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To: Jay777
Direct Consumption Taxes, such as a National Sales Tax (NST) might make a substantial contribution to Federal Revenue, but it's highly unlikely that it could provide more than perhaps 50% of what's required.

One practical limitation of direct consumption taxes is that they encourage widespread evasion via both informal and semi-formal back market arrangements – experience in Europe suggests that even in the case of "indirect" consumption taxes (such as VAT taxes) the break-even point is tax rates somewhere in the low or mid teens, beyond this point it rapidly becomes more difficult to collect such taxes, creating an culture of widespread tax evasion that in turn evokes increasingly intrusive tax collection methods.

It's also uncertain how well US political and economic culture will deal with the regressively of such taxes (on the average, the lower your income the greater percentage of your income is paid into direct consumption taxes). In Europe such taxes are tolerated in part because they coexist with expectations that a large portion of the revenue collected will be returned to lower and middle-income taxpayers via programs such as government funded medical care, while in the US country such taxpayers would likely see a lower proportional return on their tax payments.

As several posters note above, it's possible to produce less regressive (and even progressive) consumption taxes by rebating (or just not collecting) some of such taxes otherwise due from low-income payers. On grounds of simplicity and fairness the best way to do so is probably to exempt a "market-basket" of non-discretionary items or to tax then at a lower rate – once you start adjusting taxation on the basis of income, you are back to the various difficulties of determining, reporting and verifying income that are one of the chief drivers of complexity in the current tax-code as it applies to individuals. The problem, though, is that such consumption is a significant portion of the taxable total, so you then have to increase rates to raise income – which squeezes middle income taxpayers (too "rich" to avoid payment, but "poor" enough that a lot of non-discretionary income is taxed) hardest.

This in turn brings us to the the major difficulty with such taxes: the rates that would be required to produce a revenue neutral result- if a NST was sole source of current Federal revenue realistic estimates (accounting for such factors as funding a cut-over of SS to a "privatized" system for taxpayers under 50, servicing the projected Federal debt, and other factors that are often left out in such calculations by their proponents) are of a NST in the range of 17-21%, which would be collected in addition to state and local taxes.

Such a tax rate is lilely a non-starter politically, which is why we are starting to see accounts of more "realistic" plans like those in the WaPO article cited above.

Why isn’t a NST or a VAT included in such plans as a revenue supplement?

As a taxpayer, do you expect that if the Federal government had an additional major method of taxation your other taxes would be lowered by an equal amount?

The ATP cited above, OTOH, achives its "low" rate by very broad application (it taxes almost every sort of economic activity) and being highly progressive (higher-income earners pay a higher proportion of their income in taxes.

(Also, though the author doesn't stress the point, his sort of transaction tax makes it a lot more difficult for sophisticated taxpayers to evade taxation.)

That's fine with me – I believe that there is a need in successful market-based economies for relatively high levels of "social investment", and on pragmantic grounds I’d prefer to have it funded from moderately progressive taxation – but readers here need to be aware that the APT runs strongly counter to the current trend toward increasingly regressive taxation of earned income and reduced or eliminated taxation of unearned income, which most posters here appear to favor.
68 posted on 11/18/2004 12:58:17 PM PST by M. Dodge Thomas (More of the same, only with more zeros on the end.)
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To: M. Dodge Thomas
"Direct Consumption Taxes, such as a National Sales Tax (NST) might make a substantial contribution to Federal Revenue, but it's highly unlikely that it could provide more than perhaps 50% of what's required."

According to what study? I could rip you very easy by everything you just wrote. However, I am not going to be sophomoric. You are swimming in the sea of gullibility. You need to understand that governments take from the people who earn their money, and redistribute for votes and power. Just by what your writing its is quite obvious you have never read the fair tax. It covers all the nonsense you are talking about. Please read it. Instead of repeating clueless Karl Marx theories out of text books.
82 posted on 11/18/2004 1:16:47 PM PST by Sprite518
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