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PaperclipPerfector  1yr ago (text post)   37122 thread views

Culture War Roundup for the week of April 10, 2023

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Well no, because the poor effectively wouldn't get taxed (see point 3). But also, I don't really think it's a bad thing if we have a completely flat tax. It's not "regressive", it's fair. It's not a hill I would die on, but I don't think the usual arguments as to why we should tax the poor less are particularly persuasive.

But doesn't that money have to be spent at some point in order for the owner to derive benefit? It's taxed now or later. In the long run, it should be a wash.

I think you’re thinking of it like a VAT, 30% on top of what’s already asked at the register. It’s actually a replacement of existing “embedded” taxes, referring to how the consumer’s prices are already hiding the cost of the employees’ income taxes.

The 30% is adjusted out of the initial price by law during the transition year. Since companies will no longer pay employees the amount which goes to FICA and employment taxes, they’re expected to drop baseline prices and then add the tax back in. The resulting prices are equivalent, and anyone caught gouging will be fined harshly.

EDIT: Whoops! I added that last bit myself from a half-remembered statement. The actual penalty provisions of the bill are plain and limited, as you can see. What it mainly comes down to is that nobody except businesses will have to fear the tax man, and the bill deliberately makes compliance so conceptually and logistically easy that Etsy sellers and Tupperware consultants can do their own taxes.

Well thankfully I completely misremembered that part of the bill. See my reply on ToaKraka's fork above/below.

transition year

anyone caught gouging will be fined harshly

The text of the bill appears to include no such provisions. (And there's nothing wrong with "price gouging" in the first place.)

As a free-market libertarian, I generally agree on "price gouging" - the real value is what the market pays. However, there is a moral risk of a bunch of companies just raising their prices precipitously and blaming the FairTax: "It's not our fault, it's the government." Therefore, there are provisions for transition relief.

When I heard it on the radio over 15 years ago, it was phrased in terms of price gouging; it's actually found in the text of the bill in the form of an inventory tax credit to avoid double taxation (and thus avoid price gouging). Here's an article on the transition rules from the people pushing the FairTax, or hear the article read aloud in a 10-minute YouTube video. I've included the URL here ➡ with a time-stamp for the three explicit transition period rules, and pasted the relevant one below:

First, since inventory is not deductible under the income tax until it is sold, existing inventory will have been acquired with after-tax dollars. To then subject inventory held prior to the effective date of the FAIRtax to a sales tax would constitute double taxation and disrupt markets. Businesses that have inventory held on the date prior to the enactment of the FAIRtax qualify for a “transitional inventory credit” if the inventory is sold subject to the FAIRtax within a two year period. Qualified inventory shall have the cost that it had for federal income tax purposes for the active business as of the end of the final income tax year. The credit is equal to the cost of the qualified inventory times the FAIRtax rate.

To ensure that the inventory credit can follow qualified inventory through the supply chains, businesses may sell the right to receive the inventory credit. The inventory credit indirectly allows for a transitional period for manufacturing and retailing to adjust to pricing without the inclusion of income and payroll taxes, corporate taxes, and compliance costs that before the FAIRtax were a large percentage of the cost passed along to the consumer. This means being able to keep some prices the same immediately after the effective date and then change prices over time, removing the inducement to buy or sell just before the effective date.

Depends on what gets defined as "consumption" (to be fair, our current tax scheme has no shortage of problems with what gets defined as "income"). Wikipedia gives a description and the big one that jumps out at me is investments are not taxed, which makes sense, but buying companies for control over them is something the very wealthy spend their money on, which would not be taxed at all under FairTax. Lower down the economic ladder, tuition is also excluded and is something wealthier people spend a lot more money on (both college and private school). Strangely, health care is taxed under the proposal, despite it currently often coming out of pre-tax money in our current system (at least if you have an HSA). It also applies only to personal purchases, and pretending personal purchases are business purchases is already a way people evade taxes, and would continue to be so under FairTax.

On top of that, "used" goods don't get taxed and I'm not sure exactly how much of a loophole that is. I'd expect poorer people probably buy used goods more often, not sure how that shakes out, although cars are a particular big ticket item that could mean people buying new cars would be paying a lot more tax. But I'd also be worried about games getting played with the definition of "used", just like games get played with the definition of "personal" vs. "business" purchases that are technically illegal but poorly policed.

The definition is very clear in the proposed legislation: retail goods sold for the first time to a consumer, with caveats more carefully worded than a genie’s least favorite wishes.

One of the goals of the law is to ensure any goods are only taxed once, ever. After that, refurbish it and resell it if you wish. Thrift stores will pay zero in FairTax. Used cars, used homes, used skyscrapers, etc., will be zero tax at point of sale; refurbishment services get taxed, so feel free to price that into your asking price.

Yeah, it's more a question of exactly what workarounds would get invented once the tax is in place and how well the legislature adjusts to them.

For another example, if used items aren't taxed but services are, then buying a (used) plane which and hiring someone to fly it would be untaxed (erm, what is the difference between paying for a service and hiring an employee such that the former is taxed and the latter isn't, anyway?), but buying plane tickets would be taxed.

Similarly, wealthier people buy "used" houses to live in which would be untaxed while poorer people pay rent which would be taxed. I assume no individuals buy skyscrapers new or used, so they would never be taxed in whole, although the rent (or pieces of them sold to individuals as condos) would be.

I guess the idea is that the tax should be set high enough that the "used" cost prices in the tax that had to be paid when it was new, so buying something "used" you're still sorta paying the tax indirectly?

I'm not any kind of expert in business or tax evasion and I can come up with a list of ways that FairTax is far more regressive than it looks at first glance. I'm sure the experts can come up with more, which is a general problem with any attempt at a simple tax proposal; having multiple taxes makes it harder to evade all of them, which part of why we have consumption+income+property+excise taxes (there's currently no consumption tax at the federal level, but FairTax covers a similar set of transactions to state level sales taxes).

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