Customer Reviews

Fair Not Flat: How to Make the Tax System Better and Simpler

5 star:		(10)
4 star:		(5)
3 star:		(3)
2 star:		(0)
1 star:		(0)

 

 

McCaffrey's on the right track. Consumption taxes are much better for everyone, from many different perspectives. He does a good job of tracking the history of taxation in the United States; most people don't realize that we haven't had an income tax very long, and our forefathers didn't want an income tax. In fact, it took a constitutional amendment in 1913 to even permit an income tax. However, McCaffery's plan is still too complicated, and prone to wreaking havoc on specific sectors of the economy. The FairTax, as outlined in Rep. John Linder's "The FairTax Book," is superior to and simpler than McCaffery's "Fair not Flat" tax, and maintains progressivity that completely untaxes the poor. And FairTax is much closer to reality, since it's an actual bill in Congress right now (HR 25 and S 25), and it has over 50 co-sponsoring Representatives and Senators. McCaffery should use his talents in the tax policy arena to help support FairTax, which already has a nationwide grassroots network over 700,000 strong. Thanks to McCaffery for bringing more attention to the importance of taxing consumption and not income!

Economists know that income taxes are by nature distorting taxes- that is, they strongly affect our behavior. To try and correct for these distortions, we have enacted thousands of pages of of laws providing for 401Ks, IRAs, tax credits, investment credits and hundreds of other exceptions. And yet, there's a much simpler solution.

Consumption taxes are the ideal non-distorting tax. They don't punish investment, or tax inflation, or force people to spend millions every year on tax compliance (and tax avoidance). They're remarkably simply to collect, and people can't escape them by keeping their money offshore. A uniform Federal consumption tax could eliminate debates about Internet sales taxes. So why do politicians fight them?

One reason is that, despite constant speeches about reforming the tax code, politicians like a complicated tax code. It lets them grant favors, buy votes, and rail about making "the rich pay their fair share" even though the very wealthy (including many politicians) have ways of escaping the high marginal tax rates they put into law.

At its simplest, a consumption tax is simply a universal sales tax that exempts those goods that are a disproportionate part of the consumption of the lowest income groups- food, clothing, rent, and so forth. Everything else gets taxed at a single rate. By nature it's progressive- the wealthier you are, the less you spend on exempt items. It encourages investment- soemthing that benefits everyone.

Not convinced? Read this book.

This book was recommended to me by a friend who loved the book's honesty and insight. This book discusses advanced and interesting ideas which used to be off-limits to all but lawyers and accountants. Mr. McCaffery is engaging and easy to understand. Every taxpayer in America should read this book--It will give you new insights and will demistify the complicated world of tax law.

The book presented tax issues in a refreshingly clear and compelling way, but without being patronising. The problems with the current broad-based approach to taxation were laid bare. The answer, for McCaffery is a consumption tax base. Confusingly, however, in the final analysis he would use income calculations in order to determine consumption - thus ignoring one of the main advantages with consumption taxes. Indeed, the practicalities of collecting his tax seem to arise for high spenders; how will the authorities know who are the big spenders unless everyone has to provide their income details and how will the authorities collect the surtax off them? Presumably this would be done through an income tax, which again moves away from the advantages of consumption taxes.

It is easy to make a case against the current system; it is very problematic on a number of grounds because it is not use a true income base. However, McCaffery never compares his proposal with a more comprehensive income approach. This is perhaps forgiveable given that his aim is to show that his proposal is better than the status quo. But if this is his aim, he also needs to show that the Fair Not Flat Tax is also better than rival proposals.

We can draw out McCaffery's dismissal of a true income tax. He seems to think that there is no need to tax people's receipt of wealth, as long as they keep it invested. The idea here is that the person does not benefit from the wealth until they spend it. However, this is patently false. If Jon obtains a fortune and invest it while Ed does not, then Jon can earn additional income over time while Ed does not. Jon and Ed may spend the same amount of money, and therefore pay the same tax, but Ed has to work very hard all his life while Jon lives a life of leisure. There are clearly class issues here, which McCaffery entirely ignores. McCaffery seems to be happy with a society in which there are distinct working and leisure classes. He seems to take an intergenerational view of property which strikes me as relatively feudal in its implications. He rightly points out that the current tax system does nothing to stop this problem, but a strong and consistent lifetime comprehensive income tax (such as that proposed by William Vickrey) would do just that.

McCaffery is happy to talk about rewards going to those who do the best thing by their society, but I don't see how a system which provides no incentives for some individuals to do any productive work is in any way appealing. In short, while his attempts to be non-partisan are laudable, I don't think its as easy to take politics out of taxation. I find his moral appeals to be very weak. Some people want a society in which contains haves and have nots so that some people have an incentive to invest while others are forced to work. Others take a more egalitarian line, thinking that all individuals in society should face a similar outlook no matter who their parents and grandparents were.

This book is exceptionally well written. It is clear and easy to understand, with examples based in current literature. An important read for anyone who pays taxes.

Just get "The Fair Tax Book" or the new paperback update. It explains it better and describes real legislation before the congress right now. Tell your elected officials to support HR25 or SB25 and force a vote on it. It starts with abolishing the IRS and replacing all taxes with a progressive version of a national sales tax. Everybody pays after a pre-bate refund to cover basic poverty level spending tax. Everybody (rich people, drug dealers, illegal aliens, you, and me) pays when buying new goods. Even funds Social Security! Read the book. Call the politicians. Demand action.

Should we have a flat tax instead of the present income tax? How about, as the author of this book proposes, a "fair" tax. Edward McCaffery's idea is to tax spending.

The argument he gives is simple. The rich can avoid taxes by acquiring assets, avoiding a tax on income, avoiding a death tax, and not having to pay a spending tax. With a spending tax, the rich will still be able to avoid a tax on savings and at death (there won't be a tax on savings or on inheritance). But they will pay a tax on big spending. And that seems a little better for society.

Well, maybe that's true. But I think it is more complicated than this. First of all, we pay plenty of taxes: income tax, payroll tax, property tax, sales tax, inheritance tax, and a few miscellaneous fees here and there. Second, the nature of the income tax is not really evident to me. If I make widgets for a living, spend 10 dollars per widget for raw materials, and sell the widgets for 20 dollars each, I understand a little about the effect of an income tax: a 20% tax takes more of my profit than a 10% tax. More important, I know what the effect is if I work twice as hard and make twice as many widgets. But even here, I'm not so sure about all this, because a higher tax may let me raise my price for each widget.

When it comes to salaries, I'm really not sure what the effect of an income tax is going to be. I don't see much (or any) of the taxed income: it is taken out of my paycheck before I get it. In some cases, it may be obvious how much the work I do is worth to my company, independent of taxes. But in other cases, my salary is more of a negotiated quantity, and what I'm negotiating is going to be my after-tax salary. It can make my income tax look more like a payroll tax (such as social security) and it can make my employer look more like the entity that actually pays the tax.

McCaffrey does not get into this sort of question, nor the significance of higher payroll or property taxes. Well, that may be okay, given that he's proposing spending taxes. But I think it will turn out that these spending taxes wind up being very difficult to collect, and when they are large, there will be more and more loopholes in them too.

The author discusses some present tax features (such as disproportionate tax burdens on women), while not mentioning others (such as bracket creep and other effective tax rate changes) which I think have a strategic significance that the author overlooks.

I agree with the author on getting rid of the inheritance tax. I would add that under present laws, in the case of inheritance taxes on previously untaxed money, the marginal rate can easily exceed 90% or even 100%: an inheritor can actually lose money by acknowledging the existence of some money in an untaxed IRA.

Are loopholes and complexity inevitable in any fair tax system? Maybe so. But I have a counterproposal: make the tax system unfair if necessary but make it simpler.

Right now, as the author points out, our income tax system is very complex, inconsistent and arbitrary, and unfair. McCaffrey is trying to attack all these problems, especially the unfairness. I would prefer to attack the complexity above all. And I think that means finding a way to stop making typical workers fill out all these tax forms. In short, while I'm not a big fan of a flat tax, I can see an argument for "flat, not fair."

I think that our nation is very rich and powerful, and that it may be able to afford the luxury of an inefficient and unfair tax system, but I agree that we'd be better off with something simpler. In general, it is wise for governments to make it easy to tax its citizens. Best is a very simple tax policy, strictly enforced. It is, in my opinion, ridiculous for the same agency that collects taxes to worry about all sorts of deductions, no matter how worthy. Let other agencies worry about that! Taxes are the lifeblood of the government's budget, so let the tax collectors do their job.

Anyway, here's my advice: if we want to get rid of inheritance taxes and taxes on savings, fine. But get rid of filling out tax forms for us employees. Our employers are already sending in our money, let them do it without us watching them. Tax the employers on the payroll. Tax us on our property if you must. Have sales taxes as well. Or value-added taxes. But don't make us fill out complicated forms. Leave that to companies who may have better access to accountants and lawyers.

Meanwhile, we'll get paid our salaries in post-tax money. Is such a tax regressive or progressive? It seems regressive, but I'm not so sure it is, as the only way to tell is to see how much more employees get paid if they produce, say, twice as much good work. It may be a rather progressive tax after all!

If we need to tax the rich when they spend, we can find a way to do it other than making us all fill out yearly spending forms. If we need to tax assets to stop the rich from hiding all their money from taxation, we can probably do that as well. That only requires a flat tax on transactions and on assets, not a complex study of the worth or income or other spending of the person who owns an asset or makes a transaction.

I recommend this book.

Any [one] can see that the transaction costs of the current income tax system combined with its accompanying incentive to waste make it unworkable from a wealth maximizing perspective. Anyone who understands the current tax system, even a left-wing, ivy league educated law professor has to admit that a consumption tax, coupled with the elimination of the estate tax would better equip America to reduce transaction costs and incentivize saving. "The Mac" lays it all out for the world to see ... are they looking?

One thing about this book is that it was written so that anyone could understand taxes. I have to give kudos to Mccaffery for his simple, yet, informative style of writing. If you want to learn about our current tax system and an alternative way to levy taxes, then read this book. While I agree with the fundamentals of his argument in favor of the Fair Not Flat Tax, I was consistently bothered by a question that he never addresses in the book. What if you couldn't pay the tax you owe at the end of the fiscal year? Not everyone saves money, and many people are, as he refers them in his examples, Grasshoppers, who spend all the money they make. These people would have no money left over at the end of the fiscal year to pay their tax. Mccaffery says that people get choices as to how much tax they wish to pay by limiting their spending,but it seems as if the system forces people to save money just so that they can pay the tax they owe at the end of the year. I guess my biggest issue is that it seems as if you will be forced to start saving just to turn around and write a check to the government that would come out of your savings account. Overall though, this is a good book and I highly recommend it.

Look at your paycheck...not the take-home pay line, but the gross pay line. It's a lot more isn't it? Wouldn't you like to take home your WHOLE check? Well that's where the Fair Tax starts.

The Fair Tax is not a flat tax rate...The Fair Tax starts with abolishing the IRS and replacing all taxes with a progressive version of a national sales tax. Everybody pays after a pre-bate refund to cover basic poverty level spending tax.

Everyone (rich people, drug dealers, illegal aliens, you, and me) pays when buying new products. The Fair Tax even funds Social Security!

Read the book. Then read "The Fair Tax Book" by Neal Boortz. Then surf to FairTax.org for more information & the latest updates on which congresspeople & Senators support the bill. Call your politicians, regardless of their party affiliation. Tell your elected officials to support HR25 or SB25 and force a vote on it. Demand action! After all, they "work for us".