And there are around 20 nations through the world right now that have some form of a national sales tax plan. BUT...not one of them had gotten rid of an income tax. They just now have both.
For me, the national sales tax system is a no-brainer. It is not a realistic policy and it is not a fair policy. It places an unfair tax burden on the poor, and an even greater tax burden on the middle class. The plan would give the upper class a huge tax cut, and increase the taxes that the middle class are paying. I will not be able to vote for a politician who supports this tax system.
So...let me know what you think. I know that this is not a perfect argument against a national sales tax, but it is a start.
UPDATE: Someone has claimed that no one but right wing bloggers have talked about the National Sales Tax, and that my posting was "discussing a topic with a far Right bias"...but he is wrong. Democrats are even campaigning against GOP proposals for an NST. See Kos for more details. You also have Dennis Hastert and Tom Delay who have both proposed some form of an NST.
Article comments
— go to most recent comments1 - RJ
"Look, say Person A makes $18,000 a year ($1500/month) and person B makes $180,000 a year ($15,000/month). Both people need $12,000 ($1,000/month) worth of essential goods. Both people pay 25% sales tax, which comes out to $250 a month. A is paying 16.66% of their income to taxes, while B is paying 1.66 % of their income. The rebates don't really make up a difference, because A and B both receive the same discount."
With all due respect, this is a terrible example. It assumes, first of all, that neccesities like food and medicine will be subject to the tax. (I oppose this, though some advocates of a national sales tax might not...)
It further assumes that someone making $180,000 per year is only going to spend $12,000 of that. That is highly unlikely. While they may very well invest a portion of that income, and that would presumably tax-free (at first), they are surely going to spend more than just to cover the bare neccesities of life. They are, after all, pretty well-off.
Third, any amount of income they invest will eventually become liquid again, and will be spent. And will therefore become subject to the nat'l sales tax at that point in time.
Now, there are several reasons to oppose the NST. One is that black markets are certain to develop and prosper, and this will undercut gov't revenue. Also, economic recessions tend to dry up sales tax revenue much more than income tax revenue (which is why the states were so cash-starved after the brief 2001 recession: most state governments are heavily-dependent upon sales tax revenue, as opposed to income tax revenue). Therefore, budget imbalances will tend to be even more pronounced and dependent upon short-term economic prospects.
Still, a NST needs to seriously be looked at. It would eliminate a large amount of the overhead that we have to deal with in the current income tax system. And, frankly, it would be more "fair" to all taxpayers, and eliminate loopholes and special-interest-group tax breaks
2 - bhw
The example given, RJ, is not terrible. It's dead on. The poor *will* "end up paying a much higher percentage of their income, especially for essential goods" if the sales tax is a flat tax. If essential goods are exempt, then the poor will still pay a higher percentage of their income in taxes than the wealthy. The poor usually spend every penny they have just to get by; the wealthy don't. So you can figure that, if the tax rate is 30%, the poor will spend 30% of their income on taxes. Taxes will cost the wealthy only 30% of what they actually spend -- which is probably not everything they earn. That 30% hits a poor family a lot harder than it does a wealthy family.
3 - andy marsh
but why is that such a bad thing? Why do the rich HAVE to give up more of their income?
If, like it's suggested, that essentials are not taxed, why is it unfair that the more you earn, the more good stuff you get to keep, the more of your money you get to keep?
Why do I have to share with everybody else if I work hard and make more? As it is now, the more you make, the bigger the percentage you have to give to uncle sam.
What makes that fair? What makes redistribution of wealth such a good thing?
4 - dave
What makes redistribution of wealth such a good thing?
What makes it a good thing? The United States has by far the largest economic inequality gap among developed countries. A NTS would make this even worse.
This is much more than an argument on a NTS. It is a philosophical argument on rich vs. poor. It is about the role of government. My guess is that you and I are going to disagree on the matter no matter how much we comment back and forth (and that is okay, and I am not saying that we should not discuss).
I believe that the government should be doing something about inequality - whether it is economic, racial, gender, etc. The government should be doing things to protect the poor and provide them ways to get by.
And the rich do not "give up their income". They do give up part of their income in order to provide services to those that are not as fortunate as they are (among other things, like police, roads, etc). Not everyone can be wealthy. An opportunity for wealth and large incomes are based on many things, but one of the main things (if not the main thing) is circumstance. There is a reason that both Bush and Kerry are wealthy. Because their parents were. And their grandparents. Their is a direct correlation between parents wealth and their children's wealth.
Now...you may not see a problem with that. But I sure do.
And one more thing:
With all due respect, this is a terrible example. It assumes, first of all, that neccesities like food and medicine will be subject to the tax. (I oppose this, though some advocates of a national sales tax might not...)
If you read my complete post, you would have seen my conversation about the "rebate" that everyone would receive each month. This covers the neccessities. But this does nothing, as everyone would recieve this. Therefore the raw numbers stay the same.
5 - andy marsh
ok...and I don't disagree that we all should pay some tax...and I am not wealthy...but I don't see why the wealthy are taxed at a higher rate.
If they're going to spend more of their wealth, they're going to pay more of the flat tax. Buying all the stupid shit, like boats and mansions and all that. Wouldn't be the first time for a luxury tax.
6 - bhw
but why is that such a bad thing?
Well, I would think that a regressive tax, which disproportionately burdens the poor, would bother someone who doesn't like progressive taxes. Isn't a regressive tax system just as wrong as a progressive one?
Why should the poor have to give up 30% of their income when the wealthy give up a smaller percentage?
7 - andy marsh
I guess it's all about the angle you look at it from. You see it as a persons total income with your 30%. I see it from the sale side of it. Everybody pays a dollar on ten. No matter what your income level, you buy $20 worth of useless taxable shit. You pay $2 worth of taxes. People with more money, buy more useless taxable shit, therefore they pay more taxes. They pay more taxes, they're going to pay for the nice gimme's that every one else wants.
I'm just trying to keep this simple. I've never understood why there are volumes and volumes of this nations tax codes!
8 - boomcrashbaby
What I don't understand is why we teach our children to share, because when we get older we fight pretty hard to make sure we don't have to.
I don't know if I would want to get into a legal perspective over how much the rich vs. the poor should pay in taxes, I wouldn't know about that, but from a moral perspective, not wanting to pay more comes across as greed to me.
If I had 10 million and my tax was 50%, I would be absolutely estatic that I had, well, 5 mil.
I could live like a king and have the knowledge that I probably helped house several hundred people who needed shelter. I realize not everybody feels that way though, and that they need the full 10 million to be happy. I don't think I would have anything in common ideologically with such an individual though.
9 - bhw
Well, I think it's important to show how the tax actually affects real people. If you look at it as a percentage of income, then you can see how it affects people directly. Spending 30% of your income on taxes, if you make less than $20K per year and support a family, is a far different cost than spending *less* than 30% of your income if you make $1 million per year.
I doubt seriously that "essentials" would remain tax exempt for very long, if they even start out that way. I don't believe the theory that the only things that would be taxed would be useless crap. Is a book useless crap if you're a student, or is it an essential? Is a car useless crap? Is a toaster useless crap? Where do essentials start and end?
10 - dave
The way that they handle "essentials" is by giving a rebate. Everything would be taxed, and then you woul get a monthly rebate based on dependents and such. That way they get outside of the debate over what constitutes an "essential".
11 - andy marsh
Boom...I'm not saying that I'm not willing to give up some of it...I just don't think I should have to give up a disproportionate amount.
bhw - those kinds of things would need to be worked out. But I don't think books should be taxed now, I think it's taxing ideas...
as for small appliances and the like, you could put limits on it like, the first couple hundred was tax free. That way, if you bought the really useless bells and whistles, which someone with money is more likely to do, then you pay more taxes.
If I want to be a philanthropist with the millions of dollars that I don't have, then why not let me make the choice who gets what I give away?
12 - Mac Diva
Who* has been discussing this, Dave? I don't think economists or anyone seriously interested in public policy would give the notion of a national sales tax a passing thought. It would be a major violation of federalism. Even if it were legally feasible, it would be unworkable. I notice that you make no mention of replacing the sales taxes states would lose if a federal sales tax superceded them. Are they suggesting that people would pay both? That would leave many poor and working-class people homeless.
The author of the book you cited is part of the fringe movement to abolish taxes and a member of a political party so fringe that even I had never heard of it, Americans for a Free Republic. (They also have it in for the Federal Reserve, though it is not clear why.) The AFRs are, of course, libertarians, though they seem to be uncomfortable with the term.
Bad idea. Just another way to curry favor with the rich. (Who in most cases obtained their wealth the old-fashioned way. They inherited it.) Next topic, please.
*Oh, who is discussing a flat tax? Would it be Right Wing bloggers?
13 - RJ
"The example given, RJ, is not terrible. It's dead on. The poor *will* "end up paying a much higher percentage of their income, especially for essential goods" if the sales tax is a flat tax. If essential goods are exempt, then the poor will still pay a higher percentage of their income in taxes than the wealthy. The poor usually spend every penny they have just to get by; the wealthy don't. So you can figure that, if the tax rate is 30%, the poor will spend 30% of their income on taxes. Taxes will cost the wealthy only 30% of what they actually spend -- which is probably not everything they earn. That 30% hits a poor family a lot harder than it does a wealthy family."
bhw: You are a reasonable person. So, let's be reasonable.
If food and medicine are exempted, a large portion of what a "poor" family pays will not be subject to a NST. So they will not pay anywhere near 25% (is that is the rate that is arbitrarily chosen) of their income in taxes. It will be much less than that.
Those with more money will spend a smaller percentage of their earnings on tax-exempt neccesities. They will therefore pay a higher percentage than a "poor" family.
So, a NST is still progressive.
14 - RJ
And let me be clear:
Progressive income taxes are not imposed upon "the rich" or "the wealthy." They are imposed upon "high-income earners." In other words, small businesses, entrepreneurs, farmers, and those who have wroked and studied hard enough to become the big-wigs in a business. Why penalize these people, when they have worked so hard? Why take their money to give away to various social programs, when instead they could use it to create new private jobs?
15 - dave
those who have worked and studied hard enough to become the big-wigs
This is BS. People can work and study and then never have the opportunity to be a "big-wig". That is part of the problem. As much as we pretend we live in a "pull your self up by your boot straps" society, it is not true.
16 - dave
Who* has been discussing this, Dave?
Well...if you read my post you would see that Delay, Hastert, and Bush have all talked about it.
Are they suggesting that people would pay both? That would leave many poor and working-class people homeless.
Yes, they are suggesting that they would pay both. But their argument is that if people are not paying federal income taxes, they would have the money available to pay both. I completely agree with you that it would be ridiculous to pay a 30% federal sales tax and then also a 5-10% state/local sales tax.
The author of the book you cited is part of the fringe movement
I know...but I needed to cite a book, so I thought I would cite on somewhat on topic, even if it is a bunch of BS.
Bad idea.
I agree.
17 - andy marsh
it wouldn't need to be 30%...the GDP is like 12 trillion dollars! The federal budget is like 2 trillion. 20% will cover it.
18 - Mac Diva
Dave, not only did I read your entry, I used it at Mac-a-ro-nies tonight. However, I could not read what two of your links said because they are DOA. Here is the link to my follow-up entry. I'll have it up at Blogcritics later, if you want to comment. It had been awhile since I looked at the Articles of Confederation.
BTW, I hope you will consider posting such entries to both your blog and Blogcritics. I would much rather link to an individual's blog so that he gets credit for the reference.
19 - jj
If you look at the FairTax plan (fairtax.org) you will see that a rebate is provided equal to the taxes paid below the poverty level. Therefore the issue of what is "essential" is a waste of time. A person making $18,000 will most likely spend at least $15,000. The tax on $15,000 in spending is $4500 minus the rebate of $2800. This makes the total taxes paid for the year $1650 or 11% on all expenditures. A person making $180,000 would spend at least $150,000. The tax on $150,000 in spending is $45,000 minus the same rebate of $2800. This makes the total taxes paid for the year $42,200 or 28% on all expenditures. This tax is very fair and simple.
20 - dave
Yes...I have already mentioned that they would offer a rebate, which makes the talk of "essentials" a moot point.
But that does not mean that it is "very fair". Read above...I have already said why.
21 - jj
Dave I layed out this example to show you why a rebate does matter. It does change "the raw numbers" As you can see the more money you spend the higher the rate of taxation. On the flip side if you lived like my friend Todd on about $500/month your rate of taxation would be negative 16%.
22 - dave
no...Person A makes 100,000 a year, person B makes 10,000 a year. Both recieve the same rebate, so that keeps people at their same income levels. Essentially, if if both people recieve a rebate of 400 dollars a month, it raises each person's discretionary income by 4800 a year. Therefore Person A then has an "income" of $104,800 per year and Person B has an "income" of $14,800 a year. They then pay equal % of taxes on every item bought.
This then causes Person B to pay a larger percentage of discrentionary funds then Person A, which is very much regressive in nature.
23 - jj
Please see my original post, it explains in detail the progressive nature of FairTax. Your example is flawed: Person A would pay 25% in taxes and Person B would pay -18%. Person B would actually get $1800 per year in rebates more than they pay in taxes. Person B would be much better off than with the current system where at a minimum they pay 7.65% in Social Security Taxes. Additionally most economists agree the individual pays the other half of the SS tax as well. Therefore Person B in our present system would pay a minimum $1530 with the FairTax they would recieve $1800. Person B would be 33% better off with FairTax.
24 - Mac Diva
But, are you considering a national sales tax to replace the income tax, which would make it inherently regressive. Also, I am skeptical of any claim of a negative tax for the low-income. The purpose of a national sales tax is relief for the upper middle-class and wealthy. To claim it will benefit the low-income is surely snake oil.
And where are the revenues lost without an income tax supposed to come from under a national sales tax? Lemme guess. That old Right Wing standby -- waste in government. Another pretext I've heard is that the underground economy is withholding more taxes than are paid because of illegal immigrants. More bullfeathers. Unless you can plug huge gaps in rationality such as these, your plan is hopeless.
25 - jj
Yes, the IRS would be abolished, as would the social security tax. The national sales tax would raise the same amount of taxes as the taxes it replaces. However it would do it in a much fairer and simpler way. The negative tax would only apply to the very very poor. The rate of taxation, due to the rebate, would begin at a negative amount as shown above in the example increasing gradually to 30% for the most wealthy. The social security tax is extremely regressive and with our current income tax system the wealthy in many instances,with the help of teams of accountants and lawyers, pay a smaller percentage than much of the middle class. The present system with all its exemptions, deductions and 10,000 pages to hide who knows what is an unfair method to fund government and should be abolished.