Top 11 Secrets of a National Retail Sales Tax

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.

He pays zero income tax on the money he receives from drug sales, just like he will pay zero sales tax on the drug sales.

But under the nrst, he pays 100% of his taxes when he buys stuff. He will no longer escape paying his taxes.

P: But under the nrst, the drug dealer pays ALL his taxes, so we no longer have to pay any of his taxes... becuase he pays ALL HIS TAXES under the nrst.

AW: Except the 23% of his gross which you seem in denial about.

DENSE!

First, he isn't going to charge any extra for the nrst - as you note, he doesn't pay income tax now, so he doesn't inflate his price in order to pay them. He won't collect the nrst on the sale either - he won't increase his price. HIs price is already at the tax free level and will remain there.

The dealer doesn't pay his tax based on his income! He pays his tax when he spends!

DENSE!!!!!

When the drug dealer finally makes legal purchases, he will pay the embedded taxes which will roughly be the same as the 23% sales tax.

I see you now agree that embedded tax costs are about the same as the nrst. Progress.

But that isn't what you wanted to say! You did it by accident trying to perform mental gymnastics to prove a point that isn't proveable! LOL

The original point is that under the nrst, the drug dealer will pay more of his taxes. The original point was not whether the same would be collected by the gov't - but that it will be more fair under the nrst... because under the income tax he doesn't pay but a part of his taxes - the part embedded in prices.(... we have to make up the part of his taxes he doesn't pay via higher rates on honest folks). BUt under the nrst, he pays ALL his taxes - meaning we don't have to make up the difference.

Dang!

I said "state employees", not private firms. And the amounts are anything but miniscule ... try CA or NY.

It's the same exact principle and NOT something the states would be willing to try since it would embroil them in a raft of legal and financial dificulties and paralyze their own operations.

Not a chance!! They're not that foolish - and certainly wouldn't want to shut themselves down.

And it not a "newly renamed IRS". The IRS is eliminated under the FairTax bill. It is also defunded just in case you can't understand "eliminated". In addition the IT records are required to be destroyed.

You obviously have no conception of the trouble that the state would cause itself with that sort of childishness.

Not denying history at all; just saying that the Articles of Confederation no longer apply (and applied to a completely different set of circumstances than today.

You're trying to whitewash a barn with red paint.

There is no IRS under thae FairTax - and no "quarterly check".

You send your monthly payment (and two line report) to the sales tax administering authority of your state.

YOU DON'T LIKE DISHONESTY??? AFTER POSTING ALL THOSE UNTRUTHS AS THE LEAD-IN TO THE THREAD???

Who do you think you're kidding? Not most of the Freepers reading here.

One portion of my post was about using stolen money to purchase drugs - which is pretty common.

It isn't "counterfeit", but the thief is not a legitimate source for the money - or perhaps you think he is so you can try to further your flawed argument?

The current system gets very little of the money "going in". The FairTax clearly does a better job of capturing tax revenue from not only drug dealers but the underground economy period.

Don't forget that illegal aliens are also part of the underground economy and the income/payroll tax system captures very little in the way of tax revenue from them (either) "going in". And keep in mind there are millions and millions of foreign visitors who likewise pay no tax at present and similarly have little in the way of tax revenue captured.

No one (except the SQL crowd) ever said ALL taxes were embedded in prices.

All those in the underground economy fare much better under the IT system since all they have to do is disguise their income rather than their consumption.

Houses, cars, etc. are a lot tougher to hide than income = and a lot more obvious.

For one thing, because it would be the law. For another, the 0.25% represents some very big bucks for the state, And yet a third thing is because many of the states will decide to conform their sales taxes to the FairTax law also.

How many states at present do you know of who are stealing/withholding payroll tax from the state employees because they "don't care" if the feds get it???

How many such states have started your wonderful "whisper campaigns"?

The tax base of the two is quite different. The IT system has INCOME as a base and the FairTax has the much larger CONSUMPTION as the base.

The purchase under the IT system using the illegal income will only provide a very small portion of tax revenue to the government, if any, whereas the FairTax will provide the full 23% on retail taxable purchases.

No one (except the SQL crowd) ever said ALL taxes were embedded in prices.

Your beloved Dale Jorgenson says so :

Dale Jorgenson, highly regarded economist of Harvard Univ., has found that 20 to 35 percent of U.S. goods and services are "embedded" taxes; that is, for that $10 item you are buying today, $2.50 is "rolled up" or embedded taxes. This happens because a business must recapture all its costs, plus a little profit, in order to stay in business. So businesses aren't the real "payer" of taxes, they're customers are.

Dale Jorgenson's assumption is what most the NRST analysis is based on. If you accept his assumption, you accept today that a drug dealer pays 20-35% tax on every purchase today. It is a wash.

FC, you have to realize that pigdog is under a delusion that the FT is going to be passed just as its worshippers have cast it, without the amendments or compromises are part of the legislative process. He holds this delusion with unshakeable Faith, and cannot give it up.

The rest of the world knows that, in the unlikely event that FT were ever passed, it would look very different from the form its fanatics insist you read.

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