Posted on 01/31/2005 7:12:16 AM PST by bmweezer
For quite some time now there has been an organization pushing for a National Retail Sales Tax (NRST) to replace the current income tax in the US of A. The proponents thereof call it a "fair tax", and even have a web site www.fairtax.org. These folks claim that the current income tax structure is a crumbling mess, and that the NRST, a "voluntary" tax is the most equitable solution. For what it's worth, I agree wholeheartedly upon the first premise, but disagree vehemently on the second.
The NRST would be no more voluntary that the current system. What are you gonna do? Buy something and tell the cashier not to add the federal tax? Or not buy anything? (multiply that by every taxpayer and imagine the effect on the economy). And if you believe the proponents claim that they can put enough safeguards in place to make their system painless and equitable, then I have a bridge in New York that you can buy cheap.
The NRST would, by definition be a highly regressive system that would hurt the middle class far more than the wealthy, and if it ain't complicated enough in the planning stage, just wait a few years. Tax accountants wouldn't' be in any real jeopardy under the NRST, they would just have to learn a few new rules. Since the nature of any government program is to increase in complexity, watch for tax changes to increase this or decrease that, then try to factor in the cost of compliance with all this going on - guess who's gonna pay?
The premise that spending is a taxable activity is silly on the face of it. I remember my ex-wife complaining after I spent my last dime on a badly needed item "If you have $50 for that, then I can spend $50 on what I want". The proponents seem to believe that if I have 500 to spend on a badly needed washing machine, that I can also pony up another 40% or so for their agenda. This is ludicrous and insulting to the intelligence of the voting public. Just because I have 500 dollars, doesn't mean that I have 700. Just like my ex refused to believe that if I had 50 dollars for one item that I couldn't magically conjure up another 50 dollars for her. Fifty dollars is fifty dollars. It isn't an indication, hint, or promise that there's a matching fifty dollars lying around for everybody else's ideal. And under the NRST proposal, if I don't have the 700, then I can't buy the 500 washing machine. So since I don't have the 700 bucks, I don't buy the appliance. The seller doesn't make the sale, the manufacturer doesn't' get to make another one to replace it on the shelf, the deliverer doesn't get to deliver it. Everybody loses.
But wait! The NRST proponents cheerfully remind me that "large purchases" such as major appliances and automobiles would be exempt from the NRST. Ah! The first major complication. What is and what is not covered. So maybe a set of dishes would be covered. Would we care to look into what this little statement would mean? In a very few years we will inevitably see merchandise gerrymandering as to what would be taxable and what wouldn't. And someone would have to keep track of all this. I remember in Connecticut where a 75-cent milkshake was taxed six cents for a nickel's worth of malt, but the same sized milk was untaxed. Food was taxed but only if it cost one dollar or more. Clothing was taxed unless it was for a child under ten years of age. One customer buying a jacket had to pay the tax, but another didn't have to because of the age of the child. Can you keep track of this? Multiply this by the political agendas of congresscritters all over the country,. And you can see what I mean by merchandise gerrymandering.
Quite simply, it would mean that the increasing tax burden would be spread to more items of lesser value, therefore having a greater impact upon the final purchase price. So the government would have to get more from less. So the "Fair tax" might end up making that $40 set of dishes cost $80 or more. So what would be the result? Fewer people buy dishes. People who make and sell dishes would do less business, and therefore they would be hurt. The customer would be hurt by the loss of the use of the new dishes, the whole economy would take such a hit that it would take years, if not decades to recover. Discretionary purchasing could evaporate overnight.
Would there be exemptions for lower income people so that each person pays a tax burden more in line with their ability to pay? Would certain people be able to carry a tax avoidance card to not have to pay taxes due to their economic status? How would you protect the poor - who also need to buy things like dishes every now and again?
Let's look at this another way. Perhaps a person like me must spend 80 to 90 percent of their income on living expenses. Much of that would be subject to the NRST. So more of my money, as a percentage of income, would be taxed. Now let us look at someone like Bill Gates, or Ted Kennedy. Since they have vast incomes compared to me, they can afford to shelter more of their income into other areas. If the NRST is the major tax vehicle, then they would only be taxed upon the much smaller percentage of their incomes that they spend on living expenses. Because they can afford to sock away lots more money than I do, that money would not be taxed as it isn't "spent"! Yes, I know that Gates and Kennedy spend more than I do, but as a percentage of their total income, it is less. So the NRST favors the rich at the expense of the middle class!
But the NRST folks won't tell you that. In fact, they'll flatly deny it hoping that you don't notice the vast amounts of income that the very rich sock away into investments, etc. that wouldn't be taxed (unless they want yet another complication in their system), and focus our attention upon their SUV's. The net gain for the rich would have to be made up for by the rest of us - resulting in a higher tax rate for the middle class and for the poor. The poor subsidizing the rich - reverse Robin Hood!
Let's go back now to the concept that people spend a predictable portion of their income. Every person has basic needs - food, housing, clothing, etc. that must be met. These needs are similar for everyone across the income spectrum. To the extent that these items will be subject to the NRST, everybody pays the same flat fee. If your income is above the minimum, then you can spend a little more, which would be taxable, and perhaps sock a little away. That would not be taxable, apparently, so you gain an incentive not to spend, not to buy. That amounts to putting a damper on the economy in the area of discretional spending. Maybe I don't need those new dishes after all. Multiplied by the number of people who would be affected by the NRST, you have a serious downturn in the economy, resulting in loss of jobs, wages, resulting in severe economic hardships for just about all of the middle class. Of course, the rich wouldn't be affected as much.
So let's look again. The more you make, the less a percentage of your income you need to meet your basic needs. That means that you don't have to spend so much of your money to live. You can shelter more from the government, an option not available to the lower income brackets who often lead hand-to-mouth existences. They'd be the ones hit the hardest. This is the definition of regressive taxation. The social consequences are considerable, and beyond what I am prepared to discuss at this point, but there are historical precedents that are not good.
But wouldn't you benefit from an immediate pay raise by the amount you would normally pay in income taxes? Certainly, and I would welcome that. However, since the entire tax burden on the whole country would remain constant (which means ever-increasing), and since the rich would be paying less overall taxes (the richest 5% pay 85% of income taxes, or something like that), that loss of governmental income would have to be made up by people like me, so logically, there cannot be anything but a net loss for me - I'd end up subsidizing the likes of Kennedy and Gates!
And let us not forget that complication in that some things would be taxed while others would not be taxed. This would be a boon to the politicians - in that they can reap huge amounts of revenue simply by adding an item to the "Taxable" column, it would have a huge negative impact upon those who would be doing the collecting. Oh yeah - remember those? That burden would fall upon business owners and establishments that sell taxable items to the public. The reasoning of the NRST crowd seems to be that if they can collect income taxes for the state, they can collect for the feds. No prob. What they overlook is the increased cost to these businesses, many of them barely breaking even, to collect the deferral taxes. Not only must they follow the whims of state politicians, but they would have to attune themselves to the federal politicians as well! They'd have to absorb the costs of the paperwork required, increased bookkeeping, reprogramming computers, etc.. But you and I know full well that these costs would have to be passed on to us customers. So again, we will pay more for less. OR at least the middle class will. And presumably the poor - unless the poor become exempt, in which a whole new level of beauracracy would be needed - and we know who will have to pay those costs!
Let me give you an example. Support toothpaste isn't taxable. Then some politician figures out that the taxes on a three dollar tube of toothpaste can pay for the next congressional pay raise. It's only a buck or so, so the average guy won't get too upset, but that dollar turns into more than one dollar when you factor in the costs of reprogramming grocery store computers all over the country to reflect that this item is now taxable. So the price increase is closer to a buck fifty. Then some other politician wants to be reelected, so he proposes eliminating the tax on laundry detergent. Here we go again. That one - dollar price decrease translates into a mere 50 cents by the time compliance expense is factored in.
And nowhere would there be any addressing the real problem of federal taxation - the spending glut. The feds are simply spending too much money. The more they get, the more they spend, the government simply cannot exercise any fiscal restraint. The federal government has never had a revenue problem they've always had a spending problem. They spend too much. Where would be the incentive for them to spend less if we give them new pockets to pick?
The solution to the tax problem isn't a misnomer - a "fair tax" in name only, it will have to be a system in which everybody bears a share of the burden commensurate to their ability to pay, not their need to spend. It has been said that if everybody had to pay a fair share of the total tax burden, that people would demand reduced federal spending. THAT is the solution to the problem. Or at least, create a viable environment for the kind of fiscal triage that has been sore lacking in all levels of government.
First of all, I would propose to classify all monies coming into an individual as income. Investments, capital gains, interest, wages, compensation - anything coming IN will be classified as income. All incoming monies are income, all income is treated the same. That income would be taxed at a flat percentage, and that percentage would be the same for everybody. If Ted Kennedy pays the same percentage of income that I do, he still pays a lot more, whether he spends more than I do or not. If someone who makes less than I do has to pay the same percentage, they pay less, more fitting to their abilities.
Nothing would affect people's ability to buy dishes, cars, or anything else because purchasing would be relatively independent of taxation. If you don't' tax it, you don't stand in the way of people who want it. You don't collapse the whole economy for the sake of a political agenda. Purchasing would be minimally affected.
If people don't want to pay their fair share (I would even tax welfare because everybody should be stakeholders), then they can get after their representatives to cut spending. I predict a huge groundswell, and things like beekeeper subsidies and research in to the sex lives of insects would be subject to a lot more scrutiny, and spending would go down. That solves the problem.
The "fair tax" is highly unfair. It hurts far more than the middle class. It only helps the rich - those with the highest proportion of discretionary income. The NRST cannot help but hurt the working classes, the welfare classes, small businesses, and the national economy. The proponents of the NRST dangle the tax deductions in your paycheck like a carrot before your eyes, so that you don't see the huge stick that you're gonna get whacked with if this goes through. I predict that if the NRST gets passed, that within two years there will be a depression that would be far worse and longer lasting than the "Great depression" of the 20's.
Oh! And finally - they claim that they will get rid of the IRS. Really? Who's gonna police the collectors to make sure they collect the right taxes from the right goods?
Can you say "we're being hoodwinked?"
"John Galt, is that you?"
You forgot the double dog sarcasm tag!
"The NRST only benefits local manufacturing."
"That would be ugly nativism rearing its ugly head, economics be damned. Its like adopting Buchananism without looking at his greased up head."
That would be true if the FairTax introduced a bias in favor of US producers into our tax system. That would also cause problems with the WTO and our trading partners.
In fact, what the proposal does is remove a bias in favor of foreign competitors which has become enshrined in the US tax system. We can point out that we are taxing foreign consumption items the exact same way that we are taxing our own. It is pretty hard to argue against that from any perspective.
Has anyone figured out the total cost for the prebates and the impact that has on the tax rate? To ask another way, how many % of the 30% (exclusive) tax rate is attributable to the prebate?
A fair estimate based on the CATO policy analysis paper below, is that the prebate adds ~5.6% to the tax exclusive amount for a 30% tax-exclusive tax rate (proportionate to 26.7% TE rate calculated below.)
http://www.cato.org/pubs/pas/pa-272.html
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 tax.
OK...if you don't really care, if your money isn't a big deal, if you don't sweat it...then why would care about tax reform at all?I said I don't sweat every penny. I'm not going to save a receipt from a book I bought for work just so I can save 34 cents on my taxes.
"...Would you be willing to sacrifice your lifetime contributions to SS to allow for it to be comletely torn apart?..."
Yes, and I have advocated for complete privatization of the system for some time, have been published on the subject. I am 42 years young, and when I retire in 20+ years I don't want to be a burden to my children....either through confiscatory payroll taxation or by looking to them directly for my care and maintenance. I've chosen to live very frugally now, paying the taxes extorted from me, and providing for my own retirement in gross total.
What does Dr. Jorgenson say about your rate calculation?Dr. Jorgenson has calculated rates for both a flat tax and a VAT. But the IGEM model he uses is flawed so what do I care what he has to say?
Oh, I forgot, you don't have a rate calculation yet.
Why? It's very straightforward. Nothing convoluted about it.
And I have never been able to find any source which even documents your preferred form of tax reform, much less any economic studies.You've never seen an economic study of the flat tax or the VAT? You really need to get off FairTax.org sometime soon.
Post a link to your preferred form of tax reform.What do you mean?
And while you are at it, tell us again that you aren't fighting for the status quo.I'm not. Why are you $pending your time $upporting the FairTax?
It doesn't matter what type of tax system they come up with there are two things it won't be.
It won't be fair and it won't be less money for Uncle Sam. They may shift the burden around but you can bet it's going to be more money for them to spend.
With government growth and spending out of control there is no way that these jerks are going to reduce their glutinous intake or restrict their ability to buy votes and back door monetary support from big business and special interest groups.
Ask yourself when was the last time that the government ever spent less money than the year before?
State sales taxes exist. I asked/challenged you to show me an example of the total (gross) cost of a product in a state with a sales tax, that excludes state sales taxes...
Nothing was said about your non-existant sales tax in my challenge, though it's interesting how on the one hand you act as if your sales tax is concrete, then when confronted with logic you declare it's non-existant and can't be proven.
HELLO, ANYBODY HOME???!!!
From you? Don't make me laugh.
Besides, I provided you with an example already.
That's why I posted the link. They should read it and move on to something else. There really is no argument here. The percentage figure for the tax is still being debated and the numbers I have seen vary anywhere from 19 to 30 percent. You can drive a truck through that spread. The number is a long way from being finalized. I don't think this opposition is idea based but agenda based.
I'm still waiting to hear how wages must decline if the fair tax comes to pass.
D'oh!
You're right.
That's why I posted the link.
And that's why I then commented that we had already seen the link and:
-- "If you read the last hundred posts or so, you would discover that many of us here are discussing that "very open explanation", and rejecting it as overly convoluted BS."
They should read it and move on to something else.
Indeed they should.
But they won't, because they have a statist quo agenda.
*chuckle*
What is somewhat of a bummer is that the mods always have the best material.
We can be naturally weird, but they always get a leg up on us simply by being mods and having access to the troll thread in ways we cannot understand.
;-)
Freudian slip on the malapropism there?
I'm still waiting to hear how wages must decline if the fair tax comes to pass.No. Wages must drop for prices to drop ~20% or prices can stay the same, exclusive of tax, and people can take home their check with no withholdings.
I'm a little confused. Weren't you the one who mistakenly thought the tax exclusive rate was 23% and wasn't I just correcting you? That was you, right?They should read it and move on to something else.Indeed they should. But they won't, because they have a statist quo agenda.
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