Posted on 04/16/2004 12:20:39 PM PDT by esarlls3
April 15, 2004, 11:09PM
By RAD SALLEE
Copyright 2004 Houston Chronicle
Now that the dreaded deadline is past and the tax forms are in the mail, consider this question: Would you rather slog through a morass of paperwork every April to send Uncle Sam a chunk of your income or have the sales clerk take 23 cents in tax out of every dollar you spend?
U.S. House Majority Leader Tom DeLay, R-Sugar Land, and Republican U.S. Reps. Kevin Brady and John Culberson chose the perfect downtown stage Thursday to promote the second choice, which they call the FairTax.
As about 100 supporters, most of them members of the group Americans for Fair Taxation, rallied outside the Main Post Office at 401 Franklin, a steady stream of cars and trucks rolled through the driveway to drop off last-day tax returns.
Also on hand was Rep. John Linder, R-Georgia, sponsor of the FairTax bill, HR25. Linder said the campaign for the proposal, technically a consumption tax on retail sales, was launched in Houston by businessmen, including Leo Linbeck and Bob McNair.
Linder said Culberson's predecessor, Bill Archer, supported the idea, which has gotten a big boost with DeLay on board.
"Now it's time for Texans to get the president behind the bill," he said.
DeLay described the Internal Revenue Code as "a 1.6-million-word, job-killing monstrosity ... written by tax lawyers to be incomprehensible."
The FairTax would not only be simpler, he said, but also would replace the personal income tax, corporate income tax, capital gains tax, inheritance and gift taxes and Social Security-Medicare taxes.
It would not replace state and local sales taxes, however.
Culberson said the FairTax would be collected like a sales tax and would not penalize taxpayers for saving and investing their money instead of spending it.
Linder said the FairTax would increase saving and investing, expand the economy and help stanch the flow of U.S. dollars and jobs overseas.
Skeptics note, however, that a rich man's purchase of a yacht and a widow's winter coat would both be taxed at the same rate -- about 23 percent at current federal revenue levels.
Food and medicine would be taxed, too. The only purchases exempted would be used goods, business expenses and the costs of education, which would be treated as an investment.
To ease the burden on the poor, each family -- rich or poor -- would get rebates equal to the federally defined poverty-level income, multiplied by the tax rate. At a rate of 23 cents per dollar, a single person living alone would receive $160 a month and a family of four with two children would get $431 a month.
Joe Barnes, a research fellow at Rice University's Baker Institute for Public Policy, said junking the income tax for a simpler alternative is a tempting idea fraught with unknown consequences.
"I'm very sympathetic to consumption-based taxation, but I have profound misgivings about its workability," Barnes said.
For one thing, he said, experience in Europe indicates that when similar taxes climb to about 20 percent, cheating becomes widespread. Because an enforcement mechanism will be needed, he said, "It will not lead to the abolition of the IRS."
"I think it would lead to gigantic off-balance-sheet transactions," Barnes said.
The tax would seldom be paid on personal services, he predicted, and there would be temptations to falsely claim purchases as business expenses.
Barnes said there also would be intense political pressure to exempt some expenses, such as medical care, food and housing, from the tax. For every exemption, he noted, the tax rate on other goods must increase to maintain the same revenue.
ON THE INTERNET FairTax proposal www.fairtax.org and www.ctj.org
History has shown that people with more disposable income will contribute more to charity regardless of tax benefits. Under the NRST, people will have more disposable income because net prices (after tax) should remain about the same, but everyone gets their full paycheck (or investment return, etc.) without taxes being taken off the top.
Every tax has problems, that's what happens when you steal from people. They hide their money.
There are implications to what you are claiming here. First, you assume that there would be no corresponding increase in the money supply. Because you assume that, you must also recognize that everyone's income would decrease by 23%.
You see, currently, our incomes are pre-tax. Under the so-called "Fair Tax", our incomes would be post tax. I currently pay my son's daycare $100 per week. That is the day care's total income (and the director pays tax on that). With your assumptions, under the falsely named "Fair Tax", her income would be $77 per week because she would have to remit $23 to the government.
(If there is a corresponing increase in the money supply as the government predicts, prices of everything would go up by the amount of the tax. I would now pay $130 per week for daycare, the director pays the government $30 and retains the same $100.)
This relationship holds true regardless of what industry you are in.
Of course they hide their money -- no one but a fool volunteers to be taxed if there's another viable option.
There will be evasion and cheating -- this is a fact of human nature independent of taxation system. But it certainly will be no easier to cheat under the NRST -- with only 20 million tax collection points (instead of 200 million individual and corporate filers) and the fact that 80% of the sales come from only 20% of retail businesses, I find it extremely unlikely that sales tax cheating will exceed that of the income tax.
Do you think that Sears, Wal-Mart, or McDonald's will risk tax evasion charges to help you save a few bucks?
Absolutely false.
Situation 1: I present a sales tax exemption certificate to the seller and represent that the tires will be used for business purposes. The seller, relying on that representation, sells me the tires without collecting tax. The seller thinks he has done nothing wrong.
Situation 2: The seller simply doesn't remit the tax. As a buyer, I have no idea if he does or not. (I have never asked a seller if he remits sales taxes; I just assume he does.) I just got a good deal on tires. I don't think I've done anything wrong.
Income based taxes are much better at combatting evasion. There is significant cross-reporting through Form 1099.
I don't see this at all. Please explain -- businesses can save 20-25% of their total costs because of relief from income and (employer's share) payroll taxes -- and the complaince costs associated with them, plus some cacading effects -- without dipping into an employee's rated salary.
You see, currently, our incomes are pre-tax. Under the so-called "Fair Tax", our incomes would be post tax.
That's completely backwards. Today, our incomes are post-tax (the IRS takes their chunk before you see it). Under the NRST, the entire income would be pre-tax. Only when it is spent will it be taxed.
I currently pay my son's daycare $100 per week. That is the day care's total income (and the director pays tax on that)... her income would be $77 per week because she would have to remit $23 to the government.
Correct. She's likely not netting more that $77 now because of taxes (both her own plus any taxes embedded in supplies she buys, utilities, financing, etc.) and associated complaince costs.
Of course, the 20-25% saving is an average -- some cases will be less, and others more, but it generally should work out to even for the consumer.
I should point out that this is before she even pays herself, at which point, she is further taxed. (And then taxed again when she buys something...)
You are fooling yourself if you think behavior will remain the same under the so-called "Fair Tax". While the number of "collection points" will remain the same, there will be a whole lot of new retail sales outside of those "collection points" under the NRST. Wal-Mart will sell a whole lot less tires under the NRST because people will evade the tax by buying tires outside of the current legitimate "collection points".
Drug deals would not be taxed under a sales tax. There is no way a drug dealer will declare his sales and remit the tax.
Proponents claim that the drug dealer pays the tax when he buys a car. This is irrelevant. The car purchase is a legitimate transaction. As with all legitimate transactions, car purchases are taxed under either system.
Noone has explained to me how sales taxes capture the underground economy. Please identify one transaction that the sales tax would capture that the income tax does not.
Partially correct.
The drug dealer is effectively a retail business. Since he does not report sales, his customers do not pay sales tax on his products. However, if his raw materials were obtained at retail, the tax is embedded in his costs. If they were smuggled or illegally produced, they would be tax free. So that portion of consumption (by the end user) is evaded.
When the drug dealer spends his profits, he will pay tax on his consumption.
Is the plan perfect - no. Does it eliminate tax evasion - no. Is it better than what we have now - YES.
Just for starters, it reduces the number of taxpayers to audit by 90%. And about 20% of those generate about 80% of retail sales volume. If some smaller ones slip through the cracks, it's OK. I would expect the tax collection gap to be significantly less than today.
Most people are honest and willing to pay their fair share if they feel their neighbors are paying theirs. When people start looking for ways to cheat is when they think they are getting stuck with the bill that everyone else is avoiding.
I saw a report on FNC yesterday which said that 50% are charged no income tax at all now.
Around 50% of people pay no federal income tax, but they pay plenty (as a percentage of their income) of other federal taxes--E.G. social security, medicare, gas tax, etc. And those taxes are usually considered "regressive" since they are a larger percentage of the income of the low-income earners vs high-income earners.
So if a NRST were to be implemented, a massive drive to educate the 50+% who perceive little or no taxation would have to occur.
THe national retail sales tax is a replacement of existing taxes, not a tax in addition to what we already pay.
Of course you know that about 25% of the cost of a new home is hidden income tax costs, payroll tax costs, and compliance costs of the entities involved in the production of the home... so when those costs are removed the price goes down such that when the sales tax is added, the price gets back to the same it was to begin with.
Price stability - prices of goods will change little, if at all. And prices are just as likely to fall slightly as rise slightly.
$100,000 today buys you the same house under the nrst.
You are wise to be concerned with charitable contributions - something Americans are quite good at - we are generous. The purpose of income tax deductions for charitable contributions is to make it so the donations are made with untaxed, pre-tax dollars. If no dollars are taxed, all dollars are pretax. Hence there doesn't seem to be any reason that this would affect charities in the way you mention.
Shoot, only about 25% of filers itemize anyway - and they're the only ones who can take deductions for charitable contributions.
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