A Realistic Way to Eliminate the Federal Income Tax | Hacker News Reader

A Realistic Way to Eliminate the Federal Income Tax

intelliot.com

5 pointsintelliot18 comments

Both in the federal form and the state forms that have been proposed by the same groups, independent analyses have found that the so-called "FairTax" proposals to replace income tax with sales taxes aren't realistic, because the proposed tax rates would fail to replace the revenue of the replaced income taxes.

There are other problems as well; the page linked here states as a problem that that income tax, designed to be progressive (increased total tax rate as income increases), has some features which make it regressive in certain cases, however, the "FairTax" is regressive out of the gate -- because its a sales tax, the effective rate declines as mean propensity to spend declines, and that propensity declines with income.

Am I the only one who looks at the 'FairTax' and finds it anything but fair?

What do you mean by fair?

Extinguishes currency where it will have the least amount of negative impact.

I don't see how having the least amount of negative impact is unfair.

As well you shouldn't, since that was the answer to "what do you mean by fair?", not "what do you mean by unfair?". The characterization of the "FairTax" as unfair was that it failed to meet that criteria for fairness.

I think the concept of FairTax is interesting, but the application through a lottery system is a gamble at best (har). Because it is working for Taiwan does not mean that it would be transferable: if a tax-system is holding an economy together, it might be quite a jump to say that applying it somewhere else would have same results

The lottery system is no gamble, and with it also means creating a uniform receipt standard, which further simplifies our current system as well. My taiwanese relatives keep every single receipt, and they even ask for my receipts when I go back to visit. At the very least it'll have some sort of positive impact because both the Taiwanese and American economies have a number of similarities, one of which is that both economies have a huge percentage of small business owners, and they are the ones most likely to benefit from tax evasion in the case of a single-rate federal retail sales tax such as the one proposed by FairTax. However, a lottery system would force consumers to demand receipts from these small business owners thus preventing them from doing sales off the books.

Also, the grand prize for the lottery is 10M NTD (New Taiwan Dollar), which is ~$337,781 USD, and overall they might pay around $1-2M USD which is a fraction of any estimated potential losses in tax revenue if such a lottery receipt system was not put into effect.

Also, our current tax-system is most definitely not holding our economy together, it's pulling it apart. Implementing it into our current tax system might also work too. At the very least, I hope it'll teach Americans to keep their receipts which is a huge improvement in itself.

You seem to say that the implementation of a lottery would smoothly go. I disagree: the system has worked in TW but was it implemented in the same conditions? Do you remember when the US tried to implement the metric system? There were only positive things about it... I can see a lot of folks opting to go to a blooming "grey market" where they get everything at 20% discount (3% markup from OP tax rate) where they wouldn't get receipts, or a second hand economy rise and not enough revenue being generated. In either case, any drastic change is a gamble,but we're so far down the hole that it might be our last option.

A politician's ability to attract campaign donations is strongly related to benefits he can bestow on his benefactors. A politician who can't give out tax breaks will have less ability to attract donations/bribes. I suspect that reason alone would make it difficult to adopt such a tax scheme.

This would definitely put the brakes on the consumption a bit. Do you think it would get to pass? Yeah.. no.

Consumption might go up between the monthly prebate and the lack of income tax deductions from paychecks. Although this would be a one-time boost, it would be a pretty significant one. A 23% sales tax isn't as awful as all that; the average rate of VAT in Europe is about 20%, on top of income tax.

I've been rather skeptical of the fair tax proposals before, but I wasn't aware of the prebate concept which is the old idea of a guaranteed basic income under a new name, and somewhat reflective of the existing incentives. This bears further consideration and I'll spend some time this weekend playing with the numbers. It's interesting to me that it's engineered to be progressive, which a flat tax most certainly is not. I also think the mind-numbing complexity and warped incentives of the existing tax code create a huge drag on the economy. It's monstrously inefficient.

You're right. I hadn't thought to compare with the average rate of VAT in Europe. Additionally, I don't really see how people could say that the FairTax rate is awful, considering that its rate was chosen to make the tax approximately revenue neutral.

Its a 23% tax-inclusive rate, which is equivalent to a 30% sales its much higher than European VATs.

The privacy concerns of the last part of this proposal are kinda scary.

Definitely true. Of course people who care are probably the same people who realize they will not win the lottery and thus can simply forego the e-mail address (giving their receipts to charity, as suggested) and the other 99% would happily take their "free" lottery tickets.

I've got mixed feelings about that. If you spend with plastic (which most people do most of the time) then all your purchasing is trackable already. And frankly, I wish I could get my receipts in a standardized electronic format - my bank statements tell me where I've spent money, but not what I bought. Retailers have that information about me, but many don't share it electronically.

For example, my wife and I both like cooking and after we got a house we have almost stopped eating out because we were having so much fun in our own kitchen. With $20 of ingredients and our cooking skills we can whip up a meal that would have cost us most of $100 in a restaurant. There's an app/website where we can control all our grocery coupons from the local supermarket and make our shopping lists, which is fine, but we can't look through our previous purchases that way. I can scan and OCR the receipts easily enough, but that's a waste of my time. So I look through the paper copy, but I'm missing out on some useful longitudinal data.

In Europe, by contrast, privacy laws mean you can ask any company to hand over the data they keep on you to peruse it for yourself. At present this is viewed as an administrative burden but it has the potential to add tremendous value for consumers if implemented right.

Excellent point. Getting all my receipts in a standardized electronic format so that I can look back and see what I bought would be super awesome, and I wasn't even thinking of that when I wrote the post.

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