Replace the Income Tax System with a national sales tax? (Poll: 83% Yes)

Vote.com ^ | Dec. 2005 | Vote.com

[FairOpinion]

YES! 83% (8832 votes) A consumption tax would be great for the American economy. Do away with complicated income taxes!

NO! 17% (1761) A consumption tax would not be fair for low-income households. Keep the current income tax system!

We'll send your vote to your congressional representative and senators.

[numberonepal]

I personally prefer a flat tax (15%) than a national sales tax (23%).

It's nice to see you hold on to the antiquated idea of taxing income over consumption. Forcing citizens at the point of a gun to pay tax on their production is a cornerstone of communist philosophy. Voluntarily paying would be consistent with capitalist philosophy.

[Philistone]

Let's see. Since your plan is "revenue neutral", if people in the lower middle class pay more taxes then people in the higher brackets will pay fewer?

"RAISE TAXES ON THE POOR!"

Now THERE'S a campaign slogan that will work...

Gee... I wonder why I've never heard it before.

[Centurion2000]

When the federal government figures out a way to collect MORE tax by way of the sales tax than they collect through the income tax, THAT IS when it will be implemented.

[Kellis91789]

The question is "why do the poor refuse to support their country, but still think they deserve to get a vote ?" Another is "why do the poor support higher taxes for other people, but not for themselves ?"

Those are good questions.

BTW, I showed you how your example family of four with $40,000 income did not have any decrease in their buying power. What is really important ? How much somebody "pays" in taxes, or how much "stuff" they can buy with the money left over ?

The amount of taxes somebody pays is meaningless. Would you rather take a job that pays $200K but your taxes are $150K, or the job that pays $60K and your taxes are $10K ? Either way, you were left with $50K in hand to spend. Hint: Take the $60K job. It will have less stress, less chance of IRS audit, and you might get a bunch of government freebies.

[Kellis91789]

Forcing citizens at the point of a gun to pay tax on their production is a cornerstone of communist philosophy.

Yes, it certainly is. Then again, so are many of the programs that taxes on income support. Consider socialist programs like Social Security and Disability, where the benefits are tied to reported income. If they are not paid for by taxes on that same reported income, then how do you stop people from over-reporting ?

Currently, there are huge numbers of people under-reporting their cash income -- plumbers, gardeners, painters, waiters, bartenders, strippers, taxi drivers, etc. They are not contributing what they should under the current Payroll tax. If you disconnect the benefits from the taxes paid, those same people will over-report their cash incomes. A bartender making $50K who was reporting $25K will suddenly start reporting as though he made $75K. Why not ? It won't cost him a dime to get himself bigger benefits down the road.

Keeping the dedicated tax scheme for SS/M/Disability provides a check against this type of fraud. Still, to keep the rate as low as possible, it should not be a tax on wages, but a tax on all income. And to stop it from being a drag on business it should be paid for entirely by the individual -- where it will stay visible and not half-hidden through the pretense that the employer is paying half.

[Kellis91789]

Yes, if you leave out critical information, a poll is bound to be skewed.

How about:

1) Would you prefer to pay $30,000 out of your $60,000 take home pay for your new Toyota ? 5%

or

2) Would you prefer to pay $39,000 out of your new $90,000 take home pay for your new Toyota ? 95%

(I changed your example to use the FairTax rate of 30% exclusive, so it would be $9,000 if the sticker price was $30,000.)

[gooleyman]

The Fair Tax would be easier to monitor.

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How so? You go to your friends store and he rings up a $100 item for $25. You pay tax on the lesser amount. How is that easier to police? Who will know that the item wasn't sold for $25. People do it now when selling or buying a car from a private owner. I wouldn't believe the price listed on a title of a car sold by private owner to save my life. I've seen it done too many times. Who's to say what the two of you agreed to exchange for an item? I've seen people put "gift" on the title when it wasn't a bit more of a gift than the man in the moon.

At least now the money is taken out at the employers place before the employee ever see's it. That's tougher to hide IMHO. Note that I said tougher, not impossible. That's done too. Cash is King.

[Man50D]

How so? You go to your friends store and he rings up a $100 item for $25. You pay tax on the lesser amount. How is that easier to police? Who will know that the item wasn't sold for $25.

Businesses will be able to charge whatever price they decide just as they do with the current tax system. They can lower their price by 75% but that will also result in much less profit. It is highly unlikely any business would lower their prices and profit so their customers will pay less taxes. Any business who does so will not remain in business too long.

The federal government will not care what price is charged. It's only concern is that a tax is collected regardless of the price. The Fair Tax will be easier to monitor because people will be forced to comply when they pay a tax on any good or service they purchase. The result will be far fewer tax evaders.

The lower number of tax evaders will make it easier for the federal government find those who do not pay taxes. Keep in mind the tax will be exclusive of the price charged so it will be itemized on the receipt. The federal government only needs to look at the receipt to determine if the business has collected the correct amount of taxes.

[Badray]

You sound jealous. Do you feel all successful people should be punished for their success or is it just your cousin?

I don't know your cousin, but I am happy for his success and wish him continued success.

His kid's college tuition will not be taxed as it is considered to be an investment.

He will pay less with the FairTax, but he will still be paying considerably more than lots of other people. I hope that gives you some small consolation.

[Badray]

I'm glad that you are still looking and keeping an apen mind as opposed to the other poster here who asks questions, makes up his own answers and decides that the plan is bad.

Social engineering no matter how worthy the cause still has someone making that decision. If it is truly a great idea, then people will cime to it on their own.

In the free market place, there really are no losers. No one buys or sells unless it's to their benefit. In the business of government, there are winners and losers because we are being forced to pay for 'good ideas' whether we want to or not.

For instance, you think that low income housing is a good idea that I should pay for. I grew up in poverty without that 'help'. It taught me that I didn't want to live like that ever again and I worked my way out of that.

Handouts may help in the short run, but in the long run they only create a false view of the real world and create a dependency. So, with that one idea, one man gets a tax break and a guaranteed income (paid for in tax dollars) for his part in building (or owning) a HUD program house, another man gets a distorted view of the world and a house whose cost doesn't match reality because the taxpayers are subsidizing it, and you and I have to pay for both of them.

That's not only not fair, but it's just plain wrong.

Over forty years ago, I backed a flat tax too but I was only thirteen and hadn't met the IRS yet. An income tax is a slave tax. Government has first claim to our income and we get to keep what they say we can keep. We have to report our income and then prove it isn't more if they say it is.

What ever happened to 'innocent until proven guilty' and the 5th Amendment protection against self incrimination? The cost of the current tax system is bad enough. The burdens that it imposes on supposedly free people are even worse.

The flat tax, in any of it's currently proposed forms does nothing to rid us of the burdensome tax code, the onerous IRS, or any of the invasions of privacy that free people should enjoy.

The FICA tax also has to be added to any of these proposals so the final rate will be about the same as the FairTax with the biggest difference being that the flat tax will tax that percentage of what you earn -- with an IRS still in place -- as opposed to the FairTax taxing only what you spend, and if you spend. You will be in control of your life, not some nameless, faceless, inaccountable bureaucrat.

I opposed the FairTax for a few years for 2 main reasons. First, the rate is outrageously high. Then I realized that is what we are spending now and that's what it will take to continue to function. In conjunction with that realization was that the FairTax is only a revenue plan, not a spending plan. Spending must come down, but since most people do not even realize that they are paying taxes that are imbedded into the price of everything even if they aren't paying the income tax itself, they couldn't care less about the cost of government. For them to care, they cost must be transparent. That's the beauty of the FairTax. It smacks you in the face everytime you reach into your pocket for money.

The other opposition that I had was the prebate, but finally came to realize that with some protection for 'the poor' there would no chance of passage. Most sales taxes exempt goods from the tax to accomplish that goal, but then you have the constant lobbying for what is 'essential' and should be exempt. The prebate treats EVERYONE the same. Everyone is eligible for it and also gets to decide how to spend the money. I say 'eligible' because if you don't want it, you can simply not file to get it. It is eminently fair for everyone.

I encourage you to look beyond just the numbers and look at the principles of freedom that have been trampled by this current tax code. Do it not just for yourself, but for future generations of Americans -- all Americans whether you have children or grandchildren or not.

No system is perfect, but this is damn close. There may be things that need to be and will be tweaked over time, but I don't want the perfect the be the enemy of the good on this. I love the open and honest discussion that is offered here. There are lots of questions to be answered when you first start to look at this concept. It turns what we have on its head.

What I have found is that those who are most opposed to it are those who have a vested interest in perpetuating the current mess. There is an old saying that if you aren't part of the solution, there is lots of money to be made being part of the problem.

I want the death of the IRS to be part of my legacy. Even though it will not be personally (financially) beneficial to me, it's a small price to pay for the freedom that it will purchase for America. (I promised my kids that I would spend all my money before I die so they weren't counting on getting my money anyway, but I want them to keep what they earn.) ;-)

[Kellis91789]

I hink his example was intended to mean that the store owner still charges $100, but rings it up as though he had only charged $25.

Essentially splitting the amount of tax evaded with the customer. So the customer pays $100 + $8.34 tax = $108.34 instead of the full $130 it should be. To the customer, it is like buying it elsewhere for $83.50.

The answer to this kind of evasion is that the store owner must keep detailed records, including the receipts for all sales. If the same $11B currently spent on IRS enforcement of 150M tax returns is suddenly focused on 20M businesses, the odds of being audited become a terrible risk to the store owner. If caught he will face criminal charges, not just a fine, and probably lose his business. In this world of electronic cash registers and UPC codes for almost everything, auditing a store will result in items sold for significantly less that the average price for that same item. That will lead to checks against the supplier to the store to see what the store paid for it. A few loss-leaders during sales or closeouts is one thing, but a pattern of evasion will be caught. That store owner would have been safer not recording the sale at all, and reporting the item as stolen. But if reports of stloen items become a pattern, the guy's in trouble again.

Finally, 85% of retail purchases are made from just the largest 15% of retailers. These are the Wal-Marts, Vons, and Krogers of the world. They are not going to be playing these risky games. They'll just collect the tax and remit it. Which means the total FairTax evaded is going to be much less than 15% -- a max of $280B. Tax gap under the Income & Payroll Tax system is over $350B. And that doesn't even count criminal incomes -- the IRS doesn't even have any data to quantify that.

Still, the lower the FairTax rate, the lower the evasion. The risk of being caught stays the same, but the reward is less.

[Kellis91789]

Good Post ! I agree with everthing you say, and it is why I support the FairTax in its present form, warts and all.

However, if there were an alternative Bill that separated out the funding for entitlement benefits programs, I'd support that instead.

It worries me that people will be able to report income for the purpose of getting government benefits -- SS, Unemployment, and Disability -- where the benefit amount will be based on what they report. Where they currently have an incentive to under-report their income because it is taxed, they will now have an incentive to over-report their income without increasing their taxes.

This could throw a huge wrench in the SSA's calculations when they see growing future outlays. The FairTax gives the SSA the power to change the portion of the FairTax rate that supports their programs, so this could result in the FairTax spiraling ever higher.

The FairTax HR25 attempts to address this and puts a harsh limit on some areas of cash workers. Waiters, bartenders, etc. are allowed to claim only $5,000 in cash tips. That is very low for most, but too high for some. Retaining a small tax of 6% on all individual incomes would restrain the over-reporting impulse without arbitrary amounts specified.

Of course, I also like the fact that this would allow a much smaller FairTax rate, thereby reducing the size of the Prebate needed and the evasion problem. With Prebate, 14%. Without Prebate, 12%.

[gooleyman]

They can lower their price by 75% but that will also result in much less profit. It is highly unlikely any business would lower their prices and profit so their customers will pay less taxes. Any business who does so will not remain in business too long.

Let me explain this a little clearer. (And so no one gets the wrong impression ... THIS IS ALL HYPOTHETICAL.) You paid your friend $100 for the item, but he rang it up in his cash register as $25 to save you on the taxes. You paid the tax on $25 instead of the real price of $100. Your friend didn't lose any money, he simply cheated the Feds (us) out of the difference in the taxes that would have been paid on the item if he had rang it up as the real price. How will the Revenuers know what price was actually charged. They would have to set up little sting operations just like they do now, only on a broader scale. The Internal Revenue Service will grow, not shrink. It will NOT be easier to monitor.
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The federal government only needs to look at the receipt to determine if the business has collected the correct amount of taxes.

In my example above, what price would the Feds see?....$25. And the tax on the $25 will be calculated correctly. The Feds will go on their way fat, dumb and happy, not knowing that they were cheated. But you and your friend would know. This would be rampant. Believe me, I know. It's rampant now as I mentioned before in the used car market concerning State sales taxes. You need only look in your own back yard to see that this wouldn't work. And this happens right now at 6 or 7 percent. Suppose the Sales tax were 23% (Fed plus State Sales Tax.) The amount of cheating would spin your head like the Exorcist.

[Badray]

The amount of cheating on the FairTax will be minimal when compared to the present system. It will go on, but I don't think that it'll be any worse and in the meantime, we'll be pickup up tax on many of those who currently evade the tax altogether.

I also believe that this system will touch off a firestorm of economic activity and wealth generation and that within a short time -- less than ten years -- younger working people will lose interest in getting a SS check and the whole program will be able to begin phasing out. And in the meantime, since there will only be 15 or 20 million returns compared to 140 million now such cheating will stand out.

If I claimed $25K/yr for the last 15 years and then all of a sudden I claim $50K/yr, someone will take notice/

In all, I just don't think that the level of cheating will be that bad and all the other benefits that will flow from this will make the faults pale in comparison.

[Man50D]

Thanks for clearing that up. Part of my reply to your post is still correct in that everyone is a consumer and therefore everyone will pay a tax and therefore compliance increases and tax evasion decreases. Our current tax system with its loopholes,credits,refunds along with the IRS trying to enforce a 60,000+ page tax code system results with many people not paying taxes, legally and illegally.

No tax system would prevent tax evasion but the Fair Tax reduces it considerably. Your hypothetical situation is the exception to the rule with our current tax system and would be more so with the Fair Tax. If your friend or any other business owner practiced your hypothetical situation as the rule, they would eventually have an income disproportionate to the amount of taxes collected. This would eventually become a red flag to the feds.

The IRS would not grow with the Fair Tax. The Fair Tax bill(HR25 and S25) also supports the concurrent abolishment of the IRS and its 60,000+ pages. Fair Tax supporters are pushing for the IRS to be abolished concurrently with the passage of the Fair Tax. The Treasury Department will be in charge of collecting the tax. I suggest you visit http://www.fairtax.org for more information about this point.

[Kellis91789]

"If I claimed $25K/yr for the last 15 years and then all of a sudden I claim $50K/yr, someone will take notice/"

You would think so. But that person would have to be at the SSA, because that is the only place the info will be reported to. I don't see the provisions in HR25 for the SSA to police this. Supposing you can show that you really did earn $50K, the IRS will be gone, so there will also be no-one to go back and collect the old income and payroll taxes for past years when you cheated.

I don't think this is a small number of people. There might be 20M people with a cash component to their income. SSA is going to have a serious funding problem if those people are in line to get benefits much larger than their past contributions. If 20M people have been under-reporting their incomes by $25K/yr for 15 years, then that is 20M*$3825*15y=$1.15T that never made its way into the "Trust Fund". If they then report the full $50K for the last 20 years of their lives and their benefits are increased accordingly, SSA's larger obligations will bankrupt it with no way to ever recover. A 6% tax on the income reported would discourage them from reporting higher income -- and paying now for a dubious future return.

People will take as much free stuff as they can get their hands on. SSA benefits cannot appear to be "free". Otherwise their cost to the taxpayer will quickly spiral out of control.

[phil_will1]

"....the Fair Tax appears to be a Libertarian approach..."

That is an interesting comment, considering how many Libertarians oppose the FairTax and want to eliminate taxes altogether. Talk about an unworkable approach!!

[phil_will1]

"I prefer the fairer, flat-tax."

Which version of the flat tax do you support - the one Steve Forbes promotes?

[Badray]

I won't argue that some won't do that, but I would say that most cheating is done because of the sense that they are being treated unfairly and are trying to 'get even.' The passage of the FairTax will be an overt statement that we are trying to be fair because there aren't multiple rates and no group is singled out for special treatment.

I am opposed to any attempt to tax income even as a measure to prevent cheating, though it would probably work. We'd then need a bureacracy to account and collect that tax and that low 'compliance' rate would be subject to inflation creep upwards.

[phil_will1]

"Exactly. Taxes would reflect the economy. If it roars, government gets big bucks. If it tanks, government has to suffer like the rest of us."

Actually history teaches that consumption taxes are a more stable revenue base than income taxes. If you want a really volatile source of government revenue, then you should stick with the income tax.