PolySciFi Blog

Monday, February 25, 2008


Democrats for the FairTax

Here - it's argued along the lines of soak the rich (wealth, not income) / help the poor (eliminate payroll taxes), which is unfortunate from my perspective (don't like the group-oriented mindset as opposed to the individual / institution mindset), but I've long thought the FairTax was a no-brainer for Democrats (eliminate payroll taxes + tax wealth) and Republicans (improve economic efficiency).

Side note - if you think you'll get a lot of tax avoidance under the FairTax because of its high rate (23 or 30% depending on your perspective), consider a self-employed person who pays income taxes at 35 (fed income) + ~7.65 (ss + med) + 5 (state income) = 47.65%. Not naming names, but they just might now make as many things as possible a business expense and be actively looking for as many ways as possible to shelter income (see the SEP, for instance - up to $45,000 annual tax free contribution - yeah, tax free savings / Red Stripe, boo inefficient lock-in effects).

That hypothetical person might currently be legally avoiding maybe half of his taxes and thus would likely pay more under the FairTax, but recognizes that under an income tax his decisions are being made horribly inefficiently (ceteris paribus, but approximately optimal given the tax structure), that he's losing an insane amount of time on adminitrivia1, and doesn't like the massive privacy invasion inherent to an income tax.

1. For a practical example of adminitrivia time, my company had 7 "sales" last year (engineering services go for a smidge higher than retail), but 500ish billable expenses. I have to keep track of both expenses and sales under the current tax system, but only sales under the FairTax. Which do you think takes more time? (Hint, I lose a 1-2 hours a week accounting for expenses, but lost maybe 3.5 hours all year accounting for sales). Add in my tax compliance cost inherent to interfacing with an intruisive government, and a *lot* of time gets lost (one of the reasons I blog less than I used to, and have a bad habit of leaving posts unfinished).

Note that even companies which have more sales than expenses are not made worse off time-wise, and most of those kinds of companies are retailers who are already implementing sales taxes.

2. Contra-Boortz I don't expect the reduction in embedded taxes to be enough of an offset to fully compensate those living off of their wealth - e.g., seniors. But I think that can be best handled in other ways, like modifying the SS payout.


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