Bruce Bartlett (back to web version) |
SendPosted on 05/03/2005 3:16:24 AM PDT by RobFromGa
The national sales tax
Bruce Bartlett (back to web version) | Send
May 3, 2005
According to columnist Robert Novak, House Majority Leader Tom DeLay, R-Texas, is adamant about replacing the entire federal tax system -- payroll and income taxes -- with a 30 percent national retail sales tax (NRST) collected by the states, such as that in H.R. 25, sponsored by Rep. John Linder, R-Ga.
I have written many times before about what a dopy idea I think this is. Following is an effort to summarize the key arguments against it that appear over and over again in the scholarly literature.
-- People will still have to keep records, file income tax returns and get audited, because the states and some cities will continue to have income taxes. There is no reason whatsoever to think that the states will get rid of their income taxes if the federal income tax is abolished.
Quite the contrary, they are likely to view the federal government as co-opting their traditional tax base -- the general sales tax. Therefore, the states will just take over the tax base being given up by the federal government -- the income tax -- and abolish their state sales taxes, which would otherwise come on top of the NRST.
The only way this can be prevented is if the federal government prohibits the states from imposing income taxes at the same time it abolishes the federal income tax, which is probably impossible constitutionally. And if the states keep their sales taxes, the federal government will have to force them to conform to its tax base. Right now, no two states have exactly the same sales tax systems and none come anywhere close to taxing sales as broadly as contemplated by the NRST.
-- There is a very severe problem of taxing business inputs under a sales tax. These must be exempt from tax in order to avoid cascading -- taxes being levied on taxes -- which creates serious economic distortions. To avoid this under a NRST, every business, no matter how small, would need some sort of exemption certificate, which would create unlimited opportunities for evasion, or they will have to be extensively audited in ways at least as onerous as under the income tax.
-- Services are by their nature much more difficult to tax than goods. For this reason, no state makes any effort to tax more than a few of them. Yet the NRST would tax 100 percent of services, including medical services and government services. Every time you go to the hospital, you will have to pay 30 percent on top to the federal government. And local governments will also be taxed by the federal government on services they provide, which will sharply raise property taxes.
-- In order to offset the regressivity of the NRST, it would establish a massive new government entitlement program costing hundreds of billions of dollars that would send rebate checks to every American on a monthly basis. This system would be based on the poverty level income established by the Census Bureau. People would get 23 percent of this amount annually in 12 monthly installments based on their family status. Quite apart from the massive complexity of this proposal, it would clearly require an enormous enforcement mechanism to avoid fraud and would undoubtedly be manipulated by politicians. It would be very tempting to change the formula to aid the poor and penalize the rich, just as the current tax code does.
-- Every serious analysis has concluded that a NRST would have massive evasion. Taxing the spending of drug dealers and others not currently paying income taxes will not come close to compensating for the new evasion opportunities that will be created. Since it is not in the interest of either retailers or consumers to pay the tax, and because all of the revenue is collected at the point of final sale, it will be too easy for tax-free deals to be made with producers and wholesalers.
Although evasion of state sales taxes is relatively small, that is only because the rates are low enough that it is not worth the trouble. However, where rates are high on things like tobacco, evasion is also high. A vast amount of foreign experience indicates that retail sales taxes cannot be collected much above 10 percent without breaking down.
Under our current tax system, there is withholding of taxes on wages, which is the vast bulk of the tax base. Under a value-added tax (VAT), something similar occurs because taxes are paid at each point of the production-distribution system. Thus, if the retailer fails to collect the tax, only a small portion of the total revenue is lost, whereas with a NRST, all of it would be lost.
Primarily for this reason, every single country that has ever contemplated something like a NRST has instead chosen a VAT, which the NRST people oppose.
You want everyone to continue to suffer because you are afraid to try something new, or worse have a vested interest in maintaining the current scam? Now THAT is "childish".
All of the sales tax systems are already in place. The reporting would be a bit different, but the effort would be much less confusing or costly than the current gamut of payroll, income, and corporate taxes that must be accounted for today. Compliance costs would be a fraction of what they are currently.
and the fact that foriegn companies would set up tax havens here and contribute to our tax baseYou need to read the bill. The FairTax is an income tax for foreign entities. Any income a foreign company or individual made in the US would be taxed at the FairTax rate.
Please note, I was referring to your "You're dismissed" response to someone else.
But, again, I am not an expert on this subject. That is why I sent you to the Web site.
If you REALLY want that, you're an a$$, that's what I think. That said I think, like me, you are overly frustrated with our current system and feel that we've lost hope, but we have not.
I support an NRST with reservations, it has a lot of potential. A VAT is a horrible idea, the IRS has raped us for years. Do you have a better suggestion?
America is still a nation of hope, a shining city on the hill, but we need polished up a bit. Throwing in the towel and saying we "all deserve an 80% tax" is just ridiculous.
All I know is that right now, most people are blind to how much they pay. Anything that shows Americans what they pay in taxes right up front is a good thing.
I did. Other than them having to pay the retail tax like everyone else, I see no other extra taxation on foriegn companies moving here. This removes the burden of taxation they are currently paying in their various home countries. For EU companies, getting away from the VAt would be a major motitvator. How is this a bad thing?
Haven't Estonia, Lithuania, and Latvia done either a flat or national sales tax? Those three countries WILL be the economic up-and-comers of Europe in the next 20 years...they are worth watching.
When someone else attempted to argue the merits of this point of yours, you responded with "You're dismissed."
I suppose when you started with the preconceived notion that it's a "kooky scheme," that should have been a clue that your interest is feigned.
Like in 1913 when they began taxing incomes and withholding?
I did. Other than them having to pay the retail tax like everyone else, I see no other extra taxation on foriegn companies moving here. This removes the burden of taxation they are currently paying in their various home countries. For EU companies, getting away from the VAt would be a major motitvator. How is this a bad thing?You must not have gotten to the end of the bill.
`SEC. 905. WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS.
`(a) In General- All persons, in whatever capacity acting (including lessees or mortgagors or real or personal property, fiduciaries, employers, and all officers and employees of the United States) having control, receipt, custody, disposal, or payment of any income to the extent such income constitutes gross income from sources within the United States of any nonresident alien individual, foreign partnership, or foreign corporation shall deduct and withhold from that income a tax equal to 23 percent thereof.
`(b) Exception- No tax shall be required to be deducted from interest on portfolio debt investments.
`(c) Treaty Countries- In the case of payments to nonresident alien individuals, foreign partnerships, or foreign corporations that have a residence in (or the nationality of a country) that has entered into a tax treaty with the United States, then the rate of withholding tax prescribed by the treaty shall govern.'.
... which they get back as a tax credit (negative income tax) via the EITC.
Ie; Retail sales. This applies to any income generated HERE. And? What is your point?
First thing I can see is a nose-diving economy as people reign in spending as they adjust themselves to the new system.
Domestic consumption is expected to initially drop 5% while personal investment and savings increase at least that amount. At the same time, our export business is expected to grow by as much as 30% by virtue of removing the tax burdens from our manufacturing and export businesses making our products much more competitive on foreign markets. That assures continued short growth of our economy as well as strengths the American dollar in foreign markets while attracting manufaturing back to our shores and a tax friendly, indeed tax haven for manufacturing creating jobs and demand for labor (higher real wages) as our economy expands long term.
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."
Today, one of our greatest economic problems is the lack of personal savings. A pure consumption economy with nil personal savings and investment is what keeps the Social Security system inplace and assuring the growing dependancy of the people on government.
The lack of savings and investment on the part of the American consumer is holding back the full potential of our manufacturing base. Savings and capital investment assure techonlogical impovements and upgrades of out business infrastructure as well as creating new industry which fuels labor demand and higher wages.
Virtually all economic models project a much healthier economy if a federal sales tax replaces the current tax system. These models typically project that the economy will be 10 to 14 percent larger in 10 years.[2] A dynamic, growing economy will provide more and better paying jobs. Employers will need more and better-trained workers.
FIGURE 1: This figure shows the positive correlation between real wage rates and capital investment per hours worked, from 1947 to 1992. During this time period, the amount of capital per hour worked increased steadily and
these increases led to increases in real wage rates over the same time period.
The ever growing decline in personal saving and investment with growing dependancy of the majority of American families on govenment and its social systems has come with a very high cost in terms lack of capital investment into our business infra-structure:
Well IMO you could be right, but just as easily you could be wrong.
Look nobody likes the IRS or any other tax body for that matter and I'm all for a better tax system, but to me the flat tax with a simplified tax code is far less risky.
Ie; Retail sales. This applies to any income generated HERE. And? What is your point?Income is not retail sales. Besides, what ever they might have sold at retail had already been taxed.
Not exactly an ideal situation. Also note, that someone above said it leave the income tax in place. Sec 101 repeals subtitle A of the IRS code of '86. :ie the Income Tax. Sec 102 repeals payroll taxes. 103, estate and gift taxes. Ect...
I'm not aware of their shareholders going on record either way. They probably don't want to rock the boat. Maybe it's not on their radars. What's your point?
FairTax FAQ
However there was an exemption of around $30,000 in the original flat-tax proposals. The idea was a 20% (17% actually, pre-Bush pre-GOP Congress) tax on income over $30,000. Personally, I think it was rejected because it was too simple.
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