A National Sales Tax?

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Pramrider

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This subject came up briefly on CNN news today, and I only caught a piece of it, not enough to know what was being said. Looking it up on the web I found it was actually considered some time back, though it's the first I've heard of such a proposal. Wish I would have heard what was said today, whether it's being seriously considered for the US in the near future.

Life under a national sales tax - Mar. 15, 2005

Looking over some of the major components, it appears to have some good points and bad points as I would expect. Haven't really delved into it in enough detail to decide whether I'd consider it superior to the current taxing method, enough so to be worthwhile in making the switch.

Now this is where you can educate me a little on the international scale when it comes to govt. taxes. Do a large number of other countries have such a national sales tax on goods and services in place of a govt. (income)tax automatically taken out of your pay, and in which you have to file forms annually for reconciliation? Does the system work pretty well if it's used in your country? Is the VAT in the United Kingdom a national sales tax of some kind?

I remember buying a pram from an online retailer in the UK. Since I lived in the states she deducted the VAT, which was pre-figured into the prices shown on her website. That deduction saved me about $150 after converting from GBPs. People I know who have visited, and purchased items in the UK, paid the VAT, but got it credited back when they left the country. That's why I was assuming it was some type of national sales tax, but not sure if it completely replaced an income based tax.

Appreciate hearing from members in other countries that have national sales taxes in lieu of taxes based on income. Or even comments about whether you feel such a tax would work well in the US. I believe there was a thread about taxes a few months back discussing flat rate and other types of tax scales, but don't recall it touching on this particular tax proposal.

~Pramrider
 

satyrical

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In Canada, we're lucky enough to have both! In addition to having our income taxed, we also pay a federal tax (General Sales Tax or GST) and a provincial sales tax (PST) or just about everything.

From reading the article, a flat federal tax in lieu of income tax doesn't look like it would work. Especially for younger members of society, who aren't taxed on income anyway, that makes the Wii that much more unattainable.
 

eddy200

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Perhapps a reconsidered luxary tax; perhapps considering a minor tax on entertainment based products like movies, music, video games, large HD screens, rediculous computer systems. How much more money would the government have to work with if they put a one cent tax on each of these items?
 

Fire2box

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This can be labeled as class warfare since the rich will surely pay more then the poor. Why does a rich person HAVE to pay more then a poor person greedy or not? Why can't we all just pay the exact same amount NOT percentage wise but amount wise?
 

IncompleteDude

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This can be labeled as class warfare since the rich will surely pay more then the poor. Why does a rich person HAVE to pay more then a poor person greedy or not? Why can't we all just pay the exact same amount NOT percentage wise but amount wise?
Because rich people almost always cost the government more if their wealth is not regulated and tempered. For example, it certainly wasn't the poor that caused the recent credit crisis. Nor was it the poor that caused the French Revolution. Poor people don't buy slaves, or subjugate entire nation's as colonies. The poor don't create oligarchies, and the poor rarely institutionalize mass murder. The poor are too poor to influence the lives of thousands or millions, and for that privilege the rich must pay a high price and be held accountable. In return they get great power and the means to create much more wealth, but only if that wealth spreads to all those beneath them. It is a fair trade.

But ignoring that, a flat tax means the neither the poor nor rich effectively pay taxes. The poor have no money to pay, and for the rich a flat tax is insignificant. This places 99.9% of the country's financial burdens on the middle class, ensuring most of them steadily become poorer. That means government income dwindles, putting the population at the mercy of a few ultra-rich oligarchs. If you're worried about class warfare, then why would you want a country where you're either very rich or very poor? Personally, I want a tax regime that encourages and broadens the middle class. Sure it means a small number of people do not become rich, but it also means a great many do not become destitute. Having few poor is far more valuable than having a slightly larger but still tiny number of wealthy people. Progressive tax regimes that are proportional to income do this, absolute flat taxes do not. As an added bonus, they automatically account for inflation as well.
 
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chevre

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The idea sounds nice in some ways, but I don't think it would work well in the US. In an economy that's already slumping, it would do a lot to discourage consumption. And, people talk about it like it would be a pretty small percentage.. but I'm not so sure about that. What if on everything you bought there was a 20% federal sales tax? When you add in the state and local sales taxes, I'd be paying 27% sales tax. Imagine buying a car, and then having to fork out 4-5G in taxes on it.

The other problem is that it's essentially a regressive tax model. There are certain basic necessities that everyone, rich or poor, needs. But, no matter your means, you pay the same tax. Some of the proposals include a "tax prebate" where the government sends you money if you make less than a certain amount every year to cover a certain portion of the tax. I think that's asking for abuse, and it'll be complex, and one of the major pushes for this system is that it's simple.

Another issue is e-commerce. Right now if you buy something across state lines you pay no sales tax. Under such a system, all such transactions would be taxed. At least, the ones within the country would be.

The main pro that i hear, and which I happen to think is greatly exaggerated, is that everyone pays the taxes -- drug dealers, prostitutes, illegal immigrants.. and anyone who is illegally employed or doesn't report income. While this is a nice idea, I don't think it will really have a huge impact.
 
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The problem with a National, or any, Sales tax is that people that shouldn't be paying taxes are stuck paying them. The money that kids make mowing lawns, or shoveling snow is taxed, Birthday money is taxed, other money like this is taxed.

The other problem is that for the most part people with lower incomes will end up paying a higher percentage of their income in taxes than someone that is rich. The rich pay more money, they buy more stuff, but they also buy things that are untaxed; stocks, bonds, CDs, other investments and savings things that aren't really purchases.
 

Point

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This can be labeled as class warfare since the rich will surely pay more then the poor. Why does a rich person HAVE to pay more then a poor person greedy or not? Why can't we all just pay the exact same amount NOT percentage wise but amount wise?
That's like saying a four-course meal at a five-star restaurant is just as good as a McDonalds hamburger.
 

IncompleteDude

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The other problem is that it's essentially a regressive tax model. There are certain basic necessities that everyone, rich or poor, needs. But, no matter your means, you pay the same tax. Some of the proposals include a "tax prebate" where the government sends you money if you make less than a certain amount every year to cover a certain portion of the tax. I think that's asking for abuse, and it'll be complex, and one of the major pushes for this system is that it's simple.
In Canada, everyone who has less than a taxable amount of income gets a quarterly GST rebate. It amounts to about $250/year, and is the same for everyone. The amount is based on the average GST costs of a low income individual, so it changes with inflation and the economy. It's really not complex and not enough money to be worth abusing.

Also, basic necessities like groceries are sales tax exempt for everyone.

The problem with a National, or any, Sales tax is that people that shouldn't be paying taxes are stuck paying them. The money that kids make mowing lawns, or shoveling snow is taxed, Birthday money is taxed, other money like this is taxed.
No one pays any taxes on those kinds of things in Canada, not even income taxes. That kind of income is cash only, so generally unreported and "under the table". No one bothers reporting it, and it's not enough money for the tax man to care about.

But even if you wanted to, it's usually impossible for a lone kid mowing lawns to charge or pay sales tax. To do so, you have to register a company and open a GST/PST account with the government. Then you have to go through some forms in your income/corporate tax filing, write a cheque to the government, and pay the GST. Since no kid would or is even capable of doing all that, they will never pay, and that's fine. I seriously doubt if it's even illegal, there's surely an exemption for those kinds of informal exchanges.

However, I will say this, GST is a regressive tax regime. To the rich it is a pretty insignificant fee. At the same time, it does discourage one from making frivolous purchases, since it only applies to non-basic goods. It makes you think about the value of your dollar and makes you biased towards saving.
 
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Incomplete Dude, you misunderstood me. Those people will start or are already paying taxes on their income every time they buy something.

That is one of the big problems with the (un)FAIR Tax system.
 

satyrical

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This can be labeled as class warfare since the rich will surely pay more then the poor. Why does a rich person HAVE to pay more then a poor person greedy or not? Why can't we all just pay the exact same amount NOT percentage wise but amount wise?
Quite bluntly, because the rich can afford to do so. We have this fundamental belief that as a society we look out for and support each other. So if someone is making a few million each year working as a comfortable CEO, while elsewhere a single mother of four cannot afford to both pay her rent and buy food, taxing the CEO more than the single mother, so that the money can be used to help the mother purchase food, find a job, etc, seems justifiable to me.
 

Darkfinn

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Good god I hope not. I already pay 6% state sales tax and 1.5% city sales tax... adding a "national tax" on top of that is just rediculous.

The only way I would be for this is if it would eliminate the Federal Income Tax. I think that would be fair.

I also believe that necessity items like food, fuel, and clothing should be tax free. You could knock just about 30 cents off of the price of a gallon of gasoline if all tax was eliminated. I realise that the government uses fuel tax to cover improvements to roads and bridges, but I just don't think its fair to tax people on the things they need to live... especially when our paycheck is taxed before it hits the bank. Sales tax merely taxes the people on money that has already been taxed. Hell... even my freakin power and water bills have taxes on them now. I was unaware that I could be taxed for electricity.

You lose from 25 to 33% of your yearly income in taxes... then on top of that you pay 6-8% of everything you purchase in taxes. So really you are looking at 31 to 41% of your income gone to taxes... it is rediculous.
 
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Butterfly Mage

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I'd only be in favor of a national sales tax if it replaced the state-level sales tax and made the income tax vanish.
 
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Australia has had a 10% GST pretty much ever since the previous government came into power.

Now, I'm by no means a political person, but I will say that it really hasn't affected my life, nor my family's life to any real degree. Most prices you see on items or services here are GST-inclusive and don't affect your daily life, and to some extent the GST has actually lowered the price of various items, such as cars and whitegoods.

Don't ask me how it works, but it's not that big of a deal.
 

Fire2box

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Quite bluntly, because the rich can afford to do so. We have this fundamental belief that as a society we look out for and support each other. So if someone is making a few million each year working as a comfortable CEO, while elsewhere a single mother of four cannot afford to both pay her rent and buy food, taxing the CEO more than the single mother, so that the money can be used to help the mother purchase food, find a job, etc, seems justifiable to me.
but not all "rich" people make millions of dollars per year though. Even Obama thinks rich is making 250,000 dollars per year. That's not a whole lot for a decent sized family.
 

IncompleteDude

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but not all "rich" people make millions of dollars per year though. Even Obama thinks rich is making 250,000 dollars per year. That's not a whole lot for a decent sized family.
If that's not a whole lot, then why do 98.5% of households make less than that? That's pretty bloody rich even for America. Consider that the average family income in the US is $45,000 or so, and still 85% of families make less than $100,000 altogether.
HINC-06--Part 1

In any case, if you make $250k/year you can still afford to pay higher taxes. Because the average American family makes far less than you imagine and still gets by, it's hardly a crippling cost to boost the poorest, say, halfway to average. You don't need a huge amount of money to live with decency, which makes it easier for the rich to provide to those that cannot accomplish it on their own. A fair trade for the power they can exert.
 

Pramrider

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The only way I would be for this is if it would eliminate the Federal Income Tax. I think that would be fair.
That's what would happen per the proposed NST in this article. No more federal tax, no more IRS...period! Though state taxes would remain, and anyone providing (national) taxable goods or services would be responsible for collecting all such taxes in place of the feds. Wonder how much would be saved on the federal budget by eliminating the IRS, with some employees still being needed by the federal govt. to handle tax receipts coming in from the states?

~Pramrider
 

Darkfinn

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Actually... if what you are saying is true Pram... it sounds like an interesting idea. No more IRS... no more having to file tax returns. Of course I will have to do some more reading up on the subject... and it all depends on the rate of taxation.

Federal taxes take about $160 from my check... FICA (social security and medicare) take about $160 as well. If you could do away with both of those... and make the national sales tax work out to a comparable percentage... then go for it. However, my request for tax exceptions for items like food, fuel, and clothing remain.

I'm sure people will complain about this... b/c it seems to place an unfair burden on the rich... but I think it is more than fair. Poor people spend far less money on luxury items, so they would actually see the amount they pay in taxes drop.

LG & I probably spend $300 a month on items that aren't necessities. Diapers make up about half of that. Otherwise we don't really buy things that aren't clothing, food, or fuel related. I've spent $15 for a charcoal grill and $25 on a video game this month. I did just drop about $100 on a new alternator for my Dodge... but I consider that a necessity item as well, seeing as the car won't run without it.

I do see where a national sales tax could be very damaging to the government as well though... in harsh economic times (such as now) consumer spending is at an all-time low. People stop buying things that aren't necessities... and the government's budget would just dry up. Of course it would be nice to see Washington hurting for a change instead of just all of us out here in the real world.
 
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I think a few have missed some things from the article.

In this new world there would be no income taxes and no Internal Revenue Service. Instead, there would be a national sales tax on everything you buy.

EVERYTHING would be taxed. Food, clothes, gas.

What gets taxed? It wouldn't be just clothes and cars. The services provided by doctors, lawyers, barbers and others comprise a big part of consumer spending. To keep the government funded at current levels, hospital visits and hair cuts would be taxed. Not taxed: existing home sales and other second-hand items as well as corporate purchases.

Want to buy a new construction house, that $200,000 house will now cost you $246,000, which since you are getting a mortgage, means it costs even more because you just borrowed an extra $46,000. Which would raise your mortgage payment about $250 a month, and cost you around $43,000 more for your house. (That is a 5% mortgage.) Which would put your tax rate at over 44%, although the government would only get 23%.

This also means that poor people are going to end up paying a higher percentage of their income in taxes, than the rich. The rich don't spend all their money, the poor do.

It would also mean that people that aren't currently taxed, kids mowing lawns, etc. would now be paying "income tax."

Provisions for the poor To protect low-wage earners who are excluded from income taxes today, a national sales tax would have an exemption for all taxpayers to offset the taxes on spending equal to or higher than the federal poverty level, now about $9,800 for an individual and $19,500 for a family of four. How would consumers get the rebate? The "Fair Tax" legislation envisions monthly rebate checks, about $188 for a single taxpayer or $375 for the family of four.

This is nice, but who gets a check? Does the teenager working at McDonalds get a check along with his parents? If he doesn't now he is paying taxes, when he never would have before. If he does, then is the family getting more back than they deserve, or do you reduce what the parents get. Plus how much is it going to cost the government to send out 100,000+ checks every month?

Bye-bye IRS A world without income taxes means no more Internal Revenue Service. Ensuring tax collection would fall instead to the states, a new federal agency or some combination of the two.


While this might save the Federal Government some money, the IRS won't go away, someone has to count the money, ensure enforcement, etc.

This would also add a financial burden to the states, some would have to set up new departments because they either have no sales tax, or no income tax and don't have a department to deal with tax collection. I know my State is already having financial difficulties, and this would just add more to those difficulties.

It would also add a burden to the businesses that currently don't have to deal with sales tax.

The IRS Budget. http://frwebgate6.access.gpo.gov/cg...SdocID=615197274386+0+2+0&WAISaction=retrieve
 
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