Collins Calls for Bold Action to Reduce Tax Burden On American Workers

TheWeekly.com ^ | 6-15-04 | Unknown

[ancient_geezer]

When you admit admit that mixing tax exclusive rates with tax inclusive rates introduces significant confusion

BS. It's just the opposite. The tax exclusive sales tax rate is the easiest and most natural way to compare a consumption tax to a tax inclusive income tax.

 

VI. The Wrong Camera: The Denominator of the Tax Incidence Equation
Tax Analysts Document Number: Doc 1999-32575 (25 original pages)
Dan R. Mastromarco, LLM (LL.M. Taxation, Georgetown) ;
Tax Analysts, Tax Notes October 8, 1999:

[118] When considering the rate of a national sales tax, or any tax for that matter, one must always decide which of two distinct means of portraying this rate -- the "tax-inclusive rate" or "tax- exclusive rate" -- best expresses the tax burden. Which one we employ changes absolutely nothing in terms of the taxes that are actually raised or paid by the taxpayer under the taxing regime examined, in the same way that measuring a journey in inches or meters does not change the distance. However, how the rate is presented changes how the relative tax burden is perceived by those who wish to compare the merits of competing tax proposals. Confusion results when we compare alternatives under different measuring scales.

[119] The sales tax is particularly susceptible to this confusion because state sales taxes are normally expressed on a tax- exclusive basis, while income, estate, and payroll taxes, as well as the Flat Tax and other VATs, are normally expressed on a tax- inclusive basis. If we were to express a sales tax rate as a percent of the product price as is done in the states, we would be unfairly overstating the burden of the tax when we compare it to what it is meant to replace at the national level. Or conversely, we would be greatly understating the relative burden of the federal income and payroll taxes for those who don't have time to learn the different measuring systems.

***

[129] In making comparisons between alternative taxing systems it is important to ensure therefore that these comparisons are consistent, fair in terms of expectations, and are well explained. Fair comparisons eliminate and do not exacerbate confusion over a relatively critical point as the means of expressing the tax rate. The only means to do so is to ensure that a tax-inclusive rate is compared with a tax-inclusive rate.

 

So let's drop the hogwash

Indeed!

For the income tax is expressed in tax inclusive measure, maintaining consistancy and clarity of what is being measured is of significant value thus demands the representation of the NRST in like terms for comparative purposes.

[Your Nightmare]

Dan Mastromarco is a shill for the AFT. If I'm not mistaken he helped write the FairTax. Not what I would call an objective opinion. What you hi-lited in your "cut & pastie" is wrong. I showed that in my post. You can't address the substance of my post so you post someone else's words? Pathetic.

[Your Nightmare]

AG, I have a serious question for you.

Have you ever received money from the Americans for Fair Taxation or any other group or individual promoting the FairTax?

[ancient_geezer]

Another reason for stating the NRST tax inclusive measures:

An interesting but little noticed federal regulation regarding federal excise taxes:

http://www.arnet.gov/far/current/html/Subpart_29_2.html

Subpart 29.2- Federal Excise Taxes

29.201 General. (b) Sometimes the law exempts the Federal Government from these taxes. Contracting officers should solicit prices on a tax-exclusive basis when it is known that the Government is exempt from these taxes, and on a tax-inclusive basis when no exemption exists.

The NRST is a excise levied by the national government, and does not exempt the federal government from paying said tax on its consumption purchases.

It is much more consistent to use tax inclusive tax rates with tax inclusive pricing as regards government purchasing.

Give bureaucrats an opportunity for error handing them a tax exclusive tax rates when he gets tax inclusive prices, its no wonder they have been known to pay $400 for toilette seats.

[ancient_geezer]

Have you ever received money from the Americans for Fair Taxation or any other group or individual promoting the FairTax?

I have voluntarily supported and advocated the NRST for many years with no pay or connection with AFFT or any other group.

However having said that, beginning two months ago I contracted to rent work space to the AFFT for use by their volunteers, as aid in their advocacy of the NRST. I am not a man swimming in money and cannot afford to let workspace without receiving a consideration.

Does this affect my support of them? no. I vociferously support the NRST and am much as I can I support the organizations who hold my common goals.

Does that answer your question? Just in case you are wondering, no my support of NRST is not predicated upon compensation from AFFT or anyone else for that matter. Quite the opposite, my aid to them is because they support the NRST.

[ancient_geezer]

Dan Mastromarco is a shill for the AFT.

LOL, anyone who supports or has anything to do with the NRST is a shill in your eyes. Doesn't say much favorable about you to use such terms however.

If I'm not mistaken he helped write the FairTax.

Actually I am not aware of an input to the writing of HR25 by Mastromarco I believe he may have had more to do with the earlier Tauzin NRST bill than directly with Linder's, but I would not be surprised to find out he contributed to HR25 more than just indirectly through Tauzin's efforts.

There are many participants in the project to research and draft HR25 including Alan Greenspan for that matter regarding transition matters.

From AFFT, A sampling of the founding research participants can be found below. I notice that Mastromarco's organization Argus Group is not listed among them:

http://www.harvard.edu/

http://www.heritage.org/

http://www.mit.edu/

http://www.nber.org/

http://www.io.com/~depr/

http://www.stanford.edu/group/decisions/

http://www.bu.edu/

http://www.cato.org/

 

What you hi-lited in your "cut & pastie" is wrong. I showed that in my post

LOL, in the sight of only your personal opinions I note. You show only a personal opinion that sales tax rates can be compared with sales tax rates in your post.

Consider your claim:

If you tell me your consumption rate is 70% (no matter what your salary) I can easily tell you that your effective tax inclusive income tax rate with a 29.87% tax exlusive sales tax is 20.91% (.7 * .2987)

Good now lets figure it all out, step by step, with complete tax exclusive terms for both systems

$100k, 4 member family, 70% consumption with respect to gross income for the income/payroll tax example given in #97 common base denominator being the base (taxless) price (i.e. consumption expenditure less embedded business tax burden)

gross income         = $100,000
individual taxpaid = $  20,606 = FICA + IncomeTax(from tax tables) = 0.0765*$100,000 + $12,956
consumption expenditure = $70,000 = (0.70*100,000)
base(taxless) price           = $54,250 = $70,000*(1-0.225)
embedded tax burden       = $15,750 = $70,000-$54,250
total taxburden                 = $36,356 = $20,606 + $15,750
savings/investment           = $  9,394

effective Income/Payroll tax exclusive rate = 67.015% = 100*$36,356/$54,250

For the 23% NRST with a family of 4 purchasing the same basket of goods and services:

gross income           = $100,000
base(taxless) price  = $ 54,250 = $70,000*(1-0.225)
FCA family of 4       = $   5,340
net taxpaid               = $ 10,864 = (0.2987 * $54,250) - $5,340
savings/investment  = $ 29,546

effective NRST tax exclusive rate = 20.025% = 10,864/54,250

---

Using tax inclusive calculations(adjusted for embedded tax burden & 70% consumption as above) we have

effective Income/Payroll tax inclusive rate = 36.356% = 100*$36,356/$100,000 (instead of 20,606/100,00)

vs

effective NRST tax inclusive rate = 10.864% = 10,864/100,000

---

Seems we have now accomplished what you have avoided doing so far, convert the tax burden of our family of 4 under the income/payroll tax system into fully into tax exclusive terms for l comparison.

It is obviously more reasonable to measure burden on a family as a percent of the total financial resource (of tax inclusive measures), than measuring burden as a percent of the taxless price of a fixed basket of goods(of tax exclusive measures.)

[Your Nightmare]

Another reason for stating the NRST tax inclusive measures:

An interesting but little noticed federal regulation regarding federal excise taxes:

Of course you left off (a) from your "cut & pastie" which says: "Federal excise taxes are levied on the sale or use of particular supplies or services." (You know, like gasoline.) So the NRST isn't really an "excise tax." And this isn't a law that says if the federal government pays it it must be expressed in inclusive terms. It only says "Contracting officers should solicit prices on ... a tax-inclusive basis when no exemption exists." That's "solicit prices", not the tax rate. Price x Tax exclusive NRST rate accomplishes this just fine.

[ancient_geezer]

"Federal excise taxes are levied on the sale or use of particular supplies or services." (You know, like gasoline.)

Are you telling me we this cannot apply to purchase and use of a specific item or service under the NRST for which the regulation was written?

And just why will it not be applicable to the very sepecific NRST to be collected on a bic pen? In meeting the obvious intent of the legislation Hmmmm?

So the NRST isn't really an "excise tax."

!!!!!ROTFLM(_|_O!!!!!

The courts and legal beagles will be amused to hear that excuse for why not to pay the NRST I'm sure.

A LAW DICTIONARY
by John Bouvier, Revised Sixth Edition, 1856:
EXCISES. This word is used to signify an inland imposition, paid sometimes upon the consumption of the commodity, and frequently upon the retail sale.

http://dictionary.lp.findlaw.com/scripts/search.pl?co=dictionary.lp.findlaw.com&exact=1&excise#excise

excise

['ek-'siz, -'sis]

1: a tax levied on the manufacture, sale, or consumption of a commodity
(compare income tax property tax) 2: any of various taxes on privileges often assessed in the form of a license or other fee
(see also Article I of the Constitution in the back matter)
(compare direct tax)

It only says "Contracting officers should solicit prices on ... a tax-inclusive basis when no exemption exists." That's "solicit prices", not the tax rate. Price x Tax exclusive NRST rate accomplishes this just fine.

That's "solicit prices", not the tax rate.

Hmmm, joe bureaucrat does his accounting and grabs your tax exclusive rate multiplies it times the tax inclusive price ...,

Yep the same error lewislynn, balrog666 and even you have tended to make when multiplying your tax exclusive rate * consumption expenditure in caclulating the amount of tax payable under the NRST. Yep!!! that is real smart.

We now have the prime example of the confusion factor inherent in applying tax exclusive rate in tax amount calculation, and why tax inclusive rates are the best choice of the two forms in which a tax can be expressed.

Tax inclusive rates express the portion of total that is tax. (the burden on that purchase)

Tax exclusive rates expresses the amount to still be added to a taxfree price.

When information concerning relative tax burdens is important to convey in percentage, the tax inclusive rate is superior.

Dan Mastomarko, LLM Argus Group:

[118] When considering the rate of a national sales tax, or any tax for that matter, one must always decide which of two distinct means of portraying this rate -- the "tax-inclusive rate" or "tax- exclusive rate" -- best expresses the tax burden. Which one we employ changes absolutely nothing in terms of the taxes that are actually raised or paid by the taxpayer under the taxing regime examined, in the same way that measuring a journey in inches or meters does not change the distance. However, how the rate is presented changes how the relative tax burden is perceived by those who wish to compare the merits of competing tax proposals. Confusion results when we compare alternatives under different measuring scales.

 

In the personal opinion of Your Nightmare: "Price x Tax exclusive NRST rate accomplishes this just fine."

For you maybe and those who wish to take advantage of the "Confusion results when we compare alternatives under different measuring scales. "

In debating the merits of the NRST, it is Indeed obvious why you insist on the use of tax exclusive rates to compare against the tax inclusive income/payroll tax system the NRST replaces.

[Your Nightmare]

Are you telling me we this cannot apply to purchase and use of a specific item or service under the NRST for which the regulation was written? And just why will it not be applicable to the very sepecific NRST to be collected on a bic pen? In meeting the obvious intent of the legislation Hmmmm?

You really are loosing it. A sales tax taxes everything, including Bic pens. An excise tax taxes a "particular supply or service," or only Bic pens or only pens.

---

!!!!!ROTFLM(_|_O!!!!!

Stop laughing. You're wrong. And, as usual, you selectively quote and hi-lite your "cut & pasties."

---

EXCISES. This word is used to signify an inland imposition paid sometimes upon the consumption of the commodity, and frequently upon the retail sale.

That's the commodity, not all commodities.

---

excise

['ek-'siz, -'sis]

1: a tax levied on the manufacture, sale, or consumption of a commodity
(compare income tax property tax)

2: any of various taxes on privileges often assessed in the form of a license or other fee
(see also Article I of the Constitution in the back matter)
(compare direct tax)

That's a commodity, not allcommodities.

The definition of commodity:

commodity

[ke-'mä-de-te]

pl: -ties
: a class of economic goods

esp
: an item of merchandise (as soybeans) whose price is the basis of futures trading

So Excise is defined as "a tax levied on the manufacture, sale, or consumption of 'a class of economic goods.'"

As opposed to a sales tax:

sales tax

: a tax levied on the sale of goods and services that is usu. calculated as a percentage of the purchase price and collected by the seller

"Goods and services" as in all goods and services.

So a sales tax on all consumption is not an excise tax.

!!!!!ROTFLM(_|_O!!!!!

---

Yep the same error lewislynn, balrog666 and even you have tended to make when multiplying your tax exclusive rate * consumption expenditure in caclulating the amount of tax payable under the NRST. Yep!!! that is real smart.

I didn't say consumption expenditure, did I? I said price! As in "usu. calculated as a percentage of the purchase price."

---

When information concerning relative tax burdens is important to convey in percentage, the tax inclusive rate is superior.

You want to talk about "information concerning relative tax burdens"? If it's important that a tax rate is relative to my tax burden, if I double the tax rate shouldn't the tax burden double? If you double the tax exclusive sales tax rate the tax burden doubles. That's because it's relative to the tax burden. What happens when you double the tax inclusive sales tax rate? (I await your pages of calculations.)

---

which of two distinct means of portraying this rate -- the "tax-inclusive rate" or "tax- exclusive rate" -- best expresses the tax burden.

Considering a sales tax is a tax on consumption and is added to the base, the tax exclusive rate.

---

However, how the rate is presented changes how the relative tax burden is perceived by those who wish to compare the merits of competing tax proposals.

That's exactly right. And that's why the AFT did focus groups and realized that when presenting the sales tax in inclusive terms people perceived their tax burden to be less than it actually would be, as has been demonstrated time and time again on this forum by people see the 23% and think that they would pay 23% more than the price of a product in taxes. It's easier to sell this dog a plan if people perceive that their tax burden would be less than it really would be.

---

For you maybe and those who wish to take advantage of the "Confusion results when we compare alternatives under different measuring scales. "

Me taking advantage of confusion under different measuring scales? Two words: glass houses. As I've already shown, the tax exclusive sales tax rate scales exactly with the tax burden and the effective inclusive income tax rate. If you change the tax exclusive sales tax rate up 50%, the tax burden and effective inclusive income tax rate go up 50%. That's not true with the tax inclusive sales tax rate, so who's taking advantage of confusion? Virtually everyone who is told about the 23% sales tax rate is confused about how much their actual tax burden would be.


Drop it. You've lost this argument.

[William Terrell]

I'm so tired of taking up a lot my time to research the snippets you post only to find that they are either heavily edited or off point.

I noticed you didn't address at all the other paragraph of Federalist #39 you did not post, which changed the communication of the part you did post.

The NRST imposed on the states is done in a manner and is inforced in a manner which violates all previous behavior in the state/federal relationship.

This is the truth, and all your pasties will not change it. Your pasties look good until one takes the time to trace them. But you are counting on no one wanting to take the time and effort to trace them, aren't you.

Incidently, did you people end up refuting this article? It's pretty good mathmatical proof, if a bit complicated, that the NRST rate will be as high as 100%.

Not on the thread you didn't, in spite of the impassioned plea to do so. Matter of fact most NRST partisans avoided it like the plague.

What happens, geezer, if the tax plan is implimented and the effective rate ends up 50% t0 100%? Will you be out to appoligize to the folks you partisanized, or wil you vanish?
http://www.freerepublic.com/focus/f-news/1115410/posts

[ancient_geezer]

? I said price! As in "usu. calculated as a percentage of the purchase price."

Saying is not the issue, it is the erroneous use in examples of tax exclusive rates as regards price for products as they exist today without adjusting for the embedded business income & payroll taxes that are repealed by the NRST.

A prime confusion arises in mixing tax inclusive rates with prices that include the taxes repealed by the NRST, of which you, lewislynn, and many others have been more than happy to try to exploit inflating the amount of NRST to be paid for defined product.

In so doing you take advantage of people's confusion over the difference between tax rates as regards income and SS/medicare taxes, and taxes on base prices free of the tax burdens repealed.

---

 

That is why I have repeatedly requested that you derive the effective tax exclusive rate in regard to base(taxfree) price for income/payroll tax system tax exclusive rate.

Something which you have never done, and now has been demonstrated for you as an example of how using tax exclusive terms inflates percentage measures in such a way as to improperly represent relative tax burden on family resources.

In that calculation we compare the two systems for conditions you have selected for our example case:

$100k gross income, 4 member family, 70% consumption with respect to gross income for the income/payroll tax example given in #97, common base denominator for comparison being the base (taxless) price (i.e. consumption expenditure less embedded business tax burden)

 

effective tax exclusive tax rate comparison on base(taxfree) price

gross income         = $100,000
individual taxpaid = $  20,606 = FICA + IncomeTax(from tax tables) = 0.0765*$100,000 + $12,956
consumption expenditure = $70,000 = (0.70*100,000)
base(taxless) price           = $54,250 = $70,000*(1-0.225)
embedded tax burden       = $15,750 = $70,000-$54,250
total taxburden                 = $36,356 = $20,606 + $15,750
savings/investment           = $  9,394

effective Income/Payroll tax exclusive rate = 67.015% = 100*$36,356/$54,250

For the 23% NRST with a family of 4 purchasing the same basket of goods and services:

gross income           = $100,000
FCA family of 4       = $   5,340
base(taxless) price  = $ 54,250 = $70,000*(1-0.225)
net taxpaid               = $ 10,864 = (0.2987 * $54,250) - $5,340
savings/investment  = $ 29,546

effective NRST tax exclusive rate = 20.025% = 10,864/54,250

---

effective tax inclusive rate comparisons based on gross income (adjusted for embedded tax burden & 70% consumption as above) we have

effective Income/Payroll tax inclusive rate = 36.356% = 100*$36,356/$100,000

vs

effective NRST tax inclusive rate = 10.864% = 10,864/100,000

 

As can clearly be seen, the inclusive rate comparison best represents what people normally perceive and economists always use when discussing tax burdens of the income/payroll tax.

To attempt to use tax exclusive representations for purposes of comparing tax burdens on a family's resources of alternative tax systems is misleading at best, and outright disengenuous in your attempts to state the NRST in tax exclusive terms without your also showing the current system using the same denominating factor, base(taxless) price.

Comparison of percent added to base(taxfree) price (tax exlusive measure):

The Income/Payroll tax system's 67.015% added to base(taxless) price for consumption products of $54,250.

vs

The NRST tax system's 20.025% added to base(taxless) price for consumption products of $54,250.

Note the inflated value of the tax rates above when computing percent added to price,

relative to the comparison of percent burden on family resources (tax inclusive measure) for

The Income/Payroll tax system's 36.356% burden on gross family income of $100,000

vs

The NRST tax system's 10.864% burden on gross family income of $100,000

Note the magnitudes are are also in the range of what most perceive as their income/payroll tax burden and does not distort ones conclusion in favor of the NRST even if one were to naively and erroneously compare the 23% marginal rate of the NRST with income/payroll tax system's marginal bracket rates as a representative of relative burden of the two systems.

 

Therein lay the basis for using tax burden on resource (tax inclusive measure) as the superior measure to be used in comparing the alternative tax systems.

Not only does tax inclusive measure allow an apples to apples comparison of income payroll tax rate with the NRST tax rate, alleviating problems of naively or erroneously comparing tax inclusive measure with tax exclusive rates, the magnitudes do not give an inflated picture of tax burden for either system.

However, for me it is very obvious that your desire is more to use confusion of tax measures and inflate the appearence of the magnitude NRST burden (without providing the corresponding rate of the current system) as your means to improperly present the impact of the NRST in comparison to the impact of the Income/Payroll tax system.

Drop it. You've lost this argument.

Judging your own case again NY, tacky tacky.

I leave it to the readers of our commentary to make the judgment.

[ancient_geezer]

So a sales tax on all consumption is not an excise tax.

Only in your self serving personal opinion.

However, in legal terms and legal incidence, which is what counts in determining the meaning of the terms of art used in the legislative languange of H.R.25 to impose the NRST:

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.

Written clearly for the courts, administrator/bureaucrats to identify the legal nature of the class of tax as belonging to the general class of excises of which sales taxes are but one of many specific specific taxes included within the classification of excise taxes.

http://dictionary.lp.findlaw.com/scripts/search.pl?co=dictionary.lp.findlaw.com&exact=1&excise#excise

excise

['ek-'siz, -'sis]

1: a tax levied on the manufacture, sale, or consumption of a commodity
(compare income tax property tax)

2: any of various taxes on privileges often assessed in the form of a license or other fee
(see also Article I of the Constitution in the back matter)
(compare direct tax)

 

A LAW DICTIONARY
by John Bouvier, Revised Sixth Edition, 1856:
EXCISES. This word is used to signify an inland imposition, paid sometimes upon the consumption of the commodity, and frequently upon the retail sale.

as used in:

Constitution for the United States of America:

• Article VI: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."

• Article I Section 8: "The Congress shall have power to lay and collect taxes, duties, imposts and excises,
  to pay the debts and provide for the common defense and general welfare of the United States;
  but all duties, imposts and excises shall be uniform throughout the United States; "

 

Don't give up yet however, we need more participants and readers to keep this thread alive.

!!!!!ROTFLM(_|_O!!!!!

[ancient_geezer]

Incidently, did you people end up refuting this article? It's pretty good mathmatical proof, if a bit complicated, that the NRST rate will be as high as 100%.

Not on the thread you didn't, in spite of the impassioned plea to do so. Matter of fact most NRST partisans avoided it like the plague.

Bloviating as usual Terrel.

I suggest everyone go read that thread

FairTax-ers, Help me pick this FairTax Counterargument Apart

on the the very liberal Brookings Institute article written by Gale as a hit piece on the NRST hyperlinked above. It is interesting to note the affiliations of such opponents to the NRST.

Not only was the thread well participated in by many NRST advocates the article was clearly refuted through contributions of Taxman, myself and those others NRST advocate participating.

To be noted of course one will find the usual crowd in agreement with the liberals at Brookings Institute, quoting the usual spew of the ever so authortive pronouncement of doom form the Demcrats on the subject of tax reform and NRST specifically.

For brevity, the major contributions of Taxman, along with comment of my own as well on that thread:

In my "stack of stuff, I found an unpublished memorandum authored by Dr. Laura Dale, PH.D., [then] Vice President and Director of Research of Americans for Fair Taxation in response to William Gale's 1998 Brookings Institution Policy Paper and Policy Brief.

"This memorandum responds to the paper entitled "An Evaluation of a National Sales Tax" written by William Gale of the Brookings Institution.[1] Gale also recently posted a shorter policy brief "Don't Buy the Sales Tax" (no. 31) on the Brookings Institution web site.[2]

In many respects, Gale's paper is a personal bill of particulars, a lengthy opinion, on why he believes a sales tax could not be enacted. The paper does not represent an impartial, critical analysis of either the FAIR TAX proposed by the Americans for Fair Taxation, of the Schaefer-Tauzin proposal, and therefore fails to contribute in a meaningful way to the tax reform debate.

"Gale: However, adjusting those proposals for the possible non-taxation of some government purchases, sales and investments, the possible non-taxation of some private consumption, plausible rates of tax evasion, the need to convert state income and sales taxes to conform with a NRST; and transition costs suggests that the required rates would exceed 50 percent and quite possibly 60 percent on a tax-exclusive basis (Policy Paper 2/17/98, page 52). Cutting the base like this would raise the required rate to 67 percent. (Policy Brief 31, page 2).

"This assertion is erroneous. FAIR TAX base is all consumption. Using 1995 figures (as Gale does), according the Department of Commerce National Income Product Accounts (NIPA) consumption is 84 percent of the Gross Domestic Product (GDP). Investment accounts for the remaining 16 percent. Consumption ($6,061) plus investment ($1,193) equals GDP ($7,254), using 1995 figures.

"In 1995, Fair Tax would replace $1,274 of income, payroll and estate and gift taxes equal to 17.56 percent of GDP. 17.56 percent divided by 0.836 (the share of GDP that is consumption) is 21.0 percent. Similarly, $1,274 in replaced taxes divided by consumption of $6,061 is 21.0 percent.3 It is patently absurd to assert, as does Gale that a sales tax that (1) raises revenue equal to 17.6 percent of GDP and (2) because it taxes all consumption, has a tax base equal to 84 percent of GDP, must be set at rates anywhere near the 50 or 60 percent that he claims.

"It is, of course, true that NIPA consumption expenditures and FAIR TAX sales tax base are not identical. Some adjustments increase FAIR TAX base relative to NIPA consumption and some adjustments reduce FAIR TAX base relative to consumption. Using 1995 data, FAIR TAX sales tax base was 95.3 percent of NIPA consumption. Ergo, FAIR TAX revenue neutral tax rate (before the rebate) would be 21 percent (tax exclusive) NOT 50 or 60 percent. If the rate were converted to an income tax or flat tax equivalent rate (i.e. a tax-inclusive rate) then it drops to 17.4. The cost of the rebate increases it back toward the 23 percent that is incorporated into FAIR TAX bill.

"Gale's estimate is widely inconsistent with those of many respected researchers. For example, Dale Jorgenson (Harvard) has found that FAIR TAX plan is revenue neutral at 22.9 percent.[4] Jim Poterba (MIT) has found that FAIR TAX plan is revenue neutral at 23.1 percent.[5] Laurence Kotlikoff (Boston University) found that the revenue neutral tax rate was 24 percent.[6]

"Researchers at Stanford, the Heritage Foundation, Fiscal Associates and the Cato Institute have reached similar conclusions (22.3 percent to 24 percent).

[Footnotes]
"1. This paper is marked "Very Preliminary Draft, Not for Quotation" although the shorter version of it has nevertheless been posted at the Brookings web site.
2. The E-Mail from Brookings announcing the posting was received March 10, 1998.
3. All data is from the February, 1998, Economic Report of the President or from the August, 1996, Survey of Current Business.
4. See, The Economic Impact of the National Retail Sales Tax, Dale W. Jorgenson.
5. Letter to Americans for Fair Taxation, April 4, 1997.
6. See Replacing the U.S. Federal Tax System with a Retail Sales Tax -Macroeconomic and Distributional Impacts."

In addition, I have in my possession the Joint Committee on Taxation of the House Ways and Means Committee memorandum (dated April 7, 2000) FRom Lindy L. Paul to John Buckley. The subject is "Budget Neutral Tax Rate for H.R. 2525."

The subject is all you need to know -- the legislation is scored as "Budget" neutral vice "Revenue" neutral.

[This memo is very similar to the one that Rep. Charlie Wrangle and his Demoncrat cohorts trotted out at the HW&M FAIR TAX Hearing in April, 2000.]

The FAIR TAX is only required to be revenue neutral, not budget neutral. Congress requires tax legislation to be revenue neutral, not budget neutral. A budget neutral NRST would require a higher tax rate.

Gotta watch these CongressCritters and their hired guns carefully! They do not always speak the language one thinks one is hearing.

45 posted on 04/11/2004 7:36:06 PM MDT by Taxman (So that the beautiful pressure does not diminish!)

along with amplification and a few links to reference material,

From Cato Policy Analysis, 727
by David R. Burton and Dan R. Mastromarco

David R. Burton (J.D. University of Maryland) is a partner in the Argus Group, a Washington-based law and public policy firm. Dan R. Mastromarco (LL.M. Taxation, Georgetown) is a partner in the Argus Group and an adjunct professor at the University of Maryland, International Management Program.

An confirming and independant analysis of the Fairtax NRST rate was done with updated information based on 2001 tax revenue data:

(You will need to have the Adobe Acrobat Reader installed to view these documents. To download the free PDF reader, click here)

An Economic View of the FairTax Proposal
http://www.fairtax.org/pdfs/Farm%20Bureau%20FairTax%20Analysis.pdf

Ross Korves, Senior Economist
Economic Analysis Team
American Farm Bureau Federation
December 1, 2003

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Mr. Gale has asserted:

This paper draws together several issues relating to a NRST and shows that the tax rates
quoted above are based on a series of problematic assumptions.

First, the rates quoted above require either large reductions (on the order of $300-$500 billion per year) in the real size of government spending, or similar-sized increases in the deficit (or reductions in the surplus).

In order to pass congressional muster, any tax bill must be "revenue neutral", (i.e is not required to meet a budgetary target, only provide the same revenue as the tax law it proposes to replace.) which the NRST plans have been shown to achieve.

This original analysis done for in CATO, based on 1995 tax law and revenues, shows the NRST will provide the necessary revenue that the Budget Enforcement Act requires for the first year "REVENUE" neutrality required by law.

Revenue neutrality is the requirement, and revenue neutrality is the basis of the tax rate expressed for the NRST. Mr. Gale's budget projections become meaningless as being based merely on a wishlist of the Clinton Administration's(1995) budget and nothing more.

The NRST replaces tax law, and provides the same revenue as the income/payroll taxes it replaces. That is what is required and that is what it has been shown to do.

My estimates show that holding the real size of government

Mr. Gales estimates assume a "$300-$500 billion per year" increase of the Clinton adminstration budget which he holds "constant" only in the sense that its rate of increase is unchanged and has nothing to do with the requirements of the BEA, and the tax law the NRST replaces. If there were to be a "$300-$500 billion per year" shortfall under the NRST, then of necessity there will also be a "$300-$500 billion per year" shortfall under the 1995 income/payroll tax law as well.

Budget neutrality, is the strawman that Mr. Gale wants to introduce here,especially as regards some arbritrary and unspecified budget, is not an issue in enacting any replacement tax. Thus there is no requirement for a "35 percent tax-inclusive sales tax rate" and in fact such a rate would be preposterous, as the 1995 federal effective total federal tax rate would have to be greater than 35% to meet the same budget that Mr. Gale would have the NRST finance.

Effective Total Federal Tax Rate (Percent of gross income)
Income Category	1977	1979	1981	1983	1985	1987	1989	1991	1993	1995	Projected 1999
All Families	22.8	23.4	23.5	21.4	21.8	22.6	22.5	22.6	23.5	24.7	24.2

Data from IRS collections statistics and The Bureau of Economic Analysis as compiled in tabular form by the Congressional Budget Office.
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

 

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Second, the proposals make the incredibly optimistic assumptions that, under a national retail sales tax, there would be no erosion of the statutory tax base for political, economic, or administrative reasons, no tax avoidance behavior (legal behavior that reduces taxes), and no tax evasion (illegal behavior that reduces taxes).

Not true at all, in fact quoting the CATO article as regards the underground economy (tax avoidence behavior) and tax evasion are evaluated and held to be of similar and less than that which is found under the current tax system for substantive and obvious reasons, when actual comparison between the current system and the NRST is actually made.

"Moreover, many of the problems regarding the underground economy that are problematic under the income tax would remain, particularly those involving cash transactions made with the explicit intent of evading taxation.

Nonetheless, the problem of evasion would be manageable under an NST as the costs of compliance shrank and hostility to the tax system declined. Because of lower marginal tax rates, the benefit from lawful tax avoidance or illegal tax evasion will be less at the margin relative to either the present system ^[20] or competing alternative tax systems such as the USA tax ^[21] proposed by Senators Domenici and Nunn, which all have higher marginal tax rates. ^[22] Research has confirmed the intuitively obvious relationship between higher tax rates and higher rates of evasion. ^[23] Lower rates, all other things being equal, imply lower evasion because the benefit from evasion declines while the costs of evasion remain comparable. ^[24]

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Bottom Line, for the CATO report

Calculating the Tax Rate

In the previous section we defined the total consumption tax base for the national sales tax in calendar year 1995 as $5,978 billion. Now we ask, What rate of sales tax would need to be imposed to collect the same amount of revenue that was gathered from the income tax? Table 2 shows the total amount of federal revenues collected from taxes that would be replaced with the national sales tax. In fiscal year 1995 those revenues amounted to $803 billion ($1,293 billion if payroll taxes are also included).

Putting together the information in Tables 1 and 2, we discover that an NST with no rebate could collect the same amount of revenue ($803 billion) as the current income tax regime with a tax inclusive rate of 11.8 percent, as shown in Table 3. This tax inclusive rate with a rebate to fully protect the poor from the tax (as discussed below) would bring the rate to 14.2 percent. Throughout this study we use a rate of 15 percent, [HR 2001] which would offset any losses from tax avoidance beyond the amount that occurs with the current income tax.

Table 2
Tax Revenues to Be Replaced by National Sales Tax, 1995 (billions of dollars)

Income tax		$759.9
Estate and gift taxes		15.1
Excise taxes (estimated)		28.0
Subtotal		803.0
Payroll taxes		490.3
Total		$1,293.3
Source: Federal Receipts, Analytical Perspectives, FY 1997 Budget of the United States Government. Calendar year basis.

Table 3
Calculation of National Sales Tax Rate

		Tax Base (billions)	Revenues to Be Collected (billions)	Tax Rate (tax exclusive)	Tax Rate (tax inclusive)
No rebate,
excluding payroll taxes		$5,978.2	$ 803.0	13.4%	11.8%
With rebate,
excluding payroll taxes		4,841.1	803.0	16.6	14.2
No rebate,
including payroll taxes		5,978.2	1,293.2	21.6	17.8
With rebate,
including payroll taxes		4,841.1	1,293.2	26.7	21.1
Source: National Income Product Accounts, Survey of Current Business, August 1996; Federal Receipts, Analytical Perspectives, FY 1997 Budget of the United States Government.

 

The 23% tax inclusive rate [HR 2525] would offset any losses from tax avoidance beyond the amount that occurs with the current income/payroll tax system.

48 posted on 04/11/2004 11:30:43 PM MDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)

[William Terrell]

I don't see a refutation. It see a battle of opinions enshrouded in opaque terms. Taxman responded to actually very little of the article. I'm waiting to see a step by step refutation of the math. as opposed to, revenue neutral? Really.

I invite you to know that anything sold using lies (23%) and misdirection through loaded labels ("fairtax") and simple claims followed by opaque "explanations", and demonization by association is the first red flag.

I repeat, geezer. If the NRST is implemented and it ends up being (surprise!) much worse than advertised, will you be around to apologize? I don't think so.

I'll give you the benefit of the doubt: you're are being had and used.

[Your Nightmare]

Ahh... the King of the "Cut & Pasties" strikes again.

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.

Nope. Nothing there about taxing a class of economic goods.

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EXCISES. This word is used to signify an inland imposition, paid sometimes upon the consumption of the commodity, and frequently upon the retail sale.

So? An excise is frequently paid on the retail sale of a class of economic goods, like gasoline excise taxes. What's your point?

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Constitution for the United States of America:

• Article VI: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."

• Article I Section 8: "The Congress shall have power to lay and collect taxes, duties, imposts and excises,
  to pay the debts and provide for the common defense and general welfare of the United States;
  but all duties, imposts and excises shall be uniform throughout the United States; "

So it's in the Constitution that the government can tax a "class of economic goods." Why is this relevant? Oh, that's right. You post irrelevant quotes from the Constitution and people are suppose to think you know what you're talking about.

If you want an indication if a sales tax is an excise tax, go straight to H.R. 25:

SEC. 302. ADMINISTRATION OF OTHER FEDERAL TAXES.

(a) In General- Section 7801 (relating to the authority of the Department of the Treasury) is amended by adding at the end the following:

`(d) Excise Tax Bureau - There shall be in the Department of the Treasury an Excise Tax Bureau to administer those excise taxes not administered by the Bureau of Alcohol, Tobacco and Firearms.

`(e) Sales Tax Bureau - There shall be in the Department of the Treasury a Sales Tax Bureau to administer the national sales tax in those States where it is required pursuant to section 404, and to discharge other Federal duties and powers relating to the national sales tax (including those required by sections 402, 403, and 405). The Office of Revenue Allocation shall be within the Sales Tax Bureau.'.

If a sales tax is an excise tax, why do they need a Sales Tax Bureau and an Excise Tax Bureau?

Give it up, Ahab, or you'll go down with the whale.

[spodefly]

The Fair Tax Act (H.R.25), introduced by Georgia Congressman John Linder ... Fair Tax has been introduced in the Senate as S. 1493 by Senator Saxby Chambliss (R-Georgia) and cosponsored by Senator Zell Miller (D-Georgia).

If it weren't for Georgia, the U.S. would suck.

(runs ... hides)

[ancient_geezer]

What happens, geezer, if the tax plan is implimented and the effective rate ends up 50% t0 100%?

Seeing that the Linder/Chamblis bill,

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.

Refer for additional information: http://www.fairtax.org & http://www.salestax.org

is structured to not even impose a federal tax at a margin rate of 23% on gross income, not to mention the much lower effective rates on annual expenditure. Illustrated by examining the federal tax burden that a family of four will have under HR25.

A bill that will be withdrawn by its sponsors long before it could be modified to do anything more.

Will you be out to appoligize to the folks you partisanized, or wil you vanish?

I am not worried at all concerning the mythical tax described by William Gale senior fellow of Brooking's Institute to compute an irrelavent opinion piece for democrats to scare monger with.

I be happy to not only appologize, but provide the rope and scaffold to hang me with if the effective federal tax rate on gross income exceeds 23% under HR25.

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You really figure that any Congress Critter is foolish enough to pass a single rate visible tax that could hit the entire electorate with an "effective" federal tax rate on gross income over 23% and survive the lynchings?

If so I've got a hunk of ocean side property out here in Colorado to sell you. UN & Brookings Institute's estimates of the effects of Global Warming assure such will be great for its surfing potential soon. Get in while you still can, prices of safe un-flooded land are likely to sky rocket soon.

[William Terrell]

. . .if the effective federal tax rate on gross income exceeds 23% under HR25.

It already is more than 23%; it is 29.9%. You should not buy any program that has to use lies to sell it.

[Middle Man]

Anything emanating from the halls of Congress will be neither "bold" nor "permanent". Change will only occur when enough people stop paying the tax that the feds admit they can no longer extort it due to our numerical superiority.