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.
Except that it's a dead rat dressed up to look like a cat. The "summary" is a collection of half-truths, lies, and exaggerations that is more humor than fact.
No. The tax is the same regardless of product. The tax paid would be the % of gross sales.
It wouldn't be that product A is at X% and product B is at Y% and product C is at Z%.
I am sure you'll want to ping your tax ping list to this one, to refute the arguments, and the many false premises.
Also, next time, add a bullet for the fact that rent will be taxable. If you pay $1000 to rent a house, you will have to pay $1300 ($1000 rent + $300 NRST) under the NRST.
... until the business down the street cuts their price and takes a big chunk of your customers.
Absolutely. Because your landlord isn't currently paying any taxes at all. Nope. Uh-uh. None.
Moron.
I know the tax is the same but I want to know the original price I am being charged for said item. I don't want any "Trust us, were just adding in the additional 23% tax" garbage...
I don't have time to go point by point, but let me just ask you -- what is YOUR alternative?
Do you think the current system is so great, that we should keep it?
Or do you favor the "short form": "How much do you make, send it all in", then the government will provide for what they think your needs are.
Under the NRST, they would have to.
Hamilton, in the Federalist Papers, talks about how taxes on consumption are self-leveling, like water. If you raise the rate too high, revenues will fall at some point, not increase.
Politicians, faced with falling revenues, would have two choices: cut spending, or try and raise the rate. The problems with choice two are A) That move could be quite politically unpopular...and B) Doing so could easily reduce revenues even further, because of the higher prices discouraging consumption.
This natural dilemma for politicians can be nothing but a win/win for a free people.
This is a simple principle that every American who is trying to understand fundamental tax reform needs to get through their skulls.
I made that point in #9, but maybe should have given its it own number. Interest is also taxed under the sales tax, but only the amount above the fed rate.
I don't quite get how you can do such mental gymnastics.
If a drug dealer is making $500,000 today, he pays ZERO in federal income taxes and zero in FICA. If a Doctor makes $500K today, he pays in excess of $100K in federal taxes on it.
So currently the score is Drug dealer pays $0, doctor pays $100K.
Under the NRST, if both the Doctor and Drug dealer earn $500K, and they both spend the same amount of money on retail products, they will both pay the same amount in federal taxes. It is a tremendous revenue gain on illegal activity compared to todays system.
This worry that drug dealers are not going to pay sales taxes on their illegal drug sales is far beyond a red herring and straw man.
You forget that cutting spending is politically unpopular as well. If this was not the case we wouldn't have so many "entitlement" increase promises every election cycle...
I had screwed up my numbers. On a $100 product, the retailer keeps $77 and $23 goes to the government.
It is good to know how much tax is there. It will wake a lot of people up. But it will also be a huge discouragement to people spending and will have a negative effect on our economy.
That is another of the points against it. You will NEVER see the 23% tax but ONLY the 30% tax ADDED. The inclusive tax is completely hidden. "How much is this?" "$100" "How much is the tax?" "$23" "23 is 30% of the price" "I know but that is the government for you"
Once the blatantly deceptive idea of "inclusive" taxes was floated I immediately smelled a rat. Since the entire country has become used to calulating taxes as an add on changing the method does nothing but hide the real tax.
So the customer is paying $100 for a $70 item? What's the difference?
None at all.
Its 23% of the total payment at the register as the seller who remits the tax views it, or 30% in addition to the shelf price as a customer would view it.
Same tax amount either way it is expessed, same amount goes to government and the retailer either way.
Like today, spend your entire paycheck, how much more in income tax did you have to pay to even spend anything at all.
link to bill (enter "HR 25"), FAQ, thumbnail sketch.
Kick around in there. It is indeed a requirement that the 23% amount be shown.
Absolutely. Because your landlord isn't currently paying any taxes at all. Nope. Uh-uh. None. Moron.
Ever own rental property? Unless you eliminate the property tax (which you don't) there is not much income tax to be paid. Depreciation usually wipes out any income.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.