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    Negative Tax versus Fair Tax

    The extensive discussion of the Fair Tax, and alaskaguy's quote from Dr. Friedman, got me thinking about his idea of replacing the existing tax structure with a combination of a negative tax and a flat tax. This would eliminate both welfare as we know it and the IRS.

    A couple of characteristics of flat tax with negative tax:

    1. The very rich get taxed at a full rate (no deductions). In fact the actual rate of taxation will increase linearly with income, so we don't have cases such as the famous case of Warren Buffet paying a lower rate than his secretary.

    2. Eliminates the current "welfare trap." In our current system there is often a disincentive for welfare recipients to increase their income because they loose benefits. In this system, you will always get x% of your additional income, regardless of level.

    What do you think? Do you prefer the fair tax idea over a flat tax with negative tax?
    Or the current system over both?



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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by iceclone View Post
    The extensive discussion of the Fair Tax, and alaskaguy's quote from Dr. Friedman, got me thinking about his idea of replacing the existing tax structure with a combination of a negative tax and a flat tax. This would eliminate both welfare as we know it and the IRS.

    A couple of characteristics of flat tax with negative tax:

    1. The very rich get taxed at a full rate (no deductions). In fact the actual rate of taxation will increase linearly with income, so we don't have cases such as the famous case of Warren Buffet paying a lower rate than his secretary.

    2. Eliminates the current "welfare trap." In our current system there is often a disincentive for welfare recipients to increase their income because they loose benefits. In this system, you will always get x% of your additional income, regardless of level.

    What do you think? Do you prefer the fair tax idea over a flat tax with negative tax?
    Or the current system over both?
    I really haven't heard the details of this. Part of the reason I am a huge Fairtax supporter is because it's the best option I have heard, and infinitely better than the one we have now. Do you have a link?



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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by Cyclonepride View Post
    I really haven't heard the details of this. Part of the reason I am a huge Fairtax supporter is because it's the best option I have heard, and infinitely better than the one we have now. Do you have a link?
    This is the wiki page, but I don't know how good it is:

    Negative income tax - Wikipedia, the free encyclopedia



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    Re: Negative Tax versus Fair Tax

    Thanks for the link.......I'll definitely have to check into it further. I'll have to review it when I have more time.



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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by iceclone View Post
    The extensive discussion of the Fair Tax, and alaskaguy's quote from Dr. Friedman, got me thinking about his idea of replacing the existing tax structure with a combination of a negative tax and a flat tax. This would eliminate both welfare as we know it and the IRS.

    A couple of characteristics of flat tax with negative tax:

    1. The very rich get taxed at a full rate (no deductions). In fact the actual rate of taxation will increase linearly with income, so we don't have cases such as the famous case of Warren Buffet paying a lower rate than his secretary.

    2. Eliminates the current "welfare trap." In our current system there is often a disincentive for welfare recipients to increase their income because they loose benefits. In this system, you will always get x% of your additional income, regardless of level.

    What do you think? Do you prefer the fair tax idea over a flat tax with negative tax?
    Or the current system over both?
    You have to be very careful with the Warren Buffet example. The vast majority of the income he is currently earning is coming from long-term capital gains earnings, which have already been taxed at least once, and sometimes 2 and 3 times. It would hurt a LOT of people if that type of income was taxed at "full rate". It also would remove a LOT of incentive to invest, since your investments won't be "worth" as much, thanks to increases in capital gains taxes. This would probably also apply to sales from houses. It really has pretty far-reaching implications.



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    Re: Negative Tax versus Fair Tax

    That brings up a good question- the Fairtax eliminates social security, medicare, estate taxes, etc. Does this do that?



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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by Cyclonepride View Post
    That brings up a good question- the Fairtax eliminates social security, medicare, estate taxes, etc. Does this do that?
    My understanding is that the Fairtax is primarily based on a national sales tax. If that's the case, what happens with social security? Is it funded out of the national sales tax? Or is it somehow eliminated? With all the loopholes in the current system I wouldn't mind seeing an overhaul of the current system, and a move to something else.


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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by Cyclonepride View Post
    That brings up a good question- the Fairtax eliminates social security, medicare, estate taxes, etc. Does this do that?
    First a disclaimer: My knowledge here is primarily based on Milton Friedman's work, which he original did in the early 60s, and I last studied some 15 or so years ago. If someone is more current/knowledgeable, I invite them to correct me.

    Yes, the idea of a negative tax elimnates social security and all welfare programs. It can essentially be viewed as a guaranteed income. Everybody, gets the guaranteed income and then all income is taxed at the same rate. As an example, if the guaranteed income is $10,000 and the income tax rate is 25%, then you would have the following real income (including negative tax and taxes paid):

    Earned income Real income
    $0 ---- $10,000
    $10,000 ---- $17,500
    $40,000 ---- $40,000
    $100,000 ---- $85,000
    $1,000,000 ---- $760,000

    Since everyone is guaranteed an income, the theory is that there is no need for welfare & social security.

    And, those rich bastards, who are making $1,000,000 pay very close to the full tax rate.


    Last edited by iceclone; 11-15-2007 at 10:05 AM. Reason: My table didn't work out

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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by iceclone View Post
    First a disclaimer: My knowledge here is primarily based on Milton Friedman's work, which he original did in the early 60s, and I last studied some 15 or so years ago. If someone is more current/knowledgeable, I invite them to correct me.

    Yes, the idea of a negative tax elimnates social security and all welfare programs. It can essentially be viewed as a guaranteed income. Everybody, gets the guaranteed income and then all income is taxed at the same rate. As an example, if the guaranteed income is $10,000 and the income tax rate is 25%, then you would have the following real income (including negative tax and taxes paid):

    Earned income Real income
    $0 ---- $10,000
    $10,000 ---- $17,500
    $40,000 ---- $40,000
    $100,000 ---- $85,000
    $1,000,000 ---- $760,000

    Since everyone is guaranteed an income, the theory is that there is no need for welfare & social security.

    And, those rich bastards, who are making $1,000,000 pay very close to the full tax rate.
    At first glance this type of tax system seems logical, with maybe a different rate and credit of course. For those of us uneducated in the negative tax, what are the perceived disadvantages?


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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by CloneFan65 View Post
    At first glance this type of tax system seems logical, with maybe a different rate and credit of course. For those of us uneducated in the negative tax, what are the perceived disadvantages?
    The numbers were chosen so that I wouldn’t have to think too hard as I was typing up the example

    One disadvantage that has been argued is that it discourages work. Specifically, if you are guaranteed a minimum income, why work at all? I think this may be true for a certain small group of people that are content living on very little. However, I think it may be more important that it doesn’t discourage people who want to work hard to get out of poverty (off welfare).



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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by CloneFan65 View Post
    My understanding is that the Fairtax is primarily based on a national sales tax. If that's the case, what happens with social security? Is it funded out of the national sales tax? Or is it somehow eliminated? With all the loopholes in the current system I wouldn't mind seeing an overhaul of the current system, and a move to something else.
    The Fairtax is a national sales tax, and would eliminate separate payments for social security and medicare. When you got your paycheck, it would be for the full amount that you are paid with no deductions other than insurance, 401K, etc. It also eliminates estate tax, payroll taxes, etc.. It's hard to see, but if you click on the white box in the upper left of my banner, it will take you to their website.



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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by iceclone View Post
    The numbers were chosen so that I wouldn’t have to think too hard as I was typing up the example

    One disadvantage that has been argued is that it discourages work. Specifically, if you are guaranteed a minimum income, why work at all? I think this may be true for a certain small group of people that are content living on very little. However, I think it may be more important that it doesn’t discourage people who want to work hard to get out of poverty (off welfare).
    That was my first thought when I read that, is that it would discourage work at the lowest levels. However, I'm not sure if it would change that in a significant way. Any hand out is going to be similar, as we have now.

    I'm wondering how this would work as far as minimum ages. I'm assuming that there would have to be something.....would teenagers receive it when they start working? Would there be a requirement that they live on their own? I could see where a family could potentially band together in a house, and just all receive their government checks, and rarely have to work. It wouldn't be the life of opulence by any means, but I am sure 5 or 6 people together could do that to make a living while being deadbeats.



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    Re: Negative Tax versus Fair Tax

    Why should Warren Buffet have to pay more than his secretary? Shouldn't they both be taxed the same or even tax his secretary more since she/he is more likely to use government services other than defense and infrastructure?


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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by brianhos View Post
    Why should Warren Buffet have to pay more than his secretary? Shouldn't they both be taxed the same or even tax his secretary more since she/he is more likely to use government services other than defense and infrastructure?
    In a perfect conservative world, it should be equal. Actually, in a constitutional sense, it should be equal. Unfortunately, we have to come up with some compromise to satisfy the other half of the spectrum, and that's the reality of it. In my opinion, there has to be some kind of government safety net for those who are physically or mentally incapable of providing for themselves. Obviously using such a criteria would eliminate about 90% from our welfare roles.



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    Re: Negative Tax versus Fair Tax

    Quote Originally Posted by brianhos View Post
    Why should Warren Buffet have to pay more than his secretary? Shouldn't they both be taxed the same or even tax his secretary more since she/he is more likely to use government services other than defense and infrastructure?
    I mentioned this case because Warren Buffet made a big deal out of it a while back (couple of years ago?). He was on all the news shows etc., and was claiming it was unfair and a failure of the system. I didn't actually say if I agreed with him or not.



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