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Actually no they don't. They have a form of income tax but it is not they same as ours. They also have a type of fair tax based on what you by that ranges from 0-21% depending on the good or service. Thats what I was refering to.Originally Posted by joecoolfreak
Wrong again. Their income tax works very much like ours does. If you get paid on payroll, they tax that for income tax revenue. They just also have a VAT system, not the fair tax and nothing like it. Again, their system is nothing like what ours would be like under the Fair Tax system and therefore they provide no model similiar enough to learn whether or not it would be successful.
Try again =-)
Was it the Roman empire that fell because it taxed its people to death? I could be thinking of another empire.
http://www.unrv.com/economy/roman-taxes.php
Everything you want to know about Ireland's tax system.
http://www.revenue.ie/
It has low corporate taxes - that drives the growth. It still has income taxes on both corporations and individuals, plus a VAT. Everyone can read it. Its not the fair tax system by any means.
Obviously the billionaire would go buy the yacht in another country. To make up for things like this the government would either try to discourage international trade by raising import/export tariffs and regulations to the extreme (wait a second I thought the government was supposed to have less power under the Fairtax?), or raise the estimated 23% universal sales tax to a figure that is actually reasonable...
problem with this is, a millionaire spending 30 million on a yacht would obviously choose a company which has been building luxury yachts for years. for the price tag of 30 million, his choices are drastically narrowed. Granted he may find someone else in the world to build it, but the inconvenience of finding a provider of a luxury item such as that may deter him from going off shore. does that make sense? honestly it would probably be about as convenient as us buying an SUV from mexico to avoid paying gas guzzler tax.
Actually the most famous top of the line yacht makers like Ferretti and Azimut are Italian. Americans definitely don't mind paying for European names like Ferrari, Rolex, etc. because you cannot compare the craftsmanship, and Ferretti and Azimut are definitely also in demand in the US. You can easily find a crew to deliver your yacht anywhere in the world (wouldn't that be the best job ever, lol), the delivery costs are not even a factor when you're paying for something that expensive. It definitely costs less than 23% of $30 million!
If you look at history, the fastest way to the downfall of a country is to prevent or block international trade/globalization. We don't even need to get into that.
I like the idea of the fair tax but it just doesn't seem like it would work. Most fair tax advocates are trying to engineer something where they would get the best deal and forget that the whole point of taxation is to generate funds for the government. What if we slightly lowered (not got rid of) income/corporate/etc taxes and proportionally increased sales taxes? That would be more realistic.
You are forgetting that the maker of the worlds largest and most expensive yachts is Trinity Yachts (based out of Missouri) and have made numerous $200+ million yachts for people like Paul Allen. So I imagine if the billionaires are getting their custom yachts from a domestic producer... That says something for craftsmanship. And I don't imagine that a billionaire is just going to be sold on a pretty name like middle class Americans may. Just because its from Europe does not inherently mean craftsmanship quality is greater.
I absolutely agree with this, I never have seen a point in protectionism and I believe the more free the market the more efficient and maximized the results.If you look at history, the fastest way to the downfall of a country is to prevent or block international trade/globalization. We don't even need to get into that.
The idea is not for the "best deal". The point is our economy is a consumption based economy with an incredibly low national savings rate (hell, in '05 we had a personal savings rate of 1%... even in this crisis we are still considered being at a high savings rate when it hasn't hit double digits, or even close to double digits for that matter at a measley 5%.... Japan saves 25-30% in the good years ffs). I'm not an advocate that is saying fair tax is best for everyone but you have to admit the greater American population spends outside their income level and that has been an issue for decades. Instead of taxing productivity, the concept is to tax consumption. While it may deter a small bit of consumption, it simultaneously increases income. Thus if you consider the spending I don't believe it will generate less revenue for the government but without empirical study, we really won't know if it will or not.I like the idea of the fair tax but it just doesn't seem like it would work. Most fair tax advocates are trying to engineer something where they would get the best deal and forget that the whole point of taxation is to generate funds for the government.
Theory supports the fair tax in our economy over that of a traditional income tax. (solow growth model to be precise.... ill upload scan in a sec)
I see this being a more realistic compromise if whenever we see a red congress again (2012?).What if we slightly lowered (not got rid of) income/corporate/etc taxes and proportionally increased sales taxes? That would be more realistic.
Last edited by Verik; 09-15-2009 at 06:25 PM.
Excuse piss poor hand writing but here is an example using solow growth. A few assumptions are made, one that the average income tax paid is around 20% for an individual. Granted I know this varies dramatically but it is this for simplicity (iirc someone making 80k a year pays est 21.5% in federal income taxes).
Just to break down the solow growth model for you guys.
Use the 100 as the base (meaning 100% after income tax) of modern day income/worker (y). F(k) represents the function of income to capital. We also know that Y (GDP) is = AF(K,L), a function of capitol and labor. Thus little y (income/worker) can also be a direct reflection of GDP (increase in both y and k results in an increased GDP). The straight line below shows the depreciation rate (held constant), and the small curved line is the personal savings rate (sy). S = savings. C = consumption. k = capital per worker.
Estimating that the increase in sales tax would deter more spending, but even if we saw an overall doubling in the average personal savings level (sustained average for national savings has been about 2.5%. 5% is considered "crisis level saving"... aka right now) we would still see not only an increase in income but an overall increase in consumption. There would be an overall increase in consumption, investment and savings. We all know from basic econ principles that increased consumption and increased savings (national savings = national investment) means higher GDP. More spending means more jobs (means we are closer to the production possibilities frontier curve, rather than inside it where we are now... even with the stimulus). It also demonstrates even with the increase in savings (and thus non taxed income) we see a slight decrease in tax revenue (this doesnt take into account cost savings of the IRS and its bureaucratic costs)
From here we can only assume but we will see net exports going up meaning that GDP will not increase by the full +21.46 that we see in the model but we also can assume that consumer habits take more than just increase in income to change (in terms of preferences). Thus, plv, it seems that Fair Tax stimulates international trade....
Last edited by Verik; 09-15-2009 at 06:24 PM.
Well those numbers look a lot better than I expected, but you're saying that consumption would rise 20% (yes I get that people are also getting 25% more money). IMO the savings rate would be much much higher and consumption would decline a lot more than that under the fair tax. Doubling the savings rate is not very significant because the savings rate was tiny to begin with. You should have started with a big cut in consumption and went from there IMO.
When income taxes are raised, we can do absolutely nothing about it, so we don't do anything to change our normal habits. Sales tax on the other hand has a much bigger psychological impact, and gives the consumer the choice on what to do. Basically I think that the very fundamentals of American society, that of being a consumer-based economy, could possibly change into Americans saving a lot more. You cannot expect people to not change their habits when you change the rules of the game. Saving is a good thing, the point is I still don't think the 23% figure is realistic.
About the effects of the fair tax on international trade, its kinda complicated, I gotta think a little more about it lol.
I disagree. When given money, the first reaction of American's is to spend it. The saving's rate is far more culturally based than you are implying. Japan spent out the ass in govt stimulus during the 90's trying to get people to spend and even though they knew it would help the economy, consumers had higher savings rates than ever.
It's huge actually. Psychologically speaking, 5% we are at right now is big, but its enough that the government wants to spend a trillion to get people spending again (and NOT saving this much).Doubling the savings rate is not very significant because the savings rate was tiny to begin with.
Even with 10% cut in consumption you are getting 25.875 on T (a total change of ~5).You should have started with a big cut in consumption and went from there IMO.
But if you think that would occur I really disagree. With S at 12.5, there be a huge change. I'll make another graph to explain... the IS-LM curve is a pain in the ass to explain in words.
You can't invest (i.e. "save) more? Psychologically I agree the tax is different. But I disagree that when taxes are changed your behavior doesn't change. Granted there is little empirical evidence for this because the changes are so minute that it wouldn't be changing your overall income level by any drastic amount.When income taxes are raised, we can do absolutely nothing about it, so we don't do anything to change our normal habits. Sales tax on the other hand has a much bigger psychological impact, and gives the consumer the choice on what to do.
A 10 year depression in Japan couldn't change their fundamentals of their economy. What do you base the US changing into a saving heavy economy on? Even in times of depression our savings rates have stayed relatively low (maxing out in the 70's at close to 13% but that was also during a time when the federal funds rate was 10-15%. Japan has averaged 15% savings and has spiked in the 1990's even against economic wisdom and available stimulus).Basically I think that the very fundamentals of American society, that of being a consumer-based economy, could possibly change into Americans saving a lot more.
Savings increasing opens up a whole new ball park... brb. Especially if we are talking about American's who have lived their whole live accustomed to spending xx% and saving only x%, when given higher income they will rationalize the sales tax and continue to spending in their "comfort" % of their income.You cannot expect people to not change their habits when you change the rules of the game. Saving is a good thing, the point is I still don't think the 23% figure is realistic.
Last edited by Verik; 09-15-2009 at 08:33 PM.
Thats true.
A total change of ~5 is equal to ~20% less tax revenue coming in. So you would have to change the fair tax rate to ~27.5% instead of 23% to get the same tax revenue, assuming C and S stay the same with this new tax rate (which they wouldn't).
I could save more as it is, but the fair tax would be a huge incentive to do it, IMO.
I base it on that huge sales tax scaring the life out of people, psychologically.
I don't think the analogy with Japan is good in this case because it is the opposite situation, which is very different. Like, it's a lot harder to get a conservative person to do something very risky than to get a risk-taker to act more conservatively, if that makes any sense. But you might be right, Americans do spend more when they get raises.
scanning plenty of fun stuff to look at now. should solve your thought process for capital flows and NX
These first two are simply showing how we come up with the IS-LM curve. The increase and decreases are simply for reference (not fair tax example)
So at the bottom (after deriving the curve) we know that Fair Tax (as stated above by the solow growth model) would actually decrease tax revenue at the 23% level of sales tax and no income tax. Granted I left out cost cutting on the government because thats a whole nother issue (even if we eliminated the IRS... it only costs about $10 billion per year in cost to the US government). So we know the LM curve is only effected by Monetary policy changes and the IS curve will shift for fiscal policy changes. Yes I know I am making the assumption that taxes are taxes but it affects the IS curve regardless (IS curve represents the goods market equilibrium). So with a decrease of taxes (-5 as we spoke about earlier) the IS curve will shift out by ΔT(MPC/[1-MPC]). This new IS-LM equilibrium increases Income as well as raises interest rates.
So now we know what will happen with r and Y. We can move on to the more relevant markets of CF and NX. When Net CF is positive it means that we are investing abroad. When it is negative, it means they are investing in domestic firms. Simple, higher domestic interest rates will cause domestic firms to borrow from abroad (for investment) due to lower interest rates over there. Likewise, the lower our interest rates, the more attractive it is for us to lend to foreign economies. However this explanation can change depending on real exchange rates and domestic investment (higher r does not always mean capital flows going abroad... only if you hold CF constant... but we can't because increased income levels will affect available capital)
Now all 3 of these correlate. Finally we apply in the very bottom what we already know from above. Y will increase, r will increase and savings will increase. We start with the Loanable funds market. Generally speaking, because of crowding out effect of a larger government deficit we will see less than a 3.75% increase in S but S will increase none the less. S increases along with an increase in R, the only way for a new equilibrium to be met is a shift in capital flows due to more overall capital available in the economy (increase in income). We hold I(r) constant because the only thing that will change demand in investment will be government tax stimulus or technological innovation. We see the shift in CF from CF1 to CF2 and the new equilibrium says that more capital is being lent abroad (the balance has shifted towards more capital of outflow than previous equilibrium). We also relate this directly to the market for foreign exchange and see that the outflow of capital translates into a lower real exchange rate and an increase (more positive) trade balance (Exports-Imports is becoming less negative or more positive).
In the end through all this we have established Fair Tax will increase our overall GDP and stimulate significant growth, all the mean while lowering tax revenue. This poses the same problem we are facing now with an ever increasing national debt. Granted it wouldn't be a trillion dollar increase to the deficit but it would be simliar to what was estimated above (20% decrease in tax revenue. annual average tax revenue now ~= 2 trillion dollars) so we'd see an increase of ~400 billion in our national defecit. IMO this is a trade off. I believe the increases in GDP would be more valuable to our economy than restraining from the debt, not to mention establishing a solid growth rate will ALLOW us to pay off our national debt in the future.... leaving things as they are now, our national debt is going to run this country's economy down the shitter before we leave the workforce.... Our country will have to resort to one (or all) of the three, increased taxes or printing money or cutting costs......... none of which has outcomes the public likes. My suggestion, create a system that feasibly eats down our deficit and prevent it from becoming an enormously large unpayable burden on our children.
Last edited by Verik; 09-16-2009 at 12:34 AM.
Damn dude you didnt have to write all that, lol. I thought you were a finance major, not econ haha. But it does make sense on paper, I think I'm going to read the book on the fair tax to see what else it addresses. What they do with the tax revenues is a whole different issue though, we definitely need a reform on that too.
business econ/finance majors. honestly i dont quite see the capabilities of the Fair Tax to generate more tax revenues.... possibly in the long run because it will stimulate a larger growth rate, thus greater GDP/capita, thus more tax revenue is collected is a shorter period of time. That's about the only argument that could plausibly defend fair tax revenues as being larger than a traditional income tax. None the less, the simple answer to -3.74 or w/e to G, is cut spending by equal amount (hell... even more... we already have a large enough national debt. Do you think its about time we start paying on it?).
Yes right now they basically just ignore it.
this will never pass. makes to much sense.
Think about this guys:
payroll deductions avg 26-28% per paycheck
--- ADD to this the fact that every time you go to the store you pay a sales tax of 6-9% per dollar you spend
this adds up to about 32-45% tax you pay just on going to work and buy the necessities in life you need to survive .
Now add in the tax that you pay on your property ( home, land, etc.) and the taxes you pay at the end of the year if you made any money cause you kept money in the bank ( CDs, stock, bonds, money markets, etc.)
THINK OF ALL THE MONEY YOU WOULD SAVE AND HOW FAST THE NATIONAL DEBT WOULD SHRINK MAYBE EVEN BE GONE IN OUR KIDS LIFETIME!!!!
Now there are aboput 10-20 million illegals who dont pay ANY INCOME TAX all they pay is sales tax when they purchase things everyday.
these people are paying only 6-9% of there income while natural citzens and legals pay approx 32-45% maybe more of their income . think of the money you would save and how the quality of life for the greatest country on Earth would be here.
Just some food for thought guys !!
INSERT SIG HERE>>>____________________________
your a fucking idiot who didnt read any of my post did you?
PLV
Without pointing out any individual posts, you are missing one significant thing in your arguments. You keep saying that things will cost 23% more than they do now, and that is wrong. Things will cost an average of 1% more than they do now. The 23% rate takes into account the taxes paid by the manufacturers. It is estimated that the free market will push the prices of goods and services down to the same profit margins they are now, and that may even drop the prices of most goods.
feel free to demonstrate and quantify the theory you just explained. "i think this will happen" is not a convincing argument to say the least.
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