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.
Around here, they (BB) charge more for your rental. They let you keep it longer, but that's not much consolation.
Please, enlighten me.
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.
Is a $30 dollar savings going to offset the time, hassle, and expense of traveling to Mexico, the time spent shopping, and the time, hassle, and expense of traveling back to the US? And if Mexico is currently greatly cheaper, why isn't everyone on the border already purchashing their items in Mexico?
I don't really understand this - but I take it to say that I am defending the post - I was not. I only jumped in to list the requirements ( legal resident, valid SSN).
My non-employed wife and kids each have a SSN. We all live in the same household. Do we each get a check, each for the same amount? It seems like the 'poverty level of expenditures' is different if we're all in one household vs. having two, three, or four.
Our last revolution produced a pretty good thing, don't you think? Besides, it is way past time that the government was shaken up.
Yeah, but we don't rent often enough for it to be worthwhile.
It is never too late to scrap a piece of legislation that was thought up by the Marxist in Congress.
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)
You have something to quantify that so we can make some comparisons?
Here is a table compiled from Dale Jorgenson's US Business sector estimates of change in production and price received by producers for the Fair Tax legislation.
Jorgenson uses an IGEM simulation solving equilibrium prices for optimum business profits across 35 business sectors in balance with a set of household consumers across a full range of demographics and incomes seeking maximum value for their expenditure.
A copy of the study can be aquired from AFFT by email, just request :
THE ECONOMIC IMPACT OF THE NATIONAL RETAIL SALES TAX
By
Dale W.Jorgenson
May 18, 1997
Final Report to Americans For Fair Taxation
In the third the final column I computed the net price,(assuming a 23% NRST) paid for consumption by an assumed "retail" customer for each business sector via:
Price(consumer)% = 100*((1-Price(producer))/(1-Rate(nrst)) - 1)
and present the change in NRST inclusive price to a final consumer in the last column of the table.
Presuming sector goods or service are sold to a final consumer for each sector the net change to consumer is represented in the last (shaded) column. Those shaded red represent net price increases (NRST inclusive) to the consumer.
I would submit that those NRST inclusive consumer price changes are within ±5 percentage points of the actual values that can be expected.
| First Year 1996 Percentage Changes for FairTax legislation, replacing 1996 tax law | |||
| Business Sector | % Change Production Quantity |
% Change in Producer Prices |
% Change in Consumer Prices |
| Agriculture | 22.8% | -22.26% | +0.96% |
| Metal Mining | 31.96% | -22.51% | +0.64% |
| Coal Mining | 13.77% | -24.63% | -2.21% |
| Crude Oil | 5.10% | -13.25% | +12.66% |
| Other Mining | 34.99% | -23.50% | -0.65% |
| Construction | 55.28% | -24.48% | -1.92% |
| Food Products | 20.79% | -22.84% | +0.21% |
| Tobbacco | 34.00% | -25.14% | -2.28% |
| Textiles | 32.58% | -23.21% | +0.27% |
| Apparel | 17.89% | -19.19% | +4.95% |
| Lumber, Wood | 53.14% | -22.51% | +0.64% |
| Furniture | 73.63% | -22.36% | +0.83% |
| Paper | 28.13% | -22.81% | +0.25% |
| Printing | 15.22% | -24.91% | -2.48% |
| Chemicals | 33.91% | -21.83% | +1.5% |
| Refining | 6.22% | -16.05% | +9.03% |
| Rubber, Plastic | 49.96% | -22.66% | +0.44% |
| Leather | 24.13% | -15.25% | +10.06% |
| Glass, Inc. | 48.25% | -22.63% | +0.48% |
| Primary Metals | 38.62% | -20.72% | +2.96% |
| Fabricated Metals | 47.29% | -23.20% | -0.26% |
| Non-electric Machine | 55.86% | -22.26% | +0.96% |
| Electric Machinery | 55.25% | -21.04% | +2.54% |
| Motor Vehicles | 60.82% | -18.53% | +5.81% |
| Other Transportation | 16.90% | -23.80% | -1.04% |
| Instruments | 24.51% | -22.89% | +1.00% |
| Miscellaneous Manufacturing | 57.57% | -17.95% | +1.07% |
| Transportation | 17.71% | -24.45% | -1.88% |
| Communication | 14.79% | -25.30% | -2.99% |
| Electric Utilities | -9.05% | -23.51% | -0.66% |
| Gas Utilities | -8.29% | -20.03% | +3.86% |
| Trade | 28.87% | -25.43% | -3.16% |
| Finance, etc. | 16.93% | -24.87% | -2.42% |
| Other Services | 12.04% | -25.43% | -3.16% |
| Government Enterprises | 18.56% | -25.57% | -3.34% |
XPAT: You and your fellow FT fanatics keep telling me the buyer won't pay zny more for his goods and services. Which is it?
Well, tax reform proponents have been showing the income tax fanatics this for some time. But the kool aid drinkers can't see the idea of eliminating costs to business leading to lower prices. The income tax kooks love the income tax so completely, they say it's good for everyone!
Just so happens the eliminated costs are about the same as the nrst. So the buyer will pay the nrst and still pay about the same for products.
Then what's your point? I stated that I disagreed with it and why I disagreed with it. Telling me to "take it up with the original poster" accomplishes nothing unless you are here to argue for argument's sake.
We went through that a month or so ago. I don't believe any conclusion Jorgenson comes up with, after I found he was included in his compliance costs the time a guy spends doing his taxes instead of watching TV at $25/hr.
You pay a lot more than that.
The nrst doesn't change the amount you pay for stuff, it just shows you how much of the price is tax.
Dream on. Better yet, try it on the Doctor and see what he thinks!
"Lower and Middle Income pay more." I suppose you dislike a flat tax for the same reason. Yeah, the liberals and socialists love the idea of soaking the 'rich' so that the 'little people' can get their fair share. After all, the 'rich' people are the ones who profit from our greedy capitalist system so, they should be soaked, right?
Well, here's something for you to ponder. Whether we switch to the NRST or the flat tax, I suspect I'd actually end up paying more than the ~7% income tax I pay today.
So, no, it's not that I stand to gain a lot from either of them. It's just that I believe the system we have now is morally wrong.
Under the Fair Tax the Income Tax and payroll taxes are eliminated.
That was the way most VAT plans were sold to the Europeans. The elimination part never happened. By the way, most VAT taxes can be reclaimed by foreign purchasers including tourists.
The system we have now is morally wrong!?
I am not sure what is 'idiocy' about it, but I was not talking about sales tax. When the drug dealer buys a $50,000 car under the income tax, it creates taxable income for a lot of people. The sales guy makes $3000 and has to pay income tax. The car dealership makes $8000 and has to pay tax on that. The guys that shipped the car and the guys that assembled the car and the car manufacturer made income too, and must pay tax. A legal sale under the income tax does not capture any federal sales tax, but captures income tax embedded in the car.
That's because the nrst doesn't tax any income.Let me show you an example:
One's entire tax burden is paid thru purchases at retail.
John makes $125, pays $25 in income taxes, and spends $100 on a prostitute. The prostitute pays no income tax or NRST on that $100.
Total revenue for the government = $25
John makes $125, pay no income tax, and spends $125 (prices go up for everyone) on a prostitute. The prostitute pays no income tax but pays $25 NRST when she spends the $125.It's a wash.
Total revenue for the government = $25
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