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Top 11 Secrets of a National Retail Sales Tax
Various | 6-10-05 | Always Right

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. 


TOPICS: Business/Economy; Government; News/Current Events; Your Opinion/Questions
KEYWORDS: fairtax; incometax; irs; nrst; salestax; taxes; taxreform
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To: expatpat; Lekker 1

If he has to drop the price 20% to get 10% more volume, guess what a rational businessman is going to do?

He will optimize his profit as will his upstream suppliers.

The consumer will go for the most he can get for his dollar, whether that be in taxfree earnings on his investments to increase income so he can live better in the future, or choose to purchase and be taxed now where the trade off is advantage to him today.

Just the way a competitive economy works.

261 posted on 06/10/2005 1:53:42 PM PDT by ancient_geezer (Don't reform it, Replace it!!)
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To: Always Right
But still I only see 8% of hard savings and a potential for 2-4% more.

Well I see more. Hell just eliminating the employer payroll tax is a good chunk. If you're self employed, it's twice as big a chunk. ANd it's for every link in the chain, passed up to retail.

262 posted on 06/10/2005 1:53:55 PM PDT by Principled
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To: biblewonk

LOL. Yeah, say it again.

The United States government was not set up to be in the business of redistribution of income. Charity is supposed to be charitable, not mandated by the government. Walter E. Williams says it a lot purtier than I do.


263 posted on 06/10/2005 1:55:54 PM PDT by newgeezer (strict constructionist)
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To: Phantom Lord
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?

I would say some will go up 20-25%, but others will go up 0. Some will be better off with a sales tax and others will be much worse. The ones who will really be hurt are those on fixed incomes and/or rely on things like Social Security Income.

264 posted on 06/10/2005 1:58:06 PM PDT by Always Right
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To: Phantom Lord

For a $100 stereo, no.

For a $50,000 car, well, thats when things start to get real tricky.


265 posted on 06/10/2005 1:58:11 PM PDT by AzaleaCity5691 (Farragut got lucky, if we had been on our game, we would have blasted him off Dauphin Island)
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To: Fido969
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?

No I wasn't. That would be the same stupid thing as today. Simply listing it isn't what puts downward pressure on taxes - it's having to pay it. Pay it by pulling $10s and $20 out of your pocket. Let me reprint:

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

So how about a little more time reading and a little less on the choice words?

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.

Good. You should do so if you have any reason whatsoever for thinking it. Do you care to share any of them?

266 posted on 06/10/2005 1:59:40 PM PDT by Principled
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To: FreedomCalls
That's a lot more than the "no record" claimed. If it were changed to "minimal record" then I would not argue with it. But as it is written it is a lie.

That's one of my biggest beefs with the 'fair tax' proponents. They make extreme claims that aren't true. They say they eliminate the IRS, technically true I suppose, but there is still a federal revenue collection agency, just not called the IRS. Is that really an improvement?

267 posted on 06/10/2005 2:04:07 PM PDT by Always Right
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To: Marak
From this site:

Did you know that hidden income taxes and the cost of complying with them currently make up 20 percent or more percent of all retail prices? It's true. According to Dr. Dale Jorgenson of Harvard University, hidden income taxes are passed on to the consumer in the form of higher prices - from an average 22 percent on goods to an average 25 percent on services - for everything you buy.

The link has a quick faq, link to the bill, and other info. Enjoy.

268 posted on 06/10/2005 2:04:48 PM PDT by Principled
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To: FreedomCalls
Then what's your point?

I thought you had posted that someone was lying. I then said take it up with him. What indicates to you that I am defending him or desiring an argument?

269 posted on 06/10/2005 2:08:10 PM PDT by Principled
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To: AzaleaCity5691

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.

Actually, the border patrol gets beefed up, cutting down on illegal aliens as well as assure the proper tax is collected or use and consumption of goods and services in the United States.

That my friend is a two-fer, gotta find jobs for all those laid off IRS agents you know. Border Patrol and Customs seems to be a profession right up their alley.

 

H.R.25

Fair Tax Act of 2005 (Introduced in House)
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25:


 

SEC. 101. IMPOSITION OF SALES TAX.

  • `(a) In General- There is hereby imposed a tax on the use or consumption in the United States of taxable property or services.

*** SNIP ***

  • (c) Coordination With Import Duties- The tax imposed by this section is in addition to any import duties imposed by chapter 4 of title 19, United States Code. The Secretary shall provide by regulation that, to the maximum extent practicable, the tax imposed by this section on imported taxable property and services is collected and administered in conjunction with any applicable import duties imposed by the United States.

 


270 posted on 06/10/2005 2:09:19 PM PDT by ancient_geezer (Don't reform it, Replace it!!)
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To: expatpat
Dream on. Better yet, try it on the Doctor and see what he thinks!

Strong, reasoned reply.

271 posted on 06/10/2005 2:09:25 PM PDT by Principled
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To: Principled
Well I see more. Hell just eliminating the employer payroll tax is a good chunk.

That's a good part of the 8%. $350 Billion on the employer side, $350 Billion on the employee side. I did include the $350 Billion on the employer side only since the $350 Billion on the employee side will be pocketed by the employee. That accounts for 4.3% of the hard savings Businesses will see.

272 posted on 06/10/2005 2:09:42 PM PDT by Always Right
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To: Always Right
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.

Do government agents pay income tax? E.g. George Bush?

Yes they do.

Talk about fraudulent analyses.

273 posted on 06/10/2005 2:11:12 PM PDT by coloradan (Hence, etc.)
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To: Old North State
The simplest solution is almost always the best(pace, William of Ockham).

How is Flat Tax any simpler? The current system is very complex and just reducing the tax rate tiers doesn't make it any less complex.

274 posted on 06/10/2005 2:12:05 PM PDT by JeffAtlanta
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To: ancient_geezer

That doesn't make it any better.

That just means people have no way to avoid being jipped.

Once again, the sane answer, is a flat tax, with an addendum that the law cannot be touched for 200 years, just to avoid the risk of reinvigorating the old system


275 posted on 06/10/2005 2:13:23 PM PDT by AzaleaCity5691 (Farragut got lucky, if we had been on our game, we would have blasted him off Dauphin Island)
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To: Always Right
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.

That was on top of income and business taxes, not instead of them which is the proposal at issue here.

Another fraud in your list.

276 posted on 06/10/2005 2:15:36 PM PDT by coloradan (Hence, etc.)
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To: coloradan
Do government agents pay income tax? E.g. George Bush? Yes they do. Talk about fraudulent analyses.

Government agents do, but not governments. If a state has 100 employees and pay them $1 billion, under the sales tax they will now have to come up with $1.3 billion to keep the same number of employees? Where does that extra money come from? Maybe it is a tricky way to try to get governments to cut, I would be all for that. But the reality is it will just lead to governments have to tax more to keep the same level of so-called services.

277 posted on 06/10/2005 2:16:12 PM PDT by Always Right
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To: coloradan
That was on top of income and business taxes, not instead of them which is the proposal at issue here.

And that matters because? The purchase of yachts did not go down because rich people all of a sudden could not afford to pay the extra 10% because they also pay income tax, but they just saw it as a waste and could not rationalize throwing 10% down the drain. Many probably went overseas and bought yachts to avoid the sales/luxury tax.

278 posted on 06/10/2005 2:19:53 PM PDT by Always Right
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To: newgeezer

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.

In applying for it you designate one person in the household to recieve the check and list the persons in the household.

The monthly rebate is based on the HSS povertylevel tables for number of person in household, adjusted to assure the same amount is received for each adult to get rid of any marriage penalty that would otherwise be present.

Basically currently it works out to be about $178 per adult and $65 per child each month.

279 posted on 06/10/2005 2:21:02 PM PDT by ancient_geezer (Don't reform it, Replace it!!)
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To: Principled

Been there - read it. I also think the figures are totally bogus. While it may be true for large corporations that require hordes of people to comply with complex regulations, it certainly not true that small companies devote 20% - 25% of their gross sales on taxes and compliance.

I guess my biggest complaint about the fair tax is the deception that is being used to sell it. Adding 30% to the cost of an item and calling it 23% is the starting point. Yes, I realize what the numbers mean and how they are derived, but it is a dishonest portrayal, as much as your 20-25% is.

The fact is, the people pushing the fair tax are those who are currently getting clobbered by the income tax. I can understand that and I don't blame them one bit, but there will be winners and losers in any change of policy, and it is the retirees that will suffer under a consumption tax.

That is, unless we all move to Costa Rica and spend our bucks there, but then your percentage of fair tax will most certainly have to increase to make up for the shortfall.

In my mind, the correct solution is to rid government of its excesses. If we cannot accomplish that, then it matters little what form of taxation we have because our contributions will continue to skyrocket.


280 posted on 06/10/2005 2:21:47 PM PDT by Marak
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