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Why not "the One Tax". It's a 1% vat tax on every business transaction during the course of every business day. And that's 1% on everything, nothing escapes, and no one suffers. Cato and Vom Mises have both studied it. Said the government would take in trillions

Landsburg appears a bigger fool on this issue here than he already did on Slate.com. He keeps going on about HIS pet notion, which is the "universal unlimited IRA", and not the "Fairy Tax" (you know, the magic tax that kills the big bad IRS). Brian should have made some attempt to get him back on track. He can talk about his pet plan all he wants, but he was invited to defend Huckabee's "plan".

Neither guest discussed how a Fair Tax would work for retirees, when money is spent, not saved. First, while there may be some retirement income, expenditures are likely to be greater and result in negative savings. Thus, with an income minus savings approach, all income would be taxed. Second, again referring to retirees, there seems to be no way to transition to a consumption tax that would not be a form of "double taxation," i.e., retirees who spent an entire working life paying taxes on income, would now again be taxed on those dollars when spent.

It is so infuriating to hear these "lofty" professionals talk about what would be "good for the poor." You need to ask them if they have ever been poor and to demonstrate in real numbers how their proposals would benefit a poor person rather that spouting theories that are supposed to benefit this purely theoretical group called "the poor".

I would like Len Burman to take a look at my family's income and expenses on a monthly basis and show me in a practical sense how my savings would grow in the tax scenario he proposes. These things make for interesting theories and probaly increases his income through book sales but unless he walks in the mocassins of the so-called "poor" he is pretending to advocate for his ideas do not hold any water with me.

You and your producers should get some over-educated, under-employed folks struggling at the lower end of the "middle class" to come in a rebut your lofty guests. The tone of your conversations reveal that neither you nor your guests can demosntrate real empathy with poor people. It is just an intellectual exercise for you all.

Do NOT truckle to Huckabee by calling his proposed national sales tax "the Fair tax". Fair is a normative word suggesting moral justice. Most of the time, you have said "national sales tax" but at least once in discussion and in the program notes, you use Fair Tax without any adjective such as "Huckabee's so-called Fair Tax". This is as fair as Fox is fair and balanced.

Sales taxes are fundamentally regressive taxes. Even if some adjustments are made to accommodate the bottom end of the economic scale, it will remain a regressive tax. The same superrich who most benefit by proposals to have all taxes based on wages and not on earnings on investment will be the big winners in any national sales tax scheme. It is tough to spend much more than a few hundred thousand a year so someone earning more than a million whose wealth and property is protected by our tax dollars will get a nearly free ride.

Meg

Why not have a luxury goods sales tax - speedboats, yachts, luxury cars, diamonds over a certain size etc. It could not and should not replace progressive income tax but it's a lot fairer than a flat sales tax on everything.

And I agree with the comment that points out that in UK the tax revenues pay for every single person to receive good health care. And I am fed up with hearing people here say that it's a bad health care system. I benefitted from it for half a century and it is a whole lot better than the health care I receive here for which I pay a fortune and have to spend endless hours shuffling through paperwork and making phone calls.

Well, on the one hand, maybe we should consider this as a possibility. If we make survival completely impossible for the country's poor, perhaps they'll rise as one and slay the guys who came up with this.

cc

I agree with those who mention that poorer people, including myself who used to think he belonged to the middle class, live sometimes paycheck to paycheck, spending on rent food, and NYC expenses like subway travel. Having a consumer tax line on how much did you save on your tax form, is rediculous.

Sorry to call names, but this guy on the show is an idiot. He completely ruined the segment for me. Obviously, the poorer you are, the more you have to spend. And how do you prove how much you saved? What if you give a lot of money away to friends and family? What about people who keep cash? What happens if you get robbed or simply lose a lot of money?

This supporter is not only completely unprepared, letting the other guy point out all the flaws without any facts to counter, but he's also hostile, defensive and showing himself to be rather naive. Is this really the best person that could be found to make the argument in favor of it?

The opponent, by comparison, is cool and composed.

Bonnie,

.2% of someone's income at $10,000 per year (below the poverty line) would be $20 in federal taxes a year.

One way or another, we have to raise about 35% of income to close the budget. And, if we implement a National Sales tax, it will encourage savings but discourage consumption, which powers the economy. Its like the price of the dollar- when it goes up we can import goods more inexpensively, when it goes down, we can export goods more inexpensively. Its a balance.

Since the total tax burden is always the same, and increasing one tax always damages some other economic behavior, the real key is complexity. Complex systems make it IMPOSSIBLE for people to plan for the future, makes it easy to cheat, and makes it impossible for pliitical incentives to work, because no one can figure out how the incentive will really work. ANY SIMPLE PLAN IS BETTER. But VAT and Income taxes with thousand of exceptions are not simple.

there are potential benefits to multiple points of collection.

a system that taxes the difference between earnings and savings is still vulnerable to under-reporting of income.

spliting federal taxes between a vat and an income tax would reduce the impact of any single instance of evasion.

(ie, unreported income still gets spent so there's a second chance to tax it. a given vendor may collude in evasion, but another might not, etc.)

how would business, lobbyists, or any congress member allow this to pass?

yes we need to save more, but discouraging americans from spending money would draw outrage from every business of every kind.

Hello,

Listener originally from France (the country that invented the VAT) and now living in California.

There's a difference between "sales tax" and "Value added tax." Value added tax is paid at every step of the supply chain. Even though the overall tax is the same for the consumer, it is much harder to evade, because a retailer has no incentive not to charge it when the wholesaler charges it.

Western Europe usually uses VAT, US States usually use sales tax. Wikipedia has a nice article on the differences.

Another problem is that this "sales tax" is unlikely to replace the income tax, and it will end up being yet again one more tax.

Tony

The caller talking about VASt in UK and taxes generally there was totally and absolutely wrong.
VAT is 17 and a half %. Income taxes rise to 40% from 10%. Savings income rates are 10%. There is no, repeat no, state tax and local taxes are a max of %2,000 per year not thousands and thousands for local and school taxes here. My husband and I work out that we pay identical amounts overall in both countries.
You should please correct these facts.
Plus there is enormous cheating on
VAT by small businesses who have to a) register and often do not and b) do returns to the tax people quarterly.

UK VAT is 17.5%, not 30% as a call misleadingly stated.

75% of US economic activity is based on consumption. Whether or not you disagree or agree that is the way it should be, a VAT would be ruinous to the American economy which would cascade down to the third world countries who now depend on us for income and survival.

Whenever I hear talk of a "flat tax" being "fair" I remember my high school economics class lessons. Yes, a flat tax is paid equally by everyone, but its affects are very different. When Warren Buffett pays the tax it is coming out of his "throw away" fund and represents a teeny part of his income. When that same amount is paid by the fellow who mows the lawn or by the postman or the garbage man it represents money that they no longer have available to pay for clothing, housing and food. And given that New Yorkers already pay the highest percentage of their income in the nation for housing, over 30% on average, a flat tax here will mean real hardship in a way that the income tax can't because it is adjusted for income so that the wealthier, theoretically anyway, usually pay more-- both in absolute dollars and as a percentage of income-- and the less wealthy pay less. A flat tax can in no way be a fair tax.

Establishing a "fair" tax would be the most unfair thing our country could do to income polarization. The super rich in our country do not primarily live off of income, they live off of investments. Money earned off stock options, bonds, trust funds, etc would all be out of the reach of the tax system. This is what the Republicans have wanted to achieve since the beginning of the 1970s.

People that propose these types of tax reductions forget is that any economy is based on the circulation of money. As much as I agree most people need to save a lot more, the people that are going to be most affected would be families who's 'disposable income' is much larger than their necessary expeditures.

A small number of families would quickly amass huge empires, with all future generations never needing to work (contribute back to society), and still growing the fortune from investments.

This creates the robber-barron situation that contributed to the Great Depression. So not only is it a complete of any notion of a "level playing field", and replacement with a silver-spoon system, it would be terrible for the overall economy.

You keep asking from the LEFT. Just for exercise please look at it from the RIGHT.

The IRS is the best friend of many of America's richest.

I think we need to just go back to the days when the government just set a couple of armed guys around with a big sack and you had to dump your money into it.

What would inevitably happen is that the rich would use connections to avoid this tax at every major purchase.

Brrian: don't get lost on methodology. This kind of tax is ineherently unfair because the percentage of consumption of the poor relative to their income is a lot higher than that of wealthy people, who save more and consume less relatively to their income (how many multi -million dollar houses can you buy?)

Mike Gravel is proposing a national sales tax as well, but when I heard him propose it, he suggested that tax rates change based on product type and price.

For instance, if food, clothing, and rent X% under the local real estate average is not taxed, but clothes that cost $500 a piece or more are taxed at 40%, you actually start to tax consumption.

The idea of a consumption tax needs to target those who consume the most. If you are a billionaire you are more likely to use more resources than a poor person. You fly more, you buy more expensive clothes, and you buy more property.

This way you create incentives to stop consuming, which is also a greener policy.

So if your tax rate is based on your income minus your saving you essentially get penalized for paying off a student loan?

What would this do to philanthropy?

Why can't we just have a flat tax rate for income tax? I once crunched these numbers and it came out that everyone would have to pay .2% of their income under a flat tax scheme with no deductions or loopholes.

The disconnect here is American in kind. VAT taxes and all other taxes in Europe pay for the social programs that we look down on. They pay these "exorbitant" (our term) taxes but don't pay exorbitant medical bills and health insurance bills. We like to call it socialism so we can put it down and leave it for big business to get their free market way by overcharging us, the middle class, and rip us off. How's that for being bitter!

England's VAT tax is typically under 18%.

What happens to state sales taxes?

Taxing people's spending, as in income minus spending, will selectively penalize people whose spending is not voluntary and easily reduced. E.g. families must spend more than people without children; New Yorkers must spend more on housing than people in other regions. On top of our higher necessary expenses, we have to pay higher taxes as well? It seems like the pols will do anything they can to avoid taxing wealthier citizens proportionally.

So basically you're going to need a whole new massive bureaucracy to replace the IRS, aren't you? I mean, it's not like you've got a total loss of one giant bureaucracy, and it's really misleading to say that you will be rid of it.

I mean the amount of tracking required for this is staggering (much like the IRS tracking requirements is staggering).

I think we should do away with the Federal Reserve as it has caused the whole problem since it was introduced illegally... See:

http://zeitgeistmovie.com/

I think it is around the 111 minute mark of the movie.

The taxes could then be a flat line amount per your difference of earnings to expenditures per annum.

John

The "Fair Tax" discussion misses one huge problem - double-taxation of existing savings and its effect on the elderly.

I paid income tax on money I earned up to now, when I spend that money I'd pay national sales tax on it.

Retired people who paid income tax all their lives would suddenly find themselves taxed as heavily as when they were working. Many who planned well for retirement would be in a lot of trouble.

this proposal is a joke that would be harder to work than the current system. imagine the huge black market...the huge bureaucracy needed to give people their money back.

obviously it would discourage spending- a recipe for disaster in itself.

the real point of this proposal is to starve the fed. gov- and eliminate most programs besides nat. defense. let's just be honest.

i thought the founding fathers original tax system was to be on prifits, not income - this would eliminate all the burdens you're discussing, w/out all the confusion

It seems that the fair tax policy would significantly discourage tourist purchasing!

Brian - the poor would get a prebate every month. Check out fairtax.org

Sales Tax is much easier to evade than Income Tax.

I took two semester of economics in graduate school at columbia. If sales tax increases, doesn't consumption decrease? And then what?

Also -- would this mean that our richest citizens, who would admit gaining this status by avoiding tax or getting breaks by the billion, would lose tax -- or at least the IRS -- as the source of their fortunes?

I'm sure those Big Pharma lawyers busy as we speak suing generic makers would not be happy -- their salaries are write-offs.

It's hardly fair because the poor spend all or most of their income while the rich don't.

But aside from that, in a society where consumerism is what keeps the economic pistons pumping, why wouldn't a 30% increase in the price of EVERYTHING discourage consumption and consequently lead to overproduction, job cuts, and a slow down in the economy?

Why not consider the VAT tax so widely used in Western Europe and also considered a "leapfrog" tax by some planners of emerging economies?

As it stands Huckabee's tax would seem fairest at a state and town level -- where schools and infrastructure is often paid in full by property owners and businesses alone.