Posted on 04/23/2004 4:39:23 AM PDT by Remember_Salamis
Compare that to 23% sales tax and show my the computations to make the comparison.
All calculations made in tax inclusive terms.
Income/payroll tax system total "effective tax rate" calculation.
Given
My effective tax rate (income tax + FICA) on my income is 19.77%
Assume family of three (husband, wife, and child) making $100,000, current consumption is $77,500. Compare the 19.77% to 23%.
consumption spending contains a 20-25% corporate income/payroll tax related burden,
The family's effective total tax amount under the current system is:
0.1977 * $100,000 gross income = $19,770 individual federal tax
$100,000 - $77,500 - $19,770 = $2,730 savings plus state/local taxes
0.2000 * $77,500 gross payments for consumption = $15,500 embedded federal tax burdens
Net tax paid by family under federal income/payroll tax system (ITnet):
ITnet = $19,770 + $15,500 = $35,270
Total effective tax rate (ITrate) paid by family under federal income/payroll tax system:
ITrate = ITtotal/GrossIncome = $35,270/$100,000 = 35.20%
NRST total "effective tax rate" calculation.
NRST only, all individual and corporate income & payroll taxes repealed.
Given from preceding ITrate calculations and parameters:
$2,730 savings and/or state taxes held constant from above,
$100,000 gross income from above
Net tax paid by family under NRST tax system (NRSTnet):
Amount available for consumption from gross income
Ci = $100,000 - $2730 = $97,270
Annual FCA tax compensation received by family of three
FCA = $4,646
Tax paid on consumption(NRSTci)
NRSTci = (NRST*Ci )- FCA = (0.23 * $97,270) - $4,646 = $17,726.10
spend additional consumption dollars available from FCA at NRST margin rate (NRSTfca)
NRSTfca = 0.23 * $4646 = 1068.58
accumulated NRST taxes paid by family spending entire amount.
NRSTnet = 17,726.10 + $1,068.58 = $18,794.68
total spent on gross payments for consumption including FCA under NRST
$97,270 + $4,646 = $101,916 retaining $2,730 savings & state tax
Gross family income including FCA = $104,646
Total effective tax rate (NRSTrate) with respect to total income to family under NRST tax system:
Bottomline
NRSTrate = NRSTnet/GrossIncome = $18,794.68/$104,646 = 17.96%
Compared to
ITrate = ITnet/GrossIncome = $35,270/$100,000 = 35.20%
One conceivable way to tax government fully and equally under the NST system would be to impose a separate excise tax on government wages. That is the approach we have adopted in this study.
I had missed that one in the Cato review.
Wouldn't that be a kicker if government had to pay what is effectively identical to FICA with regard to government employee wages while everyone else doesn't under the NRST.
Just the opposite of today, ROTFLM( | )O
You didn't keep consumption consistent from the income tax to the NRST. You're assuming consumption will increase.
Silly me, you mean the family has a choice to save more under the NRST? Now why didn't I think of that?
I assumed you wanted to compare the worst case effective tax rate of the NRST for the particulars of your example to the family's tax burden under the current system.
We can always do the calculation assuming no change in dollars spent and provide that number. After all it becomes the family's choice to do which ever they wish, instead of one driven by government extracting it's pound of flesh limiting the family options of utilizing their resourses as they see fit.
How can you compare a tax on income to a tax on consumption if they aren't consistent?
Easy by looking at worst cases, and noting the family is still much better off under the NRST, as well as the economy from expansion of sales.
I thought a benefit of the NRST is people will save and invest more. If you want to show a reduction of prices, you will have to reduce the cost of consumption, not raise the amount of consumption.
"A" benefit yes, and one a family can choose to take advantage of to the full degree of their available resources before government can take its cut out of them.
So let the family choose to save/invest the maximum they can after holding their expenditure to the original level of $77,500.
If you hold the expenditure constant to $77,500 expenditure, and save, invest, etc. $27,146 each year instead, the family's effective tax rate of the NRST will drop to
NRSTrate = 100*((0.23*$77,500)-$4,646) / $104,626 = 12.59%
They will purchase approximately the same amount of stuff with $77,500 since prices would fall 20-25% under competition, build a nice retirement, provide capital for enhancing productivity and the creation of new industry expanding the economy, with expanding revenues to the government under the Laffer effect.
OTOH, they could choose keep paying a 35% tax burden, making out report cards on there family life to the IRS, and continue to have their retirement taxed away as well, by not supporting the NRST.
It's all a matter of the family's choice.
Save max:
NRSTrate = 100*((0.23*$77,500)-$4,646) / $104,626 = 12.59%
Spend max
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%
If you want to show a reduction of prices, you will have to reduce the cost of consumption, not raise the amount of consumption.
Prices can certainly fall as consumption & demand rises my friend. Prime example of point being computers, where high productivity and strong competition drives prices down while consumption & demand grow.
With the removal of the income/payroll tax system the economy becomes more efficient, thereby allowing reductions in price under market competition.
Even with maximum consumption dollars flowing into the economy, the indivual benefits through increasing wages earned, greater returns on investment and increases in productivity for higher corporate earnings distributed to individuals, and prices constrained as company's compete for market share in an expanding economy.
And on taxing state and local government expenditures
As such are taxed now, as a consequence of states purchasing goods and services in which federal income/payroll taxes are now embedded to the tune of 20-25% of prices.
(which may be unconstitutional),
The specific issue is addressed here:
http://www.freerepublic.com/forum/a3971d4b96c73.htm
As well as keeping in mind, the mere insinuation of ones opinion does not make for unconstitutionality as regards a court challenge of a statute, especially as regards the federal authority to tax commercial activity, (i.e. sales) with a general tax paid by all, as opposed to the direct taxation of a state government agency or the state itself by the federal government:
FLETCHER v. PECK, 10 U.S. 87 (1810)
"The question, whether a law be void for its repugnancy to the constitution, is, at all times, a question of much delicacy, which ought seldom, if ever, to be decided in the affirmative, in a doubtful case. The court, when impelled by duty to render such a judgment, would be unworthy of its station, could it be unmindful of the solemn obligations which that station imposes. But it is not on slight implication and vague conjecture that the legislature is to be pronounced to have transcended its powers, and its acts to be considered as void. The opposition between the constitution and the law should be such that the judge feels a clear and strong conviction of their incompatibility with each other."
who pays for that (state would have paid ~$360 billion in 2001)? We do.
Yep just as we do now. 20-25% worth of federal imposed tax burden in everything that state and federal govenment purchases today. Only problem is the bill is hidden from the view of the electorate. So it just keeps growing as government keeps growing. Out of sight Out of mind, is the rule of government hiding the costs of its excess.
There will be "embedded federal taxes" in our state and local taxes
Nothing new in that.
just like there are "embedded taxes" in the products we currently buy.
Which the NRST would make visible to the citizen/voter to get angry and government about.
It's a shell game.
It is a multi pathed economy that loops through government, the citizen, and consumption, Dollars are fungible and flow throughout those loops focusing through consumption.
The NRST makes tax dollars VISIBLE to the electorate where they can experience and hold representatives accountable out of knowledge instead of ignorance of the costs they bear as a consequence of federal largess.
The first step to putting the Federal monster on a diet, and decreasing the size of government is for the people of the United States to preceive the cost of the government, personally in open view.
As long as a substantial proportion of the people continue to believe some guy behind the tree or mean old corporations pay the bill, what do they care about the extravegance or growth of government.
Those that do not perceive paying the bill, for their freebees are a readymade constituency for more government spending and bigger government.
Time to remove the government imposed horseblinders and quit playing the ostrich.
Ostriches may be a somewhat successful species by making themselves look like a bush or tree hiding their head in the sand and not see the lion. Unfortunately low flying buzzards roost in trees and sh't all overthem.
With the NRST, both the expenditure and the revenue it creates is on budget.Expenditures will go up the exact amount of the revenue created (actually, a little less revenue after the tax collection fees are removed).
LOL, lets see because tax revenues are visible, the budget naturally requires that the all revenue be spent rather than decrease the tax rate.
Unlike today where tax revenues are visible, and the budget continues to grow even faster with demands for higher taxes on businesses and the "rich" where the voter doesn't need see it.
It's like me giving myself a loan and counting it as income.
And this is something new for govenment? In fact government actually does create itself loans on itself it can spend can spend Social Security & Mediscare taxes it receives immediately.
Lock boxes and TrustFunds indeed ROTFLM(|)O!!!.
All they are, are calls for future tax hikes, to fund future layouts for SS/Medicare out of future general revenues collected.
HELVERING v. DAVIS, 301 U.S. 619 (1937)
- Title VIII(Social Security Act), as we have said, lays two different types of tax, an 'income tax on employees,' and 'an excise tax on employers.' The income tax on employees is measured by wages paid during the calendar year. Section 801 [26 USC 3101]. The excise tax on the employer [26 USC 3111] is to be paid 'with respect to having individuals in his employ,' and, like the tax on employees, is measured by wages.
- . The proceeds of both taxes are to be paid into the Treasury like internal revenue taxes generally, and are not ear-marked in any way. Section 807(a)[26 USC 3501]. There are penalties for nonpayment. Section 807(c), [26 USC 7203].
CRS Report for Congress (98-422 EPW)
Social Security: and the Federal Budget:"Its taxes like all other federal funds flow into the U.S. Treasury and its benefit payments flow out of the U.S. Treasury. The Treasury Department issues federal securities to the Social Security trust funds to reflect receipt of these taxes, and redeems securities from the trust funds to reflect Social Security expenditures, but the money itself flows to and from the Treasury."
"Taking the Social Security trust funds "off budget" has not changed how Social Security funds are handled. They are treated the same way today as they were in 1937 when Social Security taxes were first levied -- the tax receipts flow into the U.S. Treasury and benefit payments flow out of the U.S. Treasury. The Treasury Department issues federal securities to the Social Security trust funds to reflect the receipt of these taxes, and redeems securities from the trust funds to reflect Social Security expenditures, but the money itself flows to and from the Treasury. "
"While the trust funds have an important role in monitoring the finances of the program and maintaining its fiscal discipline, they are basically accounting devices. The federal securities they hold are not assets for the government. When an individual buys a government bond, he or she has established a claim against the government. When the government issues a bond to one of its own accounts, it hasn't purchased anything or established a claim against some other entity or person. It is simply creating a form of IOU from one of its accounts to another. It certainly establishes legal claims against the government for the Social Security system (i.e., it is a legal form of indebtedness of the government and does count as part of the federal debt; see Table 3 on the next page), but the system is part of the government. Those claims are not resources the government has at its disposal to pay for future Social Security claims. Simply put, the trust funds do not reflect an independent store of money for the program or the government, and taking Social Security "off budget" did not change this. "
God doesn't print money.
Yes He does, only it's called gold and silver and yah have to work for it to get it. LOL
kinda like deciding if I want fish heads or hog guts for supper.
It helps if you can see what your eating so you can complain to the cook before you bite ;O) NRST a peek at what's in the soup before gulping it down.
Your "save max" still assumes a consistent expenditure rate, not a consistent consumption rate. You say "They will purchase approximately the same amount of stuff with $77,500 since prices would fall 20-25% under competition." You're making an assumption that prices falling and the sales tax will be a wash. You can't do that, you have to factor in the falling prices into your equation. (As it turns out, a 20% price reduction is not a wash. Tax inclusive prices go up.)
Here it is with a theoretical 20% drop in prices:
NRSTrate = (($77,500 * 80%) * 29.87%) - $4,646 / $104,626 = 13.26%
Now looky there. I made an accurate comparison of the effects of the income tax vs. the NRST using the tax exclusive sales tax rate. How is that possible?
Here it is with a theoretical 20% drop in prices:
NRSTrate = (($77,500 * 80%) * 29.87%) - $4,646 / $104,626 = 13.26%
Now looky there. I made an accurate comparison of the effects of the income tax vs. the NRST using the tax exclusive sales tax rate.
How is that possible?
I never said it wasn't possible,
You asked and I quote:
Compare that to 23% sales tax and show my the computations to make the comparison.
That is what I gave you.
I notice you had to convert the the gross expenditure to price and to do so you used the least price decline of all products (why not the largest or the average or all of them in a tabel?), apply the "tax exclusive" rate, and then covert to the tax inclusive NRSTrate
to compare with the tax inclusive rate ITrate.
ITrate = ITnet/GrossIncome = $35,270/$100,000 = 35.27%
Didn't you?
Which is precisely what I said had to be done to compare rates between systems of different bases. The have to be converted to the same base for comparison.
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."
For total accuracy and completness however you failed in coverting to price. Ideally you should have chosen the range of (20-25%) that product prices may decline or their average (22.5%) for an better comparison.
Then show the computed minimum ITrate for comparison purposes.
ITrate = ITnet/GrossIncome = $35,270/$100,000 = 35.27%
However for a more complete presentation, both ITrates & NRSTrates should be calculated with high, average, and low price declines and presented in table form don't you think?
An exercise which is of debatable value when the essential message can be presented a much more compact and understandable form and whichthe calculations confirm in spades:
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.
The alternative is a page filled with calulations and numbers to cause eyes to glaze over with the essential missed for complexity and verbosity.
But then we could ignore the calculations and just put up nrst worstcase results of effective taxrates for a family of three with gross income of $100,000 spending $77,000
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, without all the arithmetic and overstate the more modest message of NRST proponents as it can be stated for all income groups.
I never said it wasn't possible,What about all that "apples to apples" stuff?
That is what I gave you.No it isn't. You changed their consumption level. How is that a fair comparison of an income tax vs a consumption tax?
I notice you had to convert the the gross expenditure to price and to do so you used the least price decline of all products (why not the largest or the average or all of them in a tabel?),
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. It isn't. In fact it makes it harder. Reinforcing my belief that the use of the much less understood tax inclusive sales tax rate is only because it's a smaller number. It's just deceptive marketing.
We could talk all day about the issue of "embedded taxes" and how much they affect prices. It won't get us anywhere. It's all speculation.
Which is precisely what I said had to be done to compare rates between systems of different bases. The have to be converted to the same base for comparison.But you didn't show me the equation with the tax inclusive rate. That's because you have to use the tax exclusive sales tax rate before you can figure out what portion of your income is going to taxes (the tax inclusive income tax). There still is no reason to use the tax inclusive sales tax rate except to confuse people. (I would say that is the main intent, no one has been able to show me why the inclusive rate is important, which means it's not unintentional confusion, but outright deception.)
For total accuracy and completness however you failed in coverting to price. Ideally you should have chosen the range of (20-25%) that product prices may decline or their average (22.5%) for an better comparison.Again, we weren't really discussing the final percentage, just how you get there. But to totally accurate you would have to factor out state and local sales taxes before you reduced the prices and factor them back in after. You would also have to ask if the 20-25% drop is a drop in retail prices or a drop in manufaturing cost and factor that into your price drops. (example: $80 manufacturer cost + $20 profit = $100 retail price. $60 reduced manufaturer cost + $20 profit = $80. A 25% drop in manufacturing costs only equals a 20% drop retail price cost.) But we could go on like this for days.
And let folks decide which they prefer, without all the arithmetic and overstate the more modest message of NRST proponents as it can be stated for all income groups.
But then we get into how much prices might drop and if the 29.87% would generate enough revenue for the government. Both of which are as suspect as the need to use the tax inclusive sales tax rate.
Anyway, back on topic, it seems you weren't able to show me a comparison between my income tax rate and the tax inclusive sales tax rate after all.
Would you not agree that the cost of state and local governments paying sales tax (would have been $360 billion in 2001 - even with the
mythicalminimum 20% drop in prices it still would have been $293 billion ) will be passed on to the taxpayers.
Thanks, $360billion to $293billion reduction in state expenditures you say? Hmmm, an improvement by my standards, 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.
Won't these federal taxes be "embedded" in our state & local taxes the same way corporate taxes are currently embedded in prices?
Seeing the NRST will be collected by the state as well, embedding in taxes paid by the individual for which he recieves a detailed receipt has little meaning don't you think?
The issue of embedding is one of visibility of the whole tax burden on the individual, (i.e. the measure of cost of government to the citizen). You wish to reform the state tax systems to create more visibility for the citizen of your state above and beyond what the NRST can provide for federal tax on the individual. I won't stand in your way.
Tax embedded in a tax? The issue is visibility of taxes burdens because we cannot perceive nor properly distiguish the role of government from business on consumer prices.
The goal of the NRST is to provide a visible federal tax system, that the electorate may act out of knowledge as regards federal government cost in their personal lives, and to put greater distance between the family and federal government where the collection to taxes is concerned.
To get the NRST legislation even to the floor of Congress it must conform to the Budget Enforcement Act provisions of revenue neutrality for one as measured agains the current tax law by CBO methodology. The provisions in the NRST bill accomplishes that goal by allocating taxes between public and private sector expenditures in the same proportions as tax burdens are distributed today that it's primary goals may even have a chance for enactment.
The CBO methodology mandated through the Budget Enforcement Act does not allow a dynamic analysis of tax law impacts on the economy to establish the tax rate, thus the language requiring taxes on the sale of goods to government as well as the citizen becomes necessary as government today pays taxes through its purchases of goods and services via income/payroll taxes embedded in the price of goods and service.
Saying its stupid will not change political reality, to reform tax law political reality must first be served.Once a system is in place and the calculus changes then modification becomes possible. The initial legislation repealing one tax law and replace it with another, must meet the Budget Enforcement Act requirements of revenue neutrality and all the dumb rules it demands.
All it takes is one Congress Critter's point of order to kill a bill that cannot meet the CBO measure of neutrality. That is where you get the liberal chant of "paying for tax cuts" which is just a coded way fo saying prove it's "revenue neutral". Why true cutting of taxrates not offset somewhere else in the tax code by closing deductions etc. nigh to impossible. with the prime maxim of politics being:
A government which robs Peter to pay Paul can always depend on the support of Paul.
-George Bernard Shaw
As long a government can keep Paul believeing that it is Peter paying the freight,
"It's like me in the restaurant: What do I care about extravagance if you're footing the bill?"
Walter Williams
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