CSNbbs

Peter Zeihan described the 2016 election as one of paradigm shifting with the old republican and democrat constituencies and alliances evolving into a new alignment. It has become clear that the prior republican alliance of neocons and religious right can win some elections but is not large enough to generate a national consensus. Republicans have won a majority of the popular vote in one presidential election since Reagan. That is not a winning strategy. I've been giving the idea some thought, and here is what I would like to see.

I see a differentiation between makers--who create things of value--and takers--who poach that value for their own purposes.

In the maker class I would put blue collar working people, Main Street bankers and small businesspersons, and entrepreneurs. In the taker class I would put three groups, the non-working welfare class, the finance class--Wall Street and the like, who make nothing but get fabulously rich moving pieces of paper around--and government bureaucrats--who make nothing (like Wall Street) but wield extraordinary power.

I would like to see one party become the party of the makers and leave the other to become the party of the takers. The democrats have pushed the "rich vs. poor" narrative for well nigh 100 years--or more. It is starting to fall apart with so many of the extremely rich lining up with the democrats. They claim to be the party of working people, but in fact they screw working people to feed their welfare, finance, and bureaucrat classes. Obamacare exposed that, and lots of blue collar people turned on democrats, but the republicans were too stupid to follow through properly.

What are policies that I think appeal to the makers:
- Universal private health care based on the Bismarck model, so that everybody is covered, those who want can upgrade, and employers can provide upgrades (relatively cheap) as incentives
- Universal basic income at a subsistence level, based on Milton Friedman's Negative Income Tax (NIT) or the Boortz-Linder prebate/prefund, which together with Bismarck provides a fairly comprehensive safety net for risk-takers, but doesn't go away as one moves up the ladder, so it avoids the poverty trap/welfare plantation attributes; it also greatly reduces income inequality
- Pay for it with a consumption tax and lower, flatter, and broader (fewer or no non-business exemptions and deductions) income taxes; this is what both Bowles-Simpson and Domenici-Rivlin recommended a decade ago (only D-R recommended the consumption tax); this immediately makes the USA a much more competitive investment and business destination, which should bring on significant growth and reduced unemployment/underemployment
- Add a privatized "super 401k" component to Social Security, to invest in infrastructure projects that generate a profit through user fees; this also greatly reduces wealth inequality
- Restructure education along the lines of countries that produce better results for less money--track students, and vastly upgrade our vocational education
- Recognize that we are in Cold War II and this time the enemy is China, not Russia; and also recognize that China is fighting more economically than militarily
- Build the strongest military in the world, stronger than the next two combined, and don't waste any of it fighting wars that we don't intend to win
- In foreign policy, treat our friends better than we treat our enemies
- Adopt a conservation approach to the environment instead of the current command-and-control approach
- Cut our bloated federal bureaucracy from the top down; this applies both to our military (where we have more people working in and around the Pentagon than it took to win WWII) and civilian sides

That would be my approach. I think you could form an alliance of makers that would outnumber the takers, and last I checked, whoever gets the most votes wins.

From the font of all knowledge (Wikipedia):

"States such as Germany, Austria, Switzerland and Czech Republic have Bismarck healthcare

Countries with universal private health insurance system
In this system people receive healthcare via mandatory private insurance, usually subsidized by the government for low-income citizens
Germany
Switzerland
et. al.

Countries with universal public-private insurance system
In this system some people receive healthcare via primary private insurance, while people who are ineligible for it, from government
Austria
et. al.

Countries with universal public insurance system
In these countries workers have social insurance. Usually government withholds part of their wage, which is divided between employee and employer. People who don't have legal contract of employment and/or can't register as unemployed may be ineligible for free health care
Czech Republic
et. al."

Which flavour of the Bismarck Model?

Where has UBI, in any form, worked? (I can't think of one.)

Consumption tax (sales tax, GST, VAT...) isn't necessarily a panacea. Imho, just another avenue of taxation. Here in the UK we have high income taxes (I've never had to pay US income taxes because of Foreign Tax Credits) and a VAT rate of 20%. (We do have low real estate taxes (council taxes) and nothing approaching ad valorem rates. Increased real estate taxes were suggested as 'mansion taxes' , but have been talked down multiple times. I'm not sure land is actually taxed. Only houses and businesses (business rates).)

(05-21-2021 04:49 AM)MerseyOwl Wrote: [ -> ]Which flavour of the Bismarck Model?

I actually prefer the Dutch version.

https://www.commonwealthfund.org/interna...etherlands

Quote:Where has UBI, in any form, worked? (I can't think of one.)

Where has welfare (in any form) worked? What is 'working" for a welfare system? I just think the Friedman or Boortz/Linder approaches do less harm than any other. They certainly do less harm than our current poverty trap/welfare plantation system.

Quote:Consumption tax (sales tax, GST, VAT...) isn't necessarily a panacea. Imho, just another avenue of taxation.

Well, you need some source of tax money to run government. Any tax is harmful to the economy. Again, I think the consumption tax (VAT/GST) does less harm than any other approach. And it does have the additional protectionist advantage of working like a tariff on imports and a subsidy on exports. By not having a VAT/GST, the USA is at a disadvantage versus almost any other nation with respect to international trade, and is always on the back foot when negotiating trade deals.

Re: GST/VAT
I see the (automatic) tariff on imports especially at 20% is protectionist, but I'm not sure the advantage on exports. Making goods effectively cheaper in foreign markets than they are in domestic markets doesn't necessarily make them attractive in foreign markets except for domestic travellers to those foreign markets (if they don't declare them upon their return). It's cheaper to buy British goods, especially luxury goods, in the US then it is in the UK.

(05-21-2021 07:11 AM)MerseyOwl Wrote: [ -> ]Re: GST/VAT
I see the (automatic) tariff on imports especially at 20% is protectionist, but I'm not sure the advantage on exports. Making goods effectively cheaper in foreign markets than they are in domestic markets doesn't necessarily make them attractive in foreign markets except for domestic travellers to those foreign markets (if they don't declare them upon their return). It's cheaper to buy British goods, especially luxury goods, in the US then it is in the UK.

Here is the (little understood) advantage on exports. Everything made in the USA (or anywhere else, for that matter) carries within its cost some amount of embedded taxes. To the extent that those embedded taxes come from VAT/GST paid on components, those taxes are rebated on exports, and no incremental tax is charged on value added by the company. Let's say you had a 20% VAT, then you would have in effect a 20% tariff (without counting it as a tariff for WTO purposes), but you would also get something like a 15% rebate on exports (representing the embedded VAT).

Your British luxury goods example is probably in large part because if you buy them in UK you are paying the embedded VAT, but if you buy them in the USA that embedded tax was refunded on export.

(05-21-2021 07:28 AM)Owl 69/70/75 Wrote: [ -> ]

(05-21-2021 07:11 AM)MerseyOwl Wrote: [ -> ]Re: GST/VAT
I see the (automatic) tariff on imports especially at 20% is protectionist, but I'm not sure the advantage on exports. Making goods effectively cheaper in foreign markets than they are in domestic markets doesn't necessarily make them attractive in foreign markets except for domestic travellers to those foreign markets (if they don't declare them upon their return). It's cheaper to buy British goods, especially luxury goods, in the US then it is in the UK.

Here is the (little understood) advantage on exports. Everything made in the USA (or anywhere else, for that matter) carries within its cost some amount of embedded taxes. To the extent that those embedded taxes come from VAT/GST paid on components, those taxes are rebated on exports, and no incremental tax is charged on value added by the company. Let's say you had a 20% VAT, then you would have in effect a 20% tariff (without counting it as a tariff for WTO purposes), but you would also get something like a 15% rebate on exports (representing the embedded VAT).

Your British luxury goods example is probably in large part because if you buy them in UK you are paying the embedded VAT, but if you buy them in the USA that embedded tax was refunded on export.

I was unaware of the rebate on exports, but VAT governance is a reported problem with the carouseling of goods. Of course criminal activity is criminal activity.

I don't know the details of the Mexican IVA tax, a VAT tax, but I do know my Mexican suppliers eagerly awaited their government rebate on exports.

I personally support a national consumption tax to replace the Federal Income Tax (FIT) and estate tax. I would exempt certain basics, such as groceries, gasoline, auto parts, and medical supplies. (Lower income people tend to repair their own cars)

It has these advantages.

1. Completely fair. You want a 500K house, pay more tax than for a 100K house.
2. Catches the underground economy. People who sell drugs or mow lawns or work for cash will no longer be able to duck taxes when they spend.
3. Alleviates the need for citizens to self-report.
4. Collection mechanisms are already in place in the 42 states that have a state sales tax. Just piggyback.
5. Does not inhibit investment, savings, or entrepreneurship.
6. Makes every citizen interested/invested in tax law changes and spending programs.

No idea about the Bismarck.

(05-21-2021 08:00 AM)OptimisticOwl Wrote: [ -> ]No idea about the Bismarck.

Bismarck is basically a universal private system. Everybody has basic insurance (if you read the Netherlands article I linked, 99.8% of the population is insured, and the numbers are about the same for France) paid for by government. Everybody has the ability to supplement with private insurance (the Netherlands number is 84% per the linked article and I've seen 90% for France), and employers can (and usually do) offer it as a benefit. You go to the "free" system (covered by basic insurance) for the simple stuff like broken bones or sinus headaches. When the "free" system sticks you in a queue, you hop over to the "pay" side (covered by supplemental insurance) to get treated without waiting. Or you can always pay out of pocket for the "pay" side.

When my mom broke her hip in Paris, we got picked up by the EMT's, just like here, and taken to a "free" (not for us since we weren't French) hospital. The emergency care was excellent, but we'd still be waiting in the queue if I hadn't moved her to a "pay" hospital where the care was absolutely amazing. Got her hip replaced the next day and she never had a problem with it until the day she died 13 years later. Her favorite part was the little guy who came around every day around 3 pm with a cart with wine and cheese for everyone, including the patients. I asked here surgeon why they did that, and he replied, "They get better faster if they are enjoying it." And the hospital took Blue Cross.

The "free" side works a lot like socialized medicine, while the "pay" side works a lot like our system. And it's all insurance-based. The government exercises oversight from afar, but doesn't get involved in the details.

(05-21-2021 09:33 AM)Owl 69/70/75 Wrote: [ -> ]

(05-21-2021 08:00 AM)OptimisticOwl Wrote: [ -> ]No idea about the Bismarck.

Bismarck is basically a universal private system. Everybody has basic insurance (if you read the Netherlands article I linked, 99.8% of the population is insured, and the numbers are about the same for France) paid for by government. Everybody has the ability to supplement with private insurance (the Netherlands number is 84% per the linked article and I've seen 90% for France), and employers can (and usually do) offer it as a benefit. You go to the "free" system (covered by basic insurance) for the simple stuff like broken bones or sinus headaches. When the "free" system sticks you in a queue, you hop over to the "pay" side (covered by supplemental insurance) to get treated without waiting. Or you can always pay out of pocket for the "pay" side.

When my mom broke her hip in Paris, we got picked up by the EMT's, just like here, and taken to a "free" (not for us since we weren't French) hospital. The emergency care was excellent, but we'd still be waiting in the queue if I hadn't moved her to a "pay" hospital where the care was absolutely amazing. Got her hip replaced the next day and she never had a problem with it until the day she died 13 years later. Her favorite part was the little guy who came around every day around 3 pm with a cart with wine and cheese for everyone, including the patients. I asked here surgeon why they did that, and he replied, "They get better faster if they are enjoying it." And the hospital took Blue Cross.

The "free" side works a lot like socialized medicine, while the "pay" side works a lot like our system. And it's all insurance-based. The government exercises oversight from afar, but doesn't get involved in the details.

Sounds OK to me.

When I was younger, just starting in business, I had to buy buy for myself two policies: A basic medical policy, and a major medical policy. Sound similar to your 'free" and "pay" lines.

(05-21-2021 08:00 AM)OptimisticOwl Wrote: [ -> ]I don't know the details of the Mexican IVA tax, a VAT tax, but I do know my Mexican suppliers eagerly awaited their government rebate on exports.

I personally support a national consumption tax to replace the Federal Income Tax (FIT) and estate tax. I would exempt certain basics, such as groceries, gasoline, auto parts, and medical supplies. (Lower income people tend to repair their own cars)

It has these advantages.

1. Completely fair. You want a 500K house, pay more tax than for a 100K house.
2. Catches the underground economy. People who sell drugs or mow lawns or work for cash will no longer be able to duck taxes when they spend.
3. Alleviates the need for citizens to self-report.
4. Collection mechanisms are already in place in the 42 states that have a state sales tax. Just piggyback.
5. Does not inhibit investment, savings, or entrepreneurship.
6. Makes every citizen interested/invested in tax law changes and spending programs.

No idea about the Bismarck.

Theoretically attractive, but there's always loopholes and tax avoidance.
1. Aren't you already paying more (every year) for your 500K house through ad valorem taxes?
2. Labour costs are high. Adding 20%VAT and I think I'll paint my own fence / bathroom / house. Here in the UK, tradesmen are often asked if they'll do a foreigner. That is, work for cash. Now I've avoided the VAT as the purchaser of services.
3. Here in the UK you only self report if you have income that isn't PAYE or if you have capital gains beyond the annual exclusion (I think about 10K USD?)
4. Fine, but the states collecting a federal tax will want a cut for administrative expenses.
5. Any VAT/GST would probably be at a higher rate than current sales tax so the initial outlay for capital goods would increase. At one point there was a federal investment tax credit to stimulate the purchase of capital goods.
6. I think the question remains the same: Am I a net contributor or a net benefactor of any tax change?

I think you would need to integrate sales / property / income taxes. How many taxing authorities is that? Affecting how many politicians and how many employees? And how many spending decisions (local/state/federal) are you affecting?

(I think the capital gains tax needs revision. Short term holding of assets (stocks, bonds, whatever) isn't investing, it's trading and gains should be treated as ordinary income possibly subject to an annual exclusion.)

Even if VAT IS simply a different form of taxation, the key to it is that taxes are all applied equally against spending, whereas 'income' has a definition that the wealthy can easily avoid.

A w-2 employee raises his spendable funds by generating additional income... all of which is taxed.
A business owner or investment holder can raise his income, OR he can raise his spendable funds by increasing his wealth... which we tax at a lower rate, if at all. He can also increase his wealth and retain the asset thus defer taxes, and then take a loan against that asset and spend the money. Can you take a loan against next year's funds? How about 50 years from now's?? The wealthy can.

VAT focuses on spending... and almost without exception, the wealthy spend more than everyone else, so they would by definition pay more taxes than everyone else. They would also pay the same percentage as everyone else, which they don't currently do. 15% cap gains is lower than many earners tax brackets.... and again, if they don't sell their 150mm Picasso but instead take a loan against it (satisfied at their death or sometimes generations later) NO gain is reported.

And a prefund essentially eliminates taxes for anyone who spends below a set threshold, and it becomes progressive above that. At $1,000 over the threshold, your effective tax rate is 0.1% and at $400,000 over the threshold, your effective tax rate is essentially the VAT rate.

Throw on top of that... Anyone who doesn't spend all that they earn and spend below the threshold, has an effective rate of return on that savings of the tax rate... which is WAY WAY WAY above the 'riskless' rate of return. This turns the thrifty poor and middle class into 'investors' as opposed to merely being earners.

7. turns the thrifty poor and middle class into 'investors' as opposed to merely being earners.

Plus, I have wondering how to monetize my Picasso. Thanks for the tip.

(05-21-2021 09:41 AM)OptimisticOwl Wrote: [ -> ]Sounds OK to me.
When I was younger, just starting in business, I had to buy buy for myself two policies: A basic medical policy, and a major medical policy. Sound similar to your 'free" and "pay" lines.

Read the page I linked about the Dutch system for a more complete understanding. The Dutch system is a bit unique in that almost all of it is private.

(05-21-2021 09:54 AM)OptimisticOwl Wrote: [ -> ]7. turns the thrifty poor and middle class into 'investors' as opposed to merely being earners.

Plus, I have wondering how to monetize my Picasso. Thanks for the tip.

But if the poor can't be thrifty they have nothing to save.

I'm not sure what you mean by prefund Ham, but at lower earnings one will naturally spend more of those earnings. So to subject those earnings to a higher tax (assuming the consumption tax is higher than sales tax) is to decrease the spending power of the 'poor'.

Just think of discretionary income. The 'wealthy' have a magnitude of discretionary income that others do not. That's where consumption taxes come into play. The relative poor will spend all, or nearly all, of their discretionary income. The wealthy, not so much.

So while the wealthy will probably pay more in consumption taxes, the amount of their discretionary income subject to same is markedly lower as a percentage.

(05-21-2021 09:42 AM)MerseyOwl Wrote: [ -> ]Theoretically attractive, but there's always loopholes and tax avoidance.
1. Aren't you already paying more (every year) for your 500K house through ad valorem taxes?

But this is neither a loophole nor a tax avoidance. It is simply another progressive tax. I think most people believe that taxes should be progressive rather than regressive

Quote:2. Labour costs are high. Adding 20%VAT and I think I'll paint my own fence / bathroom / house. Here in the UK, tradesmen are often asked if they'll do a foreigner. That is, work for cash. Now I've avoided the VAT as the purchaser of services.

Which is much more likely to happen to poor and middle class than to wealthy. It is going to be harder to hide a $5,000 job than a $500 one.

Quote:3. Here in the UK you only self report if you have income that isn't PAYE or if you have capital gains beyond the annual exclusion (I think about 10K USD?)

Again, this more applies to the poor and middle class than the wealthy

Quote:4. Fine, but the states collecting a federal tax will want a cut for administrative expenses.

So?? Could it possibly involve more administrative costs than the complex and convoluted tax code we currently have?

Quote:5. Any VAT/GST would probably be at a higher rate than current sales tax so the initial outlay for capital goods would increase. At one point there was a federal investment tax credit to stimulate the purchase of capital goods.

Hence the prefund I mentioned. It essentially raises your income by the amount of the tax. This mechanism is also already in place... through FICA/FUTA. It becomes an add rather than a subtraction.

AND to your earlier concern.... it discourages 'giving someone a foreigner' (unless the laborer makes more than the prefund) because you don't get the bump on anything not reported.

Quote:6. I think the question remains the same: Am I a net contributor or a net benefactor of any tax change?

I've described it. Set the threshold at say 100,000.... and anyone below there is a break even at worst. Anyone above there is an increasingly net contributor. The benefactors are determined by how we spend the revenue, and not how we collect it. If you earn 100k or less and spend less than you earn, you are a benefactor.
If you use the money to fund benefits for people who earn less than 100k, you are a benefactor. If you use the money to fund a shelter for homeless squirrels, they are the benefactor.

Quote:I think you would need to integrate sales / property / income taxes. How many taxing authorities is that? Affecting how many politicians and how many employees? And how many spending decisions (local/state/federal) are you affecting?

No more than you already do. All you'd really have to do is replace the 'employee tax function' of a sales business with a 'federal vat collection function' (so no net change in labor/effort) AND you'd have to turn federal fica/futa accounting into a federal prefund and collection accounting function... so again, no net labor change.

As to the political ramifications, the only variable here is dollars. Is the prefund at 70k? 100k? 250k? How about $1mm?? This is essentially UBI. Anyone on assistance gets a 15% bump in their benefits and pays 15% more for their goods. Anyone with a w-2 gets the same. People who aren't on a W-2 don't get a bump, and get a 15% higher costs. If they report the income otherwise on their taxes, they get their 15% back. If they don't report the income, they don't get a bump in income to offset the costs

Quote:(I think the capital gains tax needs revision. Short term holding of assets (stocks, bonds, whatever) isn't investing, it's trading and gains should be treated as ordinary income possibly subject to an annual exclusion.)

This is simple to get around/defer though. You create a fund and invest in the fund. The fund buys and sells stocks and you pay no gains because you didn't sell your investment. Essentially you've set up a business that trades stocks... so the business writes off the gains taxes. Make it an offshore company/trust and you have even more advantages. All it means is that you have to have a large enough company to cover the cost of the trust/business through the savings... which means it is almost exclusive to the more wealthy.

The guy day trading stocks for a living pays full taxes... the guy who has an investment manager 'playing his money' doesn't.

(05-21-2021 10:38 AM)MerseyOwl Wrote: [ -> ]

(05-21-2021 09:54 AM)OptimisticOwl Wrote: [ -> ]7. turns the thrifty poor and middle class into 'investors' as opposed to merely being earners.
Plus, I have wondering how to monetize my Picasso. Thanks for the tip.

But if the poor can't be thrifty they have nothing to save.
I'm not sure what you mean by prefund Ham, but at lower earnings one will naturally spend more of those earnings. So to subject those earnings to a higher tax (assuming the consumption tax is higher than sales tax) is to decrease the spending power of the 'poor'.
Just think of discretionary income. The 'wealthy' have a magnitude of discretionary income that others do not. That's where consumption taxes come into play. The relative poor will spend all, or nearly all, of their discretionary income. The wealthy, not so much.
So while the wealthy will probably pay more in consumption taxes, the amount of their discretionary income subject to same is markedly lower as a percentage.

The Boortz-Linder prebate/prefund is basically an amount paid to every taxpayer every month to offset the VAT on basics--food, clothing, and shelter--up to the poverty level. That makes those things essentially tax-free. Say the number is something like $400 for a single adult, $300 for each additional adult, $200 for the first child, and $100 for each additional child (I'm rounding, but that's the general range) . A family of 3 (2 adults, 1 child) gets $900/month, or $10,800/year. Add the value of Bismarck basic health care (because that's the way poverty statistics are kept) and using the Dutch numbers that's about $1,800 per person per year, or another $5,400/year. Assume one full-time job at the minimum wage and that's an additional $15,300/year. So our family of 3 has total income of $31,500, compared to the poverty level of about $27,500. You can run the number for any family size, and comparing them to the poverty level that varies with family size, nobody is more than one minimum wage job away from being over the poverty level.

As far as the middle class, if you do a 15% flat tax (more than enough to balance the budget), then the break-even is around $72,000, so most of the middle class is net receiving money from the tax system.

Well, Ham did mention the "thrifty" poor and middle class. I have been poor (actually homeless and broke for a short period, sleeping in my car), and middle class for several decades, and was always thrifty, sometime having to save money on the QT because my wife was a firm believer that money should always barely stretch to the end of the month.

Nevertheless, I was able to save a substantial amount (for the 70's), and when we built our house the savings covered about 25% of the cost of construction and furnishings.

Point is, you don't have to rich to save/invest money. I also started my IRA in those years, which I now live off of. Some will
save/invest, like me, some won't, like my wife. All you can do is give them the opportunity.

I remember the shock the first time I encountered a sales tax. so I am sure that when the $5 hamburger, that currently costs $5.41 with tax, goes to $6.41 with tax, there will be a period of adjustment, but this will be helped along by take home pay boosts of 15-25% with the elimination of withholding.

JMHO.

Sorry for the misunderstanding Ham...

OO in arguing for a consumption tax suggested:
1. Completely fair. You want a 500K house, pay more tax than for a 100K house.
My response was:
1. Aren't you already paying more (every year) for your 500K house through ad valorem taxes?
So a one-off consumption tax on real estate might likely lower the cost of owning a 500k house more so than a 100k house.

2. At 20% VAT , if I can afford a $5000 job I can probably afford a $6000. At the lower end of the economy every dollar counts. So stretching $500 to $600 might not be possible.

3. Just pointing out that the taxing regimes are radically different between the UK that has a consumption tax and the US that doesn't in that most people aren't required to file (aka self report) .

4. No disagreement just suggesting everyone involved in collecting will want a cut.

5. I still have no idea what a prefund is or how it works. I'll need to research this if you can provide a link or reference? (Just saw Numbers explanation. Sorry slow typist)

6. Meant to say beneficiary, not benefactor. To quote Bart Simpson "This affects me how?"

The elimination of separate property/sales/income tax regimes would radically reduce the number of individuals employed in all three both public and private.
Ham, you didn't address the political ramifications of eliminating tax authorities and how public services are funded if there is only a central unified consumption tax.

On the capital gains question, shell companies and trust issues need to be addressed. But deferring taxes is not (indefinitely) avoiding taxes. A day trader is in the business of trading stocks not investing and shouldn't be accorded capital gains treatment that was meant to encourage investing and holding stocks. Minimal holding periods that receive capital gains treatment only promote market volatility (imho).

AFK. Tea time in the UK.

(05-21-2021 10:38 AM)MerseyOwl Wrote: [ -> ]But if the poor can't be thrifty they have nothing to save.

I'm not sure what you mean by prefund Ham, but at lower earnings one will naturally spend more of those earnings. So to subject those earnings to a higher tax (assuming the consumption tax is higher than sales tax) is to decrease the spending power of the 'poor'.

Just think of discretionary income. The 'wealthy' have a magnitude of discretionary income that others do not. That's where consumption taxes come into play. The relative poor will spend all, or nearly all, of their discretionary income. The wealthy, not so much.

So while the wealthy will probably pay more in consumption taxes, the amount of their discretionary income subject to same is markedly lower as a percentage.

Your responses here completely misunderstand the prefund... so I will try and make it as clear as possible.... and the VAT would be intended to raise revenues or make taxation more 'fair'. It is not designed to cure cancer either, but the money raised could. I think you'd be surprised how much many we call 'poor' can save, if they have a reason to... but that is simply a possibility, not a 'design'.

In order to make the point clear, I am going to use round and easy numbers... and I will stick with break-even with just a few examples above and below.

I will set the VAT at 15% and the prefund on the first 100k of reported income. I chose 15% because this is the amount of money in your FICA/FUTA... Currently if you earn 100k, your employer is paying 107.5 for you (not including any other benefits etc) and you take home 92.5... so your buying power is 92.5k again, simple math.

If instead of collecting that 15%, the government SENDS you that 15%... you take home 107.5. If they then collect a 15% VAT tax, they get the money back from you as you spend it (so no net cost) and FICA/FUTA is covered.

Your costs of goods and services goes up by 15%, so your buying power is unchanged.

Above 100k in reported income, you get no further bump... so someone earning anything more than 100k gets a 15% bump on his first 100k, but nothing on any additional reported earnings. His costs go up by 15%, so his effective tax rate is 7.5% if he spends 200k.... and a rounding error from 15% if he spends $5mm. Every dollar collected over the first 100k in spending is additional government revenue to be spent as voted on... and collected from those spending more than 100k per year.

Homes and things like that, we can make specific exemptions or spread the tax over the life of the loan or any of a variety of mechanisms. We want to limit these as much as possible... if you don't have a loan, you pay the tax... if you do, maybe you 'finance' the tax.

You still with me? I don't mean that snarky... I just mean if you don't, let's stop here. If you do.....

The more you spend, the more you pay in taxes and the higher effective rate you pay in taxes. A truly progressive tax.

For anyone who reports less than 100k...

first, they are strongly discouraged from not reporting every dime they earn, since they get a 15% premium on everything they report to the government AND every dollar they spend is taxed... so they want the bump.... which discourages your 'foreigner'... eliminates it? No, but discourages it more than we currently do.

Second, if they spend all that they earn, they have the same buying power... so they are not in any way worse off. They aren't better off, but they aren't worse... And MANY tax receipts are designed to help them, so in a tertiary sense, they are better off no matter what

Finally, if they spend less than they report (save), they are better off. I will use 100k because the math is easier, but you can do it on any amount.

If you earn 100k and have buying power of 92.5k... and you are able to save 1,000 of that buying power....

You spend 91.5k pay 15% tax on 91.5k (92.5k-1,000) or a total of 105.25 and receive income of 107.5.... so if I did the math correctly.... by saving $1,000, you put $2,250 into your bank account. Feel free to double check my math... I'm doing it in my head... but the concept is correct and the math is close. And unless I missed something, that same math holds true for the guy earning 50k who spends 49k... and of course, that $1250 bump is even MORE meaningful to that person.

Play with the percentage... play with the threshold... the math changes, but the concept remains the same.

(05-21-2021 11:25 AM)MerseyOwl Wrote: [ -> ]Sorry for the misunderstanding Ham...

No worries. I'm happy to have these conversations... especially with people like you who
a) live with VAT already so you know the ropes and
b) don't ascribe 'evil' to misunderstandings or lack of clarity

The prefund is a way of learning from the European experience with VAT, which has been going on for decades now.


The concept of Numbers prefund and the one I articulated are slightly different, but not significantly. I've set the bar higher which requires that 'assistance' programs all manually raise their levels by 15%.... so congress has to increase their funding and then collect the tax. Numbers' as I understand it does not... all the revenues and expenses come from the 'same interal department'. Its a structural difference rather than an effective one... and really only applies to the poor whereas mine applies to anyone who would have gotten the stimulus.

'Cheers!