White House Floats Idea of Dropping Income Tax (altogether)

New York Times, Business and Financial Desk, Page 14, Column 5 ^ | 2/8/2003 | EDMUND L. ANDREWS

[Bigun]

White House Floats Idea of Dropping Income Tax Overhaul By EDMUND L. ANDREWS

WASHINGTON, Feb. 7 — President Bush, having already set off a firestorm over his proposals to cut taxes and revamp retirement accounts, suggested today that the time might be near to drop the income tax as a whole and replace it with some form of consumption tax...

[dixie sass]

Fer sure!

[Enough is ENOUGH]

a_g: Thanks for the data. It'll take me through the weekend to weed through it due to my work schedule. I appreciate your effort to post this info.

Principled: I should have clarified my first paragraph or two as a message to other posters who might respond. Some of them turned me off with their emotional responses which I don't have time to deal with. (a_g provided the type of response I was looking for.)

Back to the subject. Every proposal I've dealt with has an upside and a downside. Change involves a degree of risk. I want to know what the downside or risk is. Anyone who has done considerable research on a subject is exposed to the downside arguements as well as the upside. Both are necessary for me so I can formulate my own opinion.

I'm not here to knock anyone especially, if they have devoted hours to research. I posted some concerns I had and I would like to think that they were considered and not sloughed off. I think the political element is real and it could altar the original proposal. Does anyone have any info on how the left wing politicians view this proposal and what their concerns may be?

[valkyrieanne]

No. Retirees will have NO additional tax burden due to an nrst. Who started that anyway? Retirees ALREADY pay tax when they purchase. The fact that they'll pay tax when they spend their savings is nothing new. They'll spend no more on taxes under an nrst than what they pay now. What makes you think they'll pay more due to an nrst???

Well, I for one brought it up.

When someone puts money in the bank or in a mutual fund, outside of a 401K or IRA plan, he is investing *post-tax* dollars. The investment income on those post-tax dollars is taxed at the federal level. When he withdraws money, that money is taxed at the *state* level when he buys something with it.

One could call that triple taxation.

The point I am making is twofold. First off, state sales taxes are generally far lower than the proposed 23%. Second, people have a *choice* as to where they want to live. Many people (especially retirees) choose to live in low- or no-sales tax states, and/or states with low or no state income tax.

I am thoroughly aware that state and local taxes are not the point here. However, in terms of slapping an enormous tax on savings withdrawn in order to live, the proposed federal sales tax represents an enormous amount, especially for people who are no longer receiving earned (wage) income, but who are instead living off their investments.

Yes, the investment income would no longer be taxed. But I can see where for many older people, the consumption tax would represent *more* total tax paid than the federal income tax.

[ancient_geezer]

Does anyone have any info on how the left wing politicians view this proposal and what their concerns may be?

I've only run into mainly rants designed to support retention of the the current income/payroll tax system.

Example:

Refer: 12. DATE CERTAIN TAX CODE REPLACEMENT ACT, House Congressional Record April 13, 2000 pages H2259-H2282; speaking of a memo regarding the Joint Tax Committee's assessment of the total Federal tax rate as a percentage of family consumption expenditures based on Clinton administration expectations "Budget Neutral" for government growth in program funding. (not current tax law revenue projections required by BEA.)

Representative Linder's response to Democrat opposition:

Refer: 12. DATE CERTAIN TAX CODE REPLACEMENT ACT, House Congressional Record April 13, 2000 Page H2266

And my analysis when the above has been refered to:

Under the NRST, the 24.2% federal total rate on gross family income would be repealed leaving only the 7% rate taken by the States. The family would receive 93% of gross family income as discretionary (takehome) income for that family to spend or save as it chooses, it is out of that an NRST would be levied.

If we presume the family continues to spend the entire amount of what they are able to bring home and there is no economic growth as a consequence of the increase in spending or from any savings and investments, the NRST equal revenue rate on consumption spending would be (24.2%/93%) = 26% of equal revenue from a static economy.

That is a far cry from JCT's 60% number democrat's are claiming we are to be taxed by.

The actual 23% rate of the NRST legislation is "revenue" neutral under the BEA requirements, and assumes a moderate increase in the economy due to savings and investment as well as increased consumption purchases, both of which would act to accelerate economic activity and productivity through greater availability of spendable funds to the family.

To make a long story very short the 60% figure from JCT referred to the democrats in their debate offerings is a pile of donkey pooh, based on inflated budget(Dem wish list) projections of the Clinton administration, as opposed to the proper projection based on current tax law revenue projection required by the Budget Enforcement Act, (i.e. revenue neutral as opposed to "budget neutral") of the JCT study the Democratic opposition refers to.

[ancient_geezer]

the proposed federal sales tax represents an enormous amount, especially for people who are no longer receiving earned (wage) income, but who are instead living off their investments.

The problem with that analysis is that all such spent savings are taxed again implicitly by embedded taxes and compliance costs in consumption goods and services now.

Under the NRST such consumption goods and services would have a substantial decrease in retail pricing (20-30%) (refer to Reply #491 above) offsetting the 23% retail sales tax of the NRST. The net result is virtually no change in overall consumption payment (NRST plus new prices) under the Linder NRST proposal. Thus no substantive change in cost to retiree's and such from implementing an NRST. However, the retiree would receive additional income offsetting the NRST for all expenditures up to the Povertyline.

---

All legal residents will receive a FCA equivalent to the FairTax paid on essential goods and services. The FCA will be paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate.

Every year, the Department of Health and Human Services [HHS] determine the "poverty level" for each family size.

The 2001 "FairTax" Family Consumption Allowance Figures
Family Size	HHS Poverty Level	Annual FCA	Monthly FCA
One	$8,590	$1,976	$165
Two	$17,180	$3,951	$329
Three	$20,200	$4,646	$387
Four	$23,220	$5,341	$445
Five	$26,240	$6,035	$503
Six	$29,260	$6,730	$561
Seven	$32,280	$7,424	$619
Eight	$35,300	$8,119	$677

1) Federal Register: February 16, 2001, Pages 10695-10697).

[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer

A family of four, for example, could spend $23,220 per year free of tax because they will have received over the course of the year rebates totaling $5,341. $5,341 is the amount of sales tax paid on $23,220 in expenditures. A family spending double the "poverty level" or $46,440 per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.

The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.

[71] To illustrate the plan's progressive nature we can examine the tax burden that a family of four will have at various annual income levels (or in this case, annual spending levels).

[ancient_geezer]

But I can see where for many older people, the consumption tax would represent *more* total tax paid than the federal income tax.

A previously posted analysis on a like objection concerning the NRST's effect with respect to the poor.

Protecting the Poor from the Tax

A common assumption about the NRST is that it is naturally regressive, since lower income individuals spend a greater percentage of their income in any given year on consumption of necessities. Because a sales tax is an altogether different paradigm of taxation, any judgment on the equity of the tax must be accompanied by a different analysis of regressivity.

To examine how a national retail sales tax could address such concerns, a number of issues should be broached. First and foremost, taxing income at a graduated rate is not the only means of making a tax system progressive. Moreover, a tax on income, no matter how steeply graduated, does not necessarily make an income tax progressive. Even if progressivity is measured by the common standard of "ability to pay," the income tax is imposed only on productive labor and the return to capital and not on wealth. An income tax does not tax consumption of older accumulated capital, whereas a sales tax does.

Equally important, using taxable income as the basis to determine progressivity is necessarily based on a year-to-year analysis where the ability to pay is measured as a function of income per unit of time. Consumption over the life of a taxpayer is in many respects a better measurement of the ability to pay taxes. Because people's incomes fluctuate throughout their lives, the lifetime application of a sales tax is much less regressive than it would appear to be when examining a cross-section of taxpayers in any given year. Since all income is earned for the purpose of eventual consumption, under a national retail sales tax, the taxpayer can defer taxation by saving his income. But he cannot forever avoid the tax.

In any case, an NRST plan can be made progressive through a rebate mechanism that would shelter low-income people from paying the tax. One manner in which the NRST could be made less regressive would be to exempt certain necessities--such as food and clothing--from the tax. That approach would exempt, however, the most expensive food (lobster and caviar) and the most expensive clothing ($1,000 designer suits). It is a very inefficient means of providing tax relief to lower and middle income Americans and would necessitate a much higher overall rate. A more neutral and less distortive approach is to simply provide each family a level of consumption free of tax by providing a rebate of the tax on expenditures up to the poverty level.

The rebate could work as follows: A family consumption refund would be established for each household at an amount equal to the sales tax rate times the poverty level. The poverty level is defined by the Department of Health and Human Services guidelines and should be raised by the sales tax rate.

The family consumption allowance approach has several effects. First, it makes the sales tax applicable only to consumption beyond the necessities of life. Second, it makes the tax in effect progressive, not only because it is based on consumption, a better index of true ability to pay, but because--if one wants to continue to view progressivity through an income tax lens--it entirely exempts lower income workers. Third, unlike most state taxes, it does not undertake the complex and politicized task of determining what to tax and what to exempt, thereby minimizing administrative and compliance questions and economic distortions.

The 23 percent NRST plan would have a highly beneficial impact on the U.S. economy and raise the standard of living of the American public. The tax compliance costs borne by our economy would fall sharply. And the degree of intrusiveness of the tax system in our lives would decline greatly. Once set free from the burdens of compliance with the current system and the punitive tax rates imposed on work, savings, and investment, the United States will become a more productive and more prosperous republic. A national retail sales tax is more compatible with the principles of a free society than any other alternative tax system.

81 Posted on 03/21/2000 12:48:00 PST by CHIEF negotiator

[ancient_geezer]

Every proposal I've dealt with has an upside and a downside. Change involves a degree of risk. I want to know what the downside or risk is. Anyone who has done considerable research on a subject is exposed to the downside arguements as well as the upside. Both are necessary for me so I can formulate my own opinion.

Enough, one of the goals in creating the NRST was to eliminate as much as possible downsides with respect to the citizen as opposed to government. The only real downside to the citizen I have been able to establish is the fact you end up paying a federal tax at all. There really are very few other downsides to the Linder NRST and such are more apparent and technical hairsplitting than real.

If you insist of finding a real downside you are welcome to do so. Mash here >> [H.R.25]. I've found only the one of any substance, and that is paying the taxes, which is true with any system.

[jejones]

Hear, hear! The sooner the income tax is eliminated, the better. Repeal the Sixteenth Amendment.

[NYTexan]

"my cpa just had a coronary."

ROTFLMAO!!

First move in Anarchy: shoot the lawyers!

Second Move: Shoot the CPA's!

[Taxman]

I have been a little out of the Tax Reform Thread loop these past few days as I was away from my office and forced to FReep on a R E A L L Y S L O W computer, but, Oh! Ancient One, you get a huge Taxman ATTABOY for your effort since this thread first started.

I get the impression that you have been doing your research, earmarking articles and posts and laying the groundwork for your magnificent performance these past few days.

CHIEF negotiator would be damn proud of you, and I am damn proud of you. Thanks.

[Taxman]

I didn't learn anything Saturday night except that MAF wears nice perfume! LOL!

[Taxman]

Dammmit! I wish I had said that!

[ApesForEvolution]

EGGS-ZACKLEY! Anyone that wants anything that includes the IRS/IRC (and the threats of loss of liberty, property and even life that they repeatedly hammer Americans with) simply has never dealth with them or doesn't produce anything, but rather TAKES! That's the only way to explain it.

[Enough is ENOUGH]

Thanks for all of the reading material. Wish I could spend time on it right away but will have to put it on the backburner for some time to come.

What I'm after is a list of comments about NRST from all sides ie., professionals, business leaders, tax experts, politicians on both sides, stock market analysts, etc. Response from politicians will give an indicator of what type of ammendments they will want to add to the bill if the movement gains momentum.

The more discussion you can drum up about this (both pro and con) the better informed we will all be.

[ApesForEvolution]

LOL!

[ancient_geezer]

The more discussion you can drum up about this (both pro and con) the better informed we will all be.

Note this thread is now 500+ replies long. It is but one among more than FR 500 threads on this same topic with every argument side and flavor, pro and con, that proponents and opponents have been able to gleen, manufacture or otherwise provide.

I would suggest looking them over.

The following FR home pages containing links to FR articles on the subject will provide a good cross section of what has been debated, all sides up and down are well represented and debated therein.

http://www.freerepublic.com/perl/profile?h=ancient_geezer?

http://www.freerepublic.com/perl/profile?h=chief+negotiator

http://www.freerepublic.com/perl/profile?h=Principled

[ancient_geezer]

OOPs we'll try again, looks like House Ways & Means committee moved some archives around.

The following links for the April 2000 Tax Reform Hearings are current and available.

 

Full Committee

Fundamental Tax Reform

Tuesday, April 11, 2000

	April 11, 2000, Wayne Angell, Ph.D., Chief Economist, Bear Stearns & Company, New York, New York
	April 11, 2000, Opening Statement of Honorable Bill Archer, M.C., Texas, Chairman, Committee on Ways and Means
	April 11, 2000, Honorable John E. Chapoton, Partner, Vinson & Elkins L.L.P., Former Assistant Secretary for Tax Policy, U.S. Department of the Treasury
	April 11, 2000, Billy Hamilton, Deputy Comptroller, Office of the Texas Comptroller of Public Accounts, on behalf of Honorable Carole Keeton Rylander, Texas State Comptroller of Public Accounts
	April 11, 2000, Laurence J. Kotlikoff, Professor of Economics, Boston University, and Research Associate, National Bureau of Economic Research
	April 11, 2000, Steve Kouplen, President, Oklahoma Farm Bureau, on behalf of the American Farm Bureau Federation
	April 11, 2000, Leo E. Linbeck, Jr., Chairman and Chief Executive Officer, Linbeck Corporation, Houston, Texas, and Voluntary Chairman, Americans for Fair Taxation
	April 11, 2000, Honorable John Linder, M.C., Georgia
	April 11, 2000, James Martin, Former General Vice President, Ironworkers International Union, and Deputy Chairman, Dallas Federal Reserve Board
	April 11, 2000, Todd McCracken President and Chief Executive Officer, National Small Business United
	April 11, 2000, Gilbert E. Metcalf, Ph.D., Professor of Economics, Economics Department, Tufts University Medford, Massachusetts
	April 11, 2000, Honorable Collin C. Peterson, M.C., Minnesota
	April 11, 2000, Opening Statement of Honorable Jim Ramstad, M.C., Minnesota
	April 11, 2000, Scott Rooth, Realtor, Cashiers, North Carolina, Chairman, Public Policy Coordinating Committee, and Member, Tax Reform Working Group, National Association of Realtors
	April 11, 2000, Janet L. Skarbek, Sales Tax Manager, Willamette Industries, Inc., Portland, Oregon
	April 11, 2000, Del Threadgill, Vice President of Taxes, J.C. Penney Company, Dallas, TX, and Chairman, National Retail Federation
	April 11, 2000, John G. Wilkins, Managing Director, Barcroft Consulting Group, on behalf of the National Retail Federation

Full Committee

Fundamental Tax Reform

Wednesday, April 12, 2000

	April 12, 2000, Honorable Richard K. Armey, M.C., Texas, and Majority Leader, U.S. House of Representatives
	April 12, 2000, James O. Moore,<br> Smithtown, New York
	April 12, 2000, Frank L. Davis, Jr., Co-Founder, Executive Vice President and National Director of Legislative Affairs, National Retail Sales Tax Alliance
	April 12, 2000, Honorable Philip English, M.C., Pennsylvania
	April 12, 2000, J.D. Foster, Ph.D., Executive Director and Chief Economist, Tax Foundation
	April 12, 2000, Honorable Bill Frenzel, Guest Scholar, Brookings Institution,and Former Member of Congress
	April 12, 2000, Jerry Howard, Vice President, Taxes, USX Corporation, Pittsburgh, Pennsylvania
	April 12, 2000, Gary Hufbauer, Reginald Jones Senior Fellow, Institute for International Economics
	April 12, 2000, James H. Mack, Vice President, Government Relations, AMT - The Association for Manufacturing Technology, McLean, Virginia
	April 12, 2000, James O. Moore,<br> Smithtown, New York
	April 11, 2000, Opening Statement Honorable Jim Ramstad, M.C., Minnesota
	April 12, 2000, Barry K. Rogstad, President, American Business Conference
	April 12, 2000, Honorable Philip English, M.C., Pennsylvania
	April 12, 2000, Honorable W.J.
	April 12, 2000, Steven Worley, Lawrenceville, Georgia

Full Committee

Fundamental Tax Reform

Thursday, April 13, 2000

	April 13, 2000, Stephen J. Entin, President and Executive Director, Institute for Research on the Economics of Taxation
	April 13, 2000, Bill Helming, Economist and Business Consultant, Bill Helming Consulting Services, Inc., Olathe, Kansas
	April 13, 2000, Frank Luntz, Ph.D., President and Chief Executive Officer, Luntz Research Companies, Arlington, Virginia
	April 13, 2000, James L. Powell, Livestock Producer, Fort McKavett, Texas
	April 13, 2000, Honorable Rob Portman, M.C., Ohio
	April 13, 2000, James L. Powell, Livestock Producer, Fort McKavett, Texas
	April 13, 2000, Martin A. Regalia, Ph.D., Vice President and Chief Economist, U.S. Chamber of Commerce
	April 13, 2000, Aldona Robbins, Vice President, Fiscal Associates, and Senior Research Fellow, Institute for Policy Innovation
	April 13, 2000, Patricia M. Soldano, President, Center for the Study of Taxation, Costa Mesa, California

[Taxman]

Geezer, some of the most fun I have had in my lifetime occurred when I testified before the Ways and Means Committee on April 12, 2001.

Click here and scroll (better yet, read) down to:

"Dr. Keyes refers to the income tax as a . . . "slave tax - inherently incompatible with freedom. Abolishing it is therefore not just economically feasible, it is a moral imperative if we are to meet our obligation to bequeath liberty to future generations."

LOL!

At that point, the chair (Rep. Mac Collins, at the time -- Rep Archer was out of the room) gaveled me to silence and told me my time was up, even though I had only been speaking about 4 minutes. Obviously, my testimony was taking a turn he did not want me to pursue!

Many of our "lawmakers" are very, very uncomfortable with the truth about the Marxist-inspired progressive income tax.

[Taxman]

Does that mean that you are not willing to get into the fray and help us replace the income tax with a National Retail Sales Tax and abolish the IRS?

“I have sworn upon the altar of God eternal hostility against every form of tyranny over the mind of man.” [Thomas Jefferson, letter to Benjamin Rush, 1800.]

We will never be a truly FRee people so long as we have the income tax and the IRS.

Click here to help us scrap the Code, scrap the IRS and abolish the VLWC!

We will never be a truly FRee people so long as we have the income tax and the IRS.

You can also click here to sign a petition in support of Fundamental Tax Replacement.

We will never be a truly FRee people so long as we have the income tax and the IRS.