Re: Fairtax: how does this math work out?


"Navillus" <cwsullivan@xxxxxxxxxxx> wrote in message news:1135367938.475870.101680@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
AllYou! wrote:
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.

You've said it several times, but never shown it. Show me one example.

Why should I show you an example of where the NRST is NOT perfect? What the hell is your point, anyway? If you're arguing that the NRST would impose exactly the same tax on every individual that the sales tax appears to impose now, then you're a fool to believe that, and I've given you the logic as to why that won't happen. But if it's your point that people in certain income levels will be hurt more than others, then I'm conceding that it will certainly appear that way. What else do you want?

You're the first person I've ever encountered on Usenet who makes a certain argument, but then wants his opponent to not only concede the point, but make his case for him.



Please include the embedded taxes you claim make up the difference. You
can't just say something over and over again and think that makes it
true. Show me how a family making middle class wages will be paying
more in taxes.

I can if you fail to understand it. Are you even reading my replies, or just skimming them? Pay attention now, and read very carefully.........

There are two issues at stake here. Got that? First, I'll explain my argument in terms of appearances. If you assume that incomes are actually taxed, and that it's employees who actually pay income taxes, then by the math that flows from that assumption, the rich will get a break. I'm not going to get into all the tax tables in order to get exact rates and assume certain exemptions just to let this debate deteriorate into the minutia of whether or not that math was correct for a very narrowly constructed example. In the grand scheme of things, if someone (rich) is paying 40% of their income in taxes now, and under the NRST, even if they spend all that they make, they only pay 30% sales tax, then they'll save money under the NRST.

If the poor pay nothing in income tax now (again with the caveat that you assume that incomes are actually taxed), then they still wouldn't pay anything under the NRST because of the rebate program wich exempts basic necessitties.. So, for the goverment to take in exactly the same revenue it does now, the amount which the rich save has to be made up somewhere, and if it's not the poor, then it must be the middle class.

Got all of that? However, now let's remove that assumption that there is actually an income tax and do the math on that basis, OK? This premise is based upon the fact that people don't work for a number printed on a pay stub, but rather, for what they actually get from working. IOW, if you're faced with a decision to take a promotion for more pay, but there are downsides to it like more stress, traveling, hours, effort, etc.........would you make that choice in the basis of gross pay, or net pay? Your employer would tell you the gross pay increase because he's got no way of exactly what the pay increase would mean in terms of net pay, but in the end, as you consult with yourself, or your wife, your the financial aspect of your decision as to whether to take the promotion would be made on the basis of the change in lifestyle the added pay brings to you, and you material lifestlye would be affected not by the gross pay amount, but by the net pay.

And this same concept applies to those who work overtime, or the decision for a spouse to take a job, or to take a second job, or any other career decision. IOW, we don't make our financial decisions based upon gross pay, but based upon net pay. Got it so far?

But the employer has to entice you with enough pay for you to accept that promotion. He's got to make sure that he's providing you with enough real change in income to entice you to take the promotion, and so he'll set the gross pay number high enough to assure that the net benefit to you makes it worth your while.

Now this is a very subtle process. Because we automatically and very quickly do the *rough* math in our heads, it sometimes seems as though we are making that decision based upon gross pay. If someone offers you a job at $20K more than you're making now (gross pay), then you have an intuitive idea of what that kind of raise will mean to your lifestyle. Intellectually, you know you won't be taking home $20K, but that's the number you can use relative to your current pay to get an idea of the relative difference it'll make to you.

We can go into this in greater detail if you wish, but that's the summary of it. Therefore, because the employer is stuck with paying you the gross amount, that's a cost of labor that he's got to build into his prices, and as such, all of your pay, including income taxes, is passed onto the consumer. The amount of the income tax is embedded in all goods and services we buy. As such, that's what hits the poor the hardest. It's a cruel joke to claim that the poor are exempt from taxes, when all of their money is spent on necessities, and those necessitates contain the cost of all income taxes.

This is not a simple concept, but if you want to pursue it in a seriuos way, I'll gladly do so.


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. 

I don't have any argument with the notion that the tax policy needs
reform, or pretty much anything you've said here. I just want to see
one single example of a middle wage earner paying more in taxes. I want
to see some numbers.

Why? I'm not saying it's a good thing, so why? What the hell is your point? do you not think they would? You've already shown that they would.



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. 

You seem to think that I'm completely opposed to some sort of NST
system. I'm not. I just want to prove that it can actually work.


Fine with me.


>> > 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. 

Maybe you need to reread what I wrote. I just showed that the middle
class benefits greatly from FairTax. They are not in any way adversely
affected, by the calculation I showed. If you think they are, I want to
see how. I still don't see any numbers, you're just TELLING me that it
works out the way you say it does, and I should just trust what you
say. That's cutting out.

You took one micro example, and you're extrapolating that over the entire economy. I'll summarize what I said above. If you assume that income taxes are not embedded in prices (which they are), then the rich would benefit because the NST rate is less than their income tax rate, and the poor won't pay more because they don't pay taxes under either system, and so if the government is gonna raise the same amount of money, someone has to pay more. If it's not the rich, and not the poor, you do the math. Not everyone is gonna pay less, and not everyone is gonna pay more.


>> > 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. 

Quote around the comment was to illustrate a faulty logic statement,
whether you agree that it was faulty or not. When I actually quote you,
it's with >>. But let's discuss whether or not what you're saying is
true.

Arnold makes 30 million.

Oh, God........not with the Arnold again. Did you not read what I wrote? Your math fails because you fail to take into account the amount spent which was earned in prior years!



He spends 10 million of it each year. The
government makes 2.3 million in taxes from his spendings instead of
roughly 11 million from his income tax. That's about a $8.7 million
dollar deficit for every guy like Arnold. Hundreds of men who save
their money wisely end up creating an enormous gap in the revenue
collected. The next year he does the same thing, makes 30 million more,
maybe spends 20 of it. Maybe, if we're lucky. Still running an enormous
gap. You let this go on for a decade and the system will collapse on
itself.

You take one extreme example, the not only extrapolate that to all Americans, but across a number of years, and you think you've shown something. That's nonsense. Have you understood nothing of what I wrote? Let me try this way, instead of the silly Arnold example. Look at the aggregate, for Chiss sakes. In the aggregate, Americans make X amount in income, and pay X amount in income taxes. Of the amount that's left, Y is spent, and Z is saved. But the part you're not getting, is that of the Z amount saved, it'll all be spent in subsequent years. IOW, in any given year, not only is Y spent, but W (the amount that was Z in prior years) is also spent. You keep forgetting that.

Therefore, the amount spent in any one year will be Y plus W. So, is that a problem? Well, over the long term, no. All money will eventually be spent. It has to. If it wasn't, there'd be no reason to save it. But, it's true that in any given year, Y plus W may be less than X, but all that means is that is another year, Y plus W will be more than X. Otherwise, saving would grow at exponential rates, and they do not.

Now, as the economy grows and there are simply more people in it, then a case can be made that savings over the long haul do increase. But on a per capita basis, saving may go through swings, but it's generally the same. The only way in which this is a problem will be through the transition. During the transition, the money needed to fund the lag time between when people earn the saved money and when the spend it will have to be funded.




But what you're ignoring is that even if he spends every single penny
ever single year, the gap widens anyways. Pretend he spends all 30
million. That's 6.9 million in FairTax, around 4 million short of what
he'd be paying in income taxes. Let's pretend every single millionaire
spends every single dime every single year, they are still contributing
to a larger and larger revenue gap.


And there's the math that you keep insisting I provide! You've just shown that the gap between what the rich appear to pay now and what they'll appear to pay under the NST must be closed by someone, and that will appear to be the middle class. Got it now?


>> > 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. 

I'd love to believe you, if you'd just show me an example of an average
family, their spendings, the embedded taxes they pay, and how it all
adds up. You can keep saying it until you're blue in the face and I
still won't just take your word for it.



>> 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?


I put the import tax out there as a possible explaination of how the
revenue gap I'm explaining could potentially be explained. I don't know
if it's the solution, I just thought perhaps it might be, and perhaps
you'd know about it.

I'm reading what you're saying (but not proving), I'm not buying it,
and I'll keep asking for clarification until you actually do the math,
or until you stop posting. I'm not interested in throwing insults back
and forth with you.


.

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