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.
Don't really have the time to refute the entire argument, but here's a few:
1. Luxury Tax didn't replace taxes, it was additional tax.
2. Drug Dealers aren't taxed on their sales? So what. They are taxed on the SS Monte Carlo with the 20" gold plated rims.
3. Entire argument doesn't take into account the idea of a 15% sales tax that does not eliminate payroll taxes.
4. Their is a provision in the sales tax plan that shelters the poor i.e. You don't get taxed on the first 15-20K of your income to account for living expenses.
Wrong. The customer will pay $100 and the seller keeps $70 and sends $30 to the government.
So the customer is paying $100 for a $70 item? What's the difference?
If that's the best we can do, so be it.
What do you think that federal, state, and local income taxes + SS taxes + medicare taxes do now? They all tax you off you GROSS amount as if you still have it after each one gets through taking their share.
Also, you ignore that once the cost of the corporations compliance and payment of the all the taxes they have to keep track of is eliminated, the cost of goods will actually go DOWN at the retail level which will INCREASE your buying power.
And don't forget that with the income tax, the government gets a cut NO MATTER WHAT. You have NO CHOICE as to how much you want to contribute. If you object, they will just send men with guns to haul you off to jail and TAKE what they want.
Let's not forget the Ta-ray-za had a true income of almost $50 MILLION but because of loopholes, she paid an effective tax rate of about 2%.
The income tax is for suckers.
How much in federal taxes are they paying on those items today?
You left out the part where we'd end up with both an income tax, and a Nat'l sales tax.
ping
It seems to me that when the economy tanks, the flucuation in tax revenue will be extrememly drastic and it may encourage other "temporary" taxes...
Consumption expenditures are more stable than taxable income.
| FairTax and Stable Government Revenue
FIGURE 1: This figure compares the percentage of variation of real taxable income and real personal consumption expenditure to a steady state constant growth curve. Personal consumption expenditure (PCE) |
My question lies with the effect it would have on the American people psychologically. Would a National Sales Tax psychologically discourage people and businesses from purchasing goods and services? Americans (sane Americans that is) hate taxes, its in our blood.
I don't know how I would react seeing a %23 or whatever sized tax on my receipt. But it will most likely make me search for other avenues to purchase the desired product even though I know I am not filing a Federal Income Tax return anymore... Just a thought
Ah yes... use tax-exclusive terms to make the rate seem higher compared to income taxes, and then also lump in state taxes so that instead of merely comparing apples to oranges, you're comparing apples to refrigerators.
2. Even 37% is not enough
The NRST does not assume 100% compliance, and quoting a left-wing Brookings Institute paper isn't going to help you around here. The NRST assumes equivalent compliance, i.e., that the same amount of economic activity goes unreported as it does today.
3. Fraudulent Calculations
No, just more complex than your simple analysis. Some tax savings (labor specifically) are ripple effects through the production process. Compliance costs go down dramatically. Other tax savings are more indirect, such as lower interest rates for borrowing money (if you don't believe me, look at tax-exempt vs. taxable bonds -- there's a roughly 30% price premiuim built into the rates for taxes).
4. Millions must file.
Now who's using fraudulent calculations. You assume that every single individual-owned business provides a retail service. Hogwash. Many small businesses provide services primarily or solely to other businesses -- these would not require any filing. I'd say 20 million is far closer to 35 million, which means about a 90% reduction in the number of filers. Even allowing your fraudulent number, we still see over an 80 reduction in the number of filers.
5. Tax Evasion will skyrocket
Supposition, again backed by that Brookings institute. With a much smaller number of colelction points than the income tax, policing activities becomes much easier. And despite your assertion, not one country has ever tried a pure retail sales tax approach.
6. Big Government gets Bigger
Repeating your earlier lie doesn't help you here, either.
7. Underground Economy still not taxed
This is one I'll allow, with a caveat. A portion of the underground economy -- illegal immigrant labor -- will be taxed that is currently missed (with the exception of indirect taxes built into the prices of goods and services). Moreover, since these illegals have no valid SSN, they will be taxed at the full marginal rate and receive no FSA "prebate". This should also make hiring illegals less attractive, since there is less of a cost savings once payroll taxes are eliminated.
8. Lower and Middle Income pay more
Based on an old, CBO static analysis. I wouldn't trust the CBO to tell me the time of day without being off by at least 50%. Nevertheless, the middle class generally bears the heaviest burden under any tax system, and pretending that it isn't true under other proposals is just lying to yourself (and to others) because of the hidden and embedded taxes that affect consumption. People making (and spending) at near the poverty line would pay an effective tax rate of about 0%. At double the poverty line, assuming they spend every penny on new goods and services, they would pay only 11.5%.
9. Elderly assets are unfairly burdened
Except the removal of income taxes and the addition of the FCA, you meant to say. People on low fixed incomes would pay close to or no net tax once the FCA was factored in, as pointed out above.
10. Government Taxes Itself
A complete and utter lie. The government pays taxes only on wages that are otherwise taxable services. Your typical civil servant would not have their salary taxed. This lie is based on a blantant misreading of the bill and one quote that was based on a single poorly clarified statement from an AFFT spokesperson.
11. Auto and Housing Industry Hit Hard
The example you cite was where when a special tax was added on a specific industry. That does not logicially apply to something levied on all industries that replaces existing taxes.
This is seriously the best you can do? Outright lies, exaggerations, class warfare, and left-wing think tanks?
There is a big difference. The way Always Right wrote it up, if you purchased a $100 item you would pay $130 (he then jumped it to $137 because he claims that states would have to drop their income tax and switch to a sales tax, which they won't).
And the reason it is different is because the tax inclusive (pay $100, retailer gets $70, gov. gets $30) comparrison is how you have to do it for an apples to apples comparrison with income taxes.
Just like with income taxes. And I'm using easy round numbers here for ease. If you earn $1,000 you send $300 to the government and keep $700. You don't keep $1,000 and then send $300 to the government.
In the end it works out the same either way, but for an apples to apples comparrison, one must used the tax inclusive method.
Under the Fair Tax the Income Tax and payroll taxes are eliminated. So there would be no augmenting of income taxes with the sales taxes.
Yes, it does. Currently, I have to pay both the personal income tax when I make the money PLUS the hidden/imbedded taxes when I spend it. The people who are making their money illegally are NOT paying a personal income tax.
Now tell me, who currently pays more overall taxes? An doctor making $500,000/year or a drug dealer making $500,000 per year? If you say neither, then you are lying to yourself and me, too because you know that the doctor will pay probably $100,000 in income taxes while the drug dealer pays nothing.
With a fair tax, how much you pay will depend on how much you SPEND, not how much you earn, legally or illegally.
Let's start with #2.
I'll get back to more of your other distortions as time permits.
Any criticism of the rate as an argument against the FairTax is bogus.
The level of the rate that is needed to keep the new form of taxation REVENUE NEUTRAL is a commentary on the level of FEDERAL SPENDING, not the method by which you collect revenue.
What you status quo-ers are doing when you make this silly argument is to attempt to make transparency somehow a bad thing. It's not. It's wonderful, and one of the best features of a retail tax.
If the rate needed to bring in the same amount of revenue as the current (largely hidden) system is shocking, it is because the amount the national government is spending is shocking.
The day that the American people can see that fact plainly and clearly, right in front of their faces, is the day that political pressure will begin to build to reign in out-of-control federal government spending.
And the divide-and-conquer political tactics of the high taxers/big spenders won't work anymore, since every American's self-interest will be identical: A LOWER RATE!
The only benefit of a sales tax as I see it is that you get a lot of money out of tourists from foriegn countries, thus reducing the total tax burden on Americans. Other than that, not a fan, it can be regressive, and it will stifle spending, and discourages business (and getting money of tourists would help crush the tourism industry)
I believe you would be OK with it when your paycheck no longer had income or FICA withholdings on it.
I honestly have not been able to decide which I like better--the NRST or the Flat Tax. I see pros and cons on both sides. However, this argument is silly, IMHO. How many people actually believe that a corporation, once it has gotten people used to paying a certain price for an item, will actually lower their prices? The reality is that they will just pocket more money.
Oh, I'm not against it, just the opposite. Let's get all of your guns rolled out at once so they can be de-fused once and for all. After shredding every single one of these "facts", hopefully you idiots will finally realize how stupid you look and stop posting your lies, assumptions, and mis-characterizations.
And that is why their is such resistance to the NRST by the politicians. The politicians PREFER a system where they can steal you blind a penny at a time without your knowledge.
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