Daley Ponderings

The national sales tax would have to be around 32% for it to replace other federal taxes. Since you just finished your taxes it should be easy to subtract any savings or investment from your income in 2007 and figure out a pretty good estimate of what you spent, and therefore what your hit would be under the flat tax. In general, the national sales tax would result in the very poor and the wealthy paying less in taxes and everyone else paying more. It might be different for you because you probably do spend less than most people with a similar income. Of course you could save more money in taxes by participating in the huge underground economy that would develop, but that would just necessitate the 32% sales tax being raised.

I kind of doubt the "underground economy" would grow much more than already exists. Lots of people don't pay sales tax already. I always tell Heather she is the only one in Pennsylvania who actually submits the paperwork to pay the sales tax for stuff bought over the internet.

I didn't do the exact numbers, since I am not entirely sure what counts as a sale, ie. does my cell phone service, or a donation to a non-profit count as a sale? But, it appears that our tax would come out probably a little less, or maybe the same, but I calculated that estimate in approximately 45 seconds, so I have 27 hours more to get a more exact number to compare it with the current tax system.

And of course, if we ever did have a federal sales tax, I wouldn't need to think if I needed to count an item or not, it would be done for me. So, I think you have proven the point for me, the time spent calculating the tax would be close to zero (since we already keep accurate books anyway) and the tax would be the same or maybe a little lower for us.

Not a lot of time to comment from Switzerland, but this is a very important question.
1. Payroll deduction of SS taxes is important as there is incentive for both employer and employee to see that the appropriate deductions are made. If SS funding were to come out of the national sales tax - this incentive would be gone -- and another way of calculating the benefit would be needed.
2. The underground economy would become huge. The number of cheaters I know now - self-employed types who pay help under the table - would grow very large.
3. Remember Connecticut. "They" promised that the sales tax would be replaced by the income tax. Yeah - no more sales tax. That lasted a very short time and the sales tax was back. Thus, if we do go to the national sales tax system it should only be in tandem with a constitutional amendment to revoke the income tax -- or in a few short years we'll have both.

Out of time. Maybe more later.

I finally got around to doing my taxes today, and I spent about 3 hours. Obviously my tax situation (even in a year with a divorce, move to a new state, a new job, and the sale of a house) is much less complex than yours since I don't own a business.

Under a 32% sales tax, I would have had to pay around 3.3 times as much federal tax (assuming that the prebate suggested by Fairtax.org were applied - without the prebate I would have paid over 9 times as much) as I did under the current system. Now, I don't think the best way to formulate federal tax policy is to just do what is best for me, but I think a lot of other people that are not extremely poor or extremely wealthy would also be worse off under a national sales tax.

None of this mentions the hardship a national sales tax would place on state and local government. My personal opinion is that there are a couple of competing goals in setting tax policy. Obviously funding the government is the top priority, but balancing the two goals of simplicity and justness is tough. Make the tax code too simple and it becomes less just. Making it more just makes it more complex.

Hi Chip! I saw you had our blog in a reader a long time ago, but I wasn't sure if you actually were reading it or not.

I heard about Dana (from Volus, from Roger) and was sorry to hear that. Not that a blog is the most conducive place to talk, but how are you doing? if you click on the lime daley logo on the right, you can email me if you don't already have my email address - any of the ones since I left CMU will work.

I actually have thought of you in the last week or two - my hair is probably currently too long to be accused of using the same length cutter on my beard and hair, but it is getting closer, particularly because I should probably cut my hair soon.

Can you explain your statements in the last paragraph? They are not intuitive to me.

I'm using a different reader now, but I'm still keeping up with your blog. It's been fun to read the updates on little Daley's (and the one soon to come!)

It sounds like you should update the picture that appears next to your comments here!

I wrote more about that last paragraph at my blog. I figures it was too long for a comment here. I'll send you email with more about how things are going.

Yes, I suppose I should update the picture.

Peter and I were talking about this yesterday, and as far as we can tell, given the numbers you state above, it is possible for us to calculate your adjusted income, and spending. And the numbers don't seem to make any sense, as we calculate that your AGI is ~4K, and spending is ~12K. (Peter - your guess on the prebate was high, I looked it up, and re-calculated the numbers.

Our calculations said:

.3 * spending = 9 * AGI * bracket_rate
.3 * spending = 3 * AGI * bracket_rate + prebate

thus 6 * AGI * bracket_rate = prebate

or AGI = prebate / (6 * bracket_rate)

I don't know if moving and other stuff made your AGI really low this year, such that your spending was significantly higher than your income, and if that is the case, then maybe this year is a strange year, and not a good one for comparison?

The articles on fairtax.org make some good points about the "really rich" and how they hardly pay any income tax (at least in percentages) now anyway, and I thought the example of the guy buying a jet or whatever.

I probably don't want to use this picture as the profile picture, but Heather took a lovely picture of me last weekend.

She captured the raised eyebrow look just perfectly.