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.

Be honest please.

I wasn't be dishonest, but you are right, a 23% reduction would do it, so I stand corrected. But still I only see 8% of hard savings and a potential for 2-4% more. That means:

100 reduced by 10% is 90
90 increased by 30% is 117

So maybe a 17% increase in prices is where we will be at, which isn't that far out of the about 20% I said.

"So in the end, the drug dealer has more money in his pocket to spend under both systems. Taxes are avoided under both system."

At least until the drug dealer spends it. Those watches and gold chains, under a National Sales Tax, would be taxable; he may evade taxes on the drugs he sells, but, absent some grand luxury-retailer conspiracy, has to pay tax on what he buys with his ill-gotten gains.

So maybe a 17% increase in prices is where we will be at, which isn't that far out of the about 20% I said.

Lets assume for simplicity that yes, the out the door price on a widget would go up 17%. Now, by what % is your take home pay going to increase?

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).

The above is total and complete idiocy. The assumption is that because it "misses" the first taxation, something has been lost, and that it happens today because hookers, drug dealers do it. Yeah, sure they don't pay INCOME tax now and only pay SALES tax when they spend, but what happens when the NRST changes the rate? I'll tell you, it got missed the first go'round because it's illegal, but we got it on the second go'round because, my friend, it ain't at the same rate. And, if you think quoting Mr. Bruce Barlett substantiates your claim, well, he's an idiot too if he can't figure that out!

I didn't waste time reading any further, this one was enough to know the bread's not baked....

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?

With that supply-demand curve, he should be raising his prices 20% *now*, since he'll only suffer a 10% loss in sales. The NRST does not cause microeconomic theory to stop working.

"But if witholding were gone and we had to pay taxes with cash out of our pockets, would it increase resistance to higher taxes?"

Huh?

You are saying that folks will look at their invoice - but won't look at their paystub? What kind of half-assed excuse is that?

Follow the money. The people who will make out HUGE are the billionaires and their useless heirs. I am not impressed. And I will call anyone who peddles this scam as a way to reduce the tax burden of the average working family a baldfaced liar.

"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)."

Perhaps your blockbuster is different than mine. Little guy came in offering all the videos you want for the cost of 4-5 rentals a month at Blockbuster, plus you got to keep them as long as you wanted!
What did blockbuster do? they didn't raise their prices like you asserted. In fact began offering the same service at a lower price! Netflix's response? They again undercut Blockbuster.

I agree. But let's look at the sales tax. Under the sales tax the doctor must remit $150,000 for sales tax. Meanwhile, the drug dealer should remit $150,000 for sales tax on all the drugs he sold, but he won't. So in the end, the drug dealer has more money in his pocket to spend under both systems. Taxes are avoided under both system.

BS. How do you figure the drug dealer won't pay sales tax? Doesn't he have to eat? Doesn't he have to buy cars, appliances, etc? The doctor doesn't have to pay sales tax on the money he earns, only on the money he spends so your figures here are faulty. Anyone who thinks an income tax is better than a sales tax has their head square up their butts. Flat tax is not good, it would soon turn back into a sliding income tax. Sales tax with complete elimination of 16th amendment and a new amendment outlawing income taxes at the federal level is the only way to go.

The reason sales taxes would have to be high to match the income tax is because our wonderful government spends so much. When people confront the real amount they have to pay every year they will scream and holler and maybe we can finally reign in runaway spending.

The Boomers are ending their careers and the government now needs a way to tax all those after-tax dollars that have been accumulated over the last 30 years.

He he - the feds have gotten over on you! After-tax dollars are already being hit when spent to the tune of 20-25% of each dollar spent going to federal taxes and related tax costs.

The nrst won't change that.

I do find it interesting that you didn't seem to be aware of this though.

What makes you think the sales tax won't do exactly the same thing.

For one thing, there are many cities on the American/Mexican border. Alot of towns on the Mexican border already subsist by catering to American money (think Tijuana). Now, given this, and given the fact that in Mexico, everything is cheaper by default, the question soon comes.

If someone lives in say, El Paso, and they're saddled with the 23 percent national sales tax, and for the sake of argument (because I dont know what it actually is), Texas adds 6 percent.

So 29% sales tax. Now, let's say their is an item you want, and the exact identical item is sold in Ciudad Juarez. Same quality, same everything. And (this part is odd because Mexico is cheaper, but sake of argument) supposed, both items are valued at $100.

And let's suppose Mexico doesn't have a sales tax (once again, I don't go frequently enough to know if they do or not)

So, in both Ciudad Juarez and El Paso, you have the $100 item.

In El Paso, this item will cost $129 because of the sales tax, and in Ciudad Juarez, the item will cost $100.

Now tell me something, what do you think an El Pasoite would do in this situation. Stay in the good ole US of A and pay an extra $29, or, go shopping in Ciudad Juarez and get a great bargain.

You are saying that folks will look at their invoice - but won't look at their paystub? What kind of half-assed excuse is that?

Here is a little test for you. Go ask some people what their check was this week. 99 out of 100 will tell you their NET pay because withholding has so conditioned people they don't even know what they actually make!

And further, ask them how much they paid in taxes on April 15th. A very large portion will respond, "I got money back!"

If withholding was ended and people had to actually file quarterly and write a check for what they owe, tax increases on income would be far more difficult.

The reason that tax increases (all kinds) are easy is because virtually no one knows what they pay in taxes. If there was an NRST every person would know exactly how much the tax was increased the first time they bought something under the new higher rate.

The people who will make out HUGE are the billionaires and their useless heirs. I am not impressed.

Going to the liberal class warfare handbood is even less impressive.

You don't need to consult an expert on this, all you need do is read what's been stated in argument against the NRST. I don't particularly give a damn about whether it's NRST or Flat Tax, I only want to quit subsidizing lower income people.

I make a lot of money and I discovered a few years back that the more I made, the incremental amount of money that went into my pocket decreased each time my pay went up. It decreased to the point that I was lucky enough (read valuable enough to my employer) to drop down to 60%time (love those Mondays and Fridays off!). I found that I can take a 40% cut in work time and only lose about 25% of what I'd been taking home working at 100%. To me, that's a 15% cut in taxes. Screw'em all, at least until those damn CPAs at the IRS figure out how to diddle me out of "time off."

You have a point. However, if you think about it, there is much more consumer resistance to increasing a price now than to not decreasing a price after the NSRT is included. IOW, the market elasticity will be different for decreasing a price after the NSRT goes into effect vs changing a price now. Furthermore, the probability of your competitors following your increase now is quite a bit lower than the probablility that they will keep the higher-price status quo afterwards.

P: You may, if you wish, decline to give the information and forfeit your "pre-bate".

FC: And low-income people can decline to file their 1040EZ tax return and forfeit their EITC....and their freedom.

It's against the law not to file a tax return. It is completely ok and legal to refuse to receive the prebate.

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