Posted on 06/09/2003 6:47:21 AM PDT by frithguild
President Ronald Reagan enacted one significant tax cut in 1981 -- and then allowed a series of smaller tax increases almost every year of his presidency. Another tax cut did not follow until 1997.
President Bush has proposed and now signed tax cuts in 2001, 2002 and 2003. The old Republican promise was that a new president would fight for one tax cut and then oppose tax hikes. The new Republican policy is an annual tax cut.
The strategy of annual tax cuts has united the center-right coalition and avoided the sort of conflict that bedeviled the 1981 tax cut, when K Street pushed to include its favorite industry or corporation-specific tax change at the cost of paring back Reagan's proposed 30 percent cut in marginal tax rates. Businesses were rightly concerned that this would be the last tax cut for some time. Bush's 2001 tax cut received strong business support, even though it was completely aimed at individual taxpayers. Why? Because the best way to "lobby" to be in next year's tax cut is to cheerfully support the president's tax cut this year.
The Bush administration --
(Excerpt) Read more at washingtonpost.com ...
This is an @$$inine proposal.
It sounds as if Grover is getting his advice from Enron and Arthur Anderson accountants.
Depreciation should ALWAYS reflect the projected useful life of the ASSETS purchased.
Accelerating the write-off as an expense merely muddies the water as to a company's true asset value and contributes to understatement of actual earnings. This is a weasel approach to lowering corporate income taxes rather than lowering the actual corporate rate.
If Grover/Bush want to lower the corporate income tax rate, that's fine with me. IMHO, they should also persuade states to lower their business property taxes levied on equipment and inventories. But fudging the books and murking stockholders' perspective of the company's asset values isn't the way to go about it.
Well, I certainly don't mind being referred to as a "fundamentalist".
Although it has become fashionable to use the term as a slur, it still has strong positive connotations to me. IMHO, if it takes more than a single set of books to operate a company, there is something rotten, sinister and unscrupulous going on.
move to full expensing of business investment rather than long depreciation schedules
This is an @$$inine proposal.
It sounds as if Grover is getting his advice from Enron and Arthur Anderson accountants.
No just transition to a EU style VAT.
http://www.taxfoundation.org/foundationmessage03-00.html
"Under the WTO definition of the term, a sales tax is an indirect tax, as is an European-style VAT. The economic equivalence of an European-style VAT and a subtraction-method VAT is well-established. A subtraction-method VAT is essentially identical to a business income tax except that all purchases of plant and equipment may be expensed, rather than depreciated as under current U.S. law."
They're are trying to accomplish the same through the Flat Income Tax, as well.
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.
FLAT TAX, VAT TAX, ANYTHING BUT THAT TAX; Duke Law Magazine, Spring 96:
- "The flat tax is essentially a VAT, with a personalized element for wages. Thus, the business tax allows deduction of all purchases -- as does a VAT -- but also allows deduction of wages. The wage income that is taken out of the VAT base, however, is also taxed, but is assessed against the individual wage-earner, not against the business."
Concerning Proposals for a Flat-Rate Consumption Tax
Before the Joint Economic Committee, Statement of Robert S. McIntyre
Director, Citizens for Tax Justice May 17, 1995
- The Hall-Rabushka flat tax, and its Armey and Specter variants, would replace the current personal and corporate income taxes with a new tax that is conceptually identical to a "subtraction-method" value-added tax, a version of a national sales tax, with two major modifications: First, imports would be exempt from the flat tax, while exports would be subject to tax. Second, to mitigate the regressivity of the VAT, cash wages, pensions received and other cash earned income would be taken out of the VAT base (i.e., deducted by businesses) and taxed directly to individuals, with exemptions. Thus, structurally, the flat tax is exactly equal to a value-added tax with an import incentive, an export disincentive and a personal rebate based on a percentage of a capped amount of cash wages, pensions and other earned income.Businesses compute a typical "subtraction-method" value-added tax by adding up their taxable gross receipts and subtracting the cost of previously taxed items. Thus, in computing the VAT, businesses deduct their purchases from other businesses, whether for supplies, services, machines, land or whatever. (In another, more common form of a value-added tax, known as a "credit-invoice" VAT, businesses get a tax credit for taxes paid on purchased items. In general, this produces the same result as a "subtraction-method" VAT.) Ultimately, the total tax base for a VAT is equal to retail sales of taxable items, and a VAT is thus equivalent to a retail sales tax. As noted, however, the flat tax base differs from a usual VAT, however, in that wages are deducted by businesses, and taxed at the personal level
CONSUMPTION TAX PROPOSALS; 1996 Deloitte & Touche LLP
- One concern associated with the flat tax is whether the low advertised rates will produce the same amounts of revenue as the current income tax. A June 7, 1995, Treasury Department analysis of a flat-tax plan similar to the Armey proposal, concluded that a rate of at least 22.9 percent would be needed to make the plan revenue neutral, that is, it would allow the government to raise as much revenue as is currently raised. Although the proposal is designed to raise less revenue than present law, the extent of the shortfall will concern policymakers.
- The Armey bill, H.R. 2060, would replace the current corporate income tax with a tax on business activities equal to 20 percent (17 percent after 1997) of business taxable income. The tax would apply to every person engaged in a business activity, whether an individual, partnership, corporation, or otherwise. Taxable business income would be gross active income (that is, income other than investment income) reduced by an array of business deductions.
- This business activity tax resembles a VAT computed by subtracting the costs of inputs from gross receipts, except that H.R. 2060 allows a deduction for cash wage expenses. Note that, under the bill, cash wages are subject to tax at the individual level at the same flat rate applicable to business profits. Thus, the combination of the business activities tax and the individual tax is roughly equivalent to a VAT. In addition, taxing wages at the individual level allows a generous personal exemption that makes the personal tax more progressive. To ensure that compensation is taxed once, tax-exempt entities that pay compensation other than as cash or retirement plan contributions would be subject to an excise tax.
The Flat Tax is a VAT even as the current income/payroll tax structure now in place is a subtraction method VAT, in that it is a levy imposed on businesses at all levels of production, it is passed on to the consumer hidden in the price of goods and services.
As long as government is able to play a shell game with hiding taxes from the Voter(i.e. individual) it can rely on the old maxim:
A government which robs Peter to pay Paul can always depend on the support of Paul.
-George Bernard Shaw
and keep right on growing without bound.
Dick Armey
Even if that goal were politically feasible -- and I don't think it is -- the exchange would come at a high price. We would give up the income tax for a more intrusive and pervasive tax system.
The reason is simple. If the government sets out to collect a new tax at the cash register, it will soon have no choice but to extend that tax beyond the retailer to every level of production, as it desperately tries to stop inevitable and massive tax evasion. Any sales tax will become a complex, pervasive, multi-rate, value-added tax. We will soon be living under a VAT -- possibly the most insidious tax scheme ever devised.
Sales-tax backers often oppose a VAT. But that's what they'll get. To generate sufficient revenue by taxing goods only at the retail level, the government would need to impose a sales tax of at least 20 percent, which means that consumers would suddenly find that everything they buy appears to be 20 percent more expensive. But people will not pay such a high tax. They will either find ways to label their consumer goods tax-exempt wholesale items, they will purchase goods in a cash black market, or they will evade it some other way. A sales tax, in other words, will be immediately undermined by a silent tax revolt, and the government -- following the pattern of European countries -- will respond by imposing a VAT.
A VAT is assessed at each stage of production and is much easier to collect and enforce for a host of reasons. You can hear the bureaucratic lament in a 1993 report by the Organization for Economic Cooperation and Development, which noted: "Governments have gone on record as saying that an RST [retail sales tax] of more than 10 percent to 12 percent is too fragile to tax evasion possibilities, and it is probably not entirely accidental that in OECD counties, VAT rates are nearly always above 12 percent and that, except in Canada and Iceland, RST rates have always been well below 12 percent."
These unhappy governments were speaking from sad experience. In 1967, 21 developed countries had retail, wholesale, manufacturer, or multi-stage sales taxes. Today, 20 out of 21 of these sales taxes have become value-added taxes. Every developed country except Australia that has had a sales tax now has a VAT. (Even Canada and Iceland, mentioned as exceptions when the OECD report was written, have since replaced their retail-tax-only systems with VATs.) (so too has Australia since the writing of this piece...I guess that makes 21 of 21)
Whether or not the sales tax evolves into a VAT, the government would become intimately involved in almost every economic transaction between consenting adults. The simplest exchange, from a vegetable farmer selling his produce to the corner grocer selling a loaf of bread, would be under the shadow of a government tax collector taking his cut. In fact, every businessperson in America would become a tax collector for the government.
"But businesses already collect taxes for the government," sales-tax supporters counter. There's a big difference. Today, businesses collect a relatively small share of the income tax, since three quarters of the income in the economy is labor income, paid by individuals. But under a sales tax, there is no direct tax on individuals, so businesses will be responsible for collecting several times what they collect today. That means IRS scrutiny of American businesses could be expected to rise proportionately. Since the 10-12 million businesses in America have fewer rights under law than individuals, we can expect IRS abuses to rise exponentially as well.
It would be an administrative mess. A national sales tax may well exempt many basic necessities from tax --beginning with food and clothing. This would lead to bitter disputes over the difference between food and candy, between real clothes and costume accessories. Congress and the courts would likely find themselves debating the nutritional value of Twinkies, the body coverage of sportswear, and much else, just as state governments do today, but on a larger scale.
Worse, the federal sales tax and the dozens of different state sales taxes -- aside from having different tax rates -- would likely exempt different items. That means a small businessperson would need to look up the correct state sales-tax rate, apply the federal rate, subtract the state tax rate from items exempted only by the state, or subtract only the federal rate from items federal-only exempted. Then he would need to do separate calculations for each of the states in which he does business. (And he would need to catch any mistakes before the tax enforcer appears.)
The likely consequence would be a slowdown in business activity -- and a loss of jobs and drop in wages for millions of American workers.
We could eliminate the IRS. Ignoring or dismissing this inevitable tendency for a sales tax to become an all-pervasive VAT -- with a huge accompanying bureaucracy -- some sales-tax advocates nevertheless argue that the sales tax would allow us to eliminate the IRS altogether.
The argument is presented with an interesting federalist twist. The states, they say, could collect the new federal sales tax through their existing sales-tax systems. The federal government, then, could do without its own revenue collection agency. We could bring about the ultimate devolution of federal authority.
One immediate problem, however, is that five states do not have a sales tax and would not take kindly to enforcing one for Washington. Even those that do would consider the costs of collecting a huge federal sales tax (the main source of federal revenue) an unbearable federal mandate.
The enforcement costs for current sales taxes, currently about 5 percent, are manageable. However, if you add a 20 percent federal sales tax on top of that, the compliance problems grow exponentially. It makes little sense for a state government to pay the enforcement costs for a 25 percent tax when it only gets one fifth of the revenue. Many states would simply eliminate their sales taxes.
But the point is purely academic. For reasons dating back to the unhappy years of the Articles of Confederation, the federal government will never rely on state governments for its prime source of revenue. It will not happen.
In truth, a sales tax would not eliminate any federal agency. It will actually allow a huge increase in the size of the federal government by allowing politicians to raise taxes with relative impunity. Why? Because sales taxes are hidden from the taxpayers, concealed in the price of the goods they buy.
Try this experiment. Stand outside a grocery store and ask shoppers as they leave how much they just paid in sales tax. You'll find that virtually no one knows. Can you guess how much you paid in sales tax last month, or last year? The problem is, if people don't appreciate how much they pay in taxes, it is a lot easier for politicians to raise them.
Individuals would no longer need to file tax forms with the government. Since people would pay their taxes whenever they purchase an item, some sales-tax advocates argue, the government will never need to know a taxpayer's name. There would be no filing of any tax papers at all by an individual.
That's not quite right. Under almost any sales-tax plan, individuals would still file with the government -- but for entirely different reasons than they do today.
It's almost certain that one way or another, any federal sales tax would need to exempt certain basic necessities in order to make it progressive. One way to do this, as I've mentioned above, would be to order retailers not to charge tax on food and clothing and whatever else the government selects.
But exempting a handful of items isn't enough. Absent a generous rebate, most Americans would face a stiff tax increase under a sales tax. That's why most sales-tax proposals provide for a rebate. The truth is, the overwhelming majority of Americans would still need to file with the IRS to claim their rebate (or else face a substantial tax increase).
Some have suggested the IRS could simply send out checks to every American by Social Security number, obviating the need for taxpayers to file with the IRS. This is a fantasy. It wouldn't be long before there were more Social Security numbers than citizens. Whether or not Americans file directly with the IRS, the potential for fraud is staggering. Even under the current Earned Income Tax Credit program, fraud levels are as high as 30 to 40 percent. How much fraud would there be if the federal government were cutting thousand-dollar checks to every American?
Of even greater concern is the political dynamic that would develop once we couple a hidden sales tax with a highly visible tax rebate. Americans would be quietly nickel-and-dimed to death by a sales tax they may hardly notice, but every year a very noticeable and generous check would arrive from Washington like manna from heaven. Government, and even the tax bureaucracy, might become highly popular after all. And in my judgment, if there could be anything worse then people hating the IRS, it would be for people to love the IRS.
A sales tax will tax the underground economy. The notion here is that a sales tax will more effectively tax illicit trade in both legal and illegal goods and services than any income tax. If true, this would bring in tens of billions of dollars in revenue to the government as we collect revenue from people who are currently outside the system.
The neighborhood drug dealer almost always serves as the illustration. Since the drug dealer declines to file a 1040 form, the argument runs, maybe we could at least recoup some of his income through a sales tax. The government may have no record that he exists, but when he uses his blood money to buy a sports car, the government will collect tax from him.
That sounds compelling at first, but if we think it through, it doesn't hold together. Look at it this way: Both systems will equally fail to tax the drug trade for the simple reason that the drug dealer will not play along in either one. If there's an income tax in place, he won't report his income. If there's a sales tax in place, he won't collect tax from his customers. Either way, the government loses exactly the same amount of money.
Consider the following example. Suppose there is a drug dealer who makes $50,000 in sales to his customers every year and then turns around and spends it. Under an income tax system, we wish to tax the income of the dealer and his customers, while under a sales tax we wish to tax all of their purchases.
Under the income tax, we tax the income of the drug consumers (assuming they are law-abiding citizens besides their drug use), but we can't tax the income of the drug dealer. Thus we lose $50,000 from the tax base. Under the sales tax, we tax the purchases of the drug dealer, but we don't tax the purchases of the drug consumers. Loss to the tax base: $50,000.
It has to be the case that neither system taxes the value of the drug trade because the amount people spend on drugs must equal the income of the drug dealer. And since the drug dealer will not report sales or income tax, neither system will capture the value of the drug trade.
The same would hold true for the underground economy in legal goods and services as well -- which, of course, is much larger. The proverbial plumber who doesn't report his house-call income today would not report it for sales-tax purposes either. At best, it will be a wash.
Actually, economic reasoning aside, the whole "underground economy" argument for a sales tax is flawed. It's obvious that if we try to impose a national sales tax of 20 percent or more on the public, the underground economy will explode. The "contraband" involved, though, will not be just crack cocaine, but virtually any sort of consumer good. That's exactly what happened in Canada when the government imposed its goods-and-services tax. The tax raised much less than projected. Coincidentally, the Canadian Treasury soon noticed a dramatic increase in the amount of real currency flowing through the economy. Why were Canadians suddenly using so much cash? Guess.
A sales tax will reduce the trade deficit. Supporters say that a sales tax will increase U.S. competitiveness by taxing imports and not taxing exports. As tax-policy people put it, a sales tax is "border adjustable." Since exports aren't sold in the U.S., they would escape a domestic sales tax; since foreign imports are sold here, they will get hit. This way, American firms receive a significant tax advantage over foreign firms, and that will favorably alter our trade balance.
There are very few economists who hold this view, however. An immutable law of economics holds that trade surpluses and deficits are linked to the amount a nation lends or borrows. When savings are low, the trade deficit must be high, but if we substituted a tax on imports for some other tax, it will not affect the amount Americans save. That means the trade deficit not only will stay the same, it must stay the same, as a basic principle of economics.
Economists might explain it this way (simplifying, of course): If there is more investment occurring in our economy than can be financed by our savings, then foreign investors must be accounting for the difference. In effect, they are taking the money we pay them for their cars and VCRs and using it to buy our stocks and bonds, thus supplying the investment capital that we don't supply ourselves. This difference is the "trade deficit."
The only way to change the trade deficit, then, is to change our savings rate. If we increase our savings relative to our domestic investment, we will have less need for foreign cash. The trade deficit will then drop, as we spend relatively less money buying foreign goods and relatively more investing at home.
But anything we do to tax incoming foreign goods -- including slapping them with a sales tax -- will have no effect on the amount of money Americans are putting into domestic stocks and bonds or even their own bank accounts. There is simply no relationship between them.
What will happen instead is this: Our exports will increase at first because of the new tax advantage. But since our savings will remain the same, the dollar will be artificially strengthened. This will make our exports more expensive, and the original balance of trade will be gradually restored -- along with the original trade deficit. The policy will be self-defeating.
Even if a border adjustment were to work as its proponents claim, it would still be a bad idea. It would make the goods Americans buy -- whether produced here in America or abroad -- more expensive, while foreigners could purchase American-made goods more cheaply. It's hard to see how Americans benefit from paying higher prices than foreigners do to purchase American products.
Adam Smith makes a relevant point in The Wealth of Nations. Smith reminds us, "Consumption is the sole end and purpose of all production; and the interest of the producer bought to be attended to, only so far as it may be necessary for promoting that of the consumer."
In a border-adjustable system, however, to borrow from Smith again, "the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce."
All of the above assumes, of course, that we really could replace the income-tax system with a national sales tax. But could we? The roots of the income tax go back to the 16th Amendment, passed in 1916 to authorize the government to levy a tax on individual incomes. In my view, repealing the amendment and ending the income tax for good is, politically, not in the cards. Conservatives in Congress have tried for years to pass a balanced-budget amendment without success. I believe we will eventually succeed, but in the midst of that grueling fight, I believe the notion of getting 290 members of the House, 67 members of the Senate, and three quarters of the states to repeal the 16th Amendment is a dream.
And that is perhaps the best argument against the sales tax. If we try to exchange an income tax for a sales tax, we could easily end up with both. It would be a tragic irony if conservatives who favor a smaller government unwittingly provide the liberals with a comprehensive new taxing authority without eliminating the old one.
We must not lose sight of the commendable motives behind the sales tax. Its supporters want a tax code that does not interfere with economic decisionmaking, minimizes the paperwork burdens on the taxpayers, limits the size of the federal government, avoids excessive taxes on savings and investment, and is straightforward and fair.
For all the above reasons, however, the sales tax is not likely to achieve those goals. The flat tax, however, will do so. By placing a single tax rate on all income, it will not distort economic decisions. Citizens will be free to spend and invest their money as they see fit without taking tax considerations into account. The paperwork burden, for most taxpayers, will be reduced to filling out a postcard-sized tax return. Americans will get an honest bill and know how much their government costs them. Savings and investment income will be taxed, but only once. The punitive double taxation of savings in the current code will be gone. The flat tax meets the tax-reform criteria -- it is simple, fair, and pro-growth.
If the government sets out to collect a new tax at the cash register, it will soon have no choice but to extend that tax beyond the retailer to every level of production, as it desperately tries to stop inevitable and massive tax evasion.
Why would be any more tax evasion than under the current system with marginal rate approaching 40%?, the marginal rate with makes tax evasion more desireable is nearly half that of the NRST.
Any sales tax will become a complex, pervasive, multi-rate, value-added tax. We will soon be living under a VAT -- possibly the most insidious tax scheme ever devised.
LOL, Sticking with the income/payroll tax were already have all the main elements necessary to a complete VAT. Replace depreciation schedules with expensing and you have an individual income tax with a full fledge VAT.
http://www.taxfoundation.org/foundationmessage03-00.html
"Under the WTO definition of the term, a sales tax is an indirect tax, as is an European-style VAT. The economic equivalence of an European-style VAT and a subtraction-method VAT is well-established. A subtraction-method VAT is essentially identical to a business income tax except that all purchases of plant and equipment may be expensed, rather than depreciated as under current U.S. law."
Armey's statement is nothing but a strawman argument and red herring to boot.
The Single Stage Single Rate Retail Sales Tax, impeilments a tax system with no VAT components whatsoever, by removing all interbusiness taxation. To change a National Sales Tax into a VAT would require the re-introduction of business to business taxes which would be fought tooth and nail by the business community.
Dick Armey is merely hyping this VAT shibboleth of his to defend the Flat Tax, which is intended to to be a stealth implementation of a VAT from its very design and identified as such by its architects in both their book on their Flat Tax:
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.
as well as in Congressional testimony:
Robert Hall of Stanford University (along with Alvin Rabushka) the prime architect of the Flat Tax, in his 1995 Ways and Means Committee testimony stated clearly, "The Hall-Rabushka flat tax is a value-added tax."
Repeated again in 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.)"
FLAT TAX, VAT TAX, ANYTHING BUT THAT TAX; Duke Law Magazine, Spring 96:
- "The flat tax is essentially a VAT, with a personalized element for wages. Thus, the business tax allows deduction of all purchases -- as does a VAT -- but also allows deduction of wages. The wage income that is taken out of the VAT base, however, is also taxed, but is assessed against the individual wage-earner, not against the business."
Concerning Proposals for a Flat-Rate Consumption Tax
Before the Joint Economic Committee, Statement of Robert S. McIntyre
Director, Citizens for Tax Justice May 17, 1995
- The Hall-Rabushka flat tax, and its Armey and Specter variants, would replace the current personal and corporate income taxes with a new tax that is conceptually identical to a "subtraction-method" value-added tax, a version of a national sales tax, with two major modifications: First, imports would be exempt from the flat tax, while exports would be subject to tax. Second, to mitigate the regressivity of the VAT, cash wages, pensions received and other cash earned income would be taken out of the VAT base (i.e., deducted by businesses) and taxed directly to individuals, with exemptions. Thus, structurally, the flat tax is exactly equal to a value-added tax with an import incentive, an export disincentive and a personal rebate based on a percentage of a capped amount of cash wages, pensions and other earned income.Businesses compute a typical "subtraction-method" value-added tax by adding up their taxable gross receipts and subtracting the cost of previously taxed items. Thus, in computing the VAT, businesses deduct their purchases from other businesses, whether for supplies, services, machines, land or whatever. (In another, more common form of a value-added tax, known as a "credit-invoice" VAT, businesses get a tax credit for taxes paid on purchased items. In general, this produces the same result as a "subtraction-method" VAT.) Ultimately, the total tax base for a VAT is equal to retail sales of taxable items, and a VAT is thus equivalent to a retail sales tax. As noted, however, the flat tax base differs from a usual VAT, however, in that wages are deducted by businesses, and taxed at the personal level.
It would be an administrative mess. A national sales tax may well exempt many basic necessities from tax --beginning with food and clothing.
H.R.25 exempts no new goods from taxation, which makes the statement a total canard.
That means a small businessperson would need to look up the correct state sales-tax rate, apply the federal rate, subtract the state tax rate from items exempted only by the state, or subtract only the federal rate from items federal-only exempted. Then he would need to do separate calculations for each of the states in which he does business.
Which happens today without the NRST, and under the Armey FlatTax as well, no change, just businesses will pay more taxes under the Armey FlatTax causing pressure for higher prices to boot.
That's why most sales-tax proposals provide for a rebate. The truth is, the overwhelming majority of Americans would still need to file with the IRS to claim their rebate (or else face a substantial tax increase).
Merely send the number of legal residents in the household and address to deliver monthly checks (not annual) to the Social Security administration for verification. No income information, no spending information, merely a list of those who are legal residents of the household that desire to receive the payment based on household size alone.
Then he complains that the Social Security adminstration would be in charge of tracking this information, forgetting that his Flat Tax requires much more of taxpayers remaining on the roles sending their financial information to the full blown IRS.
. In my view, repealing the amendment and ending the income tax for good is, politically, not in the cards.
What has this to do with repealing the income tax law as it stands? That is a fight for after the tax is made obsolete and no longer required by government, making the repeal of the 16th amendment and express prohibition of income taxes by Amendment, much more feasible.
Conservatives in Congress have tried for years to pass a balanced-budget amendment without success. I believe we will eventually succeed, but in the midst of that grueling fight,
Under a regime of spending that continues full force,
I believe the notion of getting 290 members of the House, 67 members of the Senate, and three quarters of the states to repeal the 16th Amendment is a dream.
A tax repealed and no longer in use or needed. Not even good speculation.
In short the entire Armey paper is full of mistatements and errors, with garbage in garbage out speculations, not to mention the Flat Tax he supports implements the very VAT he rails at the beginning.
Total and complete political hogwash with an agenda to get people to do that which they would otherwise avoid, implement an individual income tax with a VAT.
Remember lewislynn:
[Montesquieu wrote in Spirit of the Laws, XIII,c.14:]
- "a duty on merchandise is more natural to liberty, by reason it has not so direct a relation to the person."
--Thomas Jefferson: copied into his Commonplace Book.
You can stick by your income taxes, I'll go with a true tax on consumption over income taxes everytime:
The Records of the Federal Convention of 1787
(Farrand's Records)
James Mchenry before the Maryland House of Delegates.
Maryland Novr. 29th 1787--
Appendix A, CXLVIa, page 149, S9."Convention have also provided against any direct or Capitation Tax but according to an equal proportion among the respective States: This was thought a necessary precaution though it was the idea of every one that government would seldom have recourse to direct Taxation, and that the objects of Commerce would be more than Sufficient to answer the common exigencies of State and should further supplies be necessary, the power of Congress would not be exercised while the respective States would raise those supplies in any other manner more suitable to their own inclinations --"
Alexander Hamilton, Federalist #12:
- "The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury."
Alexander Hamilton, Federalist #21:
- It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. ... Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country.
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
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