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.
That is a cute belief, but logic says that can't and won't happen. If the money goes into the pocket of consumers, there is not enough savings to businesses to bring down prices 23%. More money will be in the pocket of consumers, but prices will go up. Basic Econ 101.
If the gross price is $130, the BP is $100 since 23% of $130 is $30. Hence the gross price is 1.3*BP.
I know it's weird, but that's the way the FT is.
In six years, I have never seen a sales taxer concede a point no matter how wrong they know they are.
No, they either weasel, change the subject, call names, or disappear for a while to avoid admitting a loss.
It has nothing to do with curbing, or even addressing, illegal behavior.
If you want to argue that angle, start another thread. All you're doing is clouding the issue. This adds nothing to the debate, brings nothing to the table.
When you're comparing apples and oranges, it doesn't make for your strongest argument.
I notice that most all of the people on this board who do things like this are continuely making arguments against the proposed NRST, seldom, if ever, arguing for the current system.
Given your approach to this subject, it is entirely reasonable for one to assume that that is your only option - the current system.
If tactics like this are deemed to be a necessary adjunct to your arguments, be prepared to be laughed off the planet. There's simply no other way to put it.
CA....
Dale Jorgenson's assumption is what most the NRST analysis is based on.
Dale Jorgenson's analysis(not assumption) is rooted the relationships of emirically measured changes in production and prices, in regard to changes in tax policy.
That includes the accumulative affects of repeal of the taxes per-se, change in overhead costs on business, business behaviour in response to repeal of income & payroll tax, consumer response to repeal of income/payroll tax witholding, consumer response to no taxes on savings & investment, consumer response to taxes on consumption, resultant growth in production due to increased efficiency of business activity, resultant growth in U.S. exports, resultant growth in GDP, resultant growth in personal income, ...
Strange how you seem to have missed that, as you had specifically requested information concerning his methodology, and were given such in reply #361 with a link to one of his papers describing his IGEM and methodology.
If you accept his assumption, you accept today that a drug dealer pays 20-35% tax on every purchase today.
Actually looking at your quote it appears more to be somebody's assumption's or guess about Dale Jorgenson's results, rather than Dale Jorgenson's actual analysis statements or conclusions.
The fact of the matter is, and you have been informed of this as well, the income/payroll tax per-se is but a portion of the factors the result in a decline of 20-25% in producer (i.e. prices excluding taxes) prices, the decline in prices is a result of a combination of increased production efficiencies, reductions in overhead costs, removal of taxes per-se, and changes in market demand in response to taxation of consumption expenditure vs not taxing savings/investments and production.
Sorry, your assumptions are flawed about Dale Jorgenson's studies and analysis. While he finds that production increases, and producer price average across the 35 producer sectors represented in his studies decrease, the amount price declines are not limited to merely the amount of tax revenue that government collects from businesses.
But you know that as well.
I can only assume you are trying to construct a strawman, that you think can stymie a response just because of an assumed position of a person about the Dale Jorgenson tax reform studies.
A flat cow pie...
Yes, that was, uh, a very graphic analogy...
CA....
Well, if you have this sales tax replacing your current income tax, and you currently pay existing state, local and property taxes, then how can you move to the "poorhouse"?
Unless, of course, you're already there?
CA....
That model was used to model business response to taxed induced price changes. It did not explain how Jorgenson determined embedded taxes or the compliance costs of the current tax system. That is what I wanted to know. The link did not work either, so I don't even know what that was.
I just cut and pasted from an article written by a fair tax supporter. If they misrepresented Jorgenson, maybe they did. But what you posted did not refute it. The model you reference has nothing to do with the embedded taxes or even compliance costs. How Jorgenson came up with those numbers is what I am interested in. His modelling of what happens after if a sales tax is enacted is a completely different issue.
No, not "earnings"; wages. Read the bill.
What do self-employed people report?
It's not a tax on labor at all but on services. "Labor" implies some sort of income taxation on the number of hours worked while services isn't linked to any specific work amount.
Let's see here. The retailer gets your 100 bucks. OK. Then, as you say, he sends off $30 of that to the taxing authority.
Hmmmm. Looks like he ends up keeping $70. And $30 goes to the taxing authority. Hmmmm.
If the original $100 were indeed the price of the good in question, looks like the tax rate is 30%. Or, if it turns out $70 were the price of the good in question, the it looks like the tax rate is 43%. Hmmmm....
What happened to 23%?
Of couse, in the above example which you've offered, the $70 kept by the retailer is more than likely the cost of goods sold, plus an allowance for profit. The figure, unlike today's prices, does not include provision for taxes. That's what the $30 is in your "argument".
If indeed his costs are $70, then at the proposed NRST rate of 23%, the (Federal) tax in question would be $16.10, for a total price of $86.10.
That's still quantatively better than $100.
Hmmmm.....
What did you say was your major in school again?
CA....
My accountant, lawyer, gardener, house worker charge me for their services by the hour. I am not sure I follow your point. For people who provide services, it is a tax on their labor charges.
Your skull is impermeable to reason.
It's not a "wash" at all since you merely assume that all such illegal income goes to a taxpaying firm and that the taxpaying firm has a huge marginal rate.
At best, that is exceedingly unlikely and any such illegal income ends up in the tax revenue as only a vanishing small percentage and certainly nothing like the figure you attempt to pass off. It is the price of goods that is inflated by embedded taxes rather than the taxes paid to government and that does NOT mean the taxes themselves paid are that great - they aren't.
With the FairTax OTOH, the retail taxable purchases will contribute 23% of the selling price into the tax revenue - truly a huge difference.
How about impenetrable?
CA....
It's YOU who are delusional, pitipat, to make the huge leap[ of faith that somehow the FairTax will be completely re-written during the legislative process.
It won't. Read the bill to see why not since we know you have not read it.
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