Inching Away From Income Tax

Washington Post ^ | 10/31/02 | Jonathan Weisman

[Tumbleweed_Connection]

In the heart of the Treasury Department, their work deeply under wraps, tax-policy experts are hatching policy options for what could be the Bush economic team's first big idea: shifting the U.S. tax system away from taxing income, toward taxing consumption.

But taking what has long been an academic ideal and translating it into real-world tax policy would take a dramatic commitment of presidential leadership, a long education and political campaign, and a bipartisan convergence of political interests, tax-policy experts say. Few of them are holding their breath.

"It's true that you can write down a simpler tax system on paper than the one we have," said William G. Gale, a tax expert at the Brookings Institution and a critic of consumption-tax proposals. "But it's not necessarily true that you could get that tax system through the legislative system, or ensure it would stay that way once you did."

Officially, a year-long tax policy project at Treasury will merely present President Bush with tax-reform options, probably early next year. But economists and tax lobbyists close to the effort believe that Treasury Secretary Paul H. O'Neill is serious about elevating tax reform on Washington's agenda. If Congress is not prepared to act yet, at least the issue could underpin Bush's reelection campaign, they say...

[Taxman]

Thanks for re-directing my attention to this thread, Bigun. I have been away from the computer for a few days, and am just now getting back in the loop.

I have an opinion about "distribution tables" which will not satisfy you, deuce, and probably do not have a snowball's chance in Hell of ever getting any play in the national discussion we are about to embark upon.

But here it is anyway: Who cares about income or tax distribution tables?

These distribution tables are artificial -- they only work for those who engage in class warfare and the politics of group identity, hateful speech, division and dissension. They only work when the government steals income from one group of people and "gives" it to another group of people, especially when there is "progressivity" built into the scheme.

IOW, if we did not now have, nor had we ever had, a progressive income tax system, there would be no tax distribution tables. They were invented to support the class warfare argument that initiated and sustains our Marxist progressive income tax system.

If we did not have a progressive incmome tax system, some statistician with too much time on his/her hands would probably invent an income distribution table, just like the same folks invented the tax distribution tables after we got the progressive income tax system in place.

I do not care a whit for income or tax distribution tables, because the issue is not "Who makes the most money" or "Who pays the most taxes."

Aside from the FReedom issues (more FReedom with the NRST) and the economic growth (higher economic growth rates Under the NRST) issues, the argument re: flat tax rates and "progressive" rates is really an issue of about equal treatment under the law, as required by the U.S. Constitution. A progressive income tax system is unconstitutional because it separates people into classes for the purpose of taxation, and taxes them at different rates.

The NRST eliminates this perversion, and will have the beneficial effect of making honest citizens out of many dishonest citizens.

So, who cares about distribution tables? Those who believe that the guiding maxim of taxation should be "From each according to their ability, to each according to their need."

That is not the American way!

And our Founding Fathers, if they could see what we have wrought during the 20th Century in respect of this horrible tax system would be ashamed of us.

I support the NRST for three fundamental reasons: FReedom, economic growth and equality of treatment under the law.

It is time to throw the class warfare argument on the ash heap of history, where it rightfully belongs.

The NRST is just a start, mind you, in that direction.

[ancient_geezer]

I summed the total takes for both income/payroll revenues and NRST, the NRST came out slightly more than the income/payroll tax situation of CBO reported effective rates.

I base my belief that revenue neutrality exists on the following results from a 1995 Cato Institute(libertarian) Policy Analysis:

Calculating the Tax Rate

 

Table 2
Tax Revenues to Be Replaced by National Sales Tax, 1995 (billions of dollars)

Income tax		$759.9
Estate and gift taxes		15.1
Excise taxes (estimated)		28.0
Subtotal		803.0
Payroll taxes		490.3
Total		$1,293.3
Source: Federal Receipts, Analytical Perspectives, FY 1997 Budget of the United States Government. Calendar year basis.

 

Table 3
Calculation of National Sales Tax Rate

		Tax Base (billions)	Revenues to Be Collected (billions)	Tax Rate (tax exclusive)	Tax Rate (tax inclusive)
No rebate,
excluding payroll taxes		$5,978.2	$ 803.0	13.4%	11.8%
With rebate,
excluding payroll taxes		4,841.1	803.0	16.6	14.2
No rebate,
including payroll taxes		5,978.2	1,293.2	21.6	17.8
With rebate,
including payroll taxes		4,841.1	1,293.2	26.7	21.1
Source: National Income Product Accounts, Survey of Current Business, August 1996; Federal Receipts, Analytical Perspectives, FY 1997 Budget of the United States Government.

The 23% tax inclusive rate [HR 2525] would offset any losses from tax avoidance beyond the amount that occurs with the current income tax.

Remember that before and tax measure can actually be enacted, it must meet the revenue neutrality requirements under CBO review. If rates in a revenue bill don't meet the revenue neutrality specification, the bill cannot get enacted into law without the complicity of both democrats and republicans. It only takes one House member or one Senator to challenge a bill for lack revenue neutrality and kill it right then and there. That is why Congress finds it so difficult to pass even the smallest of tax cuts.

[ancient_geezer]

Oop's forgot Table 1 which calculates the tax base from personal income expenditure. Note there are some key additions that do not get added into the CBO income figures which addresses citizens and legal residents (i.e. taxable persons under the income tax) only.

Table 1
Tax Base for National Sales Tax (billions of dollars)

Description of Taxable Item	Tax Base (1995)
Personal consumption expenditures	$4,924.9
Purchases of new homes	156.4
Improvements to single-family homes	73.9
Imputed rent on housing	-534.3
Additional financial intermediation services	53.0
Foreign travel by U.S. residents (one-half)	-26.4
Expenditures abroad by U.S. residents	-2.7
Food produced and consumed on farms	-0.4
State and local government consumption	682.6
State and local government gross purchases	159.1
Federal government consumption	453.8
Federal government gross purchases	62.7
Less: Education expenditures	-97.5
Plus: Expenditures in U.S. by nonresidents	73.1
NST Base	$5,978.2
Source: National Income Product Accounts, Survey of Current Business, August 1996.

[ancient_geezer]

Refer to reply 202 & 203 above, for basis of revenue neutrality.

[ancient_geezer]

One factor you may have missed in your calculation and I forgot to put into the methodology.

Total personal expenditure includes the FCA that is payed to each person in the household.

Therefore to calculate the total tax receipts under the NRST you must add FCA cash flow into the income amount for each quintile. The FCA is received by the citizen before it is expended on consumption and returned to the treasury each month within the total tax receipts.

The net effect is for the NRST to collect an apparent higher monthly tax take accuing to total tax receipts, though the FCA is really only a round robin cash flow.

Thus Total Tax receipts under the NRST are #families * (income + FCA) * 0.23. With each month's FCA returned to the treasury for payout to the following month.

The distribution is calculated from income without the FCA addition (since FCA is a cash payment from government provided to offset quintile tax payments and not counted as income to the family per-se though it is included in expenditure to calculate total tax received).

The net federal tax retained for the federal budget then

Equals (#all_families) * avg_income * 0.23

NOT (#all_families) * avg_income * 0.23 - FCA.

You appear to be calculating the latter as the net total tax and not the former.

[ancient_geezer]

Deuce, I'm sorry for the verbosity.

I really am trying to explain how the NRST works. A difficult thing to do as we all tend to think in terms of income taxes and how distributions and such are calculated.

The FCA mechanism in the NRST is a cash credit pre-paid from the treasury to the citizen to take the place of exemptions and credits of a income tax calculation. As such it cancels tax payments at the retail register but cannot be reasonably treated as earned or investment income to the family.

The FCA merely compensates tax payments, though for very low incomes provides a little extra by virtue of the mechanism used to get the money to the family with the least intrusive means possible without any means testing applied. The key factor in its design is to treat all citizen's rich and poor alike in exactly the same manner, same rate tax, same amount per person FCA.

The only reporting necessary to recieve the FCA is how many qualified residents in the household & address to send it to. Even that is not mandatory if one is willing to forego recieving the FCA.

[Deuce]

It is time to throw the class warfare argument on the ash heap of history, where it rightfully belongs.

It is time to throw the class warfare label on the ash heap of history, where it rightfully belongs.

[Deuce]

Therefore to calculate the total tax receipts under the NRST you must add FCA cash flow into the income amount for each quintile.

Okay, I can see that. Also I used your figure of $5352 for a family of 4. However, with 118.6 families, the avg family size is obviously smaller than 4 and the average FCA must also be smaller. Where can I go to figure out what the FICA is for different family sizes?

[ancient_geezer]

Where can I go to figure out what the FICA is for different family sizes?

Actually the "family size" criteria is really household data. Thus adults and or children in a household, married, related or not , constitute a "family" for purposes of the FCA. family is actually a misnomer.

You must not be reading my replies, I posted the table for your earlier in reply #178, but here it is again:

All legal residents will receive a FCA equivalent to the FairTax paid on essential goods and services. The FCA will be paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate.

Every year, the Department of Health and Human Services [HHS] determine the "poverty level" for each family size.

The 2001 "FairTax" Family Consumption Allowance Figures
Family Size	HHS Poverty Level	Annual FCA	Monthly FCA
One	$8,590	$1,976	$165
Two	$17,180	$3,951	$329
Three	$20,200	$4,646	$387
Four	$23,220	$5,341	$445
Five	$26,240	$6,035	$503
Six	$29,260	$6,730	$561
Seven	$32,280	$7,424	$619
Eight	$35,300	$8,119	$677

1) Federal Register: February 16, 2001, Pages 10695-10697).

[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer

[lewislynn]

A progressive income tax system is unconstitutional because it separates people into classes for the purpose of taxation, and taxes them at different rates.

I don't know why you pinged me with that reply, but if you want to talk "unconstitutional" you might find this ineresting:

`SEC. 703. GOVERNMENT PURCHASES.

`(a) GOVERNMENT PURCHASES-

`(1) PURCHASES BY THE FEDERAL GOVERNMENT- Purchases by the Federal Government of taxable property and services shall be subject to the tax imposed by section 101.

`(2) PURCHASE BY STATE GOVERNMENTS AND THEIR POLITICAL SUBDIVISIONS- Purchases by State governments and their political subdivisions of taxable property and services shall be subject to the tax imposed by section 101.

`(b) CROSS REFERENCES-

-------------

Wisconsin Dept. Of Revenue

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Links | Government | Newsroom | Publications | Reports | Search | Practitioner

DIVISION OF RESEARCH AND ANALYSIS
SUMMARY OF TAX EXEMPTION DEVICES 2001
SALES AND USE TAX 
(continued)

EXEMPTIONS FOR GOVERNMENT AGENCIES AND NONPROFIT ORGANIZATIONS

Sales to the Federal Government and Its Agencies

Sales of goods and services to the federal government or to any of its incorporated or unincorporated agencies or instrumentalities are exempt from the sales tax. Taxing purchases by the federal government would violate the U.S. Constitution, so the fiscal effect of this exemption has not been estimated.

------------

Washington State

Government Activities:

• Sales the state is constitutionally prohibited from taxing, such as direct purchases by the federal government, sales by the military on federal bases, purchases by enrolled Native Americans on their own reservations;
• Intergovernmental transfers of public utilities;
• Purchases by the state and political subdivisions for watershed protection and flood control, if the costs are reimbursed by the federal government;
• Sand or gravel taken from a city or county pit for use in the construction and repair of public roads by the city or county's own employees;
• Transfers between political subdivisions relating to annexations or incorporations;
• Construction and repair of ferry boats for the state and political subdivisions; and
• Sales of fuels for marine use to the state ferry system.
  

[ancient_geezer]

Ahem, look again louislynn. You are refering to a finding in regard to a state taxing the federal government.

A state may not tax the federal government, or another state government, that does not prevent the federal government from taxing its own agencies and creations.

[lewislynn]

Ahem, look again louislynnlewislynn. You are refering to a finding in regard to a state taxing the federal government.

No, ancient_qeezer, I am not.

, that does not prevent the federal government from taxing its own agencies and creations.

Ahem. If the government taxing itself generates revenue why don't we just have the government tax itself for their revenue?...What a putz!

BTW, the tax laws were for exempting all state sales tax to the federal government not only sales from the state...In other words ding dong, the U.S. Constitution prohibits, the state from mandating that sales to the federal government be taxed....by ANYONE....Get it?

[ancient_geezer]

No, ancient_qeezer, I am not.

You may not be, but the "Washington State" ruling is addressed to "Washington State" sales taxes. There are no and never have been federal sales taxes in the the state of Washington or anywhere else.

As usual you only perceive what you wish to see and not what is there.

[ancient_geezer]

Ahem. If the government taxing itself generates revenue

The federal government taxes the income of its judges. it also pays those taxes that are embedded in the price of consumption goods and services. SS recipients pay federal taxes out of SS money, federal employees and military pay federal taxes from federal dollars as well.

Treasury doesn't care about the route money takes to get to it's coffers.

the tax laws were for exempting all state sales tax

NRST is a federal tax lewislynn, not a "state" tax. Nothing in the Constitution prevents a government(state or federal) from levying a tax on itself.

[ancient_geezer]

Ahem. If the government taxing itself generates revenue

The federal government taxes the income of its judges. it also pays those taxes that are embedded in the price of consumption goods and services. SS recipients pay federal taxes out of SS money, federal employees and military pay federal taxes from federal dollars as well.

Treasury doesn't care about the route money takes to get to it's coffers.

the tax laws were for exempting all state sales tax

NRST is a federal tax lewislynn, not a "state" tax. Nothing in the Constitution prevents a government(state or federal) from levying a tax on itself.

[Redleg Duke]

The Libertarians will demand that "mary-jane", coke and horse be tax-free!

[ancient_geezer]

McCulloch v. Maryland, 17 U.S. 316 (1819)

In the 10th section of the 1st article, it is declared, that 'no state shall, without the consent of congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws;' and there is a like prohibition to laying any duty of tonnage. Here, then, is the whole restriction or limitation, attempted to be imposed by the constitution, on the power of the states to raise revenue, drecisely in the same manner, from the same subjects, and to the same extent, that any sovereign and independent state may do; and it never was understood by those who made, or those who received, the constitution, that any further restriction ever would, or could, be imposed.

A state sales tax on federal purposes is seen as a duty laid on an export to the federal government (i.e. tax on sales to an entity outside its jurisdiction.)

[Einigkeit_Recht_Freiheit]

<1>The income tax makes all American products more expensive, while the price of foreign products is unaffected. Switching to across the board tariffs would raise the cost of foreign goods and aid the domestic economy.

I must admit not having had the time to read all of the comments, but let me go back to the beginning a bit. per loin, I am sorry, but I don't know where you learned economics, but where I went to school, they taught us that raising tariffs will actually increase the cost of goods in the US, and will it ultimately destroy jobs. Low tariffs mean that goods that you want to buy that are cheaper to produce somewhere else, will be imported. If they are cheaper to produce in the US, they will be made domestically. If you pay more to produce goods domestically than they would cost to be produced abroad you are being inefficient and using resources (capital) inefficiently. If you use capital inefficiently (socialism), you are damaging a capitalist economy, slowing the rate of economic growth and destroying jobs.

The reason the US leads the world in all things technological is because it is the cheapest place to bring together enough intelligent people to create an innovative basis and an appropriate incentive structure for a very complex task. The only other places that are competitive with us in these things have similar structures already in place (German, Japan. )To do this elsewhere would require building universities, research facilities, etc.

Tariffs save jobs (temporarily) for low-skilled workers. The US economy is transforming from a manufacturing base into a service-base, the so-called post-industrial economy. IMHO we should think about how we can retrain lower-skilled workers so they can take part in the higher wages rather than take the disaterous course of tariffs that led to a deepening of the Great Depression.

Of course, since economics is called the dismal science, I could be wrong.

A short note on the specifics of the article also from an economists point of view. The more money I make, the more I love this tax. I can only buy so many consumer goods, thus I can only pay a "voluntary" tax so often. If investments are not taxed and neither is my income, the small percentage I would spend from my $300,000 a year on income would pale in comparison to what I am investing. This is a very regressive tax idea based on what percentage of income earned would go to paying it.

If you guys think this is fair and appropriate, I have no objections.

[Deuce]

I gave it a fair shot but can't come up with meaningful numbers in total let alone by quintile without a much larger investment in time than I am willing to give. According to the CBO numbers you directed me to and adjusting for 1999 $ from 1995 dollars and utilizing data from the census on family sizes to compute total FCA I came up with an NRST of $1.6T - $.5T (FCA) = $1.1T in net tax revenue for 1999. The current tax base raised $.9T in individual income taxes, $.6T in FICA and $.2T in corporate income taxes for a total of $1.7T plus assorted other taxes. I do not know if the EITC has to be backed out of my numbers but I seriously doubt it is $.6T. Therefore, I can't even verify for myself that the NRST is revenue neutral in total. I assume it is, but I can't verify it with the data you have directed me to.

If you will send me the spreadsheets you calculated to answer my questions earlier, I will privately provide an email address. I am amazed that NRST proponents don't have a clear calculation to demonstrate that the 23% with FCA adjustment will indeed raise the same revenue as the current taxes it proposes to replace.

[ancient_geezer]

In the end it is up to CBO to determine whether or not an revenue bill is revenue neutral.

I do not have a spread sheet, I calculated the numbers on a handheld calculator, and it took me half an hour to figure out how to verify. You have the results.

Distribution of taxation is clearly progressive when the lowest quintile are receiving a net dividend (i.e. negative tax). FCA adds to income, and is subtratcted from taxes paid. It is a wash, at 23% of expenditure, vs 24% of income, with reduced cost of goods, no IRS to support and lower interest rates, revenue neutrality is a certainty.