# New National Sales Tax

#### Skylark

##### Recycles dryer sheets
Anybody know if the new tax plan(s) proposed by King George will include a sales tax on real estate or equities?

Beware of a National Sales Tax.  It's not the panacea that many people make it out to be. The less you pay now in income taxes, the more you will pay under a NST or Value Added Tax, either in real dollars or as a percentage of income.  Plus don't think the income tax will go away if they ever implement a NST or VAT.  It will be a NST/VAT on top of an income tax.

As an example, let's look at how Italy taxes it's citizens:

There is a 10%-20% VAT AND an income tax http://www.icsoftware.it/Tabelle/scaglioni.php?Anno=2004&GO=Esegui

To help you decipher that chart, Italians use commas for periods and periods for commas.

Da=from, A=to

Valori Annuali = Annual Income
Valori Mensili = Monthly Income

As you can see, their tax rates are much higher than ours.  Plus, they tax gas and diesel to death.  Gasoline is over \$6 a gallon.

Beware of a National Sales Tax.  It's not the panacea that many people make it out to be. The less you pay now in income taxes, the more you will pay under a NST or Value Added Tax, either in real dollars or as a percentage of income.  Plus don't think the income tax will go away if they ever implement a NST or VAT.  It will be a NST/VAT on top of an income tax.

As an example, let's look at how Italy taxes it's citizens:

There is a 10%-20% VAT AND an income tax http://www.icsoftware.it/Tabelle/scaglioni.php?Anno=2004&GO=Esegui

To help you decipher that chart, Italians use commas for periods and periods for commas.

Da=from, A=to

Valori Annuali = Annual Income
Valori Mensili = Monthly Income

As you can see, their tax rates are much higher than ours.  Plus, they tax gas and diesel to death.  Gasoline is over \$6 a gallon.

The good thing is... we're not Italy.

Check out fairtax.org for the real facts.

-Dagny

The good thing is... we're not Italy.

Check out fairtax.org for the real facts.

Nope it's in the US where some organization supported by some unknown group is trying to pass off a 30% tax as a 23% one.

They go on and on about how it's "only" 23%. What they mean is that if you spent \$100 total including the tax then you would have spent \$77 on goods and had \$23 collected for taxes. This is completely unlike how any other sales tax percentage is calculated. Let's do the math as normal humans do it. The tax rate = \$23/\$77 = 29.87%

Why the need for subterfuge?

Check out fairtax.org for the real facts.
I read some of the "real facts" on that website and the theme to the Wizard of Oz started playing in my head.

If you think 90% of the families in the US are going to pay 100% of all the taxes paid by current individual taxpayers, corporations, trusts, and estates, and that this will be at a 23% rate, and that the tax will only be on "new" goods and services, and that this revenue will pay for all government expenditures, you must be the wizard himself.

If I were a 50 year old multi-millionaire I would LOVE that sort of a tax.  I already made all my big purchases including 3 mansions, so I don't have to buy anything and I'm earning 6% on my \$10mil which would mean \$600,000 to me a year in tax free income.

Meanwhile I'm a 22 year old college graduate and I just started making \$40K a year.  Oh, no I have to buy a car, furniture, clothes, and other household items.  My spending this year will be \$30K but I also have to pay your 23% fairtax.  That means an extra \$6,900.

So they guy making \$600,000 pays no taxes and the guy making \$40,000 pays almost \$7,000 in taxes.  Boy, can't get any fairer can it?

Ooops, the 22 year old almost forgot he has to buy a house for \$300K that will cost him \$90K more in NST and no mortgage interest or real estate tax deduction the rich guy got when he bought his 3 mansions years ago.

I challenge you to read the complete list of FAQs
on www.fairtax.org before you reject the concept
out of hand. Don't let your preconceived biases
discard this idea before giving it a fair study.

Cheers,

Charlie

I challenge you to read the complete list of FAQs
on www.fairtax.org before you reject the concept
out of hand.   Don't let your preconceived biases
discard this idea before giving it a fair study.
I did and that's why I think it's a joke. These are the same nutty tax protesters that twist things around to get to the answer they want when it comes to why the federal government has no real Constitutional authority to collect an income tax and that want to opt out of paying taxes because taxes are "voluntary." I've met with these people and I've dealt with them and I've seen them pay penalties and/or go to jail. This is just a different twist on the same subject.

What makes you think people will not pay a sales tax on used goods? Won't there be a built-in or "hidden tax" in all used goods since they won't be subject to a NST? There will be so much more demand for used goods to avoid a 31% NST that the cost will increase to bring new and used goods at par or close to par. These nuts start with a good premise, twist it around somewhere in the middle, then follow that false twist to a logical conclusion. Nice try, but smart people can see through that.

In one example on that website, how can payroll taxes be \$1600 and how can the "cost of hidden taxes" be almost \$3000 for an employee making \$10K? By the way, I like how the federal rebate is conveniently \$300 higher than the NST.

I can poke holes all over the plan on that website you mentioned, but I'm not going to waste anymore of my time on this stuff because I've wasted too much time over the years with these fruitcakes. It's like a cult and you can find them all over the Internet. They might be able to blow smoke in the face of the average person that doesn't understand the tax system, but they can't get away with their tactics with people who have even a basic understanding of the tax system.

These nuts start with a good premise, twist it around somewhere in the middle, then follow that false twist to a logical conclusion.  Nice try, but smart people can see through that.

They might be able to blow smoke in the face of the average person that doesn't understand the tax system, but they can't get away with their tactics with people who have even a basic understanding of the tax system.
Unfortunately, this administration has discovered that people really don't pay attention to the facts. As long as they keep repeating over and over that people will pay less taxes under this new system, the sheeple will believe it.

You may call it a cult if you like but there is a bill
in congress with 50 co-sponsors to implement
this concept.

lazy and take one biased opinion as your own

Cheers,

Charlie

Sales Taxes can be really profitable for the government especially if applied to used cars as they are in Ontario. For example if I bought a new car for \$20,000 at 15% which is what we pay in Ontario tax would be \$3000. Suppose I sell the car in three years for \$14,000 tax would then be \$2100. The person who bought it from me sold it in another three years for \$8000 and taxes would then be \$1200. The total tax collected over six years on a cheap car are \$6300. Now if that is done at 30% on an expensive car..... OUCH

Not that I would buy a new car

Bruce

You may call it a cult if you like but there is a bill in congress with 50 co-sponsors to implement this concept.

Charlie, do you really believe this is in your self interest? If you're like most of us here, you probably don't pay a lot in income tax. What could you possibly find attractive about such a proposal?

Do you really believe that if we stop taxing corporations, prices will magically drop by 30% on all of the goods we buy? I'm aware of plenty of corps that pay little or no tax, and somehow they keep charging whatever the market will bear.

You may call it a cult if you like but there is a bill
in congress with 50 co-sponsors to implement
this concept.

lazy and take one biased opinion as your own

Cheers,

Charlie
You can't even answer the couple of questions I posed to you using the example on that website.

By the way, don't confuse ER with laziness and don't think most people on this board are easily convinced by one opinion or one website. Everyone here is smart enough to make up his or her own mind without you telling them not to be lazy.

Wab, the FairTax proposal claims that there is a 20+%
cost built into new goods and services due to the
cost of corporate taxes, corporate payroll taxes and
the cost of corporate income tax compliance all passed
on to the consumer. I have no way of knowing if
that is accurate.

There is no tax on used goods that have already been
taxed once ...... like used cars and houses.

My assumption is that the market place would cause
the cost of new goods to seek the proper level compared to used goods. Thus you would expect
the cost of new goods to fall somewhat. It would
also make US manufacturers more competitive in the
world market and thus help spur new US jobs.

According to FairTax. a couple would receive \$4283
rebate to help pay for essential goods and services.
If this couple earned \$40,000 per year they would
pay about \$6000 per year in income and FICA taxes.
This would leave about \$34,000 net for living expenses
under current law. Under the new national sales tax
system they would have \$44283 to spend on goods
and services. The proposed tax rate of 23% is
actually 30% when you look at it as a "sales tax" as
apposed to an income tax. Thus the couple would
actually be able to buy \$34,000 at current prices.

Thus a couple would just about break even if they
only bought NEW stuff all the time. They would do
even better if prices fell somewhat.

Most of the cheap bastards on this forum would make
out like bandits.

People like John Galt who buy long term bonds would
have a windfall profit if there is no tax on interest.

The removal of capital gains and dividend taxes would
spur the stock market upward.

The one thing that still bothers me is I see no benefit for
those retirees who have most of their money in after
tax accounts like CDs. This may be the killer.

As for myself, 2/3 of my stash is in tax sheltered accounts that pay income tax on withdrawal. As you
suggested, I don't pay much income tax currently,
but at age 70, I am in a RMD situation. I would expect
the value of my holdings to increase due to the windfall
increase of stocks and bonds, but it is hard to judge
if this would offset the possibly "higher" cost of
consumption.

One thing for sure, frugal people who don't care about
buying NEW stuff can control their own tax rate!!

This is a good topic worthy of honest discussion and
I look forward to hearing what others have to say.

Cheers,

Charlie

retire@40,

Let's assume a single person making \$10,000 per
year only pays 7.65% FICA taxes. Thus his takehome
pay is \$9235.

Under the FairTax approach, he has \$10,000 plus
an upfront rebate of \$2141 for a total of \$12,141
to spend.

With a national sales tax of 30%, he can buy
\$9339 worth of NEW goods and services at current
prices. Thus he wins.

This does not include the potential price decrease
of new goods and services due to the elimination
of corporate income taxes, payroll taxes and the
cost of IRS compliance. FairTax claims this cost
averages about 22 to 25%. There is an incentive
for corporations to pass some of this cost decrease
on to the consumer to gain market share.

Let's assume a single person making \$10,000 per year only pays 7.65% FICA taxes.  Thus his takehome pay is \$9235.
So all of a sudden the payroll tax goes down to \$765 (\$10,000 - \$9235)? The example on the website said payroll taxes for the employee were \$1600. This is part of the false twist I was talking about that is then taken to a logical conclusion.

Then as far as any kind of a rebate is concerned, they are all made up numbers to get to the desired results.

retire@40,

I do my own math and don't take the examples
on the website at face value. I don't know where
they got the payroll tax of \$1600 .... and I could
not find your example. In any case, I know
a single person making \$10,000 is not likely to
pay anything more than 7.65% FICA tax. If the
FairTax upfront rebate is as stated, then he wins

Cheers,

Charlie

According to FairTax. a couple would receive \$4283
rebate to help pay for essential goods and services.
If this couple earned \$40,000 per year they would
pay about \$6000 per year in income and FICA taxes.
This would leave about \$34,000 net for living expenses
under current law.  Under the new national sales tax
system they would have \$44283 to spend on goods
and services.  The proposed tax rate of 23% is
actually 30% when you look at it as a "sales tax" as
apposed to an income tax.  Thus the couple would
actually be able to buy \$34,000 at current prices.
So using this example, you show that the couple has \$34K disposable income under the current tax system and that they would have \$34K disposable income under the NST. This is contrary to the website that shows that everyone pays less taxes under the NST. So which is it?

As for myself, 2/3 of my stash is in tax sheltered accounts that pay income tax on withdrawal.  As you
suggested, I don't pay much income tax currently,
but at age 70, I am in a RMD situation.   ....

This is a good topic worthy of honest discussion and
I look forward to hearing what others have to say.

Charlie,
I have been trying for years to figure out how I was going to get stiffed for having paid all those taxes to convert my IRA's to Roths -- maybe this is the way?

This is all so big a change for me it is like trying to contemplate the sun coming up in the west. I am intrigued by the idea, but it will take a lot of study to understand or develop an opinion on. As a result, it will be hard for lawmakers to get their minds around it and sell it to the public.

What about State and Local sdales taxes: all subsumed into this? (I need to go read the site).

My skeptical self is concerned that the only way a change of this magnitude will go anywhere is if politicians can find a way to mortgage our kids (or other disenfranchised groups) even further while buying votes today.

But I will keep an open mind until I have more facts. I do think we'll see a lot more about this in Bush's second term.

ESRBob

retire@40,

I don't like the way they showed the examples on
the website....... I think they included an anticipated
decrease in the cost of new goods and services to
make the comparison look better. The more fair
appoach is to make the comparison assuming prices
did not change. The comparison is still favorable and
we have a potential upside if prices fall.

Cheers,

Charlie

Wab, the FairTax proposal claims that there is a 20+%
cost built into new goods and services due to the
cost of corporate taxes, corporate payroll taxes and
the cost of corporate income tax compliance all passed
on to the consumer.  I have no way of knowing if
that is accurate.

There is no tax on used goods that have already been
taxed once ...... like used cars and houses.

My assumption is that the market place would cause
the cost of new goods to seek the proper level compared to used goods.  Thus you would expect
the cost of new goods to fall somewhat.  It would
also make US manufacturers more competitive in the
world market and thus help spur new US jobs.

According to FairTax. a couple would receive \$4283
rebate to help pay for essential goods and services.
If this couple earned \$40,000 per year they would
pay about \$6000 per year in income and FICA taxes.
This would leave about \$34,000 net for living expenses
under current law.  Under the new national sales tax
system they would have \$44283 to spend on goods
and services.  The proposed tax rate of 23% is
actually 30% when you look at it as a "sales tax" as
apposed to an income tax.  Thus the couple would
actually be able to buy \$34,000 at current prices.

Thus a couple would just about break even if they
only bought NEW stuff all the time.  They would do
even better if prices fell somewhat.

Most of the cheap bastards on this forum would make
out like bandits.

People like John Galt who buy long term bonds would
have a windfall profit if there is no tax on interest.

The removal of capital gains and dividend taxes would
spur the stock market upward.

The one thing that still bothers me is I see no benefit for
those retirees who have most of their money in after
tax accounts like CDs.  This may be the killer.

As for myself, 2/3 of my stash is in tax sheltered accounts that pay income tax on withdrawal.  As you
suggested, I don't pay much income tax currently,
but at age 70, I am in a RMD situation.   I would expect
the value of my holdings to increase due to the windfall
increase of stocks and bonds, but it is hard to judge
if this would offset the possibly "higher" cost of
consumption.

One thing for sure, frugal people who don't care about
buying NEW stuff can control their own tax rate!!

This is a good topic worthy of honest discussion and
I look forward to hearing what others have to say.

Cheers,

Charlie

Charlie: My personal opinion, is the proposed changes would be a hard-sell for anyone currently retired.
I believe it would be much more appealing to a younger person that had a high income, and low consuption. (Cheap bastard on active duty).
In my own case (the only one I'm qualified to comment on), I have a pretty good sized net worth, and pay next to no taxes. I still have about 4 years before I'll be paying them back for allowing me to drop out for a while until RMD raises its ugly head.
I honestly think that the proposal has much more appeal to the high income w-2 type individual.
Whenever the guys I play golf with or fly-fish with (mostly retired), taxes very rarely come into play.
When i was on "active duty", this was always a sure fire negative conversation piece.
From a purely selfish, self-interest, stand-point, I am happy with the status-quo. For the long-term benefits to the country, and investments, in general, I'll leave that to the folks that have the expertise and the ability to extrapolate a massive change such as this into a scenario that makes sense.
Good question, though Charly.

P.S. Of course this comes from an indivdual that is far more concerned about his ability to make a good shoulder turn on his tee shot to maximize distance, then
spending much time on more important matters

Charlie, most of us are engineers of some sort here.   This thing goes against every engineering grain in my body.

You know that the tax money has to come from somewhere.    You know that a VAT is guaranteed to reduce taxes paid by corporations and high income individuals.  You know where the net difference will come from -- the rest of us.

Granted that the current tax code is spaghetti code.   But it has evolved over a long time, and it basically works.   How many spaghetti systems have you been able to throw away and start from scratch?   In my experience, the new systems are *always* more buggy and less robust than the evolved system, and the new system *always* ends up evolving into something at least as convoluted as the original.

You know there's no such thing as a free lunch.   Even if this were to give an initial boost to equity prices, you know that everything has to renormalize at some point.   And that simply means deferred pain, and probably much more concentrated pain for folks like us.

It boils down to this:  it is impossible to do a rigorous mathematical analysis of the effects of a VAT, but all of my experience with systems tells me that this thing would blow up in our face.

Wab, it is not a VAT. A VAT taxes each stage of the
manufacturing process. A national sales tax only
taxes the end product at the point of sale to the
consumer. It is similar to a state sales tax in that
items sold for resale are not taxed until bought
by the consumer.

Many states, Texas included, do not have state income
taxes ..... we already have the majority of the system
in place to implement a national sales tax. The
national tax would be in addition to the state sales
tax as I understand it.

HR 25, the bill in congress now, specifically states
that federal personal income tax, payroll taxes,
gift taxes, estate taxes and all corporate taxes
would be abolished. The 30% national sales tax
is supposed to be revenue neutral at the federal
level.

They claim that the revenue at the federal level
would be stabilized in recessions due to the
fact that consumption is less volatile than income.
People tend to continue eating, I suppose.

I agree with ex-jarhead that high income W2
earners would benefit. I don't have a problem
with that if low income persons benefit as well.

Maybe I see the glass half full, but I think there is
a good chance that corporations would pass some
of the payroll tax savings to the employee. Some of
the corporate tax savings and compliance savings would be passed to the consumer. Competitive
pressure in the market would insure this, IMHO.

Like I said before, the double taxation of after tax
savings may be the killer. I don't see any clean way
to resolve this problem. Some of this would be offset
by a one time windfall increase in stock and bond
valuations, but each person would have to look at his
own situation.

Think of all the tax that would be captured from a
1 trillion underground economy that goes untaxed
at present...... not to mention the billions in under
reported income.

I think we can all agree that the current tax system
is corrupt with special interests and loopholes. It
is burdensome to the max and needs to be fixed.
Wouldn't it be neat to send all the lobbiests on a
permanent vacation?

You say there is no free lunch and I agree but if the
numbers are real then what's the problem?

Maybe there is a better way, but if this is not a good
approach then what is?

Cheers,

Charlie

retire@40,

Thanks for the link. In this case a single parent
with 2 kids is getting about \$4200 in earned income
credit. I think the payroll tax given is too high and,
as I said before, the "compliance tax" should not
be in the equation. All said and done, the single
parent breaks even IF the cost of new goods
drops by 22%. This is wishful thinking and the
single parent would loose. Obviously this would
need to be fixed somehow in the interest of fairness.

Cheers,

Charlie

Sorry, but if I am to understand this correctly, part of my "winning" under this new system is dependent on corporations giving me an increase in my wages for at least part of the employer taxes that they no longer have to pay AND that they will reduce the cost of their goods because the corporation no longer has to pay income tax? Yeah, right. :

Just like they reduced the cost of their products when they incorporated overseas and reduced/eliminated their tax burden.

Please give an example of corporations being so generous.