Bruce Bartlett (back to web version) |
SendPosted on 05/03/2005 3:16:24 AM PDT by RobFromGa
The national sales tax
Bruce Bartlett (back to web version) | Send
May 3, 2005
According to columnist Robert Novak, House Majority Leader Tom DeLay, R-Texas, is adamant about replacing the entire federal tax system -- payroll and income taxes -- with a 30 percent national retail sales tax (NRST) collected by the states, such as that in H.R. 25, sponsored by Rep. John Linder, R-Ga.
I have written many times before about what a dopy idea I think this is. Following is an effort to summarize the key arguments against it that appear over and over again in the scholarly literature.
-- People will still have to keep records, file income tax returns and get audited, because the states and some cities will continue to have income taxes. There is no reason whatsoever to think that the states will get rid of their income taxes if the federal income tax is abolished.
Quite the contrary, they are likely to view the federal government as co-opting their traditional tax base -- the general sales tax. Therefore, the states will just take over the tax base being given up by the federal government -- the income tax -- and abolish their state sales taxes, which would otherwise come on top of the NRST.
The only way this can be prevented is if the federal government prohibits the states from imposing income taxes at the same time it abolishes the federal income tax, which is probably impossible constitutionally. And if the states keep their sales taxes, the federal government will have to force them to conform to its tax base. Right now, no two states have exactly the same sales tax systems and none come anywhere close to taxing sales as broadly as contemplated by the NRST.
-- There is a very severe problem of taxing business inputs under a sales tax. These must be exempt from tax in order to avoid cascading -- taxes being levied on taxes -- which creates serious economic distortions. To avoid this under a NRST, every business, no matter how small, would need some sort of exemption certificate, which would create unlimited opportunities for evasion, or they will have to be extensively audited in ways at least as onerous as under the income tax.
-- Services are by their nature much more difficult to tax than goods. For this reason, no state makes any effort to tax more than a few of them. Yet the NRST would tax 100 percent of services, including medical services and government services. Every time you go to the hospital, you will have to pay 30 percent on top to the federal government. And local governments will also be taxed by the federal government on services they provide, which will sharply raise property taxes.
-- In order to offset the regressivity of the NRST, it would establish a massive new government entitlement program costing hundreds of billions of dollars that would send rebate checks to every American on a monthly basis. This system would be based on the poverty level income established by the Census Bureau. People would get 23 percent of this amount annually in 12 monthly installments based on their family status. Quite apart from the massive complexity of this proposal, it would clearly require an enormous enforcement mechanism to avoid fraud and would undoubtedly be manipulated by politicians. It would be very tempting to change the formula to aid the poor and penalize the rich, just as the current tax code does.
-- Every serious analysis has concluded that a NRST would have massive evasion. Taxing the spending of drug dealers and others not currently paying income taxes will not come close to compensating for the new evasion opportunities that will be created. Since it is not in the interest of either retailers or consumers to pay the tax, and because all of the revenue is collected at the point of final sale, it will be too easy for tax-free deals to be made with producers and wholesalers.
Although evasion of state sales taxes is relatively small, that is only because the rates are low enough that it is not worth the trouble. However, where rates are high on things like tobacco, evasion is also high. A vast amount of foreign experience indicates that retail sales taxes cannot be collected much above 10 percent without breaking down.
Under our current tax system, there is withholding of taxes on wages, which is the vast bulk of the tax base. Under a value-added tax (VAT), something similar occurs because taxes are paid at each point of the production-distribution system. Thus, if the retailer fails to collect the tax, only a small portion of the total revenue is lost, whereas with a NRST, all of it would be lost.
Primarily for this reason, every single country that has ever contemplated something like a NRST has instead chosen a VAT, which the NRST people oppose.
For a vast majority of transactions: between the buyer and the seller. Hey, it's a sales tax.
Read my post #148.
Income tax:
Earn $100 pay 30% tax you are left with $70.
What is your tax rate? Is it 30%, or is it 43%
($30 is 43% of $70)
After all, you have $70 in your pocket and you paid a tax of $30.
Frankly, the argument about inculsive, exclusive; gross or net, etc. is moot. You can gross or net the current income tax as easy as you can the NRST and make an argument either way. In the end the same amount of money is in your pocket.This issue isn't whether you can, it whether you should. The vast majority of people have never even heard of inclusive or exclusive rates, I hadn't until I started in these discussions, so when they hear a sales tax rate they don't know any better than to think it's the exclusive rate. If it's not explained, and it rarely is, they are being misled into thinking they would pay less than they really would.
Well, sorry. No matter how much the opponents of an NRST want to try and fudge the numbers,
What numbers?
I've seen all the rhetoric but no numbers...you could have been the first to show the numbers but you chose more rhetoric.
Point taken. Everything should be crystal clear to those who are lurking and participating. I just don't think the argument goes anywhere.
I suggest you read back over the myriad threads for the last 6 months. Try to read slowly so you can see the numbers.
The only numbers we have seen from you are the incessant harpings on gross payments. We understand, we understand. You can move on to the next topic.
I suggest you read back over the myriad threads for the last 6 months. Try to read slowly so you can see the numbers.
Like I said, more rhetoric and talking in circles....No valid numbers to be found...Maybe you can post them if you know them.
Earn $100 pay 30% tax you are left with $70.What is your tax rate? Is it 30%, or is it 43%
($30 is 43% of $70)
So what's your point?...
If you didn't pay $30 tax on $70, how could your tax rate be 43%?
Here's a good place to start. Type in ancient_geezer and search his posts. There are a few numbers there. When you are done, in a few days, get back to me. I'll give you some more.
My point is, the debate over gross vs. net payments can go on forever and it doesn't really matter. Another point I'll bring up is that that is the main objection you seem to have (at least it is the one you tire us with the most) and it is rhetorical and senseless.
Total Effective Tax Rates by Level of Government
Percent Net National Product(NNP)
Nice try again. NNP and sales tax rates have ZERO relations...
Don't take my word for it, here's the words of the author of your favorite plan.
By Dan R. Mastromarco and David R. Burton
[5] In 1996, consumption was about 82.5 percent of the gross domestic product (GDP). Investment, including both private and government investment, accounted for the remaining 17.5 percent. In 1996, the GDP was $7,636 billion, investment was $1,341 billion, and consumption was $6,295 billion. The Fair Tax replaces taxes equal to about 18 percent of GDP.
I think that the formula goes something like this:
(VI) x (I) = L
or
Vested Interest times Ignorance = Lies
Thanks. And thanks for beating back the boundaries of ignorance here today. It sure has been plentiful and aggressive.
It doesn't matter what's in it. Aside from a reasonable number of gifts from your Canadian relatives (or whatever) you may be subject to receiveing a letter you don't want if you are deluged with packages from overseas.And if you get caught you just pay the tax? Do you honestly think that's what will happen? You can just go off and do it again?
Define "reasonable number of gifts". Or is not having to report personal information to the government, such as, whether a parcell you receive is a "gift" or a purchase just another fairtax lie.
That raises another question. If you purchase something used from a foreign country, is it's value subject to the fairtax since it was never "previously taxed" under our laws?
"Oh I definitely agree there is a problem...a really big problem. And, I think there is move afoot to curb the problem (i.e., bankruptcy legislation)."
Excuse me? You think bankruptcy legislation is going to affect the savings rate? Are you serious?
"I say, close ALL loopholes, get rid of ALL deductions, and charge everyone a flat 10%."
What's the bill number for your proposal?
Oh lovely. I'm green than the Jolly Giant and yet I'm sitting here with my mouth open. Where do you think businesses get their merchandise from? Merchandise passes through a number of businesses before arriving to the retailer; right now, all these are exempt from any sales tax. If 30% is applied to each level.... I don't want to think about it.
In the business I work at, half our high-ticket items is bought by our competitors sniffing out a good resale opportunity. If they had to pay a sales tax on that, we'd go under, and they'd likely go under too since they also depend on the business of other competitors. This article is spot on. We NEED exemptions for businesses, but any exemptions for businesses will destroy the NRST.
Badray your analysis of the fair tax vs. the current income tax is right on the money and I understand it. my complaint about the way the NRST is being presented is that it is a retail sales tax, people think that when you say a 23% sales tax that it would be exclusive, so if they spend $100 they expect to pay $123. But that's not so we are talking about a inclusive tax of 23% so that $100 purchase is going to have a total cost of $129! which would equate to a 29% exclusive rate many many people find that deceiptive and that ruins the credibility of the NRST. Economist, economic planners and congress men understand the inclusive/exclusive part but the regular guy in the street doesn't, they think in terms of a straight forward sales tax when they hear the term sales tax they think 23% on $100 buck is $23 not $29 the whole idea of inclusive sales taxes is alien to them .
everyone supposes because that is how the incometax is figured that everyone understands. Not true the vast majority of people just fill out the forms and look at the govt. charts and tables and fill in the appropriate numbers the only calculations they do is at the end for the final number (do I pay or get back).
However I must say this if you look at Anceint_geezers new numbers we could lower the inclusive rate to 19% for a 23.5% exclusive rate this is important news and the new numbers should be fed into the NRST.
Good question. I don't know the answer but my first thought is yes.
However I must say this if you look at Anceint_geezers new numbers we could lower the inclusive rate to 19% for a 23.5% exclusive rate this is important news and the new numbers should be fed into the NRST.You need to understand that the FairTax was never revenue neutral, even at 23% inclusive. The rate that has been proposed is just too low.
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