Re: Fairtax: how does this math work out?


"Navillus" <cwsullivan@xxxxxxxxxxx> wrote in message news:1135331563.799362.93310@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 
After sorting through about 80 replies that look like they were written
by 12 year olds ("No, YOURE the dumb***"), it doesn't look like anyone
has refuted my numbers. Let's go back to the only constructive reply
you've made so far:

AllYou! wrote: 
"Navillus" <cwsullivan@xxxxxxxxxxx> wrote in message
news:1134861067.233405.114150@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> I'm really confused by the Fairtax system (http://www.fairtax.org/). As
> I understand it, they want to get rid of the income tax altogether, and
> raise the sales tax on items to 23%. They then refund taxpayers up to
> the poverty level so that lower-income families don't pay very much in
> taxation at all. They argue that low income, medium income, and high
> income families will all benefit from lower taxation, while the
> government will be able to increase the revenue it brings in from
> taxation. Here's what I don't get:
>
> Let's say Arnold Schwarzenegger loses his political position, and goes
> back to making movies. Arnold made about 30 million the year before he
> ran for governor. Under the current tax system, he pays something like
> 40% of his income back to Uncle Sam:
>
> 30 million *0.4 = 12 million paid in income tax, leaving him with 18
> million for that year.
>
> Now let's pretend that there is a FairTax system in place. Arnold,
> because he is crazy from years of steroid abuse, spends EVERY SINGLE
> penny he earned, MC Hammer style:
>
> 30 million *0.23 = 6.9 million dollars paid in taxes, leaving him
> broke.

So are you claiming that under the income tax, he won't spend a dime? If you
want to compare apples to apples and that under either system he'll spend every
dime, then he's broke under either system as well. 

Nope. I'm saying that with the income tax, he owes 12 million to the
government. If he doesn't pay that income tax, but instead goes broke
by spending every single penny of that 30 million in the economy, he
would still end up contributing 5.3 million dollars less to the
government than he would under the income tax system. Simply pointing
out that there is no possible way for a Fairtrade sort of tax to
balance out what millionares owe to the government. Not apples and
oranges, not difficult to follow. I know it's hard, but let's try to
lay off the insults for just a few moments. There's plenty of other
threads for you to wage you're war on Paul (and I guess everyone else
who disagrees with you) with the 12 year old "no, youre a dumb***"
retorts.

Look, I haven't responded to you that way because you didn't me. IOW, I respond by showing the same kind of respect for others that they show me. So if you want to debate tax issues, then just stick to that and spare me the critiques on how I respond to others, OK? Otherwise, you're no better than any of the rest of them. So can the bull***.

As to your point, I answered it quite clearly, but you just don't like the answer. The answer is that it would appear that the wealthy would pay less than they do now in taxes. Also, the poor would pay less than they do now in taxes. Moreover, I agree that it would appear that those people who are somewhere in between will pay more in taxes. There's no mystery to that.

But before I get into why I say *appear*, I'll state the following:

It's also my position that if we need a wealth redistribution system, and if we need a welfare system, that none of the aspects of either of those should be woven into a revenue collection system. Rather, they should stand on their own, right out there in the open where there's no mystery, and no place for politicians to hide. If politicians believe that there should be a safety net for those who can't provide for themselves, then let them implement such a system to the extent that there's public support for it, and not hide it of have it duplicated in the tax code. Moreover, if politicians want to take money from some to give to others for no other reason than that they feel it's the right thing to do, then again, they shouldn't hide it in the tax code, but have it right out there in the open for everyone to see.

Now as to appearances, what's important to remember here is that appearances are based upon what the politicians want to be true. IOW, just because they say they're taxing income, doesn't make it true. As I've said, virtually all of us work for our net pay, not our gross pay. As such, all income taxes are really embedded in the cost of all purchases, and so the poor get hit the hardest as a percentage of their wealth, and the rich get hit the least. All the NST does is bring this out into the open.


> This is almost half of the amount of tax he would have paid last
> year with the income tax. Who makes up for this 5.1 million dollar
> deficit? The middle class? I don't know.

Yes, the middle class makes up the difference. While there's absolutely no
question that replacing all current taxes with a sales tax is not only the only
logical way to tax, but that it's a lie to think that there's really any other
kind of tax, there's also no question that the fair tax folks have overplayed
their hand in trying to imply that everyone pays less tax. But that doesn't
mean that the notion of NRST isn't a great idea. 

The middle class makes up the difference? Let's see:

Family of four making 100k per year. Using a simple income tax
calculator, we see that this family owes about 20.8k in income taxes.
Now, let's make this realistic, and assume this family saves about 5k
of their money (since we want all of our citizens to be smart,
savings-oriented individuals). This leaves them with 95k that the spend
on the economy. According to FairTax.org, the family would get a rebate
to counter the first 25.66k of spendings. This leaves them with 69.34k
of taxable spendings. The Fairtax revenue generated would then be
15.9k. So this middle-class family is short $4,900 of what their income
tax would have paid. How does this show that the middle class makes up
the difference, as you just said they will? More importantly, can you
SHOW how they will make up the difference, step by step with
calculations, instead of simply making vague statements?

Just for fun, let's make a vague statement and see how it still won't
solve the problem. Let's pretend this family somehow ends up paying 25k
in sales taxes instead of 21k in income taxes. This way they would help
solve the deficit issue, just like you said they need to. 4k extra from
each middle class family. It would only take 1,325 of these families to
cover for the 5.3 million less in taxes that Arnold pays. Let's say by
some miracle they actually pay 10k more in taxes. It still takes 530
middle income families to make up for one multi-millionare. This won't
add up. I don't even want to imagine how many middle income families it
would take to make up for the guy who made 70 million last year and
only spent 10 million of it. (Hint, it'll be between 4,000-6,000
families by my last example)

If you think my example is flawed, don't just say so and cut out. Give
us a better example, and show your work so we can verify that you're
not just making crap up.


See the above that shows that you're arguing against someone else, not me. Even if you don't buy my argument that all income taxes are embedded in the cost of all purchases, I'm still not disputing that it appears that the middle class would be the most adversely affected in terms of the revenue (tax) program, and that if politicians want to implement a wealth redistribution program, they should do so separately and honestly.

And so don't try to imply that I've ever cut and run from anything. Read before you stick your foot in your mouth.


> Let's go back to the income tax scenario, and this time let's pretend
> that Arnold has a great tax guy who ends up getting his 40% income tax
> down to 15%. Not a bad job. Arnold now pays:
>
> 30 million * 0.15 = 4.5 million dollars in taxes, leaving him with 25.5
> million.
>
> In order for Arnold to generate 4.5 million dollars with the FairTax
> system, he would have to spend:
>
> 4.5 million / 0.23 = 19.6 million dollars. This crazy man would have to
> spend about 20 of the 30 million dollars he made last year just to
> equal the amount of tax he would have paid with an amazing tax guy.

All of the money which he makes will eventually be spent, and so it'll all be
taxed. In the meantime, it's in the economy making money not only for him, but
providing capital to the economy. 

Sure, eventually, but you're still losing out on the income to the
government every year. This dodges the question by claiming "well it
will eventually work itself out". Show me some numbers, no insults.
Show me that you're not just talking crap and then running before
anyone makes you stand by your statements.

I didn't say it would eventually work itself out, so don't put quotes around comment as though I said something I didn't. Don't blame me for your inability to comprehend. What I said was that all of the money which people derive as income will eventually be taxed when it's inevitably spent, and your math ignores that point. As to the lag time that the government will incur in getting that money, there's also no doubt that the transition to an income tax will have to account for the initial lag. But if you could understand numbers, and fast forward to a time after the transition is complete, you'd see that you numbers are faulty in that in any given year, while less than 100% of all income derived in that year will be spent because some will be saved, it's also true that in that year money that was previously saved will be spent. Your numbers ignore that.

And while we could quibble over how much is saved vs. how much is spent in any given year, the fact remains that all money will eventually be spent, and so it'll all even out, except for the lag time for the initial transition. you may not like that reality, but don't tell me to ignore it simply because you don't like it. As you said, instead of simply rejecting it and cutting and running, deal with it.

> More realistically, a guy like Arnold is going to spend, what, 5-10
> MILLION dollars each year? That's only 1.15-2.3 million dollars in
> taxes!
>
> Now I'm not particularly interested in hearing about how the upper
> class is overtaxed as it is. I want to see where the beef is in this
> proposal. Where does the money come from? Let's look at another
> example:
>
> Guy makes $40,000 a year. This puts him in the 15% income tax bracket,
> if I'm not mistaken:
>
> 40,000 * 0.15 = $6,000 in taxes. In order to generate that much money
> in the FairTax system, he would have to spend:
>
> 6,000 / 0.23 = $26,100 of the $40,000 he makes.
>
> But wait!!! The Fairtax system doesn't start charging taxes until you
> spend ABOVE the poverty level! Since the average poverty level is
> around $25,000, the man would have to spend:
>
> 26,100 + 25,000 = $51,100 which is more money than he earned!

Exactly.  You've just made the case for why this guy will pay less taxes, not
more.


I've shown that it is impossible for him to balance what he would have
owed in income taxes with a FairTax system. I want to know where the
beef is. If you agree that he pays less, great, one less thing to argue
about, but show me a good example of who is paying more to make up for
it and make it a "neutral" system that's just as good as the income
system.


I've answerd that numerous times now, once right in this post.  See the above.


> Now let's pretend this same guy gets his $6,000 in income taxes cut
> down to $3,000 by his tax guy:


Let's say pigs fly. 

Pigs fly and hell freezes over before someone refutes my examples with
another family that pays enough in taxes to make up for Arnold's 5.3
million dollar gap. Hell, show me how MC Hammer can make it up by
spending retarded amounts of money (remember: he has to spend enough to
cover what HIS income tax would have been, plus extra to help cover for
the cautious spender, Arnold.)


See the above.

> 3,000 / 0.23 = $13,000 he must spend + $25,000 (poverty spending
> minimum) = $38,000 of the $40,000 he earned. So much for saving your
> nest egg!

What? You're actually running your math by showing that in order to pay the
same tax as he does now, he's got to spend more. That's one hell of a novel way
at looking at saving tax dollars. who the hell says that this guy should have
paying taxes up to a certain amount as a goal? 

Well, if the system is going to replace the income tax system, it has
to bring in at least the same amount of money. I'm showing how at every
level, low-income, middle-income, and high-income, EVERYONE is paying
less, the upper class so much so that it's creating a huge gap. Where
on Earth does the money come from to counter-balance this? Show me
numbers.


See the above.


> Here's the only thing I see going for this system, from the
> government's perspective:
>
> Let's say the guy earning $40,000 per year spends $24,300 normally. How
> did I get to this number? I'll assume an out-of-college guy who pays
> $1,200 a month in rent, $220 a month in his car payment, spends $400
> each month on food+utilities, and throws in an extra $200 a month to
> buy girlfriends presents, christmas time, etc. (yes I'm basically
> describing myself)
>
> After his $6,000 in taxes, he's left with 40 - 24.3 - 6 = $9,400 net
> for the year.
>
> Now let's pretend FairTax is in place: $40,000 - $24,300 in spending -
> zero in taxes since I didn't spend above the poverty line = $15,700 net
> for the year. So because of this wonderful system, I end up with $6,300
> more dollars in my pocket. Let's say I spend every penny of that extra
> money I've saved:
>
> 6,300 * 0.23 = $1,450 taxes to the government.
>
> So even with all this extra money, going right back into the economy (a
> good thing, I know) I still don't generate anything in taxes compared
> to what I was generating before. Same thing goes for Arnold:
>
> 30 million - 15 million spent because he's crazy - (15 million * 0.23 =
> 3.45 million in taxes)  = 11.55 million dollars net, instead of:
> 30 million - 15 million spent because he's crazy - (30 million *0.4
> income tax = 12 million in taxes) = 3 million dollars net.
>
> So the fairtax system saves arnold 11.55 - 3 = 8.55 million dollars. He
> pumps it all back into the economy:
>
> 8.55 million * 0.23 = $1.9665 taxes to the government. So Uncle Sam
> really ends up with 3 + 1.9665 = roughly $5 million from Arnold. I
> still don't see where the other 7 million dollars comes from, to make
> up for what he would have paid in income taxes.
>
> Can someone a little more tax-savvy explain how this system will in
> infact generate MORE tax revenue for the government, or just show how
> it can break even? I DO understand how it will dramatically boost the
> economy, but unless it makes us all multi-millionaires, we still won't
> be spending enough, by my math.

As I've said, there's no doubt that some people will pay more, and others less. 

Whose paying more? I'd love to see an example of someone paying
significantly more (since most people are paying significantly less).


If you would realize the reality of embedded taxes, you'd see that all but the very poor would pay a little more. But I do not for one minute dispute that if you don't believe (yet) that the math shows that the middle class would pay seem to pay more. It's a zero sum game.


But the fact that you're missing is that all taxes are embedded in the price of
goods and services now. When you work for an employer, do you work for the net
pay, or the gross pay? If you think you work for the gross pay, then you're the
lucky winner. You just won $1,000,000 in the contest I'm conducting. Send me
$1,000 with a self-addressed stamped envelope, and I'll send you your winnings.
The only thing is that as a newfound millionaire, I've decided that you're rich
enough to contribute to a cause which is near and dear to my heart. So send me
the envelope, and I'll return it with a check in the net amount of your
winnings, along with a check stub which shows your gross winnings, less the
deductions for the contribution you made. But don't let the net fool you.
After all, it's the gross amount that matters, right? 

Explain what you mean here. Everyone is paying less. The rich would be
paying WAY less. If it's made up for by import taxes, then show me how!
Show me anything that can be verified and/or argued mathematically!

Who said anything about import taxes. Why don't you spend less time on your high horse and more time actually reading what I post? 

.