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In Newsweek by Fareed Zakaria

http://www.newsweek.com/id/234277" onclick="window.open(this.href);return false;

First, adopt a value-added tax. More than 100 countries have some kind of a national sales tax. If America were to enact one tomorrow, at something like the average for industrial countries (18 percent), and drop income-tax rates to compensate somewhat, we could bring in hundreds of billions of dollars every year... Such a tax, Leonard Burman calculates in the University of Virginia Tax Review, would bring in enough money to balance the federal budget, pay for health-care expansion, eliminate the income tax for all those earning less than $100,000 (90 percent of households), and cut the top tax rate to 25 percent. The tax would also restrain Americans from over--consuming and reward them for saving, the single most important long-term shift we need to encourage.

Second, end the massive, distorting subsidies for home-ownership, health care, and agriculture. These three subsidies together cost the federal government about $250 billion a year. All of them encourage behavior that is bad for the economy. The interest deduction on mortgage has encouraged the massive accumulation of debt that is at the heart of the current crisis. (No, it does not encourage homeownership. Neither Canada nor Britain has the subsidy, and both have slightly higher rates of home-owner-ship than we do.) Tax exemptions for employer-based health plans encourage overconsumption of health services—a point on which economists from both left and right agree. Agricultural subsidies, mostly handouts to large agribusinesses, are so egregious and market-distorting, one doesn't really know where to begin.

Finally, make sensible adjustments to entitlements. The most important fix is to tie benefits to rises in inflation, not wages, a seemingly technical matter, but one that could save the government hundreds of billions of dollars. Then raise the retirement age by a couple of years, and link it to life expectancy, which increases by three months every year. This is not impossible. Germany just raised its retirement age to 67. In fact, many European countries have fixed their pension systems so that they will be solvent for decades, even longer.

Thoughts ...

Giddy up...I support a consumption tax.

ASUMountaineer wrote:Giddy up...I support a consumption tax.

Only if its accompanied by a drastic reduction or elimination of income tax. If not its just another VAT.

danefan wrote:

ASUMountaineer wrote:Giddy up...I support a consumption tax.

Only if its accompanied by a drastic reduction or elimination of income tax. If not its just another VAT.

Agreed, and that's what the article suggests (though it doesn't suggest eliminating the income tax except for people making under $100K).

Such a tax, Leonard Burman calculates in the University of Virginia Tax Review, would bring in enough money to balance the federal budget, pay for health-care expansion, eliminate the income tax for all those earning less than $100,000 (90 percent of households), and cut the top tax rate to 25 percent.

http://www.fairtax.org

danefan wrote:

ASUMountaineer wrote:Giddy up...I support a consumption tax.

Only if its accompanied by a drastic reduction or elimination of income tax. If not its just another VAT.

That's the key issue....our politicians never cut taxes drastically...and don't talk to me about elimination of a tax...

You're correct, df....very, very correct...but offered an opportunity to increase income (and thus spending), our politicians have proven time and time again that that additional money must be spent on projects that could not get funded last time around...

Political suicide, no matter how rational and well thought out the plan might be. The mob will not go for it.

hank scorpio wrote:Political suicide, no matter how rational and well thought out the plan might be. The mob will not go for it.

I'm sure people thought that in 1913 too, but they were wrong then...there's always hope...isn't that what people voted for in 2008?

Going from net spenders to net savers (or vice versa) takes a generation or two. Movement toward the system you suggest will take a lot of incremental baby steps over several administrations (assuming that they could maintain focus over that amount of time). To suggest this as a congressman right now would get them an express ticket back to their district.



http://www.ibtimes.com/articles/2009062 ... sisted.htm" onclick="window.open(this.href);return false;

ASUG8 wrote:Going from net spenders to net savers (or vice versa) takes a generation or two. Movement toward the system you suggest will take a lot of incremental baby steps over several administrations (assuming that they could maintain focus over that amount of time). To suggest this as a congressman right now would get them an express ticket back to their district.

I think differently...if there was an 18% consumption tax, I could control what I pay in taxes, and could/ would pay less overall in taxes each year. Now, many people won't understand that, so you're right that politicians would have a hard time convincing others, but like I said...if politicians could convince people in 1913 to give up their income in taxes, surely they can convince voters to pay a consumption tax (within control) and get their income back. If my local representative came out with support for a consumption tax, I'd definitely be a one issue voter when giving them my vote in the next election.

ASUMountaineer wrote:

hank scorpio wrote:Political suicide, no matter how rational and well thought out the plan might be. The mob will not go for it.

I'm sure people thought that in 1913 too, but they were wrong then...there's always hope...isn't that what people voted for in 2008?

No, people voted for greed...just greed for other people's money. Same thing as usual, just different demographics voting for their own type of greed.

Say, if, "tax exemptions for employer-based health plans encourage overconsumption of health services—a point on which economists from both left and right agree" - and that is a problem, then why is he advocating that the VAT be used for health care expansion?

This would take a concerted bi-partisan effort on the part of Congress to educate the public on the proposals.

In other words - it will never happen.

http://www.fairtax.org" onclick="window.open(this.href);return false;

ASUMountaineer wrote:

ASUG8 wrote:Going from net spenders to net savers (or vice versa) takes a generation or two. Movement toward the system you suggest will take a lot of incremental baby steps over several administrations (assuming that they could maintain focus over that amount of time). To suggest this as a congressman right now would get them an express ticket back to their district.

I think differently...if there was an 18% consumption tax, I could control what I pay in taxes, and could/ would pay less overall in taxes each year. Now, many people won't understand that, so you're right that politicians would have a hard time convincing others, but like I said...if politicians could convince people in 1913 to give up their income in taxes, surely they can convince voters to pay a consumption tax (within control) and get their income back. If my local representative came out with support for a consumption tax, I'd definitely be a one issue voter when giving them my vote in the next election.

As has been noted, the problem isn't adding a new type of tax...it is getting rid of the old types of taxes. That simply won't happen.

The government would not need a new tax if we controlled spending.

ASUMountaineer wrote:

ASUG8 wrote:Going from net spenders to net savers (or vice versa) takes a generation or two. Movement toward the system you suggest will take a lot of incremental baby steps over several administrations (assuming that they could maintain focus over that amount of time). To suggest this as a congressman right now would get them an express ticket back to their district.

I think differently...if there was an 18% consumption tax, I could control what I pay in taxes, and could/ would pay less overall in taxes each year. Now, many people won't understand that, so you're right that politicians would have a hard time convincing others, but like I said...if politicians could convince people in 1913 to give up their income in taxes, surely they can convince voters to pay a consumption tax (within control) and get their income back. If my local representative came out with support for a consumption tax, I'd definitely be a one issue voter when giving them my vote in the next election.

I just can't see our Congress agreeing to scrap income taxes. Color me skeptical, but rarely will a government retrench their spending and if there is some possibility of lesser taxes coming in we'll see increases in property taxes, vehicle registration,etc. to make up the difference. I understand your point about controlling your own taxes, but I just think it's too radical for the US consumer to understand and embrace in the shorter term - it would take implementation incrementally over a number of years, which wouldn't be a bad thing. Given that the CBO can't tell us how many jobs were created with the stimulus, I somehow have some inherent doubt in their ability to forecast a totally new taxation system.

ASUG8 wrote:Going from net spenders to net savers (or vice versa) takes a generation or two. Movement toward the system you suggest will take a lot of incremental baby steps over several administrations (assuming that they could maintain focus over that amount of time). To suggest this as a congressman right now would get them an express ticket back to their district.



http://www.ibtimes.com/articles/2009062 ... sisted.htm" onclick="window.open(this.href);return false;

You do realize that the "savings rate" calculations RARELY include 401k $$, right? That's why, as 401k's came into vogue, the mythical "savings rate" has plummeted. I'd be very careful about using THIS as some kind of marker or performance measurement.

Cluck U wrote:

ASUMountaineer wrote:
I think differently...if there was an 18% consumption tax, I could control what I pay in taxes, and could/ would pay less overall in taxes each year. Now, many people won't understand that, so you're right that politicians would have a hard time convincing others, but like I said...if politicians could convince people in 1913 to give up their income in taxes, surely they can convince voters to pay a consumption tax (within control) and get their income back. If my local representative came out with support for a consumption tax, I'd definitely be a one issue voter when giving them my vote in the next election.

As has been noted, the problem isn't adding a new type of tax...it is getting rid of the old types of taxes. That simply won't happen.

The government would not need a new tax if we controlled spending.

Interesting concept on reforming taxation, "it won't happen, why discuss it." I prefer to think about improving things.

Got any thoughts to the idea of a consumption tax other than, "it won't happen?"

ASUG8 wrote:

ASUMountaineer wrote:
I think differently...if there was an 18% consumption tax, I could control what I pay in taxes, and could/ would pay less overall in taxes each year. Now, many people won't understand that, so you're right that politicians would have a hard time convincing others, but like I said...if politicians could convince people in 1913 to give up their income in taxes, surely they can convince voters to pay a consumption tax (within control) and get their income back. If my local representative came out with support for a consumption tax, I'd definitely be a one issue voter when giving them my vote in the next election.

I just can't see our Congress agreeing to scrap income taxes. Color me skeptical, but rarely will a government retrench their spending and if there is some possibility of lesser taxes coming in we'll see increases in property taxes, vehicle registration,etc. to make up the difference. I understand your point about controlling your own taxes, but I just think it's too radical for the US consumer to understand and embrace in the shorter term - it would take implementation incrementally over a number of years, which wouldn't be a bad thing. Given that the CBO can't tell us how many jobs were created with the stimulus, I somehow have some inherent doubt in their ability to forecast a totally new taxation system.

I don't necessarily disagree with you, but I don't think that should stop an attempt at trying. Regardless of how many times Cluck says it's impossible. So was beating the British in the revolution, so was landing on the moon, so was beating the Russians at hockey...just saying, if something is right, it's worth working for...and the elimination of the income tax is worth working for.

Cluck U wrote:

ASUMountaineer wrote:
I'm sure people thought that in 1913 too, but they were wrong then...there's always hope...isn't that what people voted for in 2008?

No, people voted for greed...just greed for other people's money. Same thing as usual, just different demographics voting for their own type of greed.

Say, if, "tax exemptions for employer-based health plans encourage overconsumption of health services—a point on which economists from both left and right agree" - and that is a problem, then why is he advocating that the VAT be used for health care expansion?

I don't know why he's advocating for health care expansion, you'd have to ask him. His "proposal" isn't really one, check out the link I (and blueballs) posted and you'll find some answers.

An off-topic point, he's advocating for health insurance expansion, not health care. Big difference (whether he or the politicians acknowledge the difference), which I suspect they know, and that's why they use the term "health care," much like "climate change" vs. "global warming."

ASUMountaineer wrote:

Cluck U wrote:
As has been noted, the problem isn't adding a new type of tax...it is getting rid of the old types of taxes. That simply won't happen.

The government would not need a new tax if we controlled spending.

Interesting concept on reforming taxation, "it won't happen, why discuss it." I prefer to think about improving things.

Got any thoughts to the idea of a consumption tax other than, "it won't happen?"

See, you missed it because you have a conservative, unopened, liberal mind (see Cleetious Mindnummyness thread).

It was right there...an easy concept, really. Instead of contemplating a new tax, how about reducing spending?

Improving things doesn't always = more taxes.

Well, sort of dubious that this can really generate more tax revenue. VAT receipts are normally overestimated, and there is additional costs incurred for the accounting part of it. And people, especially under $100k, typically pay little in income tax as it is right now - as in most VAT systems, low income people are typically exempt from VAT's (or get subsidies) so that the tax system is still progressive. Unless we're talking about not doing that here, again, where is all the extra money coming from or are we just masking a huge tax hike in this proposition? (and if it's a huge tax hike, are we pretending this won't have a chilling effect on consumption?).

You can certainly make an argument that mortgage deductions could be removed, but again, that can't happen overnight. The vast majority of this country has their personal finances based on getting those deductions, so that would need to be phased in over several years, if not decades. And again, what you're really doing is raising the amount someone needs to pay in taxes when you say you'll do away with the deduction. What will take awhile is that prices of homes will need to readjust as people will not be able to afford large priced homes (not a bad thing, per se, but it's a complete reconfiguring of the economy and especially that sector).

And as for the health care, I think it's obvious that the main problem we have is that we overuse the system we have now and that we want the best and newest of everything - whether it be drugs, or equipment, or what have you. Any real cost cutting in that area is going to have to address this and it will have to limit the ability of people to get any care they want whenever they want it. When you do that, people will complain about care now being managed and restricted and while there's overuse galore today, it will still be a hard sell.

The ideas aren't bad, but they're not overnight fixes, especially the mortgage deduction. And I really have trouble seeing how a switch to a VAT tax to instantly shoot up tax revenue is going to be anything other than a cover for what would just be a massive hike in income taxes (rather than hiking the income taxes you lower them and just start a new, larger tax in the VAT) in order to get the additional revenues that are being claimed.

Cluck U wrote:

ASUMountaineer wrote:
Interesting concept on reforming taxation, "it won't happen, why discuss it." I prefer to think about improving things.

Got any thoughts to the idea of a consumption tax other than, "it won't happen?"

See, you missed it because you have a conservative, unopened, liberal mind (see Cleetious Mindnummyness thread).

It was right there...an easy concept, really. Instead of contemplating a new tax, how about reducing spending?

Improving things doesn't always = more taxes.

Think before you type. I didn't miss it, I saw it, and...wait for it...wait for it...I agree. However, I also think taxing people's income is WRONG, and therefore, I support eliminating the income tax.

I support a consumption tax IN PLACE of an income tax. You see, Cluck, I didn't say we needed to add additional taxes (as you suggest I did--once again, you're wrong). Interesting description of my mind though (conservative, unopened, yet liberal). You couldn't be further from the truth, but why let that get in the way?

mortgage deductions should end immediately - they are counter-productive.

ag subsidies should also end immediately

ASUMountaineer wrote:

ASUG8 wrote:
I just can't see our Congress agreeing to scrap income taxes. Color me skeptical, but rarely will a government retrench their spending and if there is some possibility of lesser taxes coming in we'll see increases in property taxes, vehicle registration,etc. to make up the difference. I understand your point about controlling your own taxes, but I just think it's too radical for the US consumer to understand and embrace in the shorter term - it would take implementation incrementally over a number of years, which wouldn't be a bad thing. Given that the CBO can't tell us how many jobs were created with the stimulus, I somehow have some inherent doubt in their ability to forecast a totally new taxation system.

I don't necessarily disagree with you, but I don't think that should stop an attempt at trying. Regardless of how many times Cluck says it's impossible. So was beating the British in the revolution, so was landing on the moon, so was beating the Russians at hockey...just saying, if something is right, it's worth working for...and the elimination of the income tax is worth working for.

I'm not saying we shouldn't attempt something new, so don't put me in the "change is bad" corner. I'm just saying it's tough to completely change over overnight. Tax policy is nothing if not fluid and continuously changing. Unfortunately there aren't enough people in Congress who have actually ever balanced a checkbook, so they have no concept of "spend less than you earn". I don't know when it became in vogue to continue spending at a breakneck pace when unemployment is at near-depression levels and the tax base is depleted. They've thrown a few trillion at the economy so far and the unemployment rate continues to rise and yet the pork barrel spending is alive and well. We need to clean house in the biggest way possible.

ASUMountaineer wrote:

Cluck U wrote:
See, you missed it because you have a conservative, unopened, liberal mind (see Cleetious Mindnummyness thread).

It was right there...an easy concept, really. Instead of contemplating a new tax, how about reducing spending?

Improving things doesn't always = more taxes.

Think before you type. I didn't miss it, I saw it, and...wait for it...wait for it...I agree. However, I also think taxing people's income is WRONG, and therefore, I support eliminating the income tax.

I support a consumption tax IN PLACE of an income tax. You see, Cluck, I didn't say we needed to add additional taxes (as you suggest I did--once again, you're wrong). Interesting description of my mind though (conservative, unopened, yet liberal). You couldn't be further from the truth, but why let that get in the way?

And you, again, missed the point.

I didn't say a consumption tax wouldn't happen, despite you, in two consecutive posts, jumping to that erroneous conclusion. A consumption tax probably will happen. Nothing new...it's just a state sales tax with a different name. No surprise there,

Now, what I said was that that getting rid of the old taxes won't happen. Go back and read and you will see your error. Then you can apologize in two consecutive posts and keep asking yourself why you think that people always say things won't happen...you know, because you're different.

Now, I also followed up and said that we wouldn't need a new tax if we controlled our spending.

Following so far?

Now let's deal with reality. The writer wants to implement a new tax so that we can get rid of all of our debt. You posted his article. By most accounts, we won't be paying off our debt anytime soon - especially with new spending on the horizon, so he is proposing a way to improve our ability to pay that debt off faster. Gosh, how would he do that? Let's review his quote:

..."and drop income-tax rates to compensate somewhat..."

"Somewhat".

In other words, increase taxes. Meaning to not get rid of all the old taxes. As in, "As has been noted, the problem isn't adding a new type of tax...it is getting rid of the old types of taxes. That simply won't happen.

The government would not need a new tax if we controlled spending."

See, that wasn't that hard to follow, was it?

Your apology is accepted...if you can behave yourself in the future.

GannonFan wrote:Well, sort of dubious that this can really generate more tax revenue. VAT receipts are normally overestimated, and there is additional costs incurred for the accounting part of it. And people, especially under $100k, typically pay little in income tax as it is right now - as in most VAT systems, low income people are typically exempt from VAT's (or get subsidies) so that the tax system is still progressive. Unless we're talking about not doing that here, again, where is all the extra money coming from or are we just masking a huge tax hike in this proposition? (and if it's a huge tax hike, are we pretending this won't have a chilling effect on consumption?).

You can certainly make an argument that mortgage deductions could be removed, but again, that can't happen overnight. The vast majority of this country has their personal finances based on getting those deductions, so that would need to be phased in over several years, if not decades. And again, what you're really doing is raising the amount someone needs to pay in taxes when you say you'll do away with the deduction. What will take awhile is that prices of homes will need to readjust as people will not be able to afford large priced homes (not a bad thing, per se, but it's a complete reconfiguring of the economy and especially that sector).

And as for the health care, I think it's obvious that the main problem we have is that we overuse the system we have now and that we want the best and newest of everything - whether it be drugs, or equipment, or what have you. Any real cost cutting in that area is going to have to address this and it will have to limit the ability of people to get any care they want whenever they want it. When you do that, people will complain about care now being managed and restricted and while there's overuse galore today, it will still be a hard sell.

The ideas aren't bad, but they're not overnight fixes, especially the mortgage deduction. And I really have trouble seeing how a switch to a VAT tax to instantly shoot up tax revenue is going to be anything other than a cover for what would just be a massive hike in income taxes (rather than hiking the income taxes you lower them and just start a new, larger tax in the VAT) in order to get the additional revenues that are being claimed.

Nice job of outlining some of the holes in the ideas presented by Zakaria. I wonder if phasing in a new system might be beneficial in that it will help to give the people who currently hold our debt confidence that we are actually doing something about it. I also agree with ASUM that a consumption tax could be a good thing in that it encourages people to manage their tax level by consuming less and saving more. That might be a problem in the short term in that less consumption would impact American businesses but long term it would mean that more funds would be naturally available for investment (as opposed to the Fed artificially creating a feeling of stability and availability by printing more money). It could also have a positive impact on the trade deficit.