Wednesday, January 09, 2008

A tax plan only a New York lawyer could love

Appropriately, it comes from a New York lawyer, Rudolph Giuliani, and it's in some ways actually worse than what the Democrats are proposing in terms of tax hikes.

How so? Well, Giuliani would establish a two-tier tax system consisting of the old system in parallel with a new, ostensibly simplified system. The end result, of course, would be that you'd end up filling out both sets of tax forms in order to make sure you'd get the best deal, risking mixing up forms and getting an automatic tax audit and a delay in your refund.

In short, Giuliani would greatly complicate our tax system, perhaps costing taxpayers even more money in compliance costs than the Democrats want to collect in extra taxes.

I guess I should have expected as much from a guy who thinks disarming the law-abiding will reduce crime, but I'm still a bit stunned.


Shawn said...

...and here I thought you were going to say "the fair tax", because of its certainty of putting many transactions into back-alley deals, off the books (so as not to pay the 23% tax), and then needing an accountant to juggle the numbers and a lawyer to keep you out of jail when the juggler gets tired.

pentamom said...

Shawn, I have no conception how the fair tax could possibly be worse in that respect than the current system. While it won't be black-market proof, it seems to me that it could only be better than the current graduated, deduction-based income tax system that way, and so should by no means be opposed on the grounds of the potential for evasion. Making the perfect the enemy of the good dooms us to the abusive absurdity we have now, forever and ever amen.

Shawn said...

primarily due to the high tax at one point. then, one (illegal) transaction saves you the 23% tax.

It's really pretty simple economics/incentives. I used to be full on in favor of fair tax...seeing Tyler Cowen (Marginal Revolution) commenting against it opened my eyes to the issue...

Fair Tax discussion at MR

I'm in no way saying that what we have now is good, or should be kept...and your 'perfect as enemy of good' comment is well taken...but perhaps there are wiser ideas, or perhaps we are doomed simply because the vast majority of voters make bad decisions, and we are under their tyrannical control. :)

Marklark said...

Taxpayers are greatly outnumbered by those of us (yes, me) that don't pay taxes.

I have a home mortgage, wife, four children, significant other deductions. I make a good income. I pay NO taxes (SSI excepted). (Actually, I get them returned, but you get my point.)

You will have a hard time getting people in my situation to vote against what they perceive as their best interest.

You will have a hard time arguing with them that there is any great need for a change.

1040EZ. Simple.

Changing the tax system isn't going to be a big winner until you tell people that the "Fair Tax" "prebates" the taxes that they are going to pay outside of the black market.

Maybe not even then.

Boo Rudy! Two sets of forms: Lovely.

Gino said...

shawn: God forbidsomebody avoids a tax,eh?
its the american way.
you know, that 'tea party' and 'rum rebellion' thing and all?

we should scrap any kind of income tax, and any form. it is oppression.

taxes should be collected through tariffs and levies.
like in the old days.

Bike Bubba said...

Shawn, exactly how is the tax evasion problem with a 23% tax collected by retail stores and others who sell finished goods more difficult than with a tax of up to 45% levied on the incomes of all?

So you reduce the # of people to comply by a factor of 10 or so, simplify it beyond measure, and provide a wonderful incentive to productivity here, and you'd end up with more evasion?

I think something's missing in the logic of those who don't like the fair tax.

Shawn said...

Whatever the rate, critics say, a steep federal retail tax, piled on top of existing state sales taxes, would encourage widespread illegal tax evasion, black market transactions and other forms of cheating, creating a cycle that would require even higher tax rates.

“The main weakness of the FairTax is its comprehensiveness,” said Dale W. Jorgenson, an economist at Harvard who opposes the plan but whose research into problems with the current system is sometimes cited by supporters. “It tries to roll everything into one tax, which simply can’t carry all that weight.”

....this makes so much sense to me, that i'm baffled as to how someone would NOT see that the tax at one point (and therefore easily avoided at that one point) would be simple.

supplier a and supplier b buy items from distributer c.

customer d can go to supplier a and get an item, paying full retail along with the tax. Or, he can go to supplier B who sells black market, AND EVEN IF SUPPLIER B HAS THE SAME PROFIT MARKUP as supplier a, his goods will be cheaper. Now, of course, he's going to charge a bit more, or else why would he be going through the trouble of selling black market. There's a lot of space to still make a substantial profit, and still sell under the rate of seller a, because the tax that is collected at one point is so incredibly large.

With the sales tax as it currently is, spread over the links of distribution, there is a much smaller incentive to cheat the tax, because there's only a 5-8% rise in each link.

Shawn said...

sorry...those first two paragraphs were supposed to be italicized, as they were the snippet from the MR article I linked above.

Shawn said...

oh, be clear...the authors of MR are econ professors at GMU, the incredibly libertarian institution...we're not talking about fans of governmental intervention criticizing this, but those 'on the same side'.

Granted, Tyler Cowen is no Murray Rothbard, but neither is he Keynes.

Bike Bubba said...

Shawn, I'm simply applying their argument to the income tax. If a 23% sales tax administered by, say, 10% of the population should lead to rampant tax evasion, shouldn't a 45% income tax applied to 100% of the population be far worse?

See what I'm getting at here? If it's hard to police a sales tax, it should be (and is) infinitely more difficult to police an income tax.

Which puts GMU's argument on its head, really.