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?"
"Your NRST monthly rebate doesn't help the situation."
Except that 100% of the citizenry receives the prebate.
"I support a flat tax of 10% across the board, no deductions, no exceptions. You earn $1000 for the year, you pay $100. to the government."
Is the flat tax rate of 10% revenue nuetral? I'm doubtful that it would be revenue nuetral, but it may very well be the right number for the feds to function constitutionally.
"There is also the employer share of the payroll tax. Virtually every economist believes this is borne by labor through lower wages,..."
Maybe I'm missing something, but if labor bears the payroll tax with lower wages, how does removing the payroll tax drive a wage decrease?
"That would be those of us who oppose adding a National Sales Tax to the list."
Then you are missing the point in the legislation that restricts both systems being in place. What current restrictions exist?
These threads plus the WOsD threads plus the puff threads are a great way to identify the convenient conservatives from the true conservatives. I especially like the "we are all for freedom as long as everyone lives like us" crowd. They RR gets really peeved when you point out the fact they are as dangerous as the LL, socialism is as fascism does.....
Maybe I'm missing something, but if labor bears the payroll tax with lower wages, how does removing the payroll tax drive a wage decrease?It doesn't by itself, but we are talking about eliminating much more than the employer share of the payroll tax. The employer share of the payroll tax is less than 3% of the FairTax base + exports.
Intentionally missing my point?
Do you agree that one-man "corporations" will increase dramatically beyong the number of "S" corps that exist today to take advantage of the tax exempt status?
How much fraud is built into that 23%? Any?
You mentioned something about statutory but you didn't make it clear which part of the total payment, in your mind, was the gross payment.
In other words, you can't find anyone.
Funk and Wagnalls
Whereas economists agree that the employee currently bears the ultimate incidence of this tax (CBO even acknowledges this), nothing in the FairTax Act requires wages to increase by this amount. Therefore, when attempting to project the impact on prices, it must be considered as a potential contributor to price reduction.In general, I think businesses might take that money and reduce prices a little bit, raise wages a little, and give a greater return on their investor's money. But if this plan is revenue neutral (which I don't think it is), all of that money must be put back into prices through the NRST. In the terms you were using yesterday, overall purchasing power is not increased.
John Linder is going to be on Boortz at 10:30 Eastern today if anyone is interested. Maybe someone can call in some of these challenges to them.
(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.
No comment?
Refer to my #1036 where I say: "the gross payment for federal tax purposes is $100, because the state sales taxes are not included."
If you don't know how to read legislation, it's not up to me to teach you. "Gross payment" is clearly defined as payments including "taxable propery or service" and "Federal taxes imposed by this title". Nowhere does it include state or local sales taxes, nor does the bill contradict itself.
Just for future reference. If you identify $100 of the total $103.85 paid as the gross payment, what do you call the final $103.85 payment for "the taxable service or property" that includes all the taxes?
The total payment, including all taxes.
The "gross payment" for federal purposes is $100
The "gross payment" for state purposes is $80.85.
What is so hard to understand about this?
... "Gross payment" is clearly defined as payments including "taxable propery or service"
Yep it's clearly defined, now if you'd learn to read the words that are actally printed instead of words you think or wish you saw.
`(5) GROSS PAYMENTS- The term `gross payments' means payments for taxable property or services, including Federal taxes imposed by this title.----
`(1) FOR 2005- In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service.
It's not 23% "including" the taxable property or service .... It's "23 percent of the gross payments for the taxable property or service.
If you don't know how to read legislation, it's not up to me to teach you.
Thank goodness I don't depend on you for ANY information.
I understand the issue of incidence in terms of an arguement whether an increase in the employers portion of payroll tax drives prices up, or drives prices down... But unless one is asserting that elimination of the payroll tax is going in increase gross wages rather than reduce costs, the whole argument that its elimination would not reduce prices is flawed and misleading.
Also, I understand that the employee, not the empoyer pays the personal income tax and the employee's portion of the SS tax. However, regardless of who the shift is put onto when a change occurs, that tax burden is part of the company's cost whether it is remitted to the government by the company or remitted to an employee to be remitted to the government. Just saying, "they're paying it not us" doesn't change the fact that it must be paid for out of the labor costs of the employer, and is part of the compnay's costs, and therefore has an influence on the price (regardless if it is accounted a tax cost or a labor cost), and can acurately be described as "embedded" into the cost of goods, which does have a direct bearing on price, even if it shares influence with other forces.
If we go back to the hypothetical company we used above, with a 15% margin:
That 15% margin would mean 15% of the price would be taxed at the corporate tax level.
There is a tendency to think that 85% of their price is not taxed, but this is not the case.
Of the 42.5% that was payroll, a portion equal to total matching payments, another portion would be the personal income taxes paid by the wage earners, and the remainder would be untaxed. The rate of that 42.5% would expectedly be an average of tax burden per person.
That leaves 42.5% to come from other sources.
In my example I assumed all other sources has a similar tax structure, and that there would be no protion of the gross receitps that would not ultimately carry a portion of the tax burden.
However, I did fail to consider the current import costs. If the above company was an importer, and all 42.5% of it's other costs were the cost of imports. That 42% would NOT have cascading taxes... and would be the difference in 9.75 embedded taxes, and the ~17% in the previous example.
So it is true to say, that as the amount imports increase, the effect of cascading taxes are diluted. I'm not sure how you would try to compensate for that mathematically to remove the effect of the imports from the calculation.
I understand your point, however, I also realize that this dynamic is present in our own system. The people who work the system now come up with ways to account as much of their spending as possible as business expenses, including the cars they drive, justifying a vacation as being a busniess trip, etc. I don't see how the FairTax will increase or decrease that practice. It'll be the same game we have now... "How can I make this purchase a business expense?"
"...all of that money must be put back into prices through the NRST. In the terms you were using yesterday, overall purchasing power is not increased...."
I disagree......
The annual compliance cost savings, estimated to be in excess of $200 BILLION a year, will yield real increases in purchasing power on day one. Moreover, as the US attracts capital, real wages will increase....thus increasing purchasing power over the long term.
Ultimately, market forces will determine how the employers 7.65% is allocated. In a tight labor market, employees will probably benefit from increased wages
One of the factors here is there is unlikely to be a tight labor market, very likely just the opposite.
One must recognise the potential incentive to save/invest taxfree over spend with a very visible tax on consumption in place.
With the repeal of income and payroll taxes, the high marginal taxes on labor falls significantly reducting the effective value of leisure. At the same time the attraction to save/invest taxfree draws folks to seek more productive use of their time creating an upward trending supply or desire for more dollars to invest, ergo an increase in the surplus of labor supply.
The effect of incentive to save therefore has two operative effects one in encouraging price decline as suppliers must compete not only with their natural competitors for the individual's dollars but with the investment markets as well, the second effect is one to hold the line on wage increases as business look to recapture their market share to maintain profitibility. From what I see, the first year or so should see a large spike in these effects just from the novelty of the change to an NRST decaying off in time as markets move towards its new equilibrium.
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