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.
Yes, I have two concerns, beyond the outrageous claims made by the FT proponents: (1) we get both FT and IT (the FT fans claim that the IT will be legislated out, but that can be reversed in the blink of an eye, since the 16th is not repealed), (2) a depression caused by the reduction in consumer spending when the NSRT goes on (or by the layoff of about 12% of the working population if you believe the NSRT fans' claim that there is $600B of labor which becomes unnecessary when the IT stops).
Yeah, but these people went to school for a long time, and paid alot of money to do so too.
You eliminate their industry in one fell swoop, they have nowhere to go, really. I mean, you eliminate the tax code, what in God's name is a tax lawyer going to do, cause for the most part, he specialized in a certain kind of law.
Not to mention, accounting firms often use a great deal of their profits to invest in other kinds of business ventures, taking away that capital in one fell swoop would not be a good thing.
Yeah, but there are different ways to make your point. There are some others who get quite malicious.
'Good jobs' or not, those are jobs that produce NOTHING of value. Nada. Not even tax revenue to the government.
A complete inefficiency... a burden with no positive usefulness.
Besides, in an economy unfettered by the IRS, supercompetitive in the world market, business would boom...there would be no shortage of work for good accountants.
Retrain in something useful. They produce *nothing* of value. It would literally be more economically efficient to pay them 80% of their former salaries as welfare.
Not to mention, accounting firms often use a great deal of their profits to invest in other kinds of business ventures, taking away that capital in one fell swoop would not be a good thing.
This is one of the many forms of the broken window fallacy. It ignores the money *spent* by individuals and companies in employing these accountants, money which therefore does *not* go to other investments.
Your 'Depression' boogie-man is a straw-man.
Business would be better than ever after the demise of the income tax code.
Foreign-made goods would finally be taxed in our market.
American-made goods would have the tax and compliance component removed from their costs, and would become much more competitive in the world market immediately.
Freedom may be risky, as I said before, but freedom is the incubator for prosperity.
Also...
Savings/capital formation are the seeds of productivity and economic growth.
The current system burdens and penalizes capital.
The NRST places no burden on capital at all...only on consumption.
Under the FairTax, America would be the most attractive magnet for capital in the world.
You sound like a snake-oil salesman or a socialist telling the peasants how wonderful things will be when the revolution comes. How is this pie in the sky to be achieved? Did you read post #150?
I would describe your arguments in #302 as:
"The Buggy Whip Argument"
Continuing the Income Tax, which everyone knows is inefficient in the extreme, to keep accountants and lawyers fully employed, is lunacy.
You sound like a slave-master; extolling the virtues of servitude, and the extreme dangers of freedom.
Yeah, I read #150.
Wasn't impressed...
Then what other jobs can these people take, that will give them what they made before. Granted, the ones with MBA's are not going to have a problem, but there will be problems with those who don't have the MBA.
South Carolina once uprooted a very profitable industry by judicial fiat, the result of this, it put my cousin (and me, because I had lent him the start up money, and as such, took a cut) out of business. It also put alot of South Carolinians out of jobs. There were many retail establishments who had entirely relied on these products in order to stay in business.
Now, this doesn't exactly apply to accounting, but the point is, eliminating it in one fell swoop gave South Carolina the economic shock it did not need, and contributed to the unemployment problems they've had in this decade.
If you are going to eliminate an industry, you have to do it gradually so that people in the industry have enough time to make preparations, so when the industry is gone, all the former people in it haven't lost anything.
You have to allow for a transition period.
And the universal rebate portion of the NRST does the same.
How many decades do you think we should have subsidized making buggy whips after the advent of the automobile?
That fact that you keep replying with trivial questions -- like this one. What does this have to do with the NRST? Just drop it, unless you desire an argument just for argument's sake.
In the world you describe in your #314, the federal income tax system hardly burdens Americans and their businesses at all.
Talk about bogus...
Ok, fine, but thanks for reading it.
BTTT
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