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GOP Discusses National Sales Tax

Old 12-01-04, 02:07 PM
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GOP Discusses National Sales Tax

http://www.foxnews.com/story/0,2933,140076,00.html
GOP Discusses National Sales Tax

Wednesday, December 01, 2004

WASHINGTON — While Republican leaders of the House and Senate are huddling for the next two days in Norfolk, Va., to chart the agenda for the upcoming Congress, White House officials meeting with them on tax reform are likely to debate the idea of a national sales tax (search).

President Bush and House Speaker Dennis Hastert (search) have both said the idea of a national sales tax deserves a serious look. For many, the idea of a world without the Internal Revenue Service is very seductive.

"We spend about $400 billion a year complying with the tax code. We spend $200 billion a year just filling out IRS paperwork," said Rep. John Linder (search) , R-Ga., who has proposed a bill that would create a national sales tax.

Proponents have spent millions on research and have concluded that a national sales tax can replace the income tax, payroll tax, estate tax and corporate tax. Advocates say the new tax would lower the cost of manufacturing and job creation and attract foreign investments, among other things.


"If we were to get rid of the sales or the income tax and the payroll tax and all compliance costs, we would be so ferociously competitive in a world economy that corporate America would not be competed with unless foreign corporations started building their plants in America," Linder said.

Proponents seek a 23-cent national sales tax on all retail goods, everything from groceries to clothes, cars to electronics. Everyone would pay the same rate, which critics argue is part of the problem.

"If you consume $40,000 a year and you make $50,000 a year, would you feel it is fair if a guy who made a half a million dollars a year but spent $40,000 a year paid the same tax you do? I think you wouldn't feel it's fair," said Buck Chapoton, former assistant treasury secretary.

Sales tax advocates say the rich will always consume more than people in the lower and middle classes, and will pay wealth that is untaxed now.

"The current tax only taxes income. This tax taxes wealth. There are a lot of people who have inherited huge sums who are paying no income tax whatever, they will pay taxes when they spend it," Linder said.

Critics contend that the sales tax would have to be higher than advocates advertise.

"It would require at least a 30 percent rate, that's a very high rate and may create tax evasion on its own," said Chris Edwards, a tax analyst with the Cato Institute. "The highest state sales tax we've got right now is only 11 percent. So there's a great unknown here, would the government be able to actually collect a 30-percent sales tax?"

Sales tax backers say their tax is relatively easy to collect — forty-five states already do it — and the tax would collect revenue from the vast, underground economy.

"About a trillion dollars now is in the underground economy, untaxed. That's just three items — pornography, illicit drugs and illegal labor. We wouldn't make them more legal if we had a sales tax, but what we would do is tax them when they spent it for personal consumption," Linder said.

Critics say two categories of Americans won't like the sales tax: millions who don't pay federal income taxes and workers about to retire who could see their nest eggs devoured by a large and unexpected sales tax.
Thoughts?
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Old 12-01-04, 02:10 PM
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Re: GOP Discusses National Sales Tax

Originally posted by Geofferson
http://www.foxnews.com/story/0,2933,140076,00.html

Thoughts?
Foolish?

Lets shift more of the tax burden to the middle and lower classes. When you're living paycheck to paycheck, more of a percentage of your income goes to buying stuff, so more of your income will be taxed under a national sales tax.
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Old 12-01-04, 02:12 PM
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Re: Re: GOP Discusses National Sales Tax

Originally posted by VinVega
Lets shift more of the tax burden to the middle and lower classes. When you're living paycheck to paycheck, more of a percentage of your income goes to buying stuff, so more of your income will be taxed under a national sales tax.
How is that? The plan calls for refund checks to lower income people.

Keep in mind what percentage Teresa Heinz-Kerry pays in taxes.
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Old 12-01-04, 02:14 PM
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I've been hoping something like this would come into serious debate for awhile now. (I'm still not holding my breath by any means.)

To call the Tax Code complex is to call Richard Simmons happy. Food and supplies necessary for sustinance would not be taxed. Other items would be. I think this is the fairest system. Would it work in practice? I don't know. This is where the "serious debate" would come in. I sure would like to see it discussed.
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Old 12-01-04, 02:16 PM
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I favor it because I think it actually gets the wealthy to pay taxes. However, I personally take advantage of so many loopholes, etc. that I would hate this happen. I would certainly pay more in taxes.
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Old 12-01-04, 02:17 PM
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Originally posted by Goldblum
Food and supplies necessary for sustinance would not be taxed. Other items would be.


Soooooooo we would be more like Canada!
Bikes not taxed, books not taxed.....but hold on to your wallet if you want a car or junk food.
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Old 12-01-04, 02:22 PM
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Re: Re: Re: GOP Discusses National Sales Tax

Originally posted by X
How is that? The plan calls for refund checks to lower income people.

Keep in mind what percentage Teresa Heinz-Kerry pays in taxes.
There's a big difference between simplifying the tax code and scrapping it all together. If you want to take out Ketchup lady's loopholes, I'm all for that.
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Old 12-01-04, 02:23 PM
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They can talk all they want. Unfortunately any kind of major reform, whether it is to this system or another, isn't going to happen. I'd settle for my state dropping the income tax and adding a sales tax though.

This plan would save me tons. I'd probably end up paying 1/4 of what I did last year. 23 doesn't seem like a high enough percentage to actually work.
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Old 12-01-04, 02:24 PM
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"The current tax only taxes income. This tax taxes wealth. There are a lot of people who have inherited huge sums who are paying no income tax whatever, they will pay taxes when they spend it," Linder said.
If only there were some way to tax huge sums when they are inherited...

"Please have mercy on me when you sentence me for the murder of my parents," Linder said. "You see, I am an orphan!"
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Old 12-01-04, 02:24 PM
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it will never happen, nor will a flat tax

the lobbyists will kill it

didn't the original income tax start out with a set of rates and no deductions?
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Old 12-01-04, 02:36 PM
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I would be for it only if they first eliminated federal income tax. What always happens is one more tax instead of another but with the original one still ongoing.
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Old 12-01-04, 02:40 PM
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Originally posted by bhk
I would be for it only if they first eliminated federal income tax. What always happens is one more tax instead of another but with the original one still ongoing.
The plan is to repeal the 16th Amendment before enacting the sales tax so that can't happen without another amendment to the Constitution.
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Old 12-01-04, 02:44 PM
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This bit of 'logic' always gets me.

""If you consume $40,000 a year and you make $50,000 a year, would you feel it is fair if a guy who made a half a million dollars a year but spent $40,000 a year paid the same tax you do?'

First, many of the proposals I've seen offer a credit/rebate for everyone in an amount to cover the 'basic needs'. If they buy nothing more than that, then they'll break even.

But, more importantly, who is more likely to spend more money? The people with more money. There aren't too many 500k earners who only spend 40k/yr. If they buy one 2 million dollar house, that's 460k in taxes right there based on 23%, which is more than the 50k earner may pay in decades.

Tax everything at X rate. Give everyone a rebate to cover the 'essentials'. Nothing but fair. No longer punishing those who earn more or are better at managing their investments, shows the 'true tax' cost of purchases to everyone, and gets its hands on a lot of money that is missing right now [illegal income from crime, or under-the-table income.] Money exists to be spent, now or later, as it's spent, it's taxed at the same rate. No longer wasting years hunting down Al Capone for tax evasion, he 'makes' more money, he spends it, he'll pay the taxes. No longer do you have to watch your retirement to make sure you won't make more than X to get socked with the higher rate.

The only arguments I've seen against this have been:
* It's not 'fair', based on an unrealistic example [the idea that Bill Gates spends only as much as Joe Sixpack.]
* tax burden shifting to the 'poor' [FairTax.org has got some great numbers on how this is totally false]
* and 'It won't happen, so let's not even talk about it.'

I would be surprised if it does happen; there are too many lobbyists and others begging for their tax exemptions/credits. But I would love to see it happen.

I definitely agree, it needs to *replace* all other federal taxes. Otherwise there's no point to even bothering, and of course then it'll just be 'another tax.'
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Old 12-01-04, 02:51 PM
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Originally posted by dtcarson
But, more importantly, who is more likely to spend more money? The people with more money.
That's not entirely true. Most wealthy individuals get that way by doing the exact opposite.....not spending anything.
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Old 12-01-04, 02:52 PM
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"About a trillion dollars now is in the underground economy, untaxed. That's just three items — pornography, illicit drugs and illegal labor. We wouldn't make them more legal if we had a sales tax, but what we would do is tax them when they spent it for personal consumption," Linder said.


Pornography isn't legal?

This is a good point, though. Right now, there's no way to tax the income of drug dealers or illegal workers. I wonder how much extra revenue a national sales tax would bring in when the income from these two groups is spent?
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Old 12-01-04, 02:55 PM
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I think national sales taxes work fairly well in some other countries, where they don't have a federal system of government like we do here. In the U.S. we have so many layers of government with the ability to tax citizens that I don't see this as all that promising. Still, I'm certainly in favor of both a more simplified tax system and lower taxes for everyone, but I'm initially skeptical that this is the answer.
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Old 12-01-04, 02:55 PM
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That's not entirely true. Most wealthy individuals get that way by doing the exact opposite.....not spending anything.
Yes, millionaires don't get that way by buying mansions, yachts, Ferraris, etc...
"The Millionaire Next Door" debunks the myth that people who are ordinary millionaires(not celebrities) lead lavish lifestyles portrayed in the movies.
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Old 12-01-04, 02:58 PM
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to have the most effect, the tax needs to be placed mostly on B2B transactions. there are a bunch of "ethnic" restauraunts in NYC where the primary language isn't english that do most of their business in cash. there are also a lot of stores in some areas where if you come in speaking the right language and pay in cash, you can avoid the sales tax.
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Old 12-01-04, 02:58 PM
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Originally posted by dtcarson
Tax everything at X rate. Give everyone a rebate to cover the 'essentials'. Nothing but fair. No longer punishing those who earn more or are better at managing their investments, shows the 'true tax' cost of purchases to everyone, and gets its hands on a lot of money that is missing right now [illegal income from crime, or under-the-table income.] Money exists to be spent, now or later, as it's spent, it's taxed at the same rate. No longer wasting years hunting down Al Capone for tax evasion, he 'makes' more money, he spends it, he'll pay the taxes. No longer do you have to watch your retirement to make sure you won't make more than X to get socked with the higher rate.
Notwithstanding the loaded rhetoric, graduated taxes are not a punishment and never were. And if you think people won't try to evade a 23% sales tax, I've got a bridge in Brooklyn to sell you (tax free!) And since we don't have any tax rates greater than 100% (hell, we don't have any tax rates greater than 40%), you never, never, never, never have to "watch your retirement to make sure you won't make more than X to get socked with the higher rate."

The only arguments I've seen against this have been:
* It's not 'fair', based on an unrealistic example [the idea that Bill Gates spends only as much as Joe Sixpack.]
* tax burden shifting to the 'poor' [FairTax.org has got some great numbers on how this is totally false]
* and 'It won't happen, so let's not even talk about it.'
Sales tax proponents love to talk out of both sides of their mouth. On the one hand, a sales tax encourages savings, but on the other hand, rich people will spend a lot of money

As for shifting the burden to the poor, since the poor spend the vast majority of their income, and since the poor would be paying the same rate as the rich, by definition, this would shift the tax burden toward the poor.
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Old 12-01-04, 03:01 PM
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Problem with the Republican version of the sales tax:

The 23% sales tax figure they say will get the job done is disputed by most of the experts. They say at least 30%.
That will push up the cost of goods (the Republican plan is to tax everthing at the same rate) beyond the reach of some folks.

Can you imagine a lower-income senior paying 41% sales tax for a loaf of bread?
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Old 12-01-04, 03:02 PM
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Originally posted by wabio
That's not entirely true. Most wealthy individuals get that way by doing the exact opposite.....not spending anything.
I would think *very few* wealthy individuals get that way by not spending anything. Not every 'wealthy individual' is a Clark Howard.

They may scrimp and save for a while [which is not a bad thing] but there's only three reasons for that:
* so they can have more money to spend later;
* to provide for retirement; and/or
* to leave an inheritance.

No matter how they made their money [hard work/savings, inheriting, lottery, great idea patented, stock sales, right place/right time], the point is, eventually it will get spent, they're not Scrooge McDucks sitting in their vaults playing with their gold coins.
And with a sales tax, rather than the multitudes of punishing income and inheritance taxes, perhaps people can save for two, three, five years, and become as wealthy as it would take them 10-30 under the current regressive tax structure.
My parents aren't 'wealthy' but they're well off. And now that they have spent some years saving money and living a thrifty lifestyle [again, a good thing] to get that way, they are not averse to spending money. They currently own two boats, two houses, and are buying a third house. They go on a cruise every year, and are quite generous with their family.
And again, even if Bill Gates doesn't spend 'anything' for five years, he eventually buys his 500k house which pumps a lot of tax dollars back in.
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Old 12-01-04, 03:03 PM
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The repeal of the 16th Amendment doesn't mean anything.

IMO, the courts would hold that congress had the right to reinstitute an income tax even it were repealed.
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Old 12-01-04, 03:14 PM
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Originally posted by wabio
That's not entirely true. Most wealthy individuals get that way by doing the exact opposite.....not spending anything.
I believe most wealthy individuals get that way by investing their money or by saving it in banks. Not by keeping it under their mattresses.

The money they invest or save is borrowed by others to build up businesses, buy homes, and other things that grow the economy. One of the purposes of a consumption tax is to encourage saving money so more of this type of activity can take place.
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Old 12-01-04, 03:19 PM
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Originally posted by classicman2
Problem with the Republican version of the sales tax:

The 23% sales tax figure they say will get the job done is disputed by most of the experts. They say at least 30%.
That will push up the cost of goods (the Republican plan is to tax everthing at the same rate) beyond the reach of some folks.

Can you imagine a lower-income senior paying 41% sales tax for a loaf of bread?
Actually, it will lower the cost of most goods, or at least they will remain the same; currently the costs of taxation across the board are tied into the price of a product, [the "hidden costs of taxation"] which currently gets an *additional* [visible] state sales tax added to it [in many states].

About the rate itself--I don't have the numbers, I don't know what number would be optimal. I've seen numbers from 21 to 26%, and certainly lots of research should be done to decide the correct rate, because I don't think we want to be changing it every two years.

Some people will certainly try to evade a 23% sales tax. There are many people who want everything for free, as long as someone else is paying for it. If the tax rate were .5%, someone would try to evade it. There are cheapasses everywhere. And the current system offers them loads of opportunities to do so [vis Teresa Kerry paying 12% or whatever it was, while I'm paying 25-40% in combined state and fed.] A national sales tax, by linking to a purchase, will be harder to evade in most cases--many states already collect sales taxes, so collecting a national sales tax would be only a slight bit more bureaucracy for them [and overall much less].

"Loaded phrasing" notwithstanding [Look! I have two sides to my mouth!] I don't see how these two are mutually exclusive:
"On the one hand, a sales tax encourages savings, but on the other hand, rich people will spend a lot of money"
So the 'poor' have the OPTION to spend, because now their tax burden is *directly* in their hands and very visible. They can decide to save money and live thriftily [a good thing], so that they can then become wealthy [even though it's apparently a sin to be wealthy], and can *then* spend more of their money. Would they rather buy a used Kia every two years, or save up and buy a new BMW or Lincoln every ten? A simple lesson taught to many of us as children--if you want something, you should save for it.

About the 'ethnic' stores where you don't pay sales taxes, that's certainly an issue, but that's not a flaw in the national sales tax idea--that's a segment of society deciding not to comply with the laws. Maybe NY thinks their tax proceeds aren't enough to go after, but if a national tax is added to it, there will be an increased interest in compliance.
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Old 12-01-04, 03:22 PM
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Originally posted by X
I believe most wealthy individuals get that way by investing their money or by saving it in banks. Not by keeping it under their mattresses.

The money they invest or save is borrowed by others to build up businesses, buy homes, and other things that grow the economy. One of the purposes of a consumption tax is to encourage saving money so more of this type of activity can take place.
Exactly. Even if Bill Gates doesn't spend any of his billions, it's somewhere where someone *else* can borrow it and spend it, or invested in stocks which means a company [those evil things] can now hire more people or invest in R&D. Just like it's not under someone's mattress, the banks don't keep it in a big lockbox either. So Joe Six Pack, who wants to work 90 hours a week at his *own* business, can borrow the money to start up, and perhaps then he can live frugally for a while because he wants to become wealthy on his own, rather than seeing his salary from someone else go up, and his tax bite go up at the same time.
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