Tuesday, December 18, 2007

Fair Tax Calculator written in FLEX!

Check out the new calculator that shows how your personal wealth situation would change under the Fair Tax. While there are probably a few over zealous assumptions in there, for me it becomes obvious why I will only support Fair Tax candidates for president or congress. If you think some of their assumptions are incorrect, you can tweak them with your own figures in the last view stack/tab.

Have fun: http://www.fairtax.org/site/PageServer?pagename=calculator

8 comments:

  1. Interesting stuff. Looks like I would save a lot, which I suspect lots would, which begs the question of where the difference in lost revenue to the government comes from.

    Also, as a small factor not included (and not sure if it should be factored). In NH there is no sales tax, but a high property tax. I didn't see a place to factor the property tax in. Maybe it doesn't matter?

    ReplyDelete
  2. Don't quote me on this, I haven't really studied the fair tax. But I heard that one place the lost revenue would come from is all the people who aren't currently paying in to the system right now. I'm thinking it applies mostly to illegal immigrants, but there may be other situations it applies to. I'm somewhat in favor of the fair tax myself, but I really haven't put in the proper time to study the ins-and-outs.

    ReplyDelete
  3. Hi Anon,

    I'm glad you took a look at the tool. It is pretty thought provoking. It's interesting to note that one of the major goals of the Fair Tax is that it is revenue neutral to the Federal Government.

    There are a number of areas where the proponents feel that revenue would be generated from a broader base. The easiest one to consider is the inclusion of all of our underground economies. All of your cash based businesses wind up putting that money in somebody's hands to be spent and taxed. Also, they look at the recovery of HUGE inefficiencies in complying with the existing code in excess of $200 billion per year and growing.

    There are some considerations for increased growth of the economy. All American exports immediately become about 15% more attractive because of the removal of payroll taxes from the product pipeline. Foreign corporations would have a large incentive to move operations here to take advantage of the favorable tax treatment. That brings additional foreign investment and helps create jobs. All of which add wealth to the taxable base.

    From what I understand, there has been a LOT of research put into finding the right rate. At this point, if i questioned some of the calculations, I would doubt the new calculator since it's meant to encourage people to consider the Fair Tax.

    Personally, I'm not looking for a huge tax break. I just want the complexity and unfairness removed from the existing system. I want to be in control of the amount of tax I pay and I want to KNOW what I'm paying. The sales tax makes it obvious.

    On the Fair Tax site, under about the fair tax, beyond the basics, there is a detailed macroeconomic study of the impact of the fair tax.

    ReplyDelete
  4. First of all, the programming for the calculator is cool and I'd love to see the code.

    In terms of the Fair Tax itself, I think there are some serious flaws. I think its stated aims are good (easier more transparent system, revenue neutrality, progressive effects costing less for those who have less). But I don't think it would achieve its stated aims.

    It claims to be a progressive tax, but I think it's really a regressive one. They talk about the prebate as they call it for those under the poverty line, but I don't think that goes far enough for several reasons.

    1. It only catches those who are registered in some way as below the poverty line. Many of the poorest people have completely fallen between the cracks and are just barely surviving as it is- this tax scheme would end up increasing taxes on those who can least afford it.

    2. The poverty line is set too low for this to not be regressive. Someone working full-time at minimum wage is technically above the poverty line and so wouldn't be eligible for the prebate. But their expenses would go up a lot. I think that they would be worst hit by this and this is the group that I think needs and deserves the most help. They are already pressed and working hard.

    3. I tried several different scenarios on the calculator and it seems to say everyone will pay less, which makes me wonder about either the algorithm or the revenue neutrality. I'm skeptical that the entire difference can be handled by reduced red tape.

    4. Historically, sales taxes let the rich off easier than the middle class compared to income taxes. This is because the rich typically spend a lower percentage of their wealth on consumer goods. I don't think lowering the taxes on the rich is a particularly good idea.

    I feel I should also point out that the President doesn't just get to decree new tax laws and so it seems a little dangerous to support someone like Huckabee who probably can't get done the thing that you're supporting him for, but probably could accomplish many things that you wouldn't like. Just a thought.

    ReplyDelete
  5. HI Kristin,

    I take your comments to heart, but you have at least one misconception about the fair tax and that is how the prebate works. There is no registration per se that is required to get the prebate. There is no means testing at all. In fact Bill Gates would get his check for about $500 just like everybody else.

    What the prebate does is exempt every American from paying sales taxes on what is considered the poverty level of taxable spending. So in essence, the basics of life are exempted from taxation for everybody.

    You mention that there are those that have fallen completely off the radar. They probably would have to show up some place to collect their prebate, just like they would have to for any other government assistance program or the earned income credit. The would probably have to prove citizenship to collect the check as well.

    I'm not sure how you came to the conclusion that the poverty line is currently set too low, but that is an area that congress can debate after it's in place, just like the rate or the minimum wage.

    As for being regressive, I think this tax system would actually be less regressive than the current system. You currently pay taxes for fica and medicare that for many people amount to significantly more than their income tax, yet the wealthy are able to get lower rates for capital gains and other investment tools.

    The fair tax makes all of those types of items untaxed. Don't forget that there is also no tax on second hand sales, so you would probably see an increase in secondary markets. The nice thing is that if you are truly strapped for cash, the government doesn't necessarily have to take it's pound of flesh. You get your whole paycheck or gov't assistance check, a check for the prebate to cover food, shelter and clothing to a degree and you can buy other things second hand. The best thing about this system is that it puts the power of taxation back in your hands. Uncle Sam doesn't get to extract his cut before you see yours. If you really wanted to, you could probably adjust your lifestyle to pay zero tax and I'm sure some people will do that. I seriously doubt that that becomes the normal condition, though.

    There is also this thing called the hidden tax we currently pay and it's made up of all the payroll taxes that work their way into the price of goods all the way up the supply chain. That's roughly 15% on each component all the way to raw materials. It's not easy to quantify that and it's different for different types of products. Labor intensive products come out with bigger reductions. The general feeling is that there could be a drop in prices nearly equal to the tax that is put on at the register. But there is a little fuzz in that science.

    There are three major areas where benefits come from. One is the direct savings from improvement in the revenue collection function of the US (ie, getting rid of the IRS and relying on the states to do the physical collection). It's a staggering number, I couldn't believe it when I saw it. To put it in perspective, it's roughly equivalent to what we are currently paying for the war in Iraq. Repeatable each year. The second is the expected increase in the GNP because of all the man hours that would no longer be sunk into tax compliance. I don't remember what the actual number there is, but I remember that its huge. And the third is a general broadening of the tax base. This system prevents all of the cash only businesses, illegal businesses and foreign purchases from escaping the US tax system. You can believe those numbers or not, but they have been researched for several years by some really qualified economists. I think I posted a reference to one of the studies earlier.

    I mentioned that I have a reservation about the tax calculator as well. It's put out by an outfit that has a vested interest in it showing a rosy picture. It doesn't really pass the smell test, but I can' prove it wrong either. I think the idea is to just use it for what it is and keep a healthy dose of skepticism.

    While the little tool seems to push the idea of paying less tax, I never really had the feeling that that was one of the goals of the system. It's an effort to create a sustainable system that is more transparent and holds congress accountable for each time they want to screw us. By limiting the government's monkey business to changing the rates, they would have to make a clear argument, not for raising taxes so much, but for requireing a larger slice of the GNP. Much less in the way of sneaky tax increases that target only a relatively few people so as a group they can't complain about it loud enough.

    As for your point number 4, I strongly disagree with your conclusion that the rich are better off with a sales tax. The truly rich don't pay income taxes because they have no income. They live off of previously earned wealth or capital appreciation. There are all sorts of investment tools for the very wealthy to use to defer or avoid paying income taxes. Under this system, they'd get taxed on their lifestyle. You buy that $1 million dollar home, guess what, it's gonna cost $1.3 million and no estate planning scheme is going to get you out of it.

    This is just my opinion, but I firmly believe that it is not the job of taxes to redistribute wealth. It is the job of taxes to pay for the operations of government. I think that should be done as simply and fairly as possible without inflicting undue hardship on any particular class of citizen. If it has to be painful, it should be painful for all of us.

    If there is a social need that needs to be addressed, then it needs to be addressed with it's own program. Let the government tell us they need a larger portion of the GNP because we need to take care of these people or provide this service.

    You're right, the President doesn't just create a new tax system and it's going to certainly be hard for anybody to put one in place that removes so much corruption, but have a President support the plan insures that it will at least get some real scrutiny. As far as I can tell, this is the only real "BIG IDEA" from any of the candidates currently running.

    As for supporting Mike Huckabee being dangerous as president, that sounds like partisan rhetoric to me. I've been through all of Mike's issues on his website, and none of them is a deal breaker for me.

    Now maybe he winds up being a Jimmy Carter. At least he meant well. But I have no fear that he's a Hitler.

    Cheers,
    Mike.

    ReplyDelete
  6. FAIRTax calcutor?

    Cool!! But you They "forgot" to ask you for some critical information. I wonder why?

    Why didnt you ask the following?

    1) What are your medical expenses?

    Medical expenses are taxed at least 30%. That means ALL medical bills - even those paid for by insurance -- YOU pay the tax. So if you get a 50,000 operation, if you get cancer or have an accident -- you could EASILY have a sales tax of 100,000 dollars. Who pays that? Good question.

    2) How much rent do you pay?

    Rent is taxed at least 30%. So if you are paying 1000 a month rent now, thats going up to 1400. THere will be a LOT of very surpised renters if the fairtax passes.

    3) How much are your utilities (gas, electric, fuel oil)?

    All utilities are taxed at least 30%. So if you are paying 5,000 a year to heat and cool your house, you will have to pay 30% more with the fairtax. No wonder they didn't ask that.

    4) How much insurance do you pay -- health insurance, car insurance, home owners?

    Yes, all insurance premiums are taxed at least 30%. So if you pay 3,000 a year for insurance, make that more like 4,000. No wonder they didn't ask that.

    5) How much gasoline do you use?

    Yes, gasoline will be taxed at least 30%. So if you pay 100 dollars to fill up your tank, make that 130 dollars to fill up your tank.

    And here is the question they really should have asked you

    6) Are you a gullilble fool? If so, you can believe in the fairtax nonsense

    And the fairtax rate would be more like 70% -- not 23 or 30.

    ReplyDelete
  7. Hey Mark,
    It's unfortunate that some people will actually believe the comments you've made here regardless of how inaccurate or misleading they are.

    There are some serious miscalculations just with the straw men arguments that you've set up here.

    For example, in point #1, adding 30% to 50,000 is 65,000 not 100,000. Pretty big error there. I'm sure the tax would have to be added to the payout amount that the insurance company has to deal with. you would also have a tax on your premiums, but the insurance company would not see any of that. Of course you're forgetting that the ENTIRE value chain of everything put in use to provide that operation would have had numerous taxes removed along the way. You 50,000 operation would NOT be priced the same way. Basic supply and demand effects would push the price down. I don't for a minute think that the insurance companies would allow the prices to remain static if they knew that they were just giving a 30% profit to the service provider. Not a chance.

    Point #2. Same types of problems here. first, your math is incorrect. $1000 * 1.3 = 1300 not 1400. Again, you're presuming that prices are just set with no regard to competition or cost structures of the things that go into delivering a good or service. In the case of rent, all of the support services you receive as part of that rent have tax removed from them along the supply chain. I'm not clear on what would actually happen on an existing mortgage. I'm guessing nothing, so there may be some pressure to keep those prices a little higher. So with that in mind, you would probably see a reduction only to the degree that costs are removed from delivering your dwelling.

    Point #3: pure scare tactic here. This broadly discussed with all the other goods and services and the effects that the fair tax would have on them. Most likely after tax prices would remain roughly the same.

    Point #4: similar to point #3, but granted a little confusing at first. You're premium would indeed be taxed. The question that comes from that though is does my premium go up? My inclination is that for the most part your premium won't change that much. The reason for that is that you are paying for a certain amount of coverage irregardless of tax. Since the replacement cost of most goods and services won't change that much, neither should your premium.

    #5 - Gasoline - again, you're right. The fair tax applies to gasoline. Again, however, you fail to realize that the price of gasoline will be lower because of the removal of taxes along the supply chain. In this example, you finally got the math right, but if it takes you $100 to fill up your tank, then you're an ignorant bastard for driving a gas guzzling vehicle with a 30 gallon fuel tank.

    As for point #6 - As for the 70% rate, there really isn't anything I can say to that other than that's utter nonsense. The American populace would violently overthrow the government if they tried to do anything so ridiculous. And, no, I don't think of myself as a gullible fool.

    I can't help but think that such opposition to the fair tax must be driven by some ulterior motive. Care to tell us why you're so opposed to the fair tax? Selling income tax software perhaps?

    ReplyDelete
  8. This comment has been removed by the author.

    ReplyDelete