Berkeley CSUA MOTD:Entry 32829
Berkeley CSUA MOTD
2019/01/22 [General] UID:1000 Activity:popular

2004/8/11 [Reference/Tax] UID:32829 Activity:very high
8/11    Rep. John Linder, R-Ga. has introduced a bill that would replace
        the income tax with a federal sales tax:
        \_ Conservative politicians will always be talking about a sales tax
           or flat tax.  There is a beguiling simplicity and sense of fairness
           behind every individual citizen getting taxed at the same rate, or
           only paying a federal sales tax.  That Bush said recently that the
           sales tax idea was "interesting" does encourage his base, but is
           also a strawman.  When all the liberals go bonkers over that,
           he'll just say, "well, then the tax cuts I have in place aren't all
           that bad, huh?"
           \_ You have a funny sense of fair.
              \_ Take it up with Adam Smith and construct a real argument
                 and get back to us. Learn what marginal utility is as well.
                 \_ Blah, blah, I know economics.  Yeah, well: Wassily
                    Leontief, a Harvard economist and 1973 Nobel winner in
                    economic sciences, once observed: "In no field of empirical
                    enquiry has so massive and sophisticated a statistical
                    machinery been used with such indifferent results."
                 \_ Fair is 0% or 100%.  Anything different and someone gets
                    treated differently.  No need for your personal abuse.
                    When you're really smart, you can come here and insult
                    \_ what does 100% mean?
                        \_ Totalitarian communism.
                           \_ This is such a strange answer, I guess I am going
                              to have to bite. What is 0% fair, then?
              \_ I don't think you realize that my post was in support of a
                 progressive tax system.
        \_ Well, although I don't think anything like this would happen, it
           does have the advantage of getting rid of the bloated carcas of the
        \_ This plan is not feasible. See:
        \_ Nobody should pay any taxes. Period.
2019/01/22 [General] UID:1000 Activity:popular

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Mark Gongloff, CNN/Money senior writer NEW YORK (CNN/Money) - President Bush and other Republican leaders have been talking about abolishing the IRS and replacing the income tax with a national sales tax. QUICK VOTE Would you support replacing federal income taxes with federal sales taxes? View results If that sounds like your idea of a dream world, keep dreaming -- it probably won't happen any time soon, analysts said Wednesday. Bush, answering questions at a campaign stop in Florida on Tuesday, said the idea of replacing the income tax with a national sales tax had some merit. "You know, I'm not exactly sure how big the national sales tax is going to have to be, but it's the kind of interesting idea that we ought to explore seriously," Bush said, according to a Reuters report. With that, he echoed recent calls by conservative lawmakers, including House Speaker Dennis Hastert of Illinois, to abolish the Internal Revenue Service and replace the national income tax with a flat tax, a tax on retail sales or a tax on all sales, called a value-added tax (VAT). The goal would be to take a flame-thrower to the Byzantine tax code and encourage investment, job growth and wealth accumulation by making investment and savings totally tax-free. The issue has special salience in an election year, in which Bush is looking for a big idea -- the vision thing, if you will -- that will please his conservative base and help carry him to re-election. " "Trying to eliminate the IRS by adopting a national retail sales tax is a very dumb idea." " Bruce Bartlett economist, columnist, National Review Online Still, while few would disagree that a world without an IRS would be a wonderful world indeed, the issue is a little more complicated than that. It's a lot more complicated, in fact, which is why Bush will probably not try to make this a campaign issue this year. a week ago that something big could come, that the White House needed to trot out something bold ahead of the convention," said Greg Valliere, political economist at Schwab Washington Research Group. "I've talked to several people who've come away from this thinking it's unlikely." "The feeling is that Bush might call for a study, a commission, a blue ribbon panel on tax change, but that, if you start talking about radical tax reform, it becomes a big, fat target for criticism." Conservative economist Bruce Bartlett, an adviser to President Reagan and author of the 1981 book Reaganomics: Supply-Side Economics in Action, illustrated this quite bluntly in a recent column for the conservative Web site National Review Online. "With all due respect to Speaker Hastert, trying to eliminate the IRS by adopting a national retail sales tax is a very dumb idea," Bartlett wrote. One of the biggest roadblocks to such a proposal is that it could entail doing away with tax deductions precious to many Americans, including the home mortgage deduction. Same thing with buying diapers and food for the kids -- say goodbye to the child tax credit. If you get sick, you'll be paying that 23 percent tax on your doctor and prescription bills, too. You could make such purchases tax-exempt, but that would push the tax rate on other goods even higher. In fact, that 23 percent rate is probably not what the rate would actually be, anyway. Bartlett said in the real world, it would be closer to 30 percent. Economist Robert McIntyre, director of Citizens for Tax Justice, a liberal think tank, said other estimates of the tax rate necessary to run the government have been even higher than that. "Imagine a 40-to-50 percent sales tax -- that would cheer everybody up," McIntyre said. What's more, a simple sales tax would punish people at the lower end of the income scale, who tend to consume almost all of their income in order to stay afloat. That means they'd be taxed at the 30-percent rate on their full income, while the wealthy would be taxed only on whatever part of their income they spend. If somebody making $500,000 spends $250,000, for example, they'd be taxed 30 percent of what they spend, or $75,000, which amounts to just 15 percent of their total income. That's called a "regressive" tax -- the higher your income, the less tax you pay -- and it is not a politically popular idea. What's more, McIntyre and some other economists believe, it will hurt the economy. If people are taxed heavily on their consumption, they'll be inclined to consume less, according to this theory, which will force businesses to produce less. "If people don't buy stuff, why would anybody invest in machinery to make stuff?" Supporters: sales tax would boost economy, cut prices Supporters of a national sales tax, however, say such concerns are misguided. For one thing, they argue that encouraging investment and spending will improve the economy, making everybody -- rich and poor -- better off. They also suggest that eliminating corporate taxes will cut the base costs for most goods and services. In other words, consumers won't be paying $130 for a $100 DVD player. Instead, the price of the DVD player could be cut to, say, $80. The 30 percent tax on that would take the final price to just $104 -- a negligible price increase, which could be followed later by price declines. "We will have more investment and business growth, which leads to lower prices, because more people will be coming to the marketplace with similar products," said Stephen Slivinski, director of fiscal studies at the Cato Institute, a libertarian think tank. What's more, they believe that people will be encouraged to work harder and earn more if they know Uncle Sam won't be taking some of their extra money. Liberal economists respond that the world isn't that simple -- do a Google search for "backward-bending labor supply curve" one day, if you have absolutely nothing better to do -- but the idea could have some political resonance. Slivinski also said the regressiveness of a sales tax could be eased by, for example, helping lower-income workers open up tax-free retirement accounts. Linder's proposal would also give every family a partial tax refund at the start of each month, based on the poverty line. Others have proposed similar refunds of basic living expenses -- which would, however, potentially drive up taxes on other items. Still, Slivinski agreed that scrapping the income tax and replacing it with a national sales tax was probably a tall order, politically. But he suggested Republicans could find a way to back into a consumption tax in a more nuanced, politically palatable way -- for example, by allowing unlimited contributions to 401s. This would help cut taxes on investment and saving, leaving only disposable income to be taxed. In fact, the "ownership society" theme Bush has been trumpeting on the campaign trail recently could, in the long run, have a similar effect as a national sales tax. That theme encompasses several policies, including Social Security privatization and health savings accounts, which would ostensibly cut the cost of investment and saving, just as a national sales tax would. "Going in the direction of an ownership society gets you to the consumption tax in a different way," Slivinski said.
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This would be accomplished by eliminating all existing federal taxes and replacing them with a national retail sales tax. There is no indication of what tax rate Speaker Hastert thinks would be necessary to replace all federal revenue. John Linder (R-GA) says that a 23 percent rate would be adequate. But such a low rate can only be sustained by making completely absurd assumptions about what would be taxed. Every serious economist who has ever looked at this question has concluded that a vastly higher rate would in fact be needed. First, an unstated assumption is that the 23 percent rate proposed by Mr Linder is comparable to existing state and local sales taxes, where the tax comes on top of the purchase price. He deceptively calculates the rate as if the tax is part of the purchase price. Calculating the rate the normal way people are accustomed to with state and local sales taxes would require a 30 percent tax rate, not 23 percent. When Congress's Joint Committee on Taxation scored the Linder proposal 4 years ago, it estimated that it would actually require a tax-inclusive rate of 36 percent, not 23 percent, to equal current federal revenues. Calculating the rate in a normal, tax-exclusive manner would mean a 57 percent rate. Economist Bill Gale of the Brookings Institution notes that supporters of the sales tax assume that there will be no tax evasion under their proposal and that the size of government will not grow, even though they would send a large annual check to every American in order to offset the regressivity of the tax. Making realistic assumptions, Mr Gale estimates that the tax-inclusive rate, comparable to Linder's proposed 23 percent rate, would actually have to be about 50 percent. A rate comparable to existing sales taxes would be close to 100 percent. And let us not forget that state and local sales taxes would come on top of the federal sales tax, pushing the total rate even higher. Obviously, the federal government is not going to impose tax rates this high, nor would anyone pay them if it did. The Linder bill (HR 25) is also deceptive in its basic assumption that all consumption of goods and services in the US would be taxed. Implicitly, Americans would be taxed on, among other things, all medical care, purchases of new homes, and services provided by state and local governments if Linder's bill became law. This means that if you are sick and have large doctor bills, you are going to pay 30 percent on top to the federal government. Of course, it is completely idiotic to think that the American people will ever allow this to happen. The idea of taxing all consumption sounds nice in theory until you realize just how broad the definition of "consumption" would be under Linder's plan. Economist Evan Koenig of the Federal Reserve Bank of Dallas makes the point that any new sales tax is going to raise prices by that amount. If the Federal Reserve accommodates it, we are going to have 30 percent inflation the year the tax is introduced. If it is not accommodated, then producer prices are going to have to fall by 30 percent, which will cause a severe recession and greatly reduce the tax yield. Somehow or other, Mr Linder has gotten 54 House members to cosponsor his proposal. They should all pray that their opponents overlook their poor judgment. When last the national retail sales tax was a major campaign issue--in the 1996 senate race in Louisiana--the Republican sales tax supporter was crushed by his anti-sales tax Democratic opponent. That may explain why only two senators support Linder's plan, one of whom is retiring this year. With all due respect to Speaker Hastert, trying to eliminate the IRS by adopting a national retail sales tax is a very dumb idea. Bruce Bartlett is a senior fellow with the National Center for Policy Analysis.