Posted on 02/11/2004 11:47:11 AM PST by phil_will1
It would be a lot easier to get support from Republicans if it were called the ClearTax or the TrueTax, since 'fairness', in the political arena, has become a synonym for redistribution of wealth. But the FairTax is the road out of this class warfare mess that paralyzes the country and prevents the Congress and President from attending to the country's business.
Populists pander to their constituencies by manipulating a complex illusion, a fraud upon the public, we call the Income Tax. We waste our time and energies fighting over changes in that system, but the truth is that no one, neither corporation, nor individual, really pays income taxes, or FICA taxes either, for that matter. For all the fighting and demagoguery over every change in the tax code, those complex schemes are no more than changing assignments over who will be required to COLLECT a hidden sales tax from consumers.
Economists have long been aware that corporations don't pay taxes, they only pass them along to their customers, but the same is really true for all of us. We trade our labor for what we take home, not for what our employer forwards to the government in our names. Few people are even aware of the gross amount of their pay. We pass our perceived income taxes and FICA taxes along to our employers, as a cost of the 'business' of being employed. Employers then regard our withheld taxes as just another cost of doing business, like their own taxes. And like every other cost of doing business those taxes become a part of the price of whatever goods or services we produce.
The simple truth is that ALL taxes are passed along like this and eventually paid by the consumer, as a hidden sales tax buried in the cost of those goods and services. The average portion of the price of everything, from a loaf of bread to brain surgery, that is really someone else's Federal Income, FICA, or corporate tax is about 22% of the price of everything you buy. And since everyone buys products and services, rich or poor, no one escapes that taxation. The real impact of taxation is not on our Form 1040, but at the grocery store and the doctor's office.
Imagine the change in the political landscape if that truth suddenly became clear to every American.
It really doesn't matter if we shift the total income tax burden to the top 10% of tax payers or if everyone pays the same percentage from bottom to top, NONE of that is real. Varied income tax rates only change the relative prices of the things we buy. Healthcare costs more because the income tax system makes doctors collect a lot of tax to earn their after tax incomes. The only REAL tax is that hidden sales tax, because that is the only one that cannot be passed along to someone else down the line. The FairTax simply makes this hidden sales tax visible.
Under the FairTax plan, (www.FairTax.org) the IRS and FICA are gone. You get your whole paycheck with no Federal deductions. There would instead be a 28% Federal sales tax. This would be revenue neutral to the government, and cost neutral to us, since the increases in our paychecks and the fall in prices would exactly cancel out the new sales tax. It would have to be that way if you think about it, as all we really would be doing, in the short term, is to replace the existing hidden sales tax with a visible sales tax of the same size. So why do it?
The answer is CLARITY, and that is what changes everything.
No more could the populists pander to the voters with promises to tax someone else for their goodies. Everyone would know exactly what government costs them, it would be on every receipt they get for a hamburger or a new house. And they would know that the burden falls proportionately on all, as it always has, even though they do not know it now.
Any major new program would have to be accompanied by a raise in the sales tax, with no illusion that the cost could be shifted to someone else. Every cut in the size of government would be visible money in the pocket of every American.
Class Warfare would be DEAD forever and we could at last go about the business of the country and set our priorities based on an honest understanding of the costs. And that is how we can bring this country together to face the real threats to our liberty and prosperity.
Another issue that must be faced by any sales tax/VAT system is whether the tax is only imposed at the ultimate consumer level.
H.R.25 (i.e. Fair Tax) is a retail only tax. the NRST is not collected on business to business purchases.
Only the seller of retail products is required to collect and remit that tax, and then only from the final consumer, if retail products are purchased by a business for legitimate business use the NRST is not charged.
The Fair Tax is expressly designed to avoid the creation of a VAT by creating a single stage tax. That is why it makes explicit in the language of the bill, the rule of tax once but only once, and explicitly does not tax business to business purchases, and other purchases for the legitimate purposes of carrying on business.
`(a) IN GENERAL- Any court, the Secretary, and any sales tax administering authority shall consider the purposes of this subtitle (as set forth in subsection (b)) as the primary aid in statutory construction.
`(b) PURPOSES- The purposes of this subtitle are as follows:
`(1) To raise revenue needed by the Federal Government in a manner consistent with the other purposes of this subtitle.
`(2) To tax all consumption of goods and services in the United States once, without exception, but only once.
`(3) To prevent double, multiple, or cascading taxation.
`(4) To simplify the tax law and reduce the administration costs of, and the costs of compliance with, the tax law.
`(5) To provide for the administration of the tax law in a manner that respects privacy, due process, individual rights when interacting with the government, the presumption of innocence in criminal proceedings, and the presumption of lawful behavior in civil proceedings.
`(6) To increase the role of State governments in Federal tax administration because of State government expertise in sales tax administration.
`(7) To enhance generally cooperation and coordination among State tax administrators; and to enhance cooperation and coordination among Federal and State tax administrators, consistent with the principle of intergovernmental tax immunity.
`(c) SECONDARY AIDS TO STATUTORY CONSTRUCTION- As a secondary aid in statutory construction, any court, the Secretary, and any sales tax administering authority shall consider--
`(1) the common law canons of statutory construction;
`(2) the meaning and construction of concepts and terms used in the Internal Revenue Code of 1986 as in effect before the effective date of this subtitle; and
`(3) construe any ambiguities in this Act in favor of reserving powers to the States respectively, or to the people.
No, its a tax on new goods and services purchased for consumption only.
Bullshit.
From HR25:
You know that some people already do this but I could only imagine the evasion problem getting worse as goods/services get marked up over 20%.
Actually to evading the NRST, is a higher risk lower gain situation than evading the income tax.
For one, under the higher marginal rates (more than 30%) and average rate(~22% federal) of the income tax clearly offer equal and more incentive for evasion while the risk of doing so is less. To evade the income tax, it is only necessary for one person to act by failing to report income.
After enactment of the NRST, the shelf prices of products are expected to fall approximately 20-25% from todays levels (do to repeal of business & payroll taxes and reduction of the costs of tax compliance). Thus the actual out of pocket costs to the consumer (NRST + newprices) remain at approximately the same level as we see them today, remebering that this total payment is out of your full gross paycheck, as opposed to the takehome(after tax witholding) we see today.
In order to evade the NRST, it take the complicity of two persons to achieve that end. The buyer in agreement with a seller. The more persons who are involved in an illegal enterprise, the higher the risk of exposure.
Finally, more than 75% of retail dollars flow through less than 25% of the retail businesses. The large business has the most at risk where tax evasion is concerned, few large businesses are willing the loss of their right to conduct business over failing to collect the appropriate tax from their customers. That being the case, the most of any tax evasion with remain among the same folks who do the most evasion today, the small business and individual.
Enforcement of the retail sales taxes are focused into a smaller segment of the total population than the income/payroll tax , raising the risk of detection under the NRST.
All factors taken together, I would expect to see a fall from todays 15-25% non-compliance levels to something no worse and most likely lower.
Finally, the NRST is not designed so much to give the government a break, as much as it is to favor the citizen.
As I stated to another earlier:
I am more interested in placing the first option and claim on how money is to be used in the hands of the citizen, as opposed to that of government.
The citizen gains in liberty, privacy and knowledge of how his finances are allocated between investment consumption and government. That empowers the citizen to perform his obligation of "Eternal Vigilance" that is the necessary adjunct to a functioning free society.
The financial aspects, especially as it regards any benefit to government, comes in a far second place to empowerment of the citizen.
Many of the reasons to go to a pure consumption tax were laid out by the founders,
in Federalist Papers #2:
"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.Impositions of this kind usually fall under the denomination of indirect
taxes, and must for a long time constitute the chief part of the revenue
raised in this country." (Emphasis added).
The choice of a NRST as an alternative tax system, as opposed to a VAT which would have stronger enforcement characteristics, is visibility of the tax, along with the convenience and empowerment of the citizen, not the convenience and empowerment of the government.
[Montesquieu wrote in Spirit of the Laws, XIII,c.14:]
- "A capitation is more natural to slavery; a duty on merchandise is more natural to liberty, by reason it has not so direct a relation to the person."
--Thomas Jefferson: copied into his Commonplace Book.Patrick Henry, Virginia Ratifying Convention June 12, 1788:
- "the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."
Very nice!
And this house resolution - if ever made into law - would eliminate the need for payroll taxes too? I guess what I'm asking is, does SS and Medicaid get funded with the revenue?
And this house resolution - if ever made into law - would eliminate the need for payroll taxes too? I guess what I'm asking is, does SS and Medicaid get funded with the revenue?
In one word, YES.
That is why it is a 23% tax, It would be 15% if it covered only income taxes and left payroll taxes in place.
Oh, I wasn't referring to you -- I don't recall ever bumping into on a thread before the NRST debates. Sorry if I accidentally implied that. I got along with most Buchanan supporters back then, too. But there was a minority that made life interesting, to be polite. :)
Ok... the NRST, as proposed in HR 25 and supported by Americans for Fair Taxation (AFFT) is a single-stage, single rate retail sales tax that is applied onall consumer services and consumer purchases of new retail goods (tax everything, but only tax it once). Every such good and service is subject to the tax -- no exclusions based on the type of goods or the income or other social status of the purchaser.
The tax is not applied to other transactions. Selling an hour of your time to an employer is not a retail sale, it's a sales of a service to a business -- if this were taxed, not only would it be a hidden, layered tax akin to a VAT, it would essentially be an income tax. Savings and investments are not taxed because they are not retails goods or services (service fees assocaited with personal investments are taxable because they are retial services). Used goods are not taxed because they were taxed once already.
Does this help? From your comments, it seems that you might have misunderstood the concept. Either that, or I'm still not getting your point.
There will always be some evasion under any system, and sales atxes are naturally self-limiting due to the reasons you point out. On the enforcement side, 10% of the retailers sell 90% of goods and services -- and there are far fewer retail businesses than there are individuals, so the number of points to watch is much smaller. Since the tax apllies to all goods and services, there's no way to "accidentally" ring something up as non-taxable, either. :)
Also, you seem to be under the impression that prices will jump with the sales tax. They probably won't. The NRST is a replacement for all the taxes currently layered into the price of goods and services, not in addition to them.
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