In Defense of Fair Taxation
Posted by Adam Graham in : Government Spending,Idaho Conservative, The,TaxesThe Mountain Goat Report was quite outragedwith my response to Idablue regarding increasing taxes on Oil Companies. I wrote:
Every expense has is passed on to the end user. A company buys new equipment, it’s passed on to the consumer. And yes, the cost of taxes are passed onto the consumer. Anyone think the oil companies will just say, “Well, I guess we can just cut dividends to our investors”? I find it funny that liberals think Big Oil are scumbags, but that somehow there’s a possibility that a tax increase on oil companies will not be seen at the pumps.
MGR writes:
See, here’s where these ultra-conservative priorities have gone horribly wrong. This guy’s actually arguing forcorporate welfare. Pay off corporations earning billion-dollar profits with tax subsidies and hope in return for lower consumer prices; take away that government teat and well. . . . Somehow visions of wedgies and swirlies are dancing in my head.
Notice the change in language. A tax deduction for oil companies is a “tax subsidy.” I guess a lot of folks out there are getting tax subsidies for their Home Mortgage or their Student loan, though no one refers to them that way. Actual subsidies (say like what we give to farmers), I wouldn’t have a problem getting rid of. Nor would I have a problem eliminating the tax credits were it to go somewhere that would benefit the American taxpayer such as cutting the gas tax by a penny or two. Ultimately, raising federal taxes to increase the size of government (because government refuses to reduce its spending and Democrats want it to have a greater role in our lives) is not something I would ever countenance.
Gee, worship at the altar of corporate greed, much? With this logic (and I use the term loosely), why not just repeal all corporate taxes?
My thoughts exactly and yes, that’s a good idea. For those who pay only occasional attention to this blog, I strongly endorse the Fair Tax. How does the Fair Tax work?:
- It’s a National Retail Sales Tax where all goods and services are taxed once and only once (at the point of purchase.)
- All income, payroll, corporate taxes, and estate taxes are abolished.
- To insure that the poor are not hit, every American is given a prebate at the start of the month for what amounts to the poverty level of spending based on their family size.
There are three principal reasons I support the Fair Tax.
First, it will create a more transparent system. When you buy any good or service, be it a box of cereal or card, you’re not just buying that good or service. You’re paying for the compliance costs of the Corporation to pay its taxes, you’re paying the payroll taxes for all the employees of the company, and you’re paying the Corporate Income tax. This is called the Embedded tax and it accounts for on average to about 22% of the cost of everything you buy that’s made in the United States (depending on what you’re buying, your milelage may vary a few percentage points.)
So, thus $2.00 for a box of cereal could include 44 cents in embedded taxes. If you buy a $20,000 car on average $4,400 of it is embedded taxes. Embedded taxes are nice for tax and spend politicians. Because the government can raise taxes on a hated group: “Corporations” or “Rich People” anyone that we like to envy and soak and the American people think “they” (those evil other people) will actually pay the taxes, never understanding that Corporations and Rich people will get their money, by passing on their tax increase to consumers.
The second reason I support the Fair Tax and it goes back to embedded taxes as well is that our current system has created a huge trade deficit. Europeans in general have little interest in paying for our Corporate Income Taxes or the Employer Portion of our payroll taxes. Buying from China or from within Europe makes a whole lot of sense for your average European.
Mitt Romney (a non-fair tax support) explained the problem with our indirect taxation quite bluntly:
In the global economy, American products carry a very heavy load known as embedded taxes. It’s estimated that our products face about a $100 billion disadvantage around the world. Because of a WTO ruling, taxes that are embedded in Americans products cannot be refunded to exporters.
Romney says he’d fight to level the playing field for American goods and services overseas. If he intends to get that through the WTO, I have to say, “Good luck.” The WTO, a body in which America has no vote or veto power is not going to help us out or level the field. They have no incentive whatsoever to do so. (Thus why turning control over control of our trade to our competitors was a stupid idea.)
The only realistic solution is to get rid of embedded taxes ourselves and we can do that through the Fair Tax. Without our high taxes on Corporate profit, we’ll also be able to see jobs return to America. To vilify Corporations for sending jobs out of the country, while our government gives them every reason to go through their absurd tax policy is short-sighted at best.
I believe that we can either have a healthy export market that will attract jobs and investment or we can continue to embed the cost of government into goods and services to play shell games with the American people. We cannot do both.
Third point is privacy. And I’ll say briefly that often wonder about liberals who get upset because the government can find out if they placed a call to Osama bin-Laden, but have no problem handing over every aspect of their personal financial lives. Quite frankly, I would look forward to the day when it’s once again none of the government’s business where I worked, how much I earned, or what interest I paid or earned on anything.
That’s my ideal situation. No tax breaks for oil companies, no tax breaks for anyone, no games, no lies, just a pure and simple tax that shows us all the price of government.
One final matter. At the end of her piece, MGR writes:
But when Democrats talk about providing preventative health care for kids (or anyone for that matter) who may then grow up to be healthy, productive members of society . . . why, that would be out-ra-ge-ous.
Talk about family values.
I’m not against providing preventive health care to anyone. I’m all for people getting preventive health care. However, when Democrats talk about it, they never put their own money where their mouth is to as an act of charity support a community health center. What is proposed is that the government do it and the government take charge of it. That’s not the role of government, that’s the role of local communities where people care about one another. The liberal solution always end up providing the same benefit that could have provided at the community level, while adding on thick layers of government cost and bureaucracy.
So, I don’t disagree with the ends, only the wasteful, inefficient and anti-freedom means.
Comment by MountainGoat
You write: “Notice the change in language. A tax deduction for oil companies is a ‘tax subsidy.’”
Go back and read IdaBlue’s post. Here I’ll copy it for you: “The bill does increases [sic] taxes for oil companies, but it’s in the form of taking away subsidies and special tax breaks.”
Ummm, notice the word “subsidies” there. And that was the part you originally objected to! Sorry but this mistake relegates you to more swirlies and wedgies.
Comment by Adam Graham
Idablue mentions “tax breaks and subsidies.” You said Tax subsidies, which is an odd marriage between “Tax breaks” and “Subsidies.” I really addressed my response to tax breaks, which I have no problem with. And most of what goes to Oil Companies are tax breaks than pure tax subisides. If you re-read my original post, I did not respond to the subsidies statement, I quoted it, but the line I responded to was, “Higher utility bill will result only if the oil companies raise their prices even further to make up for the lost tax breaks.” My comments were totally related to the tax breaks, not to any subsidies.
However your comment totally ignores the main point and tries to claim the major thesis is defeated by a minor stylistic disagreement. While I’m somewhat annoyed, you won’t seriously address what I said, I’m sadly not surprised.
Comment by Alan
The difference between subsidies and tax breaks is essentially semantic. The process my be different, but the end result is that corporations pay less taxes.
A question: if corporations just pass along taxes and it doesn’t affect profits, by do the object to them so much? Most corporations don’t compete overseas, so the embedded tax issue doesn’t apply.
The big problem with your Fair Tax is it’s heavily regressive. You say this is taken care by gaving “every American” a prebate. Well, if everyone gets it, it doesn’t address the regressivity problem.
Another question: when it comes to paying taxes, do the support that everyone pays the same percent of their income, or the same dollar amount? If it’s the latter, then poor people are subsidizing people. How? Our system has many, many controls that cost taxpayer money but benefit primarily the rich. Example: the Securities and Exchange Commission regulates markets for the efficient raising of capital, helping those who make money from investments, not labor. Ever heard of the Iron Triangle? Same thing.
Comment by Adam Graham
A question: if corporations just pass along taxes and it doesn’t affect profits, by do the object to them so much? Most corporations don’t compete overseas, so the embedded tax issue doesn’t apply.
Because, fundamentally, it puts them further behind competitively. If you’re getting your tails kicked by the Chinese, the Japanese, and the Germans the last thing you need to do is to raise prices, putting yourself further behind.
Most corporations don’t compete overseas, so the embedded tax issue doesn’t apply.
I wouldn’t say most Corporations don’t. Certainly, quite a few Corporations do. Others don’t because they realize competition would be quite pointless, because you can’t undersell the Japanese and the Chinese. Embedded tax is undoubtedly part of trade deficit because foreign goods don’t have that problem.
The big problem with your Fair Tax is it’s heavily regressive. You say this is taken care by gaving “every American” a prebate. Well, if everyone gets it, it doesn’t address the regressivity problem.
Actually, the tax is progressive. A poor person and a rich person get the same prebate. However, the poor person will spend less money than the rich person. Bill Gates a $300 prebate is a big whoopdee-doo. Single lady working at McDonalds gets a $300 prebate and it’s something. Some poor people may even incur less total taxes than the prebate.
Also, wheras today, the rich may simply hire enough accountants to find tax shelters for them, while the middle class has no such luxury, there would be no dodge if you’re consuming goods, you’ll pay for them.
And as I said, taxing the rich and corporations to soak them, only leads to the poor paying the taxes in the end and only hiding the cost of government spending.
Actually, neither. Even under a flat tax system, the idea of everyone paying the same income is silly. I argue that everyone should own their own income until they decide to spend it in the way they choose. That’s the Fair Tax.
Alan, with all due respect, what century are you living in? The Investor class is growing thanks to 401 (k)s. I’m hardly rich (if you come by, I can show you my W2 from last year and I’d bet I’m the 2nd poorest blogger in Idaho outside of Tara Rowe), but my 401 (k) and IRA have in the neighborhood of $5-$10k invested in the stock market via Mutual Funds and that’ll greatly in coming years. My retirement and that of millions of other workers depends on honest markets and timely information.
Also, Alan, if you think you’re going to create jobs without Capital and Investment, I don’t what else can be said. The position is almost stunning in its wrong-headedness. What the old class warfare denies is that without Capital and without the possibility of gain and wealth from investment, there are no jobs, and there is no economic growth.
Comment by Alan
A regressive tax is one that affects the poor more than the rich, as a per cent of their income. Consider a rich man’s food costs versus a poor man’s. Take out dining out and just consider with it costs to nourish the adult body. Food requirements will not vary much for adults of the same body size. The poor person and the rich person will spend the same dollar amount for food, and with a flat tax, will spend the same amount for taxes. That amount will be a larger percentage of the poor person’s income. Thus regressive. Nobody disputes that the flat tax is regressive; it is why they float the prebate idea.
Everyone should own their income until they spend it, you say. The problem with this is that certain things can only be provided by government. If people can withhold contirbuting their fair share, they will be freeloading on the contributions of others. Did you drive on a road today? Stop for a traffic signal? Are you happy that we have fire departments, or would you prefer to contract for that? If the latter, you will end up spending much more than you contribute in taxes.
Finally,what was your bigger source of income? Your 401K increase, or your wages? For rich people (Paris Hilton, for example) it’s all investment income. For you, your wages. You missed my point, which was that poor people are subsidizing the rich in areas such as the SEC, for example. The rich benefit from it much more.
Comment by Adam Graham
First, you say, “The poor person and the rich person will spend the same dollar amount for food, and with a flat tax, will spend the same amount for taxes.”
Okay, I’m for the FAIR tax (National Retail Sales Tax), not the Flat Tax (The tax is a Flat Income Tax.) And this situation has already been asked and answered. Under the Fair Tax, the poor man and the rich man both get a prebate at the start of the month for the necessities of life.
In addition, the rich man spends a lot of money on things the poor man doesn’t. You ever see a poor man out buying a brand new boat? Or you ever see a poor man buying an High Definition Television? Or a poor man out buying a spa? Or a poor man out buying a 2nd Home? Or a poor man buying a blackberry? Or a poor buying a $100,000 dinner set? Or a poor man purchasing a swimming pool.
The Rich spend a lot more, so they will pay a lot more. In addition, you don’t get to be rich being stupid. Because of our loophole ridden tax code, they’re able to avoid taxes through clever accountants who find shelters that keep them from paying their fair share. Those of us in the Middle Class who couldn’t afford an accountant for our personal taxes are not so fortunate.
In addition, because of embedded taxes (which amount to an average of 22.4%) the poor man is already paying taxes and it’s just being hidden through favored liberal means which hide the cost of government from the consumer.
Everyone should own their income until they spend it, you say. The problem with this is that certain things can only be provided by government. If people can withhold contirbuting their fair share, they will be freeloading on the contributions of others.
But how many are likely to do so? You can’t buy used food or used toilet paper. People will still buy new cars. Some people will avoid some taxes through visiting thrift stores or buying stuff used off of Ebay. Yes, the fair tax would tax consumption, which means people will be a little wiser as consumers, but given that poor consumer choices lead to Mortgage defaults. And tell me, Alan, what is my fair share? And what gives you the right to decide it?
What you advocate, my friend is virtual slavery. Very simply, if the government has a pre-emptive right to a percentage of my money, determined by them, how much of my money do they control? In theory, all of it. I work for the government and I only get to keep what they allow me to. Under our current, we are creatures of the state and we only get to enjoy the fruits of our own labor to the degree that some politicians get to decide is “fair.”
Did you drive on a road today? Stop for a traffic signal?
Are you happy that we have fire departments, or would you prefer to contract for that? If the latter, you will end up spending much more than you contribute in taxes.
Are you under the impression that fire departments are paid for by the Federal Government? Its a non-sequiter in this discussion because we’re talking about federal taxes. It’s a non-sequiter in general because the Fair Tax replaces the income generated by the Income Tax entirely. So, we’re still going to have roads, and the military, and all that.
Actually, you’re showing yourself a short-term thinker. My 401 (K) provides me with no income. But in 30 years, what will be my larger source of income? Lord willing, it will be my retirement accounts, which having been managed well by the people who run the Funds and working in an honest well-run system. In the short-term, my wages are very important. In the long-term, my investments are what will allow me to have a good standard of living in retirement. (I’m not fool enough to rely on Social Security for that.)
In addition, people only get good paying jobs to earn wages if other people are willing to invest, and if there’s manipulation going on unpunished, people aren’t going to be willing to do that. It’s quaint hoo hockey that every company on the stock market is an Enron or a WorldCom. But if every company or many companies were like that, we’d have no willing investors and the economy itself would collapse without Capital.
Because of the SEC, my company is able to remain in business because investors have confidence that accurate information is being reported, and because of the SEC, I’ll be able to retire with dignity because of a tranparent and functioning system.