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.
And you get a rebate check every month to offset essential consumption.
Again, the issue is control. A NRST puts control in the hands of the taxpayer.
The idea of a NRST is not only bad based on economic grounds -
You are indeed full of unfounded assertions aren't you.
Just the short list of economic advantages of the NRST over the current income/payroll tax system:
- Dramatically reduce the costs of goods and services by 20 to 25 percent.
- Allow you to keep 100 percent of your paycheck, pension, and Social Security payments.
- Gross Domestic Product will increase by almost 10.5 percent in the first year after enactment.
- Compliance costs would decrease by 90 percent.
- Real investment would initially increase by 76 percent relative to the investment that would be made under present law. While this increase would gradually decline, it remains 15 percent higher than under the existing tax structure.
- Exports would increase by 26 percent initially and would remain more than 13 percent above the level under the current tax system.
- Real wages will increase.
- The working poor would experience an increase in real lifetime consumption of between 8 and 14 percent.
- Increases incentives to work by as much as 20 percent in many households, leading to higher economic growth and efficiency.
- Interest rates will fall 25 to 35 percent.
it doesn't stand a chance of being passed (replacement taxes for the income tax have been floated for over 35 years & where have they gone).
In otherwords we can't do it because we haven't done it.
LOL, there was a time when there was no income tax and it replaced all others inspite of taking from the war of 1812 when one was first proposed by the Treasury department, to 1860 when the first income tax was enacted. Strange how time and politics change.
The repeal of a Constitutional Ammendment is just one tiny obstacle to overcome
No constitutional amendment is necessary to remove the income tax from the statutes, nor put a retail sales tax inplace. Just political will with th American people giving them a bit of push.
Once the the NRST is in place completely replacing the income/payroll taxes (i.e. those taxes on income referred to in the 16th ammendment), 90% of the obstacle for prohibition of income taxes by Constitutional amendment disappears.
and would take years/decades to get done.
Remove the income tax from the statutes and putting an NRST in its place merely takes no more effort than any revenue bill does for enactment. Once in place, a constitutional amendment to repeal the 16th and prohibit all taxes on income becomes quite feasible and can take as long as necessary to get it done.
Theories are great for discussion but don't mean anything unless they are really doable & the NRST is 'dead on arrival'.
Whistling pass the graveyard I see. Is that the best argument you can find for not taxing consumption instead of income?
I can find many reasons to dump the income/payroll taxes:
Adam Smith, the father of modern economic thought, had a lot to say about taxation in his still great book Wealth of Nations pp. 561-64. Here is what he had to say about bad taxes:
1. A tax was bad that required a large bureaucracy for administration.
2. A tax was bad that "may obstruct the industry of the people, and discouraged them form applying to certain branches which might give maintenance and employment to great multitudes. While it obliges the people to pay, it may thus diminish, or perhaps destroy, some of the funds which might enable them more easily to do so."
3. A tax was bad that encouraged evasion. "The law, contrary all the ordinary principals of justice, first creates the temptation, and then punishes those who yield to it. "Evasion is also bad, says Smith, because it tends to "put an end to the benefits which the community might have received from the employment of their capitals."
4. A tax is bad that put the people through "odious examinations of the tax-gatherers, and exposes them to much unnecessary trouble, vexation, and oppression...It is in one or other of these four different ways that taxes are frequently so much more burdensome to the people than they are beneficial to the sovereign"
The income tax doesn't miss a single beat. As has been know since before the 16th amendment:
"A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house....The law will of necessity have inquisical features, it will provide penalties, it will create complicated machinery. Under it men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the tax payer. An army of federal inspectors, spies, and detectives will descend upon the state."
-- Virginian House Speaker Richard E. Byrd, 1910, predicting the consequences of an income tax.
The NRST:
H.R.25, S.1493
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.
it is very much alive and kicking with 52 co-signers on the bill and Congressional support growing every month. It now has more support than any other bill providing complete tax reform.
Even long time ardent proponents of the "Flat Tax" like Senator Richard Shelby (Armey/Shelby Flat Tax) are now expressing their preference for the NRST over the flat income tax they have long promoted:
'We know it's not perfect' (Shelby on the Stump in Alabama)
- His preference for a sales tax is even greater than the flat tax he has promoted for years,
"BTW, I was wonder if you could clear something up for me. What exactly does this part of the law mean?:"
I suggest asking your alter ego, Lewis Lynn. He has been studying the proposal for years now. He can probably recite it from memory.
I hear that there is no cure for multiple personality disorder.
Didn't the admins tell you to stop accusing people of multiple accounts just yesterday? Are you going to stop or should I alert them again? An answer would be appreciated.
Instead of making up crap about multiple accounts, why don't you use your head and answer my question?
What, specifically, is confusing to you? The general purpose of this section is to define what is considered "used" (really, already-taxed) at the time the NRST becomes operative so that such items are not taxed again.
BTW, I was wonder if you could clear something up for me. What exactly does this part of the law mean?:
It compensates for taxes embedded in business inventory held before the NRST takes effect. Inventories are is presumed to have been financed with a business' after tax dollars thus implicitly carry embedded taxes from the income/payroll tax system.
The credit is to provide compensation for those embedded taxes in business inventory existing prior to implementation of the NRST to reduce the potential for double taxation of inventories sold under the NRST.
Good point... but it's still about preventing double-taxation. It appears that the business will essentially get a credit back for their (taxed) costs on items produced prior to the enactment of the NRST, but sold after the NRST enactment, at which time it would be taxed again. These items, then, would be freed from having been taxed under both the income tax and the NRST because of the credit.
There, that's more accurate.
You're welcome.
How much is this credit going to cost?
How much does any tax refund cost today? An excess tax is being refunded via a credit mechanism upon the sale of the inventory that has been over taxed.
In addition a constitutional amendment would be necessary to ban INCOME TAX otherwise we would wind up with BOTH the FIT and NRST.
It will never happen.
Spot on Mr. Bartlett for all the reasons you list and more.
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.
Here you are completely full of crap however! Most of the workers I know have long since concluded that the payroll tax is just another way the socialists in government have of getting in their pockets. They regard it as just another tax and DO NOT, if they are prudent, include any benefits they MAY someday recieve in thier retirement planning.
Social security is, and always has been, nothing more that a government run Ponzi scheme and most folks have now figured that out.
DramaticallyCould possibly reduce the costs of goods and services by 20 to 25 percent.
Considering the law of supply and demand is not repealed by the legislation, while the taxes that businesses pay today are. and competition for market share is quite healthy in our economy, "Could possibly" is a stretch.
I refer you to the section of the following article about the Income/Payroll tax system and its impact on our economy "A. Hidden Upstream Taxes. " paragraph 39.
"[39] Dr. Dale Jorgenson, Chairman of Harvard University's Economics Department, believes that the price of goods and services are inflated by about 20 percent or more by upstream taxes consumers ultimately bear. In a recent paper Dr. Jorgenson estimated the built-in taxes contained in the price of goods and services. /22/ In the chart above, he quantified the hidden component of tax, estimating that producer prices would fall on repeal of upstream taxes an average of about 22 percent."
Looking at the accompanying chart, an emperical measure the range of values from industry to industry appears to be about 12-25%.
Economists Gary and Aldonna Robbins of the Texas-based Institute for Public Policy examined the case of dry cleaning a shirt, with a particular eye toward uncovering the hidden costs of taxes in price.
The Robbin's attributed over 33.6% of "consumer prices" to be due to federal taxation passed on to the customer.
The Federal Tax System
http://www.cbo.gov/showdoc.cfm?index=2125&sequence=0&from=1#pt1
From the Table 1 we may extract the proportionate contributions of each sector of taxes as they contribute to consumer price for the year 2000.
Those tax components which will not change prices as a consequence of enactment of HR2525
============================
Adjust for the approximate reduction of interest & cost of tax compliance (
Adjust for a conservative $800 billion cost of tax compliance, (The Flat Tax; Hall & Rabushka, '95,What the Income Tax Costs the American People: quoting James L. Payne estimates 65cents for each dollar of revenue collected).
Estimated change in consumption prices as consequence of enactment of a National Retail Sales Tax, repealing all business income and payroll taxes:
33.6*(1386.5/1945) = 23.9% reduction in consumption prices
Which more than verifies the Jorgenson empirical study of 22% fall in producer prices.
The two sources are in reasonable agreement, and I see 20-25% a reasonable value to expect retail prices to fall, not only for customers here in the United States, but in our exports as well making them far more competitive on international markets.
Gross Domestic Product
willmight increase by almost 10.5 percent in the first year after enactment.
Seeing that marginal tax rates are reduced from over 30% that exists today under the income payroll tax sytem down too a maximum 23% under the NRST with investments no longer taxed. growth of the economy is a given on the basis of previous reaction of the economy to such tax rate reductions. The Reagan tax rate cuts being a prime example of not only of economic growth from marginal tax rate decreases, but a characteristic growth in government revenue collections that go with growing economies.
Actually the 10.5% figure is a very conservative value to expect. Many economists project 15-20% economic growth and increase of standard of living with the enactment of the NRST.
You figured out how much the transition inventory credit is going to cost yet? The number I come up with are ~ $140 billion. I don't remember seeing this in the computation of the 29.87% NRST rate.
http://www.census.gov/mtis/www/current.html
HAHAHAHAHA
Keep coming up with reasons to keep the income tax!!! Really!!!
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