Fair Tax vs. Flat Tax: Why Income Taxes destroys US jobs

[kaz]

This topic has come up in discussions, so I decided to start a threat to explain it. It's sad that government schools teach government, they don't teach capitalism. Capitalism is just a term for economic freedom.

Let’s say we have two employees, one is worth Three times as much as the other Joe is worth $10 an hour, Steve is worth $30. Worth is determined by the marketplace. If an employer pays them less than their value, they are unhappy, their work quality drops and they eventually leave for an employer who recognizes their value. Pay them more and they are happy, but their employer is unhappy because they are not getting their money’s worth. They push them more, raise the bar and if they can’t cut it they eventually replace them.

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings. Steve is only taking home $22.50 an hour, but he’s worth three times as much as Joe who is taking home $10. So what happens?

Option 1) Nothing. Steve just gets to keep $22.50 an hour after taxes. Now his motivation drops, he’s unhappy. That causes him to work less hard. Steve is still better than Joe, but he’s not as productive as he was. He’s getting $22.50 an hour, that’s the value he works towards providing. He stops working late when required, takes on fewer hard tasks, that sort of thing.

Option 2) Steve gets a raise to $40 an hour. He pays 25% in taxes, and his take home is back to three times Joe. Steve is happy, his employer is paying the taxes, they raise the price of their products and their customers actually pay the tax.

Now, keep in mind, it’s not just Joe and Steve, it’s all the Joes and Steves who make up the marketplace. All the Steves are unhappy unless they are getting their fair compensation. Since government raised taxes across the board, companies have to pay it, the taxes are driving all the Steves across the marketplace to not be happy unless they get their $40 an hour so their take home is $30.

For the economists/finance people out there, I realize there are other implications, like it changes the NPV of projects and the increased prices affect sales, that sort of thing, but I’m trying to stay with this point to keep the discussion simpler.

So now to my points on comparing a flat income tax versus the Fair Tax.

1) Income tax harms US companies competing with foreign companies in the US. On average, US companies have more employees in the US than foreign. So, by charging taxes as a percent of payroll, you’re charging US companies more to sell products in our own markets.

2) Income tax drives companies to automate and reduce jobs. If you automate, you not only get rid of the employee’s salaries, but also their taxes. If you charge a percent of the sale, you are taxing it either way, including if they automated.

3) Income tax drives manufacturing overseas. Again, you build it here, you pay your employees taxes. You build it overseas, you don’t.

 

[The Rabbi]

Your knowledge of "capitalism" sucks. Part of being a narco, I guess.

Steve isn't unhappy that he's making more than Joe. He might not even know about it. Steve looks at his options. Anywhere he goes with a base pay of 30/hr he will only take home 22.50. So he might very well have the best option, especially if you count in benefits not taxed, like health insurance, vacations, and other perks.

Your final points repeat the canard that companies pay taxes. They do not.

If you tax income, you lessen purchasing power. If you tax final goods, you lessen purchasing power. They are two sides of the same coin.
Now the bonus: politically is it easier to flatten brackets, eliminate deductions, and lower the overall rate or invent a new system from scratch and scrap the old one?

 

[OohPooPahDoo]

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings.

No he isn't.

At 40 hrs a week Steve would would have to make over $96/hr for Obama to want to raise taxes on him.

So your hypothetical is stupid.

EDIT - you are also confusing PRICE with WORTH. PRICE is what the marketplace determines.

 

[kaz]

Your knowledge of "capitalism" sucks. Part of being a narco, I guess.

Steve isn't unhappy that he's making more than Joe. He might not even know about it. Steve looks at his options. Anywhere he goes with a base pay of 30/hr he will only take home 22.50. So he might very well have the best option, especially if you count in benefits not taxed, like health insurance, vacations, and other perks.

I'm referring to two people, but they are just illustrative of how market forces work. That people aren't aware of their market value and salaries are arbitrary is reflective of a typical government school education. As demonstrated by your next point.

Your final points repeat the canard that companies pay taxes. They do not.

Actually in my example, neither the employee nor the company paid it. The customers did. Just as they are the ones who paid the Fair Tax. Try reading it again more carefully.

If you tax income, you lessen purchasing power. If you tax final goods, you lessen purchasing power. They are two sides of the same coin.
Now the bonus: politically is it easier to flatten brackets, eliminate deductions, and lower the overall rate or invent a new system from scratch and scrap the old one?

You should seriously take an economics 101 class and learn the basics about how markets function. It's pathetic that isn't required in high school. They would turn out fewer people like you who have no idea how markets function.

 

[kaz]

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings.

No he isn't.

At 40 hrs a week Steve would would have to make over $96/hr for Obama to want to raise taxes on him.

So your hypothetical is stupid.

 

[OohPooPahDoo]

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings.

No he isn't.

At 40 hrs a week Steve would would have to make over $96/hr for Obama to want to raise taxes on him.

So your hypothetical is stupid.

200k/2050 hrs = $96.15.

 

[kaz]

No he isn't.

At 40 hrs a week Steve would would have to make over $96/hr for Obama to want to raise taxes on him.

So your hypothetical is stupid.

200k/2050 hrs = $96.15.

And what does that have to do with anything?

 

[LeftofLeft]

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings.

No he isn't.

At 40 hrs a week Steve would would have to make over $96/hr for Obama to want to raise taxes on him.

So your hypothetical is stupid.

EDIT - you are also confusing PRICE with WORTH. PRICE is what the marketplace determines.

Eventually, you run out of Steve and Joes to tax at $96 / hour.....there aren't enough of them. Multiple Steve and Joes in other pay scales need to make up for the ephemeral Steve at $96/hr.

 

[Intense]

This topic has come up in discussions, so I decided to start a threat to explain it. It's sad that government schools teach government, they don't teach capitalism. Capitalism is just a term for economic freedom.

Let’s say we have two employees, one is worth Three times as much as the other Joe is worth $10 an hour, Steve is worth $30. Worth is determined by the marketplace. If an employer pays them less than their value, they are unhappy, their work quality drops and they eventually leave for an employer who recognizes their value. Pay them more and they are happy, but their employer is unhappy because they are not getting their money’s worth. They push them more, raise the bar and if they can’t cut it they eventually replace them.

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings. Steve is only taking home $22.50 an hour, but he’s worth three times as much as Joe who is taking home $10. So what happens?

Option 1) Nothing. Steve just gets to keep $22.50 an hour after taxes. Now his motivation drops, he’s unhappy. That causes him to work less hard. Steve is still better than Joe, but he’s not as productive as he was. He’s getting $22.50 an hour, that’s the value he works towards providing. He stops working late when required, takes on fewer hard tasks, that sort of thing.

Option 2) Steve gets a raise to $40 an hour. He pays 25% in taxes, and his take home is back to three times Joe. Steve is happy, his employer is paying the taxes, they raise the price of their products and their customers actually pay the tax.

Now, keep in mind, it’s not just Joe and Steve, it’s all the Joes and Steves who make up the marketplace. All the Steves are unhappy unless they are getting their fair compensation. Since government raised taxes across the board, companies have to pay it, the taxes are driving all the Steves across the marketplace to not be happy unless they get their $40 an hour so their take home is $30.

For the economists/finance people out there, I realize there are other implications, like it changes the NPV of projects and the increased prices affect sales, that sort of thing, but I’m trying to stay with this point to keep the discussion simpler.

So now to my points on comparing a flat income tax versus the Fair Tax.

1) Income tax harms US companies competing with foreign companies in the US. On average, US companies have more employees in the US than foreign. So, by charging taxes as a percent of payroll, you’re charging US companies more to sell products in our own markets.

2) Income tax drives companies to automate and reduce jobs. If you automate, you not only get rid of the employee’s salaries, but also their taxes. If you charge a percent of the sale, you are taxing it either way, including if they automated.

3) Income tax drives manufacturing overseas. Again, you build it here, you pay your employees taxes. You build it overseas, you don’t.

Agreed that the system, the way it is, is an embarrassment. I'd love to see a Tax code that was 100 pages or less. Income Tax V.S. Sales Tax? I'd go with taxing Income. Taxing Product or Services only promotes the Black Market. It does not need the encouragement. The Code needs to be simplified and made fully transparent.

 

[nitroz]

Flat rate of 7% for income tax. (State and Federal income tax would be no more than 14% of your paycheck. Medicare and Social security should be no more than 5% total)

 

[Wry Catcher]

This topic has come up in discussions, so I decided to start a threat to explain it. It's sad that government schools teach government, they don't teach capitalism. Capitalism is just a term for economic freedom.

Bullshit. Let the buyer beware Capitalism is legalized robbery.

Let’s say we have two employees, one is worth Three times as much as the other Joe is worth $10 an hour, Steve is worth $30. Worth is determined by the marketplace. If an employer pays them less than their value, they are unhappy, their work quality drops and they eventually leave for an employer who recognizes their value. Pay them more and they are happy, but their employer is unhappy because they are not getting their money’s worth. They push them more, raise the bar and if they can’t cut it they eventually replace them.

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings. Steve is only taking home $22.50 an hour, but he’s worth three times as much as Joe who is taking home $10. So what happens?

Option 1) Nothing. Steve just gets to keep $22.50 an hour after taxes. Now his motivation drops, he’s unhappy. That causes him to work less hard. Steve is still better than Joe, but he’s not as productive as he was. He’s getting $22.50 an hour, that’s the value he works towards providing. He stops working late when required, takes on fewer hard tasks, that sort of thing.

Option 2) Steve gets a raise to $40 an hour. He pays 25% in taxes, and his take home is back to three times Joe. Steve is happy, his employer is paying the taxes, they raise the price of their products and their customers actually pay the tax.

Now, keep in mind, it’s not just Joe and Steve, it’s all the Joes and Steves who make up the marketplace. All the Steves are unhappy unless they are getting their fair compensation. Since government raised taxes across the board, companies have to pay it, the taxes are driving all the Steves across the marketplace to not be happy unless they get their $40 an hour so their take home is $30.

For the economists/finance people out there, I realize there are other implications, like it changes the NPV of projects and the increased prices affect sales, that sort of thing, but I’m trying to stay with this point to keep the discussion simpler.

So now to my points on comparing a flat income tax versus the Fair Tax.

1) Income tax harms US companies competing with foreign companies in the US. On average, US companies have more employees in the US than foreign. So, by charging taxes as a percent of payroll, you’re charging US companies more to sell products in our own markets.

2) Income tax drives companies to automate and reduce jobs. If you automate, you not only get rid of the employee’s salaries, but also their taxes. If you charge a percent of the sale, you are taxing it either way, including if they automated.

3) Income tax drives manufacturing overseas. Again, you build it here, you pay your employees taxes. You build it overseas, you don’t.

You sure do simplify things. You left out general strikes, sit down strikes, boycotts and sabotage as well as the rest of the history of labor and The Humanities. You posit axioms without proofs or examples of real world consequences.

It's true some owners/managers act as you describe, but the consequences are not always to the benefit of anyone including the business. All businesses have a life cycle, successful ones train and keep their employees and pay and treat them fairly.

 

[The Rabbi]

Your knowledge of "capitalism" sucks. Part of being a narco, I guess.

Steve isn't unhappy that he's making more than Joe. He might not even know about it. Steve looks at his options. Anywhere he goes with a base pay of 30/hr he will only take home 22.50. So he might very well have the best option, especially if you count in benefits not taxed, like health insurance, vacations, and other perks.

I'm referring to two people, but they are just illustrative of how market forces work. That people aren't aware of their market value and salaries are arbitrary is reflective of a typical government school education. As demonstrated by your next point.

Your final points repeat the canard that companies pay taxes. They do not.

Actually in my example, neither the employee nor the company paid it. The customers did. Just as they are the ones who paid the Fair Tax. Try reading it again more carefully.

If you tax income, you lessen purchasing power. If you tax final goods, you lessen purchasing power. They are two sides of the same coin.
Now the bonus: politically is it easier to flatten brackets, eliminate deductions, and lower the overall rate or invent a new system from scratch and scrap the old one?

You should seriously take an economics 101 class and learn the basics about how markets function. It's pathetic that isn't required in high school. They would turn out fewer people like you who have no idea how markets function.

It is hysterical that you hold yourself out as some sort of knowledgeable person when you can't defend your points from brain dead leftists, much less me.

People do not know their market value. They only know what their options are at any given stage. They will take the best options available to them. This is behavioral econ 101, a subject obviously as foreign to you as basic Econ.
Progressive tax rates punish ambition and reduce earnings overall. A flat tax does away with that disincentive. Granted a Fair Tax would too, but again, which system would be easier to implement? Which one will have fewer unintended consequences?
I realize narco libtards don't live in the real world, allowing them fantasies like lower drug use results from laxer laws. But real life isn't like that.

 

[kaz]

Let me put some numbers to these to demonstrate the principle. BTW, we're actually not just talking about income tax, but all employee taxes including social security & medicare (employer and employee) unemployment, the cost of payroll services and so on. We're referring to the full taxes you pay for hiring an employee, not just what's on their stub.

So, suppose the price of producing a product in Steve and Joe's industry weighted average without employee taxes is $90. US companies pay an additional $10 per unit for all employee taxes.

For products sold in the us, 1/2 are sold by US companies, 1/2 are sold by competitors.

US companies have all their operations in the US, foreign companies have none.

We're assuming all else is equal comparison of the Flat Versus Fair taxes which are revenue neutral, or in other words the same tax is raised.

1) Income tax harms US companies competing with foreign companies in the US. On average, US companies have more employees in the US than foreign. So, by charging taxes as a percent of payroll, you’re charging US companies more to sell products in our own markets.

So, before profit, the cost to produce one unit is

Flat Tax
A foreign company = $90
A US company = $90 + $10 = $100

Fair Tax
A foreign company - $90 + $5 = $95
A US company = $90 + $5 = $95.

Hence my point the flat tax disadvantages US companies, the fair tax doesn't.

2) Income tax drives companies to automate and reduce jobs. If you automate, you not only get rid of the employee’s salaries, but also their taxes. If you charge a percent of the sale, you are taxing it either way, including if they automated.

Let's say a company investigates reducing staff by 1/2 to automate. Without taxes, they decide it's Net Present Value zero, meaning it's the same either way. In today's dollars, the cost of doing the project is exactly the same as the employee tax reduction. So they wouldn't do it. However, they save half their taxes by automating, so for taxes they do it.

By not doing the project.

US Companies = $90 + $10 = $100

By doing the project with the staff reduction where they only save employee taxes:

US companies = $90 + $5 = $95

Bye bye Joe and Steve.

3) Income tax drives manufacturing overseas. Again, you build it here, you pay your employees taxes. You build it overseas, you don’t.

Same calculation as the last one. They save their US taxes.

Fair Tax 3 - Flat Tax 0

 

[kaz]

It's true some owners/managers act as you describe, but the consequences are not always to the benefit of anyone including the business. All businesses have a life cycle, successful ones train and keep their employees and pay and treat them fairly.

Econ 101, my friend. I realize liberal lawyers told you they know better and you should listen to them. Here's the 411, they are lying to you.

 

[The Rabbi]

That is the most over simplified idiotic account Ive seen. Even from the lefties here. You're assuming that products magically appear on the shelf with no labor, no transportation, nothing. They are not remotely comparable.

 

[kaz]

Your knowledge of "capitalism" sucks. Part of being a narco, I guess.

Steve isn't unhappy that he's making more than Joe. He might not even know about it. Steve looks at his options. Anywhere he goes with a base pay of 30/hr he will only take home 22.50. So he might very well have the best option, especially if you count in benefits not taxed, like health insurance, vacations, and other perks.

I'm referring to two people, but they are just illustrative of how market forces work. That people aren't aware of their market value and salaries are arbitrary is reflective of a typical government school education. As demonstrated by your next point.


Actually in my example, neither the employee nor the company paid it. The customers did. Just as they are the ones who paid the Fair Tax. Try reading it again more carefully.

If you tax income, you lessen purchasing power. If you tax final goods, you lessen purchasing power. They are two sides of the same coin.
Now the bonus: politically is it easier to flatten brackets, eliminate deductions, and lower the overall rate or invent a new system from scratch and scrap the old one?

You should seriously take an economics 101 class and learn the basics about how markets function. It's pathetic that isn't required in high school. They would turn out fewer people like you who have no idea how markets function.

It is hysterical that you hold yourself out as some sort of knowledgeable person when you can't defend your points from brain dead leftists, much less me.

When it comes to brain dead, liberal = socon, there's no difference.

People do not know their market value. They only know what their options are at any given stage. They will take the best options available to them. This is behavioral econ 101, a subject obviously as foreign to you as basic Econ.

What's hysterical is you don't even understand what you just said. You said I was wrong, then proved me right. Thank you. I know you don't get it, but again, liberal = socon.

Progressive tax rates punish ambition and reduce earnings overall. A flat tax does away with that disincentive. Granted a Fair Tax would too, but again, which system would be easier to implement? Which one will have fewer unintended consequences?

The fair tax, easily.

I realize narco libtards don't live in the real world, allowing them fantasies like lower drug use results from laxer laws. But real life isn't like that.

True

 

[The Rabbi]

What is hysterical is you dont even know what you are saying. First you talk about corporations paying tax, then deny you said that. First you talk about people's "worth" then you deny you said that.

Listen, go get yourself some kind of education that doesnt come from reading narcolibertarian web sites and we can talk intelligently.

BTW, when was the last time a "Fair Tax" was implemented in this country? When was the last time income tax tiers were reduced and simplified with lower overall rates? Yeah, tell me Fair Tax will be easier to get passed.

 

[Wyatt earp]

This topic has come up in discussions, so I decided to start a threat to explain it. It's sad that government schools teach government, they don't teach capitalism. Capitalism is just a term for economic freedom.

Let’s say we have two employees, one is worth Three times as much as the other Joe is worth $10 an hour, Steve is worth $30. Worth is determined by the marketplace. If an employer pays them less than their value, they are unhappy, their work quality drops and they eventually leave for an employer who recognizes their value. Pay them more and they are happy, but their employer is unhappy because they are not getting their money’s worth. They push them more, raise the bar and if they can’t cut it they eventually replace them.

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings. Steve is only taking home $22.50 an hour, but he’s worth three times as much as Joe who is taking home $10. So what happens?

Option 1) Nothing. Steve just gets to keep $22.50 an hour after taxes. Now his motivation drops, he’s unhappy. That causes him to work less hard. Steve is still better than Joe, but he’s not as productive as he was. He’s getting $22.50 an hour, that’s the value he works towards providing. He stops working late when required, takes on fewer hard tasks, that sort of thing.

Option 2) Steve gets a raise to $40 an hour. He pays 25% in taxes, and his take home is back to three times Joe. Steve is happy, his employer is paying the taxes, they raise the price of their products and their customers actually pay the tax.

Now, keep in mind, it’s not just Joe and Steve, it’s all the Joes and Steves who make up the marketplace. All the Steves are unhappy unless they are getting their fair compensation. Since government raised taxes across the board, companies have to pay it, the taxes are driving all the Steves across the marketplace to not be happy unless they get their $40 an hour so their take home is $30.

For the economists/finance people out there, I realize there are other implications, like it changes the NPV of projects and the increased prices affect sales, that sort of thing, but I’m trying to stay with this point to keep the discussion simpler.

So now to my points on comparing a flat income tax versus the Fair Tax.

1) Income tax harms US companies competing with foreign companies in the US. On average, US companies have more employees in the US than foreign. So, by charging taxes as a percent of payroll, you’re charging US companies more to sell products in our own markets.

2) Income tax drives companies to automate and reduce jobs. If you automate, you not only get rid of the employee’s salaries, but also their taxes. If you charge a percent of the sale, you are taxing it either way, including if they automated.

3) Income tax drives manufacturing overseas. Again, you build it here, you pay your employees taxes. You build it overseas, you don’t.

Agreed that the system, the way it is, is an embarrassment. I'd love to see a Tax code that was 100 pages or less. Income Tax V.S. Sales Tax? I'd go with taxing Income. Taxing Product or Services only promotes the Black Market. It does not need the encouragement. The Code needs to be simplified and made fully transparent.

I think taxing products is way better it promotes savings Smart poor folks can get ahead.

 

[OohPooPahDoo]

So now Obama comes along and says he isn’t going to tax Joe, he doesn’t make enough. But he is going to tax Steve 25% of his earnings.

No he isn't.

At 40 hrs a week Steve would would have to make over $96/hr for Obama to want to raise taxes on him.

So your hypothetical is stupid.

EDIT - you are also confusing PRICE with WORTH. PRICE is what the marketplace determines.

Eventually, you run out of Steve and Joes to tax at $96 / hour.....there aren't enough of them. Multiple Steve and Joes in other pay scales need to make up for the ephemeral Steve at $96/hr.

Aren't enough of them for what? Are you suggesting Steve and Joe no longer need to feed their families and send their kids to private school because they are taxed?


Must be nice to be in a position where you can turn down money because you don't like the taxes on it. Most normal people don't have that luxury, and the world isn't ever going to be short of normal people.

 

[OohPooPahDoo]

Flat rate of 7% for income tax. (State and Federal income tax would be no more than 14% of your paycheck. Medicare and Social security should be no more than 5% total)

I think it should be 3.5% for all of those things. Like you, I just pulled that number out of my ass.