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.
To hang their hat on the 23% rate is just plain silly and dishonest.Truthfully, have you ever run across a more dishonest bunch? Dishonesty is their forte.
You're wasting your time -- he's not going to catch on.
Are you trying to claim that you understand t-i and t-e now after only, what, 10 years of misusing it?
I know what the website says but that was not the point being made, looie. The description is simplified so as not to confuse. That doesn't mean it is accurate, nor does it mean the rate will be 23% t-i when passed.
Whatever the rate as passed is, it should be calculated and used correctly to two decimal places, if necessary for t-e. The website explanations are so that people will learn (though it certainly didn't do you much good).
Apparently neither does the fairtax website, who readily admits that their 23% tax rate is really a 30% rate at the counter.
Yeah, I know. But I figured if I pointed him to the FairTax website where they clearly state their rate is 30%, he would at least start to scratch his head.
The "sticker shock" is the same on the same thing priced the same. There is no price advantage or disadvantage caused by the FairTax.
None.
Well sticker shock does has effect on whether someone purchase, and it certainly has effect when one is chosing between paying a 30% tax on a new car or home or buying an existing home or used car with no tax.
Good luck! I'm beginning to figure out who to ignore if you want to avoid a headache from their obtuseness or avoid abusive comments.
Darn, I am sorry, I should have said 29.871029% instead of 30%. I feel so dirty....
Well, d'uh. It's because they are not in the same market segment. But Chevrolet, Saturn, Toyota and Honda will certainly compete.
The fairtax taxes the "gross payment" A 7% state sales tax would also be taxed in the "gross payment".
$1.00 plus 7% state = $1.07 plus 29.87% "gross payment" tax = $1.39 or 39% total.
Making the "fairtax" 32% tax exclusive not 29.87%...
"If you did it right now, you would stick out like a sore thumb, and get a lot of customer resistance."
Is the above what you mean?
Now you're starting to catch on! There are more ways to compete than racing your competitors to the lowest price to see who goes bankrupt first. A competent businessman will differentiate his product into a separate market segment from the rest so he doesn't have to compete on low price (selling his car for the price of a Hyundai). That's why Toyota formed Lexus, and Honda formed Acura.
Yes. Glad you found it.
...what you figure the revenue-neutral number to be.
Why ask me? -- I don't have the slightest idea, or care.
I do, and others do. But I will accept you don't care how the FairTax rate would hit your pocket book.
For informational purposes, do you hold the same opinion about current income and payroll tax rates?
However, if you tell me its 23.0% and not 23.1%, as Schweinhund tried to do by quarreling with 30 vs 29.9, then you are wrong.
I say nothing other than I figure the "revenue neutral" rate ought to be much lower, and the rate stated in the bill is what HR25 states for a tax rate.
What I see you and pigdog wrangling over different things, he is arguing the bills legislated rate is 23 percent, you are arguing the an estimate revenue-neutral rate is probably different from the bill's 23 percent.
Since HR25 itself states explicitly "the rate of tax is 23 percent of the gross payments", that issue is decided. The FairTax rate provided is "23 percent" nothing more nothing less, nothing behind the decimal point.
You have cross argument lacking communication.
pigdog is stating one thing, a fact, the bill states 23 percent as the NRST tax rate and that is absolutely true.
You are stating another, a fact, the actual revenue neutral rate, whatever that may be, cannot be 23 percent exactly for we don't have the official number from CRS, CBO or Congress Critters deciding with Ouji boards.
As I see it what we should be interested in, if we are to discuss rates at all is, what a revenue-neutral rate for the bill should be be under the Presidents criteria for a revenue neutral policy given current tax cuts, economic conditions, and what political expediency will allow for to assure enactment.
For that purpose the 23% of the bill can be considered nothing more than a place holder and starting point for political negotiation and is useful only for discussions in relation to other tax reform proposals competing in the legislative pipeline.
It certainly cannot be accepted as the definitive last word nor should anyone be satisfied to leave it that high given current revenues generated by the tax laws to be replaced by HR25.
However that still leaves the second question I put to you unanswered, which really is more fundamental and import to any discussion of relative rates between tax reform proposals:
1) What common measure should be used to specify tax rates so they can be fairly and accurately compared between the different proposals out there, whether they be NRST, Flat Tax, VAT, or some lesser modification of the graduated income tax?
I look for you answer here as well.
1. Employees take paycut in the amount of income tax.
2. 100% compliance with the sales tax.
Both of these assumptions are ridculous on their face. Contractual obligations that have been fiercely negotiated, just don't go away. 100% compliance, give me a break. Their experts are certifiably nuts.
For God's sake.
Do you not see the difference between a complicated return under today's system compared to a simple calculation of 'sales' times 'rate'?
If you really believe that ANYONE is claiming one hundred per cent compliance with the FairTax, I want some of that rope you're smoking.
As usual, you're making things up.
(BTW, your posts are too long for my small brain to deal with in one swing. You might consider giving me one question at a time.)
What common measure should be used to specify tax rates so they can be fairly and accurately compared?
That's a very tough question. If the professionals haven't come up with one, there may not be one that's realizable. It may require a set of measures.
One of the constants in the system is total Fed tax revenues. Another set should be the various economc activities; although these could go up or down in fact, they should be constants for this exercise. Then the % of Fed revenues which come from different segments (from business, rich, moderate, and poor individuals, etc.) might be the set of measures.
And who to ignore when you have no argument. The scalp you see used to belong to expatpat.
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