Reply #2: There's nothing fair about it, but the interesting point is: [View All]

[Bush_Eats_Beef]

John Linder has stopped calling it "The National Sales Tax."

The name just WENT AWAY.

On Linder's Web Site, he writes:

"I am the primary sponsor of the FairTax"

...which is a LIE, because he is the "primary sponsor" of the NATIONAL SALES TAX, which is the SAME THING, but the National Sales Tax got BAD PRESS, so they CHANGED THE NAME.

Why aren't people screaming about this? Bush's "Tax Advisory Panel" turns in their "recommendations" on SEPTEMBER 30th, and the National Sales Tax...or "Fair Tax"...WILL be on the list.

MORE info, from the National Retail Federation:

http://www.nrf.com/content/default.asp?folder=govt&file=talkPoint.htm&bhfv=2&bhqs=1

Consumption Tax as a Replacement for the Income Tax

Options for replacing the income tax with a consumption tax include proposals for a National Retail Sales Tax, a Flat Tax (as originally conceived by Hall & Rabushka, although a Flat Tax can be designed to be an income tax), a Value Added Tax, and a consumed income tax (like the Nunn-Domenici USA tax). Below are bullets setting forth some of the specific problems with adopting a consumption tax as a replacement to the income tax.

Consumption taxes are highly regressive, and, therefore, do not meet the President’s criteria of being fair to all. Because lower-income households tend to spend a higher portion of their income, they would pay a higher tax relative to income level than would upper income households. A recent NRF study of H.R. 25, a proposal for a national retail sales tax, found that if that bill were enacted, families with income less than $18,000 a year would get a tax cut (because of the bill’s rebate of the tax up to the amount of the poverty level), and families with income over $100,000 would get a tax cut (because they do not need to consume as large a percent of their income). However, families with incomes between $18,000 and $100,000 a year would have a tax increase. Families earning between $18,000 and $35,000 a year would have the largest tax increase because most families in this income category must use all of their earnings for living expenditures and have no ability to save, regardless of the tax incentive to do so.

The transition from an income tax system to a consumption tax system will cause the economy to decline for several years, and therefore, does not meet the President’s criteria of being pro-growth.

A study performed for the NRF’s Foundation by PricewaterhouseCoopers (PwC) in 2000 found that following enactment of a national retail sales tax the economy would decline for three years, employment would decline for four years, and consumer spending would decline for eight years. Although the study showed that the economy would begin to grow in the fourth year, it found that the increase in economic growth over the ten-year modeling period was relatively modest compared to disruptions to the economy during the transition years and questioned whether the gain was worth the pain.

The 2000 PwC study found that following enactment of a flat tax, the economy would decline for 5 years, employment would decline for 5 years, and consumer spending would decline for 6 years. Economic growth in years 6 through 10 would be even more modest than under the national retail sales tax.

Consumption Tax as an Addition to the Income Tax

Several witnesses that appeared before the advisory panel suggested that a VAT be enacted as an add-on to the current income tax system, as a means to finance social security, pay for repeal of the alternative minimum tax and other income tax reforms, and fund other governmental priorities. This model is similar to that used in many European countries.

Adding a VAT in addition to the income tax will lead to a higher overall level of taxes as a percent of GDP, which will not foster economic growth.

An early NRF study of an add on VAT found that GNP would decline for four years after enactment and consumer spending would decline even longer. (Obviously, projections change depending on how the VAT is designed, but it appears clear that for several years the economy would decline compared to where it otherwise would be.)

According to a recent study by Dan Mitchell of the Heritage Foundation, the best evidence that a VAT will lead to substantial growth in the level of taxation comes from the European example. In the mid-1960’s, before any European country adopted a VAT, the burden of government in Europe was only slightly higher than it was in the United States. In Europe tax revenues were about 30% of GDP, while in the United States tax revenues were about 27% of GDP. The VAT proved to be a very easy tax to raise because it is built into the price of goods and hidden from consumers. Forty years later, taxes in Europe amount to approximately 41% of GDP, while taxes in the United States remain at about 27% of GDP. The European experience demonstrates that the VAT is a very easy tax to increase to fund increased government spending.

Adding a consumption tax to the income tax adds more regressivity to the tax system and does not meet the fairness requirement.

Adding a consumption tax to the income tax will increase complexity. Small businesses have enough trouble meeting the burdens of collecting and remitting payroll and income tax withholdings. To also impose on these businesses the burden of collecting and remitting a VAT or national retail sales tax will greatly increase their compliance burdens.