National Retail Sales Tax proposal gains momentum for real tax reform

News Target ^ | November 12, 2004

[Tumbleweed_Connection]

If there's one thing to like about the Republicans, it's the fact that they support tax reform. In theory, at least. The party hasn't produced any meaningful tax reform in decades, but now there's talk of a revolutionary overhaul that could end taxes on the poor, eliminate the IRS, and greatly simplify taxes for all Americans. It would free up billions of dollars in productivity that are now wasted on filling out tax paperwork, crunching numbers, and arguing with the IRS over how much you already deposited on what date and for what purpose.

The Democrats, for some reason, don't like the national retail sales tax. I think they honestly just don't get the concept, because the national sales tax would eliminate taxes on the poor by sending every low-income wage earner a bonus check each year that covered the sales taxes for basic cost-of-living items like food, clothing and rent. The real tax payers, under this system, would be the big-time spenders: rich people who want to drive $85,000 Hummers or float around on million-dollar yachts.

Under the National Retail Sales Tax (also called the Fair Tax in a slightly different rendition) allows each individual to control how much tax they want to pay by controlling their spending. If you don't like to pay taxes, then you can choose to buy less stuff. If you choose to consume at a high level, however, you're going to pay your fair share of the federal budget.

As readers of this site know, I think the Bush Administration is a political and humanitarian disaster. But if it manages to pass meaningful tax reform, that would at least be one positive thing the administration will have accomplished. It's foolish to automatically disagree with everything the Republicans propose. Smart Americans evaluate each proposal, regardless of which party sponsored it. Sadly, though, I think many well-meaning Democrats are against this tax reform simply because the Republicans are behind it. And that's a bad reason to oppose a good idea.

It's time to stop taxing poor people and start making the wealthy consumers in society pay for their lavish lifestyles. The Fair Tax or National Retail Sales Tax is the way to make that happen. The political party that thought of it first doesn't really matter.

[Pearls Before Swine]

..the national sales tax would eliminate taxes on the poor by sending every low-income wage earner a bonus check each year that covered the sales taxes for basic cost-of-living items like food, clothing and rent.

While I think the national sales tax is a viable substitue for the income tax, the procedure in the above sentence seems like trouble. If you send every low-income wage earner a bonus check, you're instituting a parallel income assessment scheme, with all of the complexity and likelihood for cheating we've come to know so well. Better to exempt food, rent to a certain level, clothes to a certain indexed level, and simply collect the tax than to collect and redistribute.

[ProudVet77]

Imagine the taxes TRex would have to pay to buy the Fly Squirrel II. :)

[KarlInOhio]

It's easier than that. The monthly poverty level is determined and the tax paid on that amount of purchases is calculated. This amount is then sent to each and every legal resident. Thus someone making and spending exactly the poverty level would pay zero net taxes. John Kerry would get some money to pay for snowboard wax. No one would have to report what they made.

[ancient_geezer]

A Taxreform bump for you all.

If you would like to be added to this ping list let me know.

John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer for additional information: http://www.fairtax.org, http://www.salestax.org & http://www.geocities.com/cmcofer/ftax.html

[Josh in PA]

What's the latest news for those who have a passing interest on the bill?

Is there any chance at all of this coming to a vote anytime soon?

[MTOrlando]

Exemptions are a bad idea. If you exempt one thing, lobbyists will be hired to get other "essential" goods exempted. Pile on this exemption and that credit, and soon the Fair Tax looks like our current system, with it's arcane loopholes and unintended side-effects.

Under Fair Tax, EVERYONE will get a check sufficient to cover the estimated tax collected at retail on the basic necessities of life, not just low income earners. Therefore, no personal income reporting is even necessary, and there is no incentive for individuals to cheat.

Compliance will be reduced to making sure that businesses which are selling goods collect and remit the proper amount of tax, and it's much easier to audit one business than it's 10,000 individual customers.

[ancient_geezer]

Under H.R.25(Fair Tax Act), all legal residents will receive a monthly demogrant called the Family Consumption Allowence(FCA) equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The FCA is 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, and paid to all households regardless of income or actual expenditure. The HHS poverty llevel is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. See chart in Figure 1 below.

 

Figure 1: 2004 FCA calculation
Family size	HHS annual poverty level	FairTax annual consumption allowance (single person)	Annual rebate (single person)	Monthly rebate (single person)	FairTax annual consumption allowance (married couple)	Annual rebate (married couple)	Monthly rebate (married couple)
1 2 3 4 5 6 7 8	$9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570	$9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570	$2,141 $2,873 $3,604 $4,336 $5,067 $5,798 $6,530 $7,261	$178 $239 $300 $361 $422 $483 $544 $605	N/A $18,620 $21,800 $24,980 $28,160 $31,340 $34,520 $37,700	N/A $4,283 $5,014 $5,745 $6,477 $7,208 $7,940 $8,671	N/A $357 $418 $479 $540 $601 $662 $723

[ 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 $24,980 per year free of tax because they will have received over the course of the year a demogrant totaling $5,745. $5,745 is the amount of sales tax paid on $24,980 in expenditures. That family spending double the "poverty level" or $49,960per 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 compared to that same family under the current tax law, (2004 income plus FICA/MC):

 

H.R.25 "The FairTax Act

Not only does every family receive a FCA based on family size, not income, but they will also receive 100% of their paycheck.

[Arizona Carolyn]

I'm all in favor of NRST .. and absolutely against a flat tax... it sounded like the people at the GOPAC meeting in DC Monday want to push a flat tax; they seem to think it would be too difficult to administer a NRST... and they didn't take into consideration the benefits of a NRST which would basically lower the cost of goods and almost offset the cost of the sales tax.

[melbell]

ping to read later

[balrog666]

Same sh!t, different day.

[Pearls Before Swine]

Ohhh, I get it. Everyone gets an estimated poverty level tax rebate. Cute.

Sooooo 23% Federal, 5% State -- sounds about right. I'm on board.

This puts spending and taxing right out front where everyone can see it, every day. I like that.

[ancient_geezer]

What's the latest news for those who have a passing interest on the bill?

Is there any chance at all of this coming to a vote anytime soon?

Don't expect anything until the next session of Congress is well underway.

Committee hearings are to be held on the tax reform with focus on the Fair Tax proposal, according to DeLay, and we also need to hear from the President's proposed commission on tax reform, etc before substantive moves can expected to occur.

One factor that appears to be in the works is that HR25 is undergoing a full economic review by the Congressional Research Service. I expect a rate adjustment downward out of that, to bring the legislation in line with making President Bush's tax cuts permanent.

So there are a number of things going on in the background that need to be brought to successful conclusion to prepare for success in both the House & Senate.

[michaelbfree]

yes, and all the rebates will be handled through each individual state agency - the states are already set up for this since they handle welfare distributions-so the infrastructure is already in place, very simple to implement.

[ancient_geezer]

This puts spending and taxing right out front where everyone can see it, every day. I like that.

Should helps reduce that spending constituency old Walter Williams talks about when discussing the current income tax:

"So many Americans paying little or no federal taxes makes for a natural spending constituency. It's like me in the restaurant: What do I care about extravagance if you're footing the bill?"

and turn them into budget freeks,

Hmmm!

23%........... Effective total federal tax rate with respect to gross expenditure for consumption:

15% ..... rate if Social Security and Medicare were eliminated
14% .......... rate if Nat'l Endowment for the Arts were eliminated
12%........ rate if Dept. of Education were eliminated
10%.......... rate if welfare & foreign aid were eliminated
etc.

So lets look at what the maximum it would take to fund those functions clearly authorized under Article I Section 8 of the Constitution, in current dollars:

http://w3.access.gpo.gov/usbudget/fy2001/guide02.html#Spending

• $334 Billion --- Defense & Military related expenditure
• $ 31 Billion ---- Administration of Justice
• $ 16 Billion ---- General Government
• $199 Billion ---- Interest on the Debt
  =========================
  $580 Billion ---- Total

Institute an across the board, Flat rate, single stage National Retail Sales Tax, which taxes all imports and domestic products with the same rate.

Replacing all current federal tax law with a retail sales tax would be 23% on new goods and services paid and receipted at the retail register. No hidden tax, no exceptions, exemptions everyone participates.

Such a tax acts in a natural manner to encourage the elimination of excess government functions through visibility of burden among all constituencies of the electorate.

The total federal government budget would move from $2,000 billions towards something less than $580 billions calculated.

The across the board federal tax rate on new goods and services would decline towards less than 6.7%.

As tax rate on sales decreases the economic burden on retail items, the sales volumes and growth in the economy would be tremendous allowing even further reductions in tax rates below that less than 6.7% theoretic level.

That is what I perceive as the ultimate achievements possible under a National Retail Sales Tax structured in the manner of the revenue bill H.R.25. Simple common sense applied to the principal of TANSTAFFEL,( no free lunch, everyone participates in paying their way in proportion to the benefit the extract from their consumption.) encourages the natural change in attitudes required of the electorate as regards the burden of government largess in their lives.

Thomas Hobbes from Leviathan

• It is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income

Hmmmmmm....... It's do able, with time and effort, once the blinders are removed from the electorate.

[ancient_geezer]

yes, and all the rebates will be handled through each individual state agency - the states are already set up for this since they handle welfare distributions-so the infrastructure is already in place, very simple to implement.

Actually the bill turns the job over to Social Security Administration which has an even better infrastructure to handle mass check mailings and electronic transfers now. They all ready have the proper database in Social Security number tracking, necessary to assuring only legal residents receive the FCA, is their football not the state's.

[lewislynn]

they didn't take into consideration the benefits of a NRST which would basically lower the cost of goods and almost offset the cost of the sales tax.

That's because they know it isn't possible.

[lewislynn]

Ohhh, I get it. Everyone gets an estimated poverty level tax rebate.

If that's such a good idea why not increase the rebate to another magic level so even more people can live tax free?

[Josh in PA]

If the bill starts moving along, I can visualize the Dems and media firing up a misinformation campaign on it in 2006.

[Willie Green]

While I think the national sales tax is a viable substitue for the income tax, the procedure in the above sentence seems like trouble.

Statement of John G. Wilkins, Managing Director,
Barcroft Consulting Group, on behalf of National Retail Federation
Testimony Before the House Committee on Ways and Means
Hearing on Fundamental Tax Reform

Mr. Chairman and Members of the Committee:

I am managing director of the Barcroft Consulting Group and I am here on behalf of the National Retail Federation. My statement reports on the findings of a study undertaken by PricewaterhouseCoopers ("PWC") for the National Retail Federation Foundation. I was principal author of that study, which examines the economic impact of substituting a national retail sales tax ("NRST") for the federal income tax.

~~~SNIP~~~

Conclusion

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. Beneficial effects would not be felt for at least five years after adoption. While it is admirable to seek a fairer and simpler tax structure to replace the incredibly complex income tax code, trading an income tax in for a national sales tax is an experiment that could bring serious harm to a flourishing national economy. Uncertain long-run benefits are far insufficient to risk the short-run setbacks in virtually all sectors of the economy.