Why Do I Bother?

Why do you contend that either alternative that you propose would be better than the FairTax?

Respectfully,

YK

"Not to mention that in that reply I did not even mention that he had said nothing about my claims of a massive bureaucracy that would be required."

I recall addressing this issue specifically by mentioning that the FairTax would leverage the Social Security Administration to manage the tax prebates and existing state sales tax systems in 45 of the 50 states and that 1% of national sales tax is split between business collecting the FairTax and the collecting state agency to administer. We would not need nearly the number of administrators, auditors, etc. that the IRS employes. The bureaucracy would be decreased significantly.

To say that I said nothing is simply not true. Perhaps this was overlooked.

I have read some of your other articles and I have to compliment you on your writing skills. Your arguments are generally very well thought out and well communicated. My style is a little less refined and can use some work.

Cheers,

YK

Yes, I did overstate my case in that regard.

What I meant was after I asked about how you expected social security to handle an additional 300 million recipients, as well as validating all those claims, without adding considerable staff or personnel.

Well, that and a few other places where I questioned either your idea of using existing existing bureaucracy or other spots where I mentioned the need for bureaucracy because of problems I pointed out.

You are correct that at some points you did address my questions about bureaucracy, what I should have said is that you failed to address questions about how you expected to prevent fraud and perform audits without any bureaucracy.

Basically, I think the FairTax advocates plan to claim the removal of the IRS while placing massive burdens on the SSA and states. I know you claim serving 300 million people is trivial for SSA, but my work experience with state DSS and Dept of Labor causes me to think otherwise.

I think a lot of "savings" are really hidden costs and unfunded mandates. (Yes, states get 1% of taxes, but the question of whether that covers costs or not is questionable, especially as there are auditing and policing requirements I have never seen addressed by official FairTax advocates.)

Yes, I did overstate, I should more properly have said you failed to address most, or maybe some, of my concerns about bureaucracy.

Not sure how that extra r got into your name.

Well, typing is not among my skills. Been programming since VIC20 days, yet I still do it two fingered.

Maybe it is genetic and Lamarck was right. After all dad was a cop, and two fingered typing is definitely common to cops.

I don't think we are far apart on this bureaucracy thing but I am not sure it is worth discussing (brainstorming) if you believe that the whole cause is fruitless.

With the babyboom generation retiring, the SSA is going to have to admister payments to 30% of the population anyway.

As far as the states go... boy, it sure seems to me that streamlininig taxes to do away with income/corporate/cap gains/estate taxes in favor of sales taxes would create great economies of scale.

I live in California (8.25% sales tax in my county). If it were an embedded tax and it broadened to include b2c services as well as sales of new goods, AND it did away with income/corp/cap gains/estate taxes I still can't imagine that State/Fed combined here would exceed 30% inclusive AND STILL NOT AFFECT PRICES MATERIALLY. I can envision states administering the tax prebate as well to create even more efficiencies.

Thoughts?

YK

I meant 30% of households (i.e. not kids).

Also, with regard to enforcement... I believe there are something like 30 million businesses in the U.S. How many sell business to consumer (b2c)? Half?

If 15 million businesses were randomly audited at 1% per year we are talking about 500 thousand businesses. Is that a few-thousand field agents? How many field agents does the IRS have currently?

and the audits were pretty extensive (show some profit and loss statement that reconciles sales to cost-of-sales). Heck, just because there is no income reporting to the IRS doesn't mean that businesses won't need to secure credit/financing for their businesses which will require certification of income statements and balance sheets for bank underwriting purposes. A field agent could request this type of information and ask biz owners to reconcile sales with sales numbers on the financial statements.

If businesses are caught cheating, they lose their business licenses.

California's Revenue Estimates for 2008/2009 budgets are as follows:

- Personal Income Tax - $56b
- Sales/Use Tax - $29b
- Corporate Tax - $12b

Shifting $68b of Personal Income and Corporate Tax to Sales Tax might sound daunting but I wonder what adding services in addition to goods does? If it were just goods (as it is now), the Sales Tax rate would more than triple - 8% to more like 25% (exclusive) - closer to 20$ inclusive.

I have to think that services outweigh goods though (insurance, medical treatments, legal, entertainment, etc.) Even if the 23% embedded tax ultimately became a 33% embedded tax for a state like California but the prices didn't materially change AND no personal tax filings... I still like it. Why did I go here? That's right, to get a sense of how much 1% of revenues would be to administer...

I found 2005 figures quickly. In 2005 California's Gross State Product was 1.6 trillion. Okay, I really am not sure whether that constitutes b2c biz or whether it includes b2b as well.

I do know that 27 billion was collected in sales tax at roughly 7.5% which is $360b. If we double it (adding services) to $720b and take .5% administration fee by the Fed it would provide California with $3.6b to administer the collection of the FairTax. That might afford some auditing activity as well.

Should all of this have been posted on my blog instead of as comments on your blog? I haven't had a comment to one of my blog posts yet. It feels a little more lonely over there. I guess I will cut/past this over though just for fun.

Let me know if I overstay my welcome though. I know that the FairTax isn't your preference. I see some pitfalls in the Flat Tax as well & I am curious as to how you would set rates in your alternative that let's states run completely autonomous and then fund the fed from there (based on what?).

Cheers,

YK

I will answer a bit now, but obviously that is a lot to which I need to respond.

Yes, the flat tax has pitfalls, and I only accept it on the condition that we must have a federal tax, and that it must provide revenue close to current levels. I did discuss the setting of the flat tax rate a long time ago, in a very simplistic way. Don't have the link, but go way back and you should find it.

If we reduced expenditure, yet still left funding tot he feds, I would prefer either a national lottery or a flat uniform tariff. Admittedly, both have their downsides as well, but as I said, I am not a fan of the federal government exercising any taxation powers.

As far as the states are concerned, I would assume the proportions could be figured three ways:

1. On absolute population, including resident aliens, etc. As though they do not vote, they receive services. This is unlikely, as no state would go for it.

2. On registered voters, basically in proportion to their congressional seats.

3. In proportion to their presidential electors. This basically is a "pay per vote" scheme. Since small states still have 2 senators and a congressman, they pay for all three votes. This would flatten out the taxes a bit and give big states a break, but it seems about as fair as #2.

Now, HOW they figure out what to pay...

Well, what the states pay is an interesting question. As we are talking about a return tot he idea of a union of sovereign states, we can't actually have the feds demand money and the states forced to comply.

However, if we repeal the 17th amendment and return the senate to its function of representing state interests instead of popular interests, then I have a solution.

The house can propose and vote on a budget, once it receives senatorial approval, it is assumed the states have agreed, sot he total is then divided among the states according to, for this example let us say, their representation in the house. The states then pay that into the treasury on a set date.

Oh, noticed a mistaken wording in my last post: #2 should read seats in the house, not in congress. #3 is congressional seats as a whole.

As my last post shows, I think our government took a wrong turn when it moved form a true federation of sovereign states to a central government. That started in the Civil War, but ti really was with the 16th and 17th amendments that it took hold.

The feds had the power to tax before that, but the income tax really broke any reliance on states for funding, and the change of senators form representing the states to being just another popularly elected official ended any say of the state gov't in law making.

I have written quite a bit on this, so I will be brief, but I really believe having 50 separate governments with very few rules imposed at the federal level allows citizens to remain in the US yet find a set of laws which suits them best. It also allows us to experiment with things like FairTax, flat tax, and so on, with the best ideas spreading and the worst dying out. We cannot do that with a single federal law imposed on all the states.

lastly, perhaps in some cases there is no one "right' solution. A federal system allows regions to have their own solutions, so if there is more than one way to do something, it can be tailored to local needs, rather than forcing a one size fits all rule on the whole nation.

But I have said all this before, and better, so I will stop there and just refer to my old blog posts.

I see that you post quite a lot on a number of different topics. I like the idea of the states funding the fed and being able to have different tax structures.

If the states did have independent authority to tax (and then fund the Fed) I would move to the state the adopts the FairTax. You might go to the state with the Flat Tax. I believe that my state would be more competitive and prosperous but, again, that is my opinion.

One thing that I do know is that 100 CPAs in the same room that none will come up with the same tax return. If there are so many people supporting different alternatives to the current tax system we will have no power as well.

So what has the best chance of gaining grassroots momentum (and concensus) such that we can force those up for election to take the issue seriously? How can we fight the real battle against our elected officials if don't have a common voice behind at least a first step?

Cheers,

YK

The problem of uncertainty is not resolved by the FairTax either, though it is often so claimed. The retail/wholesale and new/used distinctions also create uncertainty. Clearly less than the current system, but here is still uncertainty. You are not going to eliminate arguments and CPAs and all that by changing tot he FairTax. Reduce, but not eliminate. (They also create economic dislocations such as favoring buying investment properties [wholesale] over home ownership [retail] and favoring old homes over new construction, but we will leave that alone for now, as it is not relevant to this discussion.)

And my argument is that the FairTax is winning out over the flat tax not because it is inherently more popular or a better idea or more likely to get support, but because it got high profile support while the flat tax has not. It is more of an accident than anything else.

Actually, this is a detailed enough question I will write a short response in the blog, so look there.