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Today's Question: Does a consumption tax help or hurt income inequality?

Friday, June 12, 2009 | 1:28 p.m. CDT; updated 12:03 a.m. CDT, Monday, June 15, 2009

Since the late 1980s, income inequality has grown in most parts of the country, according to a report by the Center on Budget and Policy Priorities and the Economic Policy.

The richest Missouri families have had the greatest income gains in that time period. The gap between Missouri’s richest and poorest families is the 22nd-largest in the nation, and the gap between the richest families and families in the middle is 14th-largest.

In light of these statistics, consumption tax legislation — known as the “fair tax" — says it would reconcile these disparities by replacing income taxes with a system that taxes spending rather than income. This would in essence establish a wide-scoped sales tax.

The consumption tax compensates for the increase in sales tax by giving every taxpayer a rebate. Those who are earning below the poverty level — below $20,000 — will not have to pay at the same level as those above.

But the Institute of Taxation and Economic Policy, a Washington-based policy research organization that has an office in Columbia, is strongly against the consumption tax. It says the new sales tax rate would have to increase to about 12.5 percent — up from 5.11 percent — for the bill to be truly revenue-neutral.

ITEP also says the burden of the increased sales tax will fall on lower income and middle-class families, while Missouri's wealthiest 1 percent would see the highest tax cuts.

In a report by FactCheck.org, a project of the Annenberg Public Policy Center of the University of Pennsylvania, “consumers would pay taxes on a great many things that may not intuitively seem like consumption,” such as rent, medical bills, utilities, gasoline and legal fees.

While federal legislation is still in committee, Missouri is on the forefront of this tax issue and has garnered interest from around the country. FairTax.org is even hosting the Midwest Fair Tax Rally from 8 a.m. to 4 p.m. on Saturday at the Boone County Fairgrounds

State Rep. Chris Kelly, D-Columbia, an active advocate for the consumption tax, believes that compared to the income tax, the sales tax is more difficult to cheat and, logistically speaking, less expensive to collect than income taxes.

Why do you support or oppose the consumption tax legislation?

 


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Comments

Colin Malaker June 16, 2009 | 8:22 a.m.

Thorough economic analysis debunks the ITEP paper often quoted in campaigns when a
national retail sales tax is mentioned. According to sophisticated research by Dr. Laurence
Kotlikoff (http://people.bu.edu/kotlikof/), noted public finance economist of Boston
University, the FairTax national retail sales tax at a rate of 23 percent significantly reduces
marginal taxes on work and saving, substantially lowers overall average lifetime burdens
on current and future workers at all income levels, and enhances overall progressivity.
---------------------------------------------------------
1 “The Effects of Replacing Most Federal Taxes with a National Sales Tax: A State-by-State Distributional
Analysis,” Institute on Taxation and Economic Policy (ITEP), Citizens for Tax Justice, September 2004.
2 Condensed version of Kotlikoff, Laurence J. and David Rapson, “Comparing Average and Marginal Tax Rates
under the FairTax and the Current System of Federal Taxation,” October, 2006.
3 Average remaining lifetime tax rates are based on the total tax payments net of Social Security benefits that the
household will pay in its remaining years of life. They measure the household’s future tax burden under the FairTax
compared to what it would have to pay if the current tax system remains in place.

(Report Comment)
Bob Burt June 16, 2009 | 1:25 p.m.

Don't judge it till you totally know and understand it. I thought it was a gimmick until I studied it. It's truly awesome.

(Report Comment)
melva anderson June 16, 2009 | 1:36 p.m.

Everyone is complaining about the fair tax but doing nothing to get rid of the present income tax with all of the imbedded taxes.Don't you think it is time "We The People" took back this country? At least with the Fair Tax everyone would be paying taxes including visitors from other countries. Doesn' that make more since than us paying taxes for them?

(Report Comment)
Ken Hoagland June 20, 2009 | 10:25 a.m.

The average federal tax burden for Americans is about 30-32% of every dollar earned (when also considering the Social Security and Medicare payroll tax and embedded federal taxes in retail prices). The very most someone pays for federal taxes under the FairTax is 23% of what is spent (and that level is only reached when a taxpayer spends hundreds of thousands of dollars). So is 30% of what is earned better than 23% of what is spent? No.

People can pay less under the FairTax and still raise every penny now collected because the tax base grows broader under the FairTax. Illegal immigrants, the underground economy and even foreign tourists contribute under the FairTax. Billionaires and big business loopholes close under the FairTax bringing in more revenues and a more fairly distributed tax burden for the common good. All federal taxes on the poor are reimbursed and the middle class sess a dramatic tax reduction--despite the distorted analysis by ITEP and other income tax defenders.

It also eliminates the potential for Congressional corruption whereby Congress trades tax breaks and gimmicks for contributions--about three a day every day they are in session. Removing this abused power from Congress has both Republican and Democratic representatives and Senators fighting against the FairTax. They find willing allies in ITEP and others who are "players" in the DC culture that now surround Congressional tax writing committees. Tax lobbing is a $1.5 billion a year industry in Washington. Legislators are generally unwilling to expose the cost of the federal government to taxpayers, preferring to keep payroll taxes and income tax withholding hidden from plain sight so that citizens remain in the dark about the personal cost of increased government spending--which helps "buy" reelections.

Essentially, the income tax system provides a campaign useful, lucrative and powerful living for those in Washington as it bedevils individual taxpayers and damages the national economy. This is clear-cut case of self-interest in Washington trumping the national interest.

Some state legislators also apparently prefer to keep taxes hidden from taxpayers despite the clear advantages of the FairTax.

As the FairTax movement grows more citizen pressure is building to trump the self-interest of legislators. That is the genius of our system of government and the Founding Father's vision of self-rule. Given the desperate need for repair of our economy, more jobs created and a restoration of the proper role between citizen and government, such pressure can't come a moment too soon.

(Report Comment)
Henry A. Salo November 27, 2010 | 11:51 a.m.

Fair Tax is nothing but a GOP SCAM and a gimmick. They said it will 23%, then 30%, with state sales taxes added onto it, it could rise up to 40%,50% or even 60%. Fair Tax taxes food, clothes, rents, mortgages, buying a car, buying a house, utilities, medical, doctor visits, auto repairs, gas (with Fair tax, gas could go up to $4,$5 or $6 a gallon)gas is now over $3 a gallon. Fair Tax will the hurt the senior citizens, the middle class and the retail businesses on the U.S. side of the U.S/Canada and U.S./Mexico borders. Who imposed the Fair Tax? BILLIONAIRES. Leo Linbeck,Jr.(Texas billionaire) is the founder and head of Fair Tax.org. Neal Boortz wrote the book on the Fair Tax. One thing, I don't read any books written by racists and liars. Do some research on this by going to Fair Tax Fraud and Fair Tax Gimmick. Fair Tax said it gets rid of the income tax and 16th ammendment. It does NOT get rid of the 16th ammendment. It takes a separate act to do that. If Fair Tax .org says that, then they are LYING.

(Report Comment)
John Schultz November 28, 2010 | 3:01 a.m.

Oh Henry! Don't much like the candy bar, nor the Fair Tax (it does nothing to reduce the size of government), but here's a few things you conveniently left out. First, the national Fair Tax proposal includes a monthly prebate check so that everyone in the US does not pay a tax on the amount of income equal to the poverty level. Used items are excluded from the tax. I don't know where you are at, but gas isn't $3/gallon and it would take a 100% Fair Tax for it to reach $6/gallon (minus the federal and state fuel taxes that would be repealed).

Interesting that most perceived Democrats, and certainly those running ads against Republicans who expressed even a smidge of interest in the Fair Tax this past election cycle, don't fully express the proposal. Why do you think that is?

(Report Comment)
Henry A. Salo December 15, 2010 | 9:49 a.m.

John Schultz: Fair Tax is STILL a scam. Gas is NOW over $3 a gal. According to Fair Tax.org, gas will be taxed 3 times (Fair Tax, Fed gas tax and state gas tax). About the monthly prebate, it will be $208 a mon.(single person) $415 a mon. (couple). It goes a little bit with children. I got this information in Wikipedia on Fair Tax. According to Fair Tax, Fed. and states fuel taxes will NOT be repealed. It shows the taxes that will be repeal if Fair Tax is enacted. State sales taxes will not be repealed but will be added on top of Fair Tax. Some places it could go up to 45%. You should do some research on this. It is all in Fair Tax.org, Fair Tax Gimmick and Fair Tax Fraud plus Wikipedia.

(Report Comment)
John Schultz December 15, 2010 | 10:40 a.m.

Henry, where are you located? Gas was $2.74 last night in Columbia, Missouri.

Can you point me to a link on the Fair Tax website where fuel taxes are discussed? I could not find much information on that when searching their site.

(Report Comment)
Henry A. Salo December 15, 2010 | 11:26 a.m.

John: I live in Connecticut. Gas is $3.15 in R.I. Ct. is about the same price. On fuel taxes, I got my information in Fair Tax Fraud- Laurence Vance of Mises Daily. Website: Mises.org/daily/1814. Laurence Vance got this from Fair Tax-2005. It shows the taxes, mostly income, capital gains that are to be repealed if Fair Tax is enacted. There was nothing on fuel taxes (Fed. or State) and nothing on state sales taxes. Nothing on state income taxes. Gas prices vary in different states.

(Report Comment)
Jimmy Bearfield December 15, 2010 | 11:58 a.m.

Henry, why are you so worried about your taxes increasing? If you really cared about how much of your income is confiscated by governments, you wouldn't be living in a high-tax state. I used to live in New York, and one major difference between that state and Missouri is that you don't get or see much bang for the triple or quadruple amount of taxes (e.g., property taxes) that you're forced to pay. Only a sucker would continue to pay a premium for sub-par services.

(Report Comment)
Henry A. Salo December 15, 2010 | 12:23 p.m.

Jimmy Bearfield: It depends on what part of the state a person lives in. I live in Putnam, Ct. and the property taxes are average. In the western part of the state, Hartford, Bridgeport and Greenwich, the property taxes are high. The income tax is lower than R.I. I am retired and my S.S. is not taxed by state income tax. You can't compare one part of the state with another part. I am not worried about taxes. With income tax, you are taxed when you get paid and you can deduct, with Fair Tax, you are tax just to live, no deduction. I don't like tax systems set up by the utra rich to better themselves. Look where billionaire, Fair Tax founder Leo Linbeck lives. Texas ( no state income tax).

(Report Comment)
Jimmy Bearfield December 15, 2010 | 12:35 p.m.

Henry, I did a quick search of houses for sale in Putnam, and it looks as if you're paying anywhere from a couple hundred to a couple thousand dollars more in property taxes compared to Columbia. For example, the house at 29 Pleasant St. lists for $173,000 and has property taxes of $2,600. My Columbia home is appraised at $290,000, and my property taxes are $2,961. What government services do Putnamites get that Columbians don't?

This is one of the reasons why, over the past two decades, there's been an exodus out of high-tax Northeast states to less expensive ones such as Tennessee and Texas. That exodus includes average Joes, not just Linbeck, assuming that he's not a native Texan.

(Report Comment)
Henry A. Salo December 15, 2010 | 3:17 p.m.

Jimmy: look up Tennessee tax laws in the internet. Very interesting. Tennessee: Sales Tax: 7% on tangible property. 6% on food and food ingredients. Counties and cities may add another 1.5% to 2.75%. No income tax. 6% tax levied on stock dividends. Gas: 21.4 c gal. Diesel: 18.4c. Cig. 62c a pack (don't smoke). Property taxes: 55% commerical. 40% realty. 30% farm. 25% residential. Texas: Sales tax: 6.25% to 8.25%. Gas: 20 c gal. Diesel: 20c gal. Cig: $1.41 pack. Their property taxes are average. Retirees do not have to pay educational taxes for schools. We can look at all the tax laws in every state. The state that I prefer is Alaska. No state income tax, no state sales tax. Alaska citizens get back from the state because of oil industries in that state. There was something in the internet which state had the best tax laws. Alaska was #1. In order to live in Alaska, the vehicle has to be a 4x4. It is very rough living there and the roads are rough. Some people say New Hampshire is the best but New Hampshire has one of the highest property taxes in the nation. We can go on and on. Every state has their own faults. Some retirees like Florida. My father visited Florida and he didn't like the state. Property taxes high, homeowners insurance high and even hard to get (Hurricane Alley). My father lives in Maine. Owns 2 houses and his property taxes are average. My father gets exemptions in property taxes (veteran). About Leo Linbeck: He is Texas as J.R. Ewing. Look it up in his website. Take care, Jimmy.

(Report Comment)
Jimmy Bearfield December 15, 2010 | 3:46 p.m.

But for the hefty tax premium they pay, what government services do Putnamites get that Columbians don't?

(Report Comment)
Henry A. Salo December 15, 2010 | 4:12 p.m.

Jimmy: You are still in Putnamites and Columbians. Putnam comes in 2 sections. City of Putnam, Town of Putnam. YOU KNOW THE ANSWER. LET GO.

(Report Comment)
Jimmy Bearfield December 15, 2010 | 5:04 p.m.

Same question Henry: What additional services are you getting for the extra money you pay compared to other parts of the country? No need to keep dodging the question. Just list a few examples. For example, do the extra taxes pay for "free" leaf pick-up every fall or "free" access to city recreation facilities?

(Report Comment)
Andrew Hansen December 15, 2010 | 5:29 p.m.

The idea that Texas taxes are much lower than anywhere else is a incorrect. Sure, I am not paying income tax down here, but my property taxes are pretty high ($3300-3400 on an assessed value of $160000), sales taxes are fairly high, and they gouge us left and right on fees.

All told, I doubt I am paying much less in taxes than I did in Missouri.

(Report Comment)
Walter Lane December 15, 2010 | 8:06 p.m.

Not sure where he was looking in FL, but our property taxes aren't high, neither is our insurance and our insurance was easy to get. No hassles and no problems.

(Report Comment)
Henry A. Salo December 16, 2010 | 5:43 a.m.

Jimmy: The answer is yes on leaves pickup plus city of Putnam has a police dept. plus full fire dept. Outside of city, no. State police handle that and volunteer fire dept.. Any town that has their own police dept. pay more in taxes than towns that do not. The towns that do not have state police protection. Plus they do have recreation access. You should have known that yourself. Walter: my father went to Saratoga, Fla. and he didn't like the area. He lives in Maine.

(Report Comment)
Jimmy Bearfield December 16, 2010 | 7:16 a.m.

See, Henry, that wasn't so hard, was it? Not sure what you mean by "you should have known that yourself." I never lived in your town. And where I lived in NY, right across the Sound from you, the property taxes are triple or quadruple, and we still had to buy a sticker to use the city, county and state beaches, etc., and we had to hire leaf pick-up out of our own pocket. Meanwhile, the roads were crumbling. No, thanks. CoMo is a better value in that regard.

(Report Comment)
Henry A. Salo December 16, 2010 | 8:14 a.m.

Jimmy: My cousin lives in Middle Island, Long Island, N.Y. and he is not crazy about the property taxes there. He doesn't mind it because he is very wealthy. He owns a plumbing, heating, electrical, A.C. contracting company. In Ct. some towns have police dept., other towns don't. The towns that don't have state police protection. The towns that do, pay higher property taxes. In Columbia,Ct., state police patrol that town. In Ct., property taxes vary from town to town. Danielson, Jewett City, Stafford Springs,Ct. eliminated their police departments, saving taxpayer money and have the state police patrol. In R.I., Their taxes are high because every town has a police dept. plus state troopers. I was glad Danielson eliminated their police dept.. Some of their cops were political appointees with no police training at a academy. That police dept. was eliminated in 1983. That was 27 years ago and a lot has happened after that. I still like Alaska's tax laws. Some people don't pay any property taxes. Fairbanks. Anchorage and Juneau, they do. It varies from what section of Alaska. The oil industries pump in a lot of money into the state. Tax laws are different in every state. Take care.

(Report Comment)
Jimmy Bearfield December 16, 2010 | 9:38 a.m.

Henry, I might know your cousin because that's one of the places where I used to live. So through him, you're probably aware of the extra layer of bureaucracy and taxes via towns: Brookhaven, in his case, which has its hand out alongside the hands of the Middle Island hamlet, Suffolk County and New York State. And that list doesn't include all of the other government agencies that clip him, such as the MTA surcharge on vehicle registrations.

No wonder everyone I knew there has left: They just don't see the value for the extra taxes.

(Report Comment)
Henry A. Salo December 16, 2010 | 12:45 p.m.

Jimmy: His name is Neal Ross. He lives in Church Lane, Middle Island, Long Island, N.Y. He and his wife and family have lived there a long time. His parents, my aunt and uncle, used to live in the house until they passed away. I visited him and Long Island is crazy and I don't want to live there. He tells me how expensive it is but he doesn't mind it. His business is there. He is retired and his son runs the business. Take care, Jimmy.

(Report Comment)
Jimmy Bearfield December 16, 2010 | 2:27 p.m.

Small world, Henry. I know that street. I miss that area like you wouldn't believe but the taxes and other costs of living there keep me away. Good that his son stuck around to run the business. It's a shame how many of us couldn't stay.

(Report Comment)
Henry A. Salo December 16, 2010 | 3:28 p.m.

Jimmy: There was a lake along Church Lane. Pine Lake. I use to go swimning there. It was back in the 1950's and 60's. The last time I was there was in 1987. He's always asking me to come on over. His son built a house behind his father's house. I call him on the phone once in awhile. A lot of memories but when one goes to visit, a lot of people you knew, aren't there anymore. Besides him, I knew other families and they're all gone. Deaths, people leaving and people changing are the answer.

(Report Comment)
Jimmy Bearfield December 16, 2010 | 4:48 p.m.

Henry, does the name Jimmy Bishop ring a bell? He lived on Church in the 1980s. Again, small world!

(Report Comment)
Henry A. Salo December 16, 2010 | 5:19 p.m.

Jimmy: I don't remember Jimmy Bishop. I might remember him. It has been a long time ago. I was looking at Google Map at my cousin's and I found it by satellite. It looks like a lot of changes there. I also look for a family I knew who lived in Smithtown on Old Willets Path. I forgot the house number but I saw the house through satellite. The house had a balconey on the 2nd floor and that's how I recognized it. The family built the house in the 1950's. They both passed away and their daughter sold the house. Somebody else lives in there now. A lot of memories and a lot changes. Take care.

(Report Comment)

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