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?"
I know.
We'll just have to steal some of their material then.
Hopefully they'll be flattered that we thought it worthy of thefticating.
"Liberty is a great thing, but it's not free.
I'm willing to pay."
Small wealth now or blood later....I would be willing to forfiet the wealth already stolen from me for the avoidance of the blood.
What is the national average ratio of taxes paid to gross receipts?
"I still say that something simpler is a moral imperative just so those of us who are attempting to follow the law don't have to regularly worry that we have violated it."
The FairTax is by far the simplest viable proposal out there. If simplicity is the goal, then the FairTax wins that hands down.
"Maybe I am wrong but I thought the worker at the Chinese sofa factory made slightly less per hour than the factory worker in the US."
That is correct, however the total labor difference in the price of the sofa is very small. Many times offset by the logistics cost.
"With no income tax and only sales tax, say buh-bye to all of them to one degree or another."
Incorrect. First of all, less than 50% of taxpayers itemize, so for a majority of taxpayers, the home mortgage interest deduction is of no benefit. Secondly, interest rates would drop to non-taxable levels, so a rate drop of 25 - 30% is expected. That is a greater benefit to homeowners (even those who DO itemize) than the tax deduction. Third, the purpose of the home mortgage deduction is so that the interest on your home mortgage payments would be made before - tax. With the FairTax, EVERYTHING would be made before tax. Fourth, don't you suppose young workers would find it easier to save up for that first house if Uncle were not taking a huge chunk out of every paycheck?
The home housing market will do extremely well under the FairTax.
"Look at the whole picture. You have only touched on a piece of it. Keep in mind, the government will need the same money it always needed, except they will get it in a different way. Do not think your tax will go down."
I AM looking at the big picture. Consider this - although you make a valid point in that the propsal is revenue neutral, that does not consider the enormous savings in compliance costs. Those are costs that are borne either directly or indirectly by every taxpayer. These are in the hundreds of billions of $$$. They are a drag on our economy and a waste of resources.
If all the FairTax did was to save hundreds of billions in compliance costs, that alone would justify its passage. Fortunately, it does much more.
"How much of what we purchase on a daily/weekly basis is imported?"
Based on the trade deficit, a lot. The most recent figures that I have seen indicate that it is now up to $600 billion per year and rising fast.
That is one of the biggest benefits of the FairTax - it would favorably impact the trade deficit.
what is your agenda? your real motivation? you get fired up, rabid against the fair tax but give no clear reasons why
you have made it clear that you hate the fair tax but don't say why....what are you not saying?
The hypotheticals were fun, but I would really like to move on. Please don't respond to my posts any more.
We shall see what we shall see - if this ever happens.
For the record, I am for it for reasons I have not even articulated here (nor will I). I also do not think it will happen, again for reasons I have not even articulated here.
It'll be fun to watch, but it is getting boring to discuss.
Indeed they should.
But they won't, because they have a statist quo agenda.
1,015 jones
No, your the one trying to say I'm mislead.
--- I'm not "misled", and never have been. The Fair Tax idea is sound, even though the written proposal is flawed in some specifics.
Catch 22. Zealotry blinds those who myopically focus on nitpicking details.
When I went to school the $103.85 would be "the gross payment"...
So using your new math, which part of your calculation would you describe as "the gross payment"?
what is your agenda? your real motivation? you get fired up, rabid against the fair tax but give no clear reasons whyBasically, IMO, it a bad plan being sold with lies and half-truths. There are much better plans.
you have made it clear that you hate the fair tax but don't say why....what are you not saying?
Maybe where you went to school that's true, but by the statuatory language in HR25/SB25, the gross payment for federal tax purposes is $100, because the state sales taxes are not included.
Again, this is why it is actually easier to implement the NRST using tax-exclusive rates, although the tax-inclusive rate is used for internal Congresional use.
You love using the "gross payments" line, but you also love to ignore the definitions. Let me refresh your memory a little bit:
(5) GROSS PAYMENTS- The term `gross payments' means payments for taxable property or services, including Federal taxes imposed by this title....
(14) Taxable property or service-
`(A) GENERAL RULE- The term `taxable property or service' means--
`(i) any property (including leaseholds of any term or rents with respect to such property) but excluding--
`(I) intangible property, and
`(II) used property, and
`(ii) any service (including any financial intermediation services as determined by section 801).`(B) SERVICE- For purposes of subparagraph (A), the term `service'--
`(i) shall include any service performed by an employee for which the employee is paid wages or a salary by a taxable employer, and
`(ii) shall not include any service performed by an employee for which the employee is paid wages or a salary--`(I) by an employer in the regular course of the employer's trade or business,
`(II) by an employer that is a not-for-profit organization (as defined in section 706),
`(III) by an employer that is a government enterprise (as defined in section 704), and
`(IV) by taxable employers to employees directly providing education and training.
Note that "this title" from subsection 5 is USC 26 (amended), and that the definition of "taxable property or services" does not include state or local sales taxes. Now, one might claim that this is either ambiguous or implicitly includes state/local sales taxes (unless one is a compelte and raving lunatic who claims that they are explicitly included), but then one only has to refer to:
`SECTION 1. PRINCIPLES OF INTERPRETATION.`(a) IN GENERAL- Any court, the Secretary, and any sales tax administering authority shall consider the purposes of this subtitle (as set forth in subsection (b)) as the primary aid in statutory construction.
`(b) PURPOSES- The purposes of this subtitle are as follows:
`(1) To raise revenue needed by the Federal Government in a manner consistent with the other purposes of this subtitle.
`(2) To tax all consumption of goods and services in the United States once, without exception, but only once.
`(3) To prevent double, multiple, or cascading taxation. ...
In other words, any ambiguity must be resolved to not include any cascading of taxes -- if the state/local sales tax were to be included in the "gross payments" definition, then this principle would be violated.
"The point is that the price of imports wil not be favorably affected."
"Great news if you're a protectionist, huh?"
Not really. Great news if you believe that our tax system should not create a handicap for US producers and a bias toward foreign producers.
One of the penalties for fraudulent use of a tax exempt certificate is permanent loss of the certificate even for legitimate business purchases.
Will some people risk it? Sure. Enough to worry about it? No.
There is massive fraud and abuse now. There will always be cheaters. It will be tougher to cheat with the FairTax. The retailer will not be the one to check on the tax exempt claim. Those subject to audits will be reduced from 140 million to about 15 or 20 million. Cheaters will get scrutiny. Don't worry about.
Audits by who? Not the IRS. They're gone.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.