National Retail Sales Tax - You gotta be kidding!

GOPNATION.COM ^ | January 31, 2005 | Steve Pudlo

[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?"

[ancient_geezer]

Incidence at each and every level of production is likewise allocated....that's why this is such a sticky wicket.

Indeed, it is also why most pontifications by economists that are not rooted in empirical evaluations end up wide of the mark. Some factors to consider in the assumptions often made when economist tend to speak excathedra as it were.

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, 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."

[OHelix]

Lewislynn's game is logical sleight of hand, to confuse people. He's not here to constructively add to the debate, he's here to disrupt and see who's skin he can get under by trying to be so quick with logical distortions that his opponents, and others reading will get confused and not be able to follow.

Firstly his argument was that because the bill used the language "gross payments", that State sales tax would be taxed by the FairTax, which claims to avoid double and cascading taxation... "AHA! the FairTaxers are lying!"

Then when he is reproved and it is pointed out that teh bill specifically defines "gross payment" as "payments for taxable property or services, including Federal taxes imposed by this title" and that state taxes are neither taxable property or taxable services, he makes the assertion that Federal Taxes are included in the definition, and are not a taxable property or service. "AHA! the FairTaxers are lying!"

However the phrase "including Federal taxes imposed by this title" refers to Gross Payment, not "payments for taxable property or services". By his interpretation, the tax is immediatly and infinately self compounding. Even if he wants to argue that you could interpret it as such, the law expressly forbids that any court or agency shall interpret the law as to have cascading taxes."

An invoice shall be:

1 - Taxable products and services
2 - Sales Taxes on taxable products and/or services
3 - Federal Taxes on taxable products and services
4 - Total invoice of the above three

However, acording to the bill, the definition of GROSS PAYMENT includes 1 and 3, and 23% of that shall be the FairTAx levied.


What lewislynn does is the equivelent to my freind who was listening to the news the otherday, and when one of Bush's press agents stated, "The PResident is preparing a draft and we will make that available as soon as possible", he replied "AHA! Liar! Bush said there wouldn't be a draft!"

[robertpaulsen]

"I don't see how the FairTax will increase or decrease that practice."

It at least doubles the incentive (30% v 15%) and would attract more people into forming a corporation just for the purpose of tax evasion.

I do not think the 23% comes close to accounting for this avoidance. That is my concern (one of them, anyways).

[OHelix]

It at least doubles the incentive (30% v 15%) and would attract more people into forming a corporation just for the purpose of tax evasion.

I think that's a valid point. But then my next question would be, "so?". There are definitions in place to specify what can be considered busniness use. If they can spend within those guidelines, then they are within the boundaries of the law.

[ancient_geezer]

I do not think the 23% comes close to accounting for this avoidance. That is my concern (one of them, anyways).

Two things, first the 23% is calculated on the basis of the GDP data series which excludes evasion activities(un-reported transactions) from sales and income data. The denominator used in calculating the rate is consistent with current evasions of the tax system including your wrongful business asset conversion scams which is quite rampant under the current system of taxes that the NRST replaces.

Secondly the 23% was established prior to the current Bush tax cuts, and as a consequence actually over estimates what the true revenue neutral figure ought to be with those cuts made permanent. This is one of the factors that is currently being dealtwith though a full economic study of the Fair Tax Act being undertaken by the Congressional Research Service economics staff, hopefully to be released with taxreform hearings latter in this session of Congress.

The following gives some idea of the magnitude of difference in NRST tax rate once adjusted for the current level of federal taxation.

 

refer Tax Freedom Day 2004 PDF http://www.taxfoundation.org/sr129.pdf

 

Total Effective Tax Rates by Level of Government Percent Net National Product(NNP)
Year	Federal	State	Total
1997	21.8%	10.3%	32.1%
1998	22.4%	10.4%	32.8%
1999	22.5%	10.4%	32.9%
20000	23.1%	10.4%	33.5%
2001	22.2%	10.5%	32.7%
2002 1	19.7%	10.2%	29.2%
2003 2	18.5%	10.1%	28.6%
2004 3	17.9%	10.0%	27.9%
Notes: Leap day is omitted to make dates comparable over time. Since depreciation is not available to pay taxes, GDP is an overstatement of spendable income for the purpose of measuring tax burdens. Depreciation is netted out of NNP. 0 Last year of Clinton administration when of HR25 rate estimated 1 Economic Growth and Tax Reform Reconciliation Act of 2001 2 The Job Creation and Worker Assistance Act of 2002 3 Job Growth and Tax Relief Reconciliation Act of 2003 Sources: Office of Management and Budget; Internal Revenue Service; Congressional Research Service; National Bureau of Economic Research; Treasury Department; and Tax Foundation calculations.

[Your Nightmare]

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.

I understand the savings of compliance costs, but I thought we were talking specifically about the employer portion of the payroll tax. The compliance costs of that are negligible.

Overall compliance cost is an area of potential price reduction. What we need to look at is the difference in compliance costs between the current system and the proposed. That is the savings that could possibly be seen in prices. The compliance costs of a NRST would be much lower than the current system. How much is the question.

As you probably know, compliance costs estimates are all over the map; it's real easy to come up with any number you want. Joel Slemrod put the number for 2003 at $110 billion for both personal and business income tax. I would be shocked if the actual federal tax compliance costs for business were over $100 billion. The FairTax gives businesses 0.25% of taxes remitted for for FairTax compliance. What the actual number is is difficult to say.

A related issue is administration costs. The 2001 budget for the IRS was ~$9 billion. The FairTax gives the states another 0.25% for administration costs, that's ~$6 billion, but that doesn't cover the cost of Treasury (the new Sales Tax Bureau) to coordinate with the states and it doesn't cover the cost of administering the Family Consumption Allowance. Mailing out a check once a month to every family in America is no small task. It's impossible to know what these costs would be but I think it's safe to say that it would be at least the ~$3 billion difference between the IRS budget and what the FairTax gives the states, and I would guess probably more.

[Your Nightmare]

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.

---

9 magic assumptions made by Ancient_Geezer and His Merry Band of FairTaxers about dollars paid to government by businesses:

1. Paying corporate income tax to government only increases consumer prices.
2. Paying the corporate employer's excise to government only increases consumer prices.
3. Paying a VAT to government only increases consumer prices.
4. Paying retail sales tax to government only increases consumer prices.
5. Paying sales tax on manufacturers or distributors products to government only increases consumer prices.
6. Paying any excise tax to government only increases consumer prices.
7. Paying corporate property taxes to government only increases consumer prices.
8. Paying tariffs to government only increases consumer prices.
9. Everytime the IRS Commissioner sneezes it only increases consumer prices.

[OK. I made that last one up.]

[kevkrom]

It at least doubles the incentive (30% v 15%)

Just cuious, how do yoy come with with the 15% number? Payroll taxes alone on the self-employed is 15.3%, up to the high $80k mark. Income taxes on top of that should then be starting at about 25% or so, gradually getting as high as 35-40%. Unless I'm missing something?

[ancient_geezer]

Slight correction to your list:

9 magic assumptions made by Ancient_Geezer and His Merry Band of FairTaxers about dollars paid to government by businesses:

1. Paying corporate income tax to government only increases is a component of consumer prices.
2. Paying the corporate employer's excise to government only increases is a component of consumer prices.
3. Paying a VAT to government only increases is a component of consumer prices.
4. Paying retail sales tax to government only increases is a component of consumer prices.
5. Paying sales tax on manufacturers or distributors products to government only increases is a component of consumer prices.
6. Paying any excise tax to government only increases is a component of consumer prices.
7. Paying corporate property taxes to government only increases is a component of consumer prices.
8. Paying tariffs to government only increases is a component of consumer prices.
9. Everytime the IRS Commissioner sneezes it always increases consumer prices.

 

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.

[robertpaulsen]

Purchasing a computer "for the business" avoids how much in taxes today? I was estimating corporate taxes at 15%. Is that in error? If so, correct me.

After the NRST, how much tax is avoided? I say 30%.

My point being, whatever the exact numbers, there is an increased incentive to cheat. Has this been taken into consideration with the 23% number? I don't think so.

The "it's full of faults" Brookings study does, and I believe it to be more realistic in its assumptions.

[kevkrom]

Thanks -- that clears it up for me. I'm still not sure exlcuding the self-employed payroll tax is correct, but it's been a long time since I had to file that way, so I forget the particulars.

[ancient_geezer]

The "it's full of faults" Brookings study does,

Brookings is really and unbiased source you have there LOL.

Surely you allow the co-authors of the Fair Tax Act rebuttal time.

PDF: Rebuttal of the William Gale papers
by David Burton & Dan Mastromarco
The Argus Group

As far as the situation as regards the potential for evasion goes, what you are overlooking is the same ones evading the income tax, will undoubtedly be invovled in avoiding collecting and remitting NRST.

However, whenever they purchase retail goods and services using their business certification they will be under scrutiny by virture of identifying themselves to the state sales tax agencies administrating the NRST and charged with auditing business accounts.

For all other purchases, they end up paying the same NRST as anyone else. The risk of evasion in the manner you suggest under the NRST is much greater than under the current system where all that is required to not file and stick with cash transactions to sucessfully avoid detection and evade the tax.

A solid discussion of the issues of evasion as compared to the income/payroll tax system can be found here:

===>Tax Evasion: The Underground Economy

[robertpaulsen]

"However, whenever they purchase retail goods and services using their business certification they will be under scrutiny by virture of identifying themselves to the state sales tax agencies "

I see. So when I present my business certification to purchase that tax exempt gallon of gasoline for "business" purposes, or that $1500 PC for "business" purposes, these state sales tax agencies will swoop down and discover, somehow, that these purchases were really for my personal use.

I got it.

[ancient_geezer]

You got it, if you choose to claim you are a business not required to pay the NRST, you get to be audited by state sales tax authorities to assure you actually are.

What did you think, there would be no enforcement of the law??

Sheez.

[kevkrom]

rp: "So when I present my business certification to purchase that tax exempt gallon of gasoline for "business" purposes, or that $1500 PC for "business" purposes, these state sales tax agencies will swoop down and discover, somehow, that these purchases were really for my personal use."

ag: "if you choose to claim you are a business not required to pay the NRST, you get to be audited by state sales tax authorities to assure you actually are."

I'll just add that just because you use a business-exempt ceritifcate, it doesn't necessarily follow that you will get audited. The trick to enforcement will be to keep the probability of being audited will be high enough to discourage the bulk of folks from getting a little creative with their accounting...

[robertpaulsen]

"you get to be audited by state sales tax authorities to assure you actually are."

No, I actually am. And I'm saying more people actually will be in order to save the 30% with some creative accounting.

Setting up your own one-man corporation is not difficult. There's a lot that can be written off, even legally, as you know, and that 30% (plus 7% state sales tax) is a great incentive to set up, say, a "consulting" service on the side.

All I'm saying.

[robertpaulsen]

"it doesn't necessarily follow that you will get audited."

Who's going to do the auditing? The state? What's in it for them, the state tax?

That's not enough money to chase down every one-man "consulting" firm that puts a personal tank of gas on the corporate credit card once a month.

[ancient_geezer]

As far as I can see that is being done already under the current tax system, and does not represent a significant change where the NRST is concerned.

The threshold for folks to attain and continue the use of that certification is actual sales for which the NRST is being collected and remitted by the business.

Too little NRST flowing from a "business" with large claims of input purchases is one big red flag for an audit to assure the integrity of those claims.

If one want to avoid paying the NRST on something like a computer it would be far less risk involved to just go buy a used one with no NRST in the first place, same is true of many such items that are targets for abuse.

When all is said and done, I see no reason to believe there will be any increase of such evasions beyond what already exists and is accounted for in the NRST rate.

[Your Nightmare]

That's not enough money to chase down every one-man "consulting" firm that puts a personal tank of gas on the corporate credit card once a month.

Actually, my state wouldn't tax your "one-man 'consulting' firm" so they wouldn't care much if you were cheating our not. All they get is one-quarter of one penny for every dollar they collect for the Feds. That's not worth a phonecall. So give it a couple of decades and what you will have is the states collect the voluntary compliers and the Sales Tax Bureau being just as onerous (or worse) to these businesses as the IRS is today.


[I can already see the whisper campaign, "Move your business to Utah, we're lax on FairTax collection!"]

[phil_will1]

"What prevents both a sales tax and income tax today?"

"That would be those of us who oppose adding a National Sales Tax to the list."

Great! Then you should find it easy to accept that those of us who oppose the income tax would be able to prevent it from rearing its ugly head again if we ever got rid of it.