← Autodidact Archive · Original Dissent · Walter Yannis
Thread ID: 15336 | Posts: 22 | Started: 2004-10-17
2004-10-17 08:09 | User Profile
[URL=http://www.nytimes.com/2004/10/17/business/yourmoney/17view.html?th]The New York Times[/URL] By DANIEL ALTMAN Published: October 17, 2004 REPRESENTATIVE JOHN LINDER, Republican of Georgia, is a man on a mission. He wants to replace the current tax system - or at least personal income and payroll taxes - with a national sales tax. When he brought this idea to the floor of the House of Representatives a couple of weeks ago, Democrats chided it as a pipe dream.
But in August, President Bush called it "the kind of interesting idea that we ought to explore seriously." From a taxpayer's perspective, it may indeed sound like a great idea: no more long instruction booklet to read, no more endless hours calculating the figures for every box on the form; you just pay at the cash register. Yet when it comes to designing such a new system, it's not quite as simple as it sounds.
Begin by assuming that the government needs just as much tax revenue, regardless of the system in place. Last year, the Internal Revenue Service collected about $1.7 trillion worth of individual income and payroll taxes.
Some of that money was returned as refunds. So, say that the government depended on those taxes to raise $1.5 trillion.
If every bit of spending in the economy were taxed - in other words, every one of the 12.2 trillion dollars paid by American consumers, businesses and the government for domestically produced goods and services - the rate would have to be about 12 percent. But hold on a second. Would the government really want to tax everything? Probably not.
For starters, having the government pay the tax on its own purchases wouldn't actually raise any money. Take out the government's spending, and the rate would have to rise to 15 percent.
In most states with sales taxes, food and clothing are exempt. The reason is to protect the poor. If a national sales tax lacked that exemption, poor people who pay no income tax (many actually receive a credit) would see their tax burdens grow substantially. In addition, the tax would be regressive. Because low-earning people spend a bigger share of their income than high-earning people, the low earners' taxes would be relatively higher.
So, say Congress made food and clothing exempt. That would carve an additional $1.4 trillion out of the tax base, and the rate would have to rise to 18 percent. Remember that food and clothing just became exempt for everyone, poor or not.
To take some of that money back, the government could try to give the exemption only to low-earners. But how would they be identified? Would they have to file - gasp! - a tax return reporting the previous year's income? Would the government distribute "I'm a low-earner" identity cards, to be shown sheepishly to cashiers? And how would the government prevent card holders from buying things for other people?
Putting those little problems aside, there are two other issues from the current tax system: housing and medical care.
At the moment, homeowners can deduct interest they pay on their mortgages from their income taxes. Without an income tax, this subsidy, long seen as part of what made the American dream come true, would disappear. Bringing it back, perhaps through direct grants, would require raising the national sales tax rate to 21 percent.
In addition, the current tax system subsidizes medical spending by allowing businesses to buy insurance for their employees out of pretax dollars. Many medical expenses paid out of pocket are also deductible from personal income tax. Would we want to eliminate these subsidies? Quite a few health economists would say yes, because it would discourage people from demanding care they didn't need. To keep the subsidies, the sales tax rate might have to climb to 25 percent.
THERE'S still one thing to account for, though: How would the new tax system affect behavior? Slapping a 25 percent tax on all the remaining purchases in the economy, by consumers and companies alike, might well affect spending. When the sales tax burden rises, prices at the checkout counter climb, but typically not by the complete amount of the tax; buyers and sellers share the burden.
For example, a 25 percent tax might lead to prices that are about 15 percent higher. That means a product that sold for $100 would sell for $115, including the tax. The flip side, of course, is that businesses would receive less revenue. Instead of getting $100 for that sale, a business would collect $115 minus 25 percent, or $86. Yet its costs would be the same, and it would still be paying the same corporate income tax.
That business might react by recognizing that its employees had just received a big increase in their take-home pay, from the abolition of the income tax. The business could actually cut salaries and still leave its employees with part of that raise from Uncle Sam. In fact, doing so might be the only way to make ends meet.
High-wage workers might find that any increase in the take-home price of goods and services would still be offset by their bigger take-home pay. But low-earners, who paid no income tax to start with, would find their budgets squeezed. So spending might actually fall, necessitating an even higher tax rate to support the federal government.
The national sales tax might have the upper hand in one area, however.
As part of its drive to create an "ownership society," the White House is chipping away at taxes on financial income and wealth. The estate tax is scheduled to vanish, taxes on dividends and capital gains have fallen, corporate income tax loopholes have grown, and proposals for enormous tax-free saving accounts would allow the sheltering of most portfolios.
All of these efforts point to a system that taxes only labor income like wages and salaries. Under this system, high-earning people might be able to shift their income into primarily nontaxed sources - for example, by taking their pay only in stocks, bonds and derivatives like options. With a national sales tax, at least, the top earners in the nation would have a much harder time avoiding taxes altogether.
2004-10-17 16:47 | User Profile
Well, as a retiree I would not mind that if they were to give me a go to jail free card, at this time I no longer pay any taxes, even state tax, but if I were to pay a National Sale Tax it then would make a hell of a hole in my Social Security monthly payment.
2004-10-17 20:29 | User Profile
[QUOTE=Ponce]Well, as a retiree I would not mind that if they were to give me a go to jail free card, at this time I no longer pay any taxes, even state tax, but if I were to pay a National Sale Tax it then would make a hell of a hole in my Social Security monthly payment.[/QUOTE]
That's a good argument against it. Retirees can justly complain that they paid for it on the income side during their working lives, and that it's just not fair now to make them pay for it again on the spending side after their incomes are fixed.
But there's has to be a way around that problem.
The benefits of this proposal are manifest. I know a few things about the Internal Revenue Code. The thing is horribly complex. The mind boggling complexity makes the income tax in its present form ruinously expense to administer. It is a terrible drag on the economy, and getting rid of it and replacing it with an easy to administer sales tax would be a significant boost to the economy. In fact, it would be enough to influence the rate of growth, and over time, that would make us all a lot richer.
And the current income tax is horribly unfair since nobody ever really knows for sure what their taxable income should be. Those with the means to hire expensive financial advice can have a huge advantage over those who don't (which is one of its main, unspoken functions). We could get rid of a good deal of that complexity by (1) establishing a single rate, and (2) ending the distinction between ordinary income and capital gain, but even in the very unlikely event those changes were implemented we'd still be stuck with a very burdensome tax system that's just inherent in the income tax; i.e. the income tax is on net income, and requires the determination of "taxable income" which is where all the armies of creative accountants and lawyers come from. We can reduce the complexity of the income tax, but it will always be very difficult to administer in comparison to a more transparent tax like a sales tax or a VAT (where such calculations are not required).
One other advantage of the sales tax (or maybe a VAT) is that it corrects a longstanding disbalance in our economy. The income tax stacked the economy in favor of consumption as against savings. The sales tax would reverse that, since it's a tax on consumption, and would encourage work and savings and discourage consumption. And the vast trade imbalances and budget deficts we've been running for as long as I can remember indicate that we just aren't paying our way, and that we need to consume less and save more.
It's also much "fairer" than the income tax, because everybody has to have income to live, but with the sales tax you pay only when you choose to buy something.
The objections raised in the article are well taken. I think that we shouldn't tax, for example, basic foodstuffs, clothing, school books, and the like. That adds complexity, but it should be easily manageable since the administrative burden will be borne primarily by business that are equipped to handle it. We can design a sales tax (or perhaps VAT) system that protects the poor, removes a great administrative drag on the economy, and encourage savings.
I think it's a splendid idea.
2004-10-18 01:17 | User Profile
The tax system is designed to screw the Common Man. It's foolish to think that changing the point of taxing from income to spending will do away with the Elite's effort to screw the Common Man. The complexity and unfairness of the tax system has little or nothing to do with the point of taxing.
2004-10-18 01:54 | User Profile
Any party, in any country, that has ever pushed a sales tax/value added tax solution is usually beaten and destroyed as a political party in the next election. The NDP in Canda is a prime example close to home. The SPD in Germany is sinking fast...
2004-10-18 05:51 | User Profile
Bad idea. If we had a national sales tax; IRS agents would be raiding Yard sales armed with submachine guns.
Happy Hacker is Right. [QUOTE]The tax system is designed to screw the Common Man. It's foolish to think that changing the point of taxing from income to spending will do away with the Elite's effort to screw the Common Man. The complexity and unfairness of the tax system has little or nothing to do with the point of taxing. -Happy Hacker[/QUOTE]
The Feds should live off Excise Taxes and Tariffs like they did before the income tax. G. Washington said the Government should off of Tariffs and did not even like the Excise Taxes.
2004-10-18 09:45 | User Profile
[QUOTE=Faust]Bad idea. If we had a national sales tax; IRS agents would be raiding Yard sales armed with submachine guns.
Happy Hacker is Right.
The Feds should live off Excise Taxes and Tariffs like they did before the income tax. G. Washington said the Government should off of Tariffs and did not even like the Excise Taxes.[/QUOTE]
Actually, I'd say that a sales tax would limit the reach of the feds.
As it is now, no transaction is placed beyond their scrutiny. And the IRS can review anybody with an income, which is literally everybody worth bothering about. But a sales tax is different. Its reach doesn't extend beyond active retail trade (my understanding is that the proposal is for a tax on retail sales only, we could exclude the entire secondary market like flea markets). It only extends to retail businesses. A VAT, in contrast, would tax all business, all suppliers of goods and services. It would be "fairer" in the sense that the burden wouldn't fall entirely on retailers, but it would extend the reach of the feds to the entire business world.
One potential pitfall that I see with the proposal is that it would give the big retailers enormous power, inasmuch as they would be Uncle Sam's tax agents. This would make Wal Mart an extension of the IRS, which might have far-reaching consequences that are difficult to estimate.
On the other hand, many states have workable retail sales taxes and there's considerable experience in the states in managing them successfully. I see no insurmountable problems.
The question isn't whether there will be problems, the question is rather whether it's an improvement over the current income tax system. I think that the answer is a resounding yes.
It makes great sense in terms of both economics and civil liberties.
I'm for it.
Walter
2004-10-19 16:45 | User Profile
Anyone who thinks that our Imperial masters would simply trade the existing IRS for a national sales tax (rightly or wrongly) has been smoking too many rolled-up copies of the Washington Post. If anything, what we'd get would be the existing tax system plus a national sales tax.
2004-10-19 18:13 | User Profile
For all practical purposes, I'm economically illiterate. But with regards to the NRST, one guy whose arguments against it always made sense to me was Willie Green over at the old Free Republic. FWIW:
[url]http://www.freerepublic.com/forum/a38da92ba2adf.htm[/url]
2004-10-19 20:02 | User Profile
Remember when the whole country was run on sales taxes only? We don't need any new or more taxes, just less govt. and govt. drones. Cut out welfare for the new 14th amendment "citizens" (she sneers), amongst other handouts, and watch the taxes fall. No receipients and noone needed to hand out the "hand outs".
2004-10-19 20:21 | User Profile
[QUOTE=Texas Dissident]For all practical purposes, I'm economically illiterate. But with regards to the NRST, one guy whose arguments against it always made sense to me was Willie Green over at the old Free Republic. FWIW:
[url]http://www.freerepublic.com/forum/a38da92ba2adf.htm[/url][/QUOTE]
Mr. Green misses the point that under this plan there would be no tax on the income side. There would be more to spend, and it wouldn't be taxed until the point of sale.
This would increase freedom (only pay tax when you choose to buy something retail), limit federal bureacracy in comparison to the income tax, eliminate enormous complexity and costs, and place the administrative burden where it can best be borne - on businesses that are already equipped to deal with the accounting.
It would reward the frugal and punish the profligate.
As I said above, the poor could be protected by eliminating the tax on a basket of foodstuffs, clothing, and rent for a primary residence. A measure of progressivity could be introduced by taxing luxury goods at higher rates.
As to Arkady's point, I don't see anything happening positive until we have something approaching a collapse, but after that we'll need a tax system, and the NRST fits the bill.
Walter
2004-10-19 21:06 | User Profile
[QUOTE=Walter Yannis]Mr. Green misses the point that under this plan there would be no tax on the income side. There would be more to spend, and it wouldn't be taxed until the point of sale.
This would increase freedom (only pay tax when you choose to buy something retail), limit federal bureacracy in comparison to the income tax, eliminate enormous complexity and costs, and place the administrative burden where it can best be borne - on businesses that are already equipped to deal with the accounting.
It would reward the frugal and punish the profligate.[/QUOTE]
One of the fundamental means of acquiring wealth for Joe Working Man is buying his own home. The NRST puts him at a disadvantage with the already rich investor buying said property for investment, thereby leading to further economic inequality and hardship for Joe.
Seems to me that with the NRST the rich get even richer and the poor get and/or stay poorer.
2004-10-19 21:36 | User Profile
Come on guys, if we don't pay taxes then he poor Israelis will cry because they wont get their holocaust 7 billions yearly payment from the American tax payers,,,,,,, poor babys.
2004-10-20 01:21 | User Profile
Walter,
One of the Senators running in my state is promoting this Federal Sales tax as 23% on the dollar. Do you have any idea how they arrived at this number? I am just curious. There are some states with state sales taxes higher that 7%, some even over 10 %. So some people would end up paying 33% or more on any retail item they buy. That's alot. And knowing the Federal government, this number can only go up!
If this tax takes effect, I wonder if consumer co-ops would be created to buy retail items in bulk and wholesale to offset the high tax. Or another way would be to travel and to buy items overseas instead to avoid the tax. I think this tax would drive American jobs out even more then now because companies would be finding ways to cut the bottom line even more to drive prices down.
2004-10-20 14:12 | User Profile
[QUOTE=skemper]Walter,
One of the Senators running in my state is promoting this Federal Sales tax as 23% on the dollar. Do you have any idea how they arrived at this number? I am just curious. There are some states with state sales taxes higher that 7%, some even over 10 %. So some people would end up paying 33% or more on any retail item they buy. That's alot. And knowing the Federal government, this number can only go up!
If this tax takes effect, I wonder if consumer co-ops would be created to buy retail items in bulk and wholesale to offset the high tax. Or another way would be to travel and to buy items overseas instead to avoid the tax. I think this tax would drive American jobs out even more then now because companies would be finding ways to cut the bottom line even more to drive prices down.[/QUOTE]
The Cato Institute has a thing on this. I'll see if I can dig it up.
As to the import idea you note, the tax would be levied when the goods cross customs. I see no problem with that, as most countries have some sort of VAT or sales tax scheme anyway. These taxes are levied upon import, and refunded upon export. It's all computerized. I bought some expensive handmade knives a year ago when I was in Toledo, Spain, and paid the VAT in Spain. But upon exiting the country I filled out a card and sent it in, and the Spanish government refunded the VAT to my credit card.
As I said, none of this is new, and there's an enormous body of experience with this.
I pay taxes at an effective rate of over 30%, and so for me it just won't make much difference. Prices will actually go down, since the cost of corporate income taxes are already priced into every item you buy.
Walter
2004-10-20 19:30 | User Profile
If I pay you money, I tell the IRS that I gave you money so I don't have to pay tax on that mony. So, whether you tell the IRS or not that you received income from me, they know you received the money from me. And, even you escape this powerful check, the IRS can still observe that you're living above your means.
With sales tax, what keeps me, a seller, from pocketing all the taxes I collect?
How does the government know you, the buyer, are paying your share of taxes?
There are thousands of lines of IRS code devoted to promoting the agendas of various lawmakers, or paying back big contributors. This is why the tax code is so complex. Should I think that the government wouldn't do this with a sales tax?
2004-10-20 19:55 | User Profile
Walter Yannis,
I would not think so... [QUOTE]"... my understanding is that the proposal is for a tax on retail sales only, we could exclude the entire secondary market like flea markets.."[/QUOTE]
That is billions and billions of dollars of trade you are talking about, somehow I can not see the IRS letting it stay untaxed. The Feds will not let you make even a pint of whiskey for your own use. I can not see the Feds not taxing billions of dollars of trade.
I see no point in thinking up new taxes!
As I said before:
The Feds should live off Excise Taxes and Tariffs like they did before the income tax. G. Washington said the Government should off of Tariffs and did not even like the Excise Taxes.
2004-10-20 20:04 | User Profile
Walter Yannis,
I will also add. If "the proposal is for a tax on retail sales only, we could exclude the entire secondary market like flea markets." What would happen to those markets?
They would grow to five or ten times the size they are now, then how long would they stay untaxed?
As I said before it will not be to many years before "IRS agents would be raiding Yard sales armed with submachine guns."
No new Taxes!
2004-10-20 20:41 | User Profile
[QUOTE=Faust]No new Taxes![/QUOTE]
You misunderstood President George H.W. Bush's words. The actual quote is "No Nude Texans."
A lot of people get that one wrong.
This proposal would end the income tax. That in itself would be such an enormous boon in terms of reduced state reach into our lives and increased effeciencies to make it worth the effort.
Here's an article from [URL=http://www.cato.org/pubs/pas/pa-272.html]Cato Institute[/URL].
2004-10-20 20:57 | User Profile
[QUOTE=Faust]The Feds should live off Excise Taxes and Tariffs like they did before the income tax. G. Washington said the Government should off of Tariffs and did not even like the Excise Taxes.[/QUOTE]
This is my position, as well.
2004-10-20 21:22 | User Profile
That tax would be one more reason to move out of the USA, to save my Social Security.
I would problably try Costa Rica, no army and a lot of mauntains with nice woods,,,,, people are very nice and civilize.
Only thing is that I am so prepare for what it to come that if I leave I would loose about 40 to 50 k's in equipment and food.
2004-10-21 07:08 | User Profile
[QUOTE=Texas Dissident]This is my position, as well.[/QUOTE]
Okay, but we're making very different assumptions here about the size of government.
The NRST and the rates proposed (see the Cato Institute article linked above) are aimed at replacing the current income tax and the revenues it generates assuming current spending levels.
Your proposal wouldn't come close to meeting the fiscal requirements at anything close to current spending levels.
Now, like you I want smaller government, but this has [URL=http://www.amazon.com/exec/obidos/tg/detail/-/0691089825/qid=1098342173/sr=1-1/ref=sr_1_1/102-2879949-9763349?v=glance&s=books]proven politically impossible[/URL]. The tragic truth is that we live in a democracy where groups vie with each other for access to each other's wallets. Until that changes, our best strategy is to get a better deal than we have now.
The NRST would buy us some breathing space. It would allow, for example, frugal Christian homeschoolers to put off on profligate comsumers some of the costs of running the government.
Of course, the chances of this actually happening seem small now, but who knows ho it will look in another several years as the bills for the Great Society promises come due just as the demographic crunch happens. As the cries for an increased income tax grow louder, it might seem to whites just the thing to help them weather the storm.
Walter