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?"
FRANCE!
Some of the reasons I believe the FairTax is better than the Flat Tax:
1 - Under our current system, as well as under the Flat Tax, the taxes are levied at the production level, and increases the costs of our goods before they go to market. This happens throughout the entire production tree resulting in American made products having a cost burden of all the corporate, income, and SS taxes paid through production. This effectively puts a tax on our exports, and although it is not treated as an export tarrif (which are expressly forbidden by the Constitution) it accomplishes the same thing, and makes our own exports less competitive than if we taxed at the point of consumption rather than during production.
In fact, taxing income is WORSE than taxing exports, because it not only accomplishes the same effective tarrif for exports, it effectivly puts that tarrif on ALL American made goods, even if sold domestically. Other countries (China being a big one) are able to insert their products in American markets without being burdened by Federal taxes. That is the exact oposite of protectionism. Both the current system and the Flat Tax are effectively protectionist measures for everyone else at America's expense. The FairTax shifts the point of collection from production to consumption. This allows our products to be exported without the burden of federal taxation (consistent with the Constitutional prohibition on export tarrifs). ALSO, it taxes imported goods at the same rate as domesticly produced goods.
2 - Because the FairTax is collected at the retail level instead of the production level, non-retail business will experience an immediate gain by eliminating their federal tax burden, which should have the effect of lowering costs throughout the entire economy.
3 - Forbes tried to sell America on the FlatTax in 2000 and arguably failed. The FairTax, is much more salable. It has been my experience that everyone, without exception, with whom I have discussed the FairTax face to face, were initially sceptical and offered objections, but were quickly and easily won over and persuaded to be stongly in favor of the FairTax... Even several liberal democrats. That is simply not going to happen with the FlatTax.
4 - The FairTax broadens the tax base relative to the Flat Tax. The FairTax would collect tax from foreign (legal or otherwise) visitor's consumption, who are imune from taxation now. Criminals and others who do not report thier income would be taxed on their consumption. This dynamic would shift some of the Federal tax burden off of American's an onto those who are benefitting from being here but not taxed under our current system or the FlatTax.
5 - The FlatTax leaves the system in place that began as a simple system, open to further manipulations that resulted in the mess we have now. The FairTax repeals large amounts of code, and seeks to repeal the 16th ammendment, making it once again, unconstitutional to have a Marxist income tax.
I have no problem with sharing correct information, but the original posting should, in my humble opinion, have started from a correct statement of the Fair Tax proposal rather than with many factually incorrect points that the poster then argued against.
And with the NRST, the entirety of the cost of compliance with the tax code, and paying the taxes disappears and American companies regain competitiveness as their expenses drop, productivity rises, and market share increases.
It is a great plan.
My comments on this article have centered on the fear mongering passed by the author.
As for the 23% number, this is confirmed by multiple respected economists with independent studies. From the same paper I linked to you:Dr. Jorgenson has since realized the 23% rate is a fairy tale.For example, Dale Jorgenson (Harvard) has found that the FairTax plan is revenue neutral at 22.9 percent.
Efficient Taxation Of Income by Dale W. Jorgensen and Kun-Young Yun, November 15, 2002
Since taxes distort resource allocation, a critical requirement for a fair comparison among alternative tax reform proposals is that all proposals must raise the same amount of revenue. It is well known that the ST and AFT [Americans for Fair Taxation] sales tax proposals fail to achieve revenue neutrality and tax rates must be increased substantially above the levels proposed by the authors of the plans.
Cheater.
The NRST would be the only federal tax so your pay check would have no federal withholdings. State tax withholdings and state tax laws would remain unchanged.
"I may be wrong, but I am dead set against any sales tax as it is the easiest way for the government to confiscate property against our will."
Can you explain to me how a sales tax is easier for government use to confiscate property than the current income tax? It seems to me that with a sales tax I would have the choice to purchase or not to purchase.
The poster wouldn't have made it through law school.
That happens now. The number of federal taxes paid at the state level and transferred to the feds is almost uncountable.
No, it's worse. We are back to the Articles of Confederation where the states had to voluntarily send in their tax remittances to the central government.
The infamous Harvard study showed businesses would like to relocate their HQ back to the US under the FairTax.What "infamous" Harvard study shows "businesses would like to relocate their HQ back to the US under the FairTax." Got a name or a link?
Thank you.....that makes sense.
Don't worry....I get nailed on everything else!
I agree. I find it sad that we have lived with a progressive tax for so long that anything less progressive is deemed regressive. Its rather like how congress can call a spending increse a spending cut if the increase is less than they wanted.
Sheesh.
How does a sales tax make it easier for the Feds to confiscate your property? Currently, they can quickly and easily place tax liens on your property for failure to pay your income taxes. With the NRST there is no tax return for the feds to pry over looking for mistakes.
You say that as if it were a bad thing, I say if gives more pull from the States and the citizens toward Federal Government that way.
What prevents the government from passing a sales tax today? What prevents getting both? Part of HR 25 is the disbanding of the IRS, in fact HR25 is the best defense to getting both forms of taxation.
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