FairTax, dryers, and lint-lint

Dave Long dl at silcom.com
Fri Apr 18 10:42:08 PDT 2003



>         You have described how virtually everyone
> with an effective tax rate above 20% is a dollar
> winner. Who are the dollar losers? There had better
> be a lot of them, to make up for the dollar winners.

It looks like 97% of effective 
federal tax rates are under 20%.
(even at 15%, which I think is
the FairTax equivalent to fed.
income tax, we get ~90%)

So perhaps the theory is that
with so many dollar losers, a
tossed-in a growth assumption
can paint it as win-win?

-Dave

:: :: :: 

> Who are they? Figure that out, and the politics
> of the proposal follows.

When many people share a dryer, 
there are two consistent systems
for cleaning out the lint trap:
either everyone cleans it before
they dry their laundry, or they
all clean it afterwards.  When
switching between the two, some
may wind up cleaning it before
and after, and some not at all.

In the common lifecycle, people
first spend a portion of their
lives accumulating assets, and 
then spend the rest consuming
them.  In its ideal form, our
current system works as "clean
the lint trap before".  One is
taxed on the difference between
one's realized worth and one's
tax basis, so the tax burden is
mainly felt in the accumulating
phase.

If we suddenly switched to a
pure consumption tax, anyone
looking to retire on post-tax
dollars (from wages, etc.) is
not likely to be overjoyed at
the prospect of being taxed
when drawing down as well as
building up (so they "clean
the trap twice"), and anyone
looking to retire on interest
from pre-tax dollars (gains
previously unrealized, etc.)
is likely to appreciate the
prospect of not being taxed 
on much of their basis ("not
cleaning the trap").

So it looks like Mr. Turpin is
onto something, characterizing
the issue as spliting the AARP.

(hmmm...  "FairTax tax/basis"
doesn't seem to be a helpful
google term)


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