Posted on 12/01/2004 8:25:22 AM PST by Tumbleweed_Connection
...President Bush and House Speaker Dennis Hastert (search) have both said the idea of a national sales tax deserves a serious look. For many, the idea of a world without the Internal Revenue Service is very seductive.
"We spend about $400 billion a year complying with the tax code. We spend $200 billion a year just filling out IRS paperwork," said Rep. John Linder (search) , R-Ga., who has proposed a bill that would create a national sales tax.
Proponents have spent millions on research and have concluded that a national sales tax can replace the income tax, payroll tax, estate tax and corporate tax. Advocates say the new tax would lower the cost of manufacturing and job creation and attract foreign investments, among other things.
"If we were to get rid of the sales or the income tax and the payroll tax and all compliance costs, we would be so ferociously competitive in a world economy that corporate America would not be competed with unless foreign corporations started building their plants in America," Linder said.
Proponents seek a 23-cent national sales tax on all retail goods, everything from groceries to clothes, cars to electronics. Everyone would pay the same rate, which critics argue is part of the problem.
"If you consume $40,000 a year and you make $50,000 a year, would you feel it is fair if a guy who made a half a million dollars a year but spent $40,000 a year paid the same tax you do? I think you wouldn't feel it's fair," said Buck Chapoton, former assistant treasury secretary.
(Excerpt) Read more at foxnews.com ...
I'd like to know more about this. In principle, I like the idea.
What a stupid argument, people that make half a million a year do not limit their spending to $40,000 - jackass should be fired from his job for even suggesting something so outlandishly ignorant
Does anyone know if this has been introduced as a bill yet? Number?
23cents?
man, that seems verrrrry high???
so they're throwing out the Social Security tax too...
I thought I read somewhere that a 10-15 national sales tax would cover it.
Sounds like the average person would have to consume 23 percent less. How will that help our economy?
FLAT TAX!!!!!!!!!!!!!!!!!!!!!!!!!!
Sales tax SUCKS HARD!!!!!!!!!!!!!!!!!!
Go take a look at Canada- they HATE IT WITH A PASSION
If they are referring to the Fair Tax, it is a 30% national sales tax. 23% is the correct rate to compare it with income taxes; 30% is the correct rate to compare it with other sales tax.
I agree - who in there right mind making $500,000 a year would limit spending to only $40,000?
Yeah, like, is that 23 cents to each dollar spent? Or for each item purchased regardless of item cost?
I like the idea.
Remember they are saving all the money they currently pay in income tax...
Brit Hume discussed this with one of his guests yesterday, and it is something that the President would like to start a National Debate about.
There's no doubt that it would be a watershed event in American History...it requires a Constitutional Amendment to repeal the Income Tax, and probably another Amendment to codify the National Sales Tax. Both would require a Super-Majority in both houses of Congress, and approval by 3/4 of the States in order to pass. Implementation, if approved, would have to be very carefully planned out.
The thought is that if you free Corporations form the burden of payroll tax contributions, prives on thier product should drop significantly, making room to comfortably add in the 23% ( the number varies, depending on who you ask) sales tax; leaving prices about the same. In theory.
IMHO, there needs to be a mandatory price reduction as part of the deal. How we do that is open for discussion.
In any case, I think at this point it is a good thing to open a reasoned dialog, and try to avoid hysteria and hyperbole from both the Left and the Right. Something this important is worthy of reasoned discussion by reasonable people.
It's the only constitutional form of taxation. I like it.
I have wondered the same thing. Two words for you. Black Market.
Why the hell not ? Since when should success be punished ?
What's wrong with being a tight-wad? OHHH I get it, being a tight-wad is only bad when you deny the government more of your money.
Only way anyone would buy in would be with a Constitutional Amendment abolishing the income tax. Even then, it will be a tough sell. What's to stop Congress from raising the sales tax from 23% to say 50% or more?
Since the 14th Amendment was NEVER ratified by 2/3's of states (actually ratified by only 3 states) the income tax is illegal.
The thought is that if you free Corporations form the burden of payroll tax contributions, prives on thier product should drop significantly, making room to comfortably add in the 23% ( the number varies, depending on who you ask) sales tax; leaving prices about the same. In theory.The only way this can happen is if wages are reduced by the amount of taxes removed. Which would be difficult to do.
Transitional Issues in Tax Reform
Price Level Effects
Because the flat tax is similar in structure to the existing income tax system, its implementation would have relatively little effect on the absolute price level. Both before- and after-tax wages would be roughly similar before and after reform, so that nominal prices remain roughly constant.
In contrast, the effect of implementing an NRST on the absolute price level is less certain. One possibility is that the tax could be fully shifted forward in the form of higher prices for consumption goods, with no change in the price of investment goods, which are untaxed under the NRST. At the other end of the spectrum of possible responses, nominal prices could remain constant. Under this scenario, before-tax real wages would have to fall roughly to the level of prereform after-tax real wages in response to the elimination of the income tax. Intermediate responses between the "full price adjustment" and "no price adjustment" scenarios are of course also possible.
Choosing between these various scenarios requires making necessarily speculative assumptions about the response of the monetary authorities to the imposition of the NRST. However, most analysts assume that the monetary response would be sufficiently accommodating that the full price adjustment scenario would obtain.
The primary rationale underlying this assumption is the view that the downward flexibility of nominal wages is quite limited, in part because most wage contracts and agreements are specified in nominal terms. Thus, a tax reform that required wage reductions to reach a new equilibrium would be quite costly as these wage reductions would initially be distributed unevenly across industries. This in turn might result in considerable unemployment in sectors characterized by rigid wages, as well as misallocations of labor, at least in the short run. Proponents of the full price adjustment view assume that monetary policy would be expansionary to avoid these costs.
Most observers fall into the full price adjustment camp. For example, McLure (1996, p. 23) concludes that it would be "hard to imagine the monetary authorities not accommodating such an increase in prices." Gravelle (1995, p. 59) argues that full price adjustment is likely because a "national sales tax…would tend to produce an economic contraction if no price accommodation is made." In its analysis of the distributional implications of implementing consumption taxes, the Joint Committee of Taxation (1993, p. 59) concludes that, "Unless there are convincing reasons to assume otherwise, the JCT staff assumes the Federal Reserve will accommodate the policy change and allow prices to rise." Finally, Bradford (1996a, p. 135), in discussing the same issue in the context of a value-added tax, observes that, "It is commonly believed that introducing a value-added tax of the consumption type will bring with it a monetary policy adjustment that would result in a one-time increase in the price level…and no change in payments to workers in nominal terms."
Nevertheless, opinion on this issue is certainly no unanimous. For example, the alternative assumption [that wages will fall] is implicitly made by Jorgenson and Wilcoxen, who argue that implementing a national sales tax would reduce producer prices on average by 25 percent. Auerbach (1996) takes a compromise position by assuming partial price adjustment. In addition, European experience with the introduction of the VAT is mixed, generally suggesting partial price adjustment. On the other hand, Besley and Rosen (1999) find full (or even more than 100 percent) forward shifting of state sales taxes in the United States.
Source: Zodrow, George R. (2002). "Transitional Issues in Tax Reform." In United States Tax Reform in the 21st Century, George Zodrow and Peter Mieszkowski, Editors. Cambridge University Press.
Monetary Implications of Tax Reforms
Does it matter how the central bank responds when the tax system is reformed? Some economists would argue that in a very general sense it does not. Many would argue that the central bank's response would have little long-run effect, because what really matters is the productive capacity of the economy and because there could be no money illusion in the long run.
And, in the short run, the standard relation between prices and money makes it clear that, under limiting assumptions, the central bank need not change monetary policy. Consider the transition from our present tax system to a consumption tax. Ignoring any incentive effects caused by the tax reform, velocity and output are unchanged. With a revenue-neutral tax reform, aggregate after-tax income is unchanged, so there need be no demand-driven effects on consumer prices. Under these conditions, v, y, and q remain unchanged as a result of the tax reform, and thus maintenance of the status quo implies that the central bank need not change its policy. Assuming that output is constant, the central bank could eliminate any transitory price changes in the long run by leaving monetary policy unchanged.
But things may not be that simple. The implied changes to wages and producer prices require a degree of flexibility in the economy that many might find unlikely. Specifically, for the consumer price to stay constant, the producer price must fall by the amount of the tax. And because a drop in the producer price means that the business revenue produced by hiring another worker drops, the before-tax wage must drop by a corresponding amount. Many have argued that such price and wage changes are implausible and that the central bank should "accommodate" a transitory change in the consumer price level by adjusting monetary policy so that it is consistent with constant producer prices and wages.
Source: Bull, Nicholas, and Lawrence B. Lindsey. 1996. "Monetary Implications of Tax Reforms." National Tax Journal 49.3 (September): 359-79.
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