theyeti

Yes, but it's naive to think that various interests, with a fair amount of voter sympathy, won't manage to get exemptions. That's one reason why our current code is so complex.

Of course it's possible; I mentioned that those problems are not insurmountable. It's just that you have to add complexity into the system in order to do it. National sales tax proponents believe that we can do away with the IRS, but if you actually want to solve the wholesale/retail problem and keep people from cheating, you either need the IRS or something equally intrusive.

The tax I'm talking about is a proposed national sales tax. It's meant to completely replace all personal income, corporate income, payroll, capital gains, and estate taxes. (Notice that there's no real reason to replace the estate tax -- very few people pay it, and it's only a one time deal. But this underscores the real purpose of NST: it's a cynical attempt to dramatically lower taxes on the rich.) The proposed NST takes effect at the retail level. Most US states already have a sales tax similar to Australia's GST, and like Australia, the rates are between 5 and 10%. It's not too much of a problem at those rates, because it would be too much of a hassle to avoid them. But NST proponents believe that we could up the rate by several times and still have everything work as smoothly. There are loopholes, it's just that it's not worth the effort to exploit them now. Supporters of NST believe, naively, that the IRS could be eliminated. Well, not if you want to stop tax cheats. And furthermore, without the IRS collecting corporate income taxes, how do we know what a company is selling? The government still has to stick its nose into your business somehow.

Yes, a national sales tax to replace all income taxes would need to be close to 50% or more. Some early proponents of NST advocated a 15 or 17% rate, but then it was pointed out that this would basically cut our budget in half, so they had to revise it upward. Some groups have advocated a 23% rate, but they're practicing creative accounting. From this page:

theyeti

seanie

Graduated income tax isn't inherently complex. In essence it's very simple. It's easy to calculate, easy to enforce and easy to collect.

If you develop an overelaborate tax code with lot's of exemptions and classifications then yeah it can get tricky to administer. The obvious solution is to simplify your system.

Not to abandon it in favour of a regressive system that shifts the tax burden from the rich to the poor, is very difficult to enforce and hence is very difficult to collect.

seanie

Look at it this way.

With income tax there's the possibility of evasion but limited incentive at least on the employers part. And it's pretty straightforward to monitor.

But a sales tax is far more complex.

Income tax is monitoring one transaction. How much an employer pays an employee. But that salary is then spent in a myriad of ways. For each monthly check I get I probably make a couple of hundred seperate purchases. That's a couple of hundred opportunities to evade tax. In some instances it won't be possible. But given a high rate there's plenty of incentive. After all both parties stand to gain.

To ensure compliance the government would have to monitor hundreds of transactions instead of just one.

And this is supposed to be simpler?

And if the the very phrase 'income tax' gives you a shudder try thinking of it as a sales tax on the purchase of labour.

Loren Pechtel

Originally posted by theyeti
Basically, one of two ways:

First, wholesale goods will have to be exempt from sales taxes, otherwise they'd be double taxed once they got to the retail level; hence, retailers will do everything in their power to claim their goods as wholesale.

Nope. You pay VAT on the selling price of the goods. However, you get a credit for the VAT paid by your suppliers.

Secondly, every special interest and then some will lobby to get certain items exempt from the sales tax. Then you have everyone scrambling to have their goods categorized as being exempt.

That's why I favor a zero exemption system. No room for loopholes.

National sales tax rates will need to be close to 50% or more to equal current revenue. (The 23% rate claimed by sales tax proponents is hopelessly flawed and dishonest.)

While I have my problems with the numbers of the proponents I don't agree with the 50% number. Tax as a % of GNP isn't that high.

Loren Pechtel

That nuts office is about 10 miles from here. At least if he's at his office and not the greybar hotel--where he's had various stays.

Loren Pechtel

That's why you use a VAT instead. Far less room to cheat.

Loren Pechtel

Note that I advocated a check from the government equal to the tax on living at the poverty line. Thus the tax burden on the poor is zero or even negative.

Loren Pechtel

[BE]Originally posted by seanie
Look at it this way.

With income tax there's the possibility of evasion but limited incentive at least on the employers part. And it's pretty straightforward to monitor.

But a sales tax is far more complex.[/B]

With straight income from an employer, yes. When it gets more complex, though, it's far harder. I'm pretty sure I misreported some minor details some years back. In later years the computer got smarter and stuck a number where I didn't realize it was needed. The IRS never called me on the mismatch, though. Screw up a 1099 and you get a letter from the IRS even when the amount is small. (I've gotten one for transposing the digits of a two-digit number!) I can only conclude that in the past at least K-1's weren't being matched.

excreationist

Loren Pechtel:
What do you think of the different tax deductions there are, like Negative Gearing?
"...It is through these available tax incentives that investors are able to purchase property at very little cost to themselves and in many cases at virtually no cost to themselves.

Simply put: the tax man and the rental income pays for your investment property!!"

=====================================

This is about my working out again... (more realistic) let's say the GST (goods & services tax) was 50%.
Let's say that the item cost the company $150 ($50 GST), and it sold it for a 40% mark-up... ($210). Let's say that the costs to rent and maintain the store cost about 5% of the revenues ($10.50 for this item), and let's say 5% of the revenues went to advertising and outsourced labour. ($10.50) Let's say 10% of the revenue goes towards staff wages. ($21)
So if the item is sold for $210 and the company sold it on the black market (didn't do GST paperwork) it would make a (210 -150 -10.50 -10.50 - 21) = $18 profit. (pure profit)

To encourage a customer to buy from the blackmarket store they could reduce the price by $10 to $200.... that's a 5% saving to the customer, and the shop gets $8 profit instead of $18.

But if it did do GST paper work, the customer would think the product cost $140 and GST was $70 (=$210).

So $70 is meant to go to the government. But the GST the company has already paid is deducted from that.... The company's costs that it paid GST for were (150 + 10.50 + 10.50 [not the wages]) $171. The GST paid in that was $57, so $57 is deducted from $70... so $13 is paid. Leaving $5 profit rather than $18...

If sold illegal, the shop would get $8 profit (assuming 5% discount is enough to sell things) rather than $5 profit, which is a 60% increase in profit. If the penalty for not paying GST was huge, it would be better for businesses, especially larger ones, to do things legitimately.

theyeti

We were talking about a NATIONAL SALES TAX! Not a VAT. Had you read my last post in context, that would have been abundantly clear.

That works great on Planet Bizarro. No special interests have any influence in government over there. Just like their income tax system which has no exemptions either.

That's because 100% of GNP is not reflected in retail consumer goods. The goods and services consumed by the government will effectively not be taxed. (It could be taxed, but in this case the government would just be taxing itself.) Housing, debt servicing, much of the service industry, and other non-retail sectors of the economy will also not be taxed. The tax rate has to be so high because it only affects part of the economy.

theyeti