National Sales Tax to Replace Income Tax

[Q Classic]

i don't mind a national sales tax, provided i don't have to pay it.

[DanS]

I think this should be seriously explored, even though I think our system now is a lot less worse than some other tax systems. As Hubbard has said, a lot of the positive economic features of the sales tax could be approximated through removal of capital gains and dividend taxes. Bush has already lowered these substantially.

[SpencerH]

Originally posted by Azazel

Well, its not likely he'll ever be elected to that office, and I refuse to support politicians with the IQ, morality, and integrity of an alley cat.

You hate Bush, you terrorist!

Not at all. IMO he has 2 (maybe 1.5) of out those 3, so while I dont support him I dont hate him either. To put things in perspective, Gore had 1 out of 3 (same as Nixon and Clinton) and Kerry has 0.

[SpencerH]

Originally posted by Q Cubed
i don't mind a national sales tax, provided i don't have to pay it.

Thats kinda the point. You only pay tax when you decide to buy things.

[Dauphin]

What good is money if you never spend it?

[pchang]

The sales tax would be set at a rate so we collect the same amount of money we do now.
Certain items considered necessities would have a tax rate of 0.
Certain items considered luxuries would have a higher tax rate.

We already collect sales taxes at all levels. Thus, this would a minimal amount of work to all retailers.
This would eliminate all the code defining what is income.
This would greatly streamline the functions of the IRS.
This has the promise to lower the overhead expenses of the Federal government and make more money available for programs.

The 0 rate for necessities is meant to help poor people and the higher rate for luxuries is meant to get more from rich people. The idea is to keep a somewhat progressive system while streamlining the collection process.

[DanS]

Dauphin: That's what our system does now. It encourages people to consume rather than invest. I'm not sure this is entirely a bad thing, but it does have some negative economic consequences.

[Kontiki]

Yeah, but if you exempt necessities (and what comprises this, exactly?), then you're left with insane sales taxes on everything else.

[pchang]

Necessities and Luxuries have yet to be determined or defined. This will undoubtedly be the subject of much wrangling, but things like basic foods, clothes and shelter are sure to be included in the necessities.

As for insane rates on everything else, I don't really see the problem. The total amount of money collected will remain the same. People are already paying that tax (just labelled income tax instead of sales tax).

[Dauphin]

Originally posted by DanS
Dauphin: That's what our system does now. It encourages people to consume rather than invest. I'm not sure this is entirely a bad thing, but it does have some negative economic consequences.

Do you have tax free savings schemes, presumably with savings caps, to encourage the poorer people to save?

On a related issue, one of the problems with pension schemes is that many don't realise that they can deduct savings against their income tax.

[pchang]

We do have tax free savings schemes of various sorts:

IRA - money saved is exempt from tax during year of earning. Money withdrawn is taxed as income at time of withdrawal.
Roth IRA - money saved is taxed as income during year of earning. Money withdrawn is tax exempt.

Caps vary with age and income.

[Caligastia]

From Neal Boortz regarding the poor and the fair tax plan:

BUT WHAT ABOUT THE POOR*?

OK ... let's put on our sensitivity hats for a few minutes here and think of the consequences of the Fair Tax Act on our nation's poor, poor, pitiful poor. After all, they can hardly afford a 23% sales tax when they're living paycheck-to-paycheck in the first place, right? We're actually going to forget, just for now, that poverty is largely a behavioral disorder and consider how they would survive under the fair tax.

We begin with a reality check. Right now, for the most part, those whom we define as "poor" aren't paying any income tax anyway. In fact, many of them are getting checks from the government. The absurdly named Earned Income Tax Credit, for example. So right now the government is actually supplementing their income. How can they endure a 23% sales tax?

The implementation of the Fair Tax would fail in short order if, as the question presupposes, the net effect on the poor would be the that they would be paying today's prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But ... that would be far from the reality under the Fair Tax. Under the Fair Tax the poor won't only survive, they'll positively thrive! The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.

Let's begin by considering two realities.

First, remember, please, that the poor, along with everybody else, will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For most of them this means an immediate 10 to 15% increase in their earnings.

Second. Don't forget the 22% in imbedded taxes. It's lurking there in virtually everything poor Americans have to buy. As soon as the competitive forces of the free market work their magic these people will be paying 20% or more less for virtually retail purchase, including the basics of food, clothing, shelter and transportation. Yes .. they'll have to pay the new national sales tax, but when you factor in the lower prices caused by the disappearance of the embedded taxes you'll see that the total price paid for consumer goods will remain very nearly the same.

So ... just considering these factors, the Fair Tax delivers a winning hand to people living in or near to what we call poverty. They get every penny they earn on payday, and when you factor in the Fair Tax and the lower prices, they're actually spending less of their money for a retail purchase than before.

Pull out the calculators. Say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax would be $8.07. This brings the total price to $43.17. That's less than would have paid under today's tax system. This single mother, whom we'll consider "poor," has just received a 10% to 15% increase in her weekly paychecks, and she's paying less at the grocery story for her basic necessities.

Well, at this point you should be thoroughly convinced that the Fair Tax would actually benefit, rather than harm the poor. But, then again, maybe not. So, here's the clincher.

The Rebate

Under the Fair Tax plan every consumer will receive a check from the federal government every single month equal to the sales tax that person would be expected to pay on the purchase of the basic necessities of life for that month. The size of the monthly payment will be based on the government's published poverty levels for various sized households.

Here's an example of how the rebate payments would have worked in 2003.

Let's say you're a married couple with two children. The Fair Tax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. Under the Fair Tax Act in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government will rebate this amount to you in 12 equal monthly installments of $465. What about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest payment would be to a single person with no dependents. That person would receive $172 per month.

Now ... bear in mind, this rebate isn't only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life. Unlike the present income tax system, the Fair Tax treats each and every person in this country exactly the same. This, of course, presents somewhat of a problem to politicians who like to use the tax code to foment class distrust or outright warfare.

OK ... let's add it up for America's lower income citizens:

They get their entire paycheck.
Even with the sales tax, and considering the drop in prices, they'll be paying essentially the same for everything they buy.
They get a check from the federal government every month to rebate any sales taxes they had to pay.
Though their tax returns aren't that complex, let's also include the time these the poor (all of us, really) will save by not having to keep tax records or file tax returns.

So, my friends, if you're looking for some reason to oppose the Fair Tax plan, you're going to have to find a better excuse than its effect on the poor.

*Please note that I titled this chapter "But what about the poor?" and not "But what about the less-fortunate?" Look, I can't be expected to write this entire book without getting in a few digs at the language of political correctness, can I? To say that the poor are poor because of a lack of good fortune presupposes that those who aren't poor were just lucky. Sorry, but for the vast majority the benefits of an affluent lifestyle aren't a matter of luck, they're the result of attention to education, hard work and good decision making. Luck counts on the Las Vegas Strip, not Main Street.

[Kontiki]

I think there'd be a psychological barrier, though. I mean, what's a typical total income tax take as a percentage of income - 25, 30%? Add that back to your income. Are you now more likely to go out and buy a car that has a 40% federal tax on it (in addition to any state and local taxes) because the government needs to make up the revenue?

I think most people would rather just not see the money in the first place rather than make 25-30% more and see the cost of every non-essential item skyrocket.

[Dauphin]

Originally posted by pchang
We do have tax free savings schemes of various sorts:

IRA - money saved is exempt from tax during year of earning. Money withdrawn is taxed as income at time of withdrawal.
Roth IRA - money saved is taxed as income during year of earning. Money withdrawn is tax exempt.

Is there really a tax saving in the first one? Or is it designed to be withdrawn when you have a low income tax year, after being put in after a high income tax year.

[MrFun]

funny . . . . . .


I thought most conservative voters find the Republican Party appealing, because Republicans were suppose to minimize the power of the federal government??