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.
I am amazed when I hear people make claims that say by changing the *method* they will decrease the total burden.
And I am amazed that folks are stupid enough to believe that.
The federal government should just bill states for their portion of the national budget,proportional to the population,and leave it to the state governments to decide how to tax their people.That would give us some CHOICE.
But if the drug dealer was somehow on the up and up, he would have to remit 23% of his gross to the feds.
Fact is, NO ONE will pay such a tax on ANYTHING.
Registered retailers certainly will have to remit such a tax on their gross receipts.
As I have said, I would put the drug gangs out of work and make drugs legal and let it be sold just like liquor. When was the last time two liquor dealers had a shoot out over turf? I'll give you a hint: it has something to do with Prohibition. The Drug Prohibition has created EXACTLY the conditions we sought to eliminate by repealing the 18th Amendment.
That's reassuring.
It doesnt matter what price people are used to paying. When the product next to it on the shelf's price goes down, its price will go down. The invisible hand of supply and demand will bring the price down.
Okay, serious now... "Nothing in the Fair Tax bill requires states to go to a sales tax and drop their current income taxes."
How do those states (like mine, Arizona) who index their income tax based on your Federal AGI maintain their receipts? When the tax cuts kicked in 5-6 years ago, Arizona failed to reindex the State Income Tax rates and took a terrible hit in tax receipts.
I realize the answer is buried in my question, but it should point out that many states will take the easy way out and mirror the Fed VAT/NRST.
Wow, sounds like something our founding fathers would think up. A great idea that worked until 1913.
The doctor will also no longer being paying FICA and other employment tax expenses on his employees, nor will his practice be paying income taxes and associated compliance expenses.
Most of the argument between FT fanatics and their opponents has been whether there are enough real savings in compliance costs to allow (a)the Feds to get their whack, (b)the employees to keep their gross salaries, AND (c) retail prices not go up. I don't believe there are enough real savings (not phony savings like counting up the time a guy spends doing taxes instead of watching TV @ $25/hour). However, let's bypass that argument for the moment and assume for this exercise that you FT fans are right, that there is, say $600B, in real potential savings.
What are these costs? They are almost entirely labor costs -- tax accountants, their clerks and secretaries, etc. If you can wring these costs out immediately and to the tune of say $600B, then perhaps retail purchases will not go up by the 25-30% or whatever of NSRT. (It has to be immediate because otherwise the cost of retail purchases will go up before the compliance costs can be wrung out of the producer costs). Therefore, for the FT believers' scenario to occur, about $600B worth of labor has to be dropped -- either laid off or immediately re-assigned to other tasks. It's impossible to do the latter quickly enough to prevent purchase costs from going up, so they will have to be immediately laid off. Now $600B represents a huge number of people, and corresponds to a sharp increase in unemployment rate from about 5% to about 17%!. Now I am concerned about a depression.
However, what is most likely to happen in real life is that the retail purchase prices will go up by about 30% due to the NSRT, before any savings can be realized, unless those savings are realized by immediately reducing employee wages to about the same level their take-home pay had been after IT withholding. That might be implementable quickly enough to avoid retail price increases.
Therefore, from this analysis, even allowing, just for the sake of argument, FT Faith claims of huge real potential savings in compliance costs, one of three things could happen: (i) either retail purchase prices go up 25-30%, due to the NSRT, before producer costs can be reduced, (ii) take-home pay remains the same, or (iii) we get 17% unemployment, and thus a depression.
Looks like a private transaction to me. Do you currently remit taxes to the state and county whenever you buy an item at a yard sale? You won't do it under the NSRT, either.
Your #143 is making me think you're just dense.
Any argument based upon the alleged improper ratification of the 16th is a loser from the world Go.
Hey, there's something we can totally agree on.
If the drug dealer was on the up and up, he wouldn't be a drug dealer!
We could also legalize drugs and the drug dealers could set up retail shops and then they would pay the sales tax.
I (as landlord) have never done a lease adding my personal income taxes to rent paid by tenant. Nor have I ever done one adding my self-employment (FICA) taxes to the rent. I simply increase the rent by enough to (hopefully) pay for maintenance, and other costs, like my TAXES.
Nor did I ever sign a lease as tenant that included the personal income taxes or payroll taxes of the landlord.
Your statement is false.
When the Euro switched in for Local Currency in Europe, businesses took advantage of the cover and jacked up prices. They didn't come down again, and consumers are still bitching about it in Germany, Italy, and Greece.
1) The NRST is not a VAT.
2) Always Right has contended that states will have to switch to a sales tax and drop their income taxes. I am mearly asking him to provide proof of this.
That's not the point -- AR was comparing him with the drug dealer.
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