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PaperclipPerfector  8mo ago (text post)   2798 thread views

Small-Scale Question Sunday for September 3, 2023

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

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@DuplexFields how does the FairTax proposal work?

Epistemic status: Not DuplexFields.

(I read the Neil Boortz book over a decade ago and briefly looked at the FairTax website just now.)

In a nutshell: If we adopt the FairTax, many taxes are gone, replaced by a 23% sales tax on new products and services. Taxes that no longer exist include income and payroll. As a side effect, the IRS is abolished and the 4 million word tax code is shredded, which warms my directionally-libertarian heart.

Also, everyone gets a monthly prebate (pre-rebate). Everyone gets the same amount. Not sure what the exact figure is, but I'm fairly certain it was 4 digits It's just under $300, thanks Duplex. Basically, that's to keep the tax progressive. A poor family that spends responsibly might end up making money off of taxes due to the prebate. A mega-rich guy throwing a big-ass cocktail party pays taxes on all of it, and gets the exact same monthly prebate.

Another term for the prebate is "Universal Basic Income," now that I think of it.

Excellent recap! Thanks for taking the initiative with a clean and sound summary. The prebate was calculated at just under $300, last time I checked, which is 23% of Federal poverty-level income (the point at which someone must spend all their income in order to just survive). However, it does lay the groundwork for a potential universal basic income which can be reached by total “universal welfare” reform, the semi-libertarian idea of removing all bureaucrats from welfare decisions, and rolling their salaries into automatic universal flat welfare. I believe with current spending levels, universal flat welfare + prebate would be around $1000 a month.

One of the things I’ve recently learned has a name is tax pyramiding, where business-to-business gross-receipts taxes boost the retail prices of some products because of how many stages of production are taxed. Subtly, all products and services currently are tax pyramided by income tax.

In a nutshell: If we adopt the FairTax, many taxes are gone, replaced by a 23% sales tax on new products and services.

It's actually defined such that the tax is 23% of the total amount you pay, including tax. So if the total price is $100, $23 goes to the tax and $77 to the seller. It's more like a 30% tax.

One reason it’s calculated that way is to point out income tax is also calculated that way: a tax percent out of an amount instead of a tax on top of an amount.

Yeah. The math is a bit counterintuitive if you're used to thinking about income taxes. For example, a 100% sales tax only creates a tax wedge of 50%, and a sales tax can go over 100%. To create the 95% tax wedge that inspired the song "Taxman," you'd need a 1,900% sales tax.

So... are they planning on ignoring for example all the taxes and rules about stocks? Because those rules, sadly, are complicated and hard to get rid of for a reason, only half of which is the rich like it that way (the other half is an unfortunate truth that some of the rules actually make sense to have).

Capital gains taxes indeed would go away, allowing the hoi polloi to speculate on stocks like any rich douche, with only their money at stake. “Rules” would presumably remain in place.

It's hard not to like this tax in the current environment.

Before the current epoch, the knock on a Fair Texas was that it would encourage excess saving and reduce consumption, thereby stalling out the economy. This no longer makes sense. With a massive labor shortage that only looks to get worse over time, it makes sense to increase taxes on consumption (while decreasing them on labor).

It'll never happen because of the socialist tendencies of the powers that be, but I think the Fair Tax would a massive win.

Before the current epoch, the knock on a Fair Texas was that it would encourage excess saving and reduce consumption, thereby stalling out the economy. This no longer makes sense.

It never made sense. The income tax system discourages savings and encourages excessive present consumption at the expense of investment in future consumption. A consumption tax is neutral with respect to the trade-off between present and future consumption. It results in a ratio of present to future consumption that is appropriate, given the time preference of consumers.

In the long run, the economy is perfectly capable of adjusting to less demand for present consumption and more demand for investments. And the whole point of central banks is to make the adjustment smooth. We should not try to use an inefficient tax system to do what central banks can do efficiently.

In the long run, a tax system that encourages an excessive baseline level of present consumption will not prevent recessions, and it will result in slower growth due to less investment.

I'm inclined to agree, but wouldn't China be a counterexample?

With a lack of productive investments, excess Chinese savings were dumped into unproductive real estate speculation. This is going badly for them.

Here in the U.S., we also have a lack of productive investments. Witness the explosion in meme stocks, crypto, property values, and the price of random shit like collectible cards during the pandemic. This was exacerbated by the extreme level of excess savings during the pandemic (now being helpfully unwound by inflation). But, as you point out, the Federal Reserve can fix this.

Ultimately, we'd never know until it was tried. Odds are, it's very unlikely to be worse than our current corrupt and Byzantine system.

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