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.
Piggie apparently believes that the tax base would triple, i.e., there is twice as much money spent on services as on purchases of goods in Cal. Sounds delusional to me. Since you are supporting him in this, I assumed you had numbers to demonstrate. Apparently it's all snake-oil once again.
In my example, I clearly explained the cost with tax was $130.
In addition, your continued use of tex-exclusive figures isn't accurate either, since the correct t-e figure is 29.87%, not "30".
Actually, the correct figure is 29.87012987012987012987012987........but I think most sane people would accept 30% as a round figure for 29.87%.
Let's say the tax rate is 7.75% (it varies by location in that state as in some others). The tax base presently is on a very restricted range of things with many exemptions, exceptions, exclusions, and special situations. It is nowhere near the entire consumption base since only tangible things are involved for one thing.
Conforming the sales tax to the FairTax would actually easily more than double the tax base since now services would be taxable as well and services typically are more than half of the dollar amount of consumption.
In addition, all exemptions, etc. (and there are thousands) would disappear raising the tax base further.
It is easy to see, then, that the tax base would about triple (or perhaps be even larger) which would bring the required sales tax rate into the 2% to 3% range.
It's pretty straightforward, actually.
The FairTax supporters have ALWAYS said that the rate was 23% t-i or 29.87% t-e. It's only the "anti" crowd that have tried to pretend something else.
Typically you try to present the numbers (usually incorrectly as 30% t-e) to pretend that others were being lied to. That has never been the case - and still isn't.
Fire up your search engine and you'll verify what I said.
I'm not about to waste my time with you on something you obviously don't wish to believe (and won't in any event). My statement stands. It's fine with me if you choose to not believe it.
You can laugh all you want, but that does nothing to explain how Jorgenson calculates embedded taxes and compliance costs. I enjoy your use of big words though. It makes you sound smarter than you are. It should not be that tough. You seem to have no clue what Jorgenson considers embedded taxes and compliance costs. I have seen some caculations for compliance costs, and most have nothing to do with actual costs to businesses.
Not, they all stand as of now. The only one I question is if their models assume 100% compliance. I've based that on one statement by an economist who reviewed their models. But I can't get enough information to learn what assumptions were actually used for compliance rates.
Well, no, Rongie. You clearly stated something quite different. You sopecified the "cost" was $100 which (as is called out in the bill) would include the sales tax (tax inclusive, you see).
And as for the "correct" figure, 29.87% would be the normal statistical rounding to two places and NOT 30.00%. That's merely more dishonesty. Use 29.87% and I have no complaints; use 30% and it's obvious you're trying to fool people.
LOL! You clearly have no basis for your delusional statements!
That's 'gross payment' according to your bill not 'costs'. I clearly defined what I meant by cost, so you are just being ignorant at this time.
You're kidding, right?
LOL, you boys are grasping for straws if you are going to call me a liar for not rounding off to two decimal places. The 30% number is legitimate. If I said 30.00% that would be incorrect. But for discussion purposes, 30% is an honest and correct rounding of 29.870129%. But you can continue to look like a fool to argue such a point.
You're not an honest participant in this debate, then.
But, of course, few on your side are.
As far as I know, you have always said that. However, I was trying to straighten out FairTax supporter Sprite518 who has been arguing otherwise, so you are mistaken in the above quote.
Phantom Lord did a pretty good job just fifteen posts in.
I'll assume you have a basis for that, and accept it. That could bring it down from 7.75% to about 5.2% (if the politicians don't decide to grab some extra money, as they're wont to do). The rest is just unquantifed, unsubstantiated hand-waving.
Phantom was wrong in his explaination of #1, he was incorrect in that he did not know that sales tax would in fact be charged on most state employee salaries, and his point that states might not go to the sales tax implies that states will keep the income tax which kind of destroys the whole point of the fair tax system to eliminate income taxes. If the states just pick up the income tax where the feds left off, what is the point? But if you think those are good points, so be it.
'Debating' with someone who calls themselves 'Always Right' is bound to be a fruitless exercise.
Humility is the beginning of wisdom.
So far you have contributed about 8 posts to this thread and have made 8 insults and zero points. About par for the course.
And it's been downhill for the author's claims ever since.
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