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.
"29.871029%"?? Try that aaagain. But don't apologize. 29.87% is just fine - as I said 2 decimal places are the most I've ever seen on sales taxes.
1. Employees take paycut in the amount of income tax.
2. 100% compliance with the sales tax.
Both of these assumptions are ridculous on their face. Contractual obligations that have been fiercely negotiated, just don't go away. 100% compliance, give me a break
That's deliberately lying. Neither of those is assumed. It is the position of ttax reform proponents that the contracted wages remain the same.
Lies. Why not try to spread your marxist progressive income tax with truth?
This is all you have left - the death throes of your beloved income tax... like harry reid - never admit anything good about the opponent - no matter how stupid you look doing it.
It won't matter to income tax proponents what happens 7/31. They're be no respite for you socialism mongers.
No, looey, it doesn't ... and that has been pointed out to you definitively 800-900 times.
In your case we KNOW it's ignorance making you claim that. It does not tax state taxes. Read the bill.
"It's increased market share that leads to growing profits. Really? This is a new one on me."
I'm reminded of a time in the late 80s, General Motors had twice the sales of Ford, but Ford had twice the profits. Which would you rather be?
Talk about disingenuously comparing apples and oranges. Sheesh.
Neither of the things you believe are used as assumptions are used by the Fairtax people OR its supporters.
Your claim to the contrary means nothing at all.
The bill requires two lines to be reported ... TWO LINES!!!
Read the bill so you become informed.
OK so your contention is customers will not be resistant to higher prices because the NRST tax will be to blame?
There's about an 85% chance he's merely being dishonest. That's his normal batting average for veracity.
The customers won't like it, but will have to lump it; the 'evil NRST' will take a big part of the blame. There was recently a German guy on one of the FR EU-vote threads bitching about the price-jump when the Euro currency switch was used as cover by the beer companies over there. He still drinks beer, though, at the higher price.
And here's the first 1040 tax form from 1913. Seven lines total if you didn't make more than $20,000 ($380,000 in today's terms).
No more than one page total no matter how much you made. What's to prevent the NRST from growing in complexity as well? Nothing.
And the flat taxers want to take us back to the same form which will be cluster ^^^^^d back to the current system as certainly as the sunrise.
Yup, you're right of course ... and they also throw out that wages will go down but that's just to scare wage earners and those of us who have to work for a lining.
Not to mention their oft stated canard that there has to 100% compliance to make the FairTax sale tax rate work that is one of the favorite bugaboos thrown up by Brookings Institute and their main spokesman on taxes, William Gale.
Of course in so doing they ignore the clear points made in:
And of course they never get around to noticing how calculating a tax rate using a taxbase derived from data which does not include any non-reporting transactions nor provides any estimates of such, results in a taxrate that does not assume the same level of tax evasion as is going on under the income and payroll tax systems today.
When a tax base does not include the current underground cash economy , transactions involving illegal trades or tax evasion for which there are no reports of sales or income to anyone in government for obvious reasons, it totally takes into account same amount of evasion that is going on under the current tax system.
The NRST tax rate is calculated using Bureau of Economics Analysis NIPA data series which has no estimates or inclusions for the underground cash economy, transactions involving illegal trade or evasion at all. As a consequence the tax rate specified in HR25 totally assumes the same amount of tax evasion under the FairTax act as is occurring under the current tax systems it replaces.
You know that might be the first explaination from a fair taxer that makes sense. Gale may be wrong. I assumed Gail was correct because there were no factors in the calculation for evasion, but if NIPA numbers don't include any of the evasion economy, your tax base has effectively been reduced by the current tax evasion rate. That was one point I was unsure about, but trusted Gale's opinion. I still however believe that a 29.870129% sales tax will lead to more evasion especially in the service sector. I am very confident your numbers can only work if employees take a pay cut.
That's a very tough question. If the professionals haven't come up with one, there may not be one that's realizable. It may require a set of measures.
Actually the experts have, just so happens though that opponents to the NRST take exception to the use of that measure.
One of the constants in the system is total Fed tax revenues.
True, however what does that to do with tax plans that do not replace but a portion of total federal revenues and are generally expressed in tax inclusive rates, such as Flat Tax, payroll taxes, any income tax measure, Business Trasaction Tax proposals, and others tax systems rooted in income.
Another set should be the various economc activities; although these could go up or down in fact, they should be constants for this exercise. Then the % of Fed revenues which come from different segments (from business, rich, moderate, and poor individuals, etc.) might be the set of measures.
That's all well and good, but not very useful for discussion of total impact on the citizen.
How do all those factors relate when one wants to equitably compare the rates of tax bills as they impact the citizen per-se. For you are aware that all taxation ultimate ties to the indiviudal through earnings from business ventures, earnings from investments, capital gains, labor income, and interest recieved and other forms of income out of which the individual ultimately pays taxes.
What kind of measure should one use to measure relative burden of taxation in respect to resources aquired by the individual to pay a tax?
Sandbagging me? What is it?
At least your got the t-e number straightened out but you still only need two decimal places.
And, no, the employees won't be taking pay cuts.
What's stopping the FED from printing more money than we need?
At the moment, the Fed's war on inflation. In the future, nothing.
ping...
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