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Tax Reform: National Retail Sales Tax Act

Dateline: 03/20/98

Last week, we took a look at the Armey-Shelby Flat Tax proposal (H.R. 1040) that would tax 17% of the income of all taxpayers, no matter the source of that income and put the entire tax return to a single post card.

The other tax reform proposal to make to the point of actual "billdome" was H.R. 2001 (H.R. 1325) - The National Retail Sales Tax Act sponsored by Congressman Dan Schaefer (R. Colorado).

How a National Sales Tax Would Work
Besides imposing a sales tax of 15% on "the gross receipts from the sale of any taxable property or service sold in the United States.", H.R. 2001 would affect these two sweeping changes:

  • The Income Tax would be repealed - as would all estate, gift and non-trust fund dedicated excise taxes.
  • The IRS would be abolished - as of FY 2001 with no successor agency established.

The 15% tax would be collected on all goods and services sold at retail. Things like utility bill payments, legal fees, golf lessons, and video rentals would be taxed.

Basically, the money you make -- your income -- would not be taxed at all until you spend it. Capital gains and income from investments would not be taxed as long as the money is reinvested. Contributions to charities would not be taxed -- a 100% deduction under the income tax.

Federal taxes would no longer be withheld from your paycheck. There would be absolutely no -- zero -- forms to file. Instead, you would pay your taxes directly to the cash register of every store you shop in. (Social Security deductions would continue.)

No sales tax would be collected on any good or service purchased for resale, purchased to produce a good or service for resale, or items to be exported from the United States. The reasoning here is that if you tax the sale of items used to produce items that are to be resold, the initial tax would become hidden in the price of the final product.

What About Businesses?
Business would pay not taxes, only collect them. That's really the way it works now. Business just pass the their taxes along to consumers in the form of higher prices.

Other Benefits of the National Sales Tax

  • Cost to file - No cost to individual taxpayers
  • Complexity - Individuals do not file a return
  • Hours to Comply - zero (0) hours for individuals
  • Penalties - None for individuals
  • Savings - Dramatically increases savings

So, What's Wrong with the Sales Tax?
According the promoters of the Flat Tax, two things: First, a National Sales tax would require that two-thirds of the House and Senate, and three-fourths of the states vote to repeal the 16th Amendment that created the Income Tax. (Congress cannot create a new national taxing authority without abolishing the existing one.) This, according to Flat Tax supporters, could probably never happen.

Second, Flat Taxers say a sales tax is hidden and too easy for the government to increase. Consumers are never sure exactly how much state and local sales tax they are paying now, thus creating less resistance to increasing those taxes.

Which Plan Will Win?
Only a very, very long time will tell. During which, we'll keep paying income tax to the IRS on 1040's, 1040A's and about a gazzilion other forms not even created yet and hating every second of it. Either plan, flat tax or sales tax, would require massive amounts of daring legislation and have a drastic and pretty unpredictable impact on the American public and economy. Indeed, the passage of either plan would require a a movement of government unseen since "The First Hundred Days" of President Franklin Roosevelt.

Current Status of the National Retail Sales Tax Act
The Retail Sales Tax Act (H.R. 2001) has been in the House Ways and Means Committee since 6/19/97.

"The income tax has made liars out of more Americans than even golf."   -- Will Rogers

Have an opinion about the National Sales tax idea?
Let's hear it! Post your opinions or questions.
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