My 'Four by Fifteen' Tax Plan

Lindsay Perigo's picture
Submitted by Lindsay Perigo on Mon, 2012-10-08 05:49

This is the tax package mentioned briefly in my speech below. I meant to elaborate on it in a question period which didn't take place. Today I learned a bowdlerised version of it got out, which has since been corrected. Anyway, to make doubly sure any tax plan that gets attributed to me is the one I actually proposed, here it is. I should say I wrote it on a piece of scrap paper, since he likes economic packages on scraps of paper, for Sir Roger Douglas when I was with ACT in Parliament. It was an effort to fend off his horrendous asset tax package by providing an equally comprehensive, but morally superior, alternative. Roger folded it up, tucked it into his pocket and went away to get it costed. (Actually, the version I gave him was 'four by seventeen and a half,' since I was mindful he would protest from the revenue angle.) He assured me the results of his costing were "awful," but never told me what they were. Another ACT staffer told me they weren't bad at all. I'm sure that in this version, combined with the balanced budget requirement which is also among the 'Tight Five' I proposed for the new party, the explosion of economic activity would quickly take care of any revenue shortfalls. Note: this is not meant to sanction the proposition that government has any right to levy compulsory taxes at all; rather, it is simply to acknowledge that getting from where we are to where we want to go will take more than 5 minutes and require more than a little Reverse Gramsci on our part:

1) Income Tax: first $15,000 of income exempt.

2) Income Tax: flat rate of 15% on all personal income over $15,000.

3) Company Tax: immediate reduction to 15% (from current 28%), then reductions of two and a half per cent a year every year thereafter till it's gone.

4) GST: Ditto (starting at its present level, 15%, then annual two and a half per cent reductions till it's gone).

Hence, 4 X 15.

And government has to cut its cloth accordingly.


Damien's here to help ...

Richard Goode's picture

... it's his job to be fair.

The only fair tax is a poll tax or a consumption tax.

Nice Dodge!

Michael Moeller's picture

Just like I said Ross would. Gets busted saying the kind of tax does not matter, right after he said the sales tax was "the nastiest thing in the world" and "statist's wet dream". And still won't fess up. Honest debate cannot be had with Ross.

"I contradict myself? Very well, I contradict myself then."--Ross Elliott, bruised, battered, and wearing his stained Ron Paul t-shirt.

And to top it off, Ross tries to put words in my mouth before I even answer the question fully. Knocks down his strawman, and calls me a "conservative".

Poor little baby, Ross. Waaaa, waaaa. Gets caught in a contradiction then throws a hissy fit. What a baby you are, Ross.

Ross..

Jules Troy's picture

Last year I payed 69000 in income taxes...

If there was a 23%. Sales tax guaranteeed I would not have spent enough money in that year that would add up to me paying 69000 in sales taxes...

Michael...

Ross Elliot's picture

...can you contemplate that the total tax take is the issue?

If you take 23% from the economy it is worse than a 16% take?

The source of the tax is irrelevant. Actually, it's not if you seek to *manipulate* the economy. But it is if you understand that revenue is one and the same.

What a conservative you are, Michael.

Contradiction?

Michael Moeller's picture

Absolutely. Here's your own statement:

"But a sales tax is the nastiest thing in the world. It's a statist's wet dream."

If a sales tax is the "nastiest thing in the world" and a "statist's wet dream", then it is worse than not only a flat income tax, not only flat corporate tax/income tax/capital gains tax, but also the system we have now, which has no "nastiest thing in the world" sales tax.

You are now pretending as if you see no difference in the **kind** of tax right after you got done calling the sales tax "the nastiest thing in the world" and "a statist's wet dream".

Care to clarify?

Michael

Yes

Ross Elliot's picture

You see a contradiction?

Michael...

Ross Elliot's picture

...you have shot nothing down.

- How does taking 23% of GDP equate to better than taking 16%?
- How do you institute a national sales tax without an amendment?

Ross

Michael Moeller's picture

You wrote:

"...it's the total tax burden on the economy that matters. Flat tax, sales tax, anything."

But do you remember this?

"But a sales tax is the nastiest thing in the world. It's a statist's wet dream."

That was you before.

Michael

Easy peasy

Jules Troy's picture

It is a consumption tax.

If you no longer pay capital gains taxes the amount of money you can MAKE far offsets the consumtion tax.

For example, currently if one plays the commodities markets you are in a bit of a damned if you do and damned if you dont scenario.  You take on all the implied risks, most people lose their shirts...however if you do actually know what you are doing and make some very profitable trades, you get smoked by capital gains taxes.  The same can be said of other investments like the stock market.

Kill capital gains taxes and people would invest more, thereby minimizimg the impact of consumption taxes.  So what if your taxed 23% on that new Ferarri..at least you can now afford it..

Ross

Michael Moeller's picture

You are evading.

This whole discussion started over disagreement regarding the better tax proposal. Time and time again you came up with arguments against the sales tax, and I shot each one of them down.

Now you say it doesn't matter. It certainly does matter, and for all the reasons I specified. And you argued against that proposal over and over, now you say "anything". Before you called the proposal a socialist's "wet dream". Interesting reversal, all of a sudden.

How about you try answering the question again, assuming all else is equal (i.e. each have exemptions, each have no exemptions, each **revenue neutral**, etc)? I then have no problem answering your latest set of deflective questions.

Michael

Michael...

Ross Elliot's picture

...it's the total tax burden on the economy that matters. Flat tax, sales tax, anything.

That's my answer.

The burden is currently 16%. You seek it higher.

And, explain, how do the Feds institute a national sales tax without an amendment? Is it the Commerce Clause? If so, do you support using that argument?

Again: we currently have a 16% burden upon the American economy by all federal taxes. You propose a 23% burden. How will this improve the situation with regard to the taxpayer?

Uh, Ross

Michael Moeller's picture

As usual, YOU did not address the essential question:

"Thus, again, we are back to the sales tax vs. income tax/corporate tax/capital gains tax/etc. Which do you prefer?
Or let's make it simpler. What do you support: a flat sales tax vs. a flat income tax?"

Well, that's two questions asked about ten times. You ever going to take a stab? Just like on the Ron Paul threads, you evade like a mad dog loose in the neighborhood when the rifle comes out to put you down.

And your question is a dumb one. Ask yourself, Ross, how is it we have a corporate tax, an estate tax, a capital gains tax, etc. ALL without constitutional amendments?

Michael

Further, Michael...

Ross Elliot's picture

...you didn't address this question:

"Also, as with the income tax in the US, you'd need a constitutional amendment to make it so. And so we'd have a simultaneous revocation of the income tax amendment? Or do you propose some trick to allow a sales tax without a constitutional power to do so?"

Yes...

Ross Elliot's picture

...damn right my figures are actual revenue.

That is what the Feds currently take. 16% of GDP is the current federal burden.

And that's bad enough, isn't it?

You propose a 23% sales tax. Why? Shouldn't you, at most, propose a 16% sales tax to equate to the current burden upon the American people? What does the deficit-financed budget have to do with this? You propose a tax rate that would fully fund that budget. Why would you want to do that?

Yes, reduce federal spending. But why suggest the current budget should be fully funded by a tax that would rape the American taxpayer even more viciously than is now done?

no.

Damien Grant's picture

A tax free threshhold sends the wrong message.

The only fair tax is a poll tax or a consumption tax.

Ross

Michael Moeller's picture

You wrote: "...my point is that sales taxes at high rates, as you support, effectively mean that higher income earners pay more tax since they consume items that would not be exempt under such a high sales tax."

No it doesn't, Ross. Higher income individuals pay way more than that with the top rate around 38% of their income.

And this gets to the point you have not disputed. The sales tax is aimed at consumption, as opposed to income, captial gains, corporate profits, etc etc., which directly tax capital accumulation and investment. Why would you not substitute the sales tax for those other taxes?

You wrote:

"No items would be exempt? That's not the real world. Countries that have high sales taxes, as you support, have exemptions. And those exemptions reduce the tax burden for low income earners as a *percentage* of income, exactly as progressive income taxes now do."

Ross, the proposal on the table is all items. The only exemptions are those "necessities" adding up to some small amount.

For argument's sake, let us say you are correct and other exemptions will be added, then you have to account for exemptions also be added to the income tax, corporate tax, etc. (as currently happens, btw). Again, it boils down to sales tax vs. income tax/corporate tax/capital gains tax/etc.

Which do you prefer? *I* am saying the sales tax because you control how much you spend, and it is not a direct tax on capital accumulation and investment.

Now, the sales tax is a flat rate, just like a flat income tax, which I presume you support in the alternative. It is not "progressive" in the sense the rate does not increase the more you spend or the more you earn. Under each scenario, the richer person would pay more as a total amount of taxes collected, but the rate is the same for all people. And what ever "progressive" argument, and all your arguments thus far against the sales tax, also apply to the income tax.

Thus, again, we are back to the sales tax vs. income tax/corporate tax/capital gains tax/etc. Which do you prefer?

Or let's make it simpler. What do you support: a flat sales tax vs. a flat income tax?

You wrote:

"Further, total federal income is around $2.5 trillion. On a GDP of around $15 trillion. That's a 16% burden. You propose a 23% burden. So, what gets exempted from the sales tax on GDP to bring it down to at least 16%? Or do you propose a higher percentage of GDP going to the Feds?"

IF that were the case, you would bring it down to 16%, no exemptions. But your calculation is revenue, not the actual cost of the budget ($3.7 trillion). The first order of business would be to cut spending. As the cost of the budget drops, you drop the rate.

Michael

Thankyou!!

Jules Troy's picture

Smiling

Exactly!! Get in, do the job, gtfo!

Excellent idea, Jules...

Ross Elliot's picture

...it's not anarchist, yet it's voluntary.

The bonds not used are invested and the interest pays a return. The effect is to constrain expenditure unless absolutely necessary. But investors are willing to gain a smaller return for security, as we do in safe but lower yielding accounts.

Take the situation after 9/11. A large amount would have been invested due to the anger of the citizenry. Hell would have been visited upon the primitives in Afghanistan, yet eleven years of nation building would not have been possible.

I like it.

Another option

Jules Troy's picture

Another option the government could use to suppliment their coffers is if for example they wanted to ramp up the military they could sell "war bonds" or if they required money for extra police they could offer those bonds. People having their rational self interest in mind would buy them in order to enhance their security, this would align nicely with a peace through strength moral role of government protecting it's people from threats to their individual rights both within and from foreign regimes.

Michael...

Ross Elliot's picture

...my point is that sales taxes at high rates, as you support, effectively mean that higher income earners pay more tax since they consume items that would not be exempt under such a high sales tax.

No items would be exempt? That's not the real world. Countries that have high sales taxes, as you support, have exemptions. And those exemptions reduce the tax burden for low income earners as a *percentage* of income, exactly as progressive income taxes now do.

You end up with the same effect. You penalise higher income earners because less of their expenditure is on exempt items. Tell me how someone buying a $60k car and then paying an additional $15k in sales tax is not restricted in their ability to accumulate capital? Tell me how someone outfitting a business to the tune of $400k is not restricted in their capital position by paying an additional $100k in sales tax on that outfitting? Sales taxes are a tax *before* earned income. That same business with a $400k investment would not pay one cent of tax (on income) until it earned that income. Many businesses pay little tax due to deductions whereas a sales tax is a grab before any income is earned. In fact, many businesses operate on a zero income tax basis since their deductions nullify their taxable income.

Plus, you give the state a wicked tool, that being the raising of the sales tax as needed. Witness the history of sales taxes. They are a cash cow.

Also, as with the income tax in the US, you'd need a constitutional amendment to make it so. And so we'd have a simultaneous revocation of the income tax amendment? Or do you propose some trick to allow a sales tax without a constitutional power to do so?

Further, total federal income is around $2.5 trillion. On a GDP of around $15 trillion. That's a 16% burden. You propose a 23% burden. So, what gets exempted from the sales tax on GDP to bring it down to at least 16%? Or do you propose a higher percentage of GDP going to the Feds?

Ross

Michael Moeller's picture

Indeed, this is pretty basic stuff.

Who cares if people get exempted for basic necessities up to some small amount!! They'll consume basic necessities anyway -- rich or poor. You would not get less capital accumulation, unless people stopped eating and started squatting on property. And people who pay zero tax because they never rise above that level are not capital investors anyway. (I'm talking about the US plan here. I did not look at the other countries b/c I'm not arguing their plans.)

Ross, your big argument is that small amount for necessities doesn't get taxed? Seriously?

There is no dispute that the plan drives capital savings and investment vs. a system of income tax, capital gains, corporate, estate.... Those directly tax capital savings and investment.

And secondly, no, it does not alter federalism. This is a restructuring of the federal tax system, not that of any particular state.

Michael

Further...

Ross Elliot's picture

...a national sales tax in the US would abolish one of the last remaining aspects of competitive federalism.

Many states have low income, or zero, income taxes. They also have very low rates of sales tax. Instead, you'd substitute a federal tax upon all.

And then, would you abolish state income taxes? State sales taxes? If so, there's another federal intrusion. Think of the apparatus needed at the federal level. If you don't, then state income and sales taxes only add to the burden.

Who needs the Tenth Amendment, anyway.

But then I have this silly idea that America is not Europe.

No, Michael...

Ross Elliot's picture

...you miss my point.

Many countries that have consumption taxes also have exemptions from that tax for basic commodities. That encourages consumption on non-capital goods. It has the same effect, therefore, as a tax on capital.

In the current world, exemptions are called for. In fact, they are promoted by politicians as an amelioration of the effects of a consumption tax. The higher the consumption tax, the louder the calls for relief upon the poor. It equates to a progressive tax at some point.

Low income earners spend more on basic commodities and have less capital accumulation. If basic items are exempted, they pay less tax. The higher income earners pay more since less of their consumption is on basic items.

Look at the exemptions in Australia:

http://www.gstaustralia.com.au...

Who does that benefit?

As the rate rises, which way do you expect the exemptions will grow?

Pretty basic stuff, Michael.

Exactly Wrong, Ross

Michael Moeller's picture

Ross,

You could use a refresher in Economics 101.

Income tax and capital gains tax are a direct tax on capital savings and investment.

By contrast, a sales tax is aimed at consumption, and you only pay it to the extent you consume. That's huge compared with income tax, which is taken out of my check before I ever see it. In fact, I could spend all my income on consumption with a tax rate of 23% and still not come near what I pay now.

And by basic economics, a tax on consumption (in addition to greater control over what you earn) promotes capital accumulation and investment. Capital accumulation and investment leads to an increase in productivity and drives down the cost of goods. To put it another way, it results in an increase in real wages.

Pretty basic stuff, Ross.

Michael

Exactly right, Marcus

Ross Elliot's picture

"That's funny. Sales tax is already 20% in the UK, France and Germany."

Ok, I get it. Abolish all taxes and substitute a sales tax.

But a sales tax is the nastiest thing in the world. It's a statist's wet dream.

Sales tax in NZ started at 10%, then went to 12.5%, now it is 15%. It's a cash cow. It's like excise taxes on tobacco and fuel and booze. The price of litre of petrol in NZ is $2.17 ($8 gallon, today) and fully half of that is tax. A bottle of wine is the same. Cash cows. Ramp it up.

23%?? Nothing will stop these fuckers. It'll go higher. Why wouldn't it?

I can tell you right now what will happen with a high sales tax: you'll get all sorts of exemptions. That's what they have in other countries. Because of those exemptions the sales tax differs not one jot from an income tax. You get the same politics, the same appeals to fairness. In fact, a sales tax at high levels equates to a tax on capital investment. Food is exempt. Drugs are exempt. Etc. The exemptions encourage consumption and penalise capital.

Marcus

Michael Moeller's picture

The temptation is always there!! This is no argument against the proposal, it is an argument in favor of The Fair Tax proposal.

If you agree that having both a national sales tax and an income tax (in addition to other federal taxes such as capital gains, corporate, estate, etc etc), as you did before, then a proposal that calls for the repeal of those other taxes has a distinct advantage, according to your argument.

Of course the government could institute new taxes in the future. But the point is that those multitude of taxes ALREADY exist (save for the national sales tax) and would be abolished in favor of only a national sales tax. Again, this is one of the distinct advantages

Furthermore, notice that, according to your argument that a tax may be instituted in the future, this also applies to the current system we have now PLUS a national sales tax.

Which would you rather have? No-brainer, in my book.

Michael

I understand the repeal of income tax...

Marcus's picture

...my point is only that the temptation to reintroduce the income tax at some stage, for example during times of national emergency such as war, would be too great.

The temptation has been there in the past and will still be there in the future.

Interesting,

Shane's picture

the GST only tax proposal. Presumably consideration has been given to the overal price of goods changing (dropping as a result of tax cost) when calculating the estimated returns?

Can anyone direct me to sources?

Marcus

Michael Moeller's picture

The actual Fair Tax proposal on the table comes with a repeal of the income tax, and abolishes all other federal taxes. It allegedly has bipartisan support. On the surface, it could get done in that form, and I think it should be pushed.

I agree that you don't want both income and sales tax, which is why my own support is contingent on a repeal of the income tax (and all other fed taxes).

Michael

Linz

Michael Moeller's picture

It is surprising, but leftists I've talked to and many talking heads favorite it. The initial proposal was allegedly the product of a bipartisan commission.

I am not sure why has support among the left, but I suspect it is because (1) it taxes consumption (which they hate) and (2) it disproportionately affects rich people because they consume more. At least that is what I have come up with for an explanation.

Michael

I've heard it argued that way...

Marcus's picture

...by Labour in the UK too.

They want to lower sales tax to stimulate the economy because they say it falls disproportionately on poor people. Of course they also want to raise the top level of income tax at the same time.

Michael

Lindsay Perigo's picture

There's no way in Hades a ginormous GST could be passed now in NZ. Take a look at my essay from yesterday about the envy-mongering supporter of the Tall Poppy Syndrome to see the prevalent mentality here at work. But the folks in the new party are welcome to try. My plan is as much to provoke precisely this kind of discussion as anything.

Beckel supports the Fair Tax? That does surprise me. I'd thought he'd rumble and grumble about the burden falling on Te Pua while evil fat-cats get off scot-free (in the sense that, while the latter indeed have to pay the same rate of GST as the plebs, they can afford to infinitely more easily with their huge, and-now-untaxed, incomes).

Michael...

Marcus's picture

...I know it would mean the repeal of income tax, but I don't believe it.

In the US you have state income tax too.

You know how income tax was originally introduced as a "temporary" measure to pay down the war debt? Well, these temporary measures tend to stick around.

Even if you scrapped it for now, the temptation would be too strong for any politician to resist just one more "temporary" measure.

Linz

Michael Moeller's picture

I realize that this was not a final panacea.

My only point is that there is a simpler, and better, tax proposal that could be passed NOW. You should consider it, as it has distinct advantages over income taxes, corporate taxes, etc.

In fact, it is not as controversial as the flat income tax. The initial proposal was allegedly "bipartisan", and I've heard a number of leftists favor it, including Bob Beckel.

Michael

My plan ...

Lindsay Perigo's picture

... is not offered as a final panacea. I'm not wedded to its permutations. It certainly would be a vast improvement on the status quo, a giant leap on where we want to go. As I think I explained, I wrote this down on a scrap of paper with barely any forethought in an attempt to head off Roger Douglas!

The point for our new political force is to have *a* bold tax package among its Tight Five.

I remember the 23% sales tax being proposed—in fact, wasn't Huckabee among its promoters?—and the outrage that greeted the level it would have to be set at.

Marcus

Michael Moeller's picture

It is not a higher tax. I know I would certainly be paying considerably less with a 23% sales tax vs. my income tax and all other taxes.

My point was do not offer a national sales tax while you still have an income tax. This was the flaw in Herman Cain's plan. If there is to be a national sales tax, then the income tax has to be repealed (and all other federal taxes abolished).

Michael

Sales tax at 23%?

Marcus's picture

That's funny. Sales tax is already 20% in the UK, France and Germany.

Never offer to abolish one tax with a higher tax elsewhere. It is bound to be abused in the future.

That's why a flat rate of tax is preferable.

Linz...

Michael Moeller's picture

You should take a look at The Fair Tax. It is a national sales tax of 23%. No other taxes. Period. A number of Democrats actually support it, so it is possible it could pass in America if proposed.

I think the primary advantage is that it does not tax income or capital gains, i.e. it is not taxing capital production and investment. It is a tax on consumption, which is probably the reason a number of Democrats support it. And an individual can control their taxes by controlling their consumption, i.e. it promotes capital savings. It would also simplify the tax code for individuals down to paying a tax when you buy something, and virtually eliminate the IRS.

The most important thing is spending. In particular, the elimination of entitlements. The Fair Tax is allegedly revenue neutral, which could be lowered in the future if spending could be drastically cut.

I would not support The Fair Tax, however, unless it came with the repeal of the income tax and the elimination of all other federal taxes, but most particularly the repeal of the 16th Amendment.

Michael

The Goode tax plan

Richard Goode's picture

My Goode tax plan is eponymous. Sticking out tongue

So next time...

Marcus's picture

...someone calls you sophisticated they will get a slap across each cheek Eye

By the way Occam's Razor comes from the English Friar William of Ockham (born 1288), even though he didn't even come up with the concept.

anddd

Jules Troy's picture

Sophisticated has its roots from the ancient sophists, who stilll have accomplished nothing!.. I suppose if one believes in nothing that everything is unknowable, and and and..of you did discover something, you couldnt believe it because your own senses are not to be trusted..

 

Talk about underachievers!!

Sophists should have named themselves dogfuckers!

As an aside...

Marcus's picture

...yesterday I discovered that "bowlderised" comes from the name of English physician Thomas Bowdler who published The Family Shakspeare in 1807, an expurgated edition of Shakespeare's plays intended to be more appropriate for 19th century women and children.

Mesmerise comes from the German physician Franz Anton Mesmer.

And Galvanize comes from Italian physician Luigi Aloisio Galvani.

OK people, as you were.

Today I learned a bowdlerised version of it got out, which has since been corrected.

The 4:20 tax plan

Richard Goode's picture

My 4:20 tax plan is better. Sticking out tongue

The Predatory Bureau

Luke Setzer's picture

Marcus wrote:

It's almost like there needs to be a seperate Minister to handle Government reduction.

An issue of Liberty magazine back in the late 1990s had an article about "The Predatory Bureau" that suggested this. I cannot recall the details, but it involved incentives for the predatory bureau to grow and earn commissions with the waste and fraud and outright uselessness it successfully eliminated in other parts of government. I am sure there is some clever way to make this happen. It could accelerate the goal of smaller government.

Yes good plan...

Marcus's picture

...accompanied with immediate Govt spending cuts and firing of staff.

It won't make you popular with your civil service which is what our current Govt is finding.

Politicians need civil servants to do things for them. It's almost like there needs to be a seperate Minister to handle Government reduction.

Looks good to me!

Stephen Berry's picture

Looks good to me!

I'll vote for it.

Mark Hubbard's picture

I'll vote for it.

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