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?"
Quite so. Are you holding your breath waiting for that? Better to go NRST and make the cost of government more visible.
In five sentences you called him names four times. Are "fair tax" supporters so devoid of facts that name-calling is the way you advance your cause?
"Probably drives one of them Mini thangs."
Mini Coopers/ Yeah, I'm sure some of em do:)
That thang is to the bone ugly!!
I hate Saabs and Volvos.
The NRST is a federal tax, replacing only federal taxes. If a state still wishes to continue with a state income tax (which would be a bit more difficult without the federal IRS to piggy-back off of), they are free to do so.
Of course, without the infrastructure for income reporting the IRS provides, the states may choose to either replace or dramatically simplify income taxes.
Luckily for me, it seems most on this thread have your sense of smell!!!!
So do I .They are popular with lefties because they are made in Sweden. They are ugly, way overpriced, and have a horrible resale value.
"The perfect is the enemy of the good."
You are saying that evading NRST means we should keep the present system, even though it is plain to see that NRST is harder to evade, especially for the people in the illegal/underground economy, who just plain ignore the system us law abiding serfs pay into.
Don't confuse debate on the issue with comments on the article. The issue and the article bear no likeness to each other.
The Mini is very metro!
"Substantial, sudden change like that is NEVER good for an economy."
The only thing better than massive numbers of Lawyers out of work in the US is massive numbers of Laywers ceasing to exist.
I can't see my spending habits changing much. What I do possibly see changing is me opening a side business. Can't do that right now as I either open my own business and operate at margin or a loss, or I work for someone else and get teh bills paid.
A major part of our economy is not sustainable without new wealth being generated. The current system penalizes new wealth. The NRST makes it more possible.
I think I'll stick with "the New Hope" embodied by the NRST than the Devil we already know in the over abused IRS.
The pancake looks like a beret. Make the critter look like a French Teacup Walrus, goo goo g'joob
Yep.
I agree somewhat with what you are saying. However, it reminds me of the interest rates. That is, a small move in interest rates can, collectively, cause either an increase or decrease in home sales. I think the same is true here. Everyone isn't going to move in lockstep, but people who were "on the edge" of making spending decisions could do so in sufficient numbers to have quite an impact on our economy. This could, in turn, create the snowball effect.
Also, people who "wish they had control" of their taxes but have accepted that there is nothing they can do would suddenly find themselves in a position where they can drastically reduce taxes by doing things like make their own meals at home, buy a more fuel efficient car, drive less, etc. It is a "control" thing.
Everybody does not have to do it, but for it to have a dramatic impact, only a small percentage of the population would need to act for it to have a dramatic effect on our overall economy.
Substantial, sudden change like that is NEVER good for an economy.
NEVER!
HILARIOUS!!! I am literally laughing out loud! Poor babies have to make an honest living? HOWLING laughing, here!
Hi Gabz.
I see that you have already been responded to by more than a few posters but I would like to add a few comments too.
As kevkrom said, the FCA or prebate, refunds in advance the amount of tax that a household at the poverty level would pay in sales tax if they spend their entire income on taxable goods essentially making them tax free. This eliminates the REgressiveness of the typical sales tax and makes it very PROgressive.
There are no confusing 'this_is_taxed_this_isn't' rules. If it is new, it's taxed. If it's used, it isn't. No exceptions.
As Judith Anne pointed out, when the costs of imbedded taxes are removed, prices will fall driven both by competition and customer demand. There won't be much difference between the prices now and the prices after the change. What will change is that you will get your whole check without the federal government taking it's cut first. You will get a check to cover your tax expenditures up to the poverty level.
As your income now becomes your own, you will decide when and if you will pay tax at all. Buy used goods, grow vegetables in your garden, make your own clothes -- you pay no tax. But if you want to be free from doing it yourself, buy new and pay the tax -- you'll have more money in your pocket to do it.
But, this change will cause the economy to boom and you now have all of your money. You won't have a bigger chunk taken when you work overtime. There will be overtime and new jobs aplenty as people enjoy the extra cash in their paychecks. It'll be your money, not the Feds.
Education is tax free and the cost of education will come down meaning that if your kids are now trapped in a failed inner school, a little extra work on your part means that you can now send your child to a private school that is now out of reach.
Gabz, the benefits of this idea are practically boundless. What I like most is getting rid of the IRS. There will no longer be withholding of taxes, no tax filing, no audits of individuals. It's a major step in moving back to being free of government intervention in our lives and the growing trend toward more government that will burden our children and our children's children.
Can you think of a better gift for them than ridding them of the IRS?
Gee... get rid of the parasites currently mucking up the system.
Er...
No. This would NOT be a bad thing. Accountants would still be needed, but would have a much easier job to do.
I'm not so sure that is true. Most folks I know do a lot of thinking before spending. There are times when my husband actually thinks I think TOO much before spending.
And we probably already only buy what we think is worthwhile based on a VERY different scale than the rest of the nation, so our spending habits probably won't change all that dramaticaly.
That I agree with almost totally. From the way I am understanding the idea of this, my spending would probably increase a bit because I would only have to wait 2 pay periods instead of 3 or 4 to buy that new sofa I saw last month (just an example)
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