A Consumption Tax or an Income Tax?

LewRockwell.com ^ | 11/13/2002 | Llewellyn H. Rockwell, Jr.

[grania]

My favorite reason for the consumption tax is that citizens would not be forced to disclose their private life details (such as where they work, where they live, how they spend their money) and keep private records for government inspection for the the mere necessity of supporting themselves and their families.

You assume the government would actually give up one tax just because it passes another. If a consumption tax is passed, do you really think the income tax will just disappear? Think of all the government could do with all of that extra money! (sarcasm)

[ppaul]

THIS COMMITTED VOTER'S #1 REQUEST TO THE NEW REPUBLICAN GOVERNMENT:

For the sake of our children, our nation,

END THE INCOME TAX!

[billbears]

Of course it's not, it never was. Federal tax of any sort should be done away with. If the national(no longer federal) government lived up to what it was designed to do and nothing more, citizens of the respective states would not or need not be taxed. However, the problem I see shelton is that some in the 'conservative' party, if not most, have bought in and are even selling the line that the government will and should take care of you.

To truly do away with the tax at the federal level will require some reeducation of the masses. They will have to be told the truth and not this revisionist crap that the government has always 'been there to help out'.

[k2blader]

Let's not reform taxes. Let's eliminate them, starting with the income tax. That is not unrealistic. The income tax this year will yield $1 trillion for the federal government. Cutting that amount gives us a budget equal to the federal budget of 1987. Was the government intolerably small back then?

I appreciate Rockwell's idealism. But while he may answer the "Why," can he provide the "How"? :)

[Demidog]

A national sales tax is also unconstitutional. It could only apply to interstate commerce and could not reach within the states to activity that was purely "intrastate" in nature.

[WarHawk42]

However, the problem I see shelton is that some in the 'conservative' party, if not most, have bought in and are even selling the line that the government will and should take care of you.

To truly do away with the tax at the federal level will require some reeducation of the masses. They will have to be told the truth and not this revisionist crap that the government has always 'been there to help out'.

Well said, but in the mean time we have to continue to pay for our cradle to grave government intervention.  As a long term objective I totally agree with you.  Education is the key and that gets into another big issue with me.

The problem with the NRST as I see it is it doesn't replace all federal taxes.  If it replaced all federal taxes I would be for it for the simple reason everyone would see just how much in taxes they do pay.  Under today's taxing setup I have had many low income people tell me they don't pay federal tax and in truth they don't pay federal income tax but they do pay plenty in hidden federal taxes.

When they don't see it they don't think about it.  The NRST could change all that if it were all inclusive.

While the feds might be reluctant to raise the NRST tax I don't see where they would have a problem at all with raising taxes that aren't covered by the NRST, such as the sin taxes for example.

I live in Florida and we don't have a state income tax.  They ways we are taxed is too numerous to mention.  I know that's still better than having the state income tax to, but it serves to prove my point.  Look at all the states that do have a state income tax and all the other state taxes they pay in addition to it.

That is my fear of the NRST.

[dixierat22]

"What a national sales tax (if it replaces the income tax) does..."

And what politician is going to allow the income tax to go away? Certainly not without the people forcing the repeal of the 16th Amendment. The fear I have is a sales tax AND an income tax at the national level. That will lead to a huge increase in the underground economy and black market enterprises.

Bottom line is, never underestimate the greed of any politician...

[mfreddy]

IMHO, it will never happen even though I'd like a complete re-write of the tax code. The crux of the issue is that in addition to paying more taxes, people who make more money are taxed at a higher rate. Dasshole came out and said last week that he was in favor of a progressive taxation system. Any attempt to change or eliminate the current system will certainly be met with the class warfare argument of "tax cuts for the rich".

Take the present criticism--it's been said recently that (unfairly) 68% of the tax cuts go to the top 10% of taxpayers. Ironically, that about mirrors the percentage of actual revenue these top 10% of taxpayers contribute. This part is not mentioned.

The unassailable argument--there are more have-nots than haves.

[jdege]

The government has to be able to see every transaction in any system to determine whether that transaction has some taxable consequence. I really see no difference.

No, they don't need to see every transaction. They simply need to know the total volume of transactions. They most specifically do not need to know who bought which items.

[jdege]

Nope. Good idea, but nope.

A sales tax falls into the category of excise taxes, which the federal government can levy on anyone. It's not a direct tax, of the sort prohibited by the Constitution.

[Zebra]

I would be happy to pay a federal tax that was 10% higher than the tax I pay today if its levy and collection had the following attributes:

1. The government was excluded from an examination of my private life.

2. The calculation of the tax payable by me was certain and required no investment in expensive professional advisors to determine the amount of the tax payable.

2A. The time required to be spent by me to calculate my tax liability approached zero.

3. The possibility of non-business audit was zero.

4. I would be required to keep no records to support the calculation or fact of my tax liability.

5. The assessment and collection of the tax bore a rational relationship to the benefits I enjoyed as a member of society (i.e., provision for the common defense, carriage of the mail, minting of the coin of the realm, etc.).

6. The assessment of the tax was tied to a common fact (income or consumption) and not based in part on the fact or absence of any certain behavior (e.g., marital status, working/unemployed, etc.).

7. The assessment and collection of the tax was honest, direct and specific, not obfuscated (as in the case of withholding) so the citizenry was at all times aware of the level and pervasiveness of the tax.

None of these attributes is present with the current federal income tax. All of these attributes would characterize a national sales tax.

I would make the same statement about state and local taxes, except to note that the relationship to benefits would be different at the state level and pertain to those functions historically identified with state and local governments, such as education, fire and police, etc.

[ThinkDifferent]

The fear I have is a sales tax AND an income tax at the national level.

That's why HR2525 simultaneously establishes a sales tax and abolishes the income tax. I would oppose any "transitional" plan which involved federal sales and income taxes coexisting for any amount of time.

[Action-America]

Who is this guy???

He obviously graduated from the Karl Marx School of Business or some other lunatic institution.

By the numbers:

1. The consumption tax (NRST) is voluntary.  It is possible, with some effort, to cut your expenses to a point below the proposed cost of living rebate to every citizen.  Many college students would actually make money on the rebate.  The author shows his ignorance by suggesting that "if I consume a taxed item and don't pay the tax, I get fined and jailed."  In fact, it is the retailer who would fail to collect the tax, who would be fined.  I have never heard of a retailer going to jail for failing to report and forward to the state, the proper amount of tax, though I'm sure that in the rare cases, where such failure involved an intent to defraud, it has happened.

   The author's lack of understanding is further demonstrated by his statement, "It's true that I can choose not to consume that item. Similarly under the income tax, I can choose not to earn income."  He fails to consider that if he should choose not to earn income, he is poor, while by choosing not to spend his income, whatever level it is, only makes him richer.  Under a NRST, a poor family with 5 children can save their income and let it grow, untaxed for 18 years and have a sizable college fund for the kids.  Under the income tax, that income is taxed before they ever get a chance to choose to save it.

   What is voluntary about the NRST is when you pay it.  On the other hand, there is nothing voluntary about the income tax, flat or otherwise.

2. The consumption tax (NRST) doesn't tax production.  This is where the author really begins to show his lack of understanding, when he says, "Imposing a new tax new on a business, all other things being equal, the business will have to absorb the cost of that consumer tax into its own operations."  Duh!  Even a complete moron can see that the NRST removes the cost of income tax from all levels of businesses, not to mention removing the compliance costs for reporting those taxes.  The only businesses that have any additional cost at all, are the retailers in the 5 states that do not already require retailers to collect sales tax.  But even that cost is nominal, when compared to the income tax and the related compliance costs that they would no longer have to pay.

3. The consumption tax (NRST) is easier to collect.  Again, the author demonstrates his complete ignorance of not only the NRST, but human nature, in his statement, "A tax that is hard to collect suggests that it less tempting to raise."  In fact, the more complicated the tax code and collection method, the easier it is to slip in more and more tax increases.  That's how we got in this mess in the first place.  On the other hand, when the citizenry sees exactly how much tax they are paying every time the cash register rings, not only will they resist any tax increases, they will demand that the government reduce taxes, even if if means cutting spending.

4. The consumption tax (NRST) doesn't tax savings.  The weakness of the author's argument is most evident on this point, since the best counter-argument that he could come up with was that the government should not be in the business of encouraging savings.  In fact, the NRST does not actually encourage savings, so much as it allows those who want to save, to save more, without the interest being taxed.

5. The consumption tax (NRST) is not progressive.  At last, the author shows his true colors, with his statement, "If you knew that you would pay less under a progressive system, that is the one you would favor."  It is now clear that the author is not so much of a moron, as a Marxist (although it requires a moron to be a Marxist).  They would use a progressive income tax to foment class envy, which prompts calls for more and more government intervention and wealth redistribution.

The author goes on to suggest that the only problem is the level of taxes.  Well, let's look at the real problem.

Consider these facts.  In 2000, the top 1% of income earners (approx.. 1.3 million taxpayers) paid more than 37% of the taxes collected.  The top 5% paid over 56% of taxes collected.  Then consider that an estimated 100,000 Americans permanently left the US last year.  How many of those expatriates do you think were poor?  In fact, the best data available indicates that almost all of them were in the top 5% of income earners, while more than half were in the top 1%.

I personally know a number of those people.  They're are not leaving because of the tax rate.  As an expatriate associate of mine in Belize told me, "It has nothing to do with the tax rate.  I already make more money in one day than I can spend the next.  I could easily afford to pay 50% in taxes if I had to.  What I can't afford, is to lose all $20 million of my accumulated wealth as a result of a single signature by an unelected bureaucrat."  Although many people may see the tax rate as a major problem, the people who pay the vast majority of the taxes are leaving, because they fear the abuses of the IRS, that are most often targeted at the wealthy.

Certainly, the tax rate needs to be lowered and spending severely curtailed.  But that alone, will not solve the most serious problem.  The people who pay the vast majority of the taxes are taking all of their wealth and leaving.  Although the number of wealthy taxpayers who are leaving has been growing steadily for some years now, it seems to have stabilized at around 100,000 per year for the last two years.  But, even at that rate, it means that it's possible that most of the top 1% of taxpayers could be gone in only 13 years.  Who would make up for the 37% of the tax load that they support today?  Here;s a hint.  YOU.

You and other taxpayers who are left here, will see a more than 56% increase in taxes, just to stay even, if only 1.3 million of the wealthiest taxpayers leave.

Data from the Forbes lists of wealthiest Americans and the world's billionaires further supports these facts.  In the latest three year period, the number of billionaires in the US has dropped by over 13%, with a 7% drop in average net worth, while the number of billionaires worldwide has increased by over 80%.  US billionaires aren't getting poorer.  They're leaving.

It's called "Risk Management".  Since the US is the only country in the world that claims the right to the assets of citizens, regardless of where the assets were acquired or happen to be domiciled and has now become the country that confiscates more private wealth than any other Western nation on earth, they are simply eliminating the growing risk that they could lose everything that they have acquired around the world, without recourse.  They aren't fleeing the tax rate or even the complex tax code.  They are fleeing the abusive IRS.

Any tax reform proposal that leaves the not to be sufficiently damned IRS intact is nothing more than a placebo, that does nothing to fight the underlying cancer that is the IRS.  The only tax reform proposal that is currently in the form of a bill in Congress, that will achieve that important goal is the NRST.

 

[Demidog]

A sales tax falls into the category of excise taxes

No it doesn't. Unless the occupation of retailer is a privelege, it isn't proper to impose an axcise upon the occupation of shopkeeper. Furthermore, the only way that such could be constitutional is if the law only applied within federal territories and DC. It cannot apply within the states and be consitutitional. Taxes which reach inside the states and are not excises must be apportioned.

[Demidog]

Nonsensical scare tactics. Most people put themselves in harms way with the IRS.

[sheltonmac]

"The consumption tax (NRST) is voluntary."

You mean I can choose not to buy food, clothing, or shelter? You might as well say that obeying the law is voluntary.

"In fact, it is the retailer who would fail to collect the tax, who would be fined."

So you are for turning retailers into tax collectors for the government?

"The consumption tax (NRST) doesn't tax savings."

Not directly, but what about someone saving up to buy a new car, a new boat, or a bigger home? You know as well as I do that the government will have a higher sales tax on "luxury" items so the "rich" will pay their "fair share."

All arguments aside, the fact remains that a national sales tax cannot be implemented unless the Constitution is amended to allow the government to do it, and I, for one, would rather see an end to ALL taxes the federal government imposes on the individual citizen. Overall, I think you miss the author's point, which he summed up quite nicely in the final paragraph. Our energy should be directed at eliminating the income tax, not replacing it.

[dixierat22]

However, if all they do is abolish the enabling legislation and leave the amendment, a future Congress can always reinstate the legislation.. The amendment must go, otherwise, we ALL get screwed!

[Dead Dog]

Businesses don't set their own prices, which is why they cannot simply pass on the consumption tax to the consumer.

Hey that is a great a new principle, I guess cost-push inflation doesn't exist. Cool, minimum wage laws don't increase prices...what a load of crap.

[bankwalker]

Taxing income requires that the government know far more about my finances than it has any business knowing.

Thank you. It also wastes a lot of everyone's time and money filling out the stupid forms that allow the intusion.