I... um.... kinda hijacked prester_scott's blog post about taxes. Since it's kinda rude to take over someone's sandbox, I'm moving any further discussion I was involved with over there to this journal.

Here's Where We Are So Far...
(I've re-ordered some of the comments a little to make it flow better as a single journal entry, but doing so shouldn't have changed the intent.)

drmellow: I was a little skeptical at first, but the more I studied the Fair Tax and talked about it with other people, the more reasonable and fair it seemed to be. Is it a perfect solution? No, I'm sure it's not. I don'tsee any glaring holes in it so far, but I wouldn't be surprised that some areas for tweaking became known if the idea were actually implemented. While I'm sure it's not a perfect solution, I'm even more sure that it's a much, much, much better solution than the currentsystem and I'd rather make a huge step in a better direction than sit around doing nothing while trying to decide what the "perfect" solution would be.

christtrekker: You and I have probably already discussed this elsewhere, but I stil lthink it's a better solution to simply make certain classes of items free from sales tax rather than having a "prebate". A "prebate" system still requires a massive bureaucracy to administer (admittedly it would probably be smaller than the IRS, but still) and it still rests on a government-defined (i.e. arbitrary) level of "poverty".

If you simply make "essentials of life" (food, clothing, medicine) off-limits to taxation, it all automatically takes care of itself. Basic economics work out who lives tax-free and who doesn't. Some deride this idea because someone has to define which borderline cases qualify as "food",and debate whether "luxury" items like fur coats and caviar should also be exempted. I say "who cares?" If you're in the $8k range and have a few dollars "extra" that you could spend either on a taxable item or a luxury version of a non-taxable item, who cares how you spend it? It's your life and your money,live/spend it how you will. For "the rich" who would spend much more on luxury items, I again say "who cares?" If the argument works for one person, why should it change just because of the amount of mone yinvolved? If I choose to tie up all my money on buying expensive clothes and food, that's my prerogative.

This type of system also takes care of the differing expense of living in different areas of the country, which a "prebate" system would require additional bureaucracy to handle, if it handles it at all - and whether it should or not is debatable.

That said, I support the Fair Tax as an incremental step to this ideal. It's definitely better than income tax and the IRS.

Additionally, and perhaps more compelling, is that everyone has different medical needs. Any "prebate" system is going to be based on typical/average needs. Assuming for argument's sake that Steven Hawking were a US citizen, why should be effectively be penalized for having expensive medical needs while someone else gets a financial reward for being blessed with health?

drmellow: As I mentioned in another commenton this post, since the Fair Tax is designed to keep the (after tax)prices of goods and services the same as they currently are, no one gets penalized -- the prebate is essentially a bonus that everyone,rich and poor alike, receive.

OK, maybe your point is that under the current system, if your medical expenses are high enough, you get to adjust your reported income so you don't pay as much income tax.Well, under the Fair Tax, nobody pays any income tax, so everyone comes out ahead. In your hypothetical example, Steven Hawking is currently paying X for medical care and Y for income tax (adjusted for the medical deduction) -- a total of X + Y dollars. Under the Fair Tax,Steven Hawking would pay X for medical care and 0 for income tax -- a total of X dollars. The only way Hawking is better off under the current system is if he pays negative income tax.

That argument goes for everyone -- the healthy and the sickly, the rich and the poor.

christtrekker: My point is not simply the economics of it, but the principle.

1.Government should be protecting our life, liberty, and property. It should not be making it more difficult (through taxes or whatever) to simply maintain your life. This is why "essentials of life" should remain untaxed.
2. Government should not be in the business of redistributing wealth. Period. No prebates. The prebate is designed to compensate for the fact that low-income folks pay no income tax currently, and in fact are a net beneficiary. A prebate still makeslow-income people direct beneficiaries of taxation, and that's wrong.

I don't care if the end result is "revenue neutral" compared to ourcurrent system. The federal government costs too much the way it is.I'd like to see it bring in less revenue, and spend less in the process as well. I don't care it is designed to have equivalent impact on people as the current system does. The fact remains that it still goes about it the wrong way. That's what I'm saying. True, it is an improvement over the current system because of the increased transparency, but it could be even better yet. If we're going to fix the system, let's do it right!

Hawking may spend more on medical taxes under FairTax than he is allowed to claim an income tax deduction for currently, so I'm not convinced every individual will be unaffected by the change. (In aggregate, I'm sure the numbers work out to make sure gov't gets just as much money from us.) In any case, the cost o ftaxes may make it impossible for him to get the care he needs. This is wrong, as I stated above in point 1. Sure tax-free essentials jus toffsets the taxes to other things, but it allows people to prioritize their spending, and in the final analysis the essentials are what we would all choose first when times get tough. Merely trying to maintain your existence should not be a revenue generator for government!

I think that's my primary problem with FairTax. It's still designed in a way that sees the taxpayer as a gov't resource.

bodnej: Actually, you should ask Steven Hawking how he handled the bills for his medical care:

http://fermat.nap.edu/books/0309084105/html/221.html

He knew that the only way for him to stay alive was to make money himself to pay for his own care.

christtrekker: That is why I used him as an example.

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drmellow (in response to an already quoted comment from chrisstrekker): Yeah, I think we've gone around the block on this issue before, and I continue to completely disagree with you. ;-)

Basically, I favor the arguments advanced by FAQ Question 4 much better than the arguments you advance on this issue:

Why not just exempt food and medicine from the tax? Wouldn’t that be fair and simple?Exempting items by category is neither fair nor simple. Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor. Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit. Also, today these purchases are not exempted from federal taxation. The purchase of food, clothing, and medical services is made from after-income-tax and after-payroll-tax dollars,while their purchase price hides the cost of corporate taxes and private sector compliance costs.

Finally, exempting one produc tor service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today. Those who have the money will send lobbyists to Washington to obtain special tax breaks in their own self-interest. This process causes unfair and inefficient distortions in our economy and must be stopped.

Additionally, the bureacuracy needed to issue the prebate is already in place, in the form of the Social Security Administration. The government has been sending checks to people based on the SSN for decades, and it seems to be working OK. The prebate could go through the same office, with little need for any real growth in the bureaucracy -- I think having the bureaucracy required to define the borderline cases under your proposal would end up being more invasive and painful.

We can keep going around the block on this issue, but you'll likely never convince me to change my position on it.The important thing is that we agree that the Fair Tax is a good place to go from where we are now.

christtrekker: Well, I disagree with the FAQ's idea of"fair". "Fair" is whatever meets your needs, as long as you can afford it. If you want to spend the money for steak rather than hamburger*,"taxes" shouldn't be a reason why you cannot make this decision for yourself. So what if the rich eat better than the poor? They're going to anyway.

I don't think the idea of "fairness" in taxation should be making everyone pay the same absolute amount, or the same fraction of their personal wealth or income, or that taxation be used to make everyone economically equivalent. I think a goal of the tax code should be to treat every person with equal respect for their human dignity and liberty, not merely meeting the revenue goals as easily as possible. Taxing food and medicine is just wrong, and I'll always maintain that it is. It matters not to me that refusing exemptions makes the system easier to administer. Living by principles rather tha npragmatism isn't always an easy choice. If I can be convinced that my principles here are unsound, I'll change my opinion on implementation of the tax.

* Some will make the argument of "needs" vs "wants"but really they are the same. All we really "need" is sustenance, and I'm sure science could come up with some mass-produced nutritional sludge (maybe called "soylent") very cheaply that would satisfy the basic requirements of maintaining our phyiscal existence. So arguing the distinction between burger and steak won't gain traction with me.

drmellow: OK, you *might* be able to convince me to change my position on making food tax-exempt, but only if it were so narrowly-defined that it wouldbe pointless: as you pointed out, the only "need" is basic nutrition,so come up with the soylent you describe and make that tax-exempt,while every other foodstuff is taxable. Yes, that's a silly position to take, but it addresses much of the problems that will be caused by having categories of tax-exempt things.

But it doesn't really:Who would make this soylent? If the government, why are they in the business of producing food? If a private company, which one? Multiple ones? Why do they get the benefit of being able to produce tax-exempt goods while other companies don't? You've still got the lobbying problem -- whenever an exemption can be made, companies will throw money at the government to try and convince them that they should benefit from the exepmtion. No exemptions, no corruption.

By creating any exemption, the government is implicitly endorsing that product -- attempting to encourage people to buy that instead of taxed alternatives. When there are exemptions, you have a situation where the government is rewarding certain behavior. That is definitely not therole of government.

When it comes down to it, my position isbased on principle rather than pragmatism, too. I am principly against the gov ernment unnecessarily encouraging behavior. Creating a category of tax-exempt goods means that government encourages behavior -- and in this case, it is completely unnecessary.

And, really, I'd still be fine with the Fair Tax if they took the prebate away. But I don't have a problem with the prebate, either.

There's really no needto keep going back and forth on this point, though -- I think you are fundamentally wrong in your basic outlook on this issue, and I suspect you think the same of me. ;-)

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At that point, I asked prester_scott if he minded us continuing this in his journal, or if he'd rather we took the conversation somewhere else. He kindly suggested that we move to one of our own journals with it. So I brought it here.

Any further discussion related these issues can continue over here. Feel free to jump in.