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?"
Good point. But that was a long time ago.
Interesting points. Thanks.
The short and direct answer is NO. BUT, there is more to the answer than that........The fallacy in the argument "But it's already been taxed!!" is the notion that just because there's no "tax" listed on your sales receipt that you aren't paying taxes. IN fact you pay dearly, but it's hidden from view. The ball to keep your eye on here is total purchasing power. Will you be better or worse off under the FairTax? That's the bottom line most people want to know. Unless you're one of the idle rich, you'll be better off under the FairTax and here's why:
The cost of goods produced in the US and to a lesser extent those produced abroad, include the embedded cost of all entity level taxation and the cost of compliance with our tax code. This is passed on to you in several different ways and impacts your ability to purchase goods and services in gross total.
When we tax our corporations, we tax ourselves in that the corporation just passes that cost along to the consumers in the form of a higher price, the investors in the form of reduced return on investment or to the employees in the form of reduced wages and benefits.
In your situation, as an investor and consumer (working too?)....you're likely to be picking up significant hidden tax costs. They come to you labeled as part of the price of a good or to you in the form of reduced return on investment. Here's a link to a pictorial example of how the cost of our tax system cascades and adds to the price of a loaf of bread. Please see: http://www.atr.org/taxbites/bread.html
When the FairTax is implemented, some economists have estimated that consumer prices will drop by as much as 30% because we will no longer impose taxes at each level of production AND the taxable entities will no longer have to employ tax accountants and attorneys to figure out the way to pay the least possible tax. It is impossible to quantify the savings for each good because the savings depends on the number of times the good has changed hands in the production process. Recognizing this as a potential source of savings, several mergers were instituted to "vertically integrate" businesses to avoid the multiple layers of taxation. However, the IRS cracked down on "vertical integration" of businesses several years ago and have since instituted strict regulation of "transfer pricing" between artifically created entities. So we're stuck until we eliminate corporate taxation altogether.
Once the tax and compliance costs are removed from the supply chain, prices should fall precipitously. Once the economy reaches equilibrium, your dollars should purchase the same goods and services that you are able to purchase today....the only difference is that you'll see a clearly labeled "tax" on each receipt.
Another thing to remember is that if you hold a valid SSN, you will receive a monthly "prebate" equal to the tax which will be charged on poverty level expenditures. This will mean that ALL poverty level spending, regardless of whether it's from current wages or savings will be TAX FREE.
Moreover, if you are working, you'll be able to keep your entire paycheck, less state, local and benefit deductions. The amounts currently withheld for Federal Income Tax and FICA/Medicare will be included in your net check. You'll get a pay raise on day one when the fair tax is enacted.
So when viewed in concert, the Prebate, the price reductions and the raise you'll get on day one....you'll probably be better off as soon as the fair tax is enacted. Those who stand to lose are those who spend lavishly.
The most important aspect of this legislation is that it removes from the government, the right to reach into my paycheck and confiscate that portion they deem legal. In place of that right, is the obligation to cut every holder of a valid SSN a check......I sure like the way that river flows. IMHO, the liberty enhancing benefits of this legislation outweigh all other aspects.
Hope that helps. Please respond if you have any other questions. I'll be happy to answer.
Quite ejoyable.
Thanks for sharing.
Welcome to FR.
I am the forum wraith.
I look for foolhardy trolls.
Alons for you..
Would mailing a Naked Mole Rat to your congresscritter be considered terrorism? What about some pre-owned diapers? I'm in a Bad Mood with politicians today!
Hard observations?
From you?
Not hardly.
Eliminating all federal withholdings from the paycheck puts more money in the bank each payday. Less money going to the government out of my paycheck means increased money for me.
It is then up to me to decide how to spend it.
Under the current system I must control my spending because I DON'T control the taxes. Under this proposal I still control my spending but by doing so I DO control the taxes.
"By providing about as much information as you need to [] register to vote," I assume there would be an end-of-year type of reporting and then a rebate (?).
You would update your application annually with Social Security Administration and receive the tax pre-bate monthly. It is based on the size of your household not income or wealth or actual expenditure.
Refer:
H.R.25Fair Tax Act of 2003 (Introduced in House)
`CHAPTER 3--FAMILY CONSUMPTION ALLOWANCE
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Alright... just answer this question without spinning or evading: Other than that one-line throwaway (unfounded and unsourced) comment you posted earlier, do you have anything that says that Dr. Jorgensen does not stand by his earlier work?Other than the quote of Dr Jorgenson saying the AFT's rate is too low do I having any quote of Dr. Jorgenson saying the AFT's rate is too low? No, just the quote of Dr. Jorgenson saying the AFT's rate is too low.
Just think of how Speaker Gingrich was pilloried when he suggested trimming certain costly administrative agencies that fell within the purview of the federal government.
I still remember how the public employee unions-flush with cash from compulsory union dues-were able to successfully portray his proposal to reform the Health Care Financing Administration as an all-out assault on the Medicare program.
I can only answer NO to one of your questions.......guess which one? LOL!!!
You register name, address, and SSN for each household member (probably DOB as well). Then, you get a monthly payment of 1/12 times the NRST rate times the poverty line for the number of adults and children in the household. No receipts to keep, no additional filing -- you'd only need to refile when family status changes (birth, death, marriage, divorce, etc.) or when you move.
I remember. Public employees' unions are the elephant in the living room, so to speak.
I'd support tax reform - whether a flat tax or a sales tax - that would *reduce* Federal revenue, AND came with a prohibition on deficit financing. Cut off their cash!
My question was borne of my initial skepticism that a consumption tax for consumers only could make up for lack of corporate tax. After looking over the fairtax.org site, I now see that it's possible.
Getting back to the actual flow, I take it that a manufacturing corporation would not pay tax on items it purchases to produce a product; otherwise, the cost of the ultimate product, before mark-up is considered, would be exponentially higher because of the successive generations of tax-paid being forwarded to the end-user. So by a corporation's not paying taxes on parts purchased, the cost of the end product (before profit is added) is theoretically cheaper.
Do I have this right?
Oh, no, you're from NEW YORK CITY!!!!! FOFL!
Good idea. I like it, but I think that Marx phrased it a little better. He said: "From each according to his abilities to each according to his needs."
Doesn't that work a little better for you?
MY GOD, doll. Why do you want to cling to a failed system?
Why do you want the IRS to maintain a presence in our lives?
Why do you believe that the government has a right to know how much you earn?
You can't even answer a simple yes or no without spinning the answer. Let me rephrase the question: do you have any reference where Dr. Jorgensen provides any founding or reference that AFT's rate is too low?
Remember that the phrase "it is well known" is basically code for "I want this to be so to prove my current point, so I'm just going to assume it is true, even though I can't show it".
That would be ugly nativism rearing its ugly head, economics be damned. Its like adopting Buchananism without looking at his greased up head.
Now you're getting warm and figuring out the purpose of this......
For them, its not really about the economy - like any good group of cons, the guys selling this snake oil can convince good but gullible people that this is a good thing, and they don't really care about the disruption.
There's always been a populist fringe that wanted to see a poorer, balkanized America. Seems to fit some romantic notion of the "liberty" of a peasant tyranny invisibly controlled by a few.
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