I support this

(01-11-2023 12:14 AM)OptimisticOwl Wrote:  I support this

Don't under estimate the complexity of consumption taxes (VAT, GST, etc.)

Tolley's (UK) Value Added Tax 2022-2023 runs 2294 pages. Then you'll need to supplement that with Tolley's VAT Cases 2022, 2492 pages. Naturally these are dwarfed by the IRS Tax Code at over 4000 pages and then the Tax Regulations (IRS's interpretation of the Tax Code) at over 9000 pages. And then you need a good tax service (CCH Tax Court Reporter, RIA Tax Court Reports, etc.) for US case law.

Personally, I implemented (including configuration) a practice management and financial reporting system in the Brussels office for one of London's Magic Circle law firms. At that time there was: a consumption tax rate for 'biscuits' to be consumed by clients; another consumption tax rate for 'biscuits' to be consumed by staff; and another consumption tax rate for 'biscuits' that were purchased for client consumption that might be consumed by staff.

The big problem that adds complexity to consumption tax systems is the institution a variable rates in a attempt to be”fair” by taxing necessities at lower rates than discretionary items. The “Fair Tax” attempts to get around this by prebating/prefunding the tax paid on necessities, and leaving the rate constant. A flat income tax without all the non-business exclusions and deductions in the USA tax code would avoid a lot of the complexity and probably 5000-8000 pages in the tax code and regulations.

I favor a flat 15% individual and corporate income tax with no non-business exclusions/deductions, 15% consumption tax, and 15% social security (7.5/7.5, with no wage/salary cap) tax. That makes the USA a tax haven (lowest tax, or nearly so, in all 4 areas in the world), provides enough revenues to balance the budget and pay down the debt, and makes social security solvent for at least 75 years.

Some things I like about the consumption tax:

It makes everybody concerned about tax rates and spending. Right now somewhere around 60-80% of the electorate doesn't give a damn about taxes, and by extension, spending.

There is already a mechanism to collect sales taxes in 42 states.

It decriminalizes the average citizen.

(01-11-2023 06:16 AM)MerseyOwl Wrote:  

(01-11-2023 12:14 AM)OptimisticOwl Wrote:  I support this

Don't under estimate the complexity of consumption taxes (VAT, GST, etc.)

Tolley's (UK) Value Added Tax 2022-2023 runs 2294 pages. Then you'll need to supplement that with Tolley's VAT Cases 2022, 2492 pages. Naturally these are dwarfed by the IRS Tax Code at over 4000 pages and then the Tax Regulations (IRS's interpretation of the Tax Code) at over 9000 pages. And then you need a good tax service (CCH Tax Court Reporter, RIA Tax Court Reports, etc.) for US case law.

Personally, I implemented (including configuration) a practice management and financial reporting system in the Brussels office for one of London's Magic Circle law firms. At that time there was: a consumption tax rate for 'biscuits' to be consumed by clients; another consumption tax rate for 'biscuits' to be consumed by staff; and another consumption tax rate for 'biscuits' that were purchased for client consumption that might be consumed by staff.

I am somewhat familiar with the VAT in Mexico.

A flat vat with some form of prebate (including potentially just reversing FICA/FUTA to a credit for lower incomes or on the first 50k or so of earnings) would be my preference... and be VASTLY easier to administer

(01-11-2023 08:44 AM)Owl 69/70/75 Wrote:  The big problem that adds complexity to consumption tax systems is the institution a variable rates in a attempt to be”fair” by taxing necessities at lower rates than discretionary items. The “Fair Tax” attempts to get around this by prebating/prefunding the tax paid on necessities, and leaving the rate constant. A flat income tax without all the non-business exclusions and deductions in the USA tax code would avoid a lot of the complexity and probably 5000-8000 pages in the tax code and regulations.

I favor a flat 15% individual and corporate income tax with no non-business exclusions/deductions, 15% consumption tax, and 15% social security (7.5/7.5, with no wage/salary cap) tax. That makes the USA a tax haven (lowest tax, or nearly so, in all 4 areas in the world), provides enough revenues to balance the budget and pay down the debt, and makes social security solvent for at least 75 years.

It would probably only balance the budget until politicians were given estimates of projected tax revenues.

No mention of real estate taxes?
Here in the UK real estate (aka council) taxes are strangely based on the 1991 value of your home and that value is capped at £320,000. There are seven tax bands and the highest rate is generally about three times the lowest rate. So a hovel in Mayfair or Chelsea pays one third what a multimillion pound mansion pays. But local councils set the rate so the lowest/highest rate is £576/£1728 in Westminster and £1463/£4390 in Liverpool. (Unfortunately, I don't live in a borough of Westminster.) I actually pay more real estate tax than Russian oligarchs if any still exist in London.

How the proposed tax system would work

(01-11-2023 11:09 AM)Hambone10 Wrote:  A flat vat with some form of prebate (including potentially just reversing FICA/FUTA to a credit for lower incomes or on the first 50k or so of earnings) would be my preference... and be VASTLY easier to administer

The problem with the FICA/FUTA offset is that those programs would then become woefully underfunded without substantial subsidy from general funds. Once they start tapping general funds, it's pretty much Katy bar the door.

Friedman's negative income tax (NIT) or the Boortz-Linder prebate/prefund (which is basically the NIT adapted to a consumption tax regime) avoid that problem.

(01-24-2023 08:10 AM)Owl 69/70/75 Wrote:  

(01-11-2023 11:09 AM)Hambone10 Wrote:  A flat vat with some form of prebate (including potentially just reversing FICA/FUTA to a credit for lower incomes or on the first 50k or so of earnings) would be my preference... and be VASTLY easier to administer

The problem with the FICA/FUTA offset is that those programs would then become woefully underfunded without substantial subsidy from general funds. Once they start tapping general funds, it's pretty much Katy bar the door.

Friedman's negative income tax (NIT) or the Boortz-Linder prebate/prefund (which is basically the NIT adapted to a consumption tax regime) avoid that problem.

The bold is absolutely key, and of course would be 'funded' (by that I mean, the money would be coming in) by the same VAT.

I do best with examples so I'll try...
YOu earn 100k (just to make the math easy). YOu actually 'earn' 107,500 because your employer pays 7.5% in fica/futa for you... your gross after that is 92,500.... so that is your buying power (I'm eliminating everything else for simplicity)... and we establish a 15% VAT.... but because you earn less than sat $110k, we don't intend for you to be taxed at all... so we've set the prebate at (in this example, again for) at $110k... so the goods that used to cost you 92,500 now cost you 107,500. You are indifferent... and the excess 15% goes to your FICA/FUTA, just as it would have before. You have paid zero in 'income' tax or VAT.

The guy earning twice your salary (and spending it all) also has his FICA funded and effectively pays 15% tax on the 'other half'... so a net tax rate of 7.5%. The guy who spends millions pays close to 15% in taxes (the first 100k is essentially 'free').

I think the rate should be something around 50k rather than 100, but I wanted to make it easy. Maybe its like 35k for an individual adding 20k for each child or something

The fica/futa reversal is all about the distribution mechanism in that if you currently earn $10/hr, you're really making $11.50 but 'taking home' $8.50. If we 'reverse' Fica on your check, putting 15% IN from the government rather than taking 15% out... your employer is indifferent as they pay $11.50 either way.... your check is for $11.50 which goves you a gross, but not net raise... and the government gets the 7.5% they fronted you and your employer when you spend it as opposed to when you earn it.

Which of course means if you're able to NOT spend any of it, you essentially get a 15% return on your investment with 'government' risk, which is unheard of.

Ham I'm confused by your example(s).
$100k are your earnings
£107.5k is your compensation (earnings + employer's FICA contribution at 7.5%)
$92.5K is your disposable income (earnings less the employee's FICA contribution at 7.5%)
Before your VAT 'rebate', $80,435 is your "buying power" (ex VAT) assuming a flat VAT of 15% on everything ($92.5k/1.15)
If you're not subject to VAT then your buying power is $92,500 (ex VAT). (disposable income = buying power)
And $92,500 (ex VAT) = $106,375 (with VAT)

I'm not sure how the goods you previously paid $92.5K ($80,435 + $12,065 VAT) now cost $107,500?

The UK has a simple way around the Social Security (State Pension) funding issues. All the taxes go into one pot. Once the current tax revenue is exhausted to pay current expenses the government borrows the shortfall. The accrued State Pension liability is not recognized because it is not accrued. It is not accrued because it cannot be accurately estimated.

(01-24-2023 11:21 AM)MerseyOwl Wrote:  Ham I'm confused by your example(s).
$100k are your earnings
£107.5k is your compensation (earnings + employer's FICA contribution at 7.5%)
$92.5K is your disposable income (earnings less the employee's FICA contribution at 7.5%)
Before your VAT 'rebate', $80,435 is your "buying power" (ex VAT) assuming a flat VAT of 15% on everything ($92.5k/1.15)
If you're not subject to VAT then your buying power is $92,500 (ex VAT). (disposable income = buying power)
And $92,500 (ex VAT) = $106,375 (with VAT)

I'm not sure how the goods you previously paid $92.5K ($80,435 + $12,065 VAT) now cost $107,500?

The UK has a simple way around the Social Security (State Pension) funding issues. All the taxes go into one pot. Once the current tax revenue is exhausted to pay current expenses the government borrows the shortfall. The accrued State Pension liability is not recognized because it is not accrued. It is not accrued because it cannot be accurately estimated.

Vat is not currently applied.... so earnings of 92.5 aren't 80k + vat, but are 92.5 because you pay 15% of your 107 in fica/futa. I took income taxes out just for simplicity.

My idea is that we pay you 100% of your earnings including your employer contributions... and then collect the 15% VAT on what you spend. This would raise the gross cost of goods from 92k to 107k (92,500 you earned and purchased before, plus the new 15% VAT)... and the government would take that 15% and put it into your FICA/FUTA account. We're collecting the same dollars on the same work, just through purchases vs through earnings. We're putting the same dollars in fica/futa, just collecting this through sales tax/VAT as opposed to through payroll taxes.

For earnings above that amount (and I chose 100k for ease, I think it should be lower) fica/futa would cease to be advanced and would instead be collected... and the vat would go to the general fund and not to fica/futa.

We've spoken about the idea that VAT acts as a tariff and that still holds, but an additional benefit is that this now also encourages (at least up to the limit) people to report income as they get a 15% prebate.... whereas every spent dollar is taxes... so if you report earning 100k (using my simple math example) and then you spend 200k because you're working off the books for another 100k, you pay 30k in taxes and get 15k back in FUTA... a 7.5% gross tax rate, but a 15% NET tax rate (since you didn't report 100k in earnings).
You would have paid zero in taxes and gotten 15k back in FUTA under the 'original' premise.... a -15% tax rate.... that's essentially a 30% penalty for under-reporting your income.

For the wealthy man who currently reports next to zero income and then spends 1mm, he pays no taxes at all under the current scheme. In the proposed one he would pay 150,000 in taxes. That's a meaningful difference... all progressive and all 'to the benefit' of those that we spend 1,000 pages and hundreds of bills trying to accomplish.

Ham
VAT is an adjustment for the price; sales tax is an adjustment to the price.
That's why the VAT numbers don't work. A straight sales tax would.
Sorry for the confusion. One shouldn't conflate VAT and sales tax. My bad.

(01-27-2023 10:50 AM)MerseyOwl Wrote:  Ham
VAT is an adjustment for the price; sales tax is an adjustment to the price.
That's why the VAT numbers don't work. A straight sales tax would.
Sorry for the confusion. One shouldn't conflate VAT and sales tax. My bad.

My bad as well/moreso... You're one well versed in VAT while I'm speaking mostly to people who are not. The 'new' price (adjusted for VAT) would have the same buying power as the 'current' price (I ignored sales tax for simplicity... assuming it would remain, though I'm sure it would be easier to simply make VAT/consumption tax higher, but you follow, I think.)

I'm really advocating for a consumption tax or yes, a national sales tax... but I don't want to confuse it with our current sales taxes which have thousands of exemptions and adjustments. For our purposes, it acts like VAT does for Europe in that it raises the cost of goods purchased there, but not exported... though I realize the mechanism (where the tax is applied) is different.

Thanks for the reminder so I don't keep calling it a VAT