National Sales Tax gaining steam

Promoted first in the eighties by the great and honorable Billy Tauzin, a national sales tax is gaining a head of steam thanks to favorable comments by Allen Greenspan, who recommended it as a better system.

Just think, you would get all your money and pay a consumption tax as you go. The IRS would be a fragment of its former self, saving tax payers billions. Personal savings would naturally increase, which most economist promote. But more than that, to me, would be that we would have total control of our money.

For the poor, and everybody really, food and medicine would be exempt.

It would be a fantastically effcient system, easily implemented because merchants are accustomed to collecting taxes that way. No more April 15th stressing, trying to interpret books of tax code that could fill Tiger Stadium. No more loop holes. Hey, even drug dealers would have to pay taxes now. Actually, an average american's tax burden would drop, on average.

Of course, CPAs, TurboTax, and Ted Kennedy are foaming at the mouth. Lets face it, Ted and the Dems worship the IRS like an ancient idol, because from it they wield power, control; bestowing blessing here, casting out "turn to stone" spells there.

 

The key to this proposition is what the tax percentage would be, realistically. I've seen projections from anywhere between 25 and 50% to cover our current expenditures (yea, the gov't spends WAY WAY too much...and therein lies the real problem.)

 

According toFairtax

I've always been a fan of the national sales tax because it ends up where the poorer people end up paying basically nothing and those who spend more, richer people, will pay their share of taxes. The fair tax proposal also has a monthly rebate built into it that allows for no taxation up to the poverty level. Fair Tax FAQs

 

That's not due to the tax proposal though..

 

There are advantages and disadvantages. Most of the studies I've seen (and I've seen MANY), indicate that the sales tax would have to be approximately 35-45% (not including the current state sales tax) in order to be revenue neutral. And, that's if there is NO exemptions for the poor or for individual items (e.g., basic food groups). So, depending upon what exemptions would be granted, you're probably looking at a 45-50% tax rates.

Further, since most state income tax regimes are based upon the calculation of the Federal income tax, the states would almost certainly have to go to increased sales taxes to replace their income taxes.

So, living in LA, you'd be looking at the current 8% sales tax, PLUS a 45% federal tax, PLUS an addition 10% to make up for the loss of the income tax. So, when you go to purchase you're $20,000 automobile, you'll have to come up with about $33,000.00.

And, while the iRS, as we know it, would go away, it would have to be replaced by a far more invasive organization. Right now, the IRS gets most of its information from self-reporting small businesses, corporation, and banks. With a national sales tax (or sonsumption tax), they're will inevitably be a HUGE BLACK MARKET. You think we're living in a 'Big Brother" environment now, the government will be looking to look into EVERY transaction you're involved in if we go to a national sales tax. And, EVERYONE is going to be a suspect.

Right now, for the vast majority of people, your employer takes the money right out of your check and you file a return at the end of the year to get be your overpayment. While the forms can be "daunting" to some, in reality, it's a fairly simple system for most -- especially with the advent of computer based tax programs that lead you right through the process.

With a sales tax, there will be many more problems. YOU will be a collector or tax for everything you ever sell. The whole concept of Ebay will be changed. And, if you don't collect such taxes, you'll be a criminal.

So, basically, from the government's perspective, income tax COLLECTION is easier than a national sales tax would be.

And, most people live paycheck-to-paycheck. Even for the person who's currently in the 35% bracket, their AVERAGE tax rate is about 20-25%. Most of your "savings" (i.e., pension plans, IRA's, etc.) are tax exempt anyway. So, if you live paycheck to paycheck, you'll be paying a much higher tax rate than they're currently paying.

The only people who have much of a "choice" at "not spending" money and saving it, are the wealthy. And, it's the mega-wealthy who would benefit the most.

Finally, while from an economic standpoint savings can be a good thing. However, spending by the public also has its advantages in that it stimulates the economy. I'm completely unsure as the overall impact a consumption tax would have on the economy, but, to suggest that a tax encouraging people to save would be good for the economy is very misleading. I know you've heard the phrase "spending your way out of a recession".

CLIFF'S NOTES VERSION OF THIS POST -- Be careful of what you wish for. For most people, a national sales tax would cost them more money in the long run as their discretionary spending is limited. It's those with a large amount of discretionary spending (e.g., Bill Gates and Steve Forbes) who will be in a position to lower their taxes -- IF THEY CHOOSE TO.

 

I would have to go with MFGIMP's quote of 23 percent, he quotes a source for his number and explains it a bit. It's very easy to throw out a number and don't name a source.

I completely disagree with your IRS growing theory, and black market. Where is this big black market now? the sales tax monies are not enough now? Yeah right. We have a whole traceable system for collecting sales taxes ready to implement a federal consumption tax. There will not grow a BIG BLACk Market ala the evil empire. Roughly the same amount of cheating will exist.

And like I said before, food and medicine would be exempt. Liberals always name this mysterious little guy who has to be looked after. It's not me. I have a friend making 25k a year who would love getting all his money. The reason some people have to live paycheck to paycheck is because uncle sam takes so much fking money. Yeah, after uncle sam fleeces him all whats left is for food, bills and a little entertainment. If a National ST were implemented, after food and bills, a movie or what not, he would have money in the bank; to save or buy a TV, whatever.

20 to 25 percent you say for the 35 per tax bracket? no way. Add federal income tax, social security, medicare, current sales taxes, state income taxes, and every other tax we pay its mindboggling how much monies forced out of our hands.

This system would benefit nearly everyone tremendously, except drug-dealers, Ted Kennedy, and Mr. Rich Loop Hole.

 

In a study done by the Cato Institute it discovered many things about the idea of a consumption tax. Among the things it found is that by eliminating the income tax it would lead to an increase in foreign investment.

Also to answer your question about collection being harder and the collection agencies becoming more invasive:

They also calculate the tax rate would need to be 15%

Table 1

Table 2

There would also be a built in rebate for everyone, up to the poverty line. This artcle from The Cato Institute really is a good read, I recommend it.

 

Look, I've got an LL.M. in Tax from NYU. I've studied tax policy in depth. I'm sorry, but this board isn't important enough for me to dig out my books and my research and prove anything to you. But, you should think about a couple of things. First, those who say it's 23% are those advocating the change. THINK ABOUT THAT. Second, I'm sure you've heard the sayings, "98% [or some such percentage] of the taxes collected in this country come from 2% of the population." Now, why is that? Well, because those people are paying at a marginal rate of 35%. So, if 90 something percent of the money is currently being taxed at 35%, how can a national sales tax at 23% replace the current income tax? And, that's not even considering the corporate income tax.

And, BTW, all of these numbers only assume replacing the income tax. You'll still be taxed an additional 15.4% for SS/Medicare.

THINK!!!

Obviously, you haven't followed the States vigorous fight with mail order catalogues and internet sales. States are blaming these sales for the loss of billions of dollars in revenues. They (the states) want to tax these transactions, but the federal government is not cooperating. IT'S A HUGE BATTLE. One of the big reasons why the states cannot tax these transactions is enforceability and record keeping requirements. But, states do view these transactions as a sort of black market to avoid state taxation.

But, right now, most states charge 5-8% in sales taxes. Unless you're talking about a big money item, most consumers just don't care enough to look for non-state taxable items. SOME DO -- I've even compared the price of buying a computer off the internet instead of at a local store.

Let's say that the current state sales tax was 50%. Would you still willingly go down to CompUSA and pay $1,000 for a computer PLUS $500 in tax -- or would you look to buy that same computer off the internet for $1,000? Right now, the difference is only $80 and the "thought/convenience" of being able to take it back to CompUSA if something goes wrong just might be enough for someone to pay the extra $80. But, would they be willing to pay $500 for that convience?

Once again, THINK!!!

EVERY one of these proposals being floated around (whether 23% or 45%) are merely talking about replacing the INCOME TAX. And, it's the PERSONAL INCOME TAX that I'm referring to. You didn't really think that a 23% sales tax was going to replace EVERY form of tax we currently have, did you??? If you added every other type of tax/fee/charge we pay, then you probably pay about 60-75% of your earnings to the government (state and federal) every year.

This might be the silliest thing I've read all day. Man, you really should THINK before you post something like this.

Anyone making $25,000/year is probably paying an AVERAGE tax rate of less 10% after exemptions, deductions, EITC, etc. SURE, it comes out in the beginning, and, so he doesn't really see it. However, I GUARANTEE you that this guy will pay A LOT MORE in a National Sales Tax regime. This guy would be the definition of someone living paycheck-to-paycheck. But, even with the exemption of "basic" food groups/medicine (WHICH WILL NEVER INCLUDE DINING OUT -- EVEN AT McDONALDS -- check out how LA taxes such items currently), he'll pay A LOT more than a 10% average.

Doing the math, this guy would have to spend about 3/4 - 4/5 of his money on exempted amounts for the change to a National Sales Tax to be revenue neutral.

Tell me, how much of the difference do you think he could save.

THIS GUY would be hurt the MOST by a National Sales Tax.

Seriously, man, THINK ABOUT IT.


Look, I'm not advocating one taxing scheme or another. In fact, personally, I'd do much better with a National Sales Tax. And, I do so very little tax contraversy work (and, I don't particularly care for it) that replacing the income tax with a National Sales tax would have little effect on my yearly take home pay.

But, I do get a little upset when the PROPONENTS of a different taxing regime puts out false information and false numbers (which, if people really THOUGHT about it, they would realize what a farce it is) in order to switch people to their way of thinking.

It's just like Steve Forbes getting everyone incensed about the Estate Tax. I've had so many friends -- WHO WILL NEVER, EVER PAY A DIME IN ESTATE TAX -- tell me how "unfair" it is that the government is going to look to take 55% of their money when they die. 98-99% of Americans will NEVER have to worry about estate taxes, yet Steve had everyone convinced that the government took 55% from EVERYONE'S estate.

Like I told people -- I HOPE AND PRAY I OWED ESTATE TAX. I HOPE I OWE JUST AS MUCH AS MALCOLM FORBES. Because, then, my kids will get to split up $450 million after taxes, instead of the $800 million that I died with.

If it were up to me, I'd do away with every tax BUT the Estate Tax. I would tax EVERY estate 90%. To me, that's the FAIREST tax around. You wouldn't have to pay a dime of taxes while you're living and you're kids/beneficiaries (who didn't earn the money in the first place) would just get less when you die. So, it would, in effect, be your kids who are being taxed and not you. But, little Stevie Forbes and his mindless sheep would never go for that!!!

 

LSUBud, great work, thanks for taking the time.

I'm a proponent of a flat rate. And not a flat percentage rate. A flat freaking fee for living in the US. Everybody pays the same dollar amount. This is a completely unworkable, pie in the sky idea for two reasons: 1) spending is out of control and will not slow down in the near future b/c of basic politics, and 2) no way does this get the support of our lowest-common-denominator society.

But, my idea for it is simple. Can't pay the fee? Get another job. Make more, do something, I don't particularly care. Do something with your life or seek charity. Can EASILY pay the fee? Congrats on your hard work. That's the American way. Couple this fee w/ LSUBud's estate tax idea, and there won't be these free loaders who never worked a day in their life sitting on piles of cash either.