National Retail Sales Tax - tell me why it's bad

[nonconformist]

On the surface, it seems like a good idea. What am I missing here?

[ProgressiveConn]

1. Because it puts the burden on the poor over the rich.

It is the most regressive method of taxation.

[nonconformist]

6. From what I understand, there would be basic living rebates

Yearly for low income wage earners. Wouldn't the real taxpayers in this system be the wealthy who spend lavishly?

But the fact that the Republicans - who are out to protect the rich - support this gives me pause. Explain to me how this puts the burden on the poor.

[Warpy]

15. Do you think starving people who are barely making subsistence

for a whole year by pulling an additional 20% out of their paychecks is a GOOD idea? What do you expect them to eat? How do you expect them to house themselves? Twenty percent of a low wage job is one HELL of a lot.

Contrast that with Joe Billionaire. Even with his multiple pleasure palaces, his purchases of art and antiques, his lavish meals of smoked larks' tongues, he's not spending anywhere near his entire income. His overall tax burden will be FAR LESS than the 20% the poor person is spending on every dime he takes in.

The national sales tax can only be made workable if it EXEMPTS certain things, like primary residence, food, off the rack clothing, and medical care, the essentials of life.

THAT is why sales taxes on everything are so regressive. They slam the poor with the maximum on everything they need to stay alive, while the rich only pay the tax on the part of their income they CHOOSE to spend.

[nonconformist]

19. uh, no I don't. I was asking because I just recently looked into this

And I wanted some information about it.

But thanks. And I agree, this is a bad idea.

[Lydia Leftcoast]

24. The Republicans love tax rebates, but

they're most useful to middle and upper-income tax payers.

If paying a tax at the cash register means that you can't stretch your paycheck to last the whole pay period, then the fact that you get a lump-sum rebate once a year isn't going to be much consolation.

[salin]

62. more than that.... remember the "earned income credit"

I believe that first came to play as a "rebate" sort of calculation for the poor - and was expanded when the social security taxes were increased - in order to put a cap on the amount of earning that was taxable... that is - to help wealthy people.

So, during the recent four years of tax cut after tax cut - the EIC was demonized as welfare type benefits and thus no relief at the bottom end - just at the top end.

So watch over time - where such a concept initially borne out of recognition of the undue burden on those in poverty - get flipped into an "entitlement" to be "cut" - and further screw the poor while leaving more money in the pockets of the wealthy.

Its our track record that makes the whole concept laughable.

[Telly Savalas]

26. The higher the income, the higher percentage of that income is saved.

Hence consumption taxes are regressive.

[nickshepDEM]

55. I guess you could exempt food, clothing, medication, etc..

from the sales tax. That would place less of the burden on the poor. Then again, I doubt the Gov't would generate enough money from a nat'l sales tax alone.

[SnoopDog]

2. And it is unconstitutional...

The US Constitution only allows for taxation on income...

[Nederland]

46. Nonsense

The federal government taxes lots of things besides income--gasoline for example.

[SnoopDog]

47. Gasoline tax is a State Tax... So your nonsense is nonsense...

Please read our Constitution..

Independent of our current taxation - our Federal Government is only allowed to tax incomes....

[LiberalFighter]

50. There are State AND Federal taxes on gasoline

Currently there is a 18.4 cents federal excise tax on gasoline.

Federal Excise Tax Rates 1944-2002

[SnoopDog]

51. After I posted that I re-researched that ... Sorry I messed up..

However, one could argue that it is unConstitutional....

My bad for the bad post...

[LiberalFighter]

63. No problem... I double-checked both that and to make sure...

someone else hadn't already posted.

[berni_mccoy]

48. Wow, You are Correct Sir

I had to look it up, but under Article 1, Section 9, Clauses 4 and 5 of the U.S. Constitution:

"Clause 4: No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. (See Note 7)

Clause 5: No Tax or Duty shall be laid on Articles exported from any State."

I don't see how they are going to get around that.

(BTW, you can read the full U.S. Constitution here:
http://www.house.gov/Constitution/Constitution.html

[SnoopDog]

49. Thanks for the acknowledge our 'law of our nation'...

And, of course, to expand on this point....

Patriot Act? Totally unconstitutional.

Iraq Illegal Invasion - totally unconstitutional.

Remember everybody - our Constitution has been around long before bush and all of us. This administration vowed to uphold our Constitution - which not only have they not - they have violated it.

This is what we fight for people ...our Constitution...

[atre]

56. How exactly are you reading that as proscribing a sales tax?

Clause 4 only limited the government's ability to tax people at anything other than a flate rate (i.e. taxation to states "in proportion to population," per capita). I use the word "limited" (past tense) because this clause was effectively repealed with the passage of the 16th Amendment to allow a progressive income tax structure.

Clause 5 restricts the states from assessing import taxes on goods manufactured in other states. And even if you could twist this somehow to disallow a national sales tax, the plain language of the clause limits its application to "any state" (in other words, not the federal government).

I agree it's the worst idea ever proposed as to the reform of the Internal Revenue Code, but that doesn't make it unconstitutional.

[berni_mccoy]

64. I disagree.

This was debated by the court in 1796 (see http://conlaw.usatoday.findlaw.com/constitution/article01/48.html)

A national sales tax would be considered a direct tax and thus violate clause 5. Clause 5 isn't exclusive of the federal government nor does it only apply to states. It says "No Tax or Duty shall be laid on Articles exported from any State." Period. If the fed gov't was exempt, they would have said so.

[Zynx]

3. Poor people spend 100% of their income, rich spend a fraction.

The national retail sales tax in order to take over for the income tax would have to be well in excess of 15% at least. That would mean, in addition to state sales taxes, for every $100 you spend $15 more would hit you in the way of taxes. Retailers don't have the profit flexibility to change prices to compensate. Since poor people spend 100% of their income just to survive, it would cause them to cut back on what little they have when a rich family like mine would do great when we spend less than 10% of what we make.

[nonconformist]

9. Good point

And one of the things I guess I did miss.

[googly]

45. Wrong! Unless the rich hide the unspent $$ in mattresses, they

will pay when they do investments. whether they buy stocks,
bonds, houses, whatever, it will all be taxed.

[Warren Stupidity]

57. wrongo

generally a sales tax does not apply to putting money in the bank, purchasing financial securities such as t-bills, stocks etc. and I guarantee that this will certainly be the case in any legislation out of the corporate-fascist-theocracy in washington.

[googly]

67. You don't know and I don't know what will come out of the congress

but clearly all sales will be taxed, and when you buy
bonds or stocks, SOMEONE IS SELLING THEM to you, so they
will get taxed, you can bet on it.

[atre]

68. Wrong

The national sales taxes being debated about are CONSUMPTION taxes, meaning that the purpose is to encourage savings and investments. In fact, a consumption tax, by definition, must include exemptions for SAVINGS or INVESTMENT transactions. If you buy a certificate of stock or any other security or if you put money in your bank, the sales tax doesn't hit you.

If you buy a loaf of bread, you're SOL.

See the Chicago Tribune, Mar 17, 2005 edition and the Daytona Beach News-Journal, Tuesday, March 8, 2005 edition. From the latter:

"Speaking to a presidential commission that will make recommendations in July on overhauling the tax code, Federal Reserve Chairman Alan Greenspan said it's time to think of moving away from taxing income and to start taxing consumption instead. In other words your wages, profits on investments or your lottery winnings wouldn't be taxed. But your purchase of a house or an SUV or a pound of meat could be. (States, counties and cities levy such taxes already; the federal government would get in on the taxing.)"
http://www.commondreams.org/views05/0308-33.htm

[googly]

70. The best way to tax stock transactions is to eliminate capital gains

tax. Two reasons....first it is a monumental jobs to keep
records of each transaction. You have to keep record of
every putchase & sale, stock splits, stock dividends, return
of capital, etc. It is a nigtmare. And if you hold a stock for
many years, these records become a true nightmare.

I bet many capital gains never get reported correctly.

Therefore I am in favor of a transaction tax (identical to
sales tax) paid by the buyer. The treasury will always collect
on each and every transaction, if the broker is required to
collect the tax. Another benefit to the investor is that
he does not have to pay capital gains as a result of inflation.

[atre]

66. Sales taxes do not apply to investments

nm

[MaineYooper]

4. regressive, regressive, regressive...

unless you put an exemption on food, clothing, etc.

or perhaps consider a progressive sales tax of some sort- the more expensive the item, the higher the tax rate...

[BlueEyedSon]

11. Also it's regressive regressive regressive

get it yet?

[PeaceProgProsp]

34. That wouldn't make it more progressive.

You're assuming rich people buy more expensive things.

Progressive means that the more wealth you have, the more you pay on the next tier of wealth you receive.

If a poor person had to buy something expensive, the higher tax on more expensive items would just compound their tax burden.

I think what you want to say is that the wealthier you are, the more you should pay in sales tax, regardless of what you're buying -- and therein lies the problem with sales tax. It's a tax on what you spend rather than what you have or what you make, and the connection between spending and earning isn't as tight as people think.

As noted above, poor people tend to spend more of their income, which is definitely true. As for the assumption that they tend not to buy expensive things, I think the correlation is a little more loose.

I think another problem is that a lot of spending by wealthy people is extremely elastic, whereas spending by poor people is much less elastic. If a rich person wanted to spend 1% of her income as a way to avoid taxes, she could, easily. A poor person would have a very hard time reducing her spending from 110% to 100% of her earning, I assume.

I'm not sure that it's a good idea to let the allocation of the tax burden on wealthy versus poor to rest on such easy-to-avoid-for-the-rich tax structures.

[Fenris]

5. Regressive taxation....the burden is placed on the lower classes.

[paineinthearse]

7. It's totally regressive

Penalizes the poor and middle class, the rich will laugh all the way to the bank.

[kentuck]

8. Also, people spend less when times are tight....

and just when you need more revenues, you will get less, only multiplying the seriousness of any downturn or recession.

[boomboom]

10. It would also allow

manipulation of national revenue by those with disposable income. If you didn't want to pay for an unjust war, you'd just purchase less in a given year. What a savings incentive!

[Tux]

17. True

Americans could protest anything RWers try to do but cutting spending. Just like I do to RIAA by buying really cheap jazz CDs, we could cut out some funding if we don't like how things are going by not buying.

Got to love the idea if it wouldn't harm small businesses, poor people, and retailers in general.

[Lone_Wolf]

12. It forms a government incentive for higher prices...

In theory, the government is suppose to crack down on price fixing, monopolies, or anything else that artificially inflates prices. With a national sales tax, the government has an incentive to keep prices inflated because they will collect more tax revenue. Thus, they would be less apt to prosecute cases of price fixing... even more so than the do (or don't do) now.

Personally, I think the national sales tax system would be the most fascist in nature. A better system would be a progressive tax on inheritnce.

[nonconformist]

13. Another great point nt

[LSdemocrat]

14. The ultra-rich actually spend the lowest percentage of their income

[karynnj]

16. It'sa very regressive tax

The lower your income the higher percent of it you spend, thus the higher your tax rate.

[oneold1-4u]

18. Fair share taxation? Never happen!

One would say that if the rich have more to spend and so that logically they would share the tax burden. The truth is that a rich person can purchase any high priced item, be it a yacht, limousine, or jet airplane, any where in the world they wish and never have to pay a dime of sales tax or any type of license (tax) in the US! The average citizen buys a car and must license it in the state of residence, an example, in CA, one pays the sales tax at time of purchase or at time of registering, but any rich person who has any kind of international ties to family or business never has to do this!

[applegrove]

20. If it is imposed on top of a progressive income tax system it is okay.

It would pay for things like health care.

If it replaces the progressive income tax system..well then it is a blatant regressive tax with the middle class paying a higher percentage of their income in taxes than the rich do. The poor would be paying the highest percentage..but I assume there would be a rebate for them.

[lostinacause]

29. Food, and possibly other necessities, is not expected to be taxed.

These make up a large amount of the expenses of the poor. They would be paying less tax then the middle class without a rebate.

[applegrove]

31. Less tax, but a higher percentage of their income. They spend all their $

[lostinacause]

33. The less wealthy will spend higher percentage of spending on food

and other necessities under either type of tax system.

[applegrove]

39. And any penny extra they spend on non-necessities (like a hairbrush or a

haircut). And they have no savings. The rich & the middle class are not spending any percentage of their savings on the new sales tax. The working poor do not have that category.

If the tax is not on top of a progressive income tax.. the tax is regressive.

[lostinacause]

52. The biggest problem actually becomes defining necessities.

Things like water and clothing are first necessities and then as consumption increases they become luxuries (watering grass, designer clothes). There seems to be fairness in taxing everyone the same tax on certain purchases. Benefit derived from living in a nation seems to be related to the amount of luxuries consumed.

Also the tax system is not the most effective way to pursue equality. If used to excessively it generally leads to solutions that are only good in the short run.

[More Than A Feeling]

21. If you don't want to plunge us further into deficit

the level of the retail tax would have to be something like 50-60%, according to Joel Friedman, a senior fellow at the Center for Budget and Policy Priorities, who spoke to our class this morning.

That would kill economic growth and hurt the poorest of the poor.

[nonconformist]

23. Holy cow

People would freak out all over the spectrum if that happened. It's a lot easier to deal with losing money you never see (payroll taxes) than loosing it piece by piece out of your pocket daily.

[lostinacause]

27. I think 50% is a little high.

I don't know what the weighted average tax is but I imagine it to be around 40%. The conservatives always seem to list numbers between 20% and 30%, how unrealistic is that?

[PA Democrat]

37. Analysis from the Institute on Taxation and Economic Policy estimates 50%

<snip>

The fact that the sales tax, even by its proponents’ own figures, entails a 30 percent tax rate is only the beginning of the math problems. Allegedly, almost a third of the projected sales-tax revenues are supposed to come from taxes that the government will pay to itself.

Our findings did not differ significantly whether we applied a slightly lower rate to a slightly broader tax base or a slightly higher rate to a slightly narrower tax base. Build a road, pay yourself a tax. Buy some planes for the Air Force, pay yourself some more. And so on. Unfortunately, that can’t work. Without these phantom governmental tax payments, the sales tax rate would have to jump to 42 percent to break even.

In addition, a quarter of the remaining sales taxes are supposed to be paid on things like church services, free care at veterans hospitals and a variety of hard-to-tax financial services like free checking accounts. If we disregard the supposed taxes on these items,
the sales tax rate would have to climb to 50 percent or more to break even.

http://www.itepnet.org/sale0904.pdf

[lostinacause]

54. So, which is hgher a 40 % income tax or a 50% sales tax?

This is a trick question. You can not compare the "percent of" to a "percent added"

Say an individual has 150 income
Under a 40% income tax the individual has $90 to spend

If an individual buys a $100 good at a 50% tax rate they would pay a total of $150 therefore they would have $100 to spend.


As a result a 50% sales tax would be equivalent to a 33% income tax equivalent (a little lower then I estimated).

[PA Democrat]

60. I'm not sure what your point is

Your analysis assumes that people in the top income bracket are spending 100% of their income. The wealthiest Americans spend considerably less than they make, and thus accumulate wealth which would not be taxed. People in lower income brackets, however often do spend close to everything they make, and sometimes more, when you consider debt.

So for people in the top income brackets, the sales tax would be a great deal if they are not spending all of their income. For people in lower income brackets, they will be paying MORE in taxes if they are spending 100% of their income.

The point of this analysis is the REGRESSIVE nature of a national sales tax.

[lostinacause]

65. My point that the 50% number is misleading

I do agree that it is a less progressive then the current system. The progressive nature is not the most important thing regarding a tax system. The net effect (including distribution of income and taxation) is what is important.

Using a basic assumption that efficiency increases the growth rate it is possible that a less progressive tax that benefits the poor in a short period of time. When you have an income tax system such as the one in America there are various inefficiencies. (Time, cost to collect, cost to audit, cost of people cheating, deadweight loss of taxation) Time, cost to collect, cost to audit would all go down under a sales tax system. From an equality standpoint I don’t think the reduction in cost from this system alone would solve the problem. If you combined a sales tax with an economically efficient gas tax (economic gains) and taxes on pollution (no economic gains or losses) you could probably get the levels of efficiency that would make a sales tax beneficial to almost everybody.

The set of taxes would be incredibly hard to implement especially with gas prices the way they are and the taxes the political spectrum.

[ret5hd]

38. when was the last time the conservatives told you the truth?...

or even, if they made a "mistake" in what they told you, the "mistake" was in YOUR favor?

I see this question AT LEAST every month on this board, and EVERY time this question gets the same answers, and NEVER does the original poster come with any new arguments for this proposal. Yet, i see that you have been registered here since 2003.

What gives?

[lostinacause]

53. Sorry, the "how realisic was that" was a sarcastic question.

I should have been more explicit. I've talked to some (otherwise) very smart people who think for some reason that the tax rate could go down to the 25% range without cutting spending.

[left is right]

22. I think it would be bad on the economy

We all have price ranges in our heads for the things we buy. If an item cost more than what this "head price" says it should be We probably won't buy the item. This price is based in part on what we paid for it when we were either children or just beginning to pay for things ourselves (ajusted of course for inflation and increase in wages.) For instance, I can not bring myself to pay more than $1.09 for a 2-liter of Coke. If it hits a $1.19, I buy another cheaper brand or do without. (However, I will spend $3.00 for a coke over ice in a movie theather--go figure.) I have a set price range for almost everything I buy. My "head price" does not make exceptions for sales tax, so I figure that twice perhaps even three times the tax and there will be many things beyond my price range. When that happens, I will do without on the luxury item and cut back on the essentials.

[Lydia Leftcoast]

25. Even a 2 percentage point increase in Japan's national sales tax

(currently 5%) caused a huge cutback in purchasing.

[lostinacause]

28. Was the 2 percent increase a change in

how the tax was carried out or was it an increase. If it was in increase the same pattern would not hold true. There would be some confusion in the short run which would cause a temporary cutback.

[Lydia Leftcoast]

30. It was an increase from 3% to 5% at a time when the economy

was beginning to go into recession.

There was a flurry of purchases of big ticket items before the rise went into effect, but purchases of non-essentials slumped so badly after it went into effect that merchant associations had to hold massive profit-killing clearance sales to get their stock moving again.

[sandnsea]

32. On the Surface

Exactly. Everything they say looks good on the surface. A cakewalk war to grab oil looked good on the surface (to some folks). It's when you peel back a layer or two that you discover you've got worms eating at the core.

Illusions, they're the party of Illusions.

http://www.lightupthedarkness.org/blog/default.asp?view=plink&id=681

[nonconformist]

36. Preach it

Exactly. That's why I knew there was more to it... I know where their interests lie.


Thanks everyone for all the information. I am convinced now that this is NOT a good idea whatsoever.

[spooky3]

35. Kuttner: "Beware A Sales Tax..."

http://www.businessweek.com/magazine/content/05_16/b3929030_mz007.htm

Sorry if you have to subscribe to read it all.

" President Bush is having a difficult time selling Social Security private accounts to America's middle class. But just wait for the backlash when he proposes his tax reforms. Packaged as tax "simplification" and savings incentives, the likely changes would shift the tax burden from the rich who tend to save more (they have more to save) onto the middle class.

As people rush to meet the Apr. 15 tax deadline, a tax commission appointed by President Bush is laboring to produce recommendations toward the President's stated goals of simplifying taxes, maintaining revenue neutrality, and promoting savings and growth. This charge is a mission impossible.

It's an open secret that the commission is expected to offer a blueprint for the longstanding conservative goal of shifting taxation from income to consumption. The simplest mechanism would be a national sales tax. Unfortunately, to be revenue-neutral it would also require a sales tax rate of about 60%, according to calculations by William Gale of the Urban-Brookings Tax Policy Center. That's because taxable retail sales are less than a third of all economic activity. A revenue-neutral national sales tax would produce a massive shift of the tax load on to middle- and lower-income taxpayers. So it's a political nonstarter..."

snip

[indepat]

40. It's just another pukey Repuke regressive tax scheme like all their

tax schemes: tax the shit out of every dime of those who live from paycheck to paycheck or have a hard time acquiring any significant savings/wealth, but leave most of the income of the most affluent largely unfettered with taxes. Then that wealth will trickle down to the little people like magic.

[UdoKier]

41. 70% tax on all income over $1 mil. tell me why it's bad

With the sales tax, it's obvious. It would he extremely regressive and a huge burden on the poor and working classes.


Finding any problem with my tax idea is much harder, IMO.

[Warren Stupidity]

58. this worked just fine from 1936-1980.

http://www.truthandpolitics.org/top-rates.php?print=yes

1981 was the year that the corporate fascist theocracy first started exercising its power. Since then we have handed the country over to billionaires, corporations, lunatic fundamentalists, and imperialist maniacs. 24 years of madness.

I keep waiting for the pendulum to swing back, but the floor keeps tilting underneath me.

[Cats Against Frist]

42. If we're going to go with wacky, right-wing tax schemes

I'd rather do the flat tax thing, while, at the same time, reducing MASSIVELY the tax suckage of the federal government, and keep more money at local levels -- including a re-vamped "non-cookie jar" social security plan that can't be raided by the neocons for war and tax cuts.

It has the added benefit of making the Republicans look like assholes, because they would never go along with it -- and it's what they've been "preaching" for years.

[applegrove]

43. Putting the burden onto the Middle Class will train them to hate SS.

And all other government programs. So a National Sales tax to replace income tax.. also allows the uberrich to disappear. Nobody will ever know how rich they are. What a wet dream for them eh?

The whole point is to squeeze Americans into becoming tribal and less empathetic. To evolve them into cold hearted neocons.

That is the problem.

[googly]

44. The BEST thing about NST is that corporations can't hide from

paying taxes. Currently they have all kinds of loop holes.
The average corporate tax rate paid is far lower than personal
tax rate. With the NST if they sell here, their products generate
tax revenue.

NST also takes away the billions lost each year to the underground
economy, which includes illegal drugs. Those drug king pins will pay
when they go out and buy flashy cars, clothes, vacations, and villas.

[Warren Stupidity]

59. Here is how to recoup the tax revenue lost to illegal drugs:

legalize them for adults and tax the hell out of them.

Oh and corporations will not be paying the national sales tax, you and I will. NST is a hideous regressive tax policy. See other posts here. To be revenue neutral the NST would have to be between 40-60%.

If you want corporations to pay their fair share how about raising the corporate income tax instead? Duh.

[googly]

69. Yes and No

Agree completely about drugs.

As for the corporate income tax, it is NOT paid by the
corporations, it is simply passed on to the consumers.

[meow2u3]

61. It's also unconstitutional

Nowhere in the Constitution does it allow for a sales tax. The Constitution would have to be amended to allow for one--and they do not have the votes either in Congress nor in 38 state legislatures. So that's off the table unless the repunks want to follow their SOP and flout the law of the land.