Neil Boortz has a new book out that pushes for a complete overhaul of our tax system, and turning out tax system into a "FairTax", which in reality is a large national sales tax. Boortz' co-writer, John Linder, is a congressman who already has 50+ co-sponsors on a bill that would create this "FairTax". Since Honzo said that he would be writing about this in the next few days, so I thought I would repost something I wrote several months ago on why this country should never replace our current tax system with a national sales tax.

So here it is:

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First, we need to take a look at what a national sales tax would look like. Lately there has been much talk centering on the possibility of replacing out current income tax system with a national sales tax system. Fairtax.org has a somewhat clear look at what this look would like. Politicians like Tom Delay (Rep., House Majority Leader) and Dennis Hastert (Rep., Speaker of the House) have begun to address this system, with Hastert saying that he will attempt to push this sometime next year. Even George W. Bush chimed in this week saying that this is an idea "that we ought to explore seriously", though him and his administration have since attempted to back away from those original comments.

There are different national sales tax proposals floating around, but I will try to give an overall summary. The national sales tax plan would set a flat sales good purchased. There are different ideas of what this would like - do services get taxed? What about homes? Healthcare? Used goods? But generally, we would expect to pay a percentage on everything that we purchased. Fairtax.org states that a 23% rate on all goods would be necessary to meet the nation's current budget. Along with this tax rate, most proposals include a rebate. In the Fairtax.org plan, the rebate would be a flat amount based on the poverty level, which would mean a family of four would receive a $361 monthly rebate, regardless of your income.

The system would supposedly eliminate tax loopholes, plus it would also enable to the government to collect taxes from undocumented workers and other black market industries. Because you do not need to see income, the black market incomes still need to pay taxes on the good that they purchase, though one theory on this says the opposite. That a large sales tax increase would drive more industries into the black market and create more under-the-table deals.

The first problem with this system is the 23% tax-inclusive rate. This rate is actually somewhat misleading:

It turns out that the group's purported 23 percent tax rate is misleading and hypothetical. It came up with that number by dividing the sales tax by the cost of a purchase plus the tax. So if the tax on a $100 purchase is $30, the group prefers to call it a 23 percent "tax inclusive rate" ($30 divided by $130). Ever hear of computing a sales tax like that?

The rate is really a 30% tax-exclusive rate, which is a much more accurate way to look at it. The next problem with this rate is that many feel that it is way too low. First, this rate would include the government paying a 30% rate on everything that they buy. That would mean that the government would be paying taxes to itself, which in turn would really boost the necessary rate to over 40%. But even this is too low by many estimates. Some say that the rate would be as much as 56%.

The next problem is what you do with non-profit organizations like churches, missionary organizations, homeless shelters, and other tax free institutions. These kinds of organizations do not pay any kind of income taxes. For example, the non-profit that I work for does not pay any income taxes on the money that comes in. With the new plan, we are now required to pay an extremely high sales tax rate, therefore greatly hindering our organization. In a similar way, people will no longer be able to claim deductions for charitable contributions. While some would say that charitable donations are more dependent on the state of the economy that the tax benefit, I believe that this would hinder charitable giving. If one does not receive a tax benefit for donating to our organization, they have less motivation to do so.

The next problem is that national sales tax would be an extreme regressive tax policy. I'll give you the example that I gave Henry:

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.

The poor end up paying a much higher percentage of their income, especially for essential goods.

Along with this problem, the rebate that is given is based off of the absolute poverty level, which most social scientists argue is much lower than a true poverty level. The standard poverty line comes from a determination of what it costs a family to buy food, housing, and other necessities. For example, in terms of food, the official definition of living in poverty means spending less than one dollar per meal per person and having a diet that is not adequate to maintain long-term health (Kerbo, p. 53). A more accurate poverty line would be the relative poverty line, where we consider poverty to exist when people are far below the average standard of living in the country. This relative poverty line is typically half of the average income of the population, which would be increase the level of poverty by about 50%.

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.

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