This is an email I just sent to Americans for Fair Taxation after a conversation with one of their people. They would like to replace all Federal taxes with a one large (say, 20% or more) sales tax, so money is only taxed once. http://www.fairtax.org/contactus.html
Nice speaking with you today. I'll try to summarize this as best I can.
First, let's presume that your average American is not a particularly smart consumer. Most American's do not start saving for retirement until well into their working lives. They seek credit constantly, and will even buy something they can't afford because it was "on sale" or "a good deal", even though that savings is completely lost in the interest payments.
And take the credit industry, which loses billions per year to identity theft, yet believes it is more profitable to make access to credit easy rather than secure.
The US economy is STILL as vibrant as it is because we love to spend, our institutions love to make it easy for us and credit is available to everyone. Because of the enormous revenue that credit brings, paid interest rates also remain high, generating more revenue.
To contrast, I offer Japan, which is a fully developed country just like ours in most respects. But in Japan, due to the national mindset, retirement savings are always put ahead of spending. This was a primary cause of much of the current Japanese economic problems: The less people spent, the less credit interest was generated. That lead to lower paid interest rates, which further decreased consumer spending.
Fair tax, or replacing all taxes with sales tax, is fair; but may have far reaching social consequenses. Will consumers, already used to overspending and the immediate appeasement of easy credit, continue to spend like crazy when the penalty is up front? Or will shifting the focus of taxation against consumer spending ferment such a change in consumer habits that Americans will take a "healthy" interest in saving, leading to the same spiral that we see in Japanese consumers?
Fair Tax is betting that consumers will wisely understand that they got their money up front, and that they NEED to spend like before. Not only that, but it presumes that people with more money in their pockets are as likely to seek credit, even though they now have less need to do so.
Such things can work out poorly (as in Japan), or have a healthy outcome. What socialogists or social economists have advised you which way it will go in America? This is unknown territory, and the risk of an economic collapse is a real one. America's tax situation is poor, but the economy is still vibrant compared to most any other - is it worth the risk?
We all know that American's are poor personal economic planners - how do you expect them to keep some of their worst impulses (spending) while calling attention to that bad habit with an up front tax penalty?
Thanks for you response,
Andrew
Nice speaking with you today. I'll try to summarize this as best I can.
First, let's presume that your average American is not a particularly smart consumer. Most American's do not start saving for retirement until well into their working lives. They seek credit constantly, and will even buy something they can't afford because it was "on sale" or "a good deal", even though that savings is completely lost in the interest payments.
And take the credit industry, which loses billions per year to identity theft, yet believes it is more profitable to make access to credit easy rather than secure.
The US economy is STILL as vibrant as it is because we love to spend, our institutions love to make it easy for us and credit is available to everyone. Because of the enormous revenue that credit brings, paid interest rates also remain high, generating more revenue.
To contrast, I offer Japan, which is a fully developed country just like ours in most respects. But in Japan, due to the national mindset, retirement savings are always put ahead of spending. This was a primary cause of much of the current Japanese economic problems: The less people spent, the less credit interest was generated. That lead to lower paid interest rates, which further decreased consumer spending.
Fair tax, or replacing all taxes with sales tax, is fair; but may have far reaching social consequenses. Will consumers, already used to overspending and the immediate appeasement of easy credit, continue to spend like crazy when the penalty is up front? Or will shifting the focus of taxation against consumer spending ferment such a change in consumer habits that Americans will take a "healthy" interest in saving, leading to the same spiral that we see in Japanese consumers?
Fair Tax is betting that consumers will wisely understand that they got their money up front, and that they NEED to spend like before. Not only that, but it presumes that people with more money in their pockets are as likely to seek credit, even though they now have less need to do so.
Such things can work out poorly (as in Japan), or have a healthy outcome. What socialogists or social economists have advised you which way it will go in America? This is unknown territory, and the risk of an economic collapse is a real one. America's tax situation is poor, but the economy is still vibrant compared to most any other - is it worth the risk?
We all know that American's are poor personal economic planners - how do you expect them to keep some of their worst impulses (spending) while calling attention to that bad habit with an up front tax penalty?
Thanks for you response,
Andrew
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