A $5,OOO Cat? - The NRST and Real Estate

NRSTA - Virginia Chapter ^ | N/A | Steve Hayes

[rolling_stone]

"OK, since the NRST proponents think we have use the same terms to compare the sales tax to the income/payroll tax, my effective tax rate (income and payroll) on my income last year was 19.77%. The NRST is 23%. Does that mean I'll be paying more with the NRST?"

Does the 19.77 include your employers portion of payroll or just yours? So will your employer pass the savings on to you, just like the reduced cost of articles you will purchase?

Are you just concerned with how much you will be paying or the overall effect of the change in law? Imagine cutting out the amount of waste we currently have in accounting and taz preparation (compliace estimated at $300 billion per year) along with cutting the power given our legislators and lobbyist to social engineer the current system, can you place a dollar amount on that aspect of the NRST?

http://www.salestax.org/

[Your Nightmare]

I'm trying to compare the actual percentages (and thus why they both have to be tax inclusive). So I still have the question: how does my 19.77% income/payroll tax compare to the 23% NRST? By comparing these numbers (thank God they are both tax inclusive!), it seems I will be paying more.

[rolling_stone]

1) do you spend all your income on NRTST taxable idems or do you save some or buy some used items? ? If not your actual percentage of tax to income would drop.

2) you will receive a rebate up to the poverty level (or income if less)to compensate for consumption of necessities, that would also lower the effective consumption tax rebate.

[Mr. K]

Now wait just a minute... are you trying to tell me that the 'tax inclusive' figure is not more difficult to calculate??

A yes or no answer would be nice.

[kevkrom]

my effective tax rate (income and payroll) on my income last year was 19.77%. The NRST is 23%. Does that mean I'll be paying more with the NRST?

Almost certainly not. With the FCA ("rebate"), your effective tax rate will be less than 23%. Anything you are currently financing will not be taxed (since it was considered taxed when you bought it) under the NRST. Any money you save/invest will not be taxable. Any money you spend on used items would not be taxed.

How many people are in your family? I can use that number to calculate how much you can spend and still break even at your old rate.

[Your Nightmare]

How many people are in your family?

3

[Your Nightmare]

Please post any calculations you use. I'm really interested in why both percentages have to be tax inclusive to compare them.

[Remember_Salamis]

If you save or invest 0% of your income, spend 0% of your income on education, and spend 0% of your income on a mortgage on a used home (remember, used homes aren't taxed, so there would be no taxes on it), you'd still pay much less than 23%. Remember, there's a rebate up to the poverty line. So, if you're the statistically average American family of four and make $63,000 a year and consume 100% of your income (as listed above), you'd still only pay 14.6%. Here's the math:

The Rebate would cover taxes for $23,000 for every family of 4 in America (rates different depending on household size). So, subtract $23,000 from $63,000, and you have $40,000 of consumption that will be taxes. 23% of $40,000 is $9,200. Divide $9,200 (the amount you pay in taxes) by your income ($63,000) and you pay 14.6%.

($63,000 - $23,000) x .23 = $9,200
$9,200/$63,000 = .146 (or 14.6%)

In reality, almost nobody would consume 100%. So if you saved 10% of your income and spent 15% on your mortgage on your used home, you'd only pay 10.9%. Save 10% and pay 25% on your mortgage (which is a more realistic representation of housing costs compared to income level), and you'd only pay a 9.4% rate. See how it works?

[CliffC]

Hi geezer, et al:

This AFFT website has been recently updated with some new info. Have a look....

GoTo: AFFT!  and preuse the Links there.

Here's the FairTax INFO!   website that I packed full of useful info about this fantastic new way to fund the Gov't and rid ourselves of the abominable Income Tax System (and IRS).

While visiting there, you're invited to sign the Petition calling for enactment of the Fairtax.

Onward & Upward!

Cliff Cofer - West Des Moines, Iowa

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Bye, bye... Income Tax (and IRS)!  We won't miss ya' at all!

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[CliffC]

Hi geezer, et al:

This AFFT website has been recently updated with some new info. Have a look....

GoTo: AFFT!  and preuse the Links there.

Here's the FairTax INFO!   website that I packed full of useful info about this fantastic new way to fund the Gov't and rid ourselves of the abominable Income Tax System (and IRS).

While visiting there, you're invited to sign the Petition calling for enactment of the Fairtax.

Onward & Upward!

Cliff Cofer - West Des Moines, Iowa

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Bye, bye... Income Tax (and IRS)!  We won't miss ya' at all!

---

[Your Nightmare]

It looks like you used the tax inclusive rate to figure how much sales tax I would have to pay on my consumption (23% of $40,000 is $9,200). Should you have used the tax exclusive rate (29.87% of $40,000 is $11,948)?

[Your Nightmare]

should have said: Shouldn't you have used the tax exclusive rate (29.87% of $40,000 is $11,948)?

[kevkrom]

Ok... 3 people (I'm assuming married couple with one child, but I'll run the numbers both ways). Under a worst-case scenario, i.e., you spend every dollar you earn, the break-even point is:

( RNRST * N ) - F = ( RIRS * N )
( RNRST - RIRS ) * N = F
N = F / ( RNRST - RIRS )

Where N is the break-even income/expenditure point, F is the NRST FCA, RNRST is the NRST tax-inclusive rate, and RIRS is the effective income/payroll tax rate. The first formula states that for the effective amount of tax to be equal, the income/expenditure is multipled by the rate, with an offset to the NRST side for the FCA. The remaining formulas just regroup terms to solve for N.

Substituting the numbers in your case:

N = 4853 / ( .23 - .1977 ) = 150,248 (married, one child)
N = 3510 / ( .23 - .1977 ) = 108,669 (single, two children)

Any expenditure under this amount would yield in a lower effective tax rate under the NRST than under the income tax, anything higher would yield a higher rate. Note that this does not take into account any purchases made of non-new goods, investment/savings, or any taxes currently embedded into the price of goods and services under the current income tax system.

Now, why use tax-inclusive? As you'll see, the numbers compare evenly when doing so. We'll use just the first number, but the results are the same either way. The total amount of tax paid under the NRST in this example is:

T = ( .23 * 150,248 ) - 4853 = 29,704

Under the income tax:

T = ( .1977 * 150,248 ) = 29,704

The tax works out exactly the same under either system.

[ancient_geezer]

I'm really interested in why both percentages have to be tax inclusive to compare them.

They have to be in the same units of measure to be numerically comparable or you will come up with erroneous answers in numerical analysis.

For example, 2.54cm = 1 inch. Yet both are the same length. 1 common length but a different unit from which each measure is taken.

The cm case is in length/(metric standard) vs the english case of length/(english standard) to do any numerical operation on them such as substraction to see which is large in absolute terms, one must first convert measurements to a common base

Likewise with tax exclusive vs tax inclusive systems.

The tax exclusive base is (price), thus the measure it tax/price.

The tax inclusive base is (price + tax), thus the measure is tax/(price +tax)

To be able to add or substract or compare between the two measures you have to first convert them to the same base.

For the computation of

tax1/(price1) - tax2/(price + tax2)

denominators must the same, thus to compare tax systems numerically you must covert them into the same base.

[Your Nightmare]

There are a few problems with your equation, the main one is you are assuming a fix expenditure rate inclusive of taxes. If a person's expenditures are consistent, then the inclusive rate makes sense. But that's not what we are talking about. We are talking about shifting taxes from income to consumption. A person's expenditures will go up to pay for the sales tax, but so will their take-home pay. Prices being equal (and if you don't think they will be equal, you need to add that to the equation) and consumption being consistent, my tax inclusive expenditures will go up 29.87%. The tax exclusive rate.

Let me try.

Currently, my income can be figured:

I = (RINCOME * I) + C + S

Where I = gross income, RINCOME = my effective income tax rate, C = consumption, and S = savings.

Under the NRST, my income would be:

I = (RNRST * C) + C + S + A

Where RNRST = tax exclusive sales tax rate and A = FCA.

Since we are comparing taxing income to taxing consumption (again, if you think prices will go down, you need to add that to the equation, but you would still use the tax exclusive rate) they should be consistent for both equations, so let's solve for savings.

With an income tax my savings is figured as follows:

S = I - (I x RINCOME) - C

Under the NRST savings is as follows:

S = I - (C x RNRST) - C + F

So let's figure this out for a couple with 1 child making $100,000, their consumption is $77,500/year (~3% savings rate), and they will get a $4,853 allowance. Under the income tax:

$100,000 - ($100,000 * 19.77%) - $77,500 = $1,730 savings

Under the NRST:

$100,000 - ($77,500 * 29.87%) - $77,500 + $4,853 = $4,203 savings

This type of comparison (the one's individuals will be making) is more difficult with the inclusive rate. But, IMO, promoting the inclusive rate is just marketing. It does nothing but confuse people and make them believe the rate is less than it is.

Some might say "What's you problem, you're coming out ahead with the NRST." My problem is that the 29.87% rate is BS. It includes the federal government taxing itself which is Enron accounting and it taxes the activities of the state government which may be unconstitutional. (Doesn't anyone here believe in federalism? This is a conservative forum, isn't it?) If you remove the government taxing itself, the rate would have to be 33.35% and the savings this family would have is $1,506 (below the income tax). If you take out taxing the states the rate would have to be 42.75% and this family would actually have to reduce their consumption by ~$5,000.

[Your Nightmare]

thus to compare tax systems numerically you must covert them into the same base.

OK. Compare the tax systems numerically and show us the computations. My effective tax rate (inclusive) is 19.77% The NRST is 23% (inclusive). Show me how these compare.

[RockyMtnMan]

Under the current tax system can you control how much you pay without giving up more of your disposable income (charity)? Under NRST you can control your effective tax rate by controlling spending, this is exactly what we want our government to do why wouldn't we want this for ourselves?

NRST encourages saving/investing and the number one venue for long term savings is mutual funds. This means more capital to corporations for reinvestment back into the economy and the creation of jobs.

All foreign nationals here legally or illegally will pay the tax alongside US citizens. Tax loopholes will be gone and an enormous and expensive bureaucracy will vanish (IRS). The state of Texas does not have an income tax, only a state sales tax. Texas enjoys one of the most successful economies in the nation at the moment and did reasonably well during the recent recession.

I really do not see a downside tax exclusive or inclusive issues aside. Even though exclusive is better I can still see my effective tax rate dropping and I'll be able to apply more income to equity in my home. My money will grow tax free and I'll have more disposable income as a result.

[ancient_geezer]

My effective tax rate (inclusive) is 19.77%

Taxes on what specifically?

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"?

The NRST encompasses all corportate taxes you pay through your expenditures now, as well as income and payroll taxes paid by the individual.

The NRST "effective tax rate" (inclusive) is dependant upon your household size and amount you spend.

 

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The NRST is 23% (inclusive). Show me how these compare.

Give us the paramaters to work with to determine how the two systems compare with your particulars if you really want an accurate comparison for your individual case.

The NRST maximum marginal rate is 23% (inclusive).

OTOH the NRST "effective tax rate" that any particular individual may experience is generally much lower than that.

For example: examine the tax burden that a family of four will have at various annual spending levels

H.R.25 "The FairTax Act

 

[Your Nightmare]

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 the 19.77% to 23%.