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


AllYou! wrote:
> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> news:1128525415.703752.197210@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> >
> > AllYou! wrote:

snipped

> > But again - iit DOES NOT MATTER!
>
> sure it does.
>
> > Answer the question. Post NST, what happens to prices and wages.
>
> The relationship between the two remains as is.

Yes, that it does. For every dollar in tax not collected under PITAX a
dollar of consumption tax is collected. That's the wonder of revenue
neutrality.

> As to the irrelevance of where
> the currency scale is pegged, I'm not as arrogant as you and so all I can do is
> guess, but as I've said, I'll guess somewhere between the current net and gross
> levels. But as you said, IT DOESN'T MATTER.

What doesn't matter is what the current PITAX assumptions are. What
does matter is the effect changing to NST has on REAL prices - not
perceptual wages and prices.

In the great scheme of things, the ultimate pegging has no meaning
EXCEPT in how you have to administer the program. And that is what SWD
finally learned (but you still disagree on?)

If you are willing to treat different assets differently, so be it, but
you cannot assert that consumers are indifferent to this different
treatment.

Here's why and it ultimately is the crux of the argument...the argument
you MUST win to make your assertion that previously taxed carryover
income has inconsequential effects to the holder of such income when it
transitions to NST. And an argment if you do win, makes previously
untaxed non-wage income a windfall profit. And under the conditions of
neutrality, if there is a profit, then there is an offsetting loss.

The proposals are:

If transaction prices in the market after NST are unchanged and net
wages remain the same, then wage income retains it purchase power. If
prices in the market go up an equivalent amount of the tax and wages go
up to the Gross wage level, the same holds. And, most interestingly,
in between, as you point out is the likely scenario, wages go up some
amount and prices go up an equivalent amount. In the end, we have
wage-based purchase power parity. No matter what happens, there is
wage-based purchase power parity.

My proposal is that the immediate effect of NST is that all market
prices will adjust from current prices to current plus tax and all
wages will adjust from net to Gross Wages - holding wage-based purchase
power parity constant.

You propose the opposite - that transaction prices stay the same and
wages are set at net. You support this by saying that because the
benefit of PITAX elimination accrues to the firm (no more payments to
the government of "withholding") and the firm, through competitive
pressures, will reduce prices to offset the new tax on consumption.

I argue my point by stating that PITAX is not a cost to the firm but
rather to the employee and as such, changing the locus of collection
shifts the tax differently. The employee benefits by getting more
dollars but it is offset by the same things costing more money. Again,
wage-based purchase power parity is established.

And regardless of which scenario plays out, we both agree - wage-based
purchase power parity is maintained.

Now for the transaction examples - if transaction prices in the market
remains the same (a pound of hamburger is $2.99 before and $2.30 plus
tax of 69 cents after) the purchase power of NON-WAGE income that has
already been subject to tax remains the same. My $2.99 in the bank
that I already paid income tax on eons ago still buys me a pound of
hamburger.

On the other hand, the $2.99 of unrealized but just as (potentially)
real income - a 401K distribution perhaps - I have buys me a pound of
hamburger under NST. It would NOT have bought me that same pound under
PITAX because the net from the liquidation of the asset would have been
subject to income tax. Ooops. Seems under YOUR assumptions, untaxed
income gets a windfall when consumed.

Now for the counterveiling example - if transaction prices in the
market increase by the exact cost of the tax, that $2.99 pound of meat
still costs the producer $2.99 to bring to market but now has a tax of
90 cents for a transaction price of $3.89. Now, if you have an $2.99
AFTER-TAX non-wage income (an asset like a savings account perhaps?)
that you convert to consumption, under the old system you get a pound
of meat. Under NST, in the absence of an adjustment, you don't - you
get just over 12 ounces - seems you'll need to go on a diet. If you
used before tax assets, you come out equal in that the PITAX and NST
are perfectly offset.

Under the AllYou "middle of the road" example, both scenarios result
though the magnitude of each is tempered by the offset of the other.
All non-wage income under your scenario has a marginal but REAL
purchase power change. At the end of the day under neutrality, it
needs to wash of course. The market will have a challenge doing this
because of its complexity and its lack of control of the NST set point,
unfortunately. There is no market mechanism that can accomodate this
"middle of the road" result.

And that is why waht happens in response to NST makes a difference and
that is why I believe that a Gross wage cost plus tax scenario with an
after-tax income tax rebate clause is the result that would be the
simpliest economically and the simpliest administratively - and hence
the market and the government would do it exactly that way.

No need to argue perceptions. No need to argue feelings. Markets
strive to maximize utility and markets inherently, when left to their
own devices, move to simplicity.

This is the exquisite solution. And the amazing part about it, no
matter what you argued previously, it doesn't matter, it simply doesn't
matter, because at the end of the day, the market doesn't care what you
think.

js

.

Relevant Pages

  • Re: My take on the flawed "Fair Tax" (repost)
    ... >>> scenarios of price post NST. ... >>> that all income should be attacked equally. ... >> paying the tax, ... This is what I said> has to happen - the relationship between ALL income and all prices will> reman the same. ...
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  • Re: My take on the flawed "Fair Tax" (repost)
    ... And I showed you that in all cases, non-wage income is impacted, and in two cases, after-tax non-wage income is negatively impacted resulting in the need to accomodate the transition with a credit of some sort IF one subscribes to the notion that all income should be attacked equally. ... because either in a PIT or NST world, all existing equity would be subject to paying the tax, no accommodation need be made. ... >>> are reduced to the level of current Net wages and thus prices before ...
    (misc.taxes)
  • Re: My take on the flawed "Fair Tax" (repost)
    ... >> perceptual wages and prices. ... >> income has inconsequential effects to the holder of such income when it ... >> wages remain the same, then wage income retains it purchase power. ... >> prices in the market go up an equivalent amount of the tax and wages go ...
    (misc.taxes)
  • Re: My take on the flawed "Fair Tax" (repost)
    ... Real prices as defined by real values, ... > income has inconsequential effects to the holder of such income when it ... > wages remain the same, then wage income retains it purchase power. ... > prices in the market go up an equivalent amount of the tax and wages go ...
    (misc.taxes)
  • Re: My take on the flawed "Fair Tax" (repost)
    ... >> so-called after-tax equity because they'll be paying the tax anyway. ... > scenarios of price post NST. ... > OK - you said prices go up and wages go up, ... to the purchase power parity of how non-wage income is impacted. ...
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