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PaperclipPerfector  3mo ago (text post)   23731 thread views

Culture War Roundup for the week of June 17, 2024

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Thomas rejects the consequentialism of the majority in their mentioning the large amount of tax revenue that would be lost.

My main man comes through again! “Collectivists hate this one weird trick.”

I’d love a thorough unpacking of his opinion in this case. Where might I find it without having to sign up for something?

Well, you can just read it, as it's only thirty pages or so, and those are pages with large margins. I linked it at the start of the comment, but here it is again. It's the last one.

I imagine scotusblog has also summarized the case, but that would be something like the length I had, not an in depth analysis.

I just noticed your flair is relevant. How does the fairtax proposal work?

Thanks for the PDF! Here's a summary of the FairTax proposal.

America's current income tax system is a vast and arcane compromise between taxing economic activity to pay for necessary services which enable that activity and finding unescapable means of confiscating the wealth of those who can most afford to see it gone in order to help those without the opportunities the rich have had. Thus, it ends up

By being produced in a jurisdiction in which income is taxed, every product and service has some dollar amount built into its price which ends up in the hands of the government, that is, in the hands of the well-pensioned union of taxmen of the IRS. The hamburger I purchased today cost me $11 of my own post-tax income, and some 20-30% of that $11 is "embedded taxes":

  • some of that went to the cook, whose income is taxed
  • some of that went to the cashier, whose income is taxed
  • some of that went to the owner, whose income is taxed
  • some of that went to the foodservice wholesaler's truckers, warehousemen, and owners, whose incomes are taxed
  • some of that went to the farmers who grew the wheat, lettuce, tomato, onion, cucumber for pickle, soybeans for mayo, and the rancher whose cow I ate, all of whose incomes are taxed
  • et cetera throughout the supply chain

Each of these individuals is at risk of underpaying the government, at which point men with guns will come to their homes and take them to a holding cell.

Imagine if, instead of having three hundred million potential tax cheats to monitor and prosecute, the government revenue service only had some two to ten million, all of them business owners and accountants and none of them laborers.

Imagine all IRS agents going into retirement and the Sixteenth Amendment riding off into the sunset, never to be seen again, all replaced by an automatic and easy-to-comprehend tax system which is the fairest ever devised by men.

Imagine if you paid the same amount for goods and services, paid the "embedded taxes" you were already paying for, but no money came out of your payroll for taxes.

Imagine never being at risk of tax fraud, not even for investments or selling your own property.

Imagine getting a monthly tax refund of 100% of the taxes you've paid the government.

The FairTax proposal has six moving parts:

  1. FICA payroll tax would be replaced by a point of sale tax: 23% of what you pay for services and new goods at retail would go directly to the government. (Some people say it's 30% on top of the price, but that's just the exclusive/inclusive viewpoint shift.) Price-gouging would be investigated and prosecuted, because the goal here is for prices to remain the same across the board as the government swaps one entire tax system for another.
  2. Your payroll wage amount would suffer a one-time drop to what it is after tax withholding. For example, if you make $15/hr. but take home $12.50/hr after taxes, your new wage is $12.50, of which you keep every dime. If you make $79k/yr but only take home $54k, you now make $54k/yr.
  3. Investment taxes would be a thing of the past. Anyone, no matter how poor, could gamble in the stock market without having to track the money for the government.
  4. Wholesale supply chain purchases would not be subject to the 23% FairTax, thus avoiding creating an advantage for vertically integrated companies. This however does not include business-to-business purchases between suppliers and vendors!
  5. Used goods would not be subject to the 23% FairTax, thus encouraging refurbishment and reuse instead of disposal, and avoiding taxing estate sales, yard sales, used goods auctions, and thrift stores. This includes used buildings, even skyscrapers and stadiums. Once it's been purchased taxed, it'll never be taxed again.
  6. Any adult who registers for the pre-calculated rebate ("prebate") gets around $250-$300/mo. by direct deposit, and a lower amount per dependent child. This covers 100% of the FairTax embedded into the goods and services of someone living at the Federal poverty level, paying all they earn for their daily needs which are assumed to be all services or new goods, and thus FairTaxed.

The last part, the prebate, is what keeps this consumption tax from being regressive. The middle class buy more due to a more expansive lifestyle, and the investment class buy a huge amount more; they'll pay a lot more to the government than $300 each month, but both get the same flat $250-$300/mo. prebate. The 1% of the 1% might not even bother registering for such a relatively miniscule rebate, and the government gets to keep it. Meanwhile, it would be a source of direct income to the homeless and indigent, who could sign up for a bank account with their FairTax registration and direct deposit.

There are lots of arguments against the FairTax, but most of them are based on misunderstandings of one of the six moving parts above. I've collected exactly three cogent arguments against, which is a lot less than any other system, even Georgism.

(On a slight tangent, excluding groceries from sales taxes is surprisingly regressive.)

One thing that comes to mind is that is would distort the allocation of labor towards less productive activities that were exempt from tax (such as repair of an existing house) as compared to one that was subject to tax (such as building a new house).

The services of the contractor repairing the old house would be FairTaxed, as would services on old cars, tailoring of old clothes, and tenant remodeling for business suites in old business buildings. It’s only tax-free if you buy the thing and repair it yourself.

Also, why would repaired items be considered less productive? They use less resources to be restored to the same utility as a new thing. Unless you’re talking GDP-style metrics?

How could that work? You said resold items are exempt.

I can sell my house to the plumber tax free, he can work on it (of course, paying FairTax on everything he buys from HomeDepot) and then sell it back to me for more, again, no tax. The difference in price minus the difference in supplies he purchased is the value-add from his skilled labor, which is untaxed.

[Repaired items] use less resources to be restored to the same utility as a new thing

They do use less resources, but they use much more labor per unit output because they don't have nearly the economies of scale. Or if you prefer more formally, labor is a kind of resource which is in a substitute relationship with physical resources.

This is not to say that repairing is bad! In many cases it makes sense, it's only that the tax system shouldn't have such a strong preference because it's distorting.

First off restoring old things can be less productive than new things. They have components that don’t fit with new standards and working around them would be low productivity. Also factories are just more productive than one off jobs. So it’s not just GDP-style metrics.

Second, you would have a whole issue dealing with what’s new and what’s old. In an extreme example say your building a 70-story condo building and replacing an old bodega. Is it new or old if you build the new connecting and on top of the old? So you say that’s obvious new and that is maybe easy to define but you would have a huge scale of nuances to figure out the line. Which in other areas we deal with but there is going to be a gamification line.

My thoughts and concerns on the points:

  1. I'm definitely opposed to the ban on "price gouging". It's important that we have free markets, and prices fluctuate accordingly. If you don't you'll end up with surpluses or shortages.
  2. I hope this voluntary on the part of the companies, and by the hand of the market, not mandated by law. I'm not a fan of instituting price controls, as said above.
  3. Great.
  4. Alright. (Is this like a VAT?)
  5. Fair enough—I do wonder about ship-of-Theseus-ing, and whether that would ever end up being viable to make "used" goods. But I don't imagine that that's likely to be too much of a problem.
  6. Sure. I certainly don't expect the rich to skip it—they're often rich in part because they're conscientious about money, or they have someone to help manage their finances, but sure, a UBI.

Alright, some overall thoughts. The main thing here seems to be a shift of everything to a sales tax on the selling of new goods. This is distortionary, but I don't know that I mind lowering consumption? I would want to know how you'd handle imports of foreign goods. Also, to be clear, would this be packaged with a lowering of the welfare state more generally? How much would the markets move to accommodate the new tax structure, and how would that affect the revenue raised? I'd probably want to look up what economists think before having any definite opinion on this.

A national sales tax, fair tax, VAT whatever you want to call it seems economically more efficient.

I am not sure if it would lower consumption or not.

The big issue with it is it’s impossible to swap systems. I guess you could do it gradually but that probably just ends up being the government gets more revenue and spends it. Older people who paid income tax on savings get hurt with a new tax on consumption.

A lot of it feels like our roads system. Since we built everything for cars it’s difficult to swap back to trains and walkable. We can debate which is better but we have everything designed for cars now. If America got nuked, we did post-apocalypse for a few decades and then we’re back in growth mode we might choose different design routes.

But since system switch is hard it leaves these tax ideas mostly to the academics.

I'm confused about (2). Different people in different situations are subject to different degrees of withholding, many of which concern protected class information. How then would the business offer the right wage, while maintaining privacy?

I'm also confused about stock stuff. Currently we have a hard to understand regime, but one built on some core and logical principles, like how realized and unrealized gains work, and related to how stock and passive incomes aren't the same as wage incomes. I'm not really sure how this system addresses these tensions, if at all. Is rent/housing considered a sale or service? The retail paradigm does not capture all significant financial transactions.

How does this differ from VAT tax approaches favored in the EU? Isn't this basically the same idea, implemented in a more confusing way?

And finally, couldn't this be classified as just a super-duper sales tax? If we swap our tax reliance from recurring revenue sources to one based almost exclusively on economic activity, wouldn't economic downturns be devastating, and create huge problems in how government services are provided?

Don't feel the need to respond to each or any of these, but I am curious.

I think federal taxation is already almost exclusively on economic activity? It only really uses indirect taxes (See what I'd written on Moore v. United States). That's different from the states, though.

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