Posted on 04/23/2004 4:39:23 AM PDT by Remember_Salamis
A $5,OOO Cat? The NRST and Real Estate
By Steve Hayes President, Citizens for an Alternative Tax System
Once Johnny came home with a puppy that he had found at the park. His father told Johnny that he couldn't keep the dog. Johnny protested but his father was unrelenting.
Tearfully, Johnny agreed. He took the puppy and left and was gone about an hour. When Johnny returned his father asked what became of the puppy. Johnny said that he sold it for $10,000.
The father demanded an explanation. Johnny said that he had gone to the neighbor's home and sold the puppy for two $5,000 cats.
Many in Washington explain everything that they do for us in glowing terms. They refer to the great benefits reserved for us in the tax code.
However, often when we examine the manna from Washington we find that the supposed benefit isn’t as good as we were promised. The benefit from Washington all too often really resembles one of the boy's $5,000 cats.
An example of this is the mortgage interest deduction. The fact that this benefit will be repealed by the national retail sales tax ("NRST") is one of the major objections used by opponents of the NRST.
Is the mortgage interest deduction really a "great" benefit or a $5,000 cat? The mortgage interest deduction is a provision in the federal income tax code which permits the deduction of the amount of mortgage interest paid on your home mortgage from taxable income, the amount of income on which federal income taxes are calculated.
Washington bureaucrats and realtors trumpet the tax advantages that accompany home purchases. "Buy a home and get a 'tax shelter' like the 'big guys' ". Alas, the "mortgage interest tax shelter" is, for many Americans, a $5,000 cat.
Here is an illustration of the home mortgage deduction. Fred and Joan Jones have two children and an annual income of $60,000. On January 1st, they buy a home a home for $140,000, pay $14,000 down and obtain a $126,000 30-year mortgage at 7 percent interest. The monthly mortgage payments are $838. Fred and Joan will pay mortgage payments of $10,059 in year one. Of the $10,059, $8,780 is interest and $1,279 is principal, which under the present federal income tax is not deductible. {1}
At the end of the year, eager to take advantage of this great "tax shelter, the Jones family deducts the mortgage interest paid of $8,780 from its taxable income of $60,000 and $10,600 of personal exemptions {2} leaving a new taxable income of $40,620. By deducting the $8,780 of mortgage interest the Jones family will pay $6,094 in federal income tax. {3}
At first glance, this would seem to be a real benefit. Fred and Joan were able to reduce their taxable income by the amount of the mortgage interest they paid. They know that their top marginal federal income tax rate is 15% so they appear to have received 15% of $8,780, or $1317, of the money that they would have paid in federal income taxes back from the government. However, in order to utilize the "mortgage interest tax shelter", they must file a 1040 return and itemize deductions. Interestingly, most real estate agents don't explain this fact but, without itemizing, the Jones family would have been able to take what is called the standard deduction that is available to everyone whether they pay mortgage interest or not.
"65,400,000 Americans are home owners but only 29,396,016 Americans take the mortgage interest deduction. For many of these 29,396,016 Americans the benefits of the mortgage interest deduction are marginal and more illusory than real."
If they had not deducted the $8,780 in mortgage interest payments but simply taken the standard deduction, Fred and Joan would have paid $6,551 in federal income taxes. This means that the mortgage deduction actually only saved them $457 in federal income taxes over what they would have paid if there was no mortgage deduction. On top of this, filing a return and taking the standard deduction generally means that you are less attractive to the IRS for an audit. So, the Jones family filed a more complicated return and increased their odds of an IRS audit to save $457. {4}
Another point that needs to be understood is the idea of "after tax expenditures." These are expenditures which, unlike the mortgage interest deduction, are not subtracted from our taxable income when computing taxes. These are items for which we have to earn enough to enable us to pay the income tax and still retain the net amount to be spent. Since the Jones family is in the 15% marginal tax bracket, in order to have a dollar to spend they will have to earn $1.18 and pay 18¢ in federal income tax (15% of $1.18) to net $1.00. As stated earlier, $1,279 of the total mortgage payments in year one is principal which is not deductible. The $1,279 of principal payments in year one is paid from the money that Fred and Joan have after payment of their taxes. To Fred and Joan, this means that they had to earn $1,505, pay $226 in federal income taxes (their marginal income tax rate is 15%) in order to net $1,279, the amount they paid in principal on their mortgage.
To recap, Fred and Joan have earned $60,000 and the examples shown in figure 1 illustrate the actual benefits they received from the mortgage interest deduction.
With Mortgage Deduction Without Mortgage Deduction
$60,000 $60,000
- 4,590 FICA {5} - 4,590 FICA
- 6,094 Federal Income Tax - 6,551 Federal Income Tax
- 10,059 Mortgage Payment - 10,059 Mortgage Payment
$39,257 Net Amount Remaining $38,800 Net Amount Remaining
Figure 1.
Assuming their income goes up at 3% per year, in 5 years they will be making $67,531 but will only be saving $406 more than they would be saving if they utilized the standard deduction. {6}
The amount of income tax savings is decreasing because the amount of interest is less each year and the amount of principal increases each year. The amount of mortgage interest paid in the fifth year will be $8,367 and the amount of principal will be $1,692.
The Jones family cash flow will then be:
$67,531 - 5,166 FICA {7} - 8,245 Federal Income Tax - 10,059 Mortgage Payment $44,061 Net Amount Remaining
However, if Fred and Joan want to actually own their home they will see a rapidly decreasing benefit from the mortgage interest deduction as they pay down the loan. In fact, by the 14th year, it will be better for Fred and Joan to take the standard deduction of $6,900 rather than the standard deduction of $6,900 rather than the mortgage interest deduction of $6,888. {8} Moreover, if Fred and Joan had purchased a home with a mortgage of $99,000 instead of $126,000, they would have saved nothing from the mortgage interest deduction.
This is one of the primary reasons that 65,400,000 Americans are home owners {9} but only 29,396,016 Americans take the mortgage interest deduction.{10} For many of these 29,396,016 Americans the benefits of the mortgage interest deduction are, like for Fred and Joan, marginal and more illusory than real.
If they actually pay the mortgage on their $140,000 home, Fred and Joan will have paid $175,781 in interest and $126,000 in after-tax principal for which they would have had to earn $148,000 and pay $22,000 of federal income taxes to net $126,000.
Contrast the above scenario with the situation if Fred and Joan purchased their home after the passage of the NRST using the same purchase price and 30-year mortgage at 7% interest.
Fred and Joan will receive their income without any income tax withholding. They, not the bureaucrats in Washington, will decide how much income tax they pay by how much they elect to spend on retail purchases. No longer are Fred and Joan treated as children or mentally deficient adults but as adults capable of making their own decisions.
Fred and Joan receive $58,234 in income, which is the earnings of $60,000 reduced by $4,590, the amount of the FICA withheld and increased by $2,824, the amount of the NRST rebate {11} to a family of four. Like under the federal income tax, the NRST will tax the principal of the house purchased by Fred and Joan. Under H.R. 2001, the bill introduced by Congressmen Dan Schaefer (R-CO) and Billy Tauzin (R-LA) that replaces the income tax and the IRS with an NRST collected by the states, the $140,000 purchase price of the house will be taxed by the NRST, resulting in a tax owed of $24,706. This tax can be paid either at the time the house is purchased or over a 30-year period. If the election is made to pay the $24,706 over 30 years then Fred and Joan will pay $73 per month or $876 per year.
The $8,780 of mortgage interest will not be subject to the NRST. {12} At the end of year one we see the results shown in figure 2.
NRST Federal Income Tax
$60,000 $60,000
- 4,590 FICA - 4,590 FICA
- 876 NRST Payment on the Principal - 10,059 Mortgage Payment
- 10,059 Mortgage Payment $44,991 Net Amount before Income Tax
+ 2,824 NRST Rebate - 6,094 Federal Taxes
$47,299 Net Amount before NRST --
- 6,345 Estimated NRST {13} --
$40,954 Net Amount Remaining $39,257 Net Amount Remaining
Figure 2.
After 5 years under the NRST, and assuming a 3% increase in their income, Fred and Joan would have the following net amounts of money under the NRST and the present income tax as shown in figure 3.
NRST Federal Income Tax
$67,531 $67,531
- 5,166 FICA - 5,166 FICA
- 876 NRST Payment on Principal - 10,059 Mortgage Payment
- 10,059 Mortgage Payment $52,306 Net Amount before Income Tax
+ 2,824 NRST Rebate - 8,245 Federal Income Tax
$54,254 Net Amount Remaining --
- 7,388 Estimated NRST {14} --
$46,866 Net Amount Remaining $44,061 Net Amount Remaining
Figure 3.
Now, we have assumed that the interest rate to be paid by Fred and Joan would be the same under the present income tax and the NRST.
This is really not the case. Economists agree that interest rates under the NRST will decline by at least as much as the difference between the municipal bond rate and the standard, non-tax free bonds. Some believe that the reduction will be much greater as America becomes the greatest place for investment and funds flood into the United States from all around the world. However, if we just assume the smaller reduction this will mean that the mortgage rate will be not 7% but 5.5%. {15}
This would mean that the mortgage payments and total cost of the mortgage for Fred and Joan would be reduced. Below are comparisons of the present income tax and the NRST with the lower interest rate. Here is a recap of the new costs and the comparison shown in figure 4.
NRST Federal Income Tax
$60,000 $60,000
- 4,590 FICA - 4,590 FICA
- 876 NRST Payment on the Principal - 10,059 Mortgage Payment
- 8,585 Mortgage Payments $45,351 Net Amount before Income Tax
+ 2,824 Rebate - 6,094 Federal Income Tax
$48,773 Net Remaining before NRST --
- 6,166 Estimated NRST {16} --
$42,607 Net Amount Remaining $39,257 Net Amount Remaining
Figure 4.
This means that the total cost of paying off the mortgage under the NRST is $131,548 of interest, $126,000 of principal and $24,705 NRST tax for a total of $282,253. Contrast this to $323,781, the amount that would have to be earned and spent under the federal income tax, a difference of
$41,258.
Yet another factor we have not addressed is that under the NRST, it will be much easier for Fred and Joan to save the money needed to purchase their home. Under the present income tax in order for Fred and Joan to save the $10,000 that they need for the down payment on their home, they will have to earn $11,765 and pay income taxes of $1,765 to net $10,000. If they deposit the money in a savings account then the interest will also be taxable.
However, under the NRST, Fred and Joan will only have to earn $10,000 and save that amount because earnings are not taxable under the NRST. Any interest earned on a savings or investment will not be taxed under the NRST. The NRST gives Fred and Joan the ability to keep all the money that they don't spend whether the source is earnings or a return on their savings and investment.
There are a number of other things that we have not taken into account when we do our comparison. The foremost of these is that the economic studies that have been done on the affect on the rate of growth in the economy after the enactment of the NRST all show increased rates of growth and increased rates of productivity. This is very important because increases in income are derived from increases in productivity.
What does the increased economic growth mean to each of us? If the economy had grown at the same rate since 1973 as it did prior to 1973, the average family would have an additional $10,000 per year in disposable income.
It is time for Americans to quit accepting $5,000 cats and demand a tax system that really works for America, the NRST.
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FOOTNOTES
{1} This is omitting the cost of any private mortgage insurance.
{2} Each family member receives a $2650 personal exemption or $10,600 for a family of four.
{3} For purposes of our example we are not considering any deductions that might be available would increase the amount of itemized deductions because these vary widely among taxpayers.
{4} The $457 in savings would be increased if there were additional itemized deductions like real estate taxes, state income taxes and charitable donations. For example, if Fred and Joan had an additional $1000 of deductions then they would have saved an additional $150 in their 15% income tax bracket.
{5} Federal Insurance Contributions Act
{6} This actual savings from the mortgage deduction will likely be less because the standard deduction will also have been increased.
{7} This assumes that the FICA will be assessed on $67,531.
{8} Again, this is assuming that the standard deduction for a family--of four remains at $6,900 which it will not. Therefore, the standard deduction will likely exceed the mortgage interest several years earlier.
{9} U.S. Census Bureau
{10} Statistics of Income Bulletin, published by the Internal Revenue Service
{11} The NRST rebate is determined by family size. It provides a rebate to Americans equal to the NRST on their purchases up to the poverty level. For a family of four this would be a rebate on the first $16,000 of purchases.
{12} Fred and Joan are paying the NRST on the principal over 30 years.
{13} Fred and Joan would not pay NRST on the FICA payment, the NRST payment and the mortgage payment. We are assuming that the family has savings or expenditures of an additional $5,000 not subject to the NRST - like charitable donations, education expenses or savings.
{14} We are making the same assumptions as in footnote 13.
{15} Many economists believe that the mortgage interest rate will likely be even lower because of the increase of savings and the infusion of vast amounts of capital from around the world.
{16} This assumes that the family saves or spends a total of $5,000 on items not subject to the NRST.
What about all that "apples to apples" stuff?
Common bases remember?
ancient_geeser #114: "To be able to add or substract or compare between the two measures you have to first convert them to the same base."
Because this discussion wasn't about how much prices would drop. It was about whether or not using the inclusive sales tax rate was nessesary to make a comparision to the income tax.
Fine, I accept your calculation as being valid for the conditions you want to specify
NRSTrate = (($77,500 * 80%) * 29.87%) - $4,646 / $104,626 = 13.26% saving the rest for a idillic and pastoral retirement
Compared with the income/payroll tax system lowest rate results:
ITrate = ITnet/GrossIncome = $35,270/$100,000 = 35.27% and government get to decide who gets that idillic and pastoral retirement on your nickel.
And let folks decide which they prefer on your calculations.
But you didn't show me the equation with the tax inclusive rate.
Sure I did, you just didn't want to accept the result I gave without your followup editorializing
Save max:
NRSTrate = 100*((0.23*$77,500)-$4,646) / $104,626 = 12.59%
With implicit price reduction=NRST tax inclusive rate,(i.e. 23%), a good midrange value greater than 20% but less than the maximum of 25% closely refecting the expected price declines consistant Dr. Dale Jorgenson studies.
Dale. Jorgenson, Replacing the Federal Income Tax, The Economic Impact of Taxing Consumption: Hearings Before the House Committee on Ways and Means (Vol. II), 104th Cong., 2d Sess., (statement of Dale Jorgenson, Ph.D., Chairman Harvard University, Department of Economics on March 27, 1996, at p. 105) (reprinted in Joint Economic Committee, Roundtable Discussion on Tax Reform and Economic Growth, 104th Cong., 1st Sess. 1996 at. p. 79).
There still is no reason to use the tax inclusive sales tax rate except to confuse people.
So you would have all believe, though the essential reason is obvious:
Under the NRST with FCA, one pays less than 23% of personal consumption in tax vs the average of greater than 23% of gross income of the income/payroll tax.
The NRST will be no worse than the current system in tax burden laid upon the individual family.
Which is a true and modest comparison between the two systems without hyping one way or the other.
But since I accept your calculation as being valid for the conditions you want to specify
NRSTrate = (($77,500 * 80%) * 29.87%) - $4,646 / $104,626 = 13.26% saving the rest for a idillic and pastoral retirement
Compared with the income/payroll tax system lowest rate results:
ITrate = ITnet/GrossIncome = $35,270/$100,000 = 35.27% and government get to decide who gets that idillic and pastoral retirement on your nickel.
I'll let folks decide which they prefer on the basis of your calculations.
Anyway, back on topic, it seems you weren't able to show me a comparison
This sure looks like "a comparison" to me, generated by me based on a midrange value between (20-25%) in price decline to be expected on a fixed basket of goods an services.
Save max:
NRSTrate = 100*((0.23*$77,500)-$4,646) / $104,626 = 12.59%
Or spend max and no saving
NRSTrate = NRSTnet/GrossIncome = $18,794.68/$104,646 = 17.96%
Or anything inbetween max invest and minmum possible spending to max spending and no saving and investment as the individual citizen may choose.
Or limit individual liberty to make such choices, because government has already limited your options for you:
ITrate = ITnet/GrossIncome = $35,270/$100,000 = 35.27%
between my income tax rate and the tax inclusive sales tax rate after all.
Or use yours as well, will I will forever enshrine, after cleaning up the format abit, thank you:
NRSTrate = (($77,500 * 80%) * 29.87%) - $4,646 / $104,626 = 13.26% saving the rest for a idillic and pastoral retirement
Compared with the income/payroll tax system lowest rate results:
ITrate = ITnet/GrossIncome = $35,270/$100,000 = 35.27% and government get to decide who gets that idillic and pastoral retirement on your nickel.
And let folks decide which they prefer on the basis of your calculations.
Where the real kicker is
All three calculated NRST tax inclusive effective rates are less than even just your
Your Nightmare: My effective tax rate (income tax + FICA) on my income is 19.77%
which does not account for hidden or embedded taxation in your purchases at all,
Nevertheless is greater than any of the three computation addressed:
Spend same $77,500 Save max $27,146:
NRSTrate = 100*((0.23*$77,500)-$4,646) / $104,626 = 12.59%
Your calculation, with intermediate spending $80.5K and saving $24.1K:
NRSTrate = (($77,500 * 80%) * 29.87%) - $4,646 / $104,626 = 13.26% saving the rest for a idillic and pastoral retirement
Or spend max $101,9K and no saving $0
NRSTrate = NRSTnet/GrossIncome = $18,794.68/$104,646 = 17.96%
Which, confirms the NRST proponents stand perfectly:
Under the NRST with FCA, one pays less than 23% of personal consumption in taxes vs the average of greater than 23% of gross income of the income/payroll tax.
The NRST will be no worse than the current system in tax burden laid upon the individual family.
All stated simply, truthfully, without hype and without recourse to the mathmatics, but does retain the sense of what the NRST is about, replacing the income/payroll tax system with the NRST.
But we could go on like this for days.
Sure can, but that's ok, just means more folks read the thread and get a whack at deciding what the NRST is about.
Thanks for the opportunity to walk through the NRST vs Family Income+FICA Tax calculation. It will provides the essential basis for comparing NRST impact as defined by aribitrary parameters.
Each new discussion provides yet another tool in the arsenal ;O)
Now that we have compared the NRST in terms of the Income/Payroll tax system;
Let us proceed with your analysis comparing the NRST 29.87% tax exclusive rate adjusted by FCA, and the Income/Paroll Tax(IPT) system converting it into tax exclusive terms.
Your go, and I poke holes in your analysis.
I give you the same parameters:
Recall that consumer prices that you pay out of your consumption spending contain a 20-25% corporate income/payroll tax related burden within them as well. Have you included that burden in your calculation of your "effective tax rate"?
Include them, I don't care. My effective tax rate (income tax + FICA) on my income is 19.77% Compare that to 23% sales tax and show my the computations to make the comparison. Assume family of three (husband, wife, and child) making $100,000, current consumption is $77,500.
Compare total effective taxes paid under IPT described above, with 23% NRST converting effective tax rates for equivalence in "Sales Tax" terms which you assure us that everyone so much more familiar with.
Please include all intermediate steps in you analyis for review. Just as I have for you.
Calculate and compare the total effective tax-exclusive IPT rate on the nominal tax free consumption price base, with the NRST total effective tax-exlusive rates
1) for maximum spending,
2)same dollars spent(max savings case) and
3) your equal goods and services case.
I await your math and results for critique and inspection.
No. That is the federal sales tax they would pay. This would be an increase in their expenditures.
Wrong, they pay 20-25% today embedded in the goods and services that local and state goverments purchase. That tax burden is repealed under the NRST.
since one must note those burdens are implicit in the prices those state & local governments pay for consumption now, and thus are embedded in the taxes you pay them today.
I thought the idea was to get rid of hidden taxes.
Sounds good, now change state tax law to do that, make the entire system one comprehensive retail sales tax system based on the NRST proposal, All taxes would become visible in one comprehensive composite tax with line items for each level of govenment, (NRST+State+ City+County) by those who pay them, the citizen.
Sounds good to me, but the first step is to get the federal system on line, by which the tax base is defined.
What? The taxes will be embedded in the sales, income, property, etc. taxes we pay our state and local governments.
If you pay em, you see them do you not? Visibility by the citizen of the bottom line he pays his government. However, NRST conformant tax system across the board would tax clean up the multiple tax situation nicely providing one place to look, hit on the grocery ticket.
With the NRST, the federal government will be taxing us ~$300 billion through the states. How is that making things more visible?
State an local taxes are paid by the individual citizen that's who needs to see them afterall.
While you're at it, don't have the federal government charge itself a sales tax. That's just phoney.
So is the Budget Enforcement Act and its static analysis revenue neutrality requirement. Get rid of that and the whole tax the government issue goes away. That is if you can get passed the liberal filibuster to kill that law. Its their source for their favorite "pay for that tax cut" game.
There will be no replacement of the income or payroll taxes, by any tax system without answering to that hurdle.
I prefer to tackle one hurdle at a time myself. Wholesale change of the method of taxation is more than enough bite without adding a million others on top of it.
I came to a common base using the tax exclusive rate, consistent income, and consistent consumption.
And I incorporated you computation for a final analysis in the tax inclusive base for comparison with the others. All rates were expressed for comparison purposes as a percent of gross = taxpaid/grossincome which is what a tax inclusive base is.
In none of your calculations did you keep consumption consistent.
So? You did, I compared it with the others for completeness.
How can you compare an income tax vs. a consumption tax if one of those factors is changing?
Simple calculate amounts just as I did, last step convert to the rate system required using proper divisor.
Use the range of value the variable factor may assume and build a table of max , min, and typical expected value.
So go for it. You are the one who says people can compare everything in sales tax terms, that everyone relates to.
I want to see your comparison and work providing the answers in a sales tax, tax exclusive base. Make the base = nominal taxfree price basis
100* total_taxes_paid / nominal_base_price in the three scenario's requested will be sufficient.
No B.S.--what are the odds of this thing passing Congress? Do you really think it will be adopted?
If the American people want it, and push for it. It can happen.
The fair tax has been in the works since 1996, its first introduction to Congress I believe was in that same year. Since then AFFT, its authors & primary promoters, & other tax reform groups have picked up the banner and have been advocating it ever since, with popular support measured in contributors to these organization there are nearly 1 million contributing individual citizens last I could get a track on it, and growing.
As far as Congressional support, with a Republican House, Senate and Adminstration, the support among Congress Critters has grown from 7 co-sponsors for the bill last session, to 46 co-sponsors with another 40+ declared to favor HR25 over other taxreform bills now in Congress. Even long term flat tax taxers such as Senator Richard Shelby as declared preference of the NRST over the Armey/Shelby Flat Tax he has advocated so long in the Senate. Prior to this session we had no introduction into the Senate, Earlier during the current session, the bill was introduced into the Senate by Senator Max Chambliss.
All over the nation prospective candidates are picking up on the NRST as part of their campaigns, this is especially true in Texas and Georgia. Where it is almost a requirement if your going to claim to be a candidate from those states. Linder of Georgia has held out against all comers maintaining his seat making it the central issue of his campaigns.
Delay and the Republican leadership of Congress, have bought into the NRST and have promised full hearings and press for a floor vote in the next session.
What more can I say, it's really up to us to learn about, educate our friends and neighbors about and push our representative to get it done.
Do I figure it can be done. I would not be spending all the time I do on it if I didn't figure on at least a chance of convince folks to push. Passage in next session ????
I've supported the Fair tax now for about 5 years, I see support growing and I am encouraged. That's really all I can say.
How stiff has the opposition been from accountants/tax attorneys/etc. and their respective lobbying groups?
I haven't heard of any organized opposition from such folks. Individual accountants I have talked to look forward to not having to deal with tax issues. Some Retail Groups aren't thrilled with it but they like the Income/Payroll tax even less and don't propose any better alternatives.
Most of the organized opposition I have run into come from folks against all taxation, those wedded to supporting the specific other tax proposals, and those who make their living lobbying Congresses as opposed to actually working in the industry.
I think I'll send off a query to the staff at AFFT and see what they say. I'm curious too, as I really have not run across any accountant or taxlawyer's groups formally in opposition.
I suspect that Taxman, who more connected with with the NRSTA people may have a quicker answer if he's around.
Or you could, again, not have the government pay itself and call it revenue. That would meet the requirements of the BEA just fine.
Actually it wouldn't as the BEA demands the same level of tax revenue to be produced as the law it replaces. The only way the BEA allows reduction of tax rate, is by cutting budgeted appropriations to pay for cuts in taxes collected. The liberal "pay for tax cut", game which is the driver of all this. Get rid of that game, which is the oppositions card in the hole to kill any tax reform bill, and you can get rid of government taxing itself.
But then you would have to increase the sales tax rate.
So you want to make citizens to pay more? Just to satify your sense of the fitness of things. I don't.
The reality is the tax rate would actually be able to fall if it weren't for the BEA, as the expenditure of goverment for goods and services would fall commensurate with the repeal of income and payroll taxes.
Problem is CBO static analysis methodology demanded under the BEA prohibits projecting tax rates on dynamic analysis of the economy.
And that's the whole point, isn't it. Funny accounting so hyou can sell this shell game and worry about the consequences later.
The funny accounting is imposed by political reality, as emboddied by the BEA, and which democrats use to great affect in thier attacks and tax reforms and tax cuts of any substantive kind.
I agree wholly the NRST would be much better off without government taxing itself, for the tax rate would actually end up lower, under a dynamic supply-side analysis of the economy. BEA and liberal opposition assures that will not be the route this or any other consumption tax bill will take until the day we can overcome 2/3's vote in both sides of Congress to void the revenue neutality provisions. DOA is the way the Dem caucus would like to make this bill through their BEA club. A goal you seem to share with them.
You might take a look at the list of HR25 sponsors sometime and ask yourself why you see very few democrats among the 46 co-sponsors listed. Those with a visceral opposition to this bill make up an interestingly composed caucus in Congress.
Sorry, you can't compare the effects of tax changes unless you keep the elements you are comparing equal.
The only thing clear you admit that you are unable to compare the two systems in Sales Tax Terms. Our only question becomes the reason why.
For reasonable and useful comparisons are readily attainable converting to the tax inclusive base of gross income.
Spend same $77,500 Save max $27,146:
NRSTrate = 100*((0.23*$77,500)-$4,646) / $104,626 = 12.59%
Your calculation, with intermediate spending $80.5K and saving $24.1K:
NRSTrate = (($77,500 * 80%) * 29.87%) - $4,646 / $104,626 = 13.26% saving the rest for a idillic and pastoral retirement
Or spend max $101,9K and no saving $0
NRSTrate = NRSTnet/GrossIncome = $18,794.68/$104,646 = 17.96%
All less than:
Your Nightmare: My effective tax rate (income tax + FICA) on my income is 19.77%
And much less than the total effective rate which includes embedded taxation on comsumption expenditure, the more representative figure of what is paid under the current system for your 3 person $100k earning family.
ITrate = ITnet/GrossIncome = $35,270/$100,000 = 35.27%
Using your method, I could come up with any number I wanted.
The boundries are limited by the stated conditions and limited to a range established by (20-25%) federal tax burden embedded in current consumption pricing. The values you calculate cannot exceed the boundry set by that parameter.
Hell, why don't you change their income while you're at it.
Income is not variable, you set the fixed conditions of:
Recall that consumer prices that you pay out of your consumption spending contain a 20-25% corporate income/payroll tax related burden within them as well. Have you included that burden in your calculation of your "effective tax rate"?
Include them, I don't care. My effective tax rate (income tax + FICA) on my income is 19.77% Compare that to 23% sales tax and show my the computations to make the comparison. Assume family of three (husband, wife, and child) making $100,000, current consumption is $77,500.
The only"varible" is "consumption spending contain a 20-25% corporate income/payroll tax" restricted to a narrow range, the limits of which are easily treated with three discreet values, min, typical expected, and max for comparative calculations.
You have made it obvious that you are unwilling to assay a sales tax based comparison on the that simple basis. I assure you, there is ample characterization of the parameters of the problem to make useful and appropriate comparisons.
Just as the tax inclusive comparisons using gross_income as a base show the NRST to provide a decided advantage for the individual case you have characterized; So will tax exclusive comparisons using the taxfree price base of the sales tax realm.
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