Talk:Revenue neutrality of the FairTax

Economic growth

Interesting article that discusses economic growth and dynamic effects on the rate. There may be some points to include.The Fair Tax Is About Economic Growth Morphh ^(talk) 3:10, 12 February 2008 (UTC)

Disputed and POV tags

I am placing {{POV}} and {{disputed}} tags on this article because it is both biased in favor of a flat sales tax, and inacurate because it does not report the Treasury Department's assessment of the FairTax. Please do not remove the tag until this dispute is resolved. 67.6.163.68 (talk) 03:04, 11 December 2011 (UTC)

I have included material in the introduction which I believe balances and corrects the article. If others agree, I would consent to removal of the dispute tags. 67.6.163.68 (talk) 03:14, 11 December 2011 (UTC)

Your inclusion does not meet the standards of Wikipedia.

The U.S. Treasury Department has stated that a 30% sales tax would not be revenue neutral, and that a revenue neutral sales tax rate would be 64%, or 89% if expected evasion is included.

We can not use a blog as a source and the source opinion piece is not much better. Also, it's factually inaccurate as is many of Bruce Bartlet's comments about the plan are. The root source of that material is from the Presidential Tax Panel report in Section 9 that discusses a National Sales Tax. The Treasury did not score the FairTax and they didn't show their methodology for the sales tax they did score. What is referenced in that blog post is not the FairTax, but a National Sales Tax with a tax base half the size of the FairTax, which of course would more than double the rate and create massive evasion. If we want to make up any NST plan we desire, we can come up with any rate we choose, unfortunately, we're discussing a specific proposal (HR25) with a defined tax base. So the material is inaccurate. We do cover that the Tax Panel stated that the national sales tax they scored would not be revenue neutral at 30%, but their research is given less weight in Wikipedia. The most reliable sources for the tax rate regarding revenue neutrality are the academic peer-reviewed studies by Kotlikoff/BHI, William Gale, and Diamond & Zodrow in which the full methodology for the rates are published. So in conclusion, the material does not add balance or correct the article - it adds misinformation. Morphh ^(talk) 13:59, 11 December 2011 (UTC)

Just as a quick logic check.. the government takes about 18-20% of GDP. The tax base of the FairTax is about 80% of GDP (which includes a certain level of evasion in the product figures). So a 64% tax would take over 50% of GDP. Morphh ^(talk) 14:24, 11 December 2011 (UTC)

Not if the high consumption tax dissuaded consumers from purchasing. Then the economy would slow. Selery (talk) 19:55, 22 January 2012 (UTC)

That's WP:OR and not included in the Treasury report - it was not a dynamic analysis. It's inaccurate and WP:SYN. The source does not support the statement - please stop adding it. They're not talking about the FairTax plan when they describe that rate. What they were talking about is a sales tax modeled after a state sales tax, which is drastically different than the FairTax model (apples and oranges). The closest thing that the Tax Panel studied to the plan used what they call an "extended base", which we already cover in the article. Please see the Tax Panel study Box 9.2, where they discuss the FairTax. I'll also note that revenue neutrality does not equal the rate. The tax rate is the rate define in the legislation - 23% (30% exclusive). If that rate decreases or increases the deficit is something different. Morphh ^(talk) 20:38, 22 January 2012 (UTC)

What are the drastic differences, in particular? Selery (talk) 21:43, 22 January 2012 (UTC)

For the purposes of Wikipedia, it's somewhat irrelevant, because any conclusion we draw on it is WP:OR and WP:SYN. But for the purposes of explanation, a state sales tax only taxes goods (and excludes a large percentage of them for progressivity purposes). The FairTax taxes goods (60% of the economy) and services (40% of the economy) and has few exclusions. So the tax base differences are huge, which is the other factor in determining a tax rate. Tax revenue = tax base * tax rate (C = A * B). So the tax base is vital. If your figuring a static C (revenue neutrality) it's pretty important what A is for determining B. That's not the only difference, but it's the major one in the figures you're quoting. Fact is, the Treasury never scored the FairTax and the chair of the Tax Panel stated such. Morphh ^(talk) 23:19, 22 January 2012 (UTC)

I see. Why isn't that the "extended base" on page 216 here? Do you have a source for the tax panel chair quote? Selery (talk) 06:33, 23 January 2012 (UTC)

The extended base is listed in Table 9.1 on page 216 - it's the first thing listed. The tax reform panel report never claims to score the FairTax. Connie Mack, the panel chair, restated it in the Barrows/Burns race, but the links are no longer available. The tax panel did not score the FairTax, but a bill of their own design using assumptions about the FairTax base. It's difficult to asses since they didn't publish their figures, but based on their assumptions regarding the extended base it would consequently reduce the state tax burden by a significant amount, which is something they never mention. A good amount of state revenue ends up subject to federal taxation under the current income tax system. It appears their assumptions greatly reduce that state burden, which results in a higher federal rate. Big shell game - it's the same overall tax burden. Morphh ^(talk) 15:01, 23 January 2012 (UTC)

Ok, thanks. I meant to ask: What is the difference between the "extended base" and the FairTax base? Selery (talk) 17:10, 23 January 2012 (UTC)

The Tax Panel never published what they specifically included as part of the extended base, which could certainly very particularly in regard to education service exemptions, as the plan does not exempt all such expenses. They only broadly state that it is based on the FairTax as described by advocates and would exempt only educational services, expenditures abroad by U.S. residents, food produced and consumed on farms, and existing housing (or what economists refer to as the imputed rent on owner-occupied and farm housing). So I'm not sure if they actually looked into the details written in HR25 as to exemptions, or they just hit it with a simple broad brush as described by its advocates. We can only guess. Morphh ^(talk) 18:28, 23 January 2012 (UTC)

Ah, I understand now. Well, if they based it on FairTax, how can we phrase that so that we can include the OTA figures without misrepresenting them? Selery (talk) 21:00, 23 January 2012 (UTC)

The figures are already included. In the main article, which is a summary, we state: Morphh ^(talk) 01:15, 24 January 2012 (UTC)

The President's Advisory Panel for Federal Tax Reform performed a 2006 analysis to replace the individual and corporate income tax with a retail sales tax and found the rate to be 25% (34% tax-exclusive) assuming 15% tax evasion, and 33% (49% tax-exclusive) with 30% tax evasion. The rate would need to be substantially higher to replace the additional taxes replaced by the FairTax (payroll, estate, and gift taxes). Several economists criticized the President's Advisory Panel's study as having allegedly altered the terms of the FairTax, using unsound methodology, and/or failing to fully explain their calculations.

In this article, we cover it in more detail, though admittedly not as well written. Morphh ^(talk) 01:30, 24 January 2012 (UTC)

The President's Advisory Panel for Federal Tax Reform performed an analysis to replace the individual and corporate income tax (excluding other taxes) with a retail sales tax and found the rate to be 25% (34% tax-exclusive) for 2006 assuming at least 10% evasion. The rate would need to be substantially higher to replace the additional taxes replaced by the FairTax (payroll, estate, and gift taxes). The Chairman of the President's Advisory Panel, former U.S. Senator Connie Mack, stated that the panel did not evaluate H.R. 25 (the FairTax). The panel was not allowed to consider reforming regressive payroll taxes and they reduced the tax base by adding large exclusions. In determining the rate, the panel assumed that revenue generated from taxing federal spending would be canceled out by increased government expenditures required to pay such taxes, a factor the panel claims was neglected from early FairTax rate analysis. The Treasury Department has refused to release for peer review the detailed figures and methodology used in the tax panel analysis. FairTax proponents, including the Beacon Hill Institute and Dr. Kotlikoff, have criticized the President's Advisory Panel's study as having altered the terms of the FairTax and using unsound methodology.

The Treasury Department estimates (prepared for the Tax Panel) excluded government consumption, significantly altering the tax base and therefore the tax rate. Other studies point out that the current system is also counting taxes the government would pay to itself by including matched payroll taxes of government employees, covering the corporate and payroll tax expenses of its contractors and their suppliers, and paying embedded tax costs under the current system (see Theories of retail pricing). The tax panel included large expenditures to local and state governments for the FairTax burden; however, the Beacon Hill Institute suggested a flaw in this logic and showed that the FairTax imposes no additional real fiscal burdens on state and local government. A similar level of taxation is required when shifting from taxing income to consumption in order to maintain the tax burden on government. Proponents assert that government needs to be taxed to keep a level playing field between government enterprises and private enterprises.

I'll note that this article is missing the 30% evasion figures - I'll fix that now. Morphh ^(talk) 01:30, 24 January 2012 (UTC)

References

Need separated, neutral entry for term Revenue Neutrality

The idea of revenue neutrality needs its own section independent of this particular defense of FairTax. How can we discuss whether a FairTax achieves revenue neutrality without an independent definition of that term? I wanted to use the term "revenue neutral" offsite in a completely unrelated context and would like a Wikipedia article to link to (so I don't have to explain it, I can just assume Wikipedia maintains a quality definition that serves the world). I don't want a hyperlink on my article to implicate the entire FairTax debate, which is charged with all kinds of controversial/partisan details (please let's not discuss them here, I just mean to observe the obvious). Surely others must need this term "revenue neutral" in isolation as well. I'm not the right person to create such a separated term (which is why I wanted to link to someone's definition rather than write my own description my article) but hopefully someone reading this will get interested and do it. Thanks. -Netsettler (talk) 15:15, 8 August 2013 (UTC)

Not sure it's worth an article WP:NOTE - perhaps a Wiktionary entry. Essentially it is when a tax policy is changed, it neither results in a revenue increase or decrease in real revenue to the state (and subsequently no increased or decreased taxation burden to the citizens as a whole). While simplistic, here is the definition from InvesterWord.com that you might be able to reference "Taxing procedure that allows the government to still receive the same amount of money despite changes in tax laws. The government may lower taxes for one particular group of people, but raise taxes for another group. This allows the revenue that they receive to remain unchanged (neutral)."[1] Sometimes determing the neutrality of a tax policy can involve debates regarding static scoring, dynamic scoring, and the various methodologies used to determine the revenue generated under the proposed tax change. Morphh ^(talk) 16:01, 8 August 2013 (UTC)

To me it doesn't seem big enough for an article, but Tax reform has long been a topic in many places, and perhaps a section in that article is the right place to handle this concern. Jim.henderson (talk) 17:46, 19 August 2015 (UTC)