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.
Seriously, I apologize if I came across too much that way. However, you are posting on a thread where many participants call other posters liars, so you need to have a thick skin here!
Your response is a lot more generalized hand-waving than mine.
"As I challenged you before in #249, quantify it across the broad economy as has been done by others."
I'm afraid I don't have the time or inclination to carry out the large project you propose,
Its been done for you in #249 by Dale Jorgenson.
especially since you and your FT co-religionists would reject it, anyway.
Inspite of the fact that you SQL co-religionists reject it anyway.
Take your fingers out of your eyes.
The prebate is voluntary - you may simply choose not to get it. That's why it is voluntary.
If you choose to receive it however, there are requirements: recipients must be legal residents and have a valid SSN. If you volunteer to receive the prebate, it is required that you be a legal resident with a valid SSN.
You would prefer that there be no requirements to receiving the prebate?... then you could complain about there being no requirements. It doesn't matter what bill it is or what's in the bill - you will fight any tax reform.
"As I challenged you before in #249, quantify it across the broad economy as has been done by others."Do we get to cut people's wages like Jorgenson and Wilcoxen did in their simulation?
The actual value is what the market will pay for the home.
If you buy a house for $260,000 are you going to sell it for less than that? Of course not. Nobody will (excepting distressed sales).
Your position that people will begin selling there homes for less than they paid for it is absurd.
I'm more than aware of this.
Alabama does this because they can't stand the proposition that people might go out of state in order to get a better deal.
You'll never get me to support sales taxes, especially when the guy I'm supporting in the Mayoral election is promising to lower our sales taxes.
See #253.
Other than the rate for the first year and everyone who wants one would get a check from the government, there isn't anything about the outcome of your sales tax that isn't wishful thinking, hope, conjecture and lies.
We could couple it with a repeal of all campaign finance laws.
As politicians, if it was politically tenable, they would love to repeal every campaign finance law on the book because it makes their jobs that much harder. If you had any sign of public support for such a thing, they'd do it.
Do we get to cut people's wages like Jorgenson and Wilcoxen did in their simulation?
If you don't want any employees, go ahead.
Leaving the simulation equations open to express a potential of higher or lower wages, and lowering them are two enterly different conditions.
The first is the general characterisation of the simulation. The later is a result not found in the conclusions.
Nice try though.
But aren't you one of the guys that claims that cutting prices will increse sales? To be consistent, you have to admit that raising gross house prices will reduce house sales.
Read this:
http://thomas.loc.gov/cgi-bin/query/F?c109:1:./temp/~c109LMUkMo:e68906:
They want you to compile and file monthly tax returns! You think the IRS takes a lot of your time -- you ain't seen nothing until you look at what the NRST people want you to do.
Why would you sell the ... house for less ...?
LL: I thought you said there would be 20 to 30% price reductions? A $200,000 home purchased today would be worth only $140,000 in your world.
Lots of people say 20-35% price reductions - especially on a product with so many links in the production chain.
Under the nrst, a the same home could be built free of the costs of our income tax system for about $150,000. Then at sale for retail the tax is added for a $195,000 sale price. The more links in the production chain, the more embedded tax costs are in the price.
Do you seriously expect a teenager mowing lawns in the summer for spending money to file all the proper paperwork and remit the NRST? Who's going to enforce that? Talk about an intrusive taxman!
just as medical services today contain a 25% tax cost component.
...so every penny a hospital or independant doctor receives they must remit sales tax.
Medical services are taxed today to the same extent by way of the income tax on business, the employer payroll tax, and associated tax costs. When those costs are eliminated and the nrst is added, price comes right back to very near today's price....but we have no more withholding in our paychecks...
"Doubt very much you will find much concensus as to mode of taxation...This thread is a good example of the entrenched attitudes that exist on the subject...Basically it comes down to those who believe they have an economic haven in the current system want to maintain it, those that perceive a disadvantage to themselves or families in the current system want a major change away from how taxation is accomplished today."
You are right of course. That is why my comment about 'concensus on this forum' was followed with :)
We could probably get 90+% agreeing that spending should be significantly reduced. We probably could also get 90+% agreeing that the IRS should be 'abolished'. Concensus on how to accomplish these two items would be difficult to get.
Change the Congressional Budget Process - it's broke.
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