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?"
Why do these threads degenerate into a 30% vs 23% argument? Can't we discuss the relative merits or downside of this proposal?Because the merits or downsides are different if the rate (tax exclusive) is 23% or 29.87%.
You are confused paulsen, not I.
I'm not "misled", and never have been.Uh, yes you were.
"Nope. You'd pay $10. The NRST only benefits local manufacturing.
Think about how much we import."
Wouldn't the result me that US manufacturing would become more competitive? Therefore more US manufactured goods sold and more US companies started?
As a self-employed businessman, your company purchases are tax exempt. This used to mean that you didn't have to pay that nasty old 6% state sales tax.
Now it means you don't have to pay that 36% "sales" tax. You can save 36% on that second "business" computer, and additional "business" couch, etc. by just presenting your certificate.
Don't worry about the retailer checking real close. He makes the same amount of profit whether that certificate is real or not and, quite frankly, would rather not know.
And, since the massive IRS is gone, who's going to check every little retailer?
I expect the number of small businesses to increase tenfold.
Has anyone figured out the total cost for the prebates and the impact that has on the tax rate? To ask another way, how many % of the 30% (exclusive) tax rate is attributable to the prebate?
SCALEMAN wrote:
Why do these threads degenerate into a 30% vs 23% argument? Can't we discuss the relative merits or downside of this proposal?
Has anyone figured out the total cost for the prebates and the impact that has on the tax rate? To ask another way, how many % of the 30% (exclusive) tax rate is attributable to the prebate?Based on the Farm Bureau analysis for 2001, the 29.87% rate would have been 23.62% without the FCA.
IMO I don't think the word Fair should be used in the same sentence as Tax,what a complete fallacy that is. Here in California for example we pay 18 cents for city taxes and 18 cents for state taxes for Gasoline alone. There's a sticker at every ARCO Station gas pump that states this fact. In a better world, our elected officials, (who really should be addressed as "Official Spenders") should execute much better 'local and national' fiscal discipline.
But since they let the cat out of the bag in the 1930's: "...Most notable and tragic has been the perversion of the "general welfare" clause of the constitution. Article I, Section 8 of the Constitution says:
'The Congress shall have power to lay and collect taxes, duties, imposts, and excises to pay the debts, provide for the common defense, and promote the general welfare of the United States'.
Since the 1930s, the courts have interpreted this phrase to mean that Congress may spend money for any purpose, whether an enumerated power of government or not, as long as legislators deem it to be in "the general welfare of the United States." That is, this innocent clause has become the equivalent of carte blanche spending authority for Congress. The fact that George W. Bush increased spending on such a level in his first dismays me a bit, but I can only imagine the hell the media would've thrust upon him had he actually made a "cut" in anything. It's a sad fact, but it's true.
That would be the result. We can tax imports and get the same result without an NRST.
Either way the consumer loses, but you get your result.
In tax inclusive terms (for those keeping score both ways), that's 23% and 19.1%, respectively.
Imports will now share in the tax burden, and their prices will go up. However, this is a good thing.. The cheap chinese imports have resulted in American products losing market share to the cheap imports, and have forced them to compensate for their loss of marketshare by increasing prices to stay alive, if they are even able to stay alive. Thus to get a good quality product in many cases, it's double the price of the cheaper made products. The FairTax would tend to reverse this trend. So even though the imports will go up, American products would be better able to compete for shelf space, and cunsumer dollars, regaining lost marketshare, and therefore be able to come down in price independent of the other beneficial dynamics involved in the FairTax.
RETAIL services will now be visibly taxed, but they will no longer be burdened by hidden corporate, income, payroll or self-employment taxes.
Also EVERYONE will benefit from the fact that non-retail businesses experience a complete elimination of their tax burden, with no new tax to replace it. That dynamic is true for every node in the entire production tree up unto the actual point of sale. Any argument that prices can not go down unless wages increase in entirely inapplicable to non-retail businesses. Everything leading up to the point of sale is able to directly reduce their prices by the same rate as the tax to gross receipts they would have paid under the current system, without altering profits or wages.
Also, because compliance costs are removed as well, more so from some than others, but a net reduction in costs (or a net increase in productivity), there is an additional benefit, at every point of the production tree up unto the point of sale.
Further, individuals would benefit, not only from the decrease in SS payments or Self Employement tax, but income tax as well.
The only point where it is arguable that wages would have to be reduced to their net, is at the retail level. However, this depends on to what degree the reduction of the tax burden for all business will cascade through the production tree in the form of lower prices.
Really? I thought it was labor costs, the costs of U.S. regulation, and potential litigation costs.
"Everything is good except work. Trying to fill 4 jobs is not easy."
Good to hear and I know what you mean. If I wanted to move to equador, I'd send you my resume.
Maybe I am wrong but I thought the worker at the Chinese sofa factory made slightly less per hour than the factory worker in the US.
LOL!
"...We can tax imports and get the same result without an NRST...."
We are a member of the World Trade Organization. Any attempt to tax imports alone, without the authorization of the WTO, will result in crippling retaliatory tariffs being imposed on exported US goods.
Please Google: "GATT" "Uruguay Round" and "World Trade Organization" For kicks, you may also want to investigate the Organization of Economic Cooperation and Development...they would also have something to say about unilateral imposition of import tarriffs. We've been a member of the OECD since 1973, if memory serves....WTO since it's inception in 1995. Also google "Smoot-Hartley Tariff Act" for a history of tariffs vis a vis internal taxation.
I don't understand. Why would they up? And why is that a good thing?
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