Posted on 04/12/2003 7:49:12 AM PDT by vannrox
Edited on 04/22/2004 12:36:05 AM PDT by Jim Robinson. [history]
Last fall, the Wall Street Journal ran an editorial entitled "The Non-Taxpaying Class." The editorial, which dubbed those too poor to pay taxes "lucky duckies," won the Journal widespread ridicule from big-hearted egalitarians throughout the world of media and punditry.
(Excerpt) Read more at foxnews.com ...
What kind of a leap of logic is this?
A pretty good one actually. Taxes & the costs of complying with them get passed on by business(the affluent being the owners thererof) and embedded into consumer prices, the point of the article remember?
Under the income/payroll tax system, those in the lower wage brackets not only get hit with income and payroll taxes at the front end reducing their discretionary income, they must expend nearly all they receive merely surviving with little to nothing left for investment above and beyond a hand to mouth existance. As a consequence the current income/payroll tax system impact the lower income brackets in a disproportionate manner, in comparison to those better off who have something left for investment after meeting survival requirements.
I think this description is about the income tax, but the writing in general in this article is VERY convoluted.
No it is about the combination of Federal income and payroll taxes as well as the costs associated with complying with them.
Consider, 23% taxes plus costs of compliance with those taxes, (removing the effect of taxes passed through to wages and dividends) are embedded with in the at price paid at the cash register. Remove those costs and taxes, $77 actually goes to paying for the goods(where no business income or payroll taxes are present).
I also refer you to the section of the following article about the Income/Payroll tax system and its impact on our economy "A. Hidden Upstream Taxes. " paragraph 39.
"[39] Dr. Dale Jorgenson, Chairman of Harvard University's Economics Department, believes that the price of goods and services are inflated by about 20 percent or more by upstream taxes consumers ultimately bear. In a recent paper Dr. Jorgenson estimated the built-in taxes contained in the price of goods and services. /22/ In the chart above, he quantified the hidden component of tax, estimating that producer prices would fall on repeal of upstream taxes an average of about 22 percent."
Looking at the accompanying chart, the range of values from industry to industry appears to be about 12-25%.
Economists Gary and Aldonna Robbins of the Texas-based Institute for Public Policy examined the case of dry cleaning a shirt, with a particular eye toward uncovering the hidden costs of taxes in price.
The Robbin's attributed over 33.6% of "consumer prices" to be due to federal taxation passed on to the customer.
The Federal Tax System
http://www.cbo.gov/showdoc.cfm?index=2125&sequence=0&from=1#pt1
From the Table 1 we may extract the proportionate contributions of each sector of taxes as they contribute to consumer price for the year 2000.
Those tax components which will not change prices as a consequence of enactment of HR2525
============================
Adjust for a conservative $600billion(1995 figure, AGCA '00, Payne '95, PillaBartlettNorquist '95 ) interest & cost of compliance effects.
Estimated change in consumption prices as consequence of enactment of a National Retail Sales Tax, repealing all business income and payroll taxes:
33.6*(1186.5/1945) = 20.5% in consumption prices
Which compares well with the Jorgenson empirical study of 22% fall in producer prices.
The two sources are in reasonable agreement, and I see 20-23% a reasonable value to expect prices to fall not only for customers here in the United States, but in our exports as well making them far more competitive on international markets.
Remove the impact of the Income/Payroll tax system then implement a 21-23% NRST on all goods and services, the total price paid by consumers at the register remains constant or decreases in comparison with current price levels. Add into the mix, the consumer gets to actually receive full gross pay(no withholding) and compensatory monthly pre-payment of retail sales taxes on the poverty level of goods and services for all legal residents, everyone ends up in a much better economic position than the current income/payroll tax system provides.
I hope that this author gets a better editor.
Some might hope one might become a better reader, looking for the guts of an article rather than style.
So much for supply side economic theory!
The US heavily taxes wealth-creation and hard-work... and subsidizes the non-working and the non-productive (including paying farms to not produce).
It would have to be written expressly in the statute creating the NRST. They must happen simultaneously. Otherwise, you are almost certainly correct.
(Repealing the 16th Amendment would be the best possible way to go, but you can't do that with a simple legislative bill.)
Yesterday, it was assault rifles and today it's repealing the 16th Amendment.
Damn, you're a man with a mission, aren't you? ;-)
Furthermore, with those who want to resist paying the tax, it is hard to fault a person for wanting to keep the product of their own labor. It is hard to sympathize with a company who has charged an increased amount for a product, then attempts to keep that overage. Finally, it is far better to have enforcement targeting non-corporeal businesses than real individuals. That again smacks of oppressive actions, and even the slightest abuses raise some very hard power of gov't vs power of citizens issues.
1. A Flat Income Tax would remove all of the complexities of the current tax code, without adding ANOTHER tax. Why give Congress another rope to hang us on.
Hardly, the complexity of the income tax is not a consequence of the number of brackets, it lays with defining income to be taxed. A flat income tax on business without deductibility of business expense is nothing more than a VAT, i.e. a tax on all sales receipts at all levels of production.
For the individual the same is true, one must be able to separate return of capital from income returns and wages. The law required to do this is an invitation to ever growing complexity.
Read:
Flat Tax as Seen by a Tax Preparer
by Vern Hoven
2. $77 in groceries, $23 in tax equals 29.87% tax rate in my book. I would call that *Truth in Taxation*
23% income tax is 29.87% on $77 of takehome.
Income taxes are expressed in tax inclusive measure (tax)/(gross income). The NRST is measured in tax inclusive measure (tax)/(gross payment) for comparability.
Your are calling a comparison of apples with oranges *Truth in Taxation*, rather disengenuous of you isn't it.
3. Price decreases are just passed onto the consumer? That is a BIG assumption.
Assumption? Hardly! A business can only remit taxes from its business receipts (i.e. customer sales), if it pays from its capital it ultimately goes bankrupt.
4. You KNOW that the NRST would be changed over time to add exemption, progressivity, income limits, etc.
The income tax began as a simple flat tax. How is this an argument against the NRST, which at the very least provides financial privacy to the individual.
No individual income is reported to government by the individual under a Sales Tax, where do these income limits, progressivity, exemption come from? Those are inherent features of income taxes, not Sales Taxes.
Why do you think Congress would leave its own creation alone??
Eternal Vigilence.
Guaranteed that Congress has already demonstrated its historical ability to dink with flat income taxes.
Changing from a broadbased tax on all goods and services to exemptions of certain items merely raises the rate on everything else, or government institutes a novel tax reduction. So where is the problem?
In the end Congress is must respond to the demand of its constitutencies. Raising tax on goods and services does not make voters happy. Increasing complexity of taxes on businesses does not make business(read contributors) happy. You figure it.
Guaranteed a flat income tax neither starts out flat nor does it remain simple nor flat over time, furthermore there is no true Flat Income Tax proposal before Congress nor will there ever be one.
Why Flat Tax Isn't A "True" Flat Tax
http://www.cac.psu.edu/ur/archives/BUSINESS/flattax.html
Here's how tax rates come out for the Armey/Shelby Flat Tax, a flat individual/corporate income tax, leaving all SS/Medicare, Federal Unemployment, excise taxes and tariffs in place and unchanged.
http://www.library.unt.edu/govinfo/subject/vital.html
- "The chart below shows a hypothetical set of flat tax rates and allowances that would result in revenue neutrality. This model, produced by the Congressional Budget Office shows that all federal income tax revenues could be fully replaced by a system with a flat tax rate of 13.1 percent and no deductions. Allowing total deductions for a family of four to reach $36,800 (more than double the amount allowed in 1995) would require a 19.9 percent rate."
Joint Economic Committee
Revenue Neutral Tax Rates for Alternative Allowances and Exemptions Under a Flat Tax Standard Allowances Option 1 Option 2 Option 3 Option 4 Option 5 Single $13,100 $13,100 $ 6,550 $ 6,550 $0 Joint $26,200 $26,200 $13,100 $13,100 $0 Head of Household $17,200 $17,200 $ 8,600 $ 8,600 $0 Dependent Exemption $ 5,300 $ 2,650 $ 5,300 $ 2,650 $0 Revenue Neutral Tax Rate 19.9% 19.4% 16.8% 16.3% 13.1% Source: Congressional Budget Office, 1995.
Under the Armey "flat" tax, as it is currently proposed,(HR1040 introduced 3/15/2001) a single person would pay:
7.65% ---- 7.65%(SS/Medicare) tax on wages/salary income below $13,600,
26.65% --- 19% + 7.65%(SS/Medicare) tax on wages/salary and other taxable income from $13,600-$75,000
20.45% --- 19% + 1.45% Medicare tax on wages/salaries and other taxable income from $75,001 up.
0% -------- on savings & bond income and stock dividends.
And that single person's business/employer pays,
19% ------ on earnings (Gross Receipts less allowed business deductions, exemptions and credits)
13.65% ---- 7.65% on SS/Medicare employment excises + 6% federally mandated unemployement excises levied on each employee's on wages up to $75,000.
7.45% ----- 1.45% on Medicare employment excises + 6% federally mandated unemployement excises levied on each employee's wages greater than $75,000.
Plus additional selective excises and tariffs dependant upon the nature of business engaged in.
Note: The base "Flat Tax Rate" is subject to meet revenue neutrality requirements under the Budget Enforcement act. The 19% rate stated in the Armey/Shelby Flat Tax proposal does not meet these requirements and would of necessity be adjusted upwards, and/or personal exemptions and business deductions be reduced to meet revenue neutrality criteria for enactment.
You get more of what you subsidize, and less of what you tax.
True, so why do you intend to continue to want to tax productivity instead of consumption?
A flat income tax is a tax on productivity and is only refered to as a "consumption tax" for not taxing income from investements. The name of "consumption tax" is conferred upon the flat income tax from the economic equivalency between consumption (i.e. purchases) vs income.
Consumption = (Gross income) - (savings and investment)
Income taxes are on the factors of production (i.e. trades, skills, proffessions, etc.) the right side of the equation.
Sales (i.e. true consumption) taxes are levied on the left hand side of the equation. Talk about *Truth in Taxation*! The Flat tax folks have a definite problem there.
The US heavily taxes wealth-creation and hard-work... and subsidizes the non-working and the non-productive (including paying farms to not produce).
True, That is what an income tax does, whether Flat round or what ever, depress the factors of production and you wish to perpetuate that with a Flat INCOME Tax.
- It is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income.
True, so why do you intend to continue to want to tax productivity instead of consumption?
So if all the above is true, then a flat sales tax will reduce consumption, yeilding lower tax revenues, resulting in increased sales tax rates, producing even less consumption, further reducing revenues, forcing another increase in sales tax rates.....
I am talking about black market dealings between private people. You must have already heard about contractors willing to do a job for cash only.
And what prevents his agrieved customer from turning him in, or his ex-wife, competition, ...
Cash only has nothing to do with an NRST in any case. The requirment is for a seller to provide the customer with a receipt for tax paid and detailed cost of services to the customer. If he wants to take the risk of losing his bonding an license to operate, (customer is at no risk) for the sake of the customer. Just means government gets less though make it up when the contractor goes out to purchase something for his own use. Doesn't worry me one bit.
My cookies at the bake sale just got (in effect) 22-30% cheaper, or do *I* have to file a tax form with the NEW IRS?
No you are not doing business for purposes of the the NRST. Read the bill:
And don't forget STATE sales taxes! Hello Underground Economy!!
You pay State Sale taxes today, as well as the embedded taxes in the price of goods and service. This does not change the situation over the current system or even the Flat Income Tax system. In fact state sales taxes would tend towards conformity with the federal sales tax system, which is encouraged in the NRST legislation by paying states to conform their tax system to the NRST way of doing things. The ultimate result would be a reduction in state tax rates as well from a broader tax base and reductions in complexity.
Another unforeseen effect of the NRST: (Isn't it only charged to the *final* user?) Used equipment just becomes that much more valuable, and the sales volume of new goods declines.
If new has a substantive value to the custome over used there will be no impact. You overlook that the customer under the NRST pays no more in total than he does today, and in fact has more available to him from which to make his purchases. There is no more incentive to purchase used under the NRST than there is right now. In fact New goods actually become more available for more money in the customer's pocket and a lower shelf price to attract him.
Aren't service providers also taxed under the NRST?
No, the customers of service providers are taxed under the NRST, service providers merely collect the tax and provide a receipt to the customer. When the business remits the tax to the state tax authority, he receives compensation for doing so.
Again read the bill:
H.R.25
SPONSOR: Rep Linder, John (introduced 01/7/2003)
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.
Refer: http://www.fairtax.org & http://www.salestax.org
So if all the above is true, then a flat sales tax will reduce consumption, yeilding lower tax revenues, resulting in increased sales tax rates, producing even less consumption, further reducing revenues, forcing another increase in sales tax rates.....
Not true as the overall burden of taxes imposed (tax plus costs of compliance) under the NRST is lower, allowing lower payment (price +tax) for goods and services to be less than they are today, with more money available for purchase of good and investment under the NRST.
The change over from the current system must be taken into account to perceive the benefit. Merely saying a tax on something depresses it says nothing, For there is already a tax on everything as it is. The NRST acts to reduce the overall burden on consumption as well as production allowing a much better growth in the economy than is possible under an income tax system.
All of the evils in the current income tax will somehow disappear under a NRST.
Congress being what it is, exemptions, and progressivity will creep in. We can't even get $500 billion in tax cuts passed without class rhetoric. Do you think a NRST will stand without higher rates on certain items??
Some states don't tax food, others don't tax medicine, others (NY?) had tax holidays for clothing for short times. I have heard of some very weird convoluted laws in some states regarding certain products being sales taxed, while similar items (with special legislative favors) are not taxed. A NRST would INEVITABLY have these exemptions. Congress is more likely to close down, then NOT having special provisions enacted.
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