Posted on 04/17/2005 10:57:02 AM PDT by Somewhat Centrist
Alright, since signing up for ancient_geezers ping list I’ve read up on the FAIR Tax proposal. I have some reservations, and would like to know what the supporters of this initiative has to say about them. I’m not American, and there is no such initiative on the table in Norway, so my position on this issue won’t have any impact on wether or not this proposal is implemented. I am motivated only by personal interest, and my only agenda is to improve my own understanding of these taxation issues, and possibly improve the understanding of others as well, trough discussion and debate. These are my primary reasons for not supporting the FAIR Tax outright:
1. Repeal of the business tax I know you are going to tell me that businesses are going to pass on the taxcut in the form of higher wages and/or cheaper products, I pretty much agree. My objection is that if businesses pass on the entire taxcut, so that the owners come out expecting the same revenue, the average business would now have a much smaller margin to work with before possibly loosing money. At the same time they would also be more likely to churn out way higher profits than expected. In short they would absorb the risk previously carried by government in that government tax-revenue would be proportional to business revenue, dampening deviations from expected turnout.
In this scenario investment would be discouraged due to high risk. In effect what would probably happen is only some of the tax-cut would be passed on to employees/consumers, while the investors would keep the rest as payment for shouldering the risk. Much of this money would find its way offshore, as more than half of Wall Street is owned by foreigners, or so I’ve read. This could also lead to a very high number of bankruptcies in recessions, which could prolong and deepen them. More bankruptcies would lead to higher interest rates, discouraging business even more.
2. Retail sales tax in lieu of VAT In the event that the law is followed a sales tax does exactly the same thing a VAT does, the only difference lies in the way the taxes are collected. Each tax taxes the retail-value of an item sold once, and only once at a fixed rate, but while the retail tax taxes the whole sum at one sitting, as the item is sold, the VAT taxes value as it is added to the item each time it changes hands. A flat tax is levied against an item each time it changes hands, but all taxes incurred against goods and services used to produce the item are deductible. Thus the producer is only liable for the value he has added to the item. The tax taxed added value, thus it is a value added tax.
Thing is, by levying a 40% inclusive tax at the retail level (states taxes added in) you add a huge incentive for criminal elements. Remember this isn’t 40% of the value of the work they perform, its 40% of the value of all items that pass trough their possession, the surplus of a legal retailer many times over. Retail level tax cheats are given the opportunity to cheat not only on their own taxes, but to cheat on the taxes of everyone who has participated in making the stuff they sell. Concentrating tax collection at the retail level might reduce compliance costs of legal enterprises, but I fear it will also present a huge opportunity for criminal elements, one they are unlikely to pass up.
In terms of services The FAIR Tax works exactly the same way as a service-inclusive VAT, perhaps with the exception of the taxable employer bit, where I side with the FAIR Tax in deeming the employer more likely to pay those taxes than the employee. (service-provider)
3. Border enforcement issues If the FAIR Tax is to work, then it will have to be incurred against every item entering the US, used or not, otherwise “used” items would flood across the border, and be legally traded as used items inside the states. Local retailers would be bypassed. One would have to catch people buying stuff just across the border, and the people having friends or family outside the US mail them stuff. With all kinds of crap being available at roughly half price just across the border smuggling would likely become a massive problem. I don’t know how this could be enforced short of shutting down the borders.
4. Foreign vacations/money going abroad I’m not the only one seeing people working tax free in the US without spending a lot, only to send the money to relatives outside the US, leave the US for an early retirement outside the country, or blowing all or at least a lot of their money on free vacations am I? I mean, to an extent some people are doing it already, imagine how it would take off given a consumptiontax of 40% tax inclusive.
5. Dealers in used consumer capital Would used car dealers pay taxes for the “services” they provide in buying used cars and selling them at a profit? How about real estate or everyday crap? Not pivotal, just wanted to throw it in there.
This thread is fresh, I know because I just posted it.
I'd like to see what the FAIR Taxers propose to deal with these issues, or how they percieve them differently than I. So, please call in the cavalry, and we'll see what comes of it.
There are already substantial fraud rates with state sales tax in the 6-10% (exclusive) rate. Changing the overall rate to 40% exclusive will boost fraud tremendously. Which will make the state auditors the new Gestapo(s). What fun is in store for us all.
Considering that English isn't his native language, I think he did quite fine.
Should the income tax be replaced with a national sales tax?
Yes
No
Undecided
Link goes to a page with the poll question only - not any other kind of a website. Just set up for FReepers.
Yeah, I'm Norwegian, so english would be my second language. I guess if it bothers you we could start up a movement to lobby for spellcheckers on FR, until then you will just have to endure like everybody else, or ignore my posts.
It seems FR deleted my lineshifts at the end of each headline. Wish I had caught that in the preview.
I can't immagine why it would do that, guess I'll just have to read the previews in the future.
The NRST, or any other kind of sales-tax-only, method for raising government revenue, would plunge the USA into a deep and dark economic depression. No, I don't work for the gov't. I've owned three different types of business's in my life and I do think the present tax code is a mess, but a national sales tax will be a disaster created by the desire for simplicity by the simple.
The giant WEASEL CLAUSE in all of the NRST proposals is that "services" are taxed. Exactly what constitutes a "service"? Where is the legal definition of a "service"? Anybody have any idea how easy it is to re-define something once it's in law? If I ocasionally sit down at somebody's computer, fix it, and take $100 in cash, that's a "service" isn't it? If I fix 10 computers a week in my garage, that's a "service" isn't it? The NRST people aren't doing *me* any favors, I'm still filing, I still have some auditor crawling up my ass. By allowing "services" (whatever that means) to be taxed, the paycheck people are palming off their problem on people with enough stones to make their own living. Sounds like a socialist mentality to me. "There's more of us paycheck people than you hustlers, so screw you."
Oh, and what about those "prebates." Exactly how am I supposed to qualify for/collect one of those without groveling before some state parasite to prove I qualify? Don't make the mistake of believing that Uncle Sham is just going to start mailing out $12,000 checks just because you say you're poor. Aren't I going to have to report my income to *somebody* before I get one? And who is going to collect all that information? The now defunct IRS? And what if I decide to do without the check even if I qualify? How long before I'm REQUIRED to qualify?
From FairTax.org's FAQ (they also answer your question about what constitutes a "service"): HHS annual poverty level Monthly rebate (single person) FairTax annual consumption allowance Annual rebate (married couple) Monthly rebate (married couple) 1 2 3 4 5 6 7 8 $ 9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570 $ 9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570 $2,141 $2,873 $3,604 $4,336 $5,067 $5,798 $6,530 $7,261 $178 $239 $300 $361 $422 $483 $544 $605 N/A $18,620 $21,800 $24,980 $28,160 $31,340 $34,520 $37,700 N/A $4,283 $5,014 $5,745 $6,477 $7,208 $7,940 $8,671 N/A $357 $418 $479 $540 $601 $662 $723How does the rebate work? All valid Social Security cardholders who are U.S. residents receive a monthly rebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The rebate is paid in advance, in equal installments each month. The size of the rebate is determined by the Department of Health & Human Services' poverty level multiplied by the tax rate. This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. See chart in Figure 1 below.
Figure 1: 2004 Rebate calculation
size
consumption
allowance
(single person)
(married couple)
The best definition of the NRST I've ever seen. You're right, it's a socialist tax scheme proposed by "conservatives" who receive direct deposit. Those of us that provide the conditions to send their bank accounts and health insurance co's a direct payment can go pound sand as far as the NRST's are concerned.
1. Repeal of the business tax I know you are going to tell me that businesses are going to pass on the taxcut in the form of higher wages and/or cheaper products, I pretty much agree. My objection is that if businesses pass on the entire taxcut, so that the owners come out expecting the same revenue, the average business would now have a much smaller margin to work with before possibly loosing money.
Actually they would have the same margin to work with, as they no longer pay income or payroll taxes, the overhead costs associated with dealing with those taxes, and they do not pay the NRST on their business purchases. Only retail level purchases are subject to the NRST.
At the same time they would also be more likely to churn out way higher profits than expected.
And this is a negative how? As any profitability accrues to the investor (retirement funds and individual fund ownership predominate in stock holdings), is re-invested in modernization or invested in new facilities and expansion of the business. All of which contribute to growing the economy, expanding labor demand and wages paid, providing for an expanding standard of living at all levels of the economy.
In short they would absorb the risk previously carried by government in that government tax-revenue would be proportional to business revenue, dampening deviations from expected turnout.
Any risk carried by government is reflected as a loss to business in higher taxation. That government can insolate business from risk in a free capitalist economy, is a canard. Government can only reduce the effectiveness of a business it cannot incease its profitability.
In this scenario investment would be discouraged due to high risk. -
Actually investment is encouraged as investment and re-invested dollars are not taxed under an NRST. Thus reducing the losses associated with the lost capital in taxation of investment earnings.
2. Retail sales tax in lieu of VAT In the event that the law is followed a sales tax does exactly the same thing a VAT does, the only difference lies in the way the taxes are collected. Each tax taxes the retail-value of an item sold once, and only once at a fixed rate, but while the retail tax taxes the whole sum at one sitting, as the item is sold, the VAT taxes value as it is added to the item each time it changes hands.
The problem associated with the VAT is that it imposes the overhead and regulatory costs at all stages of production each time components pass for the final product pass from one business to the next in the advance to the final product's retail sale. The overhead costs and regulation on business imposed by VAT regimes are tremendous compared to the simple Retail sales tax that is currently administered in most states of the United States today.
Thing is, by levying a 40% inclusive tax at the retail level (states taxes added in) you add a huge incentive for criminal elements.
Since the NRST is at maximum a 27% inclusive tax with current state and local sales taxes accounted for your estimate is abit high. Today the marginal rate on federal income an payroll taxes is more than 40% meaning that the incentive to hide taxable income is just as great now.
The VAT as it is adminitered in the EU suffers from severe problems associated it voucher credit system as any voucher is effectively a draft against the government treasury inducing rather large black markets in vouchers in the EU and other nations. The incentive and opportunity for fraudulent behaviour do not deminish with additional levels of complexity, they merely provide an enviroment for more creative methods of cheating as many studies of the European VAT experierience have amply highlighted.
3. Border enforcement issues If the FAIR Tax is to work, then it will have to be incurred against every item entering the US, used or not, otherwise “used” items would flood across the border, and be legally traded as used items inside the states.
The definition of "used" in the legislative language means the item has been previously taxed under the NRST or grandfathered for items sold prior to implementation as having been taxed via the federal income/payroll tax.
Provision is made in the legislation for customs to collect of the NRST on foreign purchases carried into the US for personal use.
4. Foreign vacations/money going abroad I’m not the only one seeing people working tax free in the US without spending a lot, only to send the money to relatives outside the US, leave the US for an early retirement outside the country, or blowing all or at least a lot of their money on free vacations am I?
Interesting point. Though can be justified in the sense that dollars leaving the US ultimately return as investment in the US providing increase in productivity and jobs in the US as clearly indicated in past business surveys on the subject and in basic monetary theory as any dollar that does not return to the US merely increases the purchasing power of those that remain within the US economy and causes the appreciation of the dollar against foreign currencies (i.e. inflation for other countries by expanding their defacto money supplies.)
Chairman of the House Ways and Means Committee,
Rep. Bill Archer (R-TX)
August 12, 1996
- "A recent survey was done, in Europe and Japan, of the major corporations and I was astounded at the results. They were asked, 'If the US abolished its income tax and went to a sales tax, would that have any impact on your decisions?' Eighty percent of the corporations said they would build their factories in the United States of America. Twenty percent said they would move their international headquarters to the United States of America."
5. Dealers in used consumer capital Would used car dealers pay taxes for the “services” they provide in buying used cars and selling them at a profit? How about real estate or everyday crap? Not pivotal, just wanted to throw it in there.
Brokerage is a service, and would be taxed on the amount of the fees/commissions charged as is true of all Financial Intermediation Services.
If you would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25), offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
H.R.25,S.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:
That's a very nice attitude to have upon entry to a new place.
Good luck with that, and I hope it works out for you.
No risk is at present carried by the government. The government has no wealth or income except that which it takes from the pay of people who work for a living. Just as there are no corporate taxes (they are passed on to the consumer), there is no government wealth. Nor should there be.
ping
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