National Sales Tax....let's chat about it.
 

OK, Firstly I know that NOTHING is ever this simple when being utulized by the government. But, it's nice to dream, so here goes.....

What do you think about taking the current income tax, chucking it out the window and installing a "national sales tax" in its place?

Some points to ponder as we discuss....

The implementation should not be any more difficult than most cities/county/states already have. (but I'm a realist, so see my disclaimer in the first sentence.)

It could be a flat tax, or there could be "variable". e.g., Groceries would have the lowest tax rate (or none at all), luxury yachts have the highest and so on. In *theory*, this would put the tax-paying burden in the proper perspective and do away with high-income loopholes. (Again, see my disclaimer...)

You would have more disposable income each paycheck, but partially/mostly offset by the "sales tax".

And any others you guys/gals come up with....

As a small business owner, I would be happy to do away with the income tax that makes it eh, interesting every year this time. I would be happy to swap one more piece of paperwork each month for a trip to the accountant once a year. And again, in *theory*, I could see how this (in it's simplest form) level the playing field for everyone. (Though I s'pose that the government feels that it's already done that with the current tax laws. :shakehead: ) I also believe (foolish as I am) that it *should* do away with a serious amount of government waste in the form of wasted paper, man-hours, office supplies, etc, that the current system already uses.

I guess it's obvious that I'm in favor of such a radical change, but would enjoy a good discussion about it, good or bad.

Please, discuss....

I've always thought it would be the best way to insure EVERYONE pays taxes. I'm very for it the way I've understand Neal Boortz talk about it

It still seems easy to subvert. What about purchases by corporations? What if the company buys your house for you?

That leads into something I was thinking. Would/should there be a "tax break" for growing families who purchase a home? Would there be a higher rate for a certain square footage or above?

But to answer your question as simply as possible, let's say that ANYTHING that can be bought will be taxed at some level the instant it is purchased by any person/entity.

What about retired people who worked their whole lives paying income tax, building savings and now not having to pay much in taxes because the bulk of their income is based on interest on their savings? It would be DEVASTATING to them.

What about the fact that using a sales tax means that the ones who can't afford to save money would end up getting taxed on everything they make while the ones who can save get lower tax rates?

A national sales tax is shortsighted. Only a fool thinks that it wouldn't shift the tax burden to the poor and middle class.

A sales tax that is the only tax would force everyone spending to pay a tax on what they spent. Don't spend it and don't pay taxes. No deductions for anything. Make companies pay taxes for everything. How much simpler can it get?

And kutulu...it's a sales tax so you don't get taxed on what you make, only on what you spend. How could it shift the burden to the poor and middle class? Everyone spends money and the rich spend the most!

Well, it would certainly have an effect on poor families with lots of children. Instead of being able to deduct income tax for each children, it seems to me they'd end up paying more taxes because of the sheer amount of stuff they have to buy to support a large family.

I think the only way this could possibly work is if there was a MUCH lower tax on commodity items compared to luxury items. And to the point kutulu made about retirees, I think this system would have to somehow be grandfathered or phased in... it would be too big of a culture shock to switch over all at once.

Then they shouldn't have children. If you can't afford it, don't get it.

Flat tax on income across the board (5%-10%). No tax on produce, grains and meats, organic stuff. Small sales tax on luxury goods like chocolate, coffee, alcohol, processed foods. National sales tax should be a percentage of the local tax. We are taxed enough already.

There actually is a flat tax that has been in design and research phase for a long time. MANY of the state senators are supporting it. There is of course some revamping to do, but I for one agree with it. As I have read, and don't take this as the Gospel here, but just as non-processed food is not taxed now, it wont be later. If you are buying luxury items, the tax basis will be slightly higher. So those "poor families with lots of kids" will actually be pretty safe, considering most of the money spent by them is on food. There STILL will be a welfare and foodstamp system in place to help, so they won't be hurt financially like you might think. A flat tax system is actually designed to even out the playing field, where the poor get taxed LESS and the rich get taxed MORE (due of course to amount of spending they do) I am not saying the system is without flaws, but is our current one any better? lol

Jorgelito, the whole point to a national sales tax would be to abolish the income tax. It's a replacement, not an addition. Sorry, if I'm repeating stuff you knew, I didn't know if I had made that clear....

One of my state's motto is "Home of tax free shopping"

Our state economy depends on drivers from New Jersey and Penn to buy goods in our little state. It would be pretty devastating if they didn't.

What about the states that have high property tax but maybe its attraction might be low sales tax. Like Oregon, whom is another state with no sales tax, but what I hear from my buddy that lives there high property tax. If you raise the sales tax to a "state average" really think that state can afford to loose new home buyers with the large property tax?

I think you might be misunderstanding what the flat-tax is going to change.

The county, city, state tax basis on sales and property will NOT be affected.
The government sales tax will be added on top of existing taxes, so depending on where you live, you still will be able to spend less on taxes per-se.

As an example:
Your property is taxed by the city, county, and state on a YEARLY basis. i.e. every year you pay property tax. The federal sales tax would ONLY come into effect on the INITIAL purchase of your home. and not again.

Purchase price: $200,000.00
State sales tax 4%=8,000
city/county tax 2.5%=5,000
Federal tax(est)1.5%=3,000
Total tax spent $16,000

that is a one time charge. now AFTER that, you will still have your PROPERTY tax due, which is totally different on sales tax, so ANNUALLY you will be still paying say $2,800 to the city, county, and state for property taxes, dependent on your individual state, but the FEDERAL tax will not be imposed, because you are not PURCHASING something, you are paying a TAX, which is different.

Does that help any in understanding it?

I believe a national sales tax is a great idea. It would ensure that everyone carries their fair share of the tax burden. You wouldn't have people avoiding taxes by "getting paid under the table" and illegal immigrant labor avoiding taxes would become a moot point, hell even all the money spent to keep the IRS running could be used else where.

There are issues but they can be overcome. The easiest is that of low income families. Most plans use ideas of prebates and reduced tax on essentials. The big one is the people who saved money and built retirments based on the current tax code. This is the one that is going to be difficult to overcome.

The Fair Tax is probably the national sales tax that has the biggest support base, if anyone is interested in researching the idea more.

You are kidding yourself if you think a 5-10% tax would cut it. Doesn't Fairtax have a very optimistic 23%? I don't even come close to paying that right now (about 14% ) and I make 60k/yr.

There is a reason that sales tax initiatives are started by the richest and it ain't because they want to pay more taxes.

I love the idea of a national sales tax. I think that people aren't really aware of how much money the government is stealing from them with each paycheck. I mean, think about how excited we get when we get a 'tax-refund'. That is our own money coming back to us, and we are happy about it?!?! Paying the money out in a sales tax would make you very aware of what taxes were doing to the cost of buying goods. My favorite reason to support this method of taxation is that it is something that you can avoid participating in to a certain extent. It encourages self-reliance, self-sacrifice, long-term savings, etc. You won't be taxed on food from your garden. You won't be taxed on the car you already own. Under the current income tax system, you are taxed no matter what you do with your money after you get paid. Move the tax toward discretionary spending and I think that there would be less wasteful spending.

It might lead to less consumption of things that we really don't need anyway. There was an author I saw interviewed recently that suggested that we have, as a nation, shifted from manufacturing goods and services to manufacturing the desire for goods and services. His point was highlighted by the marketing of bottled water. Here, in America, we have a regular supply of clean, potable water. At the same time, we have truly massive consumption of bottled water for no real reason. The author was suggesting that this kind of system cannot persist.

I would advocate that nothing be excluded from the national sales tax with the possible exception of the purchase of a home under a certain dollar amount. This would help to make up for the largest standarized deduction that most people take on their mortgage interest. But, yes, tax just about everything. After all, almost all of what we buy now is bought with after tax dollars. Do you get to budget away your salary to buy groceries on a pre-tax basis? Some people use a pre-tax account to budget for health and child-care expenses, so that might require a shift in thinking.

One of the un-intended consequences of a national sales-tax would be an upswing in the number of second-hand transactions from person to person. I'm thinking of craigslist and local classifieds for buying and selling. Yes, you are supposed to file and pay sales taxes on those transactions yourself as the system specifies, but just about no one does it in reality. Bartering for goods and services might also see an increase. I personally think that either of those is a very good thing. Not for businesses maybe, and not for the government, but good for the individual and good for the community. Buying things second hand is a form of recycling and both parties benefit financially as well. Bartering is a whole other can of worms that I won't open here.

Um...stealing, eh? I hope you don't avail yourself of roads, police, fire departments, national defense, etc, etc. A US citizen pays (on average) a smaller percentage of income in taxes than most developed countries, and yet we bitch and moan. The American sense of entitlement is really out of hand.

Entitlement? To your own wages? I don't think that's out of hand.

I don't think people are upset with taxes, I think they are upset with wasteful spending, spend happy politicians, leechers and the gov't taking the hardearned dollars out of your hands and putting it in the hands of lazy ne're do wells.

I love roads, lights and national defense. What I don't like is the incompetent "redistribution" of my tax dollars and waste etc.

Push, I think I understood you, I didn't mean to come off short. I just got internet after 2 weeks of waiting so I am rushing around trying to "catch up".

But yeah, national sales tax is ok if done "correctly".

It's an organization with 300 million customers and 15 million employees. You're surprised there's inefficiency? I agree that politicians taking junkets to Europe and handing out fat no-bid contracts to their friends is extremely frustrating and should be controlled, but that happens at any company. Human nature makes it inevitable.

As for 'redistribution' of your tax dollars, I know it's frustrating that the government props up people who don't have a job. But sometimes that money is actually used, as opposed to abused. We're supposed to be united as a nation, and that means that to a certain extent we work for the common good. Now, since we're capitalist, most of the time it's step on your fellow man to reach for the next rung in the ladder, but it's a small part of your taxes that goes to helping others, so it's not that offensive.

Bottom line, there's no way a national sales tax can be implemented so that it's best for everyone. The wealthy spend a much smaller portion of their income than the poor or middle class, so it would lead to them becoming richer, and sharing a smaller portion of the tax burden than they do now. If you're for this plan, you're either wealthy or think you will be some day. Odds are you won't. But we thank you for buying into the American dream.

Kadath, there is no excuse for graft and inequity. Just because the government is large doesn't mean that we should tolerate a certain amount of 'inefficiency' as you euphemistically put it.

I have no problem supporting my fellow man. I agree that our great country has the responsibility and the ability to do just that. I, along with a large number of my fellow countrymen, believe that more of the welfare system is abused rather than used. I currently reside in Kentucky. There are families in eastern Kentucky who have been on federal assistance programs for generations!! There was an article recently that discussed this issue and brought the example of one small eastern Kentucky town where the jobs program office is located right next to the welfare office. The welfare office had a line out the door while the jobs office was basically empty. The people there have worked out a system for getting the most federal dollars with the least amount of effort and they are not about to change.

I have no doubt that there are exceptions to this rule. There are people who really need a helping hand, get it through federal, state, or local aid, and get back on their feet. I would have no problem supporting a system that did more of this rather than the current system which is more geared toward helping those who refuse to help themselves.

But back to my original statement that you took umbrage to: Yes, I believe that income taxes amount to the government stealing my money. They remove that money before I ever see it, without my authorization, under coercion... what else would you call that? I pay taxes in many ways, but the two I find most offensive are income taxes and property taxes on my home. Both of these are completely unavoidable. The first means that I never own myself (amounts to slavery for the government). The second means that I can never own my own home.

There are a ton of reasons why this current system is illegal and wrong. Let's start with the idea that only corporations can have 'income' as it was originally defined. I'm not a corporation. What I am doing when I work effectively amounts to exchanging my labor (work product) in return for money. I am selling my work as an asset and my employer is paying me. I am not making a profit, and therefore don't have income. I haven't bought my labor at a lower price and sold it at a higher price. Corporations do that every day, but they rarely pay 'income' tax because they have ample opportunities to 'write off' expenses to lower that profit. If I were allowed to do the same thing, write off my housing, my food, my entertainment then the playing field would be level. I still wouldn't have any income and therefore no tax burden because ostensibly everything I do in my life is in preparation for me making available my labor to exchange for pay. Perhaps that is not as clear as I could make it, but I hope the point gets across.

I'll stop there for now. I have other examples and ideas, but I'll wait for any replies before going too far in one direction.

A couple of thoughts here. Can you name a government that doesn't have any graft or corruption in it's history?

as far as incorporated status, from what I recall, you actually as a resident of your city, township, village, county, whatever that level is, is in fact, incorporated. You living within it, are in fact, part of the corporation de facto employee so to speak.

can anyone else elaborate on this idea? I don't recall where I remember reading about it, but it was when I was looking into how it is legal for the government to collect taxes.

It isn't my job to point out a government without corruption. Should we not be offended by waste and excess in our own system just because it has always been that way? Should we not wish to rise above?

Nope, I'm not incorporated, unless I choose to incorporate as an entity. Oddly enough, a number of wealthier citizens are doing just that because of the enormous tax benefits. Say I am a private investor with $500K in stock holdings. I could incorporate myself (and my wife, or cat, or whatever) as XZY Holding Corp. in Nevada for about $700. Then the 'corporation' could lease me a car (provided that I could demonstrate that the use of that car was essential to the operation of the corporation) and deduct the expense from the amount of profit or income that the corporation has. Same goes for cell phone bills, travel expenses (if investments are researched or even discussed during the trip), internet fees, etc. etc. etc.

There are some incorporated townships that I have driven through, but I am not clear on how, if at all, their incorporation affects the citizens living within their borders. I know that my area is not incorporated.

Well, I don't want to go down the property tax road (you are correct in your statement that you can't truly own land) but it all comes back to the point that you don't see yourself as a part of the United States, but a man unto himself. To complain that 'the government' is stealing your money is to miss the point that the government is all of us. It is by the people and for the people. 'They' are not taking your money.

It is like working for an employee-owned company. The one objection you could make to that is you're not free to not work for the company, but you are: move to another company. There is no way to not work for some organization on this Earth, but that is the only downside. You must be a part of something larger than yourself.

Apologies for referring to you as male if you're not.

I beg to differ. It may happen at some companies but most, expecially public companies, can't get away with insane waste any more. Only the government can do that because there is no oversight. And if you think there is oversite just look into how many has been wasted with Katrina and Iraq! And the junkets they are taking are paid for by their buddies to purchase influence. That's the point that waste and no oversight begins.

Why does a poor family feel entitled to have more children than they can afford? I don't buy more than I can afford.

The wealthy may spend less of a percentage of their income than others do but they still spend a hell of a lot more than the typical person spends. On top of that, they have enough money to use all sorts of tax shelters. I suspect they'd actually pay more taxes if they paid on what they spent rather than an income tax on their adjusted gross income. Look at Britany Speers. She's almost run through 200 million, or Jackson who is almost bankrupt and had to sell his Beatles collection.

Kadath, I see your point, but I must emphasize that I am NOT arguing against taxation overall, but simply against the current system of income tax. It puts an undo and unavoidable burden on those who are laboring to make our country work. Instead, I propose, as the thread discusses, to shift the burden of taxation onto consumption rather than labor. I can choose whether I want to buy a new TV, or stick it out with my smaller TV (or none at all) for a few more years. It is simply that choice about whether I want to pay a tax on purchasing goods or services that I yearn for. I want to have more control over my money before the government gets their share.

And I don't think that what I do, or don't do with regard to spending and being taxed would make a bit of difference on the larger scale. I don't think for a minute that having the tax moved from labor to consumption would bring this country to a grinding halt. It would just give those of us with a frugal, self-sufficient nature a break from being taxed into slavery.

Well, you asked how the national sales tax system would shift the burden onto the poor and middle classes, so I was simply pointing out that it would be a much bigger burden on this particular demographic of poor people compared to the current tax system. In response to your question, I don't know what their reasoning is, but not being able to afford it apparently isn't a good enough reason to stop... if it was then this country wouldn't have millions of families neck-deep in debt.

braisler, then I apologize for going on and on about it. It's true that what you do or don't has very little impact on the economics of this country, but there are millions more like you and me, and what we do collectively has impact.

I was looking at my expenses and my biggest single expense is rent. I'm not buying anything: do I pay sales tax on that? Because if not, shit, I'm for this plan too. What about when I buy a house? Do I pay tax on the whole cost of the house when I get the mortgage? Does the bank pay it, because they own it until I pay them off? And I'm not alone. I would guess that housing represents a third of expenditure for most families.

Yes, I would say that housing expenses would need to be some part of any national sales tax plan. Even if the sales tax would only be to replace the income tax, just about everyone pays their rent or their mortgage with after tax (current income tax) dollars. So, tax on your rent or tax on my mortgage would be needed to make up the difference. We are heading back toward taxes that we, as citizens, can't avoid paying. But maybe the shift would be different. Theoretically, the current income tax structure should make it slightly less desirable to have a higher paying job since more of my money will be taxed the more I make. If housing costs were also part of sales tax, would I choose to buy a more modest house to avoid the higher taxes associated. Under the current system, I am actually moderately encouraged to buy a larger, more expensive house since mortgage interest only becomes deductible (or rather, worth deducting) when it is above a certain dollar amount. The whole deductions issue complicates matters further since many of us actually use our mortgage as a kind of income tax shelter currently.

A few sites out there address some of the issues that we are discussing here. http://www.salestax.org/ suggests a 23% on retail goods and a rebate program for based on family size to offset tax on essential goods. I would guess that this is meant to offset tax paid on housing or possibly groceries, though groceries are not subject to state sales taxes now.

mmmmmmmmmmm, Fair-Tax debate, I love this.

As the National sales tax is described in the Fair-Tax book by Neal Boortz I love it. It abolishes all federal taxes and replaces them with a flat 23% internal, which is about 30% external, tax on all new goods. By internal and external I mean that if the tax is calculated as part of the total price of the good then its 23%, if the tax is calculated as being added to the price of the good, its 30%. Its the same amount, just calculated different ways.

Every family, based on size, is given a monthly check by the government to cover the tax on "basic" expenses. The check is supposed to be the amount of tax they would pay on food/housing and basic amenities.

This check goes to every family.
Everything is taxed.

The reason for this is the theory that if you make a loophole for one group of people, or some goods, someone else will try to make another loophole for themselves. We need a tax system that has no loopholes for people to get through so that everyone pays taxes.

If the poor only buy basic amenities, the taxes are covered by the check. So they pay almost no taxes.

The rich buy more new items and as such are taxed.

Some might say that the rich shouldn’t get the check from the government, but I really believe that regardless of your income you shouldn’t be paying taxes on the “basic” necessities. The check is based on family size, and rich people will eat better than poor simply because they are rich, so they will spend more money on food and pay taxes on the amount they eat that is greater than the amount covered by the monthly check.

As might be assumed I’ve studied this quite a bit. ^_^

If something isn’t clear just tell me and I’ll try and clarify it.

Just a note - The fair-tax as described by Boortz in his book is the only one I’ve studied so it’s the only one I actually feel qualified to talk about.

Can you give us a specific quote or explanation on how this would happen? The flat tax is specificly designed to help PROTECT the lower class from being hurt. The basis on a flat tax is on what you spend, with "necessities" such as food being exempt from the tax.


According to the flat-tax system models that I have seen...no, if you were RENTING you would not pay a tax on your rent, but you WOULD pay a tax on Electric and water (consumables) One of the small loopholes in the flat tax system IS renters, who would actually benefit more. (it is something that they are looking at)

As in my post shortly before yours, yes you would pay a sales tax on home purchases. As it is today, you pay sales tax when you buy a home, NOT by the bank.... and by the flat tax program, only on the initial purchase would you be paying the federal tax....no tax on "property" tax. Remember guys. PROPERT tax and INCOME tax are two SEPARATE taxes! the flat tax proposed will ONLY affect SALES tax, not PROPERTY tax. (and NO you will not pay sales tax on property tax. remember that in current laws, property tax is a tax write-off in our current system, so with the flat-tax proposals, property tax is exempt from sales taxes)