Posted on 06/10/2005 11:13:37 AM PDT by Always Right
1. The 23% sales tax rate turns 37%. A retailer who sells an item for $100 must charge his customer an additional $30 for federal sales tax. Most people familiar with state sales tax call this a 30% tax, since the tax is 30% of the seller's price. The Sales Tax folks call this a 23% tax, since $30 is 23% of the final price ($130 including tax), which they call the 'tax-inclusive' rate. Neither way is technically incorrect, it is just important to understand what is really being discussed. Remember this 30% tax-exclusive rate is only the federal portion of the tax, state sales tax will also be added in. With the elimination of federal reporting, states will have to replace their personal and corporate income receipts, with a sales tax. States collected nearly $500 Billion in 2003 through income tax and sales tax. With Personal Consumption at $7.76 Trillion in 2003, that is 6.4% in tax inclusive terms, which will add another 6.8% to the tax-exclusive rate. So if you buy $100 worth of goods, you will end of paying nearly $137 once State and Federal Sales tax.
2. Even 37% is not enough. One amazing fact when sales tax calculates their rate is that they assume 100% compliance. Everyone will cheerfully report every sale. There will be no under the table or black market sales. Also, no one will try to buy goods overseas to avoid this tax. This is pure fantasy. No one could believe any tax system will have perfect compliance and zero avoidance. The current income tax system has about a 15% tax-evasion rate. Conservatively, we could assume that the sales tax will have a similar tax evasion rate of 15% and a tax avoidance (like spending overseas) rate of 5%. With these more realistic assumptions, the tax rate would have to be bumped up to 44% to be revenue neutral. And these are very conservative assumption. Brookings Institute economist William Gale (National Retail Sales Tax, September, 2004) calculated that about a 60 percent sales tax would be required to be revenue neutral.
3. Fraudulent Calculations. Besides using ridiculous assumptions like 100% compliance, the sales tax economists create money out of thin air. Their paid for economists routinely double-count savings of their plan. The biggest one is being the $1.3 Trillion that individuals pay in taxes. Under the 30% Sales Tax bill, that money would end up in the pocket of individuals, and the proponents correctly tell you that take home pay will go up. But then the Sales Tax proponents go on to tell you that prices will go 25-33% to offset their 30% sales tax. Well if individuals are pocketing 67% of the taxes that are eliminated, how are businesses going to reduce prices very much? The sales tax eliminates about $650 Billion in taxes to businesses. Considering Americans consumers spend $8 Trillion on goods and services, that only allows for businesses to lower their costs by 8%. Once the 30% sales tax is added, the final end cost to the consumer will be 20% higher if the calculation were done honestly. Even allowing for a reasonable amount of savings in compliance costs to businesses under the sales tax system, prices would still shoot up 18-19%.
4. Millions must file. The Sales Tax supporters would have you believe that only retailers need to file under the Sales Tax. That simply is not true. In order to offer the 'low' 30% rate, the Sales Tax must tax services too. 'In 1993, 12,778,000 taxpayers filed individual returns with business income or losses, and another 1,919,000 filed farm returns. In addition, in 1992 the IRS received returns for 17,292,286 non-farm sole proprietorship businesses, 1,484,752 partnerships, and 3,868,004 corporations-all of which probably produced goods or services on which the sales tax would be levied. Thus the supposed simplicity of the sales tax turns out to be a mirage.' (Brookings Institution Policy Brief #31-March 1998) Thus over 35 million filers will still be subjected to reporting and audits, most of these are individuals. This doesn't even consider the 100 million of people who will still have their wages reported to the SSA. Also, all households must register every year with the 'sales tax administering authority' in order to receive your monthly tax rebate. Furthermore, individuals that buy things without sales tax, like overseas purchases, must submit monthly forms and payments to the government. Hardly the zero tax filings for individuals as the sales tax supporters claim.
5. Tax Evasion will skyrocket. 20 countries have tried a national sales tax, and 20 have switched to a value-added tax. These countries have gone on record and have flat out stated a retail tax of more then 12% is unworkable. People will avoid it, especially with the internet which makes it very easy for the common citizen to purchase goods from foreign sources. The fact that businesses to business sales are not taxed, makes it very tempting to buy personal stuff under a business name. It will take a mighty powerful and intrusive taxing authority to audit all business expensive to make sure. The sales tax rates we are talking about have never been successfully implemented in the history of the world, but it hasn't been for a lack of trying. "Many people would masquerade as businesses" to avoid the tax, says Robert Hall, an economist at the Hoover Institution. Gale reckons that evasion would be far higher than today 's estimated 15%.
6. Big Government gets Bigger. In the 20 countries where the national sales tax has been implemented, and in each case replaced by necessity by a Value-Added Tax, the amount of federal taxes quickly grew from about 20% of GDP, as currently in the US, to 40% and above of their GDP. Not a promising precedent.
7. Underground Economy still not taxed. The NRST advocates falsely claim that the underground economy now will be taxed. Nothing could be further then the truth. Sure, when the money re-enters the legal economy the money is taxed, but that is true today. But will the drug dealers and prostitutes remit sales tax for their goods and services under the NRST? Absolutely not, this portion of the economy is still invisible to the tax collector and therefore not taxed. According to Bruce Bartlett, 'thus whatever revenue is gained when drug dealers spend their ill-gotten gains will be lost because no tax was collected on their drug sales.' (Bruce R. Bartlett, senior fellow, National Center for Policy, Analysis, November 5, 1997).
8. Lower and Middle Income pay more. Steven Sheffrin of UC Davis in a 1996 CPS brief says that a revue-neutral consumption tax even with a generous personal exemption shifts the tax burden to the lower to middle income households. A 1992 Congressional Budget Office study of consumption based tax concluded the consumption tax would decrease the tax on the wealthiest 20% by five percent, while hitting all other groups with a higher tax burden. The poorest quintile being hit the hardest with a 20% increase in tax and the 20-40% income quintile being hit with 9.3% increase in their effective tax rate. This is because the poorest spend a much higher percentage of their income each year and in many cases are even forced to borrow to keep up with their expenses. These numbers are much worst today as the federal tax liability for the bottom 20% has been greatly reduced through expansion of the earned income tax credit.
9. Elderly assets are unfairly burdened. While people currently working will get to keep more of their paycheck, people on fixed incomes will stay the same. Elderly, who have already worked and saved under the income tax system, will now be faced with paying additional high consumption taxes. This group of especially hard hit people, will not have the opportunity to earn tax-free wages, so all their already taxed wealth will be taxed again when they spend it. Come January 1, 2007, if someone's rent was $1000, they will owe an additional $300 in federal tax alone, and many without any additional source of income.
10. Government Taxes Itself. One amazing thing is under the Sale Tax is that government somehow raises money by taxing itself. Whereas this is an interesting way to reduce government, it is typical of the smoke and mirrors the fraudulent analysis of the so-called fair taxers use. Under the plan, the government is considered the consumer and most of it's purchases and employee salaries are taxable. So if the state of Alabama pays its clerk $30,000 in salary, it would be liable to pay the federal sales tax of $9000. The same applies to the federal government, but it pays itself. An interesting way to raise revenue, but it more fraud on their part. If government could truely tax itself, why not just put 100% sales tax on government and then no one else would have to pay taxes.
11. Auto and Housing Industry Hit Hard. As the luxury taxes have proven in the past, adding a large sales tax on item deters people from buying. In 1991, after the Democrats snuckered Bush Sr. into signing the Luxury Tax, Yacht retailers reported a 77 percent drop in sales that year, while boat builders estimated layoffs at 25,000. And that was only for a 10% tax! With new homes and autos having to compete against existing homes and used cars, paying the additional 30% sales tax will be hard to swallow for most consumers.
I rented apartments for over twenty years and NEVER had one lease which had an open ended payment contingent upon taxes being added. Of course, sales taxes were irrelevant to the rent calculation but if property taxes went up doing the lease period the property owner ate the increase.
And small company D wanting to gain market share drops the price forcing A, B, and C to follow suit or lose market share quickly and substantially to D.
Well the AMT comes quickly to mind.
But the real problem is excessive government spending - not the method of taxation.
Very true.
I am amazed when I hear people make claims that say by changing the *method* they will decrease the total burden.
Also agree. But a major change in the tax system will hurt some and help others. It can't be a win for everyone as sale tax proponents preach.
What if the product next to it doesn't go down? They didn't in Europe when businesses took advantage of the Euro switch to jack up prices.
That is an even bigger loser. Slavery is not the condition of Americans even if they pay income taxes. Pure silliness.
To compare a tax structure to a currency swap is not apples to apples. And the American economy is far more competitive and free than the European economy and market.
No actually the Founders explicitly changed that method when the Constitution was ratified. What you are praising is similiar to the method under the Articles of Confederation and turned into a disaster since the states just ignored the needs of the Confederation.
The $150,000 in purchases that go untaxed are untaxed in both tax systems. That is not a change.
What makes the nrst capture more (not all) is that there will be more tax money taken from the drug dealer. Under income tax, he only paid 1 of 3 components of his tax burden - embedded taxes in prices - he does not pay income or payroll tax. But under the nrst, the drug dealer will pay all his full tax burden in purchases. THat's the increase.
A complete and utter lie. The government pays taxes only on wages that are otherwise taxable services. Your typical civil servant would not have their salary taxed. This lie is based on a blantant misreading of the bill and one quote that was based on a single poorly clarified statement from an AFFT spokesperson.Sorry, you are dead wrong. Governments would pay the FairTax on the wages of their employees, all employees.
If it caused everyone to realize how much the government was stealing from us and to demand reform and to throw a bunch of the bums responsible out, how would that not be considered a win for everyone?
Unfortunately, my friend, your thinking on this is short-sighted and too narrow in its scope.
Let me explain what I mean, please:
All of that labor you are referencing, no matter its true size, is UTTERLY wasted, inefficient labor.
All of it.
It doesn't produce a single useful product or service.
It doesn't produce one dollar of revenue for government.
Nada.
Might as well just flush all that time and effort right down the toilet.
Freeing up that time, which by any honest estimate is huge, would be a boon to the American people, either in time that could be used to actually produce something of value, or even, hallelujah, to devote more time to their families, their communities, or even to leisure.
Not all benefits have a price tag. Life isn't all about money.
Long term, eliminating the drag on all of us that is created by this inefficient, silly income tax system, would be a positive good.
Looks like a private transaction to me. Do you currently remit taxes to the state and county whenever you buy an item at a yard sale? You won't do it under the NSRT, either.I don't think you understood what I was saying.
And company D realizes that his little price war didn't help his market share at all, and ruined his profits So he decides he liked the previous higher margins better than a bit more volume, and D,C, B, and A all go back to the higher prices.
FR doesn't have the bandwidth.
You keep your dream -- I'll disturb it no more. I have bridge to sell, though.....
Won't work. One of the reasons I left CA was because you have State Income Tax, State Sales Tax, and Property Taxes, plus the excise taxes on gas and other products. Plus Vehicle registration. Plus...
Taxes are never eliminated. Added to and expanded, yes. But never replaced or eliminated.
I bought a DVD player over a year ago for $19.99. Infact, I bought 3!
But they don't want to know anything except the address to send money - they don't want to know how much you make or anything intrusive like that he he.
Some of the saving (the actual income tax businesses now pay) will be quickly realized. That accounts for $650 Billion. Economist using IRS figures have calculated the cost of complinace of the code at $250 Billion, with most of the 'savings' being time spent by individuals filing out forms and record keeping and/or paying accountants to do it for them. The business share of compliance savings is at most $100 Billion. Forget the $650 Billion pigdog uses, he has no clue and incorrectly includes numbers that have no bearing on the discussion. This savings could be realized in the first year. Business would see about $750 Billion. But that savings represents less than 10% of consumer spending. Prices have to go up roughly 20%.
-- Gee, now that Boomers are moving into retirement and will be typically consuming more than they produce; there is a move afoot to shift the lion's share of taxes to consumers.
How convenient! --
You have hit the exact reason for a consumption tax. The Boomers are ending their careers and the government now needs a way to tax all those after-tax dollars that have been accumulated over the last 30 years.
A consumption tax so screws the retirees that have managed to keep some bucks after taxes.
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