An income cap tax proposition.

Discussion in 'Budget & Taxes' started by Daarcand, Jul 7, 2011.

  1. unrealist42

    unrealist42 New Member

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    The poverty level is a bad joke that has nothing to do with the cost of living. Why not just exempt the first $40,000 of spending for every household? That way all would be assured of not being taxed on reasonable living expenses.

    Used goods are exempt from the tax? Tax avoidance would be rampant. There would be no new goods sold as everything would be magically classified as used, especially those that are most expensive. Yachts and mansions are more often sold as used goods than new. The progressive benefit is dubious at best.
     
  2. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    I also agree that the "official poverty level" is ambiguously low which is why I choose to establish the prebate level at twice the official poverty level. The prebate is to cover the taxes imposed on those necessities that a person must purchase. A person does not require $40K/yr in necessities and a simple exemption, which would be virtually impossible to track, does not provide the same benefits as a prebate. The prebate actually rewards low income workers for being frugal.

    By way of example instead of buying new Levi jeans at Sears and paying the consumption tax they could buy used Levi jeans at a thrift store and avoid the tax. In many cases the prebate puts additional money into the pockets of the poor by providing additional income that would not be used for the consumption tax because of frugal spending habits. In that regard it is very progressive. The more income a person has the less likely they are to buy secondhand goods.

    Nothing can be "magically" classified as used. For example, a yacht that is purchase abroad, even if it was used at the time, when brought to the United States would be subject to the consumption tax. The consumption tax applies to all goods that have not previously been taxed. It only applies once to avoid double taxation on the same commodity.

    It is true that real estate is predominately "used" and taxes would not be collected on the actual purchase of the property/residence but then they are not a part of the national GDP as they are not new goods produced or services provided during the year. That does not imply that such transactions are tax free. The real estate agents fees are certainly taxable so yes, a mansion could sell for $10 million and 6% would be real estate agent fees and those fees would be taxable as it is a service provided. That alone would represent $600,000 in taxable expendatures and if we assumed a 25% tax the consumption tax would be $150,000. We can also assume that an individual purchasing a mansion would also have substantial expendatures annually related to improvements and maintenance all of which would be taxable under a consumption tax. In short it would result in a constant flow of tax revenue because of the associated costs related to owning a mansion.

    This would be less applicable to a small single family home where the homeowner is maintaining the yard and structure although commodities, such as paint, would be taxed but the home owner could paint their own home avoiding a tax on the work that a paint contractor could provide. The total cost of the tax, because many things can be done by the individual, is voluntary but the wealthy are far less likely to avoid it. The wealthy are not likely to purchase a used Mercedes but an average income worker very probably would (or a used Chevy or whatever) and so the average person, not the wealthy, is more likely to benefit from the consumption tax where the wealthy are far more likely to pay it. In either case it is voluntary but used goods only last so long and people like new "stuff" and are willing to pay the tax and it is actually less expensive to pay the consumption tax than it is to pay the income taxes we have today.

    Once agian let me also remind everyone of the huge economical benefit of the consumption tax which is not applied to goods exported. It reduces the cost of those goods, such a Caterpiller tractors and Boeing airplanes, by approximately 20% or more increasing US exports. That will increase the number of manufacturing jobs as sales increase. We will produce more which creates more high paying manufacturing jobs and all of that leads to more spending. More spending results in more taxes being collected. Instead of a trade deficit the United States would realize a trade surplus. The People are better off, the ecomony is better off and the government is better off. It is a huge win-win-win situation that many seem to ignore.
     
  3. unrealist42

    unrealist42 New Member

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    Sales of used goods are quite substantial, your calculations could be way off with this exemption unless you have some firm data on how much goods are sold new and how much are sold used.
     
  4. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    The GDP represents the production and sales of new goods and services annually. It does not represent used goods.

    Used goods, such as used cars, have a limited life expectancy as repair costs soon exceed the value of the vehicle. We already "recycle" goods when it is economically viable to do so. There would be little change in this reselling of goods as most goods do have a life expectancy beyond which they are no longer really usable. The demand for new clothes, cars, TV's and Ipods will continue.

    Remember one important fact and that is the standard of living goes up under a consumption tax. People have more disposable income and the cost of goods and services goes down as adminstrative costs to business related to taxation goes away. The simple fact that 80% of all corporations pay $3.84 in adminstrative costs for every $1 in taxes the government collects from the enterprise reflects the amount of savings that will be realized. When compounded through the supply chain it results in a 20% or greater reduction in the average cost of a product or service.
     
  5. liberalminority

    liberalminority Well-Known Member

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    It would work if it applied to the net income of rich companies, they need to be threatened to reinvest since they are sitting on trillions of dollars and not spending it.

    The only way for government to force them to reinvest is by giving them tax incentives to avoid paying high taxes but this would not work if republicans continue to allow them to escape taxation.
     
  6. Slyhunter

    Slyhunter New Member Past Donor

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    Correction, it won't work if Democrats continue to allow them to escape taxation. GE is a prime example of how Democrats help to keep billionaires from paying taxes.
     
  7. OldManOnFire

    OldManOnFire Well-Known Member

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    These are misguided comments??

    Most businesses are driven by the potential of profits and growth, and those with millions of shareholders are held accountable to achieve the best possible ROI.

    If any of them could simply invest some cash and create lots more business, assuming the risk-assessment is okay, they would be doing this!

    And unlike you and others who don't save for a rainy day, many corporations have realized that they MUST maintain enough cash on hand to maintain their business through down-economies. To not do this is reckless and careless!

    A business cannot force more customers with unnecessary spending! Sales come from demand of the consumer...not from how much money the company spends.

    Having the government punish or penalize industry for making profits or having cash on hand...is stupid at best...
     
  8. unrealist42

    unrealist42 New Member

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    No, GDP represents sales of goods and services and some other things, it does not exclude goods like used cars and previously occupied houses which are quite substantial. It excludes most sales of used goods in flea markets and other private sales since they are difficult to quantify.

    Maybe these corporations should have considered how much their relentless lobbying would cost them in future administrative costs of navigating the increasingly byzantine tax law they worked so hard to create.

    The one important fact to remember is that corporate lobbying is what created the current tax code complexity. There is no sympathy from me that they are now being preyed upon by tax accountants and lawyers to the tune of $3.84 for every dollar in tax they pay. If they had just paid up instead of gaming the system their administrative costs would be trivial.

    It is completely disingenuous to complain about a tax code that stifles business since business worked so hard for so long to make it what it is. It is akin to complaining that you cannot breath after burying yourself under a hundred pillows.
     
  9. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    This is incorrect as the definition of Gross Domestic Product does not include the resale of used goods previously produced and sold to the consumer.

    http://education.yahoo.com/reference/dictionary/entry/gross domestic product

    The US economy is larger than the GDP. As I have noted land cannot be considered as a component of the GDP because land is not produced. Improvements to the land, such as building a structure on it, are a component of the GDP because it is something produced.

    Understanding simple economic terminology is essential to understanding a discussion of a consumption tax. For example a consumption tax is not a value added tax which is imposed during the supply chain during product realization. It is only applied at the "retail" level where consumption occurs.
     
  10. unrealist42

    unrealist42 New Member

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    Can you cite some official something that explicity states that the sales of used cars and previously occupied buildings is not included in GDP calculations?
    I have not found anything that does. It seems to me that sales of used cars and previously occupied buildings are not excluded from gross sales figures used to calculate GDP.
     
  11. Landru Guide Us

    Landru Guide Us Banned

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    GNP doesn't include resales. GDP does, but I believe the inclusion is limited to the "value added" portion of sales from companies in the business of selling used cars. An individual sale of a used car has no added value and hence isn't (as I recall) picked up in GDP.

    http://www.enotes.com/business-finance-encyclopedia/gross-domestic-product-gdp

    http://www.investopedia.com/articles/07/gross-national-product.asp#axzz1Vtm1kG7P
     
  12. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    A quick search did not reveal this information but we must accept the definition of GDP which is the limited to the annually produced goods and services in a year and does not include anything produced in prior years or that is not produced at all (e.g. land). Of course the government and others can "cook the books" by including "used goods" but that is merely to deceive the public as it is outside of what GDP actually represents.
     
  13. unrealist42

    unrealist42 New Member

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    No, I don't think I can go along with that especially considering how the volume of used building sales dwarfs the sales of new buildings.
     
  14. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    "Used buildings" have already been taxed which is why they would not be taxed again. Of course maintenance, renovations, and improvements would be taxed in the year where those expendatures are made. The fees related to a real estate sale, such as real estate agent commissions and escrow fees, would be taxed as those are services being provided related to the sale of the property.

    The point being to avoid double taxation. Once taxed a commodity would not be taxed again. The federal government gets it's "piece of the pie" when a commodity is comsumed for the first time and that is all. Obviously the tax rate would need to reflect this but there is a very valid argument that the People should not be required to pay double taxation on commodities. If we merely look at this from the perspective of the middle class and poor then it makes sense to not tax them again for purchasing a used car or television where the taxes were already paid when it was sold new.
     
  15. Phoebe Bump

    Phoebe Bump New Member

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    Nah, the country doesn't need more supply. It needs more demand at root level. The supply will follow. This would be a good time to turn all that investment income into ordinary income and tax it progressively.
     
  16. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    This hits the nail on the head with a sledge hammer.

    During the housing boom when individuals were allowed to secure loans and purchase homes regardless of credit score, employment, debt to income ratio, ect. millions of homes were built in excess of what people could afford. The crash of the housing market which was inevitable resulted in between 2.5 and 3 million excess homes being on the market above what qualified individuals required. Until those homes are consumed based upon demand there are no financial reasons to build more homes. This lead to unemployment in the new home construction industry and millions of jobs were lost. Because of the loss of those millions of jobs many millions of other jobs were lost based upon the domino effect of economics.

    The recession will end once demand for new homes returns and that won't happen so long as there are still a couple of million excess existing homes.

    Supply and demand. It's that simple and so many seem to miss the point that there is an excess supply of single family homes related to demand. The resultant unemployment is the cause behind the lack of government revenues and this is unrelated to the tax rates. Increasing taxation would be counter productive in many respects because it would reduce disposable income resulting in lower demand for the excess homes that have already been built.
     
  17. unrealist42

    unrealist42 New Member

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    Yes, supply and demand. When income becomes concentrated to the extent it is now, demand will not necessarily increase even with population growth. This has become especially apparent in household formation which has historically averaged about 1 million a year. Lately new household formation is about 700,000 a year due to decreases in income which has kept young people at home. New household formation is the driver of home sales, pushing up prices and spurring new construction at an average rate of 1million a year.

    It will be impossible to acheive this again unless income gains become less concentrated at the top, which has received all of the income gains of the last decade and now receives more than half of all personal income. It is also more problematic to clear the current glut of housing on the market as long as the incomes of those most likely to form new households continues to decline.
     
  18. OldManOnFire

    OldManOnFire Well-Known Member

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    Who cares about supposed income concentration unless they are jealous?

    What YOU and people should concern themselves with is their own personal life...period. As long as YOU compare yourself to others you will forever be disappointed! So stop comparing!!

    Every person who wishes to earn an income will earn whatever their potential might be and this will range from minimum wage to millions. Wherever an individual falls in this spectrum, this is what is available to that person to create their lifestyle. No matter this level of income, people need to live within their means. If this does not provide what they are looking for, then PEOPLE need to make changes to acquire more...not corporations or government or others...PEOPLE need to take responsibility to create the best possible life for themselves. If for whatever reasons a person is relegated to an income of $25K, then they should never think about buying new cars and owning a $250K home, etc. If $25K is it, then this is all there is!! And if this is all there is, then don't be looking at that stupid 'concentration of income' because it belongs to others. There is NO entitlement for anyone to own a home, drive a new car, etc. These are things that solely stem from one's potential of earning an income.

    This sounds harsh but it is reality...
     
  19. hiimjered

    hiimjered New Member Past Donor

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    Equal percentage and equal share increases in income and wealth always increase disparity. The only way to decrease it is if either the poor gain more than the rich or that the rich lose what they have. Neither is likely to happen due to the behaviors that cause the rich to be rich and the poor to be poor in the first place.
     
  20. unrealist42

    unrealist42 New Member

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    Yess master I will put my nose back on the grindstone.

    What you should do is say something relevant to the present conversation rather than trying to derail the thread with completely idiotic ranting and personal attacks.

    Now, do you have something relevant to say about the current problems in the housing market or the economy or what?
     
  21. Albert Di Salvo

    Albert Di Salvo New Member

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    There aren't enough rich sheep to shear. Even if there were, the super wealthy will not allow themselves to be taxed to the degree necessary to pay for a third world welfare state with a huge military. The super rich will move their wealth beyond America's control. Capital is globalized now and the sense of community is gone because of multi-culturalism.

    The only alternative for the left is to shear those folks who can't escape them. That would be the middle class. If the left does that the Black middle class will disappear completely, and the White middle class will become a shadow of its former self.

    There is an inexhaustible supply of poverty moving north from Latin America. Each such family has five children. Then each of those children has five children. There's no way to pay for it all.
     
  22. Phoebe Bump

    Phoebe Bump New Member

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    I'd build excess homes too if my home building company was 1) traded on Wall Street, 2) there was so much cash waiting to invest in my company from the tax breaks, and 3) if I knew I was going to walk away with $millions even if my subdivision never sold a single house.
     
  23. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    Of course none of the above didn't generally happen but that doesn't mean people won't make allegations that it did. I'm sure there were exceptions but generally developers that were caught in the crash took a financial bath and many went out of business.

    "Tax breaks" are inherent in the income tax system but don't exist with a consumption tax (with prebates) which is a huge reason for replacing the income tax system with a consumption tax.
     
  24. Phoebe Bump

    Phoebe Bump New Member

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    That's probably true for small local builders. It ain't at all true for the publically traded builders.
     
  25. OldManOnFire

    OldManOnFire Well-Known Member

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    If we use today's federal government per capita spending of $11K per citizen, and multiply this by the government forecasted population in 2050 of 400 million, the annual federal government budget will be around $4.4 trillion. Today, the federal tax income is about $2.2 trillion...so the math says that in the next 39 years, that general federal income taxation will need to DOUBLE!

    If you wish to keep the same tax rates and as a percentage of tax revenue to GDP, which is about 15.7% today, then in order to raise $4.4 trillion in 2050 and not increase tax rates, the GDP will need to increase to about $28 trillion.

    Whether it's doubling the taxation or doubling GDP...both are formidable issues which are going to cause enormous problems! And in parallel with this population growth we are sitting on $14 trillion in debt and trillion$ deficits meaning by 2020 the debt might be $20 trillion!

    So how can we characterize today what type of economy/society we will have in 2050, considering we will need to double the federal tax income (this does not include similar increases at local and state level governments), and in parallel we will have at least a $20 trillion debt, and in order to increase GDP by $14 trillion this requires the private sector creation of about 140 million new jobs???

    This is precisely why I wrote another thread about the USA has or is reaching critical mass! I'm not smart enough to explain my position, but I can guess that in the longer term of 40-50 years and beyond, the USA is in big trouble...
     

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