GOP Discusses National Sales Tax

FOX ^ | Dec 1, 2004

[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.

[ApesForEvolution]

Just ask folks what 'their angle' is. They'll dodge, squirm, move the shells, etc.

In the end, most people deserve exactly what they get.

[ancient_geezer]

What if there is a bad year and people don't buy that much? I am certain Congress will find a way to add an 'emergency' tax for years like that.

Consumption expenditure is more stable than income from year to year.

refer ==>FairTax and Stable Government Revenue

[snowsislander]

I am not entirely certain that a manufacturer's "embedded taxes" will be eliminated. Manufacturer's buy a whole ton of stuff at the retail level. They will suddenly see a 30% increase in the cost of doing business. Granted, raw materials may not be taxed, but brooms, paper, toilet paper, desks, chairs, pens, grease, wrenches, etc. suddenly became 30% more expensive. The investors are not going to "eat" that expense - it will be passed on to the consumer.

I don't believe that these purchases would be taxed under the Fair Tax since they do not meet the definition of retail sales used in the legislation.

[ApesForEvolution]

Let me know if you ever hear from tweedle again...

[ancient_geezer]

Yeah, I want a flat tax just like Russie.

Better be careful of what you ask for you might get it:

http://www.bisnis.doc.gov/bisnis/country/000818rstxcde2.htm

refer ==> RUSSIA:  PART TWO OF THE RUSSIAN FEDERATION TAX CODE

 

Amd the Armey/Shelby Flat tax is an income tax with VAT, requires an IRS, and still taxes business passing on such taxes in higher prices to consumers, lower wages to employees, and lower returns to investors/retirees.

http://waysandmeans.house.gov/fullcomm/106cong/4-11-00/4-11kotl.htm

"Robert Hall, one of the originators of the proposal(Flat Tax), who describes his Flat Tax as, effectively, a Value Added Tax. A value added tax taxes output less investment (because firms get to deduct their investment.)"

"The Flat Tax differs from a VAT in only two respects. First, it asks workers, rather than firm managers, to mail in the check for the tax payment on that portion of output paid to them as wages. Second, it provides a subsidy to workers with low wages."

 

The Flat Tax; Chapter 3, by Robert Hall and Alvin Rabushka

In our system, all income is classified as either business income or wages (including salaries and retirement benefits). The system is airtight. Taxes on both types of income are equal. The wage tax has features to make the overall system progressive. Both taxes have postcard forms. The low tax rate of 19 percent is enough to match the revenue of the federal tax system as it existed in 1993, the last full year of data available as we write.

Here is the logic of our system, stripped to basics: We want to tax consumption. The public does one of two things with its income—spends it or invests it. We can measure consumption as income minus investment. A really simple tax would just have each firm pay tax on the total amount of income generated by the firm less that firm’s investment in plant and equipment. The value-added tax works just that way. But a value-added tax is unfair because it is not progressive. That’s why we break the tax in two. The firm pays tax on all the income generated at the firm except the income paid to its workers. The workers pay tax on what they earn, and the tax they pay is progressive.

To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way. The base for the business tax is the following:

Total revenue from sales of goods and services

less

purchases of inputs from other firms

less

wages, salaries, and pensions paid to workers

less

purchases of plant and equipment

The other piece is the wage tax. Each family pays 19 percent of its wage, salary, and pension income over a family allowance (the allowance makes the system progressive). The base for the compensation tax is total wages, salaries, and retirement benefits less the total amount of family allowances.

 

FLAT TAX, VAT TAX, ANYTHING BUT THAT TAX; Duke Law Magazine, Spring 96:

• "The flat tax is essentially a VAT, with a personalized element for wages. Thus, the business tax allows deduction of all purchases -- as does a VAT -- but also allows deduction of wages. The wage income that is taken out of the VAT base, however, is also taxed, but is assessed against the individual wage-earner, not against the business."

[ancient_geezer]

Don't think, for one second, that the "IRS will be eliminated."

Administration of the NRST is turned over to the States. IRS is disbanded, taxpayer records required to be destroyed under the bill. The entire infra-structure necessary to enforcement an administratio of the income tax system is dismantled.

Also, as an employer, you will still be on the hook for SS & Medicare taxes.

All current federal income, payroll(e.g. SS & Medicare taxes) are repealed, both individual and business, replaced by a single retail sales tax.

refer ==> H.R.25, S.1493 at the Thomas websit for Congress
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.

For additional information: http://www.fairtax.org, http://www.salestax.org & http://www.geocities.com/cmcofer/ftax.html

[JTHomes]

Nonsense. That would be like all employers deciding to stop withholding taxes. Some pay under the table now, big offenders eventually get caught, just like offenders of NRST would.

[numberonepal]

I decide to spend this saved money that has already been taxed. Would I not be taxed again?

I'm having trouble getting an answer to this from the Fair Tax people. My take on it is that you will most likely be paying taxes with your saved money. However, under the Fair Tax consumers receive a monthly rebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The rebate is paid in advance, in equal installments each month.

I believe the justification will be you'll not be taxed on your savings unless you spend your savings over the poverty level. The vast majority of Americans do not live on savings, and the ones that do will probably have to suck it up. But at least they'll get the rebates up to the poverty level. I can't really get my noodle around a better answer than that. FAQ #16 at fairtaxvolunteer.org touches on this.

Also, people who have paid no taxes on the money they have will also begin to pay taxes. Illegals and criminals will be forced to pay taxes they have otherwise avoided in the past.

[ancient_geezer]

I'm wondering how in the heck an amendment like the 16th was passed in the first place.

It started out as a Republican political ploy to impede passage of an income tax by Congress that backfired:

 

read: ==> The Bailey Bill

In April 1909, Senator Joseph W. Bailey, a conservative Democrat from Texas who was also opposed to income taxes, decided to further embarrass the Republicans by forcing them to openly oppose an income tax bill similar to those which had been introduced in the past. He introduced his bill expecting it to get the usual opposition. However, to his amazement, Teddy Roosevelt and a growing element of liberals in the Republican party came out in favor of the bill and it looked as though it was going to pass.

Not only was Bailey surprised, but Senator Nelson W. Aldrich of Rhode Island, the Republican floor leader, frantically met with Senator Henry Cabot Lodge of Massachussetts and President Taft to work out a strategy to demolish the Bailey tax bill. Their own party was split too widely to permit a direct confrontation, so the strategy was to pull a political end run. They announced that they favored an income tax but only if it were an amendment to the Constitution. Within their own circle, they discussed how it might get approval of the House and the Senate, but they were quite certain that it could be defeated in the more conservative states-three-fourths of which were required in order to ratify the amendment.

Thus, the Democrats were off guard when President Taft unexpectedly sent a message to Congress on June 16th, 1909, recommending the passage of a consitutional amendment to legalize federal income tax legislation.

The strategy threw the liberals into an uproar. At the very moment when their Bailey bill was about to pass, the Republicans were coming out for an amendment to the Constitution which would probably be defeated by the states.

Reaction to the Amendment

Congressman Cordell Hull (D-Tenn., and later Secretary of State under FDR) saw exactly what was happening. He took the floor to excoriate the Republican leaders. Said he:

"No person at all familiar with the present trend of national legislation will seriously insist that these same Republican leaders are over-anxious to see the country adopt an income tax...What powerful influence, what new light and deepseated motive suddenly moves these political veterans to 'about face' and pretend to warmly embrace this doctrine which they have heretofore uniformly denounced?" {1}

He went on to expose what he considered to be a political trick. He needn't have been so concerned. The slogan of "soak the rich" automatically aroused Pavlovian salivation among politicians both in Washington and the states. The Senate approved the Sixteenth Amendment with an astonishing unanimity of 77-0! The House approved it by a vote of 318-14.

When Republican Congressman Sereno E. Payne of New York, who had introduced the amendment in the House, saw that this end run was turning into a winning touchdown for the opposition, he was horrified. He went to the floor and openly denounced the bill he had sponsored. Said he:

"As to the general policy of an income tax, I am utterly opposed to it. I believe with Gladstone that it tends to make a nation of liars. I believe it is the most easily concealed of any tax that can be laid, the most difficult of enforcement, and the hardest to collect; that it is, in a word, a tax upon the income of honest men and an exemption, to a greater or lesser extent, of the income of rascals; and so I am opposed to any income tax in time of peace...I hope that if the Constitution is amended in this way the time will not come when the American people will ever want to enact an income tax except in time of war." {2}

The end run of the Republican leadership did indeed backfire. State after state ratified this "soak the rich" amendment until it went into full force and effect on February 12, 1913

[snowsislander]

Again...Under the current system my income has been taxed. I put part of that already taxed money into savings. Now...the system changes to the NRST. I decide to spend this saved money that has already been taxed. Would I not be taxed again? How would this be prevented?

You would be double-taxed on any post-tax cash you had saved. Any pre-tax cash that you had managed to put away would no longer be subject to income taxes at withdrawal time.

However, if your savings were in the form of instruments such as stocks and bonds, you would no longer be subject capital gains taxes when you sold them. Nor would any interest or dividends be taxed.

[JTHomes]

Let me see if I can give you an example: For simplicity, let's start with no corporate income tax. A company makes a product for $80 and sells it for the market rate of $100. They make $20 profit. OK. Now with a 25% corporate income tax. The company makes their product for $80, sells it for the market rate of $100. They make $20 profit of which they give $5 to the government and net $15. Who bore the burden of the corporate income tax?

That is the problem with your argument, it is too simplistic. You are right that market sets price. Market also sets profit margins. There is a least acceptable profit margin in any industry. Maybe the company won't make the product if they only make $15 instead of $20. This keeps happening until there is less competition, and the price rises to $105, to support the market defined $20 margin. Consumers pay all corporate taxes over the long run. This is undisputable.

[ancient_geezer]

So you're saying you have to pay tax on the tax? I'm not getting this tax inclusive thing.

Tax inclusive refers to total payment for products includes the tax, just as your gross income includes the current income tax you pay out of it.

The percentage is with respect to percent of sales revenues received by a seller to remit for the NRST, and allows a reasonable comprison to how tax rates are expressed in the income/payroll tax system the NRST replaces.

The 23% rate is the percentage of your payment products expressed as the NRST amount added to product price.

IOW if you pay $100 dollars for an item 23 dollars goes to government $77 goes to the business.

If there were a state or local retail sale tax(say 5%) your total payment for your purchase of an item that would come out $23 NRST, $3.85 state sales tax, and $77 to the business for the product.

[Sprite518]

The purpose of government is debatable. The ability to tax is power. That is what politicians seek. Power corrupts over time, and this is one of many reasons on why we need to change the tax code. We need to en-power individuals to decide how much they will be taxed instead of having some politician decide it for us.

[ancient_geezer]

. Now lets say we go to the NRST system. After this I decide to spend some of the saved money. Would I not be paying taxes on this money again?

Yes you wold insofar as orginal capital goes.

However, you must remember that when you spend under the current system what you spend finances corporate income and payroll taxes paid to the govenment as well. That along with the overhead costs associated with those taxes and loss of sales due to higher prices necessary to pay for it all, the additional tax plus costs passed on to your purchase amount to as much as 20-25% of the price you pay.

interesting read on the point: ==>
DO YOU PAY YOUR INCOME TAX
AT THE SUPERMARKET?
by D. Sherman Cox J.D. L.L.M. Taxation

Repeal the income payroll tax system that those business are dealing with and those burdens are removed allowing prices to come down without loss of profitability to the business.

On net what every you pay for something today, your will pay (with NRST) about the same. The NRST replaces taxes and related systemic burdens, it does not add on to them.

[ancient_geezer]

I don't think they are taking 23% of my income under the current system.

Are you counting in SS/Medicare tax you pay?

Remember the proposed NRST in HR25 replaces all federal income and payroll taxes, both those you pay directly, and those you pay indirectly through purchases you make.

As a point of fact though, that 23% is only the marginal rate you see at the cash register.

Under HR25, all legal residents will receive a monthly demogrant called the Family Consumption Allowence(FCA) equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The FCA is paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate, and paid to all households regardless of income or actual expenditure. The HHS poverty llevel is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. See chart in Figure 1 below.

 

Figure 1: 2004 FCA calculation
Family size	HHS annual poverty level	FairTax annual consumption allowance (single person)	Annual rebate (single person)	Monthly rebate (single person)	FairTax annual consumption allowance (married couple)	Annual rebate (married couple)	Monthly rebate (married couple)
1 2 3 4 5 6 7 8	$9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570	$9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570	$2,141 $2,873 $3,604 $4,336 $5,067 $5,798 $6,530 $7,261	$178 $239 $300 $361 $422 $483 $544 $605	N/A $18,620 $21,800 $24,980 $28,160 $31,340 $34,520 $37,700	N/A $4,283 $5,014 $5,745 $6,477 $7,208 $7,940 $8,671	N/A $357 $418 $479 $540 $601 $662 $723

[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer

A family of four, for example, could spend $24,980 per year free of tax because they will have received over the course of the year a demogrant totaling $5,745. $5,745 is the amount of sales tax paid on $24,980 in expenditures. That family spending double the "poverty level" or $49,960per 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 examine the tax burden that a family of four will have at various annual expenditure levels as compared to that same family under the current tax law, (2004 income plus FICA/MC):

 

H.R.25 "The FairTax Act

Not only does every family receive a FCA based on family size, not income or expenditure, but they will also receive their full paycheck with no federal witholding for income or SS/Medicare taxes.

[Zon]

Having to explain a sales tax rate with an essay

Here's the essay. All 55 words of it 

• "With an income tax at 23%, for each $100,000 income earned $23,000 is income tax. Earn $100,000 then send $23,000 to the government. With the NRST at 23%, for each $100,000 spent on new retail items $23,000 is the national retail sales tax. Spend $100,000 and $23,000 of that is sent to the federal government." 220

The subject is sales tax rates not income tax rates or percentage of income.

The discussion the vast majority of people are interested in is a comparison of each tax scheme.

A Brief Comparison Of 
The Income Tax 
vs. 
The NRST

You want to pay cash for your dream car that costs $100,000.

Assume, for example the income-tax rate is 23%. Under the income tax you need to earn $130,000 income to buy the car. 

That's $30,000 paid in income tax subtracted from the $130,000 income leaves you with $100,000 to pay for the car.

Under the NRST embedded taxes will be stripped out of the supply chain in the amount of roughly 23%. The price of your dream car under the NRST would be $77,000.

In order to pay for the car and NRST you'd have to earn $100,000 --  $23,000 of that is the NRST. On a $130,000 income you own a new car plus, have an extra $30,000 in your "pocket".

If you chose to save/invest the excess $30,000 the  capital gains won't be taxed because the Fair Tax (NRST) eliminates capital-gains tax.

Under the income tax that $30,00 -- which you wouldn't have if you bought your dream car -- invested at 10% annual yield compounded for ten years equals $48,500.

Under the Fair Tax, in ten years your $30,000 would have grown to $77,812. 

62% gain.
vs.
159% gain.

Under the income tax you can buy your dream car and have zero investment savings after ten years.

Under the Fair Tax you can buy your dream car and have $77,812 investment savings after ten years,

Fair Tax

[ancient_geezer]

What makes you think corporatation pass their taxes on to consumers through higher prices? Most economists don't believe this.

You aren't serious are you?

8 magic assumptions about dollars paid to government by businesses:

1) Paying corporate income tax to government only reduces shareholders capital/earnings, and wages, but never increases consumer price.

2) Paying the corporate employer's excise to government only reduces wages.

3) Paying a vat to government only increases consumer price.

4) Paying retail sales tax to government only increases consumer price

5) Paying sales tax on manufacturers or distributors products to government only increases consumer price.

6) Paying any excise tax(except the employer's excise) to government only increases consumer price.

7) Paying corporate property taxes to government only reduces shareholder capital/earnings and wages.

8) Paying tariffs to government only reduces earnings of foreign producers.

Many many ASSUMPTIONs of convenience and ideological bent, rather than rules arising from evaluation of market behaviours or analysis of economic data:

 

Tax Incidence, Tax Burden, and Tax Shifting Who Really Pays the Tax

 

Inconsistent Attribution and Sloppy Theory.

Furthermore, the conventions used in tax analysis are often inconsistent from one tax to the next and fail to do a good job of demonstrating even the initial incidence of the taxes. In standard JCT burden tables, and in Treasury and CBO analytical work, consumption taxes are usually assumed to be “passed forward” to consumers in the form of higher prices.

*** Snip ***

Meanwhile, income taxes and other taxes on factors are assumed to be “passed backwards” to workers and owners of capital in the form of lower take-home pay and after-tax incomes from saving and investing.

*** Snip ***

Customs fees are an exception to this pattern. They are consumption taxes but are assumed (by the Treasury) to be borne by the suppliers of the foreign labor and capital that produced them.

Consumption taxes, such as a retail sales tax, a VAT, or excise taxes, whether imposed on consumers or on manufacturers, are routinely described as being paid by consumers in the form of higher prices because it is assumed that consumers are less flexible than producers, so that consumer prices increase by an amount equal to the tax, with none of the tax borne by the producers of the taxed goods. It is as if the supply of goods and services were totally elastic, such that production would dwindle to zero if there were any reduction in the price received by the producers, so the consumers must foot the entire bill.

*** Snip ***

The distribution of the corporate income tax is so uncertain that it is left out of most burden tables but is thought to be borne mainly by either shareholders (at least in the short run) or workers (in the long run, as capital adapts). These taxes are described as if workers, savers, and investors offered their labor and capital in totally inelastic supply, undiminished in quantity, when the tax cuts their compensation. It is assumed that they make no demand for an increase in compensation in response to the tax, so they swallow the entire burden of the income and other factor taxes that they pay.

*** Snip ***

In effect, the analysts pretend that producers can shift consumption taxes onto their customers but must absorb income taxes placed on their own earnings. Supply is infinitely elastic and infinitely inelastic at the same time. This is an inconsistent approach to tax shifting that is at odds with both economic theory and real-world experience.

In addition, neither approach deals with any further adjustments that occur in the real world when taxes are imposed and resources are shifted in response from one use to another.

 

 

---

Bottomline as stated by CBO in regards the corporate income tax, but easily seen from above to be applicable to any other tax paid by a business.

 

In the words of CBO's Incidence of the Corporate Income Tax,(1998):

"Most attempts to distribute the burden of corporate taxation have neglected the possible importance of effects on the relative prices of products."

"[D]etermining the incidence of the corporate income tax is an especially daunting task because the tax's relevant substitution effects are so difficult to understand. At the most fundamental level, economists disagree about what the corporate income tax actually taxes. At a higher level, they disagree about what the corporate tax does to relative prices, or incentives."

" The puzzle about corporate tax incidence in large part reflects economists' failure to integrate fully, or reach a consensus on, models of corporate behavior. Thus, the disagreement about the burden of the corporate tax stems not simply from different assumptions about the parameters of a model, but from fundamental disagreement about the model itself. As a result, authors of the current literature on corporate tax incidence still debate the theoretical assumptions and have not yet concentrated on making empirical estimates or establishing parameters."

[ancient_geezer]

The DEMOCRATS will oppose it vigorously!

LOL, they already do, and absolutely abhor the idea of losing there favorite tool to coerce the electorate. They are 90% of all the opposition to the NRST

Note the stark absense of Dem's in the co-sponsors of the bill against the credentials of those who actually supporting it:

Here's a current list of ==> COSPONSORS! for HR25

[HostileTerritory]

It is much easier to conduct a sales transaction in cash than it is to pay a salary that way.

[ancient_geezer]

What happens to state sales tax, property, capital gains, inheritance...?

Federal capital gains are repealed as part of he income tax. Federal Gift/Estate taxes are repealed, and all federal payroll taxes are repealed. All that's left is about 6% of federal tax revenues from miscellaneous excises & tariffs.

State and local taxes must be dealt with on local basis, they do not fall under federal control.

However, since state piggyback on the federal income tax system to aid in enforcement and administration of their own income taxes. When that federal income tax infra-structure and taxpayer database is destroyed as a provision of HR25, states have a strong incentive to go to a tax system in conformance with the NRST, infact they are provided many inducements in the bill to encourage that and aid them to do so.