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?"

[lewislynn]

Illegals and "under-the-table" workers will now pay tax
Tax is on consumption (Constitutional) not income (unconstitutional)
IRS can be eliminated, or extremely downsized
Foreign tourists would also pay tax

How is any of that better for you?

[Badray]

Great news if you're a protectionist, huh?"

Great news anyway you look at it. If we pass this, the country will become a haven for manufacturers who want to remain competitive. Great news if you want to work, huh?

[Gabz]

I've been enjoying the heat and light. I try to keep an open mind on most subjects/issues and especially those of which I am rather unfamiliar, such as this.

I will say again how appreciative I am of the fact that I wasn't treated as kittie bait for some of my questions....many of which I now realize could have been answered by simply doing some reading. But I do prefer the (semi) one-on-one interaction of a current thread.


So I guess I, too, got a lot of love today!!!!

[ancient_geezer]

I would still like to find some way of decreasing the size of the leviathon we call government........but that's another subject for another thread.

Well, now that you mention it. Consider:

 

23%........... Effective total federal tax rate with respect to gross expenditure for consumption:

15% ..... rate if Social Security and Medicare were eliminated
14% .......... rate if Nat'l Endowment for the Arts were eliminated
12%........ rate if Dept. of Education were eliminated
10%.......... rate if welfare & foreign aid were eliminated
etc.

So lets look at what the maximum it would take to fund those functions clearly authorized under Article I Section 8 of the Constitution, in current dollars:

http://w3.access.gpo.gov/usbudget/fy2001/guide02.html#Spending

• $334 Billion --- Defense & Military related expenditure
• $ 31 Billion ---- Administration of Justice
• $ 16 Billion ---- General Government
• $199 Billion ---- Interest on the Debt
  =========================
  $580 Billion ---- Total

Institute an across the board, Flat rate, single stage National Retail Sales Tax, which taxes all imports and domestic products with the same rate.

Replacing all current federal tax law with a retail sales tax would be 23% on new goods and services paid and receipted at the retail register. No hidden tax, no exceptions, exemptions everyone participates.

Such a tax acts in a natural manner to encourage the elimination of excess government functions through visibility of burden among all constituencies of the electorate.

The total federal government budget would move from $2,000 billions towards something less than $580 billions calculated.

The across the board federal tax rate on new goods and services would decline towards less than 6.7%.

As tax rate on sales decreases the economic burden on retail items, the sales volumes and growth in the economy would be tremendous allowing even further reductions in tax rates below that less than 6.7% theoretic level.

That is what I perceive as the ultimate achievements possible under a National Retail Sales Tax structured in the manner of the revenue bill H.R.25. Simple common sense applied to the principal of TANSTAAFEL,( no free lunch, everyone participates in paying their way in proportion to the benefit the extract from their consumption.) encourages the natural change in attitudes required of the electorate as regards the burden of government largess in their lives.

Thomas Hobbes from Leviathan

• It is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income

Hmmmmmm....... It's do able, with time and effort, once the blinders are removed from the electorate.

[Gabz]

2 - The direct taxation has allowed the federal government to bypass the states and go directly to the people's wallets, then offer back that money to the states on the condition that the states do things the way DC wants them done. The FairTax does not eliminate this dynamic, but does alter it the direction of taking power out of DC and putting it in the hands of the people and the states.

Even a slight alteration in the Fed extortion of the states is fine in my book.

I can support pretty close to anything that will cut down on the Feds telling states to pass laws or lose "federal funds".as if that money was theirs, when actually it is all ours.

I am not naive enough to realize a certain amount of taxation at both the federal and state/local level is warranted..........but the current levels at all levels is pretty much out of control. Smaller government = lower taxes.

[Gabz]

You mean I actually got something right?????? LOL!

All kidding aside.........I do like the idea of determining how much tax I pay based on what I purchase as opposed to some namelessfaceless entity determining the tax based on how much I earn.

[Gabz]

Thank you.

[Judith Anne]

Gabz, you are a natural for the NRST. You really do get it!

[Badray]

Actually, reducing the size and scope of government will flow from making the cost of government more visible. Right now, many people do not pay an income tax and as a result to not understand that they are paying indirectly thru the costs that are imbedded into the price of all goods.

Until people realize that there is no free lunch, they don't care how much lunch really costs. Once they do, there will be downward pressure on the rates. Congresscritters who promise to provide all manner of goodies at the expense of the other guy will not be greeted as warmly because the cost of these goodies will be directly reflected in the purchase of all taxable goods and services.

[Gabz]

Don't you remember the mantra.......what happens at CPAC, stays at CPAC!!!!! LOL!!!!!!!! Alas, I won't be making it this year. I had to make a choice, the FReeper W2 Ball or CPAC...I was in DC on the 20th!

Congrats on becoming a granddaddy!!!! Don't worry, you'll start spoiling him soon enough.

If I don't think I'm going to be taken seriously, I don't bother asking questions. I try my best not to ask trite/trivial/stupid questions. If my legitimate questions get blown off, I don't bother trying again. Neither of those things happened to me on this thread and it has been a true learning experience for me. I have thoroughly enjoyed it.

[Gabz]

You're sweet. I don't get to go to many FReeper events, but I do try my best to hit at least one a year.

I don't believe I responded to any of Conservative Goddess's posts but they were fascinating and informative reading.

I have learned so much today. I'm not sure I'm 100% sold, but I'm a heck of a lot closer than I was this morning.

I will keep reading, and asking questions. You all are doing a wonderful job of explaining and convincing.


I would have pinged the poster that has "geezer" in the FReeper name, but can't think of the full name.........these sentiments are for him as well.

[Judith Anne]

Geeze, please see post 751 above. ;-D

Free Republic is so awesome....

[Gabz]

Then make those cuts part of the bill, because right now the FairTax effectively cuts the budgets of every department equally, across the board.

That works for me as well. There are numerous levels of unnecessary bureaucrats throughout all of government, including defense that could easily be done away with.

Then when the necessities, such as national defense needs more, it can be taken from the others.

[Gabz]

Don't you go picking on my friend Dark!!!!!!!!!

[Old Professer]

That's the worst case of self-abuse I've ever seen; he's a nail-biter, too.

[Badray]

I wish I could go to FReeper stuff so I could meet some of the people I enjoy reading posts from...Gabz is one of my favorites.

You mean that you aren't a rich Republican like the rest of us who can come and go as you please? LOL.

I go to CPAC as my vacation. I work for myself and rarely take time off, but CPAC is a must. It's too much fun to miss.

Congratulations, Grandpa! Isn't it wonderful?

It sure is. And I'm still young enough to enjoy him. I've volunteered to homeschool him in US history and economics. He's only 4 months old so I have a few more months before I can start. ;-)

Conservative Goddess and you have really done a service for us all, on this thread. I appreciate this so much!

Conservative Goddess is brilliant as well schooled in these matters. I have the pleausure of working with her locally on promoting the FairTax.

[Badray]

Gee, where have I heard that before?

You heard it in your training as a young communist, however Paperdoll was misquoted by me inadvertently and I briefly dragged her thru the mud erroneously and regrettably.

[Gabz]

Ok - DONE - you've got a convert.

I know there are others on this thread I should include in my pinging, but I'm not very good with names.

So to you all....I wish to take this opportunity to thank you for taking the time to explain this to me in concise and easily understandable layman's terms. You have all had the patience of saints with me today and I truly appreciate it.

[SCALEMAN]

"recover any of the billions that illegals and others working on a cash basis "

I have a brother in law that does a minimum of $30k annually off the books cash. He never uses a credit card, doesn't deposit receipts from his business unless they are checks. When I worked for a scale manufacturer, we had a branch office in the Miami area that did a minimum of $10/week cash with drug dealers. Knowing the people running the office, the $10k was probably over 20k.

[Taxman]

Read the legislative language in HR 25. The Fair Tax eliminates corporate taxation; ergo your argument is stupid, null and void.

You should never ever enter into a battle of wits unarmed.