Corporate_haven to evade taxes legally.

Loopholes for natural persons are being closed much more eagerly by the governments all over the world.

[GGT]

Riiight. Should we ask Mitt Romney how this works?

[earthJoker]

Sorry I made a mistake. With assets you mean shares and not a bank account?

[Wraith]

A "prebate" doesn't necessarily make a flat tax progressive, or fair, or any less bureaucratic-intensive.

A prebate does in fact make a flat tax progressive. A progressive tax is one in which the percentage of your income paid as tax rises with your income. With a prebate, the effective tax would approach, but never quite reach, whatever the flat tax rate is. The upwards approach would happen relative to the rise in income. Thus, progressive.

I'd also say that it makes it less bureaucracy intensive (assuming Veldan means a pure flat tax, no deductions etc. possible). There aren't as many decisions to make or math to do, which makes everything simpler. The only work added to counterbalance all the savings you get from the simpler tax code would be the prebate, which can be nearly completely automated, meaning no new bureaucracy needed.