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.
Maybe you should stop investing in trailers and start buying real property that appreciates.
Why do you think that is? What allows gove't the ability to raise taxes at will?
It will be determined how much needs to be spent each month on the neccessities of life to survive. The tax on that amount will then be mailed to you. The government doesnt need any income information on you, just an address to send the check to.
What, are you suddenly eight years old? Have you never rented a house, an apartment, a car, or a piece of equipment? Or were you too stupid to read your lease before you signed it?
Leases specify that all taxes are added on top of the rent payment. So grow up and pay up.
Then how do individuals get the "pre-bate" checks that are supposed to be sent out every month?
Social Security Administration charged with administration of the sale tax rebate.
Have a social security number, you get a sales tax rebate check each month for NRST on povertylevel of expenditures.
And personally, I appreciate the fact that you have your brain engaged.
You are leaving out the fact that the doctor has to collect the NRST on his patients as he is providing a taxable service. This 23%/37% money has to be remitted to the government before he counts his salary. He then has to pay the 23%/37% NRST on his personal purchases as he spends it.
That is an overly simplistic analysis of business. There is more to the price of goods then tax liability on said goods.
Your first objection does not use the inclusive method hence the tax submitted is not $30 but only $23. Such mistakes will be common should this change be made.
State income taxes use the numbers on federal forms to calculate their amounts. So if they want to retain i.t. they will have to use different methods. Hence the same amount of manpower will still be used to determine what is owed. Thus, another argument- that there will be a huge savings from moving away from i.t.- is false. AND i.t. are NOT inclusive so even the theory of price formation used by the Pro Sales taxers is wrong.
Let me see if I get this. Criminals who risk death and long jail terms for buying and selling illegal goods are just going to meekly pay these taxes rather than develop an underground economy to avoid them. LoL. ooooK.
Why would you assume that if a flat tax can be changed a sales tax couldn't be just as easily and deceptively raised? Why wouldn't that be even easier to do by small increases every so often?
However, with a flat tax, there is always a company that will rent a politician to get a law passed making THEM exempt for paying it. If the tax is on the end user of the item, then EVERYONE pays the tax, no exceptions.
Yes, and rent already includes tax.
Indeed an interesting thread would be to make bullet points on our income tax.
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.Right, people engaging in illegal activity will miraculously become legal and we'll even send out government checks to them that could never become a scam.
Every druggie and prostitute I see is out there buying new cars, appliances, furniture, houses...I would say groceries for the kids too but they use food stamps for that.
OH and let's not forget the 23% of their gross sales they'll remit to the government for their (still) illegal products and services too....
IT'S A WIN - WIN for the government!
IN a free market economy with the gov't out of the way via taxes it becomes truer "supply and demand" market. If the consumer thinks the price on a certain brand is too high he will select a different brand thus forcing the higher priced brand to reduce his prices in order to compete...that or go out of business.
Again, supply and demand...gas goes up, gas goes down...
think about it...
10 years ago a DVD player cost hundreds of dollars...today, 100-200 dollars, max...supply and demand...competition...
hey, it really works!
But the drug dealer is still collecting a gross amount and not paying tax on it. Technically you are correct, it is not the drug dealer avoiding the tax, but the drug user. But either way, there was still $150,000 of sales tax not paid. Whether it be the income tax to the drug dealer, or sales tax to the drug user, both systems has similar tax avoidance for illegal transaction.
nonsense. The 3rd option is to leave his higher price in place while his competitors do the same, so that all enjoy higher margins.
And several hundred billion more in compliance costs. And couple that with the billions spent by individuals to comply with the tax system which will increase their purchasing power, along with no longer having money withheld for federal taxes on their pay check.
And I am still waiting for you to show me where in the Fair Tax bill states are required to abandon their income taxes and switch to a sales tax. Where is it?
That's a lot more than the "no record" claimed in the post. That's keeping track and monitoring the whereabouts of of every single person in the USA on a month-to-month basis.
Mighty good of you (even if unintended) to get all the fallacies and distortions about the FairTax out in one place like this.
Thanks.
I don't think so. Renting is not the same a buying.
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