Posted on 11/21/2004 12:10:21 AM PST by Remember_Salamis
MN Rep. Pushing National Sales Tax
Nov 15, 2004 10:27 am US/Central Minneapolis (AP)
Rep. Gil Gutknecht is pushing legislation that would replace the federal income tax with a national sales tax.
"Think of a world where there is no income tax, where you get to keep everything you earn and you pay the tax man when you buy stuff," Gutknecht, R-Minn., told the Star Tribune of Minneapolis.
Legislation co-sponsored by Gutknecht would scrap federal income taxes and replace them with a 23 percent federal sales tax (in addition to existing state taxes.)
Gutknecht, a member of the House Budget Committee, said he's "moved from a lukewarm fan to a fanatic" supporter of a national sales tax.
"First of all, it eliminates the IRS as we know it," he said. "That is a huge advantage. It simplifies things just enormously."
Gutknecht is one of more than 50 co-sponsors of the Fair Tax Act of 2003, which is sponsored by Rep. John Linder, R-Ga.
Under the plan, all goods and services would be taxed at 23 percent. There would be no exemptions, including for food and medical expenses, but some low-income people would be eligible for monthly tax rebate checks. An identical bill has been introduced in the Senate by Saxby Chambliss, R-Ga.
President Bush, who argues that the tax code is too complicated, says he will appoint a commission to study how it should be changed.
It's uncertain what will emerge, but tax experts say there are many options for simplification, including the creation of a flat income tax or a value-added tax on production or simply tweaking the existing code.
With Republicans increasing their majorities in the House and Senate, some changes are all but certain, said Bill Raabe, tax professor at Ohio State University's Fisher College of Business.
"If it's ever going to happen, now's the time," he said.
Some Democrats argue that a national sales tax would be regressive.
Sen. Mark Dayton, D-Minn., said such a tax would benefit wealthy Americans.
"Taxing consumption in an economy that is driven by personal consumption is a bad policy idea," said Dayton.
"It's clearly a regressive tax," said Rep. Martin Sabo, D-Minn. "You can put some credits in and probably alleviate some of the problems at the very bottom, but it ends up being a significant shift in taxes, if not to the very bottom (then) to the middle."
Minnesota Sen. Norm Coleman, a Republican, said he likes the simplicity of a flat tax. But he said he wanted to see what the presidential commission comes up with before endorsing a national sales tax.
"Do I really want to pay a third extra for everything I buy?"
-- Do you really want to take home 1/2 more? Do you spend 100% of your income on goods and services (probably not)?
You only pay the 23% NRST on money spent on consumption of NEW goods, not savings, education, or used goods (including homes and cars). You also get a "pre-bate" every month that makes the NRST progressive. the "pre-bate" makes all purchases up to the poverty line for ALL Americans tax-free!
After all that, you'll probably pay a 10 - 15% tax bill. Of course, if you;re the type that likes to blow their money on brand-new cars every year and expensive clothes and jewelry, you'll pay more than others.
This is a consumption tax. It would dry up the economy because people wouldn't spend. It is way too high and that doesn't count city and state taxes. BAD IDEA.
Unfortunately, true tariffs just aren't fesible with a $2.2T budget!
But you'll be happy to know that the NRST does in fact function as a tariff, here's how:
All taxes are removed from the production process except for the 23% that's tacked on at the sales counter. However, foreign goods sold here have their nation of origin's taxes embedded into the cost of their goods. This makes domestic items much more competitive too. The opposite works as well when American exporters are completely UNTAXED!
If the designers of this bill told Americans that the FairTax Act would end outsourcing, among other things, it would have been passed already...
There have been several posts here commenting about the regressive nature of this tax, questioning why it is so high and commenting on the affects it would have on consumer behavior and inflation. There are the exact right queries to pose.
To answer the first question, the size of the tax is, in fact, based on the idea that replacing income taxs must be revenu neutral for the government. So, the comment that there is already a hidden 23% tax on what you buy is misleading (because the tax is on what you earn) but a good enough explanation for non-financial experts.
With regard to inflation, there is a bit of controvery here. All things being equal, this should not spark inflation. Although the price of goods do, in fact rise considerably, in theory an equivalent rise in spending power (due to lower income tax) should counterbalance this. I am not sure this will really be the case.
As far as the regressive nature is concerned, unless provisions are made to compensate the very poor for their necessity purchases, this tax will ensure the loss of the Republican majority due to a huge backlash because it is incredibly regressive.
However, it does widen the tax base and will, in fact, reduce consumer spending. Although the US counts on consumer spending for the vast majority of its economic activity, right now it is too high. The huge current account deficit is a result of unrestrained spending fueled by cheap credit. Ameicans need to save more and need to start doing it quickly, or the country will soon be bankrupt and unable to invest in the future.
All of the Bush adminstration suggestion (bar tax cuts) have focused on increasing savings/investments. It is something all economists agree is necessary, regardless of political affiliation.
The NST will essentially make much of taxation voluntary. If you want to live like a wealthy Spartan at least you have the choice.
To sum this story up simply, Elected pigs will bait and switch. Rob Peter and place Liens against Paul.
Shut down the Alphabet Channels (ABJazerra & Her Sister Stations)!
Vote with your Remote!
But, I Have A Plan
Zippo Hero
Seven Dead Monkeys Page O Tunes
Actually, under this plan nobody pays taxes up to the poverty line ($25K for a faily of 4).
Also, you can pay an effective 13% rate if you want. Remember, the 23% Fair Tax is progressive because EVERY AMERICAN recieves a "pre-bate" that pays for all consumption up to the poverty line.
For a family of four, they would be untaxed up to $25,000, the poverty line. They would pay a 0% tax rate if they spent 100% of their income on taxable items (NEW goods and services). If they saved anything, they would pay a negative tax rate.
If the same family made $50k, they would pay an 11.5% tax rate if they spent 100% of their income on taxable items. A family of 4 making $100k would pay a 17.25% tax rate under the same circunstances, etc.
So the Fair Tax National Retail Sales Tax is Progressive, making it the first fefasible federal sales tax ever proposed. But it does more: you can control your own tax rate by saving more or buying used goods.
If you have a problem with progressive tax policy, no problem. Because in reality, the NRST is actualyl flat because savings rates tend to increase as one moves through the upper middle class (they tend to level out when you get to the Heinz-Kerry crowd). So when factoring in (1) a progressive EFFECTIVE sales tax rate with (2) a progressive savings rate, you have a totally flat sales tax!!! No progressivity and no regressivity, in theory at least. A millionare may choose to spend all his income on goods and skew the results, for example. But, it is at NO point regressive.
But my point to you is: YOU CAN DECIDE YOUR OWN TAX RATE!
differing tax rates betwee nstates fosters competition; it's a good thing! States with lower taxes get more business, hense encouraging lower tax rates. In the EU, they hve what are called "harmonized" tax rates, which stamp out a lot of competition.
I'll admit that I haven't run the numbers (and, no, I don't buy a new car every year -- my current car is a '97 and paid for).
I guess my reaction to this is negative because I distrust that it would work out the way it's described as they're trying to sell it to us. No new taxes on a used car? Maybe not when this is implemented; we pay close to 10% on used vehicles in my state. Do I trust that we wouldn't start getting taxed on these things in the future? No.
It seems that politicians will go and put taxes wherever they can find a place to add them in. Sales tax, use tax, excise tax, property tax, luxury tax, and for now, income tax.
Color me skeptical.
This article is biased against the sales tax. HR 25 The Fair Tax, is in the House right now. It replaces ALL federal taxes, including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.
Under the proposed plan you'll recieve a rebate check each month to cover the tax on spending up to the poverty level.
Some say 23% is high, you're paying that much or more today, it's just hidden from view. Taxes should be clearly visible.
A national sales tax replacing all the federal taxes would be a boon to the economy. Savings and investment would no longer be taxed. Think about it folks, people would be encouraged to save their money, and put it into income producing assets instead of spending it on junk. If you think America's economy is strong now you ain't seen nothin yet.
It would be a great thing for this country, and i'm hoping it'll happen.
It can be an exemption for food and medical if you want. What the geniuses behind the plan did was instill a "prebate" that every American will get to pay for taxes up to the poverty line. If oyu want to spend that money on medical or food, be my guest.
But by putting in exemptions, you leave the entire system open to distortion by Congress Critters and lobbyists. Besides, why should the healthy be punished for not being able to take advantage of a medical examption, for example?
If you're buying a 32,000 truck you're either not middle class, or you don't know how to set a budget. If they didn't take out federal income taxes, I'd have an extra 900 to spend every month. That goes a long way. I don't think they should tax food and medical though. The medical would kill me.
We paid out the @ss for FICA and personal income tax from the 70's to the present day, and after we got our little pile of pennies together to retire on, you're going to come back for yet another bite so Fortune 500 companies can stop paying corporate income taxes and billionaires can avoid capital-gains and inheritance taxes?
Try another one.
"encouraging lower tax rates"?
Huh? Ours is in the top three highest of all states (and if a recent initiative had passed, we would be THE highest in the US). It's crept steadily upwards in the 15 years I've lived here. The low (or zero) rates of our neighboring states don't seem to encourage lower taxes at all. If you read my earlier post, it encourages the enforcement of our in-state taxes, effectively nixing any "competition".
"To desensitize you for when they jack it up to 35%, then 45%, then 60%.
Be wary of the Kool-Aid drinkers. They know not what they do."
-- Just like they can "jack" up the current income tax to those levels? Come on man. If you need information on the FairTax, I can help.
We should be so lucky. Instead, it's J. Pierpont Morgan at the controls, and he's calling for 21 knots and screw the ice warnings.
(Morgan was half-owner of the White Star Line.)
I don't think this national sales tax is going to work for one very simple reason: its entire premise is that everyone will spend every dime they make.
Everyone keeps talking about how we're already paying 23$ tax, which is why we can't complain about a 23% sales tax. Well, let's presume that someone only spends 50% of their income. If their annual wage was $50K, then previous income tax would have been $11,500. But if they only spend a portion of what they make, then their tax will be $5,750.
Sounds wonderful, right? Wrong. This will create a tax revenue shortfall and will immediately result in an appreciable percentage hike in the national sales tax (probably up to 35% or higher). This in itself will start a vicious cycle in which purchases will go down, tax coffers will start to run dry, and tax hikes will ensue further. This has been played out countless times over the past decades with the various "sin taxes" on liquor, tobacco and so on. Whenever taxes get raised on products, demand goes down and tax revenues dry up. It's simple reality.
Sorry...it doesn't matter how much lipstick folks put on that pig, it ain't any prettier.
Got a small business you'd like to stop paying taxes on, eh?
Yup. Only worse.
Don't think so? You're kidding yourself.
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