What if a Sales Tax Were the Only Tax?

New York Times ^ | October 17, 2004 | DANIEL ALTMAN

[hosepipe]

[ What if a Sales Tax Were the Only Tax? ]

Then; we would STILL be taxed too much...

[NationSoConceived]

Cards could be given to all workers, which would serve as IDs and debit cards. They could include the proper consumption tax rate as part of the stored data. Additionally, the cards replace printed money. We no longer need to operate the US mints, saving the money that was spent to print money. An added bonus would be the crippling of the black market. With no printed money, everyone would be completely reliant on their cards, making it easy to trace transactions, a great boon to law enforcement.

That is just way way too Big Brotheresque. I do not trust the government with that much access to my personal information. Not to mention what an incredible source of revenue all that data on my spending habits would be. Would you trust Congress not to sell your profile to marketing agencies in a budget crisis?

Also, cash is just to convenient to give up. You cannot pay the kid next door for lawn mowing with a card, and there are cases when the infrastructure for electronic debits and credits is either unavailable or unjustifiable.

[Badray]

How is it in 4 years here you have missed every discussion of the economic impact of the FairTax?

Go to www.fairtax.org for more info.

[ClintonBeGone]

You would need something more intrusive than the current IRS to chase down all the underground transactions, especially with the internet ( ebay, etc. ).

No more than they have to right now. You do know that you have to declare the income you get from stuff you sell on Ebay? You do know that.

[Final Authority]

Willie, I must say I usually do not read your replies, not for any reason other than there is just so much to read, but here I see you have truly reduced the argument to the essential premise. Do we tax those who produce and consume equally or do we tax those who profit from consumption? That is, should we tax equally any production consumed within or should we tax that which is from without? To clarify, should we follow the idea of the founders and tax heavily that which is imported and leave alone that which is produced nationally? In the end, shall we have a nationalistic focus on the way we govern this once great nation as the founders would all along have us be? It is indeed time and not the time for a divergent NRST that will instill socialism. (read my past replies on the so-called FairTax, former screen name Banger)

[Harold Hill]

Something that I have never heard mentioned in the discussion of a national sales tax… given that the tax would be a percentage of the sell price of a commodity, example. – a widget costs $100.00, 29% sales tax yields $29.00 tax revenue, wouldn’t the government have a vested interest in creating inflation to increase tax revenue? When the cost of widgets increases to $150.00 sales tax would be $43.50.

[mlmr]

Yard sales would become a way of life for many.

[ClintonBeGone]

First, if the tax rate is say 25% then the day the tax kicks in every dollar of savings in this country decreases by 25%.

That makes no sense. Your savings becomes more valuable. The whole idea is you're no longer going to have withholding from your check. The extra amount you get to take home will more than make up for the new sales tax you pay - and that's only on what you spend. I don't think the rate will be anywhere near 25%. I think it will be somewhere between 15% and 20%.

[ClintonBeGone]

wouldn’t the government have a vested interest in creating inflation to increase tax revenue? When the cost of widgets increases to $150.00 sales tax would be $43.50.

Now think about what you just said. Purchasing power of the additional revenue would be negated by the rate of inflation. It would be a wash.

[John Valentine]

"...example. – a widget costs $100.00, 29% sales tax yields $29.00 tax revenue, wouldn’t the government have a vested interest in creating inflation to increase tax revenue? When the cost of widgets increases to $150.00 sales tax would be $43.50."

Short answer, NO.

This is because the government is not just a taxer of widgets, it is a consumer of widgets, and lots of other things like labor.

In an inflationary economy costs will generally rise faster that tax revenues. Even if tax revenues are "inflation neutral" as is theoretically the case with a sales tax, absolutely no benefit accrues to the government.

[Cyclopean Squid]

" That is just way way too Big Brotheresque. I do not trust the government with that much access to my personal information. Not to mention what an incredible source of revenue all that data on my spending habits would be. Would you trust Congress not to sell your profile to marketing agencies in a budget crisis?

Also, cash is just to convenient to give up. You cannot pay the kid next door for lawn mowing with a card, and there are cases when the infrastructure for electronic debits and credits is either unavailable or unjustifiable."

I suspected as soon as I wrote it that it might come across as too Orwellian. I had considered putting that qualifier in my earlier response, that if the gov isn't to be trusted with the info, then private banks could issue the cards as they do now with debit cards. The gov could be responsible for supplying the banks with the proper consumption tax level for their clients. But yes, your points are well taken. The logistics of the whole proposal, and the adjustment to it, would be quite costly. It's something I'd like to see someday, but it would probably take years to implement. But a move to the consumption tax is, in my view, a good first step.

[baseball_fan]

I had never heard of the FairTax before. Adding it to Wikipedia, the online encylopedia under the tax area, might make it easier to understand systematically, give it more visibility, and allow its comparison with other tax alternative methods. There are more than a million articles posted there now, so it is becoming quite a resource. Here is the tax area:

http://en.wikipedia.org/wiki/Tax

[Cyclopean Squid]

" That is just way way too Big Brotheresque. I do not trust the government with that much access to my personal information. Not to mention what an incredible source of revenue all that data on my spending habits would be. Would you trust Congress not to sell your profile to marketing agencies in a budget crisis?

Also, cash is just to convenient to give up. You cannot pay the kid next door for lawn mowing with a card, and there are cases when the infrastructure for electronic debits and credits is either unavailable or unjustifiable."

I suspected as soon as I wrote it that it might come across as too Orwellian. I had considered putting that qualifier in my earlier response, that if the gov isn't to be trusted with the info, then private banks could issue the cards as they do now with debit cards. The gov could be responsible for supplying the banks with the proper consumption tax level for their clients. But yes, your points are well taken. The logistics of the whole proposal, and the adjustment to it, would be quite costly. It's something I'd like to see someday, but it would probably take years to implement. But a move to the consumption tax is, in my view, a good first step.

[Remember_Salamis]

The author rambles off a list of standard liberal "critiques" of a national sales tax, "critiques" that don't take into account how different a FairTax is from previous NRST proposals. I'll pick apart the article in order:

1. "Begin by assuming that the government needs just as much tax revenue, regardless of the system in place. Last year, the Internal Revenue Service collected about $1.7 trillion worth of individual income and payroll taxes. Some of that money was returned as refunds. So, say that the government depended on those taxes to raise $1.5 trillion.

-I don't know where he got these numbers, or where the hell he included the refunds. That facts are as following: $2.3T spent in 2003, and only 1.9T collected (that's how we get the $400B deficit). It just goes to show that this author DID NOT do his homework and basically guessed his way through the article.

2."If every bit of spending in the economy were taxed - in other words, every one of the 12.2 trillion dollars paid by American consumers, businesses and the government for domestically produced goods and services - the rate would have to be about 12 percent. But hold on a second. Would the government really want to tax everything? Probably not."

- This shows how little this author knows about economics, a NRST, and tax collection in general. The $12.2T number is literally pulled out of thin air and is an attempt at representing GDP. But the NRST does not tax GDP; GDP is basically consumption + investment, and the NRST only taxes the consumption half. Personal Consumption was $7.76T in 2003, with Government Consumption/Investment at $2.07T, for a grand total consumption amount of $9.8T out of a $11T GDP.

- So, using 2003 economic data, we would need a FairTax rate of 19.22% ($1.89T/$9.83T) to be completely neutral WITHOUT THE REBATE. I'm not sure exactly how much the Rebate will tack on to government spending, but the required NRST rate will be somewhere between 19 and 23%.

Moving on...

3. Take out the government's spending, and the rate would have to rise to 15 percent. -Government consumption WILL BE Taxed

4. In most states with sales taxes, food and clothing are exempt. The reason is to protect the poor. If a national sales tax lacked that exemption, poor people who pay no income tax (many actually receive a credit) would see their tax burdens grow substantially. In addition, the tax would be regressive. Because low-earning people spend a bigger share of their income than high-earning people, the low earners' taxes would be relatively higher. So, say Congress made food and clothing exempt. That would carve an additional $1.4 trillion out of the tax base, and the rate would have to rise to 18 percent. Remember that food and clothing just became exempt for everyone, poor or not.

- Wow, I'm not sure where to start on this whopper. Food, clothing, and shelter WILL NOT be exempt under HR 25/S 1493 legislation. In addition, almost NOBODY pays a negative tax rate after factoring in payroll taxes.

- The author makes these ridiculous assumptions and then spirals the article into a hit piece. Somebody must explain to the author that ABSOLUTELY ZERO consumption below the poverty line will be taxed because every american will recieve a prebate.

Above all, THE AUTHOR DOES NOT ACKNOWLEDGE A PREBATE!!!!

[Remember_Salamis]

"Sales Tax, No.

Flat Tax, Yes.

There is no way that you can ID those that make too little, and exempt them from the tax, the way our tax code does right now.

And don't tell me about how they already "pay sales tax". This law would dramtically increase that tax, and they lowest of the low income would get hurt.

This is NOT the message our party, or belief system should send.

What would separate those at the lowest brackets would be a Flat Tax, filed at the end of the year. Otherwise, people would have tto carry some kind of exemption card, akin to a poor person's ID card.

Not a good idea."

-- Greenpees, every american will get the exact same rebate. EXACTLY THE SAME. This makes the NRST progressive because the less you make/spend, the larger porportion of your tax bill is covered by the prebate. Take a look at this graph:

[ancient_geezer]

Good idea, I passed your suggestion on to the folks a AFT.

[Remember_Salamis]

"The NRST is an inherently regressive form of taxation that is truly despotic.

Long term, it would result in a two-tiered socio-economic stratification of our society.

It is not disimilar to a 21st Century eco-feudal system where the corporate aristocracy invest and expand their property holdings completely tax-free, while the serfs are overburdened with the excessive taxation on consumption and persuaded that it's supposedly "fair" because the consumption taxes are redistributed through the formal social welfare system."

-- I think we need to start a tally of how many times you've posted this lame comment.

[Remember_Salamis]

"A 29% tax on all retail sales would put us into a depression."

-- If you think decreased consumption will put us into a depression then you are a follower of liberal, Keynesian demand-side economics!!! Are you a Keynesian???

[Remember_Salamis]

Just like a baby boomer, always thinking about themselves. HAve you no concern for your children and how much they will pay in taxes if this problem is not fixed? Your grandchildren? Probably not. I'm 23 years old and my generation is seriously F-cked if the system is not fixed. SCRAP THE CODE!

[ApesForEvolution]

First of all: God bless Rep. Lindner! and anyone with the balls to stand up to the Gestapo IRS!!

>>"From a taxpayer's perspective, it may indeed sound like a great idea: no more long instruction booklet to read, no more endless hours calculating the figures for every box on the form; you just pay at the cash register.

ANYTHING THAT GETS THE ENSLAVING TYRANNY OF THE IRS OUT OF AMERICANS' RECTUMS!

God bless President Bush for taking this ghoulish form of revenue-generation out of America's government in his 2nd term!