Posted on 02/14/2003 8:02:16 AM PST by conservativecorner
The Bush administration supports a fundamental tax reform that would move the federal tax system away from taxing income toward taxing consumption. This is a highly desirable goal, because it will raise growth and living standards for most Americans. Nevertheless, liberals are opposing it because it would benefit the rich too much.
Traditionally, consumption taxation has meant taxing goods directly, with services generally exempted. Such taxes are common at the state and local level, where we are accustomed to paying as much as 10 percent at the checkout. According to the Federation of Tax Administrators, 45 states currently have general sales taxes, varying between 2.9 percent in Colorado and 7 percent in Mississippi and Rhode Island. Local sales taxes can raise the total tax as high as 9.75 percent (in Oklahoma), with excise taxes on some specific goods on top. The Federal Government also has many excise taxes as well, especially on gasoline, alcohol and tobacco.
Consumption taxes are less burdensome than income taxes because of the way they treat saving. Under an income tax, all returns to saving and investment -- interest, dividends, rent and capital gains -- are fully taxed. Under a consumption tax, they would be exempt. Consequently, saving and investment are much higher with a consumption tax than an income tax. That is why European countries, which all have tax burdens much higher than ours but also raise more of their revenue by taxing consumption, are still able to grow.
If it were just a matter of economics, there would be no contest between taxing income or consumption. Unfortunately, ideology and politics have prevented reductions in taxes on saving and investment that would move the United States toward a consumption-based tax system.
Keep in mind that it is not necessary to tax consumption directly, through sales or excise taxes, to have a consumption tax system. Since there are only two things that can be done with income -- either save it or spend it -- eliminating taxes on saving necessarily shifts the tax burden onto consumption. If there were no taxes at all on saving, we would per se have a consumption tax system, even if there were no direct taxes on sales.
Unfortunately, it is the case that most saving and investment are done by the wealthy. How could it be otherwise? Therefore, reducing taxes on saving necessarily involves a reduction in taxes on the well to do. Consequently, liberals strenuously fight efforts to lower taxes on saving even though the ultimate beneficiaries would be the working class. Higher saving and capital formation will lead to more investment, which will raise productivity and, ultimately, wages and living standards.
Liberals also make the mistake of assuming that a consumption-based tax system is regressive -- taking more out of the pockets of the poor than the rich. In fact, over one's lifetime, consumption is roughly proportional to income, because over a lifetime we eventually consume all our income. Thus, a tax on consumption will also be roughly proportional -- taking the same percentage from all taxpayers.
Furthermore, liberals make the mistake of assuming that those who are poor today will always be poor and those who are rich will always be rich. This is really their principal justification for income and wealth redistribution policies. However, new data reported in the latest Economic Report of the President show that there is substantial mobility up and down the income ladder.
The Council of Economic Advisers looked at what rate taxpayers faced in 1987 and again in 1996. Two-thirds of those in the lowest tax bracket the first year were in a higher bracket 10 years later, and more than half of those in the top tax bracket were in a lower bracket. In other words, the bulk of those who would be considered poor in the first instance were much better off a decade later -- a few even became rich, going all the way from the bottom tax bracket to the top bracket. Simultaneously, most of those who would be considered rich weren't after a few years -- 5 percent fell all the way from the top tax bracket to the bottom bracket.
The high degree of income mobility in American society is a key reason why many of the poor and middle class oppose high taxes on the rich -- 70 percent of Americans favor abolishing the estate tax, for example, even though it affects just 2 percent of the population. Implicitly, they know that they or their children might one day be rich and have to pay this tax. They also know that poor people don't create jobs; rich people do.
Adopting a consumption-based tax system will help more Americans become rich. That is another reason why liberals oppose it.
I propose the only exceptions be genuine medical related expenses, education, housing and food.
Once upon a time the mythical "reasonable" person considered those (and only those) the necessities of life.
That just drives the rate up on everything left, andopens the door to the lobbiest and Congress to haggle over what is necessity and what is not for their particular interests. Not a particularly good introduction, seeing as that is one of the major problems with income taxes with special interest deductions, credits, etc.
KISS, is the definite watchword where taxes are concerned. As soon as you provide exception to the rule you invite perpetual tinkering behind the scenes and the monster we have today in the IRC.
When it comes right down to it, geezer, you STILL haven't explained how you're going to prevent masterbating monkeys like Daschle, Kennedy, Schumer, Boxer, Feinstein, Gephardt, etc. etc. from squawking and boogering up your bogus utopian tax scheme anyway.
Keep them in a perpetual minority. That's up to the electorate as it always was and always will be. "Eternal Vigilence" Willie Green.
In otherwords, we should never attempt to improve things because someone might come back and change it again. That is nothing more than the argument for status quo, which definitely operates precisely that way.
It's bad enough we already have excise taxes on Alcohol, Tobacco and Gasoline.
And you want to invoke additional tariffs on top of all that LOL.
The only thing you dipwads are going to achieve is putting Frist in a corner where he'll have to compromise, negotiate and cave-in.
Just more defeatism, and how do you expect to remove corporate income taxes and replace them with tariff's without relying on Frist and company?
Then we'll still be stuck with the blasted Income Tax on top of even more Excise Taxes on other items.
You support maintaining an individual income tax payroll taxes, and do nothing to remove or limit excises and in operation tariffs are excises imposed on imports. So what is your complaint again? I don't seem to be getting it.
The NRST removes both individual and corporate income taxes as well as all payroll taxes including SS/Medicare. Strange, that seem to be a decided improvement to me.
Yep. Precisely why any sweeping proposal to "Scrap the Tax Code" ought to be summarily dismissed, the same as proposals calling for a Constitutional Convention. Once it gets legs, who knows what atrocities will actually get negotiated behind closed doors? Only a moron would give them the opportunity.
The best definition I've seen was in a book titled, "Rich Dad, Poor Dad". The author defines wealthy as a condition where the income from your assets completely covers your all your costs of living and basic subsistence. You don't need to work to cover your food, clothing, shelter, utilities, etc. It doesn't necessary mean you are swimming in an ocean of disposable cash. You've simply reached a point of financial equilibrium that doesn't require further income to be stable.
Yep. Precisely why any sweeping proposal to "Scrap the Tax Code" ought to be summarily dismissed,
...
who knows what atrocities will actually get negotiated behind closed doors? Only a moron would give them the opportunity.
Planning on doing away with Congress now?
the same as proposals calling for a Constitutional Convention.
Seeing as it doesn't take that to repeal the tax code, that's hardly a germane comment. Though to do away with Congress how they operate would would probably take a good deal more than just that.
And you call me extreme!
who knows what atrocities will actually get negotiated behind closed doors? Only a moron would give them the opportunity.
One thing is certain, under a visible NRST, folks will perceive the result of changing anything, through an immediate change in the tax rate they pay when they shop.
Under the current system, Congress can merely modify deductibility for some to transfer tax burdens around sight unseen in fact making it appear we are getting tax reduction while hiding ever more taxes in inflation by modifying the details on business taxation and deductibility.
I'll take the NRST visibility putting light on the closed doors actions of Congress, allowing folks to see what is being done to them, over the current situation anyday.
So according to the author of the article and the best definition you've seen as "wealthy" "most saving and investment are done by the wealthy"...BS! How many people/investors fall into that category?
Just because most of us will never accomplish that level of equilibrium doesn't mean we aren't saving money.
I fully agree with the concern that the NRST could be corrupted into a very targeted exercise in social engineering. We already see evidence of that with cigarette taxes being the most egregious. Don Perata was targeting gun owners with a proposed 5 cents per round tax in California. The environmentalists stuck us with CRV tax on soft drink cans and bottles in California. There is no end the the possibilities. Consider the nightmare of keeping millions of merchants updated on their current tax collection duties.
A sales tax in place would act to impede such activity more than the current situation.
Increasing a general sales tax might well be more difficult. A targeted sales tax that goes after items that are only accessible to people with substantial disposable income (aka "the rich") would not cause a general outcry. How many people complained about the "luxury tax" on large boats? Almost nobody. The "rich" responded by not buying the boats. The boat manufacturers responded by folding up shop. The idiots who foisted the tax on the boat "consumers" made less money and put lots of boat manufacturing workers on the street. The failed tax attempt was later rescinded.
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