- Paperback: 192 pages
- Publisher: University of Chicago Press (December 31, 2006)
- Language: English
- ISBN-10: 0226555615
- ISBN-13: 978-0226555614
- Product Dimensions: 6 x 0.5 x 9 inches
- Shipping Weight: 9.6 ounces (View shipping rates and policies)
- Average Customer Review: 17 customer reviews
- Amazon Best Sellers Rank: #330,615 in Books (See Top 100 in Books)
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Fair Not Flat: How to Make the Tax System Better and Simpler
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From the Inside Flap
In clear, easy-to-understand language, Edward J. McCaffery offers a straightforward and fair proposal. A "fair not flat" tax that is consistent and progressive would tax spending, not work and savings. And if it were collected at its lower levels through a national sales tax, most people would not even have to file onerous tax returns. A supplemental tax on spending for the wealthiest individuals would make the national sales tax progressive. Under McCaffery's system, the average family of four would pay no tax on their first $20,000 in spending, and 15 percent on the next $60,000 they spend-only the few families who spend more than $80,000 a year would be subject to the supplemental tax. Necessities would be taxed less than ordinary and luxury items. No one would be taxed directly when he or she saved. And as an added bonus, the estate and gift or so-called death tax would be abolished.
Simpler, more efficient, fairer, and better reflective of America's current social values, McCaffery's "fair not flat" tax could help get us out of the tax mess that politicians and special interests have gotten us into, improving the whole country in the process. Read Fair Not Flat to find out how.
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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.
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.
It's a tax on consumption that is not flat like a sales tax. Every year you would fill out a form as you do now. Poor and many middle class people spend all they earn so they would end out much as now. Rich come in two types,
(1) those who luxuriate and (2) those who build businesses (and jobs!). They would come out very differently!
The idea is that you spend what you earn plus what you borrow minus what you save. Financial institutions would report borrowing and saving on forms like W-2 so you would compute your consumption from that plus earnings.
He wasn't very clear (anyway, I wasn't) about the example of buying a house. I believe on a $270,000 house you would be effectively spending $10,000/year for 27 years and this expenditure could be taxed at a progressive rate. There would be no capital gains taxes (because they are mostly inflation taxes).