Let’s look, first, at Federal consumption. Things that cost $100 before would cost $130 after and $30 of it is the tax. (Note: B&M and I ignore any price changes resulting from the NRST).
Wrong, B&M does not indicate any increase in gross price(tax + after NRST shelf price) for before-NRST shelf prices which include embedded taxes & cost of compliance. Inf act Mastromarco is expressly aware that shelf price of goods and services fall by around 22% and that is reflected in the fact they do not increase the Tax Base summation by the amount of tax to be collected. Their calculation is strictly a tax inclusive basis, on a tax base that reflects gross payment.
http://www.cato.org/pubs/pas/pa-272.html
"Thus, the NST should be imposed on gross payments for the use, consumption, or enjoyment in the United States of any taxable property or service."
"It is important to distinguish between tax-inclusive and tax-exclusive rates. The income tax and the flat tax are imposed on a tax-inclusive basis while traditional sales taxes are imposed on a tax-exclusive basis. Let us take as an example someone who earns $100, pays $20 in taxes (whether an income tax, a flat tax, or a sales tax), and spends the remaining $80 on a CD player. Is the tax rate 20 percent or 25 percent? The income tax and the flat tax would be imposed on the $100 and thus the rate is 20 percent (i.e., 20/100 = 20%). The flat tax and income tax base are tax inclusive. Traditional state sales taxes are imposed on the after-tax or tax-exclusive base. Thus, we typically would say that the sales tax rate needed to raise $20 is 25 percent (i.e., 20/80 = 25%). In each case the government is extracting the same resources from the economy. Thus, to compare apples to apples, the sales tax rate that is comparable to the income tax rate or the flat tax rate is the tax-inclusive rate. [33] The 15 percent rate proposed in this analysis is the tax-inclusive rate.
That 15 percent tax rate is about half the rate that opponents of the NST claim would be required to raise as much revenue as do the current income tax and the payroll tax. Bruce Bartlett of the National Center for Policy Analysis has argued, for example, that the NST rate would need to be as high as 32 percent. [34] Bartlett's analysis is misleading because he compares apples to oranges. He compares a flat tax rate necessary to replace the current income tax structure with a national sales tax rate that would be required if every federal tax were replaced (including payroll taxes, all excise taxes, estate and gift taxes, and corporate and individual income taxes). He then proceeds to assume that many exemptions would arise under a sales tax but none would arise with a flat tax. Finally, he compares a tax-inclusive flat tax or income tax rate to a tax-exclusive sales tax rate, which has a particularly dramatic impact on the stated rate since he requires the sales tax to replace all federal taxes."
Note the consumtion included in the tax base are the aggregate of consumption prices including embedded taxes induced into price from the corporate level. These embedded taxes have not been removed from NIPA or GDP summations. Thus the NRST rate is tax inclusive(i.e. a tax on gross payment).
Note: B&M and I ignore any price changes resulting from the NRST
B&M doesn't, but you appear to be set on doing so.
Tax Analysts Document Number: Doc 1999-32575 (25 original pages)
Dan R. Mastromarco of the Argus Group, Washington,
"A. Hidden Upstream Taxes.
[34] The basic problem with our photograph of the distribution of the income tax is that the lens we have chosen filters out the hidden component of tax buried in the price of each good and service that rich and poor alike buy. It is an abecedarian principle of tax economics (although a revelation to many Americans who have been conditioned by the anthropomorphic language politicians and others apply to corporations) /19/ that corporations are not persons in the sense that they can really relieve mankind from tax. /20/ Their personage is, after all, a legal fiction. The legal fiction is nothing more than a collection of individuals engaged in a common industry.
[35] When a tax is imposed on a corporation or an unincorporated business, it is has been more appropriately likened to a hot potato that the business tries to pass on to someone else. The taxes are ultimately paid, but by whom? They must fall out either as lower wages paid to workers or managers, lower returns to capital, or in the form of higher-priced goods and services the business sells. In other words, taxes imposed on businesses fall on the factors of production, either labor or capital, or are pushed forward to consumers. There is no other outlet. When a tax increases the price of a good, we say purchasers are burdened on the "uses side," or that the tax has "forward incidence." /21/ If the tax decreases return on a factor of production that provides a source of income, we say affected persons are burdened on the "sources side" or that the tax has "backwards incidence." We shall use the layman phraseology, pushed forward (forwards incidence) or pulled back (backwards incidence) to describe the economic resting place of the tax. "
***
"[38] While the relative ratio of how much is pulled back or pushed forward depends on market forces, it is a safe assumption that some business taxes find their way into goods and services purchased by consumers.
[39] Dr. Dale Jorgenson, Chairman of Harvard University's Economics Department, believes that the price of goods and services are inflated by about 20 percent or more by upstream taxes consumers ultimately bear. In a recent paper Dr. Jorgenson estimated the built-in taxes contained in the price of goods and services. /22/ In the chart above, he quantified the hidden component of tax, estimating that producer prices would fall on repeal of upstream taxes an average of about 22 percent.
[40] The higher marginal rates of an income tax system may actually exacerbate the burden of the hidden taxes that are pushed forward under our income tax system. Some leading economists believe that hidden taxes increase prices charged at the counter even beyond the effective rate of the tax as a function of the price because of the higher marginal tax rates imposed under a progressive income tax regime. Consider this: another postulate of economics is that no profitable business will sell a product below its marginal cost. The marginal cost is determined partly by the marginal tax rates. Hence, if a business is in a high marginal tax rate bracket, the goods and service prices will reflect the cost of covering that marginal tax rate.
[41] If proponents of an income tax structure believe that these taxes are "pushed forward," then they must conclude the poor bear these hidden taxes in the form of higher-priced goods and services at the highest marginal rate of the producer. A portion of the income tax, therefore, is already partly a very regressive sales tax hidden from the consumer. If proponents of an income tax do not like a sales tax, why do they not find it troubling that the income tax is partly a consumption tax at a rate of more than 20 percent without a rebate? This is particularly perplexing when the leading sales tax plan, the FairTax, contains a rebate mechanism that exempts the poor entirely from tax on necessities through a demogrant equivalent to the sales tax rate times the poverty level.
[42] The point income tax proponents miss is this: If the hidden tax is taken out of the price structure of goods and services as in a properly structured retail sales tax, then why shouldn't the prices of goods and services fall when the tax is removed? If we want to cause consumer prices to fall the furthest, we would have a tax system with the largest base and the lowest marginal rates. A pure consumption tax base is almost twice the size of the existing income tax base. The Fair Tax base is much larger than the current income tax base. Moreover, by definition, one cannot have lower marginal tax rates than a system with single rates, like a sales tax, which levels the peaks and valleys of different brackets. Since the poor spend a disproportionate amount of their income on consumption, why then are they not the ones to disproportionately benefit from falling prices caused by zero implicit embedded taxes? "
Geezer: B&M doesn't, but you appear to be set on doing so.
Some issues are issues of opinion. Others are issues of fact. For example, you keep coming back to the issue of tax inclusive vs. tax exclusive. You are right, Cliff is right. All NRST supporters are right with regard to this issue. Clearly, if one is comparing income tax RATES to NRST RATES the tax inclusive NRST rate is the appropriate one for that purpose. I have acknowledged that many posts ago. Now I am raising another issue. It is also a fact issue. The question is: does B&M or doesn’t B&M assume any price benefit related to the switch from the current tax structure to an NRST as reported in the Cato Institute dated April 15, 1997. I say “no,” but you seem to think otherwise. This is an issue of fact. It is UNRELATED to whether B&M in some other document make the argument that prices will decline under NRST. It relates solely to whether they make such an assumption in their 4/15/97 Cato Institute article. The answer is unambiguously, “No, they do not.”
Specifically, they compute a tax basis for the NRST of 5978 in 1995 based on EXISTING prices; they compute the tax inclusive rate needed to raise the $1293B as 17.8% and the tax exclusive rate as 21.6%. With the FCA, the respective numbers are 21.1% and 26.7% respectively. It is indisputable that THIS CALCULATION does not consider any price changes. The fact that B&M might endorse the Jorgenson conclusion elsewhere, there is ZERO doubt that they do not consider such effects in the referenced report. That’s all I am saying. Do you disagree with this?
Mow, my point in my last post is that the MATHEMATICS in their calculation is flawed. Once corrected, they require a 24.3% tax inclusive rate rather than a 21.1% tax inclusive rate. This is a simple fact. It isn't even particulary relevant to anything meaningful to me. The only important question is the distribution of the tax burden, which I will be calculating shortly.
I was unable to post the table reflecting my calculations but would be glad to do so if someone explains how or I will email the tables on request. The table shows that the lowest quintile group is ever so slightly worse off under NRST relative to the current tax structure. The top quintile benefit substantially. The table shows that people making under about $70K will pay more and people over $70K will pay less. The worst impact seems to hit the $35K income level.
My calculations assume no change in retail prices. Supporters of NRST point to studies by credentialed economists that estimate the NRST will unleash price reductions of 20% to 30%. With price declines of this size, all groups are better off than under the current scenario. In other words, when price decreases are included in the analysis, a “free lunch” scenario is created: even those income groups that pay a greater share of the ultimate tax burden under NRST will benefit relative to their present situation if prices decline sufficiently. For example, even the hardest hit 3rd quintile will fare better than the current structure if prices decline 16%. Of course, if such price increases do occur, all other groups do substantially better under NRST, particularly the highest income groups.
While I have not yet studied Jorgenson’s work, I will say the projection of 20%-30% price decreases do not sound very plausible on its face.