The economy theme park thread... featuring the stock market rollercoaster

[classicman2]

Originally Posted by wabio

I'm almost certain in order to eliminate all of these taxes in place of a consumption tax....the sales tax would have to be super high, not 23%. Something like 75%. The problem then becomes the "voluntary" tax conundrum. Who in their right mind will freely spend if sales tax is that high? There's no way for the state and federal gov'ts to guarantee a steady stream on income at those levels. Income tax is compulsory. You don't pay, you go to jail.

Where do you get that 75% figure?

[JasonF]

Originally Posted by wabio

Interesting examples. But you forgot one thing. There's no sales tax on many things that people spend most of their monthly paycheck on.....like rent, healthcare, childcare, utilities, servicing debt, etc. So in actuality, the revenue generated would be even lower. The thought of having our federal gov't depending on consumers continually buying "stuff" is just scary.

Well, I just assumed we would be charging sales tax on everything. If there are certain categories of goods and services that are tax free, you create a loophole you could drive a truck through as everyone tries to figure out how their the latest XBox 360 game is really a healthcare expense. And we're back to needing an IRS full of tax examiners making determinations about which products go in which buckets, tax inspectors making sure that when your local drug store says it sold $500 worth of non-taxable drugs and $500 worth of taxable cosmetics, that's really what happened, and so on.

[sracer]

Originally Posted by RayChuang

The main reason why I mentioned the sub-prime mortgage fiasco is the fact that our current tax laws encourages people to got into deep debt just to buy a house. In my opinion, this is a terrible idea, as the any downtown in the economy will result in an explosion of foreclosures due to homeowners being unable to pay the monthly mortgage bill.

Our current tax laws aren't what triggered the sub-prime and NINJA mortgages. It was the financial institutions desire to keep the ponzi scheme going that gave birth to those gimmick loans.

Real Estate industry, the mortgage industry, and construction industry all had a vested interest in continuing the cycle. It could only work as long as they could keep it going. Once it stopped, it would crash.

Originally Posted by RayChuang

Now you know why I prefer drastic tax simplification. Under a low-percentage flat tax or the FairTax consumption tax, at least Americans will have a fighting chance to actually build up a financial "nest egg" to have the funds to buy a home either in cash or with a much smaller, more manageable loan (mostly because you can actually afford to do a bigger down payment). It's certainly economically better for Americans to be saddled with way less debt to enjoy the American dream of home ownership, something that a low-percentage flat tax or FairTax could make possible. And financial institutions will benefit, too, since they can provide much smaller loans to buy a house, which means a lot less risk for the financial institution.

The ability for individuals to save is independent (barring absurd extremes) of the method used by the federal govt to levy taxes. It wasn't the govt tax policies that encouraged people to buy houses they couldn't reasonably afford.... or to max out multiple credit cards.

It is a lack of personal restraint and an unwillingness to accept the limits of their income that is at fault. No tax law changes can change THAT.

I remember when the deduction on credit card interest was eliminated. There was talk about how it would force people to charge less and save more. (even the possibility of a deep recession in anticipation of a precipitous drop on consumer spending) It had absolutely no effect. That's because most people do not consider the tax implications on their day to day purchases or earning decisions. Just like raising the tax rate on the upper income brackets isn't going to cause those people to "earn less".

[shifrbv]

Haven't checked into this thread for a long time. The lack of information on things still astounds me. The jobs report was bad, but we'll see even worse when they revise it in the next month. Most are expecting the true number to come in at 725K. The earlier months were revised upwards and those number nearly doubled.

If unemployment included the unemployed, those who work part-time but would like to work full time, and the discouraged workers, it would be at 12.5% right now. This is how it was done during the Depression to arrive at the 25% levels reported then.

The Guardian is reporting 1 million jobs to be lost in the US each month as we head into 2009. And unemployment is a lagging indicator so we can imagine just how bad things really are.

As many as a million American jobs could be lost every month by next spring
http://www.guardian.co.uk/business/2...ion-job-losses

This is not psychological. This is not a "self-fulfilling prophecy". This is real and serious. Things are going to get pretty bad.

[orangecrush]

Originally Posted by sracer

I remember when the deduction on credit card interest was eliminated. There was talk about how it would force people to charge less and save more. (even the possibility of a deep recession in anticipation of a precipitous drop on consumer spending) It had absolutely no effect. That's because most people do not consider the tax implications on their day to day purchases or earning decisions. Just like raising the tax rate on the upper income brackets isn't going to cause those people to "earn less".

That is true. The only purchase where most people think about the tax implications is a home. Of course, most people look at a mortgage like some great tax heaven thinking it is much better to pay more in interest just to avoid paying a much smaller amount of taxes.

[orangecrush]

Originally Posted by shifrbv

Haven't checked into this thread for a long time. The lack of information on things still astounds me. The jobs report was bad, but we'll see even worse when they revise it in the next month. Most are expecting the true number to come in at 725K. The earlier months were revised upwards and those number nearly doubled.

If unemployment included the unemployed, those who work part-time but would like to work full time, and the discouraged workers, it would be at 12.5% right now. This is how it was done during the Depression to arrive at the 25% levels reported then.

The Guardian is reporting 1 million jobs to be lost in the US each month as we head into 2009. And unemployment is a lagging indicator so we can imagine just how bad things really are.

As many as a million American jobs could be lost every month by next spring
http://www.guardian.co.uk/business/2...ion-job-losses

This is not psychological. This is not a "self-fulfilling prophecy". This is real and serious. Things are going to get pretty bad.

Don't worry. Obama will give us 2.5 million jobs back

[wabio]

Originally Posted by classicman2

Where do you get that 75% figure?

Just a random number. I figure if 23% generates $500B using the quick and dirty calculation in my previous post, then we'd need a heck of a lot higher sales tax to reach the $2.6T the fov't currently has for budgeting. Heck, it might even be a lot higher than 75%. We could look at some state gov'ts for small-scale models. Just see how much in sales tax they levy, how many people pay into the system, and how much revenue it generates. You could start with California which has pretty high sales taxes and is home to 1/7th of the US population.

[Shazam]

Originally Posted by JasonF

Well, I just assumed we would be charging sales tax on everything. If there are certain categories of goods and services that are tax free, you create a loophole you could drive a truck through as everyone tries to figure out how their the latest XBox 360 game is really a healthcare expense. And we're back to needing an IRS full of tax examiners making determinations about which products go in which buckets, tax inspectors making sure that when your local drug store says it sold $500 worth of non-taxable drugs and $500 worth of taxable cosmetics, that's really what happened, and so on.

LOL. That's what I do when I upgrade my desktop computer. See, I need really good 2D. And that's why I need a nVidia 280. And 4GB of RAM.

[RayChuang]

Originally Posted by shifrbv

This is not psychological. This is not a "self-fulfilling prophecy". This is real and serious. Things are going to get pretty bad.

Then find a way to start the process of reversing this problem.

For me, the answer is simple: kibosh our current Federal income tax system and come up with a drastically simplified tax system that encourages savings and investment without having to worry about being taxed on earning money. A change like this would not only begin the process of weaning ourselves off the debt treadmill, but also means wealthier Americans won't need to "offshore" their wealth to keep it out of the clutches of the IRS and encourages foreigners to invest in the USA because we will become the world's largest legal tax haven. This would mean several trillion US dollars in new liquidity entering our financial system, which would be a huge boon to the US economy.

Otherwise, the results will be dire: we could be heading towards a repeat of the 1930's with the rise of political extremism, and we all know how that ended: a world war.

[Superboy]

Originally Posted by RayChuang

The main reason why I mentioned the sub-prime mortgage fiasco is the fact that our current tax laws encourages people to got into deep debt just to buy a house. In my opinion, this is a terrible idea, as the any downtown in the economy will result in an explosion of foreclosures due to homeowners being unable to pay the monthly mortgage bill.

Not necessarily. How will dramatic changes to the tax code encourage savings in the lower class if capital gains taxes are marginal taxes right now? I don't think lower and middle class people are being discouraged from investing because of capital gains taxes. That's only the upper class. And you do realize that increased savings means lower interest rates... right? that means that people will both earn less returns but they will also be able to finance at lower rates - and in greater numbers. Being able to finance at lower rates and an abundance of liquidity IS WHAT CREATED THE MORTGAGE CRISIS IN THE FIRST PLACE, NOT THE DISINCENTIVE TO SAVE MONEY!!!!!

Now you know why I prefer drastic tax simplification. Under a low-percentage flat tax or the FairTax consumption tax, at least Americans will have a fighting chance to actually build up a financial "nest egg" to have the funds to buy a home either in cash or with a much smaller, more manageable loan (mostly because you can actually afford to do a bigger down payment). It's certainly economically better for Americans to be saddled with way less debt to enjoy the American dream of home ownership, something that a low-percentage flat tax or FairTax could make possible. And financial institutions will benefit, too, since they can provide much smaller loans to buy a house, which means a lot less risk for the financial institution.

Also, you're going to assume that prices are going to freeze where they are at now. Prices are going to go up because of increased aggregate demand, as people will have more absolute after-tax income. That sort of nullifies the whole point of a tax savings, doesn't it? and when you consider that people's wages rarely increase substantially in relation to inflation - and usually behind it time-wise, and more as a product of it than anything - savings won't dramatically go up because the cost of living will go up.

You also don't understand how home mortgages work. A greater amount of mortgages will be available if there is an increase in savings. That means that interest rates will be lower, but it also means that the absolute number of mortgages themselves will increase. That means more mortgages. That means housing prices will go up because of increased demand.

Let's say just for the sake of argument that no speculation occurs and housing price increases are going to be a product strictly of market demands. and given that not all geographic regions have the same housing availability, you'll across the board increases in places like California in New York and smaller increases in other states. That means the cost of living will go up, people will earn less on their savings, and we might face yet another mortgage crisis.

[Superboy]

I can't believe no one has said anything about the relationship between the lowering of capital gains taxes and the mortgage crisis.

[wabio]

Originally Posted by RayChuang

Then find a way to start the process of reversing this problem.

For me, the answer is simple: kibosh our current Federal income tax system and come up with a drastically simplified tax system that encourages savings and investment without having to worry about being taxed on earning money. A change like this would not only begin the process of weaning ourselves off the debt treadmill, but also means wealthier Americans won't need to "offshore" their wealth to keep it out of the clutches of the IRS and encourages foreigners to invest in the USA because we will become the world's largest legal tax haven. This would mean several trillion US dollars in new liquidity entering our financial system, which would be a huge boon to the US economy.

We have different opinions of the same problem. Again, I agree we need to stop debt spending and increase savings, but I don't think our current taxation methods are responsible for it. IMO, the reason Americans aren't saving is twofold.

1) We love our junk and are our culture encourages us to buy more of it. Look at every facet or our lives and you will see it is somehow commercialized for profit.....no matter how obscure or unapparent. Every holiday, every activity, every purchase is somehow being capitalized upon.....and these corporation do their best at reminding us we should keep spending.

2) IMO, a hefty percentage of Americans aren't saving because they can't......not because of taxes. It's a myth that most people who declare bankruptcy do so because they overspent on stylish clothes, shiny cars, or fancy electronics. People are going broke because the rising essential cost of living has outpaced increases in real salaries over the past 15 years. They aren't saving because there's nothing to save. I hate to say it, but putting away a measley $100 at the end of each month ($1,200/yr), while commendable, won't really help you make any major headway. It only takes one unforseen event to eat up your savings and put you back in debt. One injury, car repair, or layoff. For the longest time, people used debt as an income supplement and cushion. When they stop, you get into trouble like we are currently experiencing.

As for offshoring money, that accounts for an extremely small percentage of the population. In my entire life, I've never met or known anyone with an offshore account.

[VinVega]

Closing for length. New thread can be found...

HERE - Part 8