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 thats 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 Congresss 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 Linders 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 Linders 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 Linders 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 Linders 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.
That could only be true if the "production chain" was in America..it isn't, he knows that.
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Well, when Drug Dealers buy Nike's and BMW's ... they would be forced to pay taxes on their income, which they don't now. This would actually bring MORE people into the taxsystem, which, in theory, should lower everyone else's tax burden.
Will there be people jocking this system? Well, sure. They already do. Offshore bank accounts, under the table cash deals. There are maybe 3 people in the country who adhere to the IRS "code" to a T. Most people just cross their fingers that they do not get audited, because when they are ... they usually ave to pay. There will always be a percentage of people who will try to defeat ANY tax.
The question really is not compliance, because that's already hit and miss and fill of loopholes and whatnots (didn't Ariana Huffington pay like $100 in federal taxes in 2002?). Some of the wealthiest folks in the country pay little or NO tax at all. I doubt they are going to go "all cash transaction" if this were to be passed. They would end up paying what everyone else does.
The issue is whether the current system of the IRS seizing people's paychecks at the source and demanding compliance on 7,000 pages of regulations is reasonable.
I say, it's not. If people are going to try to skirt a tax system (which they will until the earth stops spinning), i'd rather it be a fair one for those that DO participate in it.
Actually Linder's 23% tax is close to 30% (29.87%) ...His tax is 23% "of the gross payment".
$129.87 (gross payment) minus 23%(of the gross payment) = $100.00...but that would only be the law for the first year because after that SS "determines" the rate to suit their needs.
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.
I suppose you are aware that there is CURRENTLY no protection against just such a senario but, when the FairTax bill becomes law, there WILL be because:
1. income taxes will be illegal by statute
2. the IRS is defunded
3. all IRS records are required to be destroyed.
No tax is elimimated, only replaced.
Linder's plan allows the bureaucrats at SS to "determine" the gross payment tax rate every year based on their needs wants.
If you would like to be added to this ping list let me know.
John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
H.R.25, S.1493
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 for additional information: http://www.fairtax.org & http://www.salestax.org
As someone who comes from a family of goverment "workers", I can assure you that we don't "need" nearly was much as we take in.
If you believe nothing else I ever say, believe the above paragraph.
If it is, then why has 'the' problem only gotten worse since we've elected Republican's as a majority?
What about the Social Security and Medicare tax on income?
Will that also be eliminated?
Yes, HR25, is specifically drafted to replace all federal income and payroll taxes as well as the gift/estate tax, with a 23% of total expenditure for consumption retail tax.
H.R.25, S.1493
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 for additional information: http://www.fairtax.org & http://www.salestax.org
Just replacing the federal income tax would provide a rate of 15% of total expenditure on consumption.
Replacing both income & payroll taxes the rate comes out at 23% of total expenditure.
The general form of the NRST was discussed broadly by Alan Keyes in the last presidential elections:
Alan Keyes Interview with Des Moines Register:
- Conservative commentator Alan Keyes said Thursday one of the first things he would do as president would be to replace the federal income tax with a national sales tax.
- He said a 23 percent national sales tax could allow for the elimination of both the income and payroll taxes. If only the income tax were replaced, the rate would be between 15 percent and 17 percent.
HR25 and it's predecessors are implementations of that National Retail Sales Tax.
No they aren't. All you have to do is divide the total Federal tax revenue by the GDP and you get what they are taking in taxes. It is that simple. Everything else is either ignorance or misdirection. When all taxes, Federal, state and local are added up, the latest numbers I have seen are between 40% to 50% depending on local.
It's not like they can't get as much fiat currency as it wants. The Fed isn't going to cut us off. If it wasn't for us providing fiat value, Federal Reserve notes would be woth nothing.
The government does "need" you money to fund it's operations, it "needs" your money in order to control inflation let too many people get too much.
This whole "the government will have no money if it doesn't take yours" arguement really is silly. They have access to as much as they want. And the Federal Government can run a deficit forever. The Fed ain't cancelling the credit card.
Go ahead, spend it ... we'll print more ...
"That could only be true if the "production chain" was in America..it isn't, he knows that."
Geez, I didn't realize that we no longer have any manufacturing in this country. I better figure out what the heck I get paid for.
I must be one of the lucky ones. I get to keep a whole 55% of my earned income (not including state sales tax, gas tax or any other consumption tax.)
Whatever tax replaces the present income tax must, by law, be revenue neutral.
The Budget Enforcement Act and PayGo rules expired and was not re-instated to facilitate Bush adminsteration tax cuts and makeing them permanent.
With that in mind, there is potential to drop HR25's rate down to the 20-21% range based on where we sit now with the Bush administration tax cuts. Looks to me an excellant way to not only replace both federal income & payroll taxes but to assure the Bush tax cuts become permanent.
Considering that every other first world country on the planet with a tax rate approaching ours includes access to the the healthcare system, and most of them have equal or better life expectancies and infant mortality rates ... I consider Health Insurance Premiums and Doctor visits as a "tax" personally.
When they government unbundles charges to you that you have already paid for, it really is another tax, whether it is stated as one or not.
And if you do include that state sales tax (8.5% here) in your figures, you're getting precariously close to 60% of your total income.
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.
You are erroneously neglecting the fact that taxes are already contained in the current prices of goods and services. Replacing one system with another won't change that fact. Prices only go up if either of two things happen.
1. The Feds take a larger cut, increasing the percentage of GDP that they take in taxes.
2. The new system is less efficient than the existing system. The real costs of operating a tax system are total loss to the economy just like heat lost to friction in a machine.
You have to get a handle on the fact that when you go to Wal-mart and see an item priced for $5.00, $1.00 of that is tax you are paying to the Federal Government.
Admittedly, I seriously doubt the ability of our legislators to implement a transition from one tax system to another without totally screwing it up. First, they don't understand straight forward economics in the first place so they don't understand the underlying basics of the current tax system. Second, they won't settle for revenue neutral changes. They will try to hide an increase in the government take. Third, since they are so confused themselves, they won't know how to accurately convey common sense to the public so they will incorporate a boatload of misguided and totally ineffective exceptions in to the system.
Incidentally, barter transactions are illegal when they are not declared. It's just a case of selective enforcement.
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