Top 11 Secrets of a National Retail Sales Tax

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.

Did you have pictures of the profs in order to graduate from college?

You called them useless. I asked a question to elicit your meaning and you refuse to answer. It's an easy question.

What do you mean by useless heirs? Why do you resent them so?

Keep on dodging and weaving. I no longer expect any shred of honesty from you. ( o )

Well, waiting *may* bring a much needed house cleaning and a swift kick in the slats to the elite who just love being in DC rather than back in their districts.

But since it does make much more sense, they won't do it until the worst happens.

You are really slow on the uptake all the way around.

IOW, what I was saying is that you are too freaking stupid to have graduated from college on you own and that you must have blackmailed your profs to get the grades needed to pass. Therefore, the references to the pictures.

Now, if you aren't going to address the original question, just go away.

AR writes:

"I am very confident your numbers can only work if employees take a pay cut."

I don't see why a pay cut would be necessary, but just for a moment, let's assume the worst case scenario. Let's throw out all we know about economics and also ignore all the facts, evidence and experience, and pretend that competition and informed consumer demand doesn't exist.

Let's even say that prices after the imbedded costs are gone, but manufacturers, distributers, and retailers refuse to lower their price.

If I make a grand a week, but really only get $700 take home with the current system, and for simplicity's sake, I now take home the full $1000 (a 42.86% increase in available cash PLUS I get the rebate, am I not still better off with the FairTax?

Now, to make the scenario even darker, throw in a pay cut.

How much of a cut do I have to take to actually become worse off than I am under the current system? Will it vary along the pay range?

I don't believe that all of these possibilities would all occur at once, if they happen at all, but even in the furthest extreme, it'll be hard to be worse off with the FT than we are now under the IT.

Am I wrong? What if anything am I missing?

You must obviously be lying ... would the SQLers try to mislead???

Surely they can find a way to define you getting so big a pay drop under the FairTax that your grandmother will have to dress in old flour sacks.

"...but they are definately deluded about what any final act would look like, and don't understand the implementation process that goes with any act of congress. The regulations that are finally published rarely resemble the bill originally offered."

If the bill in it's final form does not do what the sponsors intended, they will pull the bill or vote against it to assure it's defeat.

But what if we actually do get this passed as is, do you have problems with what it IS or just what you fear it MAY become?

" you are too freaking stupid to have graduated from college"

ha ha ha ha.

And you, I take it, were the president of the debating club at Yale.

ha ha ha ha

He's not smart enough to draft an answer along the lines of the post and has no notion of what is being discussed.

He obviously just came on the thread to throw insults at people, not to discuss the FairTax. He's had several opportunities to respond but has never done so in any sort of a fashion resembling intelligence - and he probably never will.

I doubt that he's smart enough.

That's a REALLY intelligent post that furthers the only on-subject comment you've ever made on the thread which, when challenged, you ran away from and hid behind nothing but a childish stream of insults.

If you're going to do nothing but insult others at least get a bit creative. And don't let you mind wander - it's far too small to be let out on its own

"don't let you mind wander - it's far too small to be let out on its own"

Hmmm... did someone fart?

Oh, no, it's just pigdog again, popping up with a lame excuse for a FLAME. Ooooo, oooo... oooo....

Brilliant riposte. Yeah, that really cut me too the quick. I'm just speechless.

(ha ha ha ha)

If I make a grand a week, but really only get $700 take home with the current system, and for simplicity's sake, I now take home the full $1000 (a 42.86% increase in available cash PLUS I get the rebate, am I not still better off with the FairTax?

Am I wrong? What if anything am I missing?

The problem is, if employees are pocking their full paycheck, 2/3rds of the so-called embedded taxes are still in the costs of the products. Your takehome pay will go up, but after the 30% tax is added, most prices will go up 20%, some will go up the full 30%.

What's wrong, don't you get any attention back home?

I notice that you have never responded to the poster who tore your initial efforts apart (except to try to denigrate him) - so that means you've decided it is better to push out insults than think. With your brain capacity that figures ... and of course the original statement for which you were taken to task is still an example of extreme ignorance.

Have you even read the FairTax bill??

Which post number do you consider a response?

To which poster? I see where I am being attacked by three different ones - sort of a Larry, Curley and Moe effort.

(And about as funny as well.)

To the poster Principled starting about #213. He was attempting an honest dialogue with you which looked as though it would be very informative.

You were sidetracked by some intervening posters and never really continued with Principled instead getting drawn into the angry, name-calling mode that accomplishes nothing.

If you'd really like to learn worthwhile facts about the FairTax, Principled has a wealth of knowledge he can share with you. First though, it helps to know if you read the bill at all recently. If you ping him, he'll no doubt respond.

If you choose a different route that you seem now intent upon, I'll tell you that you have (accidently) picked the wrong guy, I assure you. And I couldn't care less whether you believe that or not.

I'd recommend you try to keep going with Principled if you at all to wish to find out more about the FairTax. You seem to have only a knowledge of it based upon assumptions you (or someone else, perhaps) has made.

The bible also says that God establishes governments as His ministers for your good.

And based on your bizarre theory, I guess these guys were the popes: Joseph Stalin Adolph Hitler Idi Amin Pol Pot Chou En Lai Saddam Hussein Are you seriously telling me that these governments were established for the good of the people? What god do you worship?

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