The Benefits of the Fair Tax
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08-02-2014, 04:57 PM
RE: The Benefits of the Fair Tax
Quote:but it's crazy to tax and discourage good behavior, like working overtime, getting a good education to get a good paying job, etc.

Let me stop you right there.
The way it works is the first X amount is taxed X amount.

ie:
$0 – $14,000 - 10.5%
$14,001 – $48,000 - 17.5%
$48,001 – $70,000 - 30%
Over $70,000 - 33%

So if you earn $100,000 you aren't taxed 33% on all that $100,000.
You're taxed 10.5% on the first $14,000, so $1470. 17.5% on the next $33,999, so $5950. 30% on the next amount, so $6600 and than 33% on everything over 70K, so $9900. So his combined tax amount would be $23,920. Not $33,000

So of course there's incentive to work over time or get a degree because you get more money... Even if you were on the edge and working overtime put you over to the next bracket, you're still only getting taxed at that new rate for the amount over the limit so you're still getting more money.

So I don't know where you're getting this idea that it discourages hard work, because it doesn't.

I'll answer the crazy bits (the rest) later.

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08-02-2014, 08:41 PM (This post was last modified: 08-02-2014 08:47 PM by frankksj.)
RE: The Benefits of the Fair Tax
(08-02-2014 04:57 PM)earmuffs Wrote:  So I don't know where you're getting this idea that it discourages hard work, because it doesn't.

Come on earmuffs. You're too clever to not see such elementary math. Let's say we're talking about incentives for people who currently make $100k/year for working 40hrs/week, and we ask what it would take to motivate them to work 50% more (60 hrs/week) for a 50% bump in gross salary (another $50k/year)

Say you live in a country that either has no income tax, or caps the income tax so that everything you earn past $100k/year is tax-free. In this case, you're going to take home the full extra $50,000/year. If the income tax rate over $100k is 33%, you'll take home $33k/year. Raise the tax rate to 50%, take home $25k/year. Raise it to 99%, and you're only going to take home an extra $500/year. At that 99% tax rate, how many people are going to work 60 hours/week and not even take home enough money to buy a new TV?!

Isn't it obvious that more people will be willing to work 60 hrs/week for an extra $50,000/year (0% tax rate) than for an extra $500/year (99% tax rate)? And that as you raise the tax rate, the number of participants goes down accordingly. Say that at 0% tax, 50% of the population is going to work 60 hrs/week. Raise the tax rate to 1%, and the number of participants will go down a bit, maybe 49% of the population will do it, since $50k was the minimum incentive for that 1%. Keep raising the tax, thus lowering the take home pay, and every single increment you're reducing the number of people willing work long work weeks. And as the tax rate hits 99%, the number of people who will work those long hours drops to ZERO.

Assuming that the government collects all the tax revenue it needs to provide today's services through property taxes alone, the greatest incentive to work long hours is with zero income tax. As you add income tax every single bump in income tax results in fewer and fewer people wiling to work.

One historic chart makes it very obvious. Go to the US's taxpolicy.org and look at the income tax rate on investment income vs. the amount of income tax collected (LTCG). Every year they raise the income tax, the amount of investment income drops accordingly. Every year they lower the tax rate, investment income goes up. Put both the tax rate and the amount of income on an Excel chart and you'll see the 2 lines are mirror opposite. Every change in income tax results in an immediate, direct change in the amount of income. Investment income is a good indicator because people can adjust their level of investment activity immediately. So the effect that the income tax has on investment work is instant; raise the investment income tax rate by half, and instantly investors will work half as hard. For laborers, as the tax rates go up and down your boss isn't going to let you instantly adjust how much you work, so there's a time delay, but the effect is still the same.
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09-02-2014, 12:05 AM
RE: The Benefits of the Fair Tax
(07-02-2014 02:59 PM)Carlo_The_Bugsmasher_Driver Wrote:  The amount of sales tax levied can be set according to the value of the good or commonidy. Expensive items such as exotic cars or private jets can have an additional 'sin tax' imposed upon them as could other vice such as alcoholic beverages, tobacco or marijuana.

Thoughts?

I completely agree, with possible modifications to exempt basic necessities. If basic necessities were exempt, and luxuries were taxed at a higher rate, then it would even still be progressive.

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09-02-2014, 12:08 AM
RE: The Benefits of the Fair Tax
(07-02-2014 04:10 PM)earmuffs Wrote:  I don't use any less police or fire department services or street lighting or armed forces etc.. etc.. if I save all my money compared to spend it all.

You need a combination of sales and income tax.

In the US, police, fire departments, and street lighting, are paid for by municipal, county, and state taxes, not the federal income tax, with some minor caveats about street lighting on interstate highways.

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09-02-2014, 12:10 AM
RE: The Benefits of the Fair Tax
(08-02-2014 04:57 PM)earmuffs Wrote:  So I don't know where you're getting this idea that it discourages hard work, because it doesn't.

Since the differential labor is taxed at a higher rate, it certainly is a dissincentive to working more, since each extra hour, only brings you, say, 70% of what you worked for, instead of, say, 80% (round number used for demonstration).

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09-02-2014, 10:20 AM
RE: The Benefits of the Fair Tax
(07-02-2014 06:03 PM)toadaly Wrote:  it certainly is a dissincentive to working more,

Earmuffs lays out the 'ideal' tax system, and what he describes is.... exactly what all major countries do now. That's not thinking outside the box and challenging assumptions. Rather it's just going with the status quo and blindly accepting the line the governments' feed us that the current system is what's in our best interests, and that it encourages hard work and prosperity.

But it is SOOOOO obvious that this is wrong. Just ask a basic set of questions like this:

1. Imagine all income was taxed at 100%, so no matter how hard you worked, you didn't take home anything. How many people would work long, hard hours? A: "Pretty much nobody"

2. Now imagine you gradually lowered the tax rate, to 99%, 98, etc. Is there going to be some magic number where all humans simultaneously decide to start putting in their maximum effort? Can you imagine, say, that 70% is the magic number, and with a 71% tax, NOBODY is working, and once the tax hits 70%, suddenly at the same time EVERYBODY will start working, putting in long hours? A: "No, everybody is different, it will be gradual, and nobody will start putting in their maximum effort, it will build as the number goes down"

3. So now that we've determined the upper limit is gradual, what about the lower limit? Again, is there some magic number that everybody will respond to? Like at a 21% tax everybody is working 40 hours/week, but the moment it crosses to 20%, suddenly every human at the same time will take on 2 jobs and work 80 hours/week? A: "No, everybody is different"

With 3 basic questions, it's irrefutable that income tax decreases the incentive to work, and that because everybody is different and responds to incentives gradually, it's a constant graduation. With 0% income tax, you get the highest number of people willing to work hard. As you turn the dial up people start working less and less so that by the time you 100%, hardly anybody is going to be working.

This isn't a hard concept. But we're all told not to think for ourselves and to just accept that the current system is what's best, even though logic, as well as empirical data, shows it's not.
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09-02-2014, 05:37 PM
RE: The Benefits of the Fair Tax
I think one thing that is being ignored is that the before the United States had an income tax at the federal level, places still had roads, fire departments, police and public services. The U.S. government was able to fight 6 wars, and win all of them, and many could make a legitimate argument that the economy was consistently better. So I don't think you have to start any debate under the assumption that a tax system at the federal level is 100% necessary. Could it be beneficial or better than no tax? That is debatable, but I am uncomfortable assuming there has to be one.
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10-02-2014, 07:33 AM
RE: The Benefits of the Fair Tax
However the government decided to collect the money to operate we are going to pay it. No way to get around that. Best we can hope for is they keep it as low as possible and distrubute the burden fairly. Since fair is subjective probably never going to find a taxing plan that everyone will like.
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10-02-2014, 07:41 AM
RE: The Benefits of the Fair Tax
(07-02-2014 02:59 PM)Carlo_The_Bugsmasher_Driver Wrote:  Second, as you save more, the banks benefit as they have more money to lend. This makes it easier for them to grant you a loan if you need money and raises the interest rates on savings accounts, allowing them to be more practical for retirement savings.

Banks do not lend out other depositors money (or THEIR money as lawfully in the UK it becomes their property once you deposit it with them, I imagine the same law may apply in America)

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10-02-2014, 08:27 AM (This post was last modified: 10-02-2014 08:33 AM by mrlmichael.)
RE: The Benefits of the Fair Tax
Banks use inflation to lend out money, simple as that.
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