[RobFromGa]

There is a very severe problem of taxing business inputs under a sales tax. These must be exempt from tax in order to avoid cascading -- taxes being levied on taxes -- which creates serious economic distortions. To avoid this under a NRST, every business, no matter how small, would need some sort of exemption certificate, which would create unlimited opportunities for evasion, or they will have to be extensively audited in ways at least as onerous as under the income tax.

THis is my problem with the Linder proposal. Too many things are bought for business (hotels, meals, gas, copying, printing, plane tickets, rental cars, ...) that are also used personally. Now these items are deductible from business income when you fill out your corporate taxes, in the future they would just be exempt from taxes by showing your exemption card, and then no other records are kept? In this scenario, everyone tries to get a card.

I don't see how this can work unless it is at least as bad as the present system in terms of record-keeping and "proving" business use.

[RobFromGa]

for your input...

[samtheman]

Sounds like a dopey idea to me.

[datura]

This is not the "Fair Tax" proposal at all, this one is screwed.

[Conservative Infidel]

Good article. But beware! This is going to get the NRST Fanatics after you. I have made some of these same arguments in other posts concerning NRST. Each time, I get flamed so badly, I generally refrain from looking at FreeRepublic for several weeks. I know, as a small business owner, that my overall costs coupled with my costs of compliance are going to be as bad, if not worse, than what it costs me now.

[DustyMoment]

. . . with a 30 percent national retail sales tax (NRST) . . . . .

The article starts off with a lie (the NRST will top out at 23% - NOT 30%) and goes downhill from there.

Bartlett is the one who is dopey to me. He is doing the same thing that the "leave SS alone" crowd is doing.

Here's the problem - the definition of insanity is doing the same thing over and over and expecting a different result. That is the classical example of what our government does and Bartlett appears to be one of the cheerleaders of this philosophy.

[Chi-townChief]

"Primarily for this reason, every single country that has ever contemplated something like a NRST has instead chosen a VAT, which the NRST people oppose."

They go with the VAT because it hides very well the big tax money you're shelling out. With the sales tax, it's there for all to see.

[robertpaulsen]

"In this scenario, everyone tries to get a card."

Exactly. Think of it as a 30%-off coupon.

Want to buy a car? First, set up a small business. Then buy the car for business purposes, present your tax exempt certificate, and save 30%. All legit.

Then use the car for personal use -- illegal, yes. But some will think that it's worth taking the chance on a $50K car to save $15K.

People commit murder for less.

[crz]

Now it is 30% The lies are starting to come out the rip this idea apart. Although I do not agree with the idea of taxing services, I am for it overall.

BUT..

Quit bitchin about the IRS and the present system as they'll bever change it. And I am starting to think the American people dont deserve to have it changed. I hope they get what they deserve and the present socialist tax system rate goes to 80 plus percent (with state and local taxes).
How's that?

[palmer]

Services are by their nature much more difficult to tax than goods. For this reason, no state makes any effort to tax more than a few of them. Yet the NRST would tax 100 percent of services, including medical services and government services. Every time you go to the hospital, you will have to pay 30 percent on top to the federal government.

From what I read, it's even more complicated. Your employers payments towards your health insurance are taxable, either you pay it, or if you are lucky your employer will pay it for you. Presumably your own insurance premiums will be taxed too (although I didn't see this on the fairtax site). Then when you go to the hospital, the services paid for by your insurance are not taxed, but if you pay yourself they are. The net result will be a lot more third party payment which will keep driving up healthcare costs.

[biblewonk]

I think it's dopy too.

[snowsislander]

It would be very tempting to change the formula to aid the poor and penalize the rich, just as the current tax code does.

After seeing the Republicans now proposing to means test Social Security (something I don't like), the threat of an introduction of a means test for the "prebate" must be considered as a real possibility.

I would rather see the whole "prebate" (which already reminds all too much of McGovern's negative income tax) dropped from the NRST proposals. That would mean the rate could be dropped from 23%(inclusive)/30%(exclusive) to something more reasonable.

[kevkrom]

There is no reason whatsoever to think that the states will get rid of their income taxes if the federal income tax is abolished. Quite the contrary, they are likely to view the federal government as co-opting their traditional tax base -- the general sales tax. Therefore, the states will just take over the tax base being given up by the federal government -- the income tax -- and abolish their state sales taxes, which would otherwise come on top of the NRST.

This statement alone shows that Bartlett is either disingenuous or just flat-out lazy. The states only manage a reasonably effective income tax enforcement because they piggy-back off of the federal IRS. Without the feds providing the bulk of income tax information collection, the states would have to work much, much harder to maintain, let alone add, an income tax.

[Final Authority]

For over five years, going back to the late Chief Negotiator, and now the the 'Geezer, these are and have been my exact arguments against the so-called FairTax.

In a nut shell, the purpose of the NRST is to add another tier of taxation at the Federal level to pay for GWB's and Congress' extravagance and to fully fund the new socialist model that is required when our economy is finally transformed from our former nationalist domestic model to the globalist model.

[dg62]

I've always had reservations about this and now I can see several reasons why.

My main objection was that I think this would create havoc in the economy. Why mess with it now?

It sounds like in effect it would be a net tax increase when you add in things like services and state, local and business spending.

Also, a 30% tax rate is way high enough to give merit to the rampant evasion theory. From reading this article 30% now seems too high.

[You Dirty Rats]

The so-called "Fair Tax" is DOA in the Congressional Committees. The whole idea is complete nonsense.

[Doctor Stochastic]

These must be exempt from tax in order to avoid cascading -...

Politicians like cascading taxes; these taxes tend to be hidden from the payer.

[ancient_geezer]

I don't see how this can work unless it is at least as bad as the present system in terms of record-keeping and "proving" business use.

The opportunity get away with evading a sale tax and risk of exposure is much greater with a retail sales tax system than the current income tax system and provides stronger disincentive to engage in evasion. Only 20 % of business (the largest) do 80% of the dollar volume in retail sales and are subject to the NRST. The current system income tax system has evasion rates of approximately 20% of GDP in this country an NRST will do no worse. And it is in comparison to the income tax system that we are replace we must make our comparisons. That is unless you are advocating the income tax/VAT combination the Bruce Bartlett advocates because of the ability of the VAT to extract a higher percentage of tax revenue from an economy than either the income tax or retail sales taxes.

 

Business is a choice, not a condition one is born to as being an individual filer under the current income tax is. You don't want to be monitored, its simple enough, don't get a business certification and pay the tax on your purchases.

The present system audits both business and the individual in his family income and opens the individual's life to the intrusion of federal government. The NRST as proposed in the FairTax legislation removes the federal government from the individual and business' affairs and turn administration over to the states. One wolf pounding on the door instead of two.

There are one tenth a many business filers as there are individual filers under the current system. Those who evade the current system can be expected to under an NRST, but with more difficulty as they are required to register (thus known, unlike the current system) and monitorable.

Furthermore, if people are unwilling to abide by a high tax rate under a retail sales tax system where everything is out in the open and visible to the electorate, what does that say about the government collecting those taxes. There are good reasons why the founders of this nation preferred above board straight forward consumption taxes over other tax systems:

 

Federalist #21:

"Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. "

"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.

They prescribe their own limit, which cannot be exceeded without defeating the end proposed - that is, an extension of the revenue."

When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four."

If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.

This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

 

Note the bottom line choice of a system with a natural limitation of the power of imposing the tax.

A condition that is not true of wage taxes and VAT. In fact such taxes are what are indeed recommended by folks like Bartlett because of their efficacy in extracting the the ultimate blood from the taxpaying turnip.

[rcocean]

I've never heard of the NRST and this article does a good job explaining why. One more reason, unless you FIRST repeal the the Fed Income tax amendment, any VAT or NRST will be an addition to the current Fed Income Tax.

We should be simplifying the Fed Income Tax - No deductions, No exemptions, just xx% of AGI.

Same with the states - Just fill out a form and pay the state XX% of your federal income tax.

[ancient_geezer]

A Taxreform bump for you all.

If you would like to be added to this ping list let me know.

John Linder in the House(HR25) & Saxby Chambliss Senate(S25), offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:

H.R.25,S.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer for additional information:

• http://www.fairtax.org,
• http://www.myfairtax.org/,
• http://www.salestax.org,
• http://www.geocities.com/cmcofer/ftax.html

[EternalVigilance]

In the interest of the freedom and prosperity of my children and grandchildren, I support the FairTax.