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?"
Nope, just ugly ... and the pancake doesn't help.
I don't like the sales tax idea; I'm a Flat Tax person.
eastsider asked: "How is corporate sales tax assessed?"
You replied: You've got me........and I hadn't even thought about that when I mentioned a farmer.
There is no tax on business. The tax will only be on goods and services at retail.
Gabz, the bill that we are referring to is HR 25 (and S 25) -- The FairTax. The total bill is about 130 pages. Compare that to the tax code today of about 50,000 pages. There have been other sales tax plans, but none compare to the FairTax in fairness, simplicity, visibility, and Constitutionality. The website www.fairtax.org has a great FAQ section that dispels all of the uncertainty and confusion that the author of this piece has stirred. I am of the opinion that the author is not an uninformed idiot but rather, a deliberate liar trying to stir uncertainty and confusion.
Letting the government hold your money interest free prevents you from getting interest on it, should you save it, or buying things you want, should you spend it.
You want a concrete example, just look to your own comment earlier about Dr. Jorgensen. You quote basically a single section in a paper that has no founding or reference as gospel truth, and then use it to claim that the work of 7 independent economists and think tanks are therefore bogus.
The plan has merit and flesh, the article posted lacks same. The plan removes all the reason for and incentives behind all the cheating that happens in corporate and personal taxes. I fully back the Fair Tax approach.
The plan needs to have some flesh on it before we can even debate it's merits. And merits we argue now all depend on how the plan is proposed, which it hasn't been yet.
The Fair Tax Plan(HR25) has been in legislative form before congress since 1997. Has gone through extensive research, debate, modification from public and Congressional input and now looks like the legislation sponsored by John Linder in the House(HR25) & Saxby Chambliss Senate(S25), to kill all income and SS/Medicare payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
Text of legislation on Thomas ===> H.R.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information:
How much more flesh do you need on a bill introduced into both houses of Congress before you are willing to debate it?
What I'm saying is that say you have $100K in a 401(k) or IRA today and retire tomorrow. You are gonna get wacked for income taxes on it. With the NRST you get all 100KUntil you spend it.
I think tax reform is needed, and perhaps a fair tax could be made to work, but when its proponents do nothing but call people who disagree with them "idiots" and "morons" then the fair tax people have lost the argument even before there is a proper debate. If you think tax reform is important and not just another sporting event with winners and losers, then you need to help. Soon the debate will go national, and the side that best keeps their wits and sounds professional will prevail.
Despite some of the misguided conclusions drawn by Eric Schlosser in "Reefer Madness", his essential premise, i.e. that there are literally billions of dollars flowing through the underground economy, is a valid one.
By lax enforcement of some laws and overly stringent, zealous pursuit of others, the federal government is losing billions in potential tax revenue.
Whether or not that is a good thing is another matter, altogether.
Flat tax requires same IRS structure that exists today. Fair Tax would eliminate a lot of it.
You mean that unimpressive group of guys with a lot of ideological conviction, questionable tax ethics and very little sense?
Aye, 'tis one and the same.
Small timers, trying to play in the big leagues.
In reality, its all just a bunch of populist windbagging.
then it is no good.
Now, see -- that's a reasonable comment and not simply argumentative.
The article itself, however it not really worth discussing. It is full of factictual and logical errors that even the perennial anti-NRST folks would have to agree just looks silly. The author presents a lazy and sophomoric piece of work that relies on myth and conjecture rather than fact. It's much more efficient to start from scratch and actually discuss the NRST proposal than it is to bother refuting the author line-by-line.
Yes indeed.
So investment firms are not taxed for providing investment services like mutual funds?
I'm against that plan. Too complex.
You want a concrete example, just look to your own comment earlier about Dr. Jorgensen. You quote basically a single section in a paper that has no founding or reference as gospel truth,You are looking for gospel truth from an economist?!? LOL! You're looking in the wrong place.
and then use it to claim that the work of 7 independent economists and think tanks are therefore bogus.I've never been able to find any of these papers that make these claims (have you?), so, AFAIK, they are bogus.
To my knowledge, there is no such exemption in the FairTax. And I understand that issue. However, I disagree that it should go "nowhere". However, I think the FairTax would benefit if that issue were addressed. What would you recommend?
This conversation has nothing to do with starbucks employees (who, if ever relied on me would have been out of jobs long ago.the stuff is vile) nor products made in China.
I'm already saving to buy the sofa (actually in my case the reality is a washing machine) that is how I do things....
Your point fails to include many of the points of this that have been brought up by others.........the current built in taxes on such a $500 sofa would be reduced, thus reducing the $500 price tag and so the eventual retail price of the sofa, including the NRST, wouldn't be much more, if at all, then it currently is.
By not having all the taxes withheld from my paycheck, and eliminating the hidden taxes on the price of the sofa, I'm going to be able to purchase it quicker than I now can.
I'm starting to see this as a win-win proposal all around.
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