The idea being that when Government get's too greedy it hurts everyone (proportionally) the same ammount and prompts a unified outcry.
As opposed to the divide and conquer system we have now, where the rich scream and no one listens because their ox is being left alone.
As far as consumption taxes go, look at Australia and their "tampon" tax for a good example of what will happen the day after a Consumption tax is implemented.
Some group will come in and try to use the tax cde to price "incorrect" products out of reach and reward "correct" purchases with lower tax rates.
The idea being that when Government get's too greedy it hurts everyone (proportionally) the same ammount and prompts a unified outcry.
Problem is the only proposed flat tax
H.R.1040 Sponsor: Rep Armey, Richard K. (introduced 3/15/2001).
doesn't do that.
It has an $13,600 adult personal exemption and despite rhetoric to the contrary is retains a standard & itemize deductions.
The net result is to increase the number of folks forming the larger government spending constituency that Walter Williams warns of:
Walter Williams, World Net Daily, 10-25-2000
According to the most recent U.S. Treasury Department figures, ... the top 50 percent ($36,000 and over) paid 96 percent of income taxes. Guess what the bottom 50 percent of income earners paid?
If you're among those who pay little or no federal income taxes, what do you care about tax cuts? Moreover, if you think tax cuts pose a threat to government handout programs, you might be openly hostile and support Al Gore's silly "risky scheme" talk. So many Americans paying little or no federal taxes makes for a natural spending constituency. It's like me in the restaurant: What do I care about extravagance if you're footing the bill?
It still maintains the plethora of business deductions, necessary to the calculation of taxable income and increases the tax base of businesses to make up for lost revenues on the individual income tax side.
It treats the individual proprietor as both a business and and individual who is taxed on both business earnings, and as an individual for individual income.
It does nothing to replace the multitude of payroll taxes, including SS/Mediscare taxes.
It does nothing to remove specialized excises on product sales and manufacture.
Those who are able to live off of savings, bonds, and investment income(dividends and capital gains) pay no taxes. Whether they are business or individual.
Complexity is in the details of how taxable income is figured, not in the size of the reportcard or number of tax brackets. The costs of tax planning, accountion, litigation and enforcement do not just go away, for individuals or for businesses. For the bottom line on that I recommend reading:
Flat Tax as Seen by a Tax Preparer
by Vern Hoven
It's quite an eye opener.
The IRS is still around, and the tax maintains every individual in legal jeopardy to prove there income on challenge whether they may qualify to file or not. Businesses still jump throught the same old hoops and the total overhead costs to business in complying with the tax remains generally the same, (65cents for every revenue dollar collected) and gets included in the price of goods and services for us all same as any other business cost.
Bottom line, it's essentially the same thing we have now, they just make cosmetic changes that shift the overall tax burdens around concentrating them on the middle class and really doesn't change the impact on growth of government.
As far as consumption taxes go, look at Australia and their "tampon" tax for a good example of what will happen the day after a Consumption tax is implemented.
Problem is that is exactly what the "Flat Tax" is.
A VAT. is called a consumption tax because ( Consumption = GrossIncome - Investments). And the tax is calculated by multiplying the rate times (Gross sales receipts less production purchases and wages paid)
Folks, that is the essential methodology of the "INCOME TAX."
Labels can be deceptive when one does not look behind the smoke screen.
None other than the father of the flat tax, Robert Hall of Stanford University (along with Alvin Rabushka), in his 1995 Ways and Means Committee testimony said, "The Hall-Rabushka flat tax is a value-added tax."
Which was pointed out again in additional hearings in April of 2000:
http://waysandmeans.house.gov/fullcomm/106cong/4-11-00/4-11kotl.htm
"Robert Hall, one of the originators of the proposal(Flat Tax), who describes his Flat Tax as, effectively, a Value Added Tax. A value added tax taxes output less investment (because firms get to deduct their investment.)"
"The Flat Tax differs from a VAT in only two respects. First, it asks workers, rather than firm managers, to mail in the check for the tax payment on that portion of output paid to them as wages. Second, it provides a subsidy to workers with low wages."
The Flat Tax; Chapter 3, by Robert Hall and Alvin Rabushka
| In our system, all income is classified as either business income or wages (including salaries and retirement benefits). The system is airtight. Taxes on both types of income are equal. The wage tax has features to make the overall system progressive. Both taxes have postcard forms. The low tax rate of 19 percent is enough to match the revenue of the federal tax system as it existed in 1993, the last full year of data available as we write. Here is the logic of our system, stripped to basics: We want to tax consumption. The public does one of two things with its income—spends it or invests it. We can measure consumption as income minus investment. A really simple tax would just have each firm pay tax on the total amount of income generated by the firm less that firm’s investment in plant and equipment. The value-added tax works just that way. But a value-added tax is unfair because it is not progressive. That’s why we break the tax in two. The firm pays tax on all the income generated at the firm except the income paid to its workers. The workers pay tax on what they earn, and the tax they pay is progressive. To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way. The base for the business tax is the following: Total revenue from sales of goods and services less purchases of inputs from other firms less wages, salaries, and pensions paid to workers less purchases of plant and equipment The other piece is the wage tax. Each family pays 19 percent of its wage, salary, and pension income over a family allowance (the allowance makes the system progressive). The base for the compensation tax is total wages, salaries, and retirement benefits less the total amount of family allowances. |
look at Australia and their "tampon" tax
What happened in Australia as regards the "tampon" tax, was the "tampon" was exempt from taxation at the wholesale level, before introduction of the Australian GST (a European style VAT, othewise known as a Grap And Squeeze Tax on all stages of production among businesses.)
The Australian VAT replaced the Wholsale tax that they orginally had and removed the "Tampon" exemption for the calculation of (Gross Sale Receipts) the result, the shelf Price of Tampons went up, and Australian ladies became revolted(the devil made me doit ;o)
Some group will come in and try to use the tax cde to price "incorrect" products out of reach and reward "correct" purchases with lower tax rates.
Unfortunately for the Australians the GST is not a "Retail" sales tax, it is a Value Added Tax on businesses that the Australian citizen sees only as higher prices, no receipt telling him how much is hidden in what he pays for products at the store.
A general increase in tax rate in a VAT system, like the Aussie GST or the American corporate income tax, is indistiguishable from inflation,
Definition [ http://www.encyclopedia.com/articles/13330.html ]:
value-added tax
levy imposed on businesses at all levels of production of a good or service, and based on the increase in price, or value, added to the good or service by each level. Because all stages of a value-added tax are ultimately passed on to the consumer in the form of higher prices, it has been described as a hidden sales tax. Originally introduced in France (1954), it is now used by most W European countries.
Parliment of Australia: Senate Committee:
GST Main Report:
Chapter 1
[ http://www.aph.gov.au/senate/committee/gst/main/chapter1.htm ]
KPMG International is an International Business Consulting firm based in Australia.
http://www.kpmg.com.au/gst/work.html
The proposed GST is a value-added tax, its basic structure being similar to those in force in New Zealand, Singapore, Canada, South Africa, The United Kingdom and other European Union (EU) countries. Papua New Guinea, Sri Lanka and Vietnam will adopt a value added tax within the next 12-18 months. The terminology Goods and Services Tax or GST is in line with that used in New Zealand and Canada.
Of the Asia Pacific region, Australia, Hong Kong and Malaysia stand out as the only major economies that have not adopted a value-added tax as their main indirect tax system.
How does it work?
The GST is charged every time a business supplies goods or services in the course of its business activity. A purchaser of the goods and services is not able to claim an exemption from the tax on the grounds that the goods or services are to be applied to a particular manufacturing or other business purpose.
The essential design feature of a GST is that tax paid by a business on the purchases of goods and services is credited to the business and, in some cases, can be refunded. The aim is that no part of the tax represents a cost to the business.
The effect of the crediting system is that the tax rolls forward at each transaction to the point of sale to the end consumer.
The current income/payroll tax structure on businesses now in place in this country, and the proposed business half of the "Flat Tax", are subtraction method VAT's, in that they are levies imposed on businesses at all levels of production, passed on to the consumer hidden in the price of goods and services.
OTOH; A Retail Sales Tax is a single stage(Retail), single rate, visible to the consumer tax, on the "retail" sale of products. Such is not a VAT and is expressly paid by the consumer not the business and is completely visible to the customer(e.g. VOTER) by a receipt mandated by the law. The Retail Sales Tax does not tax purchases made for investment or business purposes.