A national retail sales tax? GREAT IDEA!

The Atlanta Journal-Constitution ^ | 09/24/2004 | Herman Cain

[LowCountryJoe]

The most popular of the various national retail sales tax plans is called the FairTax. It is in both houses of Congress today as HB 25 and SB 1493. It is a replacement, not an add-on, for the federal income tax and for federal payroll taxes collected to fund Social Security and Medicare.

The FairTax provides a dollar-for-dollar replacement of all revenues now collected through such taxes and eliminates the need for annual and quarterly income tax filings, the surveillance by the federal government of wages and investment income and the need for anyone to hire an expert in order to comply with federal tax laws.

The FairTax is a progressive tax. The biggest-spending wealthy will pay an effective tax of $23 for every $77 they spend on new products and services. The poorest get money back. American families would receive a monthly refund equaling the amount of sales tax a poverty-level family would normally pay.

As such, the FairTax eliminates federal taxes on the poor, including highly regressive Social Security taxes. This automatic refund won't mean much to the wealthy but will be quite significant to low- and moderate-income families and to those on fixed incomes. Everyone receives the refund, including the wealthy, in order to eliminate both means testing for the poorest Americans and the need to track earnings for everyone.

The FairTax has no exemptions, no shelters and no complex tax dodges available primarily to the wealthy and special-interest groups. The only thing every taxpayer can know about the current tax code is that it is an 8-million-word mess that no one has ever read. But even a child can understand the 13 words that define the FairTax: "The FairTax is applied to all new goods and services delivered at retail."

The FairTax captures billions of dollars of revenues currently lost in the underground economy. Even drug dealers would pay their share of taxes when they purchase goods and services. The simple fact is, the more money one spends under the FairTax, the more consumption taxes one pays. Those who buy luxury items pay more; those who live more modestly pay less.

The FairTax also eliminates the IRS' unwelcome surveillance of every penny of income earned, loaned, won or invested by American citizens. In place of the huge bureaucracy created to collect federal taxes, the FairTax uses the states' sales tax infrastructure to collect taxes at the point of retail sale.

The intrusive interest from our government into citizens' financial status is eliminated overnight.

We can achieve the dream of upward economic mobility for all if we first believe our goal is attainable. The FairTax — truly an issue that delivers on the promise of individual liberty — will survive the distortions of presidential politics, and with a demanding public, the FairTax will achieve the congressional passage and a signature from the White House. It all starts with telling the public the truth and believing we can change things. I believe.

• Herman Cain also has served as chairman of the Federal Reserve Bank of Kansas City and as CEO of Godfather's Pizza. He recently ran for the U.S. Senate from Georgia.

[Principled]

How would drug dealers pay their fair share...

The total federal tax burden is represented by the retail sales tax. Hence they'll pay their full share just by buying stuff.

Under the income tax, they escape paying their own income taxes and they escape any payroll taxes.

[ctdonath2]

The "so" part is the subsequent massive downturn in production. Manufacturing will suffer bigtime with significantly fewer people buying new goods. Technical progress will slow with less money encouraging new products. The poor may suffer as well, as the cost of used goods would rise substantially.

This would (may?) have a positive environmental impact, so NSRT should get the tree-huggers' support.

[ancient_geezer]

Manufacturing will suffer bigtime with significantly fewer people buying new goods.

Lets see, people will have more takehome pay plus a monthly demogrant cover NRST on purchases upto the povertyline of consumption, people earning more from increased investment enhancing the household budgets allow more spending not less. Export markets increasing due to lower manufacturing costs favoring competitiveness of US products in foreign markets.

I fail to see Manufacturing suffering as you imply.

and people will be buying less.

With more in people's pockets with which to buy, Does not compute.

Technical progress will slow with less money encouraging new products.

Who does that happen with exanding and competitive markets???

The poor may suffer as well,

Hmmm,

 

All legal residents will receive a demogrant called the Family Consumption Allowence(FCA) equivalent to the FairTax paid on essential goods and services. The FCA will be paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate paid to all households regardless of income or actual expenditure.

Every year, the Department of Health and Human Services [HHS] determine the "poverty level" for each family size.

The 2001 "FairTax" Family Consumption Allowance Figures
Family Size	HHS Poverty Level	Annual FCA	Monthly FCA
One	$8,590	$1,976	$165
Two	$17,180	$3,951	$329
Three	$20,200	$4,646	$387
Four	$23,220	$5,341	$445
Five	$26,240	$6,035	$503
Six	$29,260	$6,730	$561
Seven	$32,280	$7,424	$619
Eight	$35,300	$8,119	$677

1) Federal Register: February 16, 2001, Pages 10695-10697).

[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer

A family of four, for example, could spend $23,220 per year free of tax because they will have received over the course of the year rebates totaling $5,341. $5,341 is the amount of sales tax paid on $23,220 in expenditures. A family spending double the "poverty level" or $46,440 per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.

The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.

To illustrate examine the tax burden that a family of four will have at various annual expenditure levels.

 

 

as the cost of used goods would rise substantially.

Why aren't they rising now? The same level of tax burden is embedded into the price of new goods and services today via the income and payroll taxes imposed on businesses causing the price of all products to be higher than they would otherwise be, as well as the fact that household takehome pay is reduced by income & payroll taxes causing a squeeze on household budgets.

By your theories, "used" goods should be demanding the same price as new goods now from the increased demand not only from higher priced "new" products, but tax limited household budgets as well.

[phil_will1]

"The IRS employees would go to work for the states..."

Do you have a source for that prediction or is it just another one of your unfounded assertions?

[phil_will1]

"My statement reports on the findings of a study undertaken by PricewaterhouseCoopers ('PWC')"

That would be the same PWC that bills several hundred million $$$ annually for tax preparation and consulting services.

[phil_will1]

"If a NRST is enacted, the U.S. economy would lag behind for at least three years and employment would dip by more than one million jobs."

According to Dr. Dale Jorgenson, former chairman of the economic department of Harvard University, GDP growth in the first year after implementation would be 10.5%. How many on this thread have ever experienced 10.5% GDP growth for a full year? Is it reasonable that, during a period of tremendous economic expansion, that jobs would be LOST?

[phil_will1]

"Suddenly used goods will be preferred."

Suddenly US produced goods will be on a level playing field with imports - both here in the US, as well as in foreign markets.

[phil_will1]

"What will it cost the retailer to collect these taxes, how much will he get to keep for his efforts, lots of extra bookwork for the retailer."

Far less than it costs them to do payroll and corporate income taxes now. Retailers will get to keep 1/4% of what they collect.

"What happens when there is a recession and no one is buying anything?"

Studies have shown that consumption is a much more stable tax base than income is.

[phil_will1]

"There's about 47,000 IRS employees."

I believe it's more like 100,000 and their budget is in the neighborhood of $10 billion/year. That is actually small potatos compared to the compliance costs savings of hundreds of billions of $$$.

[Willie Green]

Is it reasonable that, during a period of tremendous economic expansion, that jobs would be LOST?

Is it reasonable that, during the implementation period, when millions of business plans and careers based on the "old system" are severely disrupted by such an extreme and radical change, that there'd be any economic expansion whatsoever?

[Willie Green]

Suddenly US produced goods will be on a level playing field with imports - both here in the US, as well as in foreign markets.

Not true. The NRST does absolutely nothing to reduce the federal regulatory bureaucracy (OSHA, EPA, etc.) that place our productive natural resources economicly off limits. Nor does it institute tort reform to end frivolous employee/employer lawsuits that plague our domestic businesses.

[Cooltouch]

IMHO, it would be a mistake to pass the NRST without repealing the 16th Amendment. If we don't, I guarantee you that federal withholding will return -- probably during a democrat regime -- and then we'll have both. Until then, better the devil you know than the devil you don't.

Also, it isn't just homeowners who will look dimly upon a sales tax. Think of the millions of people who are employed in the huge tax INDUSTRY. Accountants, tax lawyers, H&R Block and the TurboTax folks . . . and the list goes on. All these folks will be out of work.

[lewislynn]

Do you have a source for that prediction or is it just another one of your unfounded assertions?

States would have to "expand" their facilities and workers...It isn't my "prediction" it's the prediction of the Texas tax collector...I have a source for that.

[phil_will1]

http://www.freerepublic.com/focus/news/1229459/posts?page=1

Here's a new tax thread.

[mombrown1]

This is what Dennis Hastert was talking about a month or so ago when he said he wanted to eliminate the IRS.

Bush said it was worth thinking about.

At the RNC Bush said he wanted to change the tax code.

There are grassroots groups for this all over the country.

[xrp]

holy crap you're right -- over 114,000

[phil_will1]

"Is it reasonable that, during the implementation period, when millions of business plans and careers based on the 'old system' are severely disrupted by such an extreme and radical change, that there'd be any economic expansion whatsoever?"

You miss two things, WG.
(1) Because of pricing shifts, US produced goods will experience INCREASED demand, both here in the US, and in many markets around the world. That type of "disruption" would be most welcome by our agricultural and manufacturing sectors.
(2) Most of the other "disruptions" would be positive in nature as it pertains to US business. Do you honestly believe that ANY business will be saying "Bring back the corporate income tax and payroll taxes, we just can't survive without them!"?

So to answer your question, yes, absolutely I believe that US businesses would start to expand immediately (and probably a few weeks ahead of actual implementation) to take advantage of the greatly expanded opportunity to market US produced goods.

[Willie Green]

US produced goods will experience INCREASED demand,

What "US produced goods"????
When I go to the store, I don't see any "US produced goods".
You must live in some kind of fantasyworld.

[phil_will1]

"Not true. The NRST does absolutely nothing to reduce the federal regulatory bureaucracy (OSHA, EPA, etc.) that place our productive natural resources economicly off limits. Nor does it institute tort reform to end frivolous employee/employer lawsuits that plague our domestic businesses."

Nor does it eliminate dandruff or high cholesterol.

It merely eliminates the disadvantage that the current system places on US production by imbedding the cost of our tax system in our goods. It taxes imports the same way that we tax our own goods - which is to eliminate an enormous bias in our current system in favor of foreign producers.

Willie is correct, of course, in the sense that the FairTax is a tax reform proposal and, as such, doesn't fix everything that is wrong with our federal laws. It isn't a panacea, only the best tax reform proposal to come along.

[phil_will1]

"What 'US produced goods'????
When I go to the store, I don't see any 'US produced goods'.
You must live in some kind of fantasyworld."

So you are saying that we have NO manufacturing base left and NO agricultural producers left?

Even if that were true (and it obviously isn't), isn't it possible that our tax system has something to do with that and that fixing the tax system to might be helpful in arresting or partially reversing the trend?

BTW, how is your bill coming to replace corporate income taxes with tariffs?