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.
Good. Thanks...
Then how do individuals get the "pre-bate" checks that are supposed to be sent out every month?
It's a contract, you brainless jerk.
Patently ridiculous. Even if you don't agree about after-tax prices falling, you'd have to admit that purchasing power would be at least closely equivalent. Also, what are people going to do with their money if they don't spend it? Sure, there will be some increase in savings and investment (hardly a bad thing), but eventually, that money doesn't do you any good unless you buy something with it.
Under the NRST, they would have to.
Given the fact that the government has run in the red for the better part of the past 3 decades, I don't see why a switch to the NRST would suddenly stop them from continuing to run in the red and borrow borrow borrow.
And you think the landlord can suddenly charge you more rent than is in the contract? Who's the "brainless jerk"?
"Interest is also taxed under the sales tax"
Just how did you come to that conclusion?
I question some of the conclusions you have reached to support your position, but my primary opposition to the current taxation scheme is that it is more about rewarding and punishing behavior than about raising money. This is the primary engine of social engineering and power for congress which is the real root of the opposition to change.
Yes but it is a different matter than the fact that savings will be double taxed, so I think it deserves its own bullet.
Interest is taxed today. And under the fair tax, if I made $500 in interest on my savings account in a year, the government could not tax it because they wouldn't even know about it because I would no longer have to file any income forms with them.
OK. You guys, I think, have answered that question for me. I appreciate it.
Wrong. The doctor's personal income is $500,000. Not the cost of his services. You are getting how much money his office takes in confused with income because the collection of sales taxes is unrelated to your income.
To confuse you less, let's say that the person was a nurse working at a hospital for $50k/yr and the drug dealer was small time making $50K. Both spend their entire income to support themselves. The nurse pays all kinds of federal, state, and local taxes on their income while the drug dealer pays nothing. The nurse's pay after taxes is probably about $35,000, while the drug dealer gets to enjoy the entire $50,000 and is able to buy MUCH more than the hard working nurse.
It's like a millionaire, who can't spend a dime is poorer than a vagrant with $2 in his pocket...;)
Exactly.
But the sales tax is collected on money spent, not earned. So the full tax burden of the doctor AND the drug dealer are collected at purchases for retail.
In the income tax scenario, tax burdens are income, payroll, and embedded. The doctor pays them all, but the drug dealer only pays a portion (the portion embedded in prices).
But again, the nrst puts 100% of one's tax burden in sales tax, which they both pay.
It should be clear that the nrst does indeed capture more of the drug dealer's taxes.
The government collects $1.3 Trillion from individuals, and $650 Billion from businesses (which includes their half of SS and medicare taxes). Business can remove that $650 Billion from their prices, but that only will reduce prices by about 8%, far less than the 30% sales tax that will be added.
The reason it is discussed in tax inclusive terms is that for an apples to apples comparrison you must do it tax inclusive because the income tax is tax inclusive.
To have on tax exclusive and one tax inclusive is a dishonest comparrison of an apple and an automobile.
How convenient!
It shows how badly a person has been infected with the tax-and-spend mentality of modern American government when THEY CONSIDER THRIFT TO BE A BAD THING, and a detriment to our economy.
That kind of short-sighted silliness is exactly what has gotten us to this point: the point of overwhelming, overweaning government intrusion into our pocketbooks and our economic lives.
This is the thinking that makes long-term prosperity for individual citizens harder and harder and harder to obtain.
23% of $70 is $16.10. Total cost $86.10, not $100. Even 30% of $70 is $21 for a total of $91.
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