Thoughts from the Frontline

Tax That Other Guy

By John Mauldin

February 25, 2012

Choose your language

The Fair Tax
What About Those Who Will Not Vote for Any Tax?
What Should Seniors Do?
Why Shouldn’t Everyone Pay Something?
Comeback, America
California, New York, Orlando, Conferences, and Webinars

Don't Tax You, Don't Tax Me
Tax that Man Behind the Tree!
– Senator Russell Long, Democrat Louisiana (1918-2003)

Last week's letter on taxes drew more response than any letter I have written in years. Questions that were raised simply beg for an answer, and some of the replies were very thoughtful, well-written suggestions for alternatives. This week I am going to do something I can't ever remember doing, and that is to use the entire letter to involve and respond to my readers. Let me begin by thanking all of those who responded, and to observe that every response I read was polite and courteous, even when aggressively disagreeing. Not every site on the internet has such a civil discourse among its readers. I appreciate that. Next week we will return to All Greece, All the Time or whatever the crisis du jour is, although I am much more interested in China of late. I will have to address the world's largest nation at some point soon. At the end of the letter, I provide some very interesting and fun links and a note on an upcoming webinar with investment legend Israel "Izzy" Englander. Now, let's zero in on taxes.

The Fair Tax

A rather significant and vocal number of you wrote in support of what is called "the Fair Tax," which is basically a national sales tax, suggesting it is a better alternative than a value-added tax (VAT). I should note that there are 70 members of Congress who have cosponsored a Fair Tax bill, so this is not outside the realm of possibility. It also speaks to the possibility of…

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Ed Marchok

Feb. 25, 2012, 12:25 p.m.

No mention in the discussion about the effect of either tax on existing assets.  For example, if the 22% of product cost currently attributed to taxes is removed, would not the cost of an equivalent asset acquired after the change cost 22% less than one acquired before the change thereby revaluing those assets acquired before the tax change.

Allan Hock

Feb. 25, 2012, 12:10 p.m.

It seems Forbes started the flat tax idea with his “you can do it on a postcard” tagline. To me the same could be said of a progressive tax. Eliminate all the deductions and loopholes, lump all sources of income and go to a look up table on the back of your post card to get your personal tax rate level.

If you want to complicate it allow per cent adjustments of the various lumped incomes such as capital gains.

Al Hock

Joe Hagan

Feb. 25, 2012, 11:14 a.m.

I’m not well educated on these matters, but it seems to me a consumption tax - the Fair Tax - would, in essence, impose an income tax on “under-the-table” wages to both legal citizens and illegal residents - tax revenue which is now evaded.  Impoverished legal citizens would benefit from the prebate, so no harm done to them.  Non-impoverished citizens would no longer evade their “fair share”, and illegal aliens working in the U.S. would pay the same tax as U.S. citizens at the register when they buy goods and services with the money they’ve earned (currently untaxed) - provided they buy on U.S. soil.  I see all that as good for tax revenue, though I have no idea how much of a difference it might actually make.  Additionally, this would also mean non-citizen tourists would also be contributing to our tax revenue when they buy goods and services while in the U.S., wouldn’t it?  Again, seems like a good thing to me, since I doubt it would dissuade them from visiting the U.S. - but maybe it would have a negative impact on tourism?  Of course, there could be an exemption for tourists, but that would just complicate things at the cash register, so why add complexity unless it’s essential?  Summary, it seems like moving to a consumption tax eliminates a lot of current tax evasion, which is good.

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