Isn't it time for a consumption tax?

In a recent discussion, a tangent regarding tax policy developed in which I stated that I would support a consumption tax, much like the FAIR Tax, but with a couple of caveats, changes that I would make.  This post will describe the tax I would implement to replace the income tax.

Basic Structure:
The Consumption Tax (CT) that I would create would not have a set percentage rate, but would have a "base rate" set each year (automatically, no ability for politicians to interfere) to generate the amount of money spent by the federal government plus five percent.  This implementation has a couple of goals, the first of which being a balanced budget and the second being a plan to retire the debt over time.  In addition, setting the tax rate based on last year's spending would create a completely transparent system of taxation as everyone would be completely aware of government spending because the base rate would rise with increased spending.

Exemptions:
I would give every adult a $5000 annual tax exemption and the parents of dependent children $2500 for each child.  This exemption would be implemented using the same infrastructure that currently exists for food stamps and flex accounts.  I would exempt food and medicine from the tax and, after the debt is paid off, would give a CT holiday every year at back to school time, much like Texas does already.

Application:
The CT would apply to new goods and would not be charged on used items.  Refurbished goods would only be taxed on the value of the new parts used to refurbish the item.  Applying the tax only to new goods would give people a market in which they could avoid the tax altogether if they wanted.  This application would also encourage the production of more durable goods as such products would hold their resale value.  It is likely that such a system would encourage more recycling of products rather than the production of disposable goods that are so prevalent today.

Optional component:
It is my opinion that some goods should have higher tax rates applied to them than other goods due to the potential for societal damages or costs that are higher.  The prime examples would be tobacco products (which cause cancer, leading to higher healthcare costs for people who use these products).  For such products, I would allow for a "tax multiplier" to be applied.  If the tax multiplier were 1.5, then the base tax rate would be multiplied by 1.5 to calculate the total tax rate for that product.  This kind of system would ensure that tax rates would be completely transparent if the product in question was taxed at a higher rate than the base rate.

Response to Mark...

This blog post is a response to a convoluted comment in a Facebook thread. Since Facebook comments do not allow the formatting options I needed to create a reasonable response, I decided to compose my response here.

Andy, again this is not a personal attack. I do not know more about your business experience except that you work in IT.

When you don't know something about someone, don't assume that their business experience is "limited" simply because they don't subscribe totally to your ideology.

As for the principles discussed, you did not state why you felt there to be a logical fallicy or a strawman.

The logical fallacy specifically has to do with these lines from the quote you provided...

"You cannot strengthen the weak by weakening the strong.
You cannot help little men by tearing down big men.
You cannot lift the wage earner by pulling down the wage payer.
You cannot help the poor by destroying the rich.
You cannot build character and courage by destroying men's initiative and independence."

Using taxes to create a social safety net is not "weakening the strong," "tearing down big men," "pulling down the wage payer," "destroying the rich," or "destroying men's initiative and independence." Anyone who makes these claims is engaging in the logical fallacy of creating a straw man. You are misrepresenting the effects of using taxes to pay for the social safety net when you use the second half of each of the quoted sentences.

Since we are in a forum more conducive to discussing this at length, I will address the other lines of your quote as well...

"You cannot further the brotherhood of man by inciting class hatred."

Though there are certainly many people who hate and/or are jealous of the upper class, this sentence applies just as much to the right as to the left. In the Facebook thread alone, there were several references to the "entitled class." In other words, you have engaged in just as much "class hatred" as the people who you are accusing of the same.

"You cannot keep out of trouble by spending more than you earn.

You cannot bring about prosperity by discouraging thrift.

You cannot establish sound security on borrowed money."

For these lines, I am going to copy and paste from the Facebook thread...

I completely agree about the "discouraging thrift" line. That is the reason I am such a strong proponent of replacing the income tax with a consumption tax (the FAIR tax, with a couple of caveats) so that our tax policy encourages and rewards saving money over spending it.

I further agree with the "borrowed money" line, which is the reason that I find all the talk from the GOP about our deficit and debt disingenuous. Reagan and GWBush are the two biggest reasons that we have the debt we have now. I would rather have a tax and spend Democrat than a borrow and spend Republican any day.

The "spending more than you earn" line is true to a point, though there are legitimate times and reasons to run a deficit. Nobody would have said to FDR "we can't fight the Japanese, we don't have enough money" after Pearl Harbor.

Then there is the one I haven't talked about directly...

"And you cannot help men permanently by doing for them what they can and should do for themselves."

This is another quote with which I completely agree. As I said several times in the Facebook thread, I would be happy to see further welfare reform to ensure that it is a hand up rather than a handout, but I continue to maintain that the number of people who depend entirely on welfare, food stamps, and the like is minuscule.

If we can stick to one area of discussion more can be accomplished as I too am willing to listen and consider all opinions.

This is an interesting comment given what followed...

By the way, I am not a Fox junkie. It is usually Morning Joe on msnbc mixed with Squawk Box on cnbc in the am. I usually get some c-span during the day. I do watch Brett Bair on Fox in the evening.

My personal opinion is that all of the 24 hour "news" networks are steaming piles of manure. They are entertainment in news clothing, and do nothing but add to the vitriol and venom present in our political process. My advice: read your news, you will get a better picture of what is actually happening and you will be able to fact check it more easily than you can a television personality's comments.

Your data about Texas and California were fairly limited comparisons. My stories were not just about people moving out, but reflected discussions with business leaders in both states.

Exactly, your stories were just that, stories. You talked with a few businesspeople in California and made a conclusion based on those stories. I posted that Texas has a $19 billion budget shortfall in a $1.2 trillion economy while CA has a $25 billion shortfall in a $1.8 trillion economy. In other words, Texas has a larger deficit to GDP ratio than California does. You would have had a much better argument if you had researched the issue and posted this article from Politifact which states that 61 businesses moved from CA to TX from January to August of 2010. Even that factoid doesn't indicate massive waves of businesses moving out of California as the data includes branch openings and moves where the headquarters stayed in CA while an office moved or opened in Texas.

My opinions are my own. You accuse of dishonesty, while acting like you didn't know that John was referring to income tax in his opening remark.

Of course I knew what he was talking about, but what he said wasn't accurate, it was dishonest, it was a lie. Anyone who says that half of Americans don't pay taxes deserves to be called out as a liar because they are lying.

You have not responded regarding moral haszards of 47% percent not paying any income tax. If you want I can go find the msnbc link to the supporting information. You have not responded regarding 50% of income taxes being paid by 5% of the population.

The problem here is that you are ignoring ALL of the other taxes, most of which are extremely regressive (affect the poor and middle class more than they do the wealthy). When you ignore the other taxes, you miss the fact that the wealthy actually pay a smaller percentage of their income in taxes than the middle class, much less the poor. I don't see any moral hazards at all in 47% not paying income tax, nor in 50% of income taxes being paid by 5% of the population. I am part of that 5% and since I enjoy the benefits of living in American society, taxes are the price I have to pay.

You casually treat a 3% tax increase as if it were nothing. That figure applied to a business profit & loss is the difference between a company profit and a company loss, the stuff that jobs depend on.

You're right, I treat a 3% increase in the marginal tax rate for income over $212,300 as exactly what it is, virtually nothing. Your second sentence goes on to conflate business taxes (which we aren't discussing in this context) with personal income taxes. Someone with an income of a half million dollars a year (all wages, no dividends or capital gains, which are taxed at a lower rate) would see a tax increase of $9,834 for a total net increase of 1.96% of their total wage income. That isn't enough money to hire even one person, so claiming that this kind of small increase in taxes is going to keep people from hiring is hyperbolic at best.

As for your support of a Health Care Act. Obama promised a new error of transparent government. We got exactly the opposite with that process.

I disagree. Congress spent 14 months designing and debating the bill. Obama invited GOP and Democrat Congresspeople to a seven hour long meeting to discuss healthcare on C-SPAN (I know, I watched the entire thing). That is about as transparent as you can possibly get.

The President said that people could keep their existing insurance if they liked it. Talk about dishonesty. Many small businesses cannot afford to maintain health insurance with the rising premiums.

I'd love to see where you are getting you opinion, given that in one year, it is estimated that small businesses will save $6 billion from the time ACA was passed in 2010 through 2011.

People are loosing coverage, not gaining it.

I would like to see any data that supports your assertion here. Given that 30 million people are set to receive coverage that was previously unaffordable or unavailable to them, it seems unlikely that enough companies would drop coverage to make up for the millions who will be covered under the Act.

The costs will be picked up by higher taxes not stable premiums. Many major corporations have had huge premium increases in health premiums including Federal employee programs. You cannot reduce costs with the proposed increase in benefits and numbers covered.

If you read the reports on the Act, there are cost controls that will come into effect over time. I agree that the cost controls were not as extensive as they could be, but that is due to the GOP and conservative Democrats ditching the ideas of single payer and the public option. Those are things we can get right as we amend the Act over time. As far as huge premium increases, those are not due to the Act, those have been happening for more than a decade...

The Federal government has never been able to deliver a product or service for less than private enterprise has. Amtrack and the USPO immediately come to mind. Health system changes are needed indeed, but his is absolutely not it.

Let's focus on healthcare. The federal government does provide healthcare to a population that consumes more of those services than any other group, the elderly. The government is able to do this because its administrative costs are so low compared to private insurers. Here is a description based on the Kaiser Foundation's attempt to debunk what they call the "myth" of the 3% overhead. In the discussion, he specifically says that the Medicare overhead cost is about double the estimates of ACA supporters, which puts the overhead at a whopping 6%. That is compared to the insurance industry's low end estimate of 15%, two and a half times as much overhead as Medicare.

Then, you need to remember that absolutely nothing in the ACA can be reasonably construed as the federal government directly providing healthcare to more people than it already does. There are plenty of regulations being put onto the insurance industry, but even the people who the government is proposing to cover (the aforementioned 30 million) are going to be covered in the private insurance market. There isn't any expansion of Medicare, no public option, no single payer, nothing like that.

Aside from the economics, there is not the small loss of freedom being forced. Today you must buy an insurance policy, tomorrow you will be dictated to buy a particular car.

Everyone in America is a healthcare consumer. Hospitals are mandated to treat people regardless of their ability to pay (as it should be). I say that we are mandating personal responsibility, nothing more. The states currently do this with auto insurance for people who make the choice to own and operate a motor vehicle. Humans these days begin consuming healthcare resources starting at about their eighth week in the womb. It seems reasonable to me that if you are not willing to purchase an insurance policy, the government should be able to recoup in taxes some of the money that you will eventually cost the taxpayer when you go to the ER as the result of an accident or when you get a horrible disease for which you must be treated.

Of course, this is a "slippery slope' argument, which cause an involuntary eye rolling for me because the "slippery slope" is rarely anything more than a scare tactic, no matter which side uses it.

You haven't addressed my comments about the real estate bubble or mortgage markets either.

I didn't address this (except to say that blaming it on one political party is silly) because we weren't talking about it. However, if you would like to discuss it, please read this article for some background so that we are both dealing with facts and available evidence rather than blaming one or the other political party for a crisis that was years in the making and caused by thousands of different players.

Violence is not up on Arizona border

I was out yesterday with my mother and stepfather, among others, and the conversation came to the situation along the border. I mentioned the article I am linking while trying to make the point that border violence, at least on the American side, is down over the last ten years.

The strange part was the reaction it generated in my mother, who cited several anecdotal examples of violence. She was absolutely adament that I was wrong and was unwilling to even consider that the statistics and number based analysis presented in the article had any validity at all. It makes me a little sad that she is willing to completely discount everything I say on any subject related to politics and the only reason I can see is that I lean closer to the middle than she does.

I love you, Mom, but anecdotal evidence is less useful than measurable statistics. You are a scientist, you know that.

Violence is not up on Arizona border###

Erick Erickson asked a question...

That I would like to answer. In his 5/11 RedState Briefing, he asked...

How Is Elena Kagan ‘More Representative’ of America?

Well, Erick, as the third SCOTUS member who is a woman, she brings us closer to the 50/50 demographic breakdown of men to women in this country. If she is homosexual then she would be more representative of the 2-3% of our population. There have been 111 SCOTUS justices, so her presence would still be less than 1% of the total number of justices.

Ericson also decried the alma mater of Kagan, ignoring the fact that George Bush's SCOTUS nominees were also from Harvard Law and Yale Law. In addition, he took issue with replacing "the last veteran" on the court with a non veteran "in a time of war," again ignoring the fact that if that criteria were applied to Roberts and Alito, they would have come up short in a time of war as well. Apparently, there are two different sets of standards for nominees in Erickson's mind, one for conservatives and another for liberals.

But who cares about hypocrisy anymore, it is just SOP.

Some people just keep lying...

...to misrepresent the views of other people.

One of my morning readings every day is the newsletter from RedState. Today, Erick Erickson went so far as to claim that the American Academy of Pediatrics, and by some incomrehensible extension the entire progressive movement, actually condones the practice of female genital mutilation (FGM).

In order to get our definitions straight, FGM is an abhorent practice in many parts of Africa in which female children have their clitoris removed before they reach childbearing age. In the misogynistic cultures in which this procedure is performed, women aren't supposed to derive pleasure from sex and as such, the clitoris becomes superfluous equipment. The entire thing is disgusting and is used to oppress women as they have for centuries in those cultures.

There are a number of pediatricians in the United States who perform a ritual for families from those cultures in which they nick the clitoris with a scalpel or razor, a cut that heals completely and has no lasting effects. In many cases, it has been reported that the doctors never actually touch the girl with the cutting instrument, merely wave it over the girl in a symbolic gesture to fulfill the requirements of the ritual. This was the procedure that the AAP endorsed over the surgical removal of the clitoris.

Of course, our doctors routinely engage in male genital mutilation in the form of circumcision, the removal of the foreskin of the penis. This procedure has at least a basis in reality as a penis with the foreskin is more difficult to clean and more prone to spreading sexually transmitted diseases including HIV to women. In addition, there is a significantly higher prevalence of penile cancer among men who have never been circumcised comared to those circumcized at birth.

Unfortunately, this wasn't the only lie in the post to which I am referring. The author went on to imply that the entire progressive movement, in the form of Hollywood, is busy being apologists for Roman Polanski. I'm not generally one to agree with the Church of Scientology, but in an interesting turn of events, not a single Scientologist has defended Polanski and there are many other Hollywood types who did not sign on to the petition asking for his release. Most of the people who signed the petition were French citizens and, much as some people would like it to be so, Whoopi Goldberg does not represent the entirety of the progressive movement. For anyone who wants a fuller account of the situation than what RedState is putting out there, here you go. Despite the claims that nobody in Hollywood is condemning Polanski, it sure seems that there are a lot of people out there doing just that.

I hate it when people lie and I truly despise it when they lie for political gain. There are so many legitimate reasons to disagree with people on the other side of the political spectrum that there is no excuse for misleading or lying to people.

Tsk, Mr. Erickson

How to disagree...

I just read a fantastic article on how to disagree agreeably. It lays down many of the common ways that people disagree in an uncivil manner and describes why those methods aren't civil. I highly recommend it for anyone who wants to talk about our political process.

You're not helping...

This message is to the person or persons that had an envelope filled with white powder delivered to Jan Brewer's (Governor of Arizona) office.

Cut it out, YOU'RE NOT HELPING!!!

Our political process and dialogue is in bad enough shape that we don't need some lame, stupid, threatening bullshit like this. All you are doing is feeding the noise machine on the other side of the aisle and muddying the waters for anyone who wants to have a reasonable discussion with our fellow Americans regarding politics and the political process.

Jan Brewer is a public servant who is doing what she feels her constituents want to do. You don't have to agree with her, you have every right to disagree. You have every right to write her, email her, fax her, or protest her, but you do not have the right to pull stupid shit like this. Please, for the love of God, stop it.

By the way, the exact same thing goes for whoever mailed a letter with white powder in it to Anthony Weiner with a note about the recent healthcare bill. You don't have any more right to pull this kind of moronic stunt than the people on the other side of the aisle.

So, once again, to anyone of any political persuasion who thinks mailing white powder to public officials might be a good way to exercise their First Amendment rights...

YOU'RE NOT HELPING!