Comments on FiveThirtyEight: Politics Done Right: On The Importance of the Middle Class: Lessons of ...

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2009-10-02T04:43:05.168-04:00

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2009-04-16T01:54:00.000-04:00

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2009-03-31T02:29:00.000-04:00

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2009-03-28T05:22:00.000-04:00

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2009-03-07T04:03:00.000-05:00

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2009-01-16T05:01:00.000-05:00

@ Beating:I agree that this series should be both ...

2009-01-01T17:08:00.000-05:00

@ Beating:

I agree that this series should be both more frequent and produced more rapidly.

There are, of course, other national surveys that capture economic behavior and attitudes on a more frequent basis, such as the monthly Current Population Survey (conducted by the Census Bureau and the Bureau of Labor Statistics) and the consumer sentiment surveys by the University of Michigan and the Conference Board as well as the Panel Survey of Income Dynamics (PSID) and regular updates on employment/unemployment. So we don't have to rely just on the Fed to get good information about the economic situation at the individual-family level.

Really interesting, useful post, Nate.FWIW, does a...

2009-01-01T16:10:00.000-05:00

Really interesting, useful post, Nate.

FWIW, does anyone else find it slightly outrageous that this unique, crucial data set (The Fed's Survey of Consumer Finances) is conducted only on a triennial basis?

2004 financial data are arguably more relevant/indicative now than 1927 data would gave been in early 1932 -- but hardly what we need for steering the incoming Adminstration's macroecomic and fiscal policy.

The Fed's website proudly states that processing of the 2007 data is now "underway" -- kudos for that!

It goes on to say that they'll publish an article with some 2007 wave 'highlights' in "the first quarter of 2009".

Terrific. I'm in the polling biz myself (if you'll foregive that oxymoron), and we routinely have to simultaneously process data from nationwide samples of the general public in scores of countries (this year, > 120 countries).

Typical time from end of field for an hour-long, in-home, general public survey to final clean data availability: about three weeks (if done by phone, as some are, far faster).

Note to Fed: how 'bout printing a few more bucks and dedicating them to data processing, and/or effort, and/or some caffeine?

"Orthogonal." What a great word for us non-statist...

2008-12-31T23:15:00.000-05:00

"Orthogonal." What a great word for us non-statisticians.

"Extraneous, not pertinent to the matter under consideration; statistically unrelated;
having a set of mutually perpendicular axes, meeting at right angles."

So why add the extra step of looking up which cate...

2008-12-31T22:12:00.000-05:00

So why add the extra step of looking up which category you belong in.

Because it creates what I and many other people believe is most equitable: trying to equalize the subjective burden of paying for the government services we say we want.

There is a marginal value to money. The more you already have, the less each additional dollar is worth. And the less you have, the more each dollar is worth and the greater the burden of paying a portion of it for taxes.

Take someone making $20,000 and someone making $200,000 a year. Give them both a $1,000 raise and tax the additional income at $20%. Is it a greater burden for the lower income earner to pay that $200 or the higher income earner? If it's harder for the lower income earner to do so, can we say that the tax burden is fairly shared? That's not my notion of fairness.

I think we're more than splitting hairs. I think we have very different notions of what constitutes an equitable distribution of the tax burden. We also may have very different assumptions of the effect of different tax schemes on behavior (again, I didn't see anyone avoiding hard work to get into upper income brackets during the Clinton administration when the top income tax rate was higher than it is now).

In any case, we don't want simplicity for simplicity's sake. The question is whether any added complexity is worth the outcome it produces. I could propose a system even simpler than your flat tax: one with no exemption (or, as I call it, a tier at a 0% rate) at all. Or we could just have a head tax and charge people the same amount; that's even simpler than figuring out your AGI and taking some percentage. But few people would consider it fair, and most would be willing to endure the minor complexity to achieve what they feel is a better outcome.

Moreover, given the innumeracy of most people, they'd have to look up how much they owe in a chart even with a flat tax. So looking it up in a chart that uses a progressive system would actually add no complexity.

I think you need to check your data.That idea 12% ...

2008-12-31T15:16:00.000-05:00

I think you need to check your data.

That idea 12% of the total assets of the bottom 20% bucket comes from "business equity" is highly dubious. What kind of "business" equity are we talking about that is controlled by the bottom 20%?

According to the actual data, which I went ahead and downloaded. There are 3813 households that fall into the bottom 20% bucket (ASSETCAT = 1). Of those, 3798 have 0 business assets (BUS). The 15 that do have business assets have values that range from 5970 to 1300. Moreover, if you look at those 16, it is patently obvious that these data are suspect. What are the odds that 5 of these would all have the same exact AGE of head of household (32), the same exact ASSET [tot. assets] ($1300) and the same exact bus assets [$1300]. In fact, if you look at the other data for these 15, it is patently obviously that the data is fabricated. Sort by assetcat ascending, and BUS descending and then look at AGE, ASSET, BUS, CCBAL, and DEBT.

Moreover, those 15 have negative networth!

So, I don't understand how you came up with "your chart" in the first place.

Moreover, while a Payroll tax holiday is a great idea for a number of well founded reasons (economic stimulus and fairness), your chart even if it was correct and even if the data set was not suspect doesn't have anything to do with those reasons.

There is another source of data that you could also use from the Census. I recall something called the annual March income survey which was done by the census bureau. The was something called FERRET that I used to download the data. I suppose this was around 1999 or 2000.

I've done a quick google, apparently the name has changed.

It is now known as the CPS Annual Social and Economic Supplement, formerly called the March Supplement.

If you really want to think about taxes and the distribution of wealth and economics, Nate; maybe its time for everyone to explore Henry George's 1879 (yes 18 79) classic Progress and Poverty.

If SS were funded by a land (not the improvement) value tax on real estate not actively and actually used for housing or actual food production (apportioned among the states as a direct tax) most of the working and middle class would save money and we would not have the ongoing boom bust cycle cause by real estate speculation [as it has happened yet again]. The are many salubrious effects to tax land value rather than income (especially so regressively like the payroll tax), sales (also regressive) and production in general.

The transition from payroll tax to land value tax could and should happen gradually with the first phase being a reduction in the payroll tax that collects anything more than is currently needed to fund current SS and Medicare obligations. Then, you'd gradually lower the payroll rates further each year (like maybe by a quarter percent and replace the lost income by a national direct and apportioned among the states land (not the buildings) value tax.

There reason to use a direct and apportioned tax is that current local assessments could be used (even if they are bad) and there would be no race to the bottom. I.e. state A could not under assess value to get an advantage on state B whose assessment were closer to true value, because state A would just have to raise its state's rate to collect its pro-rata share.

Where there is no vision, the people perish.

wv. horsen - I am not horsen around with this proposal nor my reprimand for the bad charts Nate used.

dsimon: I think we're down to splitting hairs at t...

2008-12-31T12:47:00.000-05:00

dsimon: I think we're down to splitting hairs at this point. But I'll try one last time to separate it out. Hopefully this adds to the discussion, which would be so much more productive in person, with a whiteboard for us to scrawl on.

My flat tax advocacy doesn't rest on labor and capital income treatment. As Juris has noted, there are several differing proposals for a flat tax I'm just stating how the one I would prefer, would operate. So the way you are interpreting my quoted premise, Yes, tax treatment of income is not a premise that leads to the conclusion that a flat tax is needed.

The detail itself (income type tax treatment) is actually a minor one in terms of operating mechanics of any tax system. It doesn't add any real "costs to the system," by including or excluding certain income type categories.

But minor tweaks can have drastic differences to the end-game. Differences in income type tax treatment changes the dynamics of tax burden. Which turns out to be a huge detail for equality concerns. I think Juris would agree here as well.

Couldn't income all be treated the same under a progressive system? Yes, It certainly could.

I do not debate you that a progressive sliding scale system could be made very simple. And actually I think that the conclusions of both systems would end up at the same conclusion. Joe pays $X , Sally pays $Y. I think, 90% of our disagreement is on a point I hadn't yet made explicitly. I wonder if you'll agree. We differ on Occam's Razor. If we have two systems that reach the same end, the one with less steps, should be preferred.

My point: We can define the single tax rate and the one exemption level such that we achieve the exact same end as a sliding scale would. Joe pays $X, Sally pays $Y. So why add the extra step of looking up which category you belong in. I realize this is not a step so complex that people won't understand it, but the point remains, if you can remove a step and get to the same place without any other consequences, remove the step.

@dsimon: I don't think we're in disagreement on an...

2008-12-31T10:53:00.000-05:00

@dsimon: I don't think we're in disagreement on anything fundamental here.

The concept of tax equity is elusive because it involves taking some other conditions into account (perhaps work status, family size, etc.) in order to create fairness. An essential starting element, however, is that every individual in principle owes some taxes on their income (though there may be some tax "forgiveness" for low-income people). And so when I evaluated those so-called flat taxes, and found that common flaw of excluding "non-labor" income, a warning alarm went off. On its face this is inequitable.

It's why I view the flat tax proposals as deceptive. They promise post-card tax submission, getting rid of special deductions (home mortgage, etc.) and depreciation schedules (instant costing of business investment, for example). But what it amounts to in fact is allowing people with substantial investment income to pay much lower taxes than people with an equivalent income earned through their work. So it's hardly surprising that such a seemingly "fair" tax is only promoted by people on the political right.

Regarding progressivity, I used to teach a segment of a policy course in which I addressed principles of tax fairness. We evaluated the issue of relying on property taxes as the principal funding of public schools, for example. When I added a segment about flat vs. progressive income taxes, I found that the students (college level) had no sense at all of the rationale behind either estate taxes of progressive income taxes. In my generation, we knew this. In this generation, almost none could come up with any arguments in favor.

Now I think (I hope) the terrible economic fix we're in and Obama's willingness to talk about the unfairness of the Bush tax cuts will bring back both the vocabulary and the reality of progressive taxation.

Right now, as you note, the overall distribution of the tax burden is quite flat despite the apparent progressivity of the personal income tax; and this is partly due to the different tax treatment for different kinds of earnings (from work, from investments, for example). But substantially also due, as you mention, to payroll taxes, property taxes, and user taxes for public services.

wv: gritin (my teeth, and waiting for the Bush era to end)

radicallyamerican: The plan would count labor and ...

2008-12-31T10:29:00.000-05:00

radicallyamerican: The plan would count labor and capital income all the same and be placed on everyones individual tax return (or joint if unionized).

Perhaps I'm missing something, but does counting labor and capital income all the same have anything to do with instituting a flat or progressive rate system? Couldn't one count income the same under a progressive system? Again, it seems to me like another non sequitur.

juris: contrary to what might have been said by someone earlier o this thread, I don't think there is overwhelming support for the progressive income tax. There is a lot of support for tax equity (horizontal equity) and a flat tax has some appeal unless people notice the kind of thing I have brought out about the unequal treatment of earned and unearned income.

I'd like to see the data on that. I read an article in the NY Times a year or two ago that said that people overwhelmingly favored getting rid of the estate tax--until they were informed as to how few people were affected by it and what kinds of tax increases or program cuts would be needed to eliminate it in a fiscally responsible manner. Then there was a substantial majority against getting rid of it.

Moreover, the whole idea of "tax equity" is a fuzzy one. I'm sure most people support "equity," but one can define it in a m multitude of ways. Is it to spread the tax burden numerically equally? That's "fair" in some sense of the word. Then we should have a head tax regardless of income (which no one supports). Is it to treat each earned dollar the same? Then we should have a true flat tax (which, again, few people have proposed). Or do we want to equalize the unpleasantness of paying taxes? Since it's harder for lower income groups to pay the same rate on each additional dollar of income than higher income groups, then a progressive system equals that out. So how one defines "equity" affects how one designs the system; but saying that people support "equity" doesn't tell us what form of equity they support.

Also, I've read that once one takes into account property taxes, sales taxes, wage taxes, etc., our present system turns out to be pretty flat. Many of these other taxes are regressive. Proposals to do away with these taxes and subsume everything under a flat income tax would require a far higher income tax rate than most people pay now. Proposals that do not take into account these other taxes should consider their effect on the overall "flatness"--or fairness--of the system.

Nate, it's not quite that simple. What you have il...

2008-12-31T09:39:00.000-05:00

Nate, it's not quite that simple. What you have illustrated is the wealth effect, but there are other channels by which expansionary and contractionary forces flow. The most important of these is monetary conditions, which has become effectively tighter for many sectors in the economy despite moves in the official interest rate from the middle of last year. The main reason for this is banking system losses (shadow or otherwise) that on a sufficient scale have a profound effect on underwriting. As the headlines indicate, in this recession, the losses have been particularly acute, and by consequence, entire sectors of the credit provision apparatus have effectively shut down. The securitization business, for example, waned rather quickly in advance of the onset of the recession after the collapse of the Bear Stearns hedge funds and the mounting subprime, SIV and CDO losses. That had a stronger recessionary impact than the wealth effect, (indeed, the pace of the slowdown was notable even before the latest acceleration), which by itself would probably be largely offset by the fall in commodity prices right now were it acting alone.

Needless to say, the Lehman collapse exacerbated this something awful by shutting down the repo and money markets, causing massive strain on trade credit and throwing the CDS market deeper into turmoil. The rest, as they say, is history.

There are other dimensions to this as well, especially vis a vis international effects, so it shouldn't be reduced to a wealth effect analysis by its lonesome.

In reading these comments I wanted to add on to Ju...

2008-12-31T08:50:00.000-05:00

In reading these comments I wanted to add on to Juris point about the impact of the recession on the average person. A couple of months ago I tried to model this situation.

The basic impact I came up with is

2004 2008
Assets 173 149
Debt 95 120

In simple terms assume the average person has their asset values drop by 20% and they have 50% debt. The impact on their net worth is a 40% reduction.

@radicallyamerican: thanks for your response. I a...

2008-12-31T00:04:00.000-05:00

@radicallyamerican: thanks for your response. I am open to revisions of the tax system, including simplification and improved horizontal equity (people of equal income and circumstance getting taxed at the same rate on all sources of income).

I am not opposed to a flat tax that meets those goals -- or to a two-level tax as dsimon has described it. But I also am sympathetic to a more graduated, progressive system.

BTW/ contrary to what might have been said by someone earlier o this thread, I don't think there is overwhelming support for the progressive income tax. There is a lot of support for tax equity (horizontal equity) and a flat tax has some appeal unless people notice the kind of thing I have brought out about the unequal treatment of earned and unearned income.

It seems as though my memory of the Hall/Rabushka ...

2008-12-30T23:42:00.000-05:00

It seems as though my memory of the Hall/Rabushka plan was false. I can admit that. So as per your words I disown both plans and any other that excludes capital income.

However I am clear on which flat tax system I advocate for. My position was never up for debate. The plan would count labor and capital income all the same and be placed on everyones individual tax return (or joint if unionized).

We can get this right if we really wanted to design a system like we gave a damn about its operational effects. This is as much a real part of our lives as any other aspect, yet we treat it as if there's nothing we can do. I'm not sure if there is enough political will to get this done. But this is why I write.

I'm not so sure Steve Forbes doesn't believe in th...

2008-12-30T23:25:00.000-05:00

I'm not so sure Steve Forbes doesn't believe in the Flat Tax, his president bid hinged on it. And please don't say no one is a believer.

If one believes in that standard deduction, then one not a believer--and that goes for Steve Forbes, regardless of his claims to the contrary. Forbes, like you, proposed a two-tiered system that goes from 0% to the "flat" rate. And since he, like just about everyone else, thinks that people who make very little should have to pay any income tax at all on those earnings, just about no one believes in a flat tax. It's a two-rate system, regardless of whether one calls the initial exemption a "deduction" or a tax of 0%. I'm not going to argue semantics; they amount to the same thing.

At any rate, you can't say its not progressive, which is what people (the masses) want anyways.

But a system can't be both "progressive" and "flat." Because of the two tiers, it does not treat each dollar earned the same way, and so is no longer flat. And if one is willing to accept a two-tier system, I don't see why more tiers are unacceptable. Indeed, as I argued above, one could use the same justification for the two-tier system to argue that it's unfair to require low-income households to pay the same "full" rate as everyone else instead of gradually being bumped up to it.

The flat tax system as I've argued, removes the double corporate tax.

Eliminating the double corporate tax is not an argument for a flat tax. It's an argument for eliminating the double corporate tax (whatever that is--are we talking about taxation of dividends?). One could easily have a progressive system without the double corporate tax.

I agree whole heartedly that the flat tax is not a cure all. It would be better than the 66k page book that we have for income tax deductions now

Again, that's not an argument for a flat tax; it's an argument for getting rid of all the deductions that make the system complicated. The only difference in complexity between a flat tax and a progressive tax is looking up a number in a chart, and I don't think that's enough of a difference to justify a flat tax on that basis.

but spending has to come into check if we're going to make any real progress.

Again, that's an argument for lower taxes. But it doesn't get to why a flat tax would be better than a progressive tax. Even if we had the massive spending cuts that a 20% "flat" tax would require, those cuts would not resolve the question as to how to fairly distribute the tax burden of paying for whatever government expenses are left.

Most of the flat tax arguments are non sequiturs. Then production incentive argument may have some merit, but I saw little evidence during the Clinton years of people avoiding being productive so as to stay out of higher income tax brackets. To the extent that any of that occurs, it would have to be balanced by the negative effects of forcing those less able to pay taxes to pay a greater share of whatever government services we have.

@radicallyamerican: I confess I haven't had time ...

2008-12-30T22:21:00.000-05:00

@radicallyamerican: I confess I haven't had time to explore all the sources you mention but I did find the Hall and Rabushka manuscript (Hoover Institution Press) on line here.

Their proposal has exactly the same provision mentioned in the Heritage Foundation source that I cited earlier: there are individual taxes and business taxes; anything taxed under business tax wouldn't be "double taxed" (a common reference in flat tax proposals); individual capital gains, whether on personal property (homes) or stocks and bonds or other financial investments would not be subject to individual taxation since these gains will be presumed to have been taxed elsewhere already. (Hall & Rabushka: "Capital gains would be taxed exclusively at the business level, not at the personal level. In other words, our system would eliminate the double taxation of capital gains inherent in the current tax system.")

As a result, under the so-called flat tax you can end up with the person (individual) who earned $1 million in wages (i.e., from his labor) being taxed at a high rate (19%, as in the Hall-Rabushka book), but the person (individual) who earned $1 million as a capital gain on property or other investments would pay nada on those earnings.

As Hall and Rabushka write: "The other piece [aside from the business tax] is the wage tax. Each family pays 19 percent of its wage, salary, and pension income over a family allowance (the allowance makes the system progressive). The base for the compensation tax is total wages, salaries, and retirement benefits less the total amount of family allowances."

And later: "For the 80 percent of taxpayers who don’t run businesses,
the individual wage tax would be the only tax to worry about. Many features of current taxes would disappear, including charitable deductions, mortgage interest deductions, capital gains taxes, dividend taxes, and interest taxes."

"Again, we stress that the wage tax is not a complete income tax on individuals; it taxes only wages, salaries, and pensions. The companion business tax picks up all other components of income. Together they form an airtight tax system."

But according to our reckoning, the hard working wage-earning chap pays $190,000 in taxes (less the family allowance) on his $1 million in earnings; the fellow who may not work lick but who is lucky enough to receive $1 million a year because, perhaps, he inherited a fortune in property or made some good investments, pays not $1 in taxes on that income, not even a "capital gains" tax at a preferred rate, but instead niente, nada, nichevo, zip.

Now the "theory" behind this is again that taxing the person on those gains would be double taxation. But what is overlooked is that taxing the wage earner could equally be double taxation since the company for which someone is working (assuming he's not self-employed) would have paid taxes already on the profits earned from the company's business.

In sum, the Heritage Foundation summary is consistent with the Rabushka summary. You can't disown one without disowning the other.

And we end up with the huge inequity that you yourself conceded earlier was an unacceptable inequity. The leisure class makes out like bandits.

@dsimonTechnically Yes, it is a two tiered system....

2008-12-30T20:47:00.000-05:00

@dsimon

Technically Yes, it is a two tiered system. Phrase it however you want. Its a single rate with one standard deduction. And its progressive. I came up with the numbers off the top of my head just to give a clear example. An actual plan would have to have meaning/justification behind the numbers. As you pointed out about the 30k. For my purposes here it was just out of thin air for illustration. At any rate, you can't say its not progressive, which is what people (the masses) want anyways.

I'm not so sure Steve Forbes doesn't believe in the Flat Tax, his president bid hinged on it. And please don't say no one is a believer. I know people that are, and I certainly am for what its worth. I can surely count Robert Hall, Alvin Rabushka, and all the Friedmanites out there in my ranks as well.

I certainly agree with you about progressive system could be made simpler if we simplified figuring out AGI. That is the crux of the issue. But the justification for one rate instead of a schedule of rates is that people around the cut offs for the increases would face different incentives that may distort their willingness to be productive into the higher levels. Setting one cut off and doing so at a low figure, means that the incentives are pretty standard across the majority of workers/capital income earners with regard to productive decisions. And also making corporate and personal income all the same rate, reduces any incentive to divert resources into the lower income category.

The flat tax system as I've argued, removes the double corporate tax. This would be a tax cut for businesses and their shareholders/owners stimulating the economy. This is the correct worded view of Forbes, Hall and Rabushka et al. So it is an argument for a tax cut that is a direct result of the flat tax system.

To your last point, I agree whole heartedly that the flat tax is not a cure all. It would be better than the 66k page book that we have for income tax deductions now, but spending has to come into check if we're going to make any real progress.

It seems to me that Nate's analysis assumes that p...

2008-12-30T17:38:00.000-05:00

It seems to me that Nate's analysis assumes that people's spending depends their net worth, including the value of their homes. I'm not sure this is true, and I'd like to see evidence to support it.

If I haven't taken out a home equity loan and I'm making just as much in income as I did before, why would my spending habits change? I'm not spending my home; I'm living in it for the long term. If I have no expectation to sell it soon, if my plans don't rely on its value to fund my retirement (or if I'm not going to retire any time soon), and if other aspects of my life are status quo, it's unclear to me why I would suddenly cut back on my typical consumption.

Now if I thought my job was in danger, I'd have a considerable incentive to cut back on spending to prepare for a possible period of unemployment or a pay cut. But I've been renting for my adult life, so perhaps there's something I'm missing here.

radicallyamerican:The problem with a flat tax is t...

2008-12-30T17:22:00.000-05:00

radicallyamerican:

The problem with a flat tax is that no one really believes on one. Not even Steve Forbes.

Your proposal starts with a deduction of $30k and then applies a 20% rate. But that's not a flat tax: it's a two-tier system with a 0% rate up to $30k and a 20% rate on all income above that amount.

If the justification for the 0% rate is that people who are earning below $30k can't afford to pay any taxes (or shouldn't have to do so), what is the justification for having people who make $30k pay the same rate on each additional dollar as people who are making far more? Why not bump people up to the "full" rate gradually as they become more able to pay it? And there's your progressive rate system.

Flat tax advocates say the system would be simple. But one can have a very simple progressive system. The only complexity added by a progressive system is looking up a number in a chart after figuring out one's adjusted gross income. The complexity in our present system comes from figuring out the AGI, not the rates applied to it. A tax return for a progressive system could still be done on a postcard.

And when he was running for president, Forbes argued that the tax cut from a flat tax would stimulate the economy. But that's an argument for a tax cut, not for a flat tax system--which, as I pointed out, not even he really believes in.

Without spending cuts (probably dramatic ones), every tax dollar not paid by high-income earners will have to be picked up by other income groups. And I think one would be hard-pressed to find lower and middle class households who think they should pay more in taxes.

@JurisThe first source I would suggest is:http://w...

2008-12-30T15:49:00.000-05:00

@Juris

The first source I would suggest is:

http://www.econtalk.org/archives/_featuring/alvin_rabushka/

Its an hour long interview and explains it well.

Then I would suggest:

"The Flat Tax" by Robert Hall with Alvin Rabushka. Amazon is best to look up these books, posting their long-URLs would just be a mess here.

Also I've not personally read it, but I understand "The Flat Tax Revolution" by Steve Forbes to be consistent with Hall's book. Its just newer with updated figures.

Milton Friedman makes the case for the flat tax on pg. 174 of "Capitalism & Freedom" He also talks about passing through corporate income on personal ledgers for tax purposes.

As far as the Heritage Foundation goes, I can't make a judgement as to their worthiness. I looked at their flat tax stuff you posted and they seem to be balanced in analysis but the system they analyzed is broken as you noted earlier.

The system Hall proposes, is just that simple. You can handle withholdings, income documentation, and the rest of the exemptions (in my eyes there would only be a handful) on a single postcard. Maybe using both sides at the most. Its hard to believe but in truth it really would work without much change. I can't begin to explain it fully in a comments space. Its one of those too good to be true things that no ones ends up believing, when reality is that this one actually delivers. It would never be totally paperless, but it would be definately be less paper than is used today. Maybe people wouldn't be so afriad of Apr 15th if they could figure out how to be compliant.

I'm going to write a blog post on my site later this week about it, now that you've raised the issue of confusion. The link is in my name.

@juvanya

The fair tax is not a load of hocus, but I wish the supporters of the fair tax would stop lying to people about their proposed 23% tax rate. Under their proposal its a 30% rate, so the tax makes up 23% of the total bill. These are not equivalent statements. The major difference in between the fair tax and the flat tax is that taxing income distorts labor and taxing consumption distorts spending. Distortion is impossible to escape, its just which distortion do we want to live with.

Hope all these sources help.

Nate,Your proposal of a payroll tax reduction is i...

2008-12-30T15:25:00.000-05:00

Nate,

Your proposal of a payroll tax reduction is intriguing.

Our tax system has moved to favoring capital income over earnings, with the result that the personal tax system has been skewed to favor the wealthy over workers. Further, the arguments by the anti-tax crowd about the double taxation of capital income have little merit, since the effective rate of taxation on corporate earnings in the US is very low, despite the US having a high corpoate income tax.

It is time to overhaul our tax system. The best solution probably is to eliminate corporate taxes, and replace corporate taxes with a credit invoice value-added tax. Second, the rates of personal taxation for capital income and earned income should be equal.

These measures would go far toward re-establishing a fair balance in taxation between labor and capital, and would also serve to strengthen the middle class.

Since the US is a consumption based economy, the positive effects of stimulating consumer spending through a re-allocation of the tax burden likely would be the best means of making this recession less severe, and possibly shorter. Since a far larger portion of each dollar retained by a middle class person is will be spent, this type of targeted change will have a far more positive impact on consumer spending.