Re: My take on the flawed "Fair Tax" (repost)


AllYou! wrote:
> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> news:1128383824.257159.202490@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> >
> > AllYou! wrote:
> >> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> >> news:1128194469.665862.20500@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> >> >
> >> > AllYou! wrote:
> >> >> I hit the send button too early. Below is the balance of my reply.
> >> >>
> >> >>
> >> >> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> >> >> news:1128112983.294200.176250@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> >> >> >
> >> >> > AllYou! wrote:
> >> >>
> >> >> >> > You propose, I think, that in the presence of NST that employer wages
> >> >> >> > paid would change. I can't buy that. There is no reason for this.
> >> >> >> > I
> >> >> >> > do see that the amount received by employees goes up in that all
> >> >> >> > those
> >> >> >> > pesky deductions disappear. Gross is gross is gross.
> >> >> >>
> >> >> >>
> >> >> >> But the employee never sees the gross.
> >> >> >
> >> >> > Simplistically, the difference between gross and net is tax.
> >> >>
> >> >> Yes, I worded my meaning very poorly.
> >> >>
> >> >>
> >> >> > The
> >> >> > employer certainly sees the gross as an expense. And the amount of the
> >> >> > gross is independent of the net.
> >> >>
> >> >> They are inextricably linked to the other by the rate of the tax.
> >> >
> >> > Exactly - the amount of gross is independent of net. The amount of net
> >> > is related to the tax rate. With the exception of the labor market
> >> > effect, gross is independent of net - but net is not independent of
> >> > gross.
> >>
> >> Your logic is dependent upon what an arbitrary choice of starting points.
> >
> > Not really.
>
> Really.

This is getting us nowhere.

You get a raise - your net goes up but so do taxes
Taxes are cut, your net goes up, your gross stays the same.

See?

> > I look at it as a simple causal. Perhaps use of the term
> > "independent" is inappropriate in this context. Let's say that the two
> > are related and this relationship is one of association. If you took a
> > sample of paychecks in an organization and ran the correlation between
> > the gross pay and net pay you would likely see a pretty high r2.
> >
> > However, I posit that the causality is from gross to net, and not vice
> > versa. As such, a change in net (for whatever reason) will not result
> > in a change in gross.
>
> You're getting much to deeply involved in the details of the PIT to be useful to
> this debate. None of that matters.

OK - next time, I'll snip it.

> Look, I'll take a page from your book and snip everything left below but for
> different reasons than you did. Unlike you, instead of simply reasserting my
> arguments and providing nothing new, I'll take a whole new approach with you.
> In fact, just for the sake of argument with you, I'll even concede (I must
> stress that it's just for the sake of argument, though) that there may be no way
> of knowing for sure what will happen to net pay vs gross pay vs current price
> tags vs after NST costs. OK? So let's take this in stages for the sake of
> clarity.
>
> First of all, let's try to find some areas of common ground, and to simplify for
> the time being, let's just assume that the US economy is the only one in the
> world. There are no imports, no exports, and no anything else anywhere else in
> the world, OK?

Fine.

> And let's also ignore the transitional issues of switching from the NIT to the
> NST. Let's assume that it all happens instantly, and seamlessly.

OK

> The first area of common ground I think we can achieve is that numbers of
> dollars is inherently meaningless. That's to say that if everything in the
> economy was suddenly calculated at twice the number of dollars as it is now, as
> long as the relationship of everything to everything else remained as it is now,
> the change itself would be meaningless. What I'm trying to say is that what
> really matters in an economy is the relative value of everything to everything
> else, and the number of dollars can be similar to what's used in Italy where a
> dinner can cost a Gazillion lira, and it wouldn't matter. Can we agree on this?

I agree to the neutrality assumption and its inherent benefit of
population consumption possibility parity. In other words, everyone
has enough money to afford the same stuff before and after.

> Assuming that you see this to be true, then I hope that you also agree that in
> the aggregate, there's no reason the believe that the relationship between
> compensation and the cost of consumer goods would change with a switch between
> tax systems. IOW, although some employees would benefit, and others would be
> penalized (and forgetting what the actual numbers of dollars would be). in the
> aggregate, lifestyles would not change as a direct consequence of the switch.
> An employee would still be able to buy the same market basket of stuff in a NST
> world as he can in a NIT world. Agreed?

Agreed.

> Now, just so we get our terms right, and to avoid misunderstanding, let's pick a
> reference for the number of dollars we're going to use for everything. I'm not
> claiming that this is the way the switch would be administered, I'm just saying
> that for the purposes of this debate we should do so. And to do so, if the
> relative values of everything remains the same, then all we need to do is pick
> one pinpoint of linkage, and everything else falls into place.
>
> And so for the sake of argument, let's pick pay rates as that reference scale,
> and let's pick the pay of one person to make that theoretical link. Let's pick
> your pay. And furthermore, let's pick your gross pay in the NIT world. If your
> gross pay in a NIT world remains unchanged in a PIT world, and the relative
> values of everything remains unchanged, then we now have a currency scale which
> we can apply to everything. And if we had picked your after tax income for 2004
> as the reference point, we'd still have just as valid a currency scale except
> that it'd be a bit lower. And as I assume we've already agreed, the actual
> number of dollars doesn't really matter at all, so who cares, right?

OK so far - I will hold you to the first, not the second. We will, for
purposes of discussion assume that my income is Line 22 of the 1040
long form.

> The point of all of this is to say that our debate was largely moot as long as
> we keep expressing our arguments in terms of dollars. When a switch is made,
> human perceptions about the rising cost of after tax goods, or of falling
> pre-tax price tags, or of rising net incomes, or of falling gross incomes will
> determine where that currency scale is pegged.

I'm not going to agree with this without a caveat. I believe the
market will determine what currency scale is pegged and this
determination will be logistic and administrative, not perceptual. I
beleive the market will adapt to the scale that is easiest for them to
use, not the one that is best for any individual.

> Perceptions are more important
> than reality in this case,

No, I don't believe so. You cannot legislate the market at the switch
- the market will fix itself according to its own dynamic. The dynamic
is efficiency, not perception. But that's not a mathematical argument,
it is a psychological one and I don't want to go there just yet.

> and so it'll be what human nature based upon those
> perceptions will determine it will be, and there's nothing you or I can say
> about it.

No. The market adaptation will not be driven by perceptions - it will
be driven by simple economics. If the economics of supply and demand
are influenced by perception, so be it, but ultimately prices and
income levels will equilibrate on a metric that the market accepts as
economically sound. Anything else would need to be legislated.

> Personally, I believe it'll fall somewhere between current gross and
> net pays.

Personally, I think you are wrong. I firmly believe that gross income
will stay the same and prices before tax will stay exactly the same.
What should happen is that on aggregate, the NST will exactly offset
the difference between what is currently gross and net. In other words
- if your line 22 is $100K and your net after tax income is $75,000,
then the tax is 25% inclusive and you have parity.

This is the simpliest for the market to accomodate because NOTHING
changes except that at retail there is an additional collection
required and at the firm level, there is an elimination of the
collection of tax. Nothing else changes - we simply change where in
the distribution channel PITAX is collected.

> But in the end, I still maintain that ignoring that currency scale, the real
> cost of the NIT is not borne by the employee, but to the consumer, and if you're
> willing to have an honest debate about that, I'll make my case.

Excuse me - but the "employee" which given the nature of PITAX is any
income earner is the consumer - the two are identical. Under NST, the
consumer pays his tax at the cash register, and under PITAX, the
employee pays it via the 1040 long form. Just so happens, its the same
person, same tax (different calculation), same thing (because of
neutrality). That's the assumption you made at the front of this
thread.

"An employee would still be able to buy the same market basket of stuff
in a NST world as he can in a NIT world. Agreed?"

So - even in your basic underlying assumption, you equate the employee
and consumer and make him one.

Here, at the end, you differentiate them. How did this happen?
Better, why is this necessary?

js

.

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