Flat taxes, sales taxes, and Howard Dean
Okay, we lost the election and now the quadrennial fight over whether we sound more like the Republicans or articulate our liberal vision better begins. This is an easy one for me. Given the choice between a faux Republican and a real member of the GOP, the voters will go for the real thing every time. We win when we convince voters that our ideas are simply better.
That's why I think having Howard Dean as Chair of the Democratic National Committee would be a great idea. Although he never governed as a member of "the Democratic wing of the Democratic Party," he surely ran for President as a card carrying progressive, and a DNC chair who can be vocal opposition (you aren't waiting for Harry Reid to do it, are you?) is an incredibly valuable person.
That's also why I think we have to grab and make our own one of Shrub's ideas — simplification of the federal tax system. It's a sound bite idea, but it's also right. My taxes last year, with a combination of salaried and self-employed income, a small bit of income from investments, a house, and the usual mélange of middle class stuff, ran over 40 pages. All I can say is thank God my dad is my CPA. No one understands this system, but we do understand it allows Donald Trump to pay less in taxes than most of us.
What's wrong with a system that does in virtually all the deductions other than home ownership, charitable giving, day care and medical expenses? The IRC has become a social engineering tool — whether that's right or wrong is one argument, but it's clearly been a tool for the wealthy. Does anyone here have a citrus grove they can deduct? And those loopholes for that icon of American symbolism — the small farmer — go primarily to aid Cargill and ADM (and let's not even go into the fact that the "small farmer" is frequently a millionaire him or herself, at least in terms of assets). If we did this the correct way, we could raise by a considerable amount the ceiling for non-taxed income, and move the 15% rate up to cover far more income that still is legitimately "middle class."
I'll go even farther, and step on that third rail of Oregon politics. What's wrong with a national sales tax? I don't deny that sales taxes tend to be regressive. That doesn't mean they have to be. What if you exempted medicine, groceries, utilities, clothing. What if you took it a step further and said "why not a tiered sales tax?" After those exemptions, tax most other goods at, say, 3%. But then tax luxury goods at 5%, things such as furs, jewels, dining out, cars that don't get the EPA median for their class, all SUVs, aircraft, boats. Take your pick. My point is that you can even make the sales tax progressive with a bit of work. While this may have Oregonians up in arms, most states have a sales tax, and there is simply not the national resistance we have here.
The point is that, unless we capture some share of this debate, and quickly, we will be cornered into defending an indefensible system, one we have criticized for decades.
Let the battle begin. But let's arm ourselves for this one.
By Marc Abrams
Nov. 14, 2004
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Nov 15, '04
What if you took it a step further and said "why not a tiered sales tax?"
Because that's the first step towards making a sales tax that's as complicated as the income tax currently is.
Nov 15, '04
You'll get no defense of the current tax system from me. The myriad of ways in which the wealthy can scam the system are just horrifying, and the middle class picks up the bill. The Seattle PI has been running a series on the most recent horror, tax breaks that pay for mega-yachts. Yes, people out there are writing off their mega-yachts as business expenses. You know the ones with plasma TVs and hot tubs?
As for a national sales tax? That would sure as hell be one way to shift the tax burden from the young to the old. Think about it. Retired people are living off savings that were either taxed when the money was first earned (Roth IRA), taxed when the money is withdrawn (traditional IRA and 401ks), or are taxed BOTH when the money was earned and when it was withdrawn (all other savings vehicles).
So now that you've got all these millions of old people reaching retirement age, suddenly you're going to start taxing them AGAIN every time they spend a dime of money they've already paid taxes on? That's certainly a recipe for political disaster considering that the percentage of elderly voters increases every election. And that's the reason why a 23-30% national sales tax as proposed by some right-wing Republicans is a political non-starter. The elderly simply won't stand for it.
Make a sales-tax exemption for the elderly you say? Great, I'll send grandma to do all the shopping and order that new Dell computer in her name and have it shipped to her house next door! And if course if you exempt the elderly you just need to raise the tax rate for everyone else.
And of course when you hear that 23% national sales tax figure batted about, remember that when those economists calculated that a 23% sales tax could replace the income tax they didn't include any exemptions at all. You ready to pay $46,000 of tax when you finally have enough saved to buy that $200,000 house? How about paying $2,300 in sales tax when your kid gets lukemia and needs $10,000 of medical care? Oh wait, you want to exclude major expenses such as housing and medical care from the national sales tax? And you want to exempt the elderly? Ding ding ding...you're up to 40% percent tax for the rest of us.
Reform the tax code? Yes, of course. But let's not have progressives out there advocating a national sales tax. I can't think of a worse idea.
Nov 15, '04
Well, there's one more battle to fight, and that is Social Security. Bush wants to take the security out of social. Everyone agrees that savings and investment are a good thing, but why dismantle the one vehicle that guarantees every worker in the country, aged 62 or over, some form of income at retirement in order to do so? If Congress rolls over on this one, I recommend we consider seceding from the Union. We can invite California and Washington to join us for a Pacific Pact (of course that won't protect us from the nuclear fall-out!)
Nov 15, '04
On flat tax, count me as a supporter. Once AMT starts hitting everybody anyways, we will be paying a flat tax.
On social security, we need to do something since right now, there is no SS acct with zillions of dollars. What happens is for each retired person, myself and about two other workers send in out FICA and it gets resent out to each retiree right away.
This was one of the big issues I had with Kerry is when he got up and said there is no problem with SocSec. At least Bush recognizes in about 10-15 years there will be two workers for each retiree and the FICA coming in will be way short of what is needed. I have to give him some credit for having the guts.
Something does need to be done unless you want: 1) Benefits frozen or reduced 2) Your kids paying half their income in FICA
Alas, if we could only all have a PERS or Police/Fire retirement account that doesn't have to meet any real world standards of accountability.
Nov 15, '04
Howard Dean and a national sales tax -- there's a combination that will get America back in the blue.
Nov 15, '04
Dean, yes - sales tax, no.
What was the code like under Clinton? You know, when we were PAYING DOWN OUR NATIONAL DEBT AND ENDED UP IN SURPLUS?
I remember Hope Credits and Alternative Minimum Tax. I liked AMT - it assured that the rich couldn't loophole themselves off the rolls.
Replace the national sales tax idea with Blue-Ribbon panel on voter suppression/miscounting, and I'm all the way on board...
Nov 15, '04
Tell the Democratic National Committee the kind of leadership you want.
Nov 15, '04
I actually supported the "real" Dean, even as he was moving from being a socially liberal and fiscally conservative governor of a small state into being the head monk on the antiwar children's crusade.
As for a national sales tax or any kind of "flat tax", the Republicans will carry this water bucket and we have no need to dirty our hands. When talking to flat tax proponents it's almost always enough to agree with them wholeheartedly and follow up with advocating that such a tax apply to all income of any kind and that no deductions be allowed for anything.
In virtually every case, proponents begin to backpedal furiously when they realize that capital gains and other "unearned" income are on the block.
Both of these schemes are about rhetoric more than substance.
Nov 15, '04
I don't think the panic and fear being built up by the fiscal conservatives around AMT and SS is based on genuine worries. In fact, I know it's not. Unless you think a HH income of 75K or more is something that establishes you as "middle class" (despite representing around the top 20% of incomes), AMT is not going to be a problem for you any time soon. And if it becomes one, it's not that complex an issue to index it for inflation.
We have PLENTY of money already coming in to save Social Security for the future. Forward-thinking people set up an intentional overage in 1983 to counteract just such a problem, by increasing the payroll tax beyond what was needed to meet current needs. The problem is not that there's insufficient money coming in; it's that the money is being spent on-budget instead.
At least that's how I perceive it, anyway. And sales taxes and VATs will fix neither.
Nov 15, '04
Here’s the way to generate (inside the U. S. economy) "heaps & gobs" of money that will be looking for a place to be spent or invested.
America is currently plagued by the problem of joblessness, and in spite of the best efforts of those in charge of remedying it, little, if any, progress is being made. Other countries such as China, Japan, Korea, and others seem not to have this problem to the great extent that the U. S. A. does. America’s retail shelves are stacked with cheaper foreign goods that have driven American manufactured goods out of the market. Americans no longer provide many services in the U. S. A. because they have been outsourced to foreign countries such as India because labor costs are much cheaper there.
Methods of taxation in other countries also contribute to the American unemployment problem. Most Americans do not realize the Europeans, Australians, and Canadians (with their GST----Goods and Sales tax), and countless others with a VAT (Value Added Tax) have had a discriminatory tax on American goods and services for decades! This discriminatory tax is 15 to 25% in Europe.
It works like this: every business has many costs, one of which is taxes (payroll taxes, profits taxes, etc.). In the U. S. A., these costs, like all other costs, are included in the prices of our products, but we don’t itemize (clearly showing) the specific increment that is taxes. When we ship that product to Europe, etc., they add the VAT to the already tax-laden American product.
Companies in the VAT countries, like American companies, have to pay taxes, but they keep track of the taxes as the product proceeds along the production process. They call the incremental taxes VAT. When the product is put on the retail shelf in Europe, etc., it includes the VAT, and the VAT is revealed to the customer.
Now it gets interesting: when a tax-laden American product (about 22% on average) is put on the shelf next to the EU product, in Europe, the VAT is added to the American product. Now the American product is 20+% more expensive than the comparable EU product! Guess which one sells?
· Our nation will enter a period of many years of sustained economic growth with new job-creation unequalled by anything in our past history. · The Fair Tax plan will bring back a measure of fairness and freedom to America that has been sorely trampled-upon by the Income Tax System (and IRS) for many, many years. · Receipts from the Fair Tax will be more than sufficient to fund the Social Security System and Medicare, plus enable the government to meet its needs and steadily pay-down the national debt.
· Replace the current complex and unfair federal tax system with a simple sales tax.
· Eliminate personal and corporate income taxes and Social Security, Medicare, gift and estate taxes.
· Save taxpayers $250-$600 billion now being wasted in complying with the current tax code.
· Lower "sticker" prices 20-30% by removing the cost of business compliance with the current tax code.
· Make American products more competitive with foreign products. Thus, hurling American manufacturing levels to dizzying heights not seen within recent memory.
· Provide a more stable revenue source and raise the same amount of money for the federal government with the imposition of a 23% sales tax with no loopholes.
· Dramatically lower tax rates for lower and middle-income Americans by pre-bate payments to households to offset the sales tax on necessities.
· Protect and ensure the funding of Social Security and Medicare.
· Repeal the 16th Amendment and eliminate the Internal Revenue Service as we know it. Taxes on income will no longer be constitutional.
· Bring capital investment flooding onto American shores. Business, no longer being taxed, will enjoy America as the most “business-friendly” nation on earth.
Whole-heartedly support House Resolution #25---the Fair Tax reform proposal as a curative solution to relieve the American people of the tyranny of our present tax system (income tax IRS) and put Americans back to work. That would be a great legacy to leave the American people.
The current 7-million-word tax code requires 1,168 pages (2 volumes) to publish, and an additional 6,439 pages of Federal Tax regulations that apply to income taxes. The IRS has created 480 tax forms with an additional 280 to explain how to fill out the 480. More Americans work in tax compliance occupations (CPAs, tax attorneys, etc.) than serve in the entire U.S. Armed Forces. The IRS is twice as big as the CIA and five times the size of the FBI. The compliance costs dwarf the amount of the tax collected. In addition to that, the IRS spends a yearly $10 billion budget. The total national cost of compliance (not counting the taxes paid) is $250 billion yearly. That's $850 per capita of U.S. population.
The Fair Tax reform proposal, which may be fully understood at the website www.fairtax.org, is the best alternative to replace the IRS. It is a simple (retail only) national sales tax. It is not a VAT (value added tax---applied at every level of the production process). Business-to-business transactions, not being retail, are not taxed. Nothing is deducted from the employee’s paycheck. He has to spend it on new goods only, not used goods, for it to be taxed. Thus, one is in charge of one’s own "tax destiny.”
The individual person is allowed to spend the first $8,860 of his yearly income tax-free (he will get monthly reimbursement refund checks for taxes paid on that amount), $17,720 (for a couple), $20,800 (household of 3), $23,880 (h.h. of 4), $26,960 (h.h. of 5), $30,040 (h.h. of 6), $33,120 (h.h. of 7), $36, 200 (h.h. of 8).
Under this system, "sticker" prices would fall 20-30%, thus, giving our exports a much better competitive edge when sold abroad. This would "kick" the economy into high gear. Businesses (no longer having to send the IRS any money at all) would simply pass the savings on to the consumer, their shareholders, and their employees as higher wages. Forty-five of the fifty states use a sales tax to generate revenue because they know that it is the fairest, simplest, easiest, most cost-effective, most problem-free method of taxation. The state taxing authority in each state would assume the duty of collecting the national sales tax for the U. S. government. Only the retailers file a tax return stating the amount of their sales for the year. For everyone else, April 15 is just another spring day.
Each taxpayer gets a monthly refund check in the amount taxed on his spending up to the poverty line. So, in effect, he is only taxed on his spending above the poverty line. In no case will anyone sacrifice more than 23% of his total income to the sales tax, even if he spends all his income on retail purchases.
Unspent income remains tax-free and available for investment or education expenses. Compliance cost of administering the Fair Tax is only $8 billion yearly. That is a big savings compared to the $250 billion we now pay. The IRS, with all the taxpayer support services that it has made necessary, is intolerably burdensome and expensive.
At the Fair Tax website, don't stop with the first frame. Click on each of the major headings for more complete information. It will take awhile to do all this, but it is well worth it. You will learn everything you've always wanted to know about the economy and taxation, but were afraid to ask!
http://www.fairtaxvolunteer.org/materials/comparison.html and http://www.geocities.com/cmcofer/fca3.html. Then go to www.congress.org and tell your congressmen that you want the Fair Tax Act, HR 25, passed into law ASAP! America, producing an endless supply of high quality, competitively priced goods and services, will have a behemoth-size trade surplus. An ever-expanding economy will shift the balance of payments in favor of the U. S. A. America will be a lender to many, a debtor to none. There will be jobs and income for all who will work.
“There is nothing more powerful than an idea whose time has come.” ---Victor Hugo
John Paul McDaniel
4932 Oak Bluff
Mesquite, Texas 75150-3193
Nov 15, '04
I'll direct you to SocSec's WEBsite:
The most on point statement is:<hr/>
However, Social Security is still basically a "pay-as-you-go" system as the $1.5 trillion (bonds) is a small percent of benefit obligations.<hr/>
My contention still is if we do nothing either benefits go down or FICA goes up. Oh, lets not forget the unfunded liabilities of PERS and the Police/Fire Retirement/Disability funds. Both are top dollar expenses and get funded regardless of how many schools and jails are closed.
If you really want to believe elected officials have a clue on how to invest money for others, feel free. I disagree.
Nov 15, '04
The VAT tax or fair tax sales tax idea has appeal, but Kent's comments above about the net effect on elderly Americans being that they get taxed twice in their lifetimes is compelling. Maybe this could be solved by giving people over a certain age an extra large pre-bate check each month.
I think some kind of consumption tax would be better overall for the economy and reward saving rather than encourage spending and debt. Giving people a tax rebate or "pre-bate" up to the poverty level would remove the regressivity typically associated with sales taxes, although it would not create progressivity, although payroll taxes would be eliminated and everyone, including poor people who don't have jobs, would get a pre-bate check every month. That's more progressive than what we have now. I also like the idea of having a higher tax for luxury items.
There's a lot to be said about eliminating the need to file tax returns and just paying at the register. This would have the effect of capturing taxes on the black market economy and from tourists also.
But taxing elderly folks' savings twice sounds like a very bad idea. Maybe give people over a certain age an extra large pre-bate check, or phase in larger pre-bate checks for older people.
Nov 15, '04
Fortunately, with health care the way it is, we can expect the old folks to die off soon.
A couple really basic things: the primary activity of government is to tax and spend; and taxes and tax breaks are designed to create incentives for particularly desired or undesired behavior and they ought to be treated that way.
My law school had 40 tax classes. I took "Tax 1," so you can see that I'm coming from a position of authority. The Code is absurdly complicated and really long, but all that makes it easier to slip in taxes and breaks in ways other than the big three (income, property and sales) while still pretending that you're against taxes.
And I wish Oregon had a sales tax. Having lived in other states, none of which have spontaneously combusted under such burden, it just seems dumb not to have a sales tax. Flame away.
Nov 15, '04
I will support you, Anne... A sales tax provides reliable and consistent income for a state.
However, I have not noticed Oregonians(en masse) being all that practical when it comes to tax reform. No matter how many times I have told my anti-tax friends about how Oregon's tax system ebbs and flows with the economy, they still insist that the state has oh-so-much waste to cut and needs to simply tighten its belt. They do not seem to get it that the base of the sytem is the problem.
As Lars Larsen so eloquently put it the first time I ever heard him, "do teachers really need dry-erase markers?" Because dry erase markers are so the problem, Lars.
It is so bad that almost any state political candidate that puts forth that a sales tax (with lower income taxes) would be a good idea has just committed a faux pas.
Nov 15, '04
To: Those who want a tax system that's fair to all
Write your CongressFolks and ask them to sign-on as cosponsors of the FairTax (HR 25 / S 1493).
The FairTax generates the same amount of tax revenue as the Income Tax in the year that it replaces that form of taxation, i.e. it's "revenue neutral."
No more Filing Returns! No more IRS audits! April 15th becomes just another nice Spring day!
Cliff Cofer, WW-II Vet - West Des Moines, Iowa
P.S. If 2 folks signed the Petition calling for the FairTax today... and they each got two to sign tomorrow... and they each got two to sign the next day, etc, etc.... there'd be over 33 million signatures on the Petition in 25 days! ! ! Let's do it! No way would Congress sit on its hands with that many voters calling for the FairTax.
(Especially, if we sent along a message to the CongressFolks that said, "If you don't enact the FairTax, your replacement will!") heh-heh
Nov 15, '04
Just to add to John McDaniel's excellent post above--the way the Fair Tax protects Social Security and Medicare is that since it no longer would be a payroll tax it no longer has the limitation that the ceiling on the payroll tax now has--so more becomes available for these programs.
As for double taxation on older people, remember that Fair Tax rate is zero up to the poverty level and increases gradually above that--it's effectively 11.5% if you spend at twice the poverty level, for example. So while this is a valid concern, the progressivity of the F.T. eases the burden considerably.
Nov 16, '04
Congratulations. You're sounding awfully much like a Republican.
Seriously though, you have really hit the nail on the head. Democratic leaders are so scared of sounding like Republicans on issues like tax simplification that are missing the fact that this is an issue we should all be agreeing on.
As far as Howard Dean, it would have been a lot more interesting election if he had been nominated. He wouldn't have had my vote, but he has my respect as a thoughtful man who is not afraid to take a stand. (I won't try to convince you that those are the exact qualities I most admire in George Bush.)
Nov 17, '04
A liberal from the Northeast does not can't win ANYTHING. Anybody remember a guy named John Kerry? Or his buddy Michael Dukakis? Exactly.
Nov 17, '04
NO income tax will ever be simple. Income can be manipulated and hidden through accounting devices. Therefore the Code (IRC) becomes more and more complicated as each loophole discovered by enterprising businesses and their CPA's gets plugged with another Code provision. The only way to simplify the system is to tax consumption (sales at some level). Now, how to make it non-regressive -- well that's a bit more interesting. But with a few well chosen exemptions (like food), it could be done without great complexity.
Nov 18, '04
I'm reading "The Radical Center" by Halstead and Lind.
I don't understand why recognizing the merits of the free market (where applicable) and rejecting those vestiges of the industrial and New Deal era that are no longer working is "sounding like a Republican".
When our party endorses a ban on Roe v. Wade, school prayer, eviscerating environmental protections, and a unilateralist foreign policy, then I'll admit we're faux Republicans.
But on economics, we have to do something different because right now we are nothing but Bush lite.
Nov 21, '04
Yes, the tax code needs to be changed. But in Oregon until the legislators can admit that the Tax Expenditure Report (all continuing tax breaks ) exists in print and should be debated publicly, good luck on doing anything else.
As far as fair tax, it sounds like something that was on the ballot here once. A friend of mine who worked in a big box retail store (incl. grocery)asked me how to vote. I said the way it was written "Suppose your store sells frozen french fries. The tax ads 2% every step of the way. So the farmer selling to the processor the tax is 2%, the processor selling to the store chain is 2%, is there a 2% from the store chain to the individual store? And then the customer pays 2% when buying the item. My only question for you is, which of your co-workers would be doing the paperwork for the part of that process which takes place in your store?". She thought about it and decided maybe she would vote no.
Mark Abrams said
I agree a salestax can be made progressive. Such tax efforts make sense if they are politically viable. But if you think abortion is controversial, you should have lived thru some of the sales tax fights within the Democratic party in the 1980s, incl. people barely speaking to each other.
And as far as the Republicans proposing a national sales tax or value added tax, I am going to say something that people who are at least as old as Marc can relate to. Somewhere, Al Ullman is laughing. And Denny Smith is probably grinding his teeth. For those of you not old enough to remember, Denny Smith did to Al Ullman in 1980 what John Thune just did to Tom Daschle. In Denny's case, he beat Al about the head and shoulders for even suggesting a national sales tax or a value added tax. That Denny's party is now suggesting such a thing is the true definition of irony, it seems to me.
I just read a story on the Washington Post site--the first of what I hope will be many articles disecting what Democrats did right in Colorado. Not only did they elect Sen. Salazar and his brother Cong. Salazar, but they flipped the legislature back to Democrats in a way even Republicans admitted was skillful. They ran as pragmatists. The Republicans, confronting a budget defict, spent more time on issues like the Pledge of Alliegance in schools. I think that would also work in Oregon--if the party and caucus operation were run by a more savvy, friendly to volunteers, intelligent and quality group of people than the DPO and the House Caucus/Future Pac. I suggest trying to find that Wash. Post story on what the Colorado Democrats did right.