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Consumption taxes are not the answer
TownHall.com ^ | Friday, May 28, 2004 | by Bruce Bartlett

Posted on 05/28/2004 12:27:11 AM PDT by JohnHuang2

Two tax issues seem to be getting a lot of discussion on the Internet these days. First is a big increase in the gasoline tax in order to discourage oil consumption and make the nation less vulnerable to the OPEC oil cartel. Second is the idea of replacing the Social Security payroll tax with a progressive consumption tax. Both have serious flaws.

The idea that a higher gasoline tax will help our energy situation is ludicrous. All European countries have far higher gasoline taxes, and they are just as vulnerable to increases in the price of oil as we are. If a higher oil price translates into a 50-cent per gallon increase in gasoline prices (net of tax), then the Europeans and we are both going to pay 50 cents more per gallon.

The reason is that oil is an internationally traded commodity. Whether you are importing oil or exporting it, you are going to pay the world price one way or another when you use oil. If you are an oil exporter, you can hold the price of gasoline down for your citizens, but then the nation as a whole pays an opportunity cost equal the foregone profit. In the end, it is no different than an oil importing country using public funds to subsidize the price of gasoline.

The point is that from the point of view of a consumer, it makes no difference whether you live in a country that is self-sufficient in terms of oil or one that is not. When fundamental market forces cause the price of oil to rise, everyone pays. There is no way of insulating yourself except by shifting the cost to someone else.

Raising the gasoline tax may reduce domestic oil consumption, but this will happen only very slowly. It takes time for people to trade-in their gas-guzzling SUV's for fuel efficient Mini Coopers. Leaving aside the loss of welfare for those forced to drive in tiny little cars when they would rather be in something much bigger, let's suppose that the lower demand lowers the world oil price. Unless it goes down by an amount equal to the tax, consumers are still worse off.

In the end, the only beneficiaries of a higher gasoline tax are the government and the road building industry. That is because under current law, revenues from the federal gasoline tax go into the highway trust fund, which is used to build roads, bridges and such. When there are uncommitted funds in this trust fund, Congress tends to treat them like free money that can be used for any stupid pork barrel project as long as it involves transportation.

As a consequence, increases in the gasoline tax don't even reduce the budget deficit except for the minuscule amount of time between when the tax is imposed and the time it takes for Congress to spend it. Of course, the law could be changed to put higher gasoline taxes into general revenues. But the road builders and others who benefit from increased transportation spending will strenuously oppose this. Hence, this is unlikely to occur.

The idea of replacing the payroll tax is similarly unworkable. This system of funding Social Security benefits was created for a specific reason that is still valid. By tying a worker's contributions directly to his benefits, workers tend to view the payroll tax not so much as a tax, but rather as a payroll deduction for his 401(k) plan, life insurance or medical benefits. To the extent that this is the case, the payroll tax is viewed as part of a worker's pay and not a subtraction from it.

Of course, a worker loses the use of his payroll tax deduction. But most get it all back with interest. Indeed, because of the highly progressive nature of the Social Security benefit system, low-income workers get a very high return on their payroll taxes. They get back benefits in retirement that are far greater than the money they paid in. In this respect, the Social Security system reinforces work incentives, rather than being a simplistic "tax on work" that it is often portrayed as.

Replacing the payroll tax with some other broad-based tax that is unconnected to a specific worker's wages breaks the link between contributions and benefits. It will convert Social Security into a pure welfare program, rather than a government pension. The effect would be to reduce political support for the program and work incentives at the same time. Any disincentive effects from the replacement tax would come on top.

If we are going to replace some tax with a progressive consumption tax, it should be the income tax, not the payroll tax. If done properly, this would increase incentives for work, saving and investment that would boost real economic growth.


TOPICS: Editorial; News/Current Events
KEYWORDS: axixofevil; brucebartlett; consumptiontaxes; fairtax; taxes; taxreform
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To: lewislynn

In #110 you agree that the Fair Tax plan includes repealing the 16th and making the taxation of income unconstitutional, but in #112 you change your mind... heh heh heh you're lost.


121 posted on 05/29/2004 7:27:54 AM PDT by Principled
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To: Remember_Salamis; lewislynn; phil_will1
I can actually see a distinct difference between the writing styles of lewislynn, which is pure propaganda, and yournightmare, which are at least grounded in reality. I'm not 100% convinced they're the same person anymore.

I can assure you we are NOT the same person. And I can prove it:

Lewislynn, what's your favorite color?
122 posted on 05/29/2004 7:29:29 AM PDT by Your Nightmare
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To: Principled
Why yes, yes it is. That indeed is the definition of the Fair Tax plan...

It might be "the definition" of a plan but it isn't their plan and if their plan (HR25) was implemented that doesn't mean any other actions would be taken...

Their plan, HR25, doesn't legislate anything constitutional....but you knew that.

123 posted on 05/29/2004 7:31:09 AM PDT by lewislynn (Who made you, the casual observer, the expert?)
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To: Principled
part of that is obviously repealing the 16th and making the taxation of income unconstitional.

Sorry, if it's not part of the legislation, it's not part of the plan.
124 posted on 05/29/2004 7:33:19 AM PDT by Your Nightmare
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To: Your Nightmare
If it's part of the "plan", why not make the NRST contingent on the repeal of the 16th?

Good question - one that is at the heart of many peoples' distrust of goverment (mine included).

I concluded, after some time and much talking, that the only way to pass the Fair Tax and eliminate the income tax, eliminate withholding, eliminate payroll tax, eliminate the IRS, eliminate filing, etc. and make the taxation of income illegal (not yet uncnstitutional, was to first have a viable revenue option to income/payroll taxes in place.

That being said, I hadn't made up my mind until I was shown all of the roadblocks to re-imlementation of the income tax after said passage.

1) you'd have to convince everyone that their paychecks should be reduced again by 35% or so.
2) you'd have to convince business to start "contributing" to FICA again
3) you'd have to reconstitute an IRS
4) you'd have to write a new tax code (the existing code is erased/abolished upon passage of the Fair Tax). How long would it take and how hard would that be!?
5) you'd have to convince industry to increase the prices of their exported goods by 25% or so.
6) you'd have to convince everyone that the economic boom should end
I have a crying 3 yr old. Back soon...

125 posted on 05/29/2004 7:37:03 AM PDT by Principled
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To: Your Nightmare
Of course if you want to keep the income tax and some day have both an income tax AND a sales tax, you could use this as a reason to keep the income tax and keep the door open to having both taxes.

What's the worst that could happen by passing the Fair Tax? We could end up with - *gasp* - what we have now!!!

126 posted on 05/29/2004 7:40:23 AM PDT by Principled
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To: Your Nightmare
Sorry, if it's not part of the legislation, it's not part of the plan.

There's no reason to be sorry!

The plan is to pass the fair tax and pass an amendment that repeals 16th and makes taxation of income unconstitutional. There are two pieces of legislation - hence your use of the definite article was inappropriate.

There is HR 25 and HJR 45. You should look at them both.

127 posted on 05/29/2004 7:43:02 AM PDT by Principled
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To: Your Nightmare; phil_will1

It's interesting that they never go around accusing the other screen names of being me. Only me being them/you


128 posted on 05/29/2004 7:43:37 AM PDT by lewislynn (Who made you, the casual observer, the expert?)
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To: Your Nightmare

How many times have you made one of your typical cut-and-paste posts that showed how the 29.87% rate was calculated

The NRST is 23% of sales receipts remitted by the Vendor, as called for in the bill.

Instead of leaving federal taxes hidden within prices as we do today, the NRST requires the reporting of federal taxation on every retail sales receipt as a separated line item. To accomplish that you multipy the price due by the percentage of taxes included within price and provide that information as a separate line item on the receipt.

In all those posts I don't remember this $140+ billion tax credit being accounted for.

You do not find it because the Budget Enforcement Act / CBO methodology does not require accounting for refunding excess tax payments for setting rates on a revenue bill. refunded excess tax payments are not reported as part of revenue under the current income/payroll tax system, nor are refunded excess tax payments a part of revenue under the NRST.

Tax rates are set in accord with equilibrium conditions not single time transitional effects under the Budget Enforcement Act.

End of issue, you are just repeating yourself.

If you want an honest debate about the NRST, stop with the funny math and Enron accounting, come up with the real rate,

Doesn't take any accounting at all:

The NRST is 23% of sales receipts remitted by the Vendor, as called for in the legislation as set by Budget Enforcement Act requirements. That is the real rate:

H.R.25

Fair Tax Act of 2003 (Introduced in House)

http://thomas.loc.gov/cgi-bin/query/z?c108:H.R.25:


`SEC. 101. IMPOSITION OF SALES TAX.

  • `(a) IN GENERAL- There is hereby imposed a tax on the use or consumption in the United States of taxable property or services.
  • `(b) Rate-
    • `(1) FOR 2005- In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service.

 


 

`SEC. 510. TAX TO BE SEPARATELY STATED AND CHARGED.

  • `(a) In General- For each purchase of taxable property or services for which a tax is imposed by section 101, the seller shall charge the tax imposed by section 101 separately from the purchase. For purchase of taxable property or services for which a tax is imposed by section 101, the seller shall provide to the purchaser a receipt for each transaction that includes--
    • `(1) the property or services price exclusive of tax;
    • `(2) the amount of tax paid;
    • `(3) the property or service price inclusive of tax;
    • `(4) the tax rate (the amount of tax paid (per paragraph (2)) divided by the property or service price inclusive of tax (per paragraph (3));
    • `(5) the date that the good or service was sold;
    • `(6) the name of the vendor; and
    • `(7) the vendor registration number.

 

and lets debate it.

You want a higher tax rate, debate with a democrat.

I find the "real rate" actually paid by an individual citizen to be much lower, when all is accounted for.

A family of four, for example, could spend $23,220 per year free of tax because they will have received over the course of the year FCA prepayments totaling $5,341. $5,341 is the amount of sales tax paid on $23,220 in expenditures. A family spending double the "poverty level" or $46,440 per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.

The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.

To illustrate the NRST works, examine the tax burden that a family of four will have at various annual expenditure levels.


129 posted on 05/29/2004 7:43:53 AM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: ancient_geezer
You do not find it because the Budget Enforcement Act / CBO methodology does not require accounting for refunding excess tax payments for setting rates on a revenue bill. refunded excess tax payments are not reported as part of revenue under the current income/payroll tax system, nor are refunded excess tax payments a part of revenue under the NRST.

It's not a refund, it's a credit. One that will reduce the amount of revenue for the first two years meaning the 29.87% rate is NOT revenue neutral. It will have to be higher.
130 posted on 05/29/2004 7:51:40 AM PDT by Your Nightmare
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To: Your Nightmare
It's not a refund, it's a credit.

If inventory has already been taxed, then taxing again at sale is double taxing- hence the refund. Call it what you will, but it's function is to refund taxes already paid.

131 posted on 05/29/2004 7:57:24 AM PDT by Principled
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To: Principled
If inventory has already been taxed, then taxing again at sale is double taxing- hence the refund. Call it what you will, but it's function is to refund taxes already paid.

That's not true. It's not to refund taxes already paid, it's to avoid paying taxes twice. This is done by giving retailers a credit, meaning they collect the sales tax, but don't remit it. Those sales taxes that the retailers keep were not factored out of the formula for the 29.87% rate.
132 posted on 05/29/2004 8:05:40 AM PDT by Your Nightmare
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To: Final Authority
I belong to no socialist or communist cult. How from my comments did you come to some fantasy that I am a collectivist?

See/read for yourself:

Final Authority wrote: ...we [emphasis mine] now believe that a sales tax if ever enacted will be another layer of broad based taxes adding to the levy of the income tax. 48

Zon wrote: What collectivist cult do you belong that you speak for its members? 49

Who is the "we" group you are speaking on behalf of?

Next time you write I suggest you verify your vocabulary using a dictionary. Better, don't bother to write unless you can add to the discussion in a positive way.

Wrong. I read too carefully for your liking and when exposed you you go into denial. Then again, it may be that you're so mired in mysticism you aren't aware of the "we" group you speak for, or you're just feigning that you didn't notice that you wrote the word "we". Pleading incompetence is unbecoming of you.  

So who is this "we" group you speak for and what is it about.? Are you a tax accountant, a lawyer, a politician, perhaps an IRS bureaucrat -- an automaton?

133 posted on 05/29/2004 8:08:31 AM PDT by Zon
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To: lewislynn; Your Nightmare; phil_will1

It's interesting that they never go around accusing the other screen names of being me. Only me being them/you

Your past coming back to plague you lewislynn, lousbolts, lurkeylou?

Problem with known bad behavior, multiple times caught means to be always suspected. That's karma lewis.

134 posted on 05/29/2004 8:20:13 AM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: Your Nightmare
I'm all for reducing the size of government, but what makes you think reducing revenue reduces the size of government?

Reducing spending reduces the size of government. But the scope of government is also at issue here, and in my opinion, a far more important issue than money. The opportunity for individual control that the income tax provides the politicians and bureaucrats is radically opposed to the concept of liberty. This is supposed to be of, by and for us, but the current system stands that concept on it's head. And in practical terms, tax court operates totally outside the realm of a just court system.

True conservatives believe in paying their bills, not cutting taxes while increasing spending and going even further into debt.

I absolutely agree that the federal governemnt spends way way way too much of our money, and they seem hellbent on spending even more at an ever increasing pace. A NRST is the best way to stop that crap at once.

135 posted on 05/29/2004 8:39:15 AM PDT by ovrtaxt (Stop the war. ********** NUKE EM NOW !)
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To: Your Nightmare
It's not to refund taxes already paid, it's to avoid paying taxes twice.

Yes it is. It's function is to prevent overpayment of taxes. Retailer has already paid tax on inventory, so why would he collect tax on inventory again? And why on earth would you count double taxes in determining a rate?

You wouldn't.

BTW the price sof those inventory items will be the same as new items on which the sales tax will be paid.

136 posted on 05/29/2004 8:39:19 AM PDT by Principled
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To: Your Nightmare
I can assure you we are NOT the same person. And I can prove it: Lewislynn, what's your favorite color?

Can I be one of you too?

Roses are red violets are blue I'm a schizophrenic and so am I... :)

137 posted on 05/29/2004 8:46:49 AM PDT by ovrtaxt (Stop the war. ********** NUKE EM NOW !)
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To: ovrtaxt

he he he

lewis' favorite color is red - you know with marx and communisim and all....


138 posted on 05/29/2004 8:48:02 AM PDT by Principled
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To: Principled

Ouch! Well, at least it isn't that Islamic green...


139 posted on 05/29/2004 8:49:38 AM PDT by ovrtaxt (Stop the war. ********** NUKE EM NOW !)
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To: Your Nightmare

meaning the 29.87% rate is NOT revenue neutral. It will have to be higher.

The 23% rate imposed by the legislation is "revenue neutral" under the requirments of the Budget Enforcement Act through CBO measure.

CBO methodology is the determinate, not your aspirations of paying for the refund of excess payments to government by increasing rates so there is no longer an excess.

With your rationale, Congress would be forced by law to raise income tax rates whenever anyone could receive an income tax refund.

The reason a refund is paid is because of an overpayment to govenment (overpayments do not count as revenue), not because the rate is too low. Overpayments occur under the income/payroll tax system and are refunded, during transition overpayments will occur and be refunded by the NRST.

"Revenue neutral" tax rates under BEA/CBO are set by equilibrium conditions not by transient overpayments.

Furthermore, the BEA requirements actually allow reducing the 23% NRST rate provided the conditions can be met to allow a tax cut coincident with implementation of the NRST.

PAYGO RULES: CRS Rules 98-20006
Refer 2 USC 900-909
House
Point of order waivable by unanimous consent
Senate Point of order waivable by 3/5ths vote.
May be waived under Sequestration Rules on declaration of War or
conditions of <1% real economic growth for 2qtrs.

It doesn't fly NY, your argument is a dud and a strawman from its conception.

If you want higher taxes, go push your baloney to democrats they will agree to anything that raises taxes. (They will glad to cancel out your income tax refunds for tax overpayments by increasing income tax rates).

140 posted on 05/29/2004 9:02:10 AM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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