Skip to comments.Top 11 Secrets of a National Retail Sales Tax
Posted on 06/10/2005 11:13:37 AM PDT by Always Right
1. The 23% sales tax rate turns 37%. A retailer who sells an item for $100 must charge his customer an additional $30 for federal sales tax. Most people familiar with state sales tax call this a 30% tax, since the tax is 30% of the seller's price. The Sales Tax folks call this a 23% tax, since $30 is 23% of the final price ($130 including tax), which they call the 'tax-inclusive' rate. Neither way is technically incorrect, it is just important to understand what is really being discussed. Remember this 30% tax-exclusive rate is only the federal portion of the tax, state sales tax will also be added in. With the elimination of federal reporting, states will have to replace their personal and corporate income receipts, with a sales tax. States collected nearly $500 Billion in 2003 through income tax and sales tax. With Personal Consumption at $7.76 Trillion in 2003, that is 6.4% in tax inclusive terms, which will add another 6.8% to the tax-exclusive rate. So if you buy $100 worth of goods, you will end of paying nearly $137 once State and Federal Sales tax.
2. Even 37% is not enough. One amazing fact when sales tax calculates their rate is that they assume 100% compliance. Everyone will cheerfully report every sale. There will be no under the table or black market sales. Also, no one will try to buy goods overseas to avoid this tax. This is pure fantasy. No one could believe any tax system will have perfect compliance and zero avoidance. The current income tax system has about a 15% tax-evasion rate. Conservatively, we could assume that the sales tax will have a similar tax evasion rate of 15% and a tax avoidance (like spending overseas) rate of 5%. With these more realistic assumptions, the tax rate would have to be bumped up to 44% to be revenue neutral. And these are very conservative assumption. Brookings Institute economist William Gale (National Retail Sales Tax, September, 2004) calculated that about a 60 percent sales tax would be required to be revenue neutral.
3. Fraudulent Calculations. Besides using ridiculous assumptions like 100% compliance, the sales tax economists create money out of thin air. Their paid for economists routinely double-count savings of their plan. The biggest one is being the $1.3 Trillion that individuals pay in taxes. Under the 30% Sales Tax bill, that money would end up in the pocket of individuals, and the proponents correctly tell you that take home pay will go up. But then the Sales Tax proponents go on to tell you that prices will go 25-33% to offset their 30% sales tax. Well if individuals are pocketing 67% of the taxes that are eliminated, how are businesses going to reduce prices very much? The sales tax eliminates about $650 Billion in taxes to businesses. Considering Americans consumers spend $8 Trillion on goods and services, that only allows for businesses to lower their costs by 8%. Once the 30% sales tax is added, the final end cost to the consumer will be 20% higher if the calculation were done honestly. Even allowing for a reasonable amount of savings in compliance costs to businesses under the sales tax system, prices would still shoot up 18-19%.
4. Millions must file. The Sales Tax supporters would have you believe that only retailers need to file under the Sales Tax. That simply is not true. In order to offer the 'low' 30% rate, the Sales Tax must tax services too. 'In 1993, 12,778,000 taxpayers filed individual returns with business income or losses, and another 1,919,000 filed farm returns. In addition, in 1992 the IRS received returns for 17,292,286 non-farm sole proprietorship businesses, 1,484,752 partnerships, and 3,868,004 corporations-all of which probably produced goods or services on which the sales tax would be levied. Thus the supposed simplicity of the sales tax turns out to be a mirage.' (Brookings Institution Policy Brief #31-March 1998) Thus over 35 million filers will still be subjected to reporting and audits, most of these are individuals. This doesn't even consider the 100 million of people who will still have their wages reported to the SSA. Also, all households must register every year with the 'sales tax administering authority' in order to receive your monthly tax rebate. Furthermore, individuals that buy things without sales tax, like overseas purchases, must submit monthly forms and payments to the government. Hardly the zero tax filings for individuals as the sales tax supporters claim.
5. Tax Evasion will skyrocket. 20 countries have tried a national sales tax, and 20 have switched to a value-added tax. These countries have gone on record and have flat out stated a retail tax of more then 12% is unworkable. People will avoid it, especially with the internet which makes it very easy for the common citizen to purchase goods from foreign sources. The fact that businesses to business sales are not taxed, makes it very tempting to buy personal stuff under a business name. It will take a mighty powerful and intrusive taxing authority to audit all business expensive to make sure. The sales tax rates we are talking about have never been successfully implemented in the history of the world, but it hasn't been for a lack of trying. "Many people would masquerade as businesses" to avoid the tax, says Robert Hall, an economist at the Hoover Institution. Gale reckons that evasion would be far higher than today 's estimated 15%.
6. Big Government gets Bigger. In the 20 countries where the national sales tax has been implemented, and in each case replaced by necessity by a Value-Added Tax, the amount of federal taxes quickly grew from about 20% of GDP, as currently in the US, to 40% and above of their GDP. Not a promising precedent.
7. Underground Economy still not taxed. The NRST advocates falsely claim that the underground economy now will be taxed. Nothing could be further then the truth. Sure, when the money re-enters the legal economy the money is taxed, but that is true today. But will the drug dealers and prostitutes remit sales tax for their goods and services under the NRST? Absolutely not, this portion of the economy is still invisible to the tax collector and therefore not taxed. According to Bruce Bartlett, 'thus whatever revenue is gained when drug dealers spend their ill-gotten gains will be lost because no tax was collected on their drug sales.' (Bruce R. Bartlett, senior fellow, National Center for Policy, Analysis, November 5, 1997).
8. Lower and Middle Income pay more. Steven Sheffrin of UC Davis in a 1996 CPS brief says that a revue-neutral consumption tax even with a generous personal exemption shifts the tax burden to the lower to middle income households. A 1992 Congressional Budget Office study of consumption based tax concluded the consumption tax would decrease the tax on the wealthiest 20% by five percent, while hitting all other groups with a higher tax burden. The poorest quintile being hit the hardest with a 20% increase in tax and the 20-40% income quintile being hit with 9.3% increase in their effective tax rate. This is because the poorest spend a much higher percentage of their income each year and in many cases are even forced to borrow to keep up with their expenses. These numbers are much worst today as the federal tax liability for the bottom 20% has been greatly reduced through expansion of the earned income tax credit.
9. Elderly assets are unfairly burdened. While people currently working will get to keep more of their paycheck, people on fixed incomes will stay the same. Elderly, who have already worked and saved under the income tax system, will now be faced with paying additional high consumption taxes. This group of especially hard hit people, will not have the opportunity to earn tax-free wages, so all their already taxed wealth will be taxed again when they spend it. Come January 1, 2007, if someone's rent was $1000, they will owe an additional $300 in federal tax alone, and many without any additional source of income.
10. Government Taxes Itself. One amazing thing is under the Sale Tax is that government somehow raises money by taxing itself. Whereas this is an interesting way to reduce government, it is typical of the smoke and mirrors the fraudulent analysis of the so-called fair taxers use. Under the plan, the government is considered the consumer and most of it's purchases and employee salaries are taxable. So if the state of Alabama pays its clerk $30,000 in salary, it would be liable to pay the federal sales tax of $9000. The same applies to the federal government, but it pays itself. An interesting way to raise revenue, but it more fraud on their part. If government could truely tax itself, why not just put 100% sales tax on government and then no one else would have to pay taxes.
11. Auto and Housing Industry Hit Hard. As the luxury taxes have proven in the past, adding a large sales tax on item deters people from buying. In 1991, after the Democrats snuckered Bush Sr. into signing the Luxury Tax, Yacht retailers reported a 77 percent drop in sales that year, while boat builders estimated layoffs at 25,000. And that was only for a 10% tax! With new homes and autos having to compete against existing homes and used cars, paying the additional 30% sales tax will be hard to swallow for most consumers.
You are right. The system we have now that allows those with the most money to buy their way out of paying income taxes by renting congressmen and double and triple taxation from federal and state and local income tax and corporate tax and SS tax and medicare tax and capitol gains tax and then when we die, death taxes, not to mention the BILLIONS of dollars we spend just trying to comly with the 50,000 pages of tax laws is SOOOOOO much better than one single tax paid when an item is purchased new by the end user.
you forgot, "Women, minorities to suffer most....."
We all get tired of of having to post these arguments in every NSRT thread as if they had never even been considered, so this will make a nice reference thread.
Then be honest about what it offers. Don't give me fantasy analysis to sell me the plan.
Flat tax is the way to go.
Oh yes, let's get all of the debunking together in a single place, shall we?
7. Underground Economy still not taxed. The NRST advocates falsely claim that the underground economy now will be taxed. Nothing could be further then the truth. Sure, when the money re-enters the legal economy the money is taxed, but that is true today. But will the drug dealers and prostitutes remit sales tax for their goods and services under the NRST? Absolutely not, this portion of the economy is still invisible to the tax collector and therefore not taxed.
This is a strawman argument that completely ignores that even prostitutes and drug dealers DO NOT pay income taxes but they still have to buy groceries and appliances and furniture and automobiles. No matter how you spin it, this is a net GAIN for the government.
Then what option do we have? The current tax system is outrageous, what's the better path to follow?
Why not? Why shouldn't someone post this in every NRST propaganda thread posted by shills for the fraudulent FAIRTAX.ORG?
Wrong. The customer will pay $100 and the seller keeps $70 and sends $30 to the government.
With the elimination of federal reporting, states will have to replace their personal and corporate income receipts, with a sales tax.
Again you are wrong. Nothing in the Fair Tax bill requires states to go to a sales tax and drop their current income taxes. With me no longer filing a federal income tax return, how does that prevent the state from having me file an income tax return?
And in the tax inclusive/tax exclusive debate, the correct and proper way to do it is tax inclusive if you are comparing it to income taxes, becase income taxes are tax inclusive.
Also, no one will try to buy goods overseas to avoid this tax.
People currently buy items overseas and have to declare them when returning to the country if they are valued above a certain level.
Brookings Institute economist William Gale (National Retail Sales Tax, September, 2004) calculated that about a 60 percent sales tax would be required to be revenue neutral.
Mr. Gale also decided to exempt a whole plethora of items from the fair tax that ARE NOT exempted to come up with his calculation.
The NRST advocates falsely claim that the underground economy now will be taxed. Nothing could be further then the truth. Sure, when the money re-enters the legal economy the money is taxed, but that is true today.
Just how much federal income tax, FICA, etc... are drug dealers paying on their income? ZERO.
But will the drug dealers and prostitutes remit sales tax for their goods and services under the NRST? Absolutely not, this portion of the economy is still invisible to the tax collector and therefore not taxed.
Just as it is invisible to the tax collector today.
According to Bruce Bartlett, 'thus whatever revenue is gained when drug dealers spend their ill-gotten gains will be lost because no tax was collected on their drug sales.'
And today the drug dealer is paying zero income taxes, zero fica, and zero federal sales taxes (after all, they are only paying some excise taxes on gas, phone, utilities, etc... which are not sales taxes according to you). So, it is a net gain for federal tax revenue under the fair tax.
Lower and Middle Income pay more
Being that the bottom 50% of income earners pay ZERO federal income tax its about time they started paying their fair share.
One amazing thing is under the Sale Tax is that government somehow raises money by taxing itself
The purpose of the government paying the Fair Tax under the Fair Tax plan is not to raise revenue, but for the government to compete on an EQUAL basis with private activity in the market. Currently the government enjoys a tremendous advantage with its tax free status.
So if the state of Alabama pays its clerk $30,000 in salary, it would be liable to pay the federal sales tax of $9000.
Again your wrong. An employer (be it government or private sector) does NOT pay a "sales tax" on an employees salary.
And if you are a Flat Tax supporter, remember, our current tax system started as a Flat Tax. Has worked out wonderfully hasn't it. Long live the Flat Tax!
I agree. I do not like these "consumption" based taxes. It seems to me that when the economy tanks, the flucuation in tax revenue will be extrememly drastic and it may encourage other "temporary" taxes...
The best argument for a sales tax is because it means
the government would need to keep NO records on
the individual taxpayer.
The second best argument is that it means the taxpayer
would have to keep (and maintain for years) NO records
of his transactions.
That adds up to a lot of freedom from the prying eyes
of the state, and that would be worth paying a bit
more at the pump.
I personally would prefer the NRST to an income tax. A flat tax is a distant second, but still vastly better than the current system.
Note the point 4 in the original post. It sure looks like the number of filers is counted twice by including both the 1992 and 1993 tax years.
Nothing is gained. Whether it be a sales tax written on a receipt or embedded taxes that are hidden in the item, both capture the tax of prostitutes and drug dealers once they make a legal transaction. For BOTH systems, legal transactions capture tax, illegal transactions do not. It makes no difference in terms of collecting taxes from prostitutes and drug dealers. The same amount of illegal activity remains un-taxed, unless you think the prostitutes will submit their 30% tax for their services.
Our current tax system was originally a flat tax.
No flat tax will stay flat for long.
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