There might be some advantage from the sales tax, but since the employees are pocketing 2/3rds of the savings by eliminating the income tax, it is really not as big as a win for American manufactuers as stated. The biggest advantage may be from the sales tax causing inflation and devaluing the dollar even further, making our goods more competitive. But we will be paying more for foreign goods and oil.
People keeping what they earn is such an awful thing, isn't it...
but since the employees are pocketing 2/3rds of the savings by eliminating the income tax
Pocketing the savings? Looks more like they are spending and paying NRST when they spend.
H.R.25Fair Tax Act of 2005 (Introduced in House)
`SEC. 101. IMPOSITION OF SALES TAX.`(a) In General- There is hereby imposed a tax on the use or consumption in the United States of taxable property or services. `(b) Rate-
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You do realize the NRST replaces the income payroll tax system, and collects no more than the current system does in tax revenues to government.
The biggest advantage may be from the sales tax causing inflation and devaluing the dollar even further, making our goods more competitive.
You do realise, don't you, the currency exchange markets cause the dollar to appreciate in response to move the initial offset in trade balances induced by addition exports towards balance, Not cause it to inflate as you maintain.
Looking over the content of the following report regarding changing the current income tax system that is a source basis tax, to a sales tax which is a destination basis tax, we find some interesting effects of a retail sales tax applied to imports and domestic products equally but applied to domestic manufacture for export.
| ftp://ftp.usitc.gov/pub/reports/studies/PUB3110.PDF PDF page 33 Finally, Hines (1996b) argues that exchange rates move to reflect international differences in goods prices. Thus any increase in export competitiveness caused by a move to destination basis would ultimately be offset by appreciation of the U.S. dollar. Another line of reasoning is that countries use receipts from exports either to import immediately, or to make investments abroad which ultimately provide income to pay for a larger volume of imports in the future. Both of these arguments are based upon the observation that strong economic forces keep a country’s trade in approximate balance regardless of what other policy changes it may undergo. The likelihood that the change from an origin-based system to a destination-based system would in fact generate incentives to export and disincentives to import ultimately depends on the strength with which the long-run tendency toward balanced trade in fact operates. Grubert and Newlon (1995 and 1997) point out that a destination-based consumption tax does create an incentive for cross-border shopping, if goods can be reentered tax free, and for consumption abroad through travel or emigration. Finally, the ultimate effect of a flat consumption tax on the price of particular goods will depend on demand elasticities. Those goods for which demand is relatively inelastic may be able to pass through a larger price increase (tax inclusive) to purchasers than those with elastic demands.29 Whether this would happen in specific cases would depend, among other things, on the price behavior of production inputs and competing products. |
From what the paper has to say about the effect of a flat sales tax hitting both domestic manufacture and imports equally we would see
- an appreciation of the dollar (expanded purchasing power, e.g. lower prices) and
- an influx of investment from abroad in US industry,
to return trade balances back towards equilibrium over the long term after an intial surge in exports in relation to imports to the US.
Thus substantial benefit to the US economy and American standard of living arising from the implementation of retail taxes in place of the current income/payroll tax can be expected.
Strange, just what Jorgenson's results indicate should happen.
"3.Holding net foreign investment constant,the fourth chart shows that exports would jump by 26.4 percent under the NRST, while imports would rise only modestly. This is the consequence of excluding exports from the tax base while including imports. The initial export boom would gradually subside, but exports would ultimately remain more than 13.3 percent above the level under the current tax system, while imports would fall a modest 0.9 percent below this level."