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.
No, the retailer collects a total of $130 from the customer. The retailer keeps $100 and sends $30 to the taxing authority.
What happened to 23%?
The 23% is the after tax percentage. 23% of the $130 is roughly the $30 tax.
What did you say was your major in school again?
An electrical engineer. Never got below an A in any math course including a year calculus and statistics. Can't say that for any of my other classes though. Thanks for your concern, but it is not me who is confused.
And also see #740.
That too.
Make a point and try me.
Because that is "illegal income". No one (except you SQL types) has ever said the FairTax taxes illegal income.
To state that (as you do) is nonsense.
Right. I mean, how could you ever be confused? After all, you're 'Always Right'! Right? Even when you're wrong....
Has a FReeper proven even one of your eleven 'points' wrong? Just one?
Fair??? Fair??? What do you know about "fair"? With all of your specious arguments (including this one) you have the audacity to talk about "fair"???
I'll type real slow so pay attention:
Neither the Income Tax nor the FairTax taxes I-L-L-E-G-A-L I-N-C-O-M-E. That's why they call it "illegal income" - it's outside the system of taxation.
To try to pretend that the FairTax is somehow deficient in not taxing ILLEGAL INCOME (got it???) is absurd since neither tax system does by definition.
Not quite right yet, Rongie.
If a thing costs $100 under the FairTax, then it includes $23 of tax and the thing itself is $77. The total cost ($100 in your example) must be shown on the required receipt.
In addition, your continued use of tex-exclusive figures isn't accurate either, since the correct t-e figure is 29.87%, not "30". You guys just like to artificially inflate things.
"Rock solid"??? You're joking, right???
Once the FairTax becomes law many of the states will go to a conforming state sales tax and the sales tax rate will greatly decline in most states to quite a bit less than half its present figure. In CA, for example I think it would drop from 7.75% down to the 2% or 3% range.
So taking existing rates and calculating an "average" is like mixing fleas and giraffes. The number is pretty meaningless.
Yes, you are ... that's why we call him "Always Wrong" (with great affection, of course, since he helps others learn about the FairTax).
Another delusion, piggie. Or do you have a basis for this claim that would stand up to examination?
Broader tax base, lower rate. Narrower tax base, higher rate.
What is so hard to understand about that?
That model was used to model business response to taxed induced price changes.
Precisely
It did not explain how Jorgenson determined embedded taxes or the compliance costs of the current tax system. That is what I wanted to know.
Jorgenson uses the existing changes in tax laws across a time span using government tax records, and evaluates them with respect to NIPA and other data series response to changes in tax policies to establish the parametric functions for a baseline model.
The embedded taxes are the same revenues collected by government from businesses found in federal tax data sets used to establish the parameters of the baseline calculation. The econometric responses of business, consumers, investors, and government, are incorporated into the parametric functions feeding the various mathmatical representations of the various economic sectors incorporated in his studies.
He runs the general equilibrium solutions against the time data series with baseline tax system, (the 80's -'96 tax code in the particular in study linked to), replaces the baseline tax policies with the test tax policy implemented and measures the difference in output as it is advanced as a function of time. That is what th J&W Intertemporal General Equilibrium Model does, solves the mathmatics that the empirical relationships of economic data and tax policy establish to provide a result that represent a macro look at economic responses to changes in the inputs (like tax law, or any other variable one wishes to study.)
The link did not work either,
Looks like Harvards Economics web server is apparently down for the weekend.
so I don't even know what that was.
You had the Title even a fairly substantial quote to use as a search aid in finding an alternate source.
Search engines are your friend, I would suggest you use them.
For your convienience, here is an alternative source for the same document I found for you using Google, the Jorgenson study for Baker there, is even in multiple formats so you can pick the format that suits you.
Revised April 12, 1999
The Economic Impact Of Fundamental Tax Reform bY Dale W. Jorgenson Harvard...
http://smealsearch2.psu.edu/29743.html
Got that, sprite? Even Piggie tells you there is a $23 tax on a $77 item, which is a 30% tax in anyone's math (29.87% if you want to get fussy).
Not enough information. What is the Cal tax base now, what will it be if your wet dream comes true, and what is the difference?
They report "Wages" which are defined in the bill to include self-employment income:
`SEC. 903. WAGES TO BE REPORTED TO SOCIAL SECURITY ADMINISTRATION.
`(a) In General- Employers shall submit such information to the Social Security Administration as is required by the Social Security Administration to calculate Social Security benefits under title II of the Social Security Act, including wages paid, in a form prescribed by the Secretary. A copy of the employer submission to the Social Security Administration relating to each employee shall be provided to each employee by the employer.
`(b) Wages- For purposes of this section, the term `wages' means all cash remuneration for employment (including tips to an employee by third parties provided that the employer or employee maintains records documenting such tips) including self-employment income; except that such term shall not include--
"`(1) any insurance benefits received (including death benefits);
`(2) pension or annuity benefits received;
`(3) tips received by an employee over $5,000 per year; and
`(4) benefits received under a government entitlement program (including Social Security benefits and unemployment compensation benefits).
`(c) Self-Employment Income- For purposes of subsection (b), the term `self-employment income' means gross payments received for taxable property or services minus the sum of--
`(1) gross payments made for taxable property or services (without regard to whether tax was paid pursuant to section 101 on such taxable property or services), and
`(2) wages paid by the self-employed person to employees of the self-employed person."
I say again --- READ THE BILL!
That was just done - #736 - and it bounced right off your noggin.
Why bother to waste time further?
The model you reference has nothing to do with the embedded taxes or even compliance costs.
ROTFLMAO, the baseline the ouput is the result of math representation of the current system as it tracks historical tax and economic data series.
How Jorgenson came up with those numbers is what I am interested in.
He establishes parametric functions representing the economic data series from which they are derived, NIPA, CES, IRS tax data, and other statistical data sources evaluated over time isolating the parametric factors that represent business, consumer, labor and govenment economic factors relating to the solution the problem.
His modelling of what happens after if a sales tax is enacted is a completely different issue.
His studies include both the historical system (baseline) and the new tax policy implementation, providing comparative differences between the two for outputs. As such they are the issue.
Don't know. Someone better start crunching the numbers, eh?
But there can be no doubt that if you add the service sector to the tax base, you have a broader-based tax, and can therefore lower the rate to obtain the same amount of revenue.
Right?
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