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.
Point us to his methodology.
The $250 Billion number that is usually thrown around was calculated by looking at the numbers of forms that were filed, multiplying it by the time the IRS says it takes to keep records and fill out the form and multiplying it by some hourly rate. That means the $250 Billion number thrown around is bore mostly by individuals not by businesses and are not neccessarily actual costs.
Jorgenson's methodology derives from empirical studies utilizing time series price vs tax change, and evaluating parametric functions derived from them based feeding the inputs of the base simulation modules implemented in his IGEM.
http://post.economics.harvard.edu/faculty/jorgenson/papers/baker.pdf
THE ECONOMIC IMPACT OF
FUNDAMENTAL TAX REFORM
by Dale W. Jorgenson; Harvard University
and Peter J. Wilcoxen; University of Texas, AustinThis paper was prepared for presentation at the
Baker Institute Conference
on Tax Policy Reform
Rice University; Houston, Texas
November 6, 1998INTRODUCTION
In this paper we present a new inter-temporal general equilibrium model for analyzing the economic impact of tax policies in the U.S. We preserve the key features of more highly aggregated models like that of Jorgenson and Yun (1990, 1991a). One important dimension for disaggregation is to introduce a distinction between industries and commodities in order to model business responses to tax-induced price changes. We also distinguish among households by level of wealth and demographic characteristics, so that we can model differences in household responses to tax changes. This is also useful in examining the distributional effects of taxes. We present the model in more detail in the following section.
We model demands for different types of capital services in each of thirty-five industrial sectors of the U.S. economy and the household sector. These demands depend on tax policies through measures of the cost of capital presented by Jorgenson and Yun (1991b) that incorporate the characteristic features of U.S. tax law. The cost of capital makes it possible to represent the economically relevant features of highly complex tax statutes in a very succinct form. The cost of capital also summarizes information about the future consequences of investment decisions required for current decisions about capital allocation. We describe the provisions of U.S. tax law that have been incorporated into our model in the third section.
In the fourth section we illustrate the application of our new model by simulating the economic impacts of fundamental tax reforms. We consider the effects of substituting a tax on period 1947 through 1985.’ The data for each year are divided between a use table and a make table.The use table shows the quantities of each commodity-intermediate inputs, primary factors of production, and noncompeting imports-used by each industry and final demand category.2 The make table gives the amount of each commodity produced by each industry.In the absence of joint production this would be a diagonal array. The organization of the use and make tables is illustrated in Figures 1 and 2; Table 2 provides definitions of the variables appearing in these figures.
The econometric method for choosing the parameters of our model stands in sharp contrast to the calibration method used in previous general equilibrium models of tax policies. Calibration involves choosing parameters to replicate the data for a particular year.3 Almost all general equilibrium models employ the assumption of fixed “input-output” coefficients for intermediate goods, following Johansen (1960).This allows the ratio of the input of each commodity to the output of an industry to be calculated from a single use table like the one presented in Figure 1; however, it rules out substitution among intermediate goods, such as energy and materials, by assumption. It also ignores the distinction between industries and commodities and rules out joint production.
The econometric approach to parameterization has several advantages over the calibration approach. First, by using an extensive time series of data rather than a single data point, we can derive the response of production patterns to changes in prices from historical experience. This is particularly important for the analysis of tax policies, since these policies have changed substantially during our sample period and tax rates have varied widely. The extensive time series evidence on behavioral responses to changes in tax policy is ignored in the calibration approach.
A second advantage of the econometric approach is that parameters estimated from time series are much less likely to be affected by the peculiarities of a particular time period. By construction, parameters obtained by calibration are forced to absorb all the random errors present in the data for a single benchmark year. This poses a severe problem when the benchmark year is unusual in some respect. For example, parameters calibrated to the year 1973 would incorporate into the model all the distortions in energy markets that resulted from price controls and the rationing of energy during the first oil crisis. Econometric parameterization greatly mitigates this problem by reducing the influence of disturbances for a particular time period.
Empirical evidence on substitutability among inputs is essential in analyzing the impact of tax policies. If it is easy for industries to substitute among inputs, the effects of these policies will be very different than if substitution were limited. Although calibration avoids the burden of data collection required by econometric estimation, it rules out substitutability among inputs by assumption. This can easily lead to substantial distortions in estimating the impacts of alternative tax policies. By contrast the econometric approach determines the extent of substitutability on the basis of empirical evidence.
Consumer Behavior
The substitution of a consumption tax for an income tax would affect relative prices faced by consumers. However, this substitution would have different impacts on different households. To capture these differences, we have subdivided the household sector into demographic groups that differ by family size, age of head, region of residence, race, and urban versus rural location. We treat each household as a consuming unit, so that the household behaves like an individual maximizing a utility function.
We represent the preferences of each household by means of an econometric model of consumer behavior. Our models of consumer behavior incorporate time series data on personal consumption expenditures from the annual inter-industry transactions tables for the U.S. economy represented in Figure 1. The econometric approach to parameterization enables us to derive from historical experience the response of household expenditure patterns to changes in prices. Empirical evidence on substitutability among goods and services by households is essential in analyzing the impact of alternative tax policies. If it is easy for households to substitute among commodities, the effects of these policies will be very different than if substitution were limited.
The econometric approach to modeling consumer behavior has the same advantages over the calibration approach as those we have described for modeling producer behavior. Our models of consumer behavior incorporate detailed cross section data on the impact of demographic differences among households and levels of total expenditure on household expenditure patterns. We do not require that consumer demands must be homothetic, so that patterns of individual expenditure change as total expenditure varies, even in the absence of price changes. Consumer demands also depend on the demographic composition of the population. These features of our model capture important characteristics of household expenditure patterns often ignored in general equilibrium modeling.
Finally, we aggregate over individual demand functions to obtain a system of aggregate demand functions. This makes it possible to dispense with the notion of a representative consumer. The system of aggregate demand fimctions allocates total expenditure to broad groups of consumer goods and services. Given prices and total expenditure, this system allows us to calculate the elements of personal consumption column in the make table of Figure 1. We employ the model to represent aggregate consumer behavior in simulations of the U.S. economy under alternative tax policies.
To determine the level of total expenditure we embed our model of personal consumption expenditures in a higher-level system that represents consumer preferences between goods and leisure and between saving and consumption. At the highest level each household allocates full wealth, defined as the sum of human and nonhuman wealth, across time periods. We formalize this decision by introducing an infinite-lived representative agent who maximizes an additive inter-temporal utility function, subject to an intertemporal budget constraint. The allocation of full wealth is determined by the rate of time preference and the intertemporal elasticity of substitution. The representative agent framework requires that intertemporal preferences must be identical for all households.
We model the household allocation decision by assuming that till consumption is an aggregate of goods and leisure. Our model of consumer behavior allocates the value of full consumption between personal consumption expenditures and leisure time. Given aggregate expenditure on goods and services and its distribution among households, this model then allocates personal consumption expenditures among commodity groups, including capital and labor services and noncompeting imports. Finally, the income of the household sector is the sum of incomes from the supply of capital and labor services, interest payments from governments and the rest of the world, all net of taxes, and transfers from the government. Savings are equal to the difference between income and consumption, less personal transfers to foreigners and nontax payments to governments.
The employees have to pay income and payroll tax right back to the government. Why pay them amounts that will simply be taken right back in income and payroll taxes? There are several reasons.
I also collect my income tax from customer, so where's the difference? The biggest difference is under the sales tax I pay on gross income, and under the income tax I pay on net income. The fact is I still send a check to the government and the customer is where the money came from in BOTH cases.
This is an odd tactic. I don't say how wonderful things will be under the nrst - I say how much better they'll be than under an income tax.
If you're poor, you certainly don't have very much discretionary income hence the net rate you pay would be less.
I thought I already did. Business half of SS and Medicare totals $350 Billion, which represents 4.3% of $8 Trillion which is the total consumption of goods and services by US consumers.
NRST taxes every penny of consumption, it just rebates back the poverty level worth of taxes which is far less than my non-discritionary spending.
There was a similar provision (not for as long a duration) in the Constitution regarding the slave trade, one of the many compromises they had to make to pass thing.
The Southern states had control over whether or not their would even be a Constitution, that is called a negotiating position.
For a compromise to work, you need two sides in negotiation wanting something.
Don't see you offering anything to Congress Critters enough to buy into your 200 year moritorium on tax law changes. They have everything they need under the Contitution and amendments thereto and in the current income/payroll tax system as it stands.
The people that must buy into your 200 year restriction are the ones proposing amendments & making the laws that currently exist.
What is in it for your Congress Critter (a lesson in why we don't have a balanced budget amendment, supermajority rules on tax rates, or repeal of the 16th amendment for that matter.)
"As a matter of fact, what the income tax does — and this is the debate that I think we always try to get into in order to let you and him fight, see — and the people of this country are led down a path where the actual control of their resources, which in the end is the control over their will, is handed off to the government." . . .
"The government then manipulates that will in order to destroy the freedom of our electoral system through the income tax structure, and we call the resulting slavery a free system."
"In point of fact, it is not as the founders understood, and the only way to restore real freedom is to give people back control over the income that they earn so that they won‘t, at the voting booth and in other phony issues, be subject to that manipulation."
Too many people do not contribute to the cost of government.
A sales tax instead of an income tax will make people understand the cost of government. (And NO rebates for poor people. Make them pay for their government too. Everyone should contribute.)
Garde la Foi, mes amis! Nous nous sommes les sauveurs de la République! Maintenant et Toujours!
(Keep the Faith, my friends! We are the saviors of the Republic! Now and Forever!)
LonePalm, le Républicain du verre cassé (The Broken Glass Republican)
Yes exactly because corporations pay no attention to market forces whatsoever.
Geesh, do you have any clue at all how a price for a good is derived?
I understand what it is. I just don't believe that counting it as a compliance cost is honest or realistic. There is no money which is recoverable if the IT were to disappear. You might just as well claim that TV watching costs the nation $10,000B a year.
Only that amount of TV watching that occurs because someone has choosen to work less because that next dollar they earn costs more than they get to keep. At that point they just slow there production as not worth the effort, or stop all together as leisure is worth more than working for the government's benefit.
I've been there, as have many. Why bother to work more with the hassle and grief that comes with it and pay government for the privilege as well. Heck with that situation, government and the economy can go wherever, I'll spend what I have now, and make the government cough up more when I retire.
Ultimately, even lower income folks are pulled into the mix. When carried to extreme you have substantial numbers of folks so disgusted by the intrusiveness of the income tax system and IRS, the finally just drop out and go to the underground cash economy (variously estimated as 15-25% as a percentage of GDP) essentially no longer a viable section of the economy. Cash on the barrelhead is a mighty hard way to make anykind of living and especially not an efficient addition to the economy as a whole.
To say that "There is no money which is recoverable if the IT were to disappear" shows you have no understanding of the motivations that drive people when government is too intrusive, taxes are too high, and tax administration pushes people right out of the door.
The term for it is deadweight. The factors that impede markets and productivity and show up in lower earnings, lower standard of living, and higher prices for severely reduced productivity.
That answers my questions quite well... thanks..
i.e. You are doing "alright" under the current system. So if it works (for you) why fix it.. or better, a little tweeking will make it EVEN BETTER!.. Thought as much..
Bigun; reminds me of a quote..
"This boys about as sharp as a bowling ball.." -Foghorn Leghorn..
I still feel the Fair Tax is a Utopian Scheme, boys, but the current system is seditious from the git go(seditious to a republic not a democracy).. To Make it BETTER.?. Barf.. my spirit spits on it from the inferno... The federal government is "THE" Trojan Horse however you fund the freepin parasitical werewolf...
Damn.. I'm almost a Loosertarian..
Somebody slap my ass.. but be careful I'm armed.. and very very pissed off..
Wrong! All taxes collected by the government come from individuals, all businesses do is act as tax collectors for the government, and pass any taxes levied onto it by government to the consumer....
The simplest and best description is "What the market will bear". This sounds closer to ShadowAce's clue than yours. His view is also consistent with what happened in Europe when the switch from local currency to the Euro occurred -- businesses used it as cover for large price increases in Germany, Italy, and Greece which did NOT go away.
Savings are already double-and triple-taxed, since most money put into savings is after-tax income. Then, when it earns interest, it's taxed again, then again when it is withdrawn.....Under the NRST, the money put into savings has not been taxed, and it is only taxed when it is withdrawn and spent, interest included...
You tell me what it has to do with the nrst. You said someone lied. I told you to take it up with the poster. I dropped it several times before now. You continue to bring it up. Each time you post to me, I reply. If you wish to stop, do so.
It is not the case that there are no requirements to get the rebate. There are two: you must be a legal resident and 2) you must have a valid SSN.
It's the crazy income tax scheme you love to defend that requires that I take a "substantial" portion in wages. Perhaps you are ignorant of my position - among other things.
Yours is the minority opinion. There is much money to be made in financial planning - a productive excercise.
So, it will take less from the poor, and take less from the rich....
Just WHERE, oh Houdini, is the REST of the money going to come from? A monkey's butt?
Absolutely true. If you wanted a tax revolt in this country, eliminate withholding. Give Joe Sixpack his entire paycheck, then make him send a check to the government(s) for income, FICA, etc. taxes. The outrage would be deafening....
Unfortunately, there isn't a politician with enough cajones to do it, on either side....
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