Friday, March 27, 2015

What is FAIR Tax, Credit, Welfare Policy

Well I posed a question both on G2A and MinnPost and received no answers from the Liberal commenters.  Though I created the new more complicated #3 based on Jerry's response, and moved the old #3 to #4.
  1. Fair would be if we took the total cost of government, divided it by the number of adult able bodied citizens. And each adult then paid their fair share of the bill. (ie Dues concept)
  2. Fair would be if total cost of government was divided by the total income of every adult able bodied citizen. And each citizen paid their fair share of the bill. (ie Percent of Winnings to the House Concept)
  3. Fair would be if total cost of government was divided by the total income - some base living cost (~$25,000?) of every adult able bodied citizen. And each citizen paid their fair share of the bill for every $ they make above the base living. (ie Percent of Winnings above Base Cost to the House Concept)
  4. Fair would be if taxes and credits/programs were set to reduce the net income and wealth gap between the adult able bodied citizens. This means high income and wealthy people pay significantly higher rates than other citizens in attempt to attain a fair society.(ie Equalization concept)
And where does this point fit into FAIR?
"You inferred that people earning minimum wage were not paying income taxes. I corrected the statement. You then changed the claim to "they get more back than they pay in." They are still paying in." Jonathan

"I am not sure having monies withheld is the same as paying taxes.

If people have $1,000 withheld and and get a $5,000 refund back in child, work and/or learning tax credits at time of filing their taxes. I would say that they paid no income taxes.

It is an interesting concept, though somewhat pointless. The reality is that these low income folks are likely getting more back from the progressive taxes than they paid in "sales" and other regressive taxes. And if you throw in cash subsidies like welfare, housing assistance, etc, many of them are making money via government policy.

Yet this silly tax incidence study avoids addressing this reality." G2A
We know the MN Tax Incidence Study ignores the fact that the bottom 20% of citizens get far more cash back in credits, medicaid, welfare, housing assistance, heating assistance, etc than they pay in to the government. Yet the Study propogates the myth that these groups are "over taxed".

Thoughts?

35 comments:

Laurie said...

I pick #3.

Also, how do you know this:

"the fact that the bottom 20% of citizens get far more cash back in credits, medicaid, welfare, housing assistance, heating assistance, etc than they pay in to the government."

Anonymous said...

The poor and middle income people I know struggle to pay their taxes. It seems only fair that rich people should struggle to pay their taxes too.

If you can't afford to vacation in the Bahamas because of the tax burden, then why not impose a similar burden on Mitt Romney? Isn't that fair?

--Hiram

Sean said...

You didn't answer my question, so stop whining about me not answering yours.

Sean said...

The Minnesota Tax Incidence Study does exactly what it is designed to do -- it measures the tax incidence of state and local taxes -- which is what the Minnesota State Government has the ability to impact via its decision-making. The fact that you don't like it is your problem, not the report's.

Sean said...

Actually, according to the CBO, almost the bottom 80% receive more in government transfers than they pay in taxes, it's just the nature of the transfers that changes. And the average household in the top 20% receives the highest level of government transfers, it's just that the very top earners have incomes so high that their taxes overcome it.

https://www.cbo.gov/publication/49440

Anonymous said...

Fairness is something we pay a lot of lip service to, and no doubt is desirable in a tax context, but Fairness isn't and can't be the sole factor determining tax policy. The fact is, we have to tax rich people more, because it's the rich people who have the money. And to those who object to the fairness of that, I would just point out that it's rich people who have benefited most from living in our society.

--Hiram

jerrye92002 said...

Hiram, I keep hearing that argument that rich people benefit from living in this society, but nobody ever comments that the so-called poor ALSO benefit mightily from living in this society, and it is entirely due to our long history of free-market capitalism and low taxes. The other thing that defies logic here is how the total wealth of the country can be increased (through redistributive taxation) by forcibly removing some of the wealth from the high end and giving it to the low-end. Or how penalizing success and rewarding failure helps the economy. In short, "fair" used to mean the greatest good for the greatest number, or the freedom for each of us to go as high and far as we could.

John said...

CBO Transfers

Sean which question of yours did I not answer? I must have missed it.

Laurie, I agree that 3 is the "fairest". And I think that we are somewhere near this today. Especially if Payroll taxes are accounted for as forced saving and insurance payments. Which in essence they are.

Hiram,
I don't disagree that the well to do may have to pay more than their fair share. I am sure they would be much happier doing so if the Liberals acknowledged them for doing so and thanked them. Instead of villifying them continually and accusing them of not paying their fair share.

And it would be even better if the bottom 20% would thankful for the cash and benefits they receive from the 80% instead of often demanding that they are entitled to more gifts.

jerrye92002 said...

I would like to complain that #3 is incorrectly stated if the intent is to represent the FAIR tax. The all-important difference is that the FAIR tax is a retail SALES tax, not a tax on income. One of the principal differences that result is that savings and investment is exempt from taxation until the money is withdrawn and spent. This automatically gives a tax advantage to what are now "long-term capital gains" and to IRA accounts – EVERY investment would be an IRA.

And this tax is the most fair because it is imposed only on disposable income (i.e. above the poverty line), because everybody pays the same percentage in taxes while the total tax bill is perfectly progressive based on spending (the big spenders pay the same percentage but more dollars), because there aren't 70,000 pages of loopholes, and because the taxes are linked to lifestyle choices that create sinful envy in others. That is, if you want to live like the rich and famous you pay more taxes than if you live humbly and save for your retirement.

John said...

Hi Laurie,
Here is the tax paid per the Tax Incidence study by the 2 lowest income groups. Do you have any doubt that they are getting back more than this in cash and/or direct benefits?

$10,900 X 32% = $3,488

$17,554 X 16% = $2,807

A woman I knew who had one child and earned only $10,000/per year because of some responsibility problems got back a $5,000 federal tax refund. Plus received pretty much free healthcare, methodone treatment, counseling, food stamps, housing assistance, etc. She probably did pay $3,500 in taxes, but most of it was paid for with money from tax payers.

So did she really pay anything in taxes?

Sean said...

If federal taxation flipped from progressive to regressive, should we likewise flip our state and local policies? Should we "chase" federal tax law?

John said...

I am sorry Sean, I thought this was my answer.

"My point is that MN is in competition with the other 49 States. We want to draw people who strengthen our quality of life and economic strength, and dissuade people who want to weaken these."

So I guess what the Feds are doing is somewhat immaterial, except in determining if people are paying "their fair share". Since so many Fed tax dollars come back into the State, it seems kind of silly to ignore them in the MN Tax Incidence study when discussing progressivity and fairness.

By the way, the DFL did adjust State tax law last year to be in alignment with Fed law, they just chose to ignore some important aspects.

Sean said...

That's not an answer to the question. I'm not talking tax conformity, I'm talking distribution and fairness.

If the federal tax code became regressive instead of progressive, would you suggest changing the state tax code to offset it?

John said...

I think the State Taxes could become more Progressive if the other 49 States did something similar.

Let's say that the Federal government actually went back to what they are supposed to be doing. (ie national defense, interstate commerce, etc) And left all the social security, healthcare, law and order, disaster management, welfare, etc to the individual States. Then I could see States being more Progressive. (ie wealth transfer)

Then people would move to States that matched their values.

John said...

"I'm talking distribution and fairness."

By the way, I support a total tax model like #3. I think that is FAIR.

Still waiting for you to explain what FAIR means to you.

Sean said...

In an ideal world, I would say #3.

Anonymous said...

I keep hearing that argument that rich people benefit from living in this society, but nobody ever comments that the so-called poor ALSO benefit mightily from living in this society,

Sure they do, but not as much as rich people.

--Hiram

Anonymous said...

And bear in mind, what rich people are buying are paying for through their taxes are laws and institutions which favor their interests at the expense of the poor. That's proven to be an excellent investment for them.

--Hiram

jerrye92002 said...

So? a progressive tax system should allow a progressive wealth creation system, and vice versa. It is almost impossible to get a job from a poor guy, or to have a poor guy create a factory or product that employs dozens or even thousands. Pooh-pooh if you like, but wealth creation is in reality a "trickle down" process.

jerrye92002 said...

The problem is that "fairness" is not the proper purpose of the tax system. It is to raise money for the proper functions of government.

John said...

Jerry,
Of course, tax policy and "welfare / wealth transfer" have to accomplish many goals. It needs to:

- fund the "proper" functions of government. (sounds like an idea for another post)

- it needs to support social and economic stability in the USA (maintain peace, hope, GDP, etc)

- it needs to encourage all citizens to want to work hard, take good risks and continually learn for the good of their families and the country.

- it needs to provide support for the truly needy.

Anonymous said...

a progressive tax system should allow a progressive wealth creation system, and vice versa.

Possibly, but what we have, what rich people buy with their campaign contributions is a system that isn't progressive, isn't even flat really.

--Hiram

jerrye92002 said...

John, odd that you agree taxes need to support the proper functions of government, and then go on to list a whole string of things that government should not or even can not properly do. Are you really claiming that our current tax system is what is accomplishing all these good things? Did you leave out "maintain economic freedom," which WOULD provide most of those things? Because on that score, our tax system is way down the list.

jerrye92002 said...

Hiram, you are claiming that our entire government is corrupt, and I don't believe that. What I DO believe is that the amount of money it taxes and spends makes them too powerful, and power corrupts the system in which these otherwise-good people operate. Campaign cash is in contrast a mere trifle.

Anonymous said...



Hiram, you are claiming that our entire government is corrupt, and I don't believe that

I think what I am claiming is that I don't know if that is corrupt, certainly it isn't in a legal sense, because the Supreme Court says it isn't.

For myself, I am wary of using value loaded terms like "corrupt". The fact is, politicians listen to the voices they hear, and they always have. And the voices they hear are the ones that are amplified by the use of great wealth to buy the amplifiers. That's the system we have created, one that by the way, folks on my side of things share responsibility in creating.

--Hiram

John said...

Until ~1930 the state/fed government's simple tax policy was to ""maintain economic freedom" and it failed in the modern industrial society of large cities.

The winners did not give enough to charity and there were too many losers for charity to support. And the consequences for the losers were more drastic than our society would tolerate. (ie homelessness, hunger, death, etc)

Therefore forced savings and insurance policies were implemented. (ie SS, Medicare, unemployment insurance, disability, etc) These for the most part were good things because it forced all people to invest money that many of them would have squandered.

As for welfare, I think this where Liberals are trying to destroy our country by violating this goal...

"- it needs to encourage all citizens to want to work hard, take good risks and continually learn for the good of their families and the country."

John said...

Providing money, housing and healthcare to people who intentionally do not work, have more children than they can afford, did not work to learn in school, etc can only lead to more bad behavior.

Pelosi Video

Anonymous said...

Until ~1930 the state/fed government's simple tax policy was to ""maintain economic freedom" and it failed in the modern industrial society of large cities.

Do you think that policy had a role in bringing on the Great Depression? It is one of the central ironies of economics is that policies that are designed to create a great business climate are in fact horrible for the economy. People do better, even business does better, when the business environment is awful.

By the way, isn't it curious that rich people benefit more from their charitable contributions than poor people? How much sense does that make?

--Hiram

John said...

TheCauses of the Great Depression are beyond me. After a short review, I think boom times and lean times are normal.

The problem was that not nearly enough people were prepared for this extended and severe "lean time". So the pain was so severe that forcing contributions into retirement savings and other insurance upon citizens became acceptable.

John said...

As far as I know, everyone gets a standard exemption or can itemize.

Not sure why you believe the wealthy get more benefit from giving to charity.

And what would be the benefit of encouraging the poor who are receiving welfare, Medicaid, food stamps, housing assistance, etc to give more of their/our tax provided funds to charity?

It is like that silly ,"the poor pay the highest tax rate" argument. When it paid with money that is given to them...

It seems time again for:
Barstool Economics

Anonymous said...

Not sure why you believe the wealthy get more benefit from giving to charity.

Because they are in higher tax brackets.

--Hiram

John said...

It definitely was time for the bar stool economics lesson...

jerrye92002 said...

"Providing money, housing and healthcare to people who intentionally do not work,..."

I think you overgeneralize, here. You fail to recognize the twin motivations at work. First, government provides welfare with no strings-- like naming the father of your children, finding work or taking training, and staying off drugs and booze. Second, they penalize you if you DO work; it's called the "welfare trap" and it means that nobody can get a first/entry-level job that pays anywhere near what the welfare lost would. So there's a "carrot" to get on, and a "stick" to keep you there. Welfare recipients and taxpayers alike are victims of this system. That some welfare recipients have had the human spark beaten out of them through long exposure and accepted their lot-- a sort of "Stockholm syndrome"-- doesn't change the fact that the system is at fault.

jerrye92002 said...

The conceit here is that a few congresscritters or pointy-headed bureaucrats in DC can "grow the economy" or "create jobs" or be "fair"-- whatever that means. It certainly cannot be done with a tax code that is so complicated that no human can understand it-- running at least 17,000 pages. One of the beauties of the FAIR tax is that over 100 million individuals would NEVER file a tax return again and April 15th would be just another day.

jerrye92002 said...

Charitable donations are another example of a "loophole" in the tax code, and it was put there to encourage charitable giving, ESPECIALLY among the wealthy, who are both more inclined and more able to do so. Remember the screaming that arose from charities when it was suggested that the charitable deduction be phased out for higher incomes? Wouldn't it be great if people could give to charity, or buy or invest as they wished without constantly having to be concerned with the tax considerations? Seems "fair" to me.