National Retail Sales Tax - You gotta be kidding!

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?

Let's do the math: 140M subject to audits by 1 entity = 140M possible audits 20M subject to audits by 50 entities = 1000M possible audits

Have you been taking math lessons from Lewislynn? You are assuming that every business is subject to audit from every state? Nonsense. Most businesses are local, and would only b subject to audit by the state they do business in.

Biker,

I assume that you are doing okay for yourself due not only to good planning but also to hard work. The hard work portion of that equation likely means that the feds take a hefty bite from your income and impedes your ability to build a nest egg as fast as you'd like.

I may be off base, and Goddess is much better qualified to judge the generalities that I am about to present than I am. Please bear with me as she sees if my thinking has merit. If it does, she would be better able to answer specific questions (she is brilliant and qualified, I'm not). I think that you will come to the same conclusion that we have come to -- The FairTax has to pass.

Thanks for the time and consideration.

CG, please correct me if I am wrong on my thinking here. . .

The way that I look at BNYC's situation is that the proper way to look at the impact to his buying ability is to compare what happens to him if we continue the present system with all of it's built in impediments to building wealth to what his position will be if the current impediments are removed and he is unfettered in his attempts to build (hopefully) a real fortune.

I assume that there will be some inequity that he will suffer, but even if I knew his specifics, I doubt that I could quantify what the impact would be.

However, since the FairTax totally removes Federal withholding for the Income Tax and FICA he will have more cash to work with than if the present mess continues.

Also, the Gift Tax, Capital Gains Tax, Inheritance and Estate taxes all go away, he will be able to retain a greater portion of them to pass on to his children AND regain control over his wealth that will no longer be subject to bureaucratic rules and confiscatory rates.

I can't help but think that the FairTax would leave him better off overall. One thing is certain. Passage of the FairTax restores his liberty and that of his children to control their own destiny and build wealth tax free.

To me, that's worth paying for if necessary.

That would be a legacy to leave behind.

Would you be willing to sacrifice your lifetime contributions to SS to allow for it to be comletely torn apart?

Great question. I'm almost 54, but I would do it in a heartbeat if I were able. I think anyone under 45 who doesn't, isn't thinking clearly and those over 45 would also still probably be better off if they had their own money to invest from this point forward.

I'm not cowering in fear. No need to call names and attack integrity in a discussion. I just happen to disagree with you. I don't accept your premise that the National Sales Tax is "good". If I thought it was "good", I would support it.

I don't want to let the Camel's nose into another tent. The proposed National Sales Tax makes every business person a tax collector for Big Brother. It will bring Federal agents into every community all over America to police businesses small and large to see that they are collecting for the Feds, and thus a further erosion of State's rights to the Feds. Thus, another IRS-like organization will be born to police every business in America. This would be a huge further Federal intrusion into the State, City, & County jurisdictions, something we already have too much off. You may like it. I don't.

If you get your wish, I predict the politicians would still try to bring the income tax back sometime, as I described in my original post, on the basis of some "crisis", real or imagined, promising it to be "very small" and "very temporary" because they are so accustomed to the income tax gravy train after almost a century of milking it. They can create a new IRS-type tax-collecting organization with a new name in short order when they need it--not a problem for them.

You've heard of the EU right? VAT hasn't exactly been a good thing there....
No offense but I thought that no one with half a brain would want a VAT.....

FICA is deducted from your gross pay. If FICA is no longer deducted then how could you not take home your gross? I'm pretty sure that people would notice if there were no more federal taxes and yet their pay check didn't change...just a guess mind you. Is it that you believe that there are no embedded taxes or that you don't believe in the free market/competition (in terms of the price reduction)

"When AND IF the 'fair tax' proponents make it outside their echo chamber and actually have to make their case to a uncommitted public, they are doomed to failure."

We have had considerable success with those who have taken the time to study the issue and have their legitimate concerns answered. We have found, however, that many people have a vested interest in the current system. One example on this thread is the gentleman who balked because he liked the idea of cheap imports from China. He said that they constituted a large portion of his business. Some of the large retailers have the same concern. They have adapted to a tax system which puts US producers at a disadvantage. So what if that system destroys millions of US jobs? So what if the trade deficit gets bigger each and every year?

Nevertheless, as badray has pointed out, the winners would far outnumber the losers under the FairTax. Generally, the more people understand it, the better they like it. That experience certainly has been validated on this thread.

"However in the long run there should be no significant difference in the value of your savings."

I beg to differ. A couple of nationally known money managers have expressed the opinion that the DJI would double within 24 months of the FairTax's passage. When that happens, guess who the primary beneficiaries would be?

Young couples just starting out with no savings? NOT!!

The US of A would become the largest tax haven in the world and a magnet for international capital.

Like this New Idea for This Side of the Pond floated by the head of House Ways & Means, Bill Thomas? That Brookings weighs in on with 14% to replace SS/Medicare payroll taxes, A New Money Machine for the U.S.; The old ways can't keep up. We need a value-added tax to meet revenue demands by Bruce Bartlett?

Or do you mean this 5% VAT, H.R.15, by Rep Dingell, John D. [MI-15], to provide a program of national health insurance on top of everything else?

I saw that. However he did concede when his error was pointed out. That alone should at least put him in a separate class than Lewislynn. I would give him the benefit of the doubt that it was just posted too quickly without thinking about it than intentionally deceptive.

I'm aware you can glean a lot of good info from YN's arguments, even if his constant criticism of the FairTax without making the case of why another plan is better does get tiresome.

`(3) To prevent double, multiple, or cascading taxation. ...

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-- ...

It contradicts itself...where is the taxing of "Federal taxes imposed by this title" defined in "taxable property or service"?...

How does taxing "Federal taxes imposed by this title" not "prevent double, multiple, or cascading taxation"?

Your logic and contradictions are all over the map.

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