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


AllYou! wrote:
> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> news:1128434856.855459.226620@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> >
> > AllYou! wrote:

You do realize that a) we have two threads going and b) no one else
gives a rats ass.

> >> 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.
>
> Let's get our story straight. It's not a matter of affording, it's that
> currency is just a way of assuring a means of comparing relative values, and as
> such, the number of dollars is meaningless as long as those relationships hold.

No, it is exactly a matter of affording in that irrespective of the
income and prices, the purchase power (note - this is not the right use
of the term but I''ll do it anyway) of income before NST is maintained
after NST.

> >> 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.
>
> I don't know what line 22 is, and I don't care. It's irrelevant.

No, it is not. Line 22 is ALL of the benefit I derive from my economic
activity before Uncle Sam gets his share. If ALL of my economic
activity is wage-based, then Line 22 is my GROSS income.

> >> 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.
>
> In the end, this will be determined by economic phenomena, and economic
> phenomena is determined by human nature, not human intellect. The communists
> made the mistake of thinking otherwise. They believed that they could decided
> price levels and relative incomes and all the rest of what they believed, and
> although through sheer force of will and brutality, they were successful for a
> short while, the pressures of human nature steadily increased until the top blew
> off the lid.

I will acknowledge the existence of a perfect market for illustrative
purposes. I will not subscribe to any reason why it is perfect. I
will acknolwedge that the market demand function is a perfect composite
of each individuals preferences - I will not subscribe to any notion
that you know what drives prefernces for any purchase decision. OK
with that?

> The point is that we don't get to decide where that currency scale is pegged
> except to the extent that we can affect perceptions.

We cannot, in the absence of active involvement, alter perceptions.

> If people perceive that
> they're getting pay cuts, they'll react to that no matter what anyone says. And
> if the perceive that prices are falling, they'll react to that too. IOW, the
> transition will be messy, and where the currency scale is pegged will spring
> from that mess, and nothing anyone in Washington or anywhere else says will
> change that.

Exactly. We agree that every producer and every consumer will act in
their self interest and that self interest is economic - be it
perceptual or real. I subscribe to the notion that as an aggregate, a
market is successful in maximizing consumption utilities - its a
requirement of an efficient market - you can't leave anything on the
table.

> > 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.
>
> And I'm not talking about individuals at all. We're talking about employees in
> the collective sense, and employers the same way, and prices the same way,
> etc.........

Agreed.

> >> 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.
>
> That's exactly my point. Where did you ever get the impression that I ever said
> that the scale could be set by legislation? I'd be very interested to see how
> you possibly came to that conclusion.

OK with me as long as you agree that the switch is restricted to one
and only one intervention on the part of government - the complete
abolition of PITAX and a complete, unadulterated allocation of NST and
this happens simultaneously.

> > 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.
>
> Perception is physiological. you're trying very hard to find disagreement on a
> point upon we agree. Too bad.

Well, it isn't physiologic, but not germaine. Onward.

> >> 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.
>
> And simple economics is driven by human nature, and humans base their natural
> responses upon what they perceive to be reality.

Aggregated behavior, not individual behavior, OK? Remember, we agreed
to this assumption.

> >> 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.
>
> How terribly naive, but it's not worth arguing. Frankly, I think it's arrigant
> for anyone to claim that there's any way to predict exacly what the outcome of
> it all will be.

No - I have economics to back up my assertion. It is not arrogant at
all. It's the math.

> > 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.
>
> That's all great mathematical theory, but because it totally ignores human
> nature,

It does not ignore, however, the economics. And remember, we are in
the business of describing the economic behavior of the market, not the
purchase behavior of an individual.

> and human perception of reality, it's pretty much meaningless.

I see a fallacy coming on.

> Moreover, just the fact that you want to argue the point seems to indicate that
> you haven't fully grasped the notion that where the currency scale is pegged is
> also basically meaningless. The end result might be that the number of dollars
> applied to everything triples, or is cut to 10%, and it still wouldn't matter as
> long as the relationship of all values is preserved.

Agreed. The question that remains is how will the market, on
aggregate, react with regard to prices. Remeber, the intersection of
the supply and demand functions determines the transaction price. The
rest doesn't matter - we can argue the dissection of the causal
compnents later.

> >> 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.
>
> You're approaching this debate much too simplistically. Every person plays
> various roles in the economy, and so to say that the consumer does one thing
> while the employee does another is simply a way of saying what's happening in
> the economy at any given type of transaction. If your level of understanding of
> this concept isn't evolved enough to deal with this, then we really can't
> proceed much further. but it would've been helpful for you to say this much
> earlier in our debate.

You are headed in the direction that supposes perceptual influences on
economic decisions - you cannot have it both ways. Perceptions are not
excljusionary to roles. They are, by human necessity, inclusive.
Therefore, the perceptuions of an individual encompass all
transactional exposures. But go on...

> > 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.
>
> And I'm here to tell you that I'm ready to make the case that your conclusion is
> wrong,

Good luck!

> and that the tax occurs at the point of concumption if you're willing to
> stop the incessant simple assertions that you're right. I've explained the
> process of a logical debate, and either you get it, or you don't. Do you?

OK - let's try it this way. Assume for a moment that an individual is
required, by law, to file an income tax return every day. I get home
from work, write a check to the government for $6. My employer, that
very same day has sent to the government a check for $24 on my behalf.
I worked overtime so I came up a bit short and had to pay extra, hence
the $6.

Now, under NST here's the scenario. Instead of my employer sending the
government a check for $24, he gives it to me. Instead of me sending a
check for $6, I put it in my wallet. I go to the store. I buy a bunch
of things at Walmart and the bill comes to $100 and they add on the NST
of 23% inclusive. I pay $130.

Other than how the government collects the money, how are the two
different?

Certainly my verson meets the assumptions of NST - I get the same stuff
and the government gets the same revenue. The good part is that the
firm is 100% indifferent. There are no new transaction costs to it.
There are no changes in how it does its finances. The P&L looks
identical before and after. The only upside is that they don't have to
worrow about all the administrative bull*** that withholding and
reporting entail.

js

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