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.
Your video store scratching for survival will be very happy to have the higher margins -- it makes his survival that much more probable. (However, there will be competition in some areas, like fast-food, but not in others)
That's because the nrst doesn't tax any income.
One's entire tax burden is paid thru purchases at retail.
The flat tax is fine, but I don't see it as that big of a change of the current system. Personally, I would adjust the current system to lower marginal rates and simplify it by eliminating stupid rules like the alternative minimum tax and providing taxpayers with more protection from the IRS. The number one thing we need to do is reduce the size of federal government from 20% of GDP to under 15%.
What is YOUR the alternative to income tax, numbnutz..
I am doing quite well under the current system, and I consider the sales tax as an assault on my business, the home building industry. So I am mostly just anti-Sales Tax.
You deride with out an alternative.. sounds like a democrat..
LOL, right. Unlike Democrats, I love this country and enjoy what we have. I favor tweaking it not scrapping it. Going back to what Reagan did sounds good to me.
Oh, come on -- you can't have it both ways. You and your fellow FT fanatics keep telling me the buyer won't pay zny more for his goods and services. Which is it?
And you want to give them the Sales Tax??
Not a good time right now to make that assertion! LOL!
I already pay 9 percent on every retail purchase I make.
The National Sales Tax is a horrible, horrible idea drawn up from the depths of hell.
The correct answer to fiscal solvency, institute the flat tax, eliminate all deductions, and start trimming some federal departments.
Sales Tax revenue is unreliable, in times of economic boom, you're doing great, but as every state in this country has recently found out, the minute sales come to a halt, your revenue comes to a halt too.
Notice that when state's have sales tax holidays, the stores get more crowded then they do on the day after Thanksgiving. People will knowingly level off spending during the year, just so they can pig out on the holiday, or, get one over on the government.
Oh, come on -- you can't have it both ways. You and your fellow FT fanatics keep telling me the buyer won't pay any more for his goods and services. Which is it?
Taxes are never eliminated. Added to and expanded, yes. But never replaced or eliminated.
H.R.25Fair Tax Act of 2005 (Introduced in House)
TITLE I--REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND ESTATE AND GIFT TAXES
TITLE II--SALES TAX ENACTED
TITLE III--OTHER MATTERS
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If you think that Blockbuster and Hollywood Video and the others are not currently trying to increase their market share over their competitors currently and would continue to do so you are living in fantasy land.
They're down about 10 cents over the last month in my area of Houston, YMMV. The point is, competition forces sellers to cut prices whenever they can, even for something as necessary as gas.
In some markets, that may be true, in others not -- it depends on market elasticity. If he has to drop the price 20% to get 10% more volume, guess what a rational businessman is going to do?
I am amazed at the stupidity of those who think the method of taxation has nothing to do with the level of spending.
Withholding. Tax costs hidden in prices. Different rates for different people.... all contribute to the gov'ts ability to raise taxes without much resistance... and if they can raise taxes, they'll spend them on vote buying schemes.
But if witholding were gone and we had to pay taxes with cash out of our pockets, would it increase resistance to higher taxes? Of course - i'd even say it would put downward pressure on taxes.
If there were no taxes hidden in prices - if the amount of tax in prices was clearly labeled on every receipt, would it create more resistance to increasing taxes? Of course - i'd even say it would put downward pressure on taxes.
If we all paid the same rate, would an increase to everyone cause more resistance than an increase on a segment? Of course.'d even say it would put downward pressure on taxes.
Changing the method of collection has everything to do with spending control.
Again, as I have pointed out many times, your opposition to the NRST is based wholly in personal greed and fear.
Ya, it stayed that way for a long time. Hell, why not go back to the original flat income tax. After all, it wouldn't just turn into the nightmare we have now would it.
How right you are!
You mean like the original income tax we had that has morphed into the monster it is today?
It's odd that you should say that, since I have noticed a big increase in movie rental prices at Blockbuster over the last year or so. (That's a cunning shift of subject since you were emphasizing the little video guy scratching for a living).
The reason that Mobile is having a problem retaining businesses is because of our sales tax. The city levels 4 percent, which, when you get down to it, is what you need to run the city operations. The problem is, Mobile County tacks on an extra percent, and then the State of Alabama comes and hauls off it's 4 percent.
It is thereby much easier for businesses to locate in unincorporated areas in this state, and as such, this makes life in municipalities, be it business recruitment or annexation, that much more difficult.
Me too. Silly, wasn't it?
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