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.
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.
GDP, GNP, NNP none of it contains any attempt to guess at non-reported activity of teh underground economy or of illegal trade of any form.
An explaination of what the NIPA GDP data series measures can be found here:
The NIPA keyword index of what is included and where in the tables each item can be found is here:
So Prices will increase 30% while Corporations will get an increase in profits due to paying less taxes and spending less on compliance and the customers buying habits will not change because the Corps will blame it on the NRST, is this your assertion?
Americans for Fair Taxation looking for volunteers to serve at Fair Tax booth at the National Taxpayers Union's National Taxpayers Conference 2005 Friday and Saturday June 17 & 18 in Washington, DC. Visit Marilyn at the Fair Tax booth early Friday morning from 8:00 am OR contact Americans for Fair Taxation HQ this week at tel: 800.324.7829 and ask for Events Person.
info on NTU Taxpayer Conference 2005
http://www.ntu.org/main/page.php?PageID=65
Your possible assistance will be very much appreciated. Look forward to seeing any of you there.
Sandbagging me?
No, but as I said, its not acceptable as various tax systems are converted to tax inclusive rates of a common denominator for analysis purposes. so they can be readily allocated to disparate income groups in calculations and fair comparisons made between the various tax systems as they impact directly and indirectly on the household.
What is it?
Effective tax rates as a percentage of CBO's pre-tax comprehensive household income measure.
Two thirds of all economic activity results from consumer spending. Therefore, I do not like the national sales tax due to the potential negative effect on consumer spending and would prefer a simplified tax system based on the flat tax.
The flat INCOME tax does little to solve the problems we have with the tax code. Very little. In fact, it only does one thing: flattens the rate.
Does nothing to solve the problems of fairness, simplicity, transparency, privacy or efficiency.
Nada.
Tinfoil? get real; the current maze of the taxcode wasn't in the legislation either, it was written by IRS staff and foisted upon us as 'implementation' of the act that congress passed. The same will happen with any other act that congress passes. I agree that the current mess was 'communist inspired' but that isn't a reason to stick our necks in a bigger noose. Any sales tax (or VAT) will have to be permanently capped to be acceptable, otherwise it must be recognized as the foot in the door that it is.
Two thirds of all economic activity results from consumer spending. Therefore, I do not like the national sales tax due to the potential negative effect on consumer spending
Then removing taxes from income before you can make use of it has no negative effect on how much a family has to spend for saving/investment for retirement or a down payment on a home, or the purchase of goods and service?
Do you figure that taxing business has no effect in raising prices, lowering wages or lowering returns on retirement and investment plans?
The other point is that it is unrealistic to expect Leviathan to simply roll over.
Any sales tax (or VAT) will have to be permanently capped to be acceptable, otherwise it must be recognized as the foot in the door that it is.
Seeing a VAT taxes through purchases by business, and a retail sales tax is collected from end consumers only.
I fail to see how you figure a retail sales tax is a foot in the door to a VAT.
As it is the corporate income tax is much closer to a VAT than a retail sales tax is.
Make some small changes by setting a single flat rate, changing how capital assets are treated by expensing them instead of depreciating them and exempting investment income from taxation would turn a Corporate income tax into a subtraction method VAT right now.
http://www.taxfoundation.org/foundationmessage03-00.html
"Under the WTO definition of the term, a sales tax is an indirect tax, as is an European-style VAT. The economic equivalence of an European-style VAT and a subtraction-method VAT is well-established. A subtraction-method VAT is essentially identical to a business income tax except that all purchases of plant and equipment may be expensed, rather than depreciated as under current U.S. law."
Next step from there would be to change accounting around a bit, and morph into a full fledged credit/voucher system VAT as exists in the EU and is recommend by some to make our corporate tax system boarder adjustable under WTO rules.
In fact, I think we're still a long way off from attaining the massive outcry from the American people that will be required to end the income tax.
But we must continue on, educating one person at a time, til that day comes.
Because if it doesn't come, we won't succeed in restoring this free republic.
The income tax is the death grip of the socialists.
I still however believe that a 29.870129% sales tax will lead to more evasion especially in the service sector.
I suspect you would have a hard time establishing that seeing as the dominant portion of the tax evasion today is in that same service sector among small business & self-employed types.
The studies I have seen at even high rates of taxation in the EU, the dominant reason for small buisinesses and single-propriators dropping out into black market operations and cash economy is more a function of complexity of the tax system acting as a barrier to entry and plain disgust with it more than rate of tax levied. Among countries with the same sale tax rates in the 15-20% range there is a wide variation in evasion rates directly related to the amount of regulatory burden imposed with the business tax system/s in existence.
I am very confident your numbers can only work if employees take a pay cut.
Which numbers, the tax rate calculations or figuring the lower producer pricing in a taxfree manufacturing environment.
No, I have fully understood for a long time. You, however seem not to understand at all.
You brought up cars and tried to compare a low end vehicle to a luxury automobile. 50 cent hot dogs and filet mignon served at the finest restaurant are both foods, but they might as well be on different planets because of the market they appeal to.
There is a perceived value in that luxury automobile for those who buy them -- it's worth it. But the Hyundai buyer will merely acknowledge or assume a greater value, but will not spend the money because it isn't worth it to HIM.
When tax costs are legally removed, if the retailer tries to retain them to make a higher profit, he will only be successful to those limited few who percieve that value. For those who don't, there will be plenty of retailers who will have dropped their prices.
It seems that your fears and the projection of that fear is guiding you, not reason, facts, and experience.
You don't begrudge anyone anything as long as you get to determine what 'earning it' means.
If anyone leaves their heirs a billion dollars or even fifty thousand, are you saying that they haven't earned it and it should be confiscated? I just want to be sure that i understand you correctly. Is that what you are saying?
Don't try to change the subject.
You made the assertion that a monthly NRST report would be a burden on retailer in comparison to today's quarterly return(s) which also includes payment of estimated income tax due in addition to the sales tax collected.
Now you are trying to compare it to the original return for income tax. That's just one reason why we want to move from an income tax and its compliance burdens to the simplicity of a consumption tax.
You make the assumption that the retailer who is currently selling a product for $100, will be happy to only get to keep $70. This is illogical. The retailer will continue to want to receive the same amount of money for his product, and, in order to do so, will raise the price so that after the tax, he still makes his $100.
Well he would now wouldn't he.
How is the tax system immoral?
You've been here for about 10 days. Welcome to FR. Now, take a well deserved vacation from posting and read the bill, the FAQs, and any of the hundreds of threads and tens of thousands of posts explaining all of the things that you raise that are totally irrelevant to this discussion. You are going so far afield of the subject that I'm beginning to think that you are here to disrupt and misinform other readers.
In case I am wrong on that assessment, you will not find any of the supporters of the FairTax who want to cede any more power to the Feds. We, like you, believe that the government is grossly overextended in power and scope.
Just look at this thread as a microcosm of the whole debate on the size of government and the possibility of doing something about it. If we can't agree on even the necessity of EXPOSING the cost of government with a transparent tax like the FairTax, how in world are we going to convince the rest of America that starting next January 1, that 90% of the federal government is going to just go away.
I think that you argued earlier that implementation of this plan would disrupt too many people because the tax collectors and tax practicitioners would be displaced from their jobs. If that's true, what do you think what would happen if 90% of all Federal employees were unemployed and how do you think that America would react to letting that happen?
See, the problem is that most people do not realize that the government doesn't have money trees where they harvest their money. The don't realize that they themselves are paying for the bloated bureaucracies because those costs are hidden from them -- buried in the price of the goods and services OR that someone other than them is paying for their goodies. Why would they care about the size of government if they don't know that they are paying? And for those who only live off the government's teat and just stand with their hand outstretched waiting for more goodies why would they care at all?
Right now, so many people are exempted out of the I.T. system or have gone underground that we will soon be at a tipping point where we will soon be outvoted in any attempt to fix anything. The non-payers will outnumber the payers and they will continue to vote only for those who promise more goodies out of your paycheck.
This may NOT be the perfect plan. It's just light years ahead of anything else that's been proposed and the ONLY plan talked about that has support in congress and massive grassroots support across the country. This IS a great first step in getting back to the position that you and I both want. We didn't get here overnight. We're not going to get back overnight either, but we can turn the train around and start heading back in the right direction with this plan.
Please take some time to do what I asked (and asked not too nicely -- sorry) and read through the plan. Every intellectually honest person that looks at it see that it does more to restore individual liberty than any other tax plan and restores the relationship between a free people and their government. When you're done, please join us in devolving power from the government.
Thanks.
Actually, I think that this is one of the great benefits and opportunities of the bill -- that some states will wise up and tell the feds to go to hell. Rather than sending the money to DC where they'll take their cut and redistribute it, they'll keep it in state.
It will be more of 'leave us alone' than it will be 'make everyone do what we want'.
Freedom is a good thing even it is messy. Now, please, you are really beginning to make your screen name an oxymoron.
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