Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

A National Sales Tax No Vote
National Review OnLine ^ | August 9, 2004 | Bruce Bartlett

Posted on 08/18/2004 5:34:18 AM PDT by CSM

A National Sales Tax No Vote The rates would be vastly higher than what you might suspect.

House Speaker Dennis Hastert created a flurry of excitement in Republican circles the other day when it was reported that he is proposing the abolition of the Internal Revenue Service in his new book. This would be accomplished by eliminating all existing federal taxes and replacing them with a national retail sales tax.

There is no indication of what tax rate Speaker Hastert thinks would be necessary to replace all federal revenue. A current proposal by Rep. John Linder (R., Ga.) says that a 23 percent rate would be adequate. But such a low rate can only be sustained by making completely absurd assumptions about what would be taxed. Every serious economist who has ever looked at this question has concluded that a vastly higher rate would in fact be needed.

An unstated assumption is that the 23 percent rate proposed by Linder is comparable to existing state and local sales taxes, where the tax comes on top of the purchase price. Thus, a 5 percent sales tax on a $1 purchase comes to $1.05.

But that’s not the way the Linder plan works. He deceptively calculates the rate as if the tax is part of the purchase price. He calls this the tax-inclusive rate. Calculating the rate the normal way people are accustomed to with state and local sales taxes would require a 30 percent tax rate, not 23 percent.

When Congress’s Joint Committee on Taxation scored the Linder proposal four years ago it estimated that it would actually require a tax-inclusive rate of 36 percent, not 23 percent, to equal current federal revenues. Calculating the rate in a normal, tax-exclusive manner would mean a 57 percent rate.

Economist Bill Gale of the Brookings Institution notes that supporters of the sales tax assume that there will be no tax evasion under their proposal and that the size of government will not grow, even though they would send a large annual check to every American in order to offset the regressivity of the tax. Making realistic assumptions, Gale estimates that the tax-inclusive rate, comparable to Linder’s proposed 23 percent rate, would actually have to be about 50 percent. A rate comparable to existing sales taxes would be close to 100 percent.

And let us not forget that state and local sales taxes would come on top of the federal sales tax, pushing the total rate even higher.

Obviously, the federal government is not going to impose tax rates this high, nor would anyone pay them if it did. There would be a massive tax revolt.

The Linder bill (H.R. 25) is also deceptive in its basic assumption that all consumption of goods and services in the U.S. would be taxed. Implicitly, Americans would be taxed on, among other things, all medical care, purchases of new homes, and services provided by state and local governments if Linder’s bill became law.

This means that if you are sick and have large doctor bills, you are going to pay 30 percent on top to the federal government. (Alternatively, you would pay 30 percent more for health insurance.) If you buy a new house listed for $150,000, your actual purchase price is going to be $195,000, including the sales tax. (Alternatively, there could be a tax on the imputed rent homeowners pay themselves for living in their own homes.) And if your children receive $20,000 worth of education each year from the local public schools, somehow or other you are going to have to pay an additional $6,000 to the federal government.

Of course, it is completely idiotic to think that the American people will ever allow this to happen. The idea of taxing all consumption sounds nice in theory until you realize just how broad the definition of “consumption” would be under Linder’s plan.

Economist Evan Koenig of the Federal Reserve Bank of Dallas makes the point that any new sales tax is going to raise prices by that amount. If the Federal Reserve accommodates it, we are going to have 30 percent inflation the year the tax is introduced. If it is not accommodated, then producer prices are going to have to fall by 30 percent, which will cause a severe recession and greatly reduce the tax yield.

Somehow or other, Linder has gotten 54 House members to co-sponsor his proposal. They should all pray that their opponents overlook their poor judgment. When last the national retail sales tax was a major campaign issue — in the 1996 senate race in Louisiana — the Republican sales tax supporter was crushed by his anti-sales-tax Democratic opponent. That may explain why only two senators support Linder’s plan, one of whom is retiring this year.

With all due respect to Speaker Hastert, trying to eliminate the IRS by adopting a national retail sales tax is a very dumb idea.

— Bruce Bartlett is senior fellow for the National Center for Policy Analysis. Write to him here.


TOPICS: Business/Economy; Constitution/Conservatism; Government; News/Current Events
KEYWORDS: brucebartlett; fairtax; hastert; nrst; opposition; taxes; taxreform
Navigation: use the links below to view more comments.
first previous 1-2021-4041-6061-80 ... 141-152 next last
To: CSM
FairTax Rebutal of Bartlett tripe!
21 posted on 08/18/2004 6:29:36 AM PDT by Bigun (IRSsucks@getridof it.com)
[ Post Reply | Private Reply | To 1 | View Replies]

To: steplock
"Calculating the rate in a normal, tax-exclusive manner would mean a 57 percent rate. " "Obviously, the federal government is not going to impose tax rates this high, nor would anyone pay them if it did. There would be a massive tax revolt." This is an very rare admission that even the republican party is guilty of confiscatory tax rates! 57 percent of every WORKING person's wages are stolen by the govt!

This article is so flawed and full of misinformation it is almost laughable. The fact that much of the information is coming from government sources indicates what Bozo's we have in Washington. Taxes are not that complicated if you look at them logically and the actual rate that would be necessary isn't that hard to calculate or anywhere near as high as 57%.

First of, you must realize that with only a few exceptions, all taxes are basically sales tax anyway. Whether you own GM stock, are a GM employee, a salesman or a parts vendor, the money you pay in taxes comes from the sale of GM cars trucks and services. The end user supplies the money that you end up sending in as taxes, it is built in to the price of the product or service. Eliminate or lower taxes and the price of the product or service goes down. Incidentally, this is why tax cuts for the wealthy is such a misnomer. Tax cuts end up lowering prices to the consumer because that is where the tax money was coming from anyway.

The easiest way to figure out what a national sales tax would have to be is to look at what percentage of GDP is being taken in as Federal Taxes. Typically this is between 18% and 21% depending on economic conditions. Only a small portion of this is related to non-transactional taxes like the death tax. So even given that the tax code would be massaged to exclude certain items (essential food items for instance) in the silly belief that it would shield the low income people from taxes (a totally ridiculous notion since the cost of taxes, no matter how they are collected is built into the final cost of an item) a sales tax in the range of 20% to 25% would be pretty close to accurate. The interesting thing is that it would not basically affect the end cost of the product since all of the built in taxes would be removed from the original price of the product. The net cost to the consumer would be pretty neutral.

I used to be opposed to sales taxes since it appears that they are regressive. When you stop and follow the real flow of money through the economy, it is fairly easy to see that all taxes are regressive because the consumer is the one that ultimately provides the money to pay the taxes. Changing how taxes are collected does not really change who pays them, it only affects the efficiency of the system and the ability of politicians to bamboozle the public while using the tax code for social engineering.

22 posted on 08/18/2004 6:37:55 AM PDT by CMAC51
[ Post Reply | Private Reply | To 9 | View Replies]

To: CMAC51

I didn't say it WAS necessary, I am saying they are admitting that they are CURRENTLY stealing 57% of our assets!


23 posted on 08/18/2004 6:42:44 AM PDT by steplock
[ Post Reply | Private Reply | To 22 | View Replies]

To: CSM

I disagree. A consumption tax will keep the tax burden low since people can see upfront how much they're actually paying. In our current income tax system, you never see how much the government withholds from your paycheck before you get it. A national sales tax in the long run will reduce the size of government because people will have to consider how much they're prepared to pay to support government programs. Plus what Bruce Bartlett neglects to mention is people can reduce their tax burden at any time simply by reducing their spending. Eliminating the IRS is still the right idea but it will take us a lot of legwork to get us there.


24 posted on 08/18/2004 6:48:47 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)
[ Post Reply | Private Reply | To 1 | View Replies]

To: CMAC51

The change to a taxation system based entirely on purchases has two extremely inherent problems:
1)Higher prices will have a negative effect on consumer demand, which could lead a depression (over capacity is the primary cause of every depression)
2)The state will have authority over every transaction, leading to a more insidious control of our consumption. Simple transactions such as barter would become illegal if not declared. All Internet transactions would be taxed, therefore, tracked.


25 posted on 08/18/2004 6:49:00 AM PDT by P8ri0
[ Post Reply | Private Reply | To 22 | View Replies]

To: AppyPappy

There is a possibility if we elect an overwhelmingly Republican House and Senate, and have a Republican President.


26 posted on 08/18/2004 6:49:54 AM PDT by coconutt2000
[ Post Reply | Private Reply | To 16 | View Replies]

To: Forgiven_Sinner
I, for one, am against a National Sales tax.

I think that it's an excellent idea in theory. However, I think that the reality is that we'd eventually wind up with both a Sales and an Income tax. The change would be incremental.......Income tax would be abolished, then a few years later a small tax on the 'richest 1% of the population' would be put in place, and within a few years, we'd be right back where we started, except much, much poorer for it.

As far as I'm concerned, the only way to reduce taxes is to cut the government.

27 posted on 08/18/2004 6:51:05 AM PDT by wbill
[ Post Reply | Private Reply | To 3 | View Replies]

To: TonyRo76
I have a question about compliance with a NRST. There already is a large underground economy to get around State sales taxes which are in the 4-8% range. Would not this underground economy increase if an additional 15-30% NRST were imposed? Would the government want to move to a "cashless" society so the NRST could not easily be evaded?

I have mixed emotions about a NRST. In theory I am in agreement with the basic principals, however, in practice, it might not be able to meet those laudable goals.
28 posted on 08/18/2004 6:53:08 AM PDT by MrTed
[ Post Reply | Private Reply | To 19 | View Replies]

To: Bigun

Thanks. I didn't know about the counter article. BTW, I am in favor of the NRST, but I wanted to post the article for a thorough dissection. Thanks for helping me reach the intended consequences.


29 posted on 08/18/2004 6:53:25 AM PDT by CSM (To spread the wealth the liberal is willing, he'll take YOUR dollar and keep his shilling. -albertp)
[ Post Reply | Private Reply | To 21 | View Replies]

To: wbill

Wrong. Only way we can reduce the size of government is to get rid of the income tax. Otherwise government will continue to grow on autopilot, thanks to the hidden tax hikes leveraged in our byzantine income tax code.


30 posted on 08/18/2004 6:58:10 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)
[ Post Reply | Private Reply | To 27 | View Replies]

To: P8ri0

With regards to your 2 problems, I have a couple of questions that maybe you can clarify.

1) How does removing the current tax imbeded in the price of goods and adding the sales tax automatically lead to higher prices of goods? Even if an increase was inevitable, wouldn't that be off-set by the higher net incomes of the consumers?

2) Which is more evil? The state having authority over every transaction (therefore giving each citizen a choice of the amount of authority they give the state) or the state having authority over all income (therefore, removing from citizens the ability to control the state's authority.)?


31 posted on 08/18/2004 7:00:18 AM PDT by CSM (To spread the wealth the liberal is willing, he'll take YOUR dollar and keep his shilling. -albertp)
[ Post Reply | Private Reply | To 25 | View Replies]

To: CSM

So the author would rather report his income to the government?


32 posted on 08/18/2004 7:01:46 AM PDT by Extremely Extreme Extremist
[ Post Reply | Private Reply | To 1 | View Replies]

To: wbill

Part of the Linder bill is to repeal the 16th ammendment that grants the fed the authority to collect a income tax.


33 posted on 08/18/2004 7:03:42 AM PDT by RockyMtnMan
[ Post Reply | Private Reply | To 27 | View Replies]

To: CSM
The realization of such a high rate to offset the present income tax is the first step to phasing in a national sales tax that is "ear marked" for special programs such as national health care or prescription drugs. It will start off at something near 3% and then at the whim of congress will go much higher. Changes in the income tax code will be made for the consideration of the impact on the "poor". The "rich", you and I probably, will get to pay both a high income tax and over time, a high national sales tax. You might ask, why? Well, the government needs our money for the most basic of reasons, money gives them the power they crave so they can tax us again, and again and.......
34 posted on 08/18/2004 7:10:36 AM PDT by Final Authority
[ Post Reply | Private Reply | To 1 | View Replies]

To: RockyMtnMan; goldstategop
Is there a good detailed explanation of the Linder Bill out there? I've googled it, and all I can find is a 20,000 foot overview.

I'm still not convinced - what I've been able to find is pretty generic, though. One thing that I saw was the 'monthly rebate'. I don't like the idea of a monthly government refund - sounds like we're replacing one massive bureacracy that's easy to defraud (the IRS) with another one.

35 posted on 08/18/2004 7:20:41 AM PDT by wbill
[ Post Reply | Private Reply | To 33 | View Replies]

To: CSM; All

Obviously, the federal government is not going to impose tax rates this high, nor would anyone pay them if it did. There would be a massive tax revolt.

Whatever tax replaces the present income tax must, by law, be revenue neutral. It must bring in the same amount of funds as the income tax now brings. The proposed NRST tax rate is 23%. That said, if the actually amount needed to maintain a revenue neutral statis was 50% then that demonstrates that people would be revolting right now if they knew how much they are already paying for government. Bruce Bartlett is such a putz.

With all due respect to Speaker Hastert, trying to eliminate the IRS by adopting a national retail sales tax is a very dumb idea.

When voters realize that they can vote out of office any representative or senator that votes against HR25 -- that votes to not abolish the IRS -- The People will finally be reclaiming their power to control the government. HR25 is a single issue worthy of being a single-issue vote for or against congressional candidates.

36 posted on 08/18/2004 7:21:14 AM PDT by Zon
[ Post Reply | Private Reply | To 1 | View Replies]

To: RockyMtnMan
Part of the Linder bill is to repeal the 16th ammendment that grants the fed the authority to collect a income tax.
No it's not. The bill only states that "Congress further finds that the 16th amendment to the United States Constitution should be repealed." That's just lip service.
37 posted on 08/18/2004 7:27:40 AM PDT by Your Nightmare
[ Post Reply | Private Reply | To 33 | View Replies]

To: Zon
Whatever tax replaces the present income tax must, by law, be revenue neutral.
I believe that law recently expired and wasn't renewed.
38 posted on 08/18/2004 7:29:52 AM PDT by Your Nightmare
[ Post Reply | Private Reply | To 36 | View Replies]

To: cocobola

Here in Wyoming we pay sales tax on food; all of it is imported except beef - but we still pay tax on that too.


39 posted on 08/18/2004 7:34:42 AM PDT by hardhead (Unfathomable Paradox: A Destitute Lawyer)
[ Post Reply | Private Reply | To 8 | View Replies]

To: RockyMtnMan
I wonder, how exactly would the process to repeal the 16th work with the NRST legislation?

40 posted on 08/18/2004 7:39:05 AM PDT by William Terrell (Individuals can exist without government but government can't exist without individuals.)
[ Post Reply | Private Reply | To 33 | View Replies]


Navigation: use the links below to view more comments.
first previous 1-2021-4041-6061-80 ... 141-152 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson