Posted on 04/22/2003 10:40:02 AM PDT by sheltonmac
There is an important distinction to be made concerning a "national sales tax" as proposed to replace current taxation, and the method of taxing consumption as intended by the Founding Fathers. A national sales tax would give Congress an across the board percentage of our economy by laying an internal tax, whether such revenue is needed or not. The Founder's method of taxing consumption began with an external tax on imports at our water's edge, and was extended to reach internal consumption only if external taxation were found insufficient.
It is important to study our nation's first revenue raising Act to understand the wisdom of the Framers. The Act was "... in a certain sense a second Declaration of independence; and by a coincidence which could not have been more striking or significant, it was approved by President Washington on the fourth day of July, 1789." [See, Twenty Years of Congress, James G. Blaine, 1884, Vol. 1, page 185]
Madison, in discussing this Act before Congress, clearly pointed out a very important principal of American's original tax reform package:
"...a national revenue must be obtained; but the system must be such a one, that, while it secures the object of revenue it shall not be oppressive to our constituents."
The Act imposed taxes, not on American constituents, but on "goods wares and merchandise" imported into our Country by foreign nations, and not one dime was raised under the Act by any internal taxes. Internal taxes were frowned upon by the Founder's especially when a national revenue could be had by requiring foreign nations to pay for the privilege of doing business on American's soil!
Jefferson, in his Second Annual Message (December 15, 1802) states:
"In the department of finance it is with pleasure I inform you that the receipts of external duties for the last twelve months have exceeded those of any former year, and that the ratio of increase has been also greater than usual. This has enabled us to answer all the regular exigencies of government, to pay from the treasury in one year upward of eight millions of dollars, principal and interest, of the public debt, exclusive of upward of one million paid by the sale of bank stock, and making in the whole a reduction of nearly five millions and a half of principal; and to have now in the treasury four millions and a half of dollars, which are in a course of application to a further discharge of debt and current demands."
Imagine...all this in consequence of "external duties!"
In Jefferson's Second Inaugural Address (March 4, 1805), he points out:
"At home, fellow citizens, you best know whether we have done well or ill. The suppression of unnecessary offices, of useless establishments and expenses, enabled us to discontinue our internal taxes. These covering our land with officers, and opening our doors to their intrusions, had already begun that process of domiciliary vexation which, once entered, is scarcely to be restrained from reaching successively every article of produce and property. If among these taxes some minor ones fell which had not been inconvenient, it was because their amount would not have paid the officers who collected them, and because, if they had any merit, the state authorities might adopt them, instead of others less approved."
"The remaining revenue on the consumption of foreign articles, is paid cheerfully by those who can afford to add foreign luxuries to domestic comforts, being collected on our seaboards and frontiers only, and incorporated with the transactions of our mercantile citizens, it may be the pleasure and pride of an American to ask, "what farmer, what mechanic, what laborer, ever sees a tax-gatherer of the United States?"
The national sales tax idea would do ill to our nation as it is an internal system of taxation which ultimately increases the cost of goods manufactured on American soil; burdens the American Citizen in its collection; and, is to be paid BY the farmer, mechanic, laborer, etc. who will continue to see the intrusion of the "tax gatherer of the United States" if such a system is adopted!
It is also important to note how imposts and duties (external taxation) were successfully used to encourage domestic manufacturing and assist in building a strong industrial base. The first revenue raising Act imposed an across-the-board tax on imports which was higher for imports shipped in foreign owned foreign built vessels, and discounted the tax for imports arriving in American owned American built ships:
"a discount of ten percent on all duties imposed by this Act shall be allowed on such goods, wares, and merchandise as shall be imported in vessels built in the United States, and wholly the property of a citizen or citizens thereof."
This skillful use of external taxation gave American ship builders a hometown advantage and predictably resulted in America's merchant marine becoming the most powerful on the face of the planet. In addition, our national treasury was filled by foreigners paying for the privilege of doing business on American soil.
But this was when members of Congress, and those running for Office, put American interests first and would have considered NAFTA, GATT and the WTO as acts of sedition, and would have tarred and feathered those promoting such surrender of America's sovereignty.
A national sales tax plan which omits external taxation as a principal source to fill our national treasury, is in fact a surrender of national sovereignty to the advantage of foreign interests!
It is quite obvious the American People are fed up with the manner in which Congress now raises its revenue, and the system will be changed...one way or another. But if income taxation is abandoned and the Founders original tax plan is returned to, including the use of impost and duties at our water's edge as a principal means to fill our national treasury, a powerful group of international financiers and investors will have their gravy train cut off. Perhaps that is why a flat tax along with a national sales tax has been offered as "tax reform" by the establishment ... each proposal cleverly perpetuates a burdensome system of internal taxation as the principal means to raise revenue, and leaves the international gravy train in tact by not resorting to external taxation to meet the expenses of Congress as was intended by the Founders!
In closing, many of the same people who promoted the NAFTA, GATT and the WTO (the free trade crowd) are now promoting various forms of tax reform ... each proposal cleverly maintaining internal taxation as a principal means to raise a national revenue. Let us continually keep in mind the important distinction between internal and external taxation while working toward the elimination of income taxation and strive to return to the Founding Father's original tax reform package which provided the means allowing America to become the economic envy of the world.
Exactly, politicians are not going to pass any laws that tax political bribes. The sales tax gimmick is just a political distraction.
Excuse me, I already charge 30% tax on my services to cover the income and other taxes I pay. What's the difference?
This means millions of people who are self-employed will have to charge a 30% tax on top of their services.
They do anyway inorder to pay income/payroll tax under the current system. Income/Payroll taxes are more than 30% on top of the pay one gets to take home for consumption and investment.
That extra 30% plus an additional 20% for costs of tax compliance are already embedded into the price of all goods and service now. The NRST merely details the tax to be paid out of consumer sales on a receipt instead of leaving it hidden from view in the shelf price charged for goods and services.
The choice comes down to whether the voter ought to be aware of the tax burden place on him or not. By my sights, Eternal Viglilance is rather difficult to exercise with blinders on.
The full impact of the federal tax system(taxes in gross wage/salaries & other compensation + business income/payroll taxes) added onto the base(taxfree) price of retail consumption goods and services is 36% for federal taxes alone.
All wages and the taxes on them are paid for out of sales receipts to business,(i.e. consumption expenditure).
Federal tax revenues collected as % of current family expenditure = fed/(1-state-fed-savings) =
23.5/(1-.235-0.102-0.012) = 36.09%
If we add in the cost of federal tax compliance, planning, litigation & enforcement, the percentage that truely represents the burden on the family due to the Federal income/payroll tax system, product prices are increased by more than 55% over taxfree prices.
Where Have All the Dollars Gone?
How the government robs Peter to pay him back.
By economist James L. Payne, Reason Magazine February '94When the overhead costs are added together, (24 percent compliance costs, 33 percent disincentive costs, and 8 percent other costs), they total 65 percent of tax revenue.
Current total Federal tax revenues are about $1900billion, more than $1,000 billion additional dollars are added on onto consumption prices due to the business costs of complying with the federal income/payroll tax laws.
The percent total current federal burden (taxes + compliance costs) of consumption dollars = 36*(1900+1000)/1900 = 54.95% economic burden added on to base retail(i.e. taxfree) prices.
I've actually worked in motor fuel enforcement for a few months for the State of New Jersey when the started cracking down on the Russian mob. When the tax rates approach 20% or more (as they would for an NRST), the incentive to cheat becomes substantial. And the damage is that the cheating punishes honest businesses who pay the tax. When I would drive around doing inspections, the honest business owners would be happy to see me because they couldn't sell diesel fuel at 20 to 40 cents more per gallon (about 20 cents each for State and Federal taxes) than the Russian mob, who used paper companies to hide the transactions. And no one had an interest in reporting the tax cheats because, hey, it was lowering their costs, too.
Where could people cheat on a NRST? Along the borders with Canada and Mexico, by bringing untaxed goods across the border. And if you take an international flight and come back with a laptop, how will customs know that you didn't buy it abroad to evade the tax? Knowing how government operates, I'd suspect that you'd have to start declaring any big-ticket items that you take out of the country with you or you'd have to pay a tax for an assessed value upon your return.
And with respect to services, it would be easy enough to simply not declare transactions because there will be no clear-cut way to track, say, how many haircuts a barber gave or how many lawns a lawn service mowed if the transaction is cash. And there is every incentive to cheat (you can pocket some of the savings and pass on some to your customers which both increases their incentive to use your services and decreases their incentive to report any suspected cheating, since they benefit from it). Finally, this increases the incentive to deal in smuggled, stolen, or black market goods since they will be tax free, increasing the underground economy (as high tax rates have with cigarettes, motor fuels, and other highly taxed items).
Why would otherwise honest people cheat like this? Remember, most of the tax reformers want the tax to be in people's face and make them angry. Anger promotes non-compliance (the same goes for replacing withholdings with a big check, by the way). If anger over the high cost of music CDs and software leading to rampant piracy is any indication of the back-pressure that honestly can bring to bear to get people to pay their taxes, then evasion will be widespread, especially in small businesses, which will require a substantial enforcement effort to stop. But I don't even have to imagine that. I've been at flea markets and convention dealer's rooms where no one charged sales tax and everyone simply "wink, wink, nudge, nudge"d it aside because it saved the customer money. State tax agencies had to hire inspectors to go around flea markets and dealer's rooms to collect taxes because the evasion rate was so high.
I've been convinced by the various NRST advocates that the NRST could work in theory (IF and ONLY IF income taxes are Constitutional abolished) but I still don't think that the management and enforcement will anywhere near as simple as people think. And that's not even touching on the potential for corruption in the rebate mechanism that some proposals have. If the government sends out a check every few months, that becomes an excellent vehicle for income redistribution. Don't believe it? Look into the New Jersey Homestead Rebate that went from a program for everyone to a program for special interest groups.
Yeah, people who remember the arguments I got into with Chief Negotiator (RIP) and others will say I've just got an axe to grind with the NRST and that I've been brainwashed by the years I worked for state government. Whatever. I've said that I've been convinced that the NRST is, in theory, economically workable. I simply still don't think that it is a solution that will magically make all government enforcement go away. It won't.
It's a net-zero exchange. Instead of paying federal income tax, state income tax, local income tax, FICA, matching FICA, federal unemployment tax, state unemployment tax, workman's comp tax, and every other stinkin' tax on employees, they just have to pay the NRST. The net increase in their paycheck will, on the average, match the net increase in the cost of goods they buy. Nothing's changed.
But then, who's average with the mythical 1.7 kids and 1.2 pets, etc. and who's going to get screwed? It's guaranteed that somebody will be!
With a state sales tax rate of 6 or 7% (depending on the county) in Florida, there is already substantial incentive to cheat when your profit margin is low or your business is going through a slump or even down the drain (look Ma, I doubled my profits at the stroke of a pen)!
And everybody knows something about how their competitors are doing, which ones aren't paying their suppliers, and which ones are in real trouble. And we all know that when faced with layoffs, or closing the shop, or stretching things out another month or two, some people will just look the other way, bounce a check or two, or hold up that useless Sales Tax check one time too many. OTOH, some businesses jump in and never pay the sales tax, closing and moving on when they have to, changing their names and never missing a beat with their customers.
I think the NRST will only make those incentives worse by adding another 23% of cash on top.
Nothing. It comes out of the employee's conpensation.
How about the employers share of SS?
How much do you pay in taxes on profits turned by your business?
Nothing, it's all dividends and perks.
And your dividends are not taxed? What legal perks are not taxable? And your salary, it is not taxed along with payroll costs?
Have you looked into how much the price of your raw materials are inflated by taxes paid by your suppliers? Taxes on services you use (power, phones, etc.)?
Yes, changes will be insignificant.
interesting.....
How much do you spend each year complying with taxation, including legally avoiding paying taxes (e.g., tax shelters) in both actual costs and opportunity costs?
About $100 a year for "Turbotax for Business" and (surprise!) opportunity costs aren't real money.
And your time is free? what kind of money isn't real? What accountant or tax lawyer is free?
No way this adds up to only "2%". That is naive to a fault.
Nope. Try again.
What happens when you sell your business or business equipment, capital gains or ordinary income taxes? Could be hugh...and any investments you have are probably taxed at some point also....estate taxes, etc...
Yes indeed, all those older folks who would be taxed again as they spend their savings to live with dignity instead of as wards of the state.
Internal taxes were frowned upon by the Founder's especially when a national revenue could be had by requiring foreign nations to pay for the privilege of doing business on American's soil!
Since when do foreign nations pay tariffs? The import pays the duty, which increases the price of the item that the American consumer pays. Even the founding fathers understood that much:
"The maxim that the consumer is the payer, is so much oftener true than the reverse of the proposition, "
"When they are paid by the merchant they operate as an additional tax upon the importing State, whose citizens pay their proportion of them in the character of consumers. "
"Suppose, as has been contended for, the federal power of taxation were to be confined to duties on imports, it is evident that the government, for want of being able to command other resources, would frequently be tempted to extend these duties to an injurious excess. There are persons who imagine that they can never be carried to too great a length; since the higher they are, the more it is alleged they will tend to discourage an extravagant consumption, to produce a favorable balance of trade, and to promote domestic manufactures. But all extremes are pernicious in various ways. Exorbitant duties on imported articles would beget a general spirit of smuggling; which is always prejudicial to the fair trader, and eventually to the revenue itself: they tend to render other classes of the community tributary, in an improper degree, to the manufacturing classes, to whom they give a premature monopoly of the markets; they sometimes force industry out of its more natural channels into others in which it flows with less advantage; and in the last place, they oppress the merchant, who is often obliged to pay them himself without any retribution from the consumer. When the demand is equal to the quantity of goods at market, the consumer generally pays the duty; but when the markets happen to be overstocked, a great proportion falls upon the merchant, and sometimes not only exhausts his profits, but breaks in upon his capital."
Furthermore external taxes were never expected to provide for the needs of the nation under the Constitution:
"The more intelligent adversaries of the new Constitution ...qualify ... by a distinction between what they call INTERNAL and EXTERNAL taxation. The former they would reserve to the State governments; the latter, which they explain into commercial imposts, or rather duties on imported articles, they declare themselves willing to concede to the federal head. This distinction, however, would violate the maxim of good sense and sound policy, which dictates that every POWER ought to be in proportion to its OBJECT; and would still leave the general government in a kind of tutelage to the State governments, inconsistent with every idea of vigor or efficiency. Who can pretend that commercial imposts are, or would be, alone equal to the present and future exigencies of the Union? Taking into the account the existing debt, foreign and domestic, upon any plan of extinguishment which a man moderately impressed with the importance of public justice and public credit could approve, in addition to the establishments which all parties will acknowledge to be necessary, we could not reasonably flatter ourselves, that this resource alone, upon the most improved scale, would even suffice for its present necessities.
"To say that deficiencies may be provided for by requisitions upon the States, is on the one hand to acknowledge that this system cannot be depended upon, and on the other hand to depend upon it for every thing beyond a certain limit. "
"The maxim that the consumer is the payer, is so much oftener true than the reverse of the proposition, that it is far more equitable that the duties on imports should go into a common stock, than that they should redound to the exclusive benefit of the importing States. But it is not so generally true as to render it equitable, that those duties should form the only national fund. When they are paid by the merchant they operate as an additional tax upon the importing State, whose citizens pay their proportion of them in the character of consumers. In this view they are productive of inequality among the States; which inequality would be increased with the increased extent of the duties. The confinement of the national revenues to this species of imposts would be attended with inequality, from a different cause, between the manufacturing and the non-manufacturing States."
Furthermore to deny that the National Government was expected to not tax the individual, by the founders, is to deny one of the primary reasons the Constitution replaced the Articles of Confederation:
James Madison, Federalist #39:
- "The difference between a federal and national government, as it relates to the OPERATION OF THE GOVERNMENT, is supposed to consist in this, that in the former the powers operate on the political bodies composing the Confederacy, in their political capacities; in the latter, on the individual citizens composing the nation, in their individual capacities. On trying the Constitution by this criterion, it falls under the NATIONAL, not the FEDERAL character;"
James Madison, Federalist #45:
- "The change relating to taxation may be regarded as the most important; and yet the present [Continental] sic Congress have as complete authority to REQUIRE of the States indefinite supplies of money for the common defense and general welfare, as the future [Constitutional] Congress will have to require them of individual citizens;
James Madison, Elliots Debates Vol 3 p128:
- "If a government depends on other governments for its revenues -- if it must depend on the voluntary contributions of its members -- its [*129] existence must be precarious."
- "If the general government is to depend on the voluntary contribution of the states for its support, dismemberment of the United States may be the consequence."
The primary premise of the argument put forth in the article is flawed from it's very foundation for lack of completeness in scholarship at its best face or outright misdirection and fabrication in its worst.
Supposing this assertion is accurate, it just goes to show that the Founders were Great Men but poor economists.
Is the National Sales Tax (as described above) a VAT? A VAT would be an internal tax.
If the tax is paid by businesses on their purchases for business purposes then passed on to the customer embedded within price, it is a VAT.
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.
A National Retail Sales Tax would tax all products, internally manufactured or imported.
Since it is levied only on the final retail customer added seperately from price and detailed on customer's receipt as an addition to shelf price, it is a single stage tax and not a VAT.
Both are internal taxes in that they are applied to goods and services produced within the nation as opposed to being imported from other nations. The dominant difference from the customer's (i.e. voter's perspective, is the Retail Sales Tax is visible and apparent to the customer, And a VAT is hidden within price inflation and not apparent to the final customer (i.e. voter). Hence government prefer's the VAT which encourages the false impression of someone else paying the tax rather than the voting constituent.
Libertarians like Kurowski would rather debate how many angels can dance on the head of a pin than get their hands -- not to mention their principles -- dirty actually engaging themselves in the nasty business of real-world politics. More of us must find our way into the belly of the beast. I get the sense that this MAY be happening little by little. I just hope there's enough time left to get it done.
Until things change, the NRST is probably the best we can do. And if we can't even do THAT, it's probably over anyway and there's little any of us can do to pull us back from the pit of despotism.
I simply still don't think that it is a solution that will magically make all government enforcement go away. It won't.
You're right, enforcement will be on retail business as opposed to the individual citizen, and will be administered by state government as opposed to national government.
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
No tax can operate without enforcement at some level, the NRST places enforcement closer to the local level where the police power rightfully belongs, and limits the scope to sales activities as opposed to individual reporting of income.
Overall, the average individual will see a relief from the intrusive audits and pervasiveness of the federal IRS, which by my sights is a substantive improvement.
with respect to services, it would be easy enough to simply not declare transactions because there will be no clear-cut way to track, say, how many haircuts a barber gave or how many lawns a lawn service mowed if the transaction is cash.
The primary difference from the income tax situation being, two people must be in agreement to keep the transaction secret.
Under the NRST, the seller is at risk for not remitting the tax, the purchaser has minimal risk. That seller had better hope that everyone who knows of his transactions like him, and are not state revenue agents. In practical terms, 80% of the retail dollars flow through large corporate businesses, that will collect the tax and properly remit it to the state authority so as not to risk their business. Small businesses on the otherhand do about 20% of the dollar volume, even if half of those misrepresent their sales that becomes only a 10% tax compliance problem as opposed to 15-20% under the income/payroll tax situation today.
Under the income tax only one person is aware of not reporting. Much easier to get away with, the tax authority has to actively try to audit and investigate individual non reporters comprised of all income earners as opposed to the much smaller set of retail sales businesses. A much more difficult situation to deal with.
Secondly, if one is motivated to not collect taxes from customers, nor remit them to government, one can deal in goods and services outside the new retail sector, sell goods an services to businesses, sell used goods, or work for a company etc. No reporting to the state in those situations.
The opportunities for alternative sources of income under the NRST system are available to those who have no desire to deal with state tax authorities, and still avoid the risks associated with black market dealing.
Finally, by its very nature must remain a small non-growth enterprise to avoid detection under the NRST. With the associated risks plus limited potential black markets will not be a very large portion of the economy.
On to whom is the tax burden shifted for the, say, 10s of millions of dollars in corporate income tax a large corporate facade in this country, with manufacturing in another country, no longer has to pay?
WHY do sales tax advocates believe that sales taxes will remain flat?
There is nothing in the concept of a sales tax that makes it necessarily "un-progressive". Sales taxes can be eliminated on favored items, and increased on unfavored ones, and pretty soon you have a "progressive" tax system. I can easily imagine a NRST of 20% on coats under $50, and a NRST of 30% on coats above $50 for example. Scanning technology would make it simple. My local WalMart, depending on the item, RIGHT NOW collects sales taxes at THREE different rates, 0, 5.6 and 5.85%, and those taxes are different in the next county too. How about a 20% tax on small cars, and a 30% tax on SUVs, and No tax on hybrids. A 10% real estate sales tax inside designated metropolitan areas, a 20% sales tax outside. Congress will ALWAYS meddle.
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