Top 11 Secrets of a National Retail Sales Tax

Various | 6-10-05 | Always Right

[Your Nightmare]

Classical nightie evasion... I didn't "accuse" you of switching the meaning.

Another Squeally Lie^TM

Schweinehund from post #1088:

Classical nightie - switching the meaning (or attempting to) of what he said.

[pigdog]

Wrong again, nightie ... there was no "accusation" - it was an actual illudtration of your switching the meaning from one sentence to the very next sentence and now - once again - you seek to lie your way out of it.

Your lie count on this thread is building and building, pal. People notice things like that and distrust your word because of it - can't say that I blame them.

Your creditility is "... melting, melting ..." just like the Wicked Witch of the West. Is your face painted green, perhaps?

[Your Nightmare]

Wrong again, nightie ... there was no "accusation" - it was an actual illudtration of your switching the meaning from one sentence to the very next sentence

What's an "illudtration"? Is that hillbilly talk?

And isn't it possible, just possible, that I just wasn't very clear in my language. But you, as usual, have to go on and on about it. And you accuse me of "trying to divert/digress off of the subject"!

[ancient_geezer]

Exactly, and it's this amount that will decrease due to higher sales tax evasion/avoidance
This higher sales tax evasion/avoidance is what isn't accounted for in the FairTax rate.

Sorry, the amounts that are reported into NIPA, are reported from obviously compliant sources under even the poor enforcibility of the current federal income tax system.

Most of the IRS noncompliance tax gap is due to factors such as EITC fraud, fraudulent and erroneous deduction claims, fraudulent trust and income sheltering schemes, non reporting of international income etc. which are all are part and parcel to the complexity of the income tax system and not a factor in an NRST.

Where you have any complex tax system with large numbers of filers in relation to the bureaucracy that tries to administer it you have a disaster, the EU experience with its own complex of tax systems is a clear example of how countries with similar tax rates have highly divergent evasion rates and underground economies that result more from complexity and high bureaucratic burdens than rates of taxation. Countries with generally 20% sales tax rates exhibit both high and low compliance and evasion rates related mainly to complexity and bureaucratic burdens on small businesses, than to the tax rates imposed upon them.

We can expect the above factors to be eliminated where non-compliance is concerned rather than increased with an NRST in place and reduced where the arise as a function of confusion, and complexity of the income tax system in place.

 

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Of more interest, of course, here in the US, IRS non compliance measures don't begin to touch the fraud and hiding of taxable income under the 40% income plus self employment tax rates hitting self employed transactions that are the core evasion under the current tax system.

A single proprietor or small business operating off the books to avoid the redtape and high rates doesn't report sales or income to anyone, especially the single proprietor not bothering to file at all which does not show up in any of the IRS noncompliance data or NIPA for that matter, and will continue in the same operational pattern as he does under the current system.

The transactions that arise from core evasion are not simply not tracked in the NIPA, or by the IRS and those amounts will continue to not be reported as sales or income under any tax system thus no change to be expected there and are not a part of the the taxbase measure for the NRST.

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As far as the compliance tax gap measures of the IRS goes, The information comes from analysis of its ongoing litigations and audits of tax returns, relying on recorded and tracible information associated with filing of income tax returns and not in any way related to retail sales taxes and the features of an NRST.

No filing or reporting, guess what it isn't included in the NRST taxbase for calculating the tax rate.

 

IRS’s Comprehensive Approach to Compliance
Measurement
by
Robert E. Brown and Mark J. Mazur*
Internal Revenue Service; June 2003
http://www.irs.gov/pub/irs-soi/mazur.pdf

 

Taxpayer compliance is a multi-faceted measure. One theoretically appealing way to define taxpayer compliance is to consider three distinct types of compliance: payment compliance; filing compliance; and reporting compliance.2 These three mutually exclusive and exhaustive measures together provide a comprehensive look at overall taxpayer compliance, which would feed into estimates of the Tax Gap (the difference between taxes paid and taxes owed for all federal taxes and all taxpayers).

*** SNIP ***

There are three characteristics of the Tax Gap Map worth noting. First, definitive data exists only for a few component items, primarily the estimates of payment compliance and those for reporting compliance for the Earned Income Tax Credit and for Duplicate Dependents.4 The other estimates all represent projections from earlier studies, primarily the Taxpayer Compliance Measurement Program (TCMP) studies done by the IRS in the 1980s and earlier. Second, these projections from dated compliance studies cannot possibly account for all the changes (tax and non-tax) that have taken place over the passing years. Therefore, the estimates should be viewed as rough guides to the magnitude of the tax gap components, despite the seeming precision of the estimates. Third, despite the imprecision of the estimates, it is likely that the largest components of the tax gap are noncompliance with the reporting requirements for the individual income tax and employment taxes. This should not be surprising given that these are the two largest components for federal tax revenue.5

There are very few instances of recent reporting compliance estimates, which are based on specific, targeted studies the IRS has conducted. One example is the Earned Income Tax Credit, where the IRS has conducted fairly reliable compliance studies for tax years 1997 and 1999. 6 In general, though, the most recent comprehensive studies on reporting compliance relate to tax years the late 1980s.

*** SNIP ***

The three measures provide different views of the compliance puzzle, and when placed next to one another provide a comprehensive picture of the overall level of compliance.

The filing compliance measure tracks the percent of required returns that are timely filed.

The reporting compliance measure tracks the percent of true tax liability that is correctly reported.

The payment compliance measure tracks the percent of reported tax that is timely paid.

 

The major factors there have much to do with tax system complexity, EITC and child tax credit scams and taxpayer error as it does fraudulent deductions on the filed tax returns that are submitted:

 

refer ==> IPI Publication Full Text - IPI Policy Report - # 168

Simplifying Federal Taxes: The Advantages of Consumption-Based Taxation
by Chris R. Edwards on 02/12/2002

Noncompliance

Tax complexity leads to noncompliance with the tax system, whether through confusion or a desire to evade taxes. The General Accounting Office estimates that the government loses about 17 percent of income tax revenues to noncompliance, or about $200 billion annually.⁵⁹ [GAO, “Reducing the Tax Gap,” GAO/GGD-95–157, June 2, 1995 page 2]

Former IRS commissioner Shirley Peterson thinks that confusion plays an important role in noncompliance: “A good part of what we call non-compliance with the tax laws is caused by taxpayers’ lack of understanding of what is required in the first place.”⁶⁰ The JCT notes that for other taxpayers, “complexity can foster multiple interpretations of the law and aggressive planning opportunities. In addition, taxpayers may consciously choose to ‘play the audit lottery’ by taking a questionable position on their tax returns, in the belief that complexity will shield them from discovery.”⁶¹

 

The IRS noncompliance data of the IRS shows only a tip of a very large undergound iceberg, only hinted at by the growing tax gap of IRS measures.

 

Tax Evasion, IRS Priorities, and the EITC

I. The Scope of the Tax Evasion Problem

Former IRS Commissioner Charles Rossotti (2002) estimated that in a given year, the IRS assesses almost $30 billion of taxes that it will never collect. This is not theoretical tax evasion. The $30 billion represents underpayments of tax that the IRS has identified, but cannot collect because its staff is spread so thin. Rossotti estimated that it would cost about $2.2 billion to collect that money. If you accept that estimate, the IRS could net almost $28 billion from tax fraud and errors that are identified and ripe for collection.

Assuming that the amount grows with GDP, collecting on assessments would, over the next decade, cover the entire cost of the new prescription drug benefit under Medicare (although not the superfluous new savings accounts in the House version of the bill). It is more than the entire cost of the Jobs and Growth Tax Relief Reconciliation Act of 2003 as scored by the JCT (although not enough to finance the extension of the myriad expiring provisions). It is serious money.

But it is tiny compared with the entire "tax gap"—the IRS's estimate of total taxes due but not collected. The IRS estimated that $232 billion in taxes were due in 1998, but never collected. (See Figure 1.) These estimates are highly uncertain because the IRS stopped systematically measuring tax compliance for all but working poor people after 1988, but it suggests that tax compliance is a huge problem, and it has been growing. According to Commissioner Rossotti, "Despite significant improvements in the management of the IRS, the health of the federal tax administration system is on a serious long-term downtrend. This is systematically undermining one of the most important foundations of the American economy."

Why is the gap growing? To begin with, the number of tax returns has been growing much faster than the IRS staff. This has occurred for several reasons. There are more head of household and single returns and fewer married filing joint returns because couples are marrying later, if at all, and the divorce rate is rising. Also, many more children are filing tax returns. (Plumley and Steuerle, forthcoming)

Moreover, after steady growth in compliance resources through the 1980s, IRS staff dedicated to compliance and enforcement plummeted in the 1990s. Between FY 1992 and 2001, the IRS workload increased by 16 percent while its staff declined by 16 percent. Field compliance personnel fell by 28 percent—more than 8,000 FTEs—between FY 1992 and 2002.

The effect on examinations is even more striking. According to the Internal Revenue Service (2001), the number of field examiners fell by almost two-third between 1997 and 2000. The number of collection cases closed fell by nearly half over the same interval. The number of criminal tax cases not related to income from illegal activities fell by more than two-thirds, from 1,498 in 1997 to 409 in 2000.

A large part of the problem, according to the Commissioner, is budgets with "unrealistic assumptions about such items as pay raises, inflation and other mandates, including specific mailing and notification requirements." In the late 1990s, a key factor was the taxpayer bill of rights, which required the IRS to answer its telephones and focus its efforts on "customer service." The better service, while surely welcome, came at the expense of audit activity. This decade, Congress has twice mandated that the IRS interrupt its ordinary operations to mail out springtime checks to most taxpayers—advance payments on the low-end tax rate cut in 2001 and on the child credit increase in 2003. Without a supplemental appropriation to pay for additional staff, the staff managing these huge mailings must come out of existing employees, typically compliance staff.

Finally, the opportunities for evasion have been growing. While the overall number of returns grew by 16 percent, the number of tax returns reporting more than $100,000 of income grew by 342 percent. These people who face the highest marginal tax rates have the most to gain from tax evasion, and the most opportunities to engage in it. Commissioner Rossotti reported that "enormous amounts of money ... flow through 'pass-through entities'—such as partnerships, trusts, and S-corporations," which are ideally suited to hiding income. In tax year 2000, pass-throughs accounted for 4.8 million tax returns with over $660 billion of income.

*** SNIP ***

Conclusion

Noncompliance is a serious issue that undermines the tax system and carries a huge cost in terms of higher taxes on law-abiding citizens, fewer government services, and more government debt. The IRS is taking a number of important steps to improve tax compliance. However, the IRS's preoccupation with EITC recipients seems like a poor use of scarce audit resources, is likely to undermine the EITC program, and is unfair. It would be better to address the endemic problems in the income tax at all income levels. EITC compliance, and compliance in other areas, could also be improved by simplifying the tax law.

Figures

[Your Nightmare]

Sorry, the amounts that are reported into NIPA, are reported from obviously compliant sources under even the poor enforcibility of the current federal income tax system.

But what does income tax compliance have to do with the NIPA expenditure numbers or the FairTax rate calculation? Answer: nothing.

This is a really long post that is totally irrelevant (typical AG: volume over accuracy or relevance).

[Always Right]

This would mean that a state with a 7% rate presently would have it drop to 2% or 3% or possibly even less while raising the same tax revenue. This drops your "37%" t-e (which was bogus to begin with) by easily 3 or 4 percentage points.

But you fail to include state income taxes. If states drop the income tax and piggyback off the NRST, then the state exclusive sales tax rates would have to be closer to the 5-7% level. Otherwise we are still stuck reporting income to the state.

[Your Nightmare]

AR, do understand what I'm saying?

[Always Right]

But what does income tax compliance have to do with the NIPA expenditure numbers or the FairTax rate calculation? Answer: nothing.

The only relevance of income tax complinace would be in the services. Something I just wondered about though, are tips to waitresses subject to sales tax? It is a payment for a service to a consumer, it seems a waitress should be subject to a 30%, excuse me I mean a 29.870129% sales tax.

[Your Nightmare]

But you fail to include state income taxes. If states drop the income tax and piggyback off the NRST, then the state exclusive sales tax rates would have to be closer to the 5-7% level. Otherwise we are still stuck reporting income to the state.

That's a good point. Currently, according to the NIPA tables, revenues from state and local sales and income taxes are equal to 1/3 of federal revenues. If the states were to drop the income tax and pick up the FairTax base for their sales tax, they would have to go with a rate of ~10%. Which would be ~40% when added to the FairTax rate.

[Your Nightmare]

The only relevance of income tax complinace would be in the services.

The question is "Is the spending for those services currently in the NIPA personal expenditures table?"

[Always Right]

AR, do understand what I'm saying?

I think so. The NIPA numbers which exclude any part of the economy that has to do with income tax avoidance does not really impact the NIPA numbers which has to do with the tax base for the sales tax, personal/government consumption numbers. I agree partially. I think service providers who probably are more likely to cheat the income tax and business that currently keep two registers, like restaurants, will do so in similar rates. Those are businesses with high profit margin on their gross, so an income tax has a similar effect on them as a 30% sales tax. So in that way, I think the NIPA numbers might accurately reflect tax avoidance under both systems

However, other retail business with tighter profit margins that income tax was not as big of a chunck of their gross sales, will have a much bigger incentive to cheat the system under the sales tax. Also with fewer cross reporting, it will be much easier to buy personal items under the business name, which will lower the personal consumption numbers, increasing tax avoidance. So yes, I think using the NIPA numbers without some adjustment is extremely optimistic.

[AzaleaCity5691]

The final thing I'm going to say on this, well, before that

Just as you'll never convince me that the South was wrong in the Civil War, you'll never convince me that a national sales tax is a good idea

More importantly, one thing, one last point, that needs no emperical evidence to back it up

This is a tax burden that will primarily fall on areas where the cost of living is higher, and these areas don't exactly together constitute 51% of the country

And that is the final flaw (which is a flaw in the income tax too, though it's not as pronounced there)

The burden for this tax will fall primarily in expensive markets. What that does is mess with regional economies, which is not a good idea.

The problem with NRST is the same as Income Tax. We are a nation by techicality only. Back in the 80's, this guy wrote a book detailing the nations by culture, economics, etc

So you can't apply a one size fits all to anything in this country outside of defense policy, because of different regional needs, mores, etc etc.

What works well in Nevada might not work so well in New Hampshire, and vice-versa.

And that's the real crime of the expansion of the federal government. It lulled people into thinking it was a uniform country, and you could use uniform solutions to problems, because it was uniform.

[Always Right]

The question is "Is the spending for those services currently in the NIPA personal expenditures table?"

It sounds like NIPA does not try to make adjustments for unreported services. So I don't think those numbers are in the NIPA tables.

[pigdog]

You are the one, nightie, who was trying to somehow equate the FairTax rate as "having somehing to do" with the marginal income tax rates. You were attempting this in the post I'm replying to right now. That was not the point as you know full well.

Nor will your "stunt" work of pretending the income tax rate does not matter and that there is no evasion while at the same time pretending that the FairTax rate is so high as to trigger massive evasion. That's simply not true. The relevant points are the gains due to evasion by anyone under the present system as compared to gains under the FairTax.

The IT system has higher marginal rates than the FairTax even including the probable state sales tax rate. In addition, just the withholding taxes at 15.3% t-i (or 18.06% t-e to use your t-e comparisons). Adding on the 7% t-e state sales tax you tried to add to only one side (the FairtTax side - imagine that) of the calculation, you'd end up with 42.71% t-e at a 15% (17.65% t-e) marginal IT rate. That's a lot more than under the FairTax with the probable state sales tax rate and in fact, the 15% marginal IT rate is probably at least 20% (25% t-e) so that the truly comparative rates would easily be over 45% (50.06% t-e in fact) IT vs 33% FairTax.

"The FairTax rate has absolutely nothing to do with marginal income tax rates or income tax evasion/avoidance." Certainly the FairTax rate has absolutely nothing to do with marginal income tax RATES (in that it does in no way determine them), but the last phrase in that sentence when used correctly from a grammatical standpoint is a flat lie. The FairTax rate and the income tax rate and the comparison of them have everything to do with evasion.

The obvious point being that 45% (which we showed is over 50% remember) is MUCH greater than 33% and anyone with half a brain (eliminates you I guess) would realize there was a bigger incentive with evading the 17+% higher IT rate ... in other words, the present IT system is more likely to incentivize evasion than the FairTax.

Services are certainly no more difficult to tax than products and evasion is neither easier or harder - but let's keep in mind the evasion under the IT of services which is exactly comparable to the FairTax (except that with the IT, the evasion gains the evader more bux than with the lower-rate FairTax; 50+% vs 33%, remember). Or perhaps you'd like to lie and say there is no evasion with services under the IT?

Claiming that, somehow, under the FairTax evasion is vastly increased for either products or services is ludicrous and makes you look like the dolt you are. There will be evasion under any tax system and the amount is greatly governed by how much the evader stands to gain under the particular tax system and the safety he perceives in evading and has nothing at all to do with your lovely (and inapplicable) "expenditures" digression.

With less to gain under the FairTax and with the ability to concentrate more collection resources on a smaller number of taxpayers, an evader would have to be an utter fool to think the FairTax is "better" for him --- it ain't; just the opposite. Go ask your dad.

[Your Nightmare]

What did I tell you about long posts to me? Get it down to a couple of paragraphs and I'll read it.

[pigdog]

Wrong. As I've pointed out several times with the reuisite reasoning, the conforming state sales tax would decline. In a state such as CA where in places thera is a 7.75% (note the 2 decimal places) t-e rate, the FairTax conforming rate would drop toi something like 2% to 3%.

And just like the effect of the FairTax oveall, the increase in economic activity brought about would bring in more state revenue even at the lower rate.

[Your Nightmare]

Wrong. As I've pointed out several times with the reuisite reasoning

What's "reuisite reasoning"? Does anyone have a hillbilly dictionary?

[pigdog]

Yes, very prescient of you - "illudtration" is hillbilly talk for "illustration" but I thought you'd understand it that way.

You were being VERY clear in your language in those two sentences and the second directly contradicted the first. You're now just trying to squirm out of a tight spot having been caught lying again.

[pigdog]

That's a laugh!! Should have put s "smiley" after it.

[ancient_geezer]

But what does income tax compliance have to do with the NIPA expenditure numbers or the FairTax rate calculation? Answer: nothing.

You are right because income tax non-compliance is not an issue under NRST which shares little in common with an income tax system. As a consequence the rate determined from NIPA production sales data as current evasion activity as such is not incorportate into the taxbase.

This is a really long post that is totally irrelevant (typical AG: volume over accuracy or relevance).

Let see the total information component of your response, nil. But is a nice try at deflecting the the issues involved.

The IRS compliance figures, which you base your claim that somehow an NRST will increase because of higher rates, ignore the result of complexity and bureaucratic regulatory burden imposed as a prime motivator in tax evasion. A major factor unaddressesed in you simplistic economic views of the world of taxes.

Complexity of tax system is a well documented factor of noncompliance & tax evasion in all countries that operates regardless of high rates, where compliance is both very high for some countries and very low with others with the same 20+ percent sales tax rates on their citizens, the only differences being the more complex the tax system impacting small businesses, the higher the tax avoidence and evasion found.

With tax rate, being your focus, you neglect to note the high marginal rates of the income/payroll tax system 40%+ focused on small businesses and self-employed income are much greater even than the maximum 23% marginal rates of the NRST collected from business customers. Once the pattern of evasion begins in the first increment on that next dollar earned subject to 40% under an income tax system it grows to total evasion and non filing to deter discovery. Thus 40% marginal rate is a very in relation to the much lower maximum marginal rate of 23% or less under the provision of HR25.

Whether a small business begins evasion from frustration/confusion arising from complixity and bureaucratic hijinks, or from high marginal rate on that next dollar earned. The safest route under an income tax system is for the little guy to go wholehog and fail to file altogether, relying on the cover of 130 million filers he can be sure the IRS is focused on.

That is the core of the income tax evasion problem, large businesses are too visible to not file returns, have too much to risk, and far too many third party transaction records standing as witness against them to successfully evade the taxman outright. The risks of discovery are too high for outright evasion attempts.

However, the avoidance opportunites under the income tax abound, arising from out of its complex rules and structure, factors that are eliminated wholesale in going to an NRST.

Avoidence under the NRST amounts to saving and investing income and which contributes to an expanding business infra-structure and more efficient production resulting in economic growth, and creates more income which is ultimately spent on taxed consumption. A self correcting factor compensating for tax avoidence activities under the NRST.

Bottomline in turning to an NRST, there is little basis on which to expect an increase in tax avoidence or evasion over what already exists in the current income/payroll tax system.

In going to an NRST, the citizen is empowered to make the choice of invest or spend as he will, rather than handing government the first options on rewards of his productivity. Whichever choice that citizen makes enhances first his own living standard self reliance, advances growth of economic activity and their by ultimate assures revenue for the proper functions of national government under the constitution.