The main problem is how to avoid tax being charged twice on the same item. Does the builder pay tax on the materials used to build your house, then you pay tax on the whole cost again, i.e. tax-on-tax? Do you pay tax on buying a new car and then when you sell it second-hand, do you have to charge the buyer tax again? The bills differ in these respects - one says tax is only charged on new goods - how do you figure out what is new? That is not clear. To avoid tax-on-tax-on-tax, the system must clearly be of the Value Added Tax type, as in Europe, i.e. you charge tax on the selling price, but in the sales tax return, the retailer may deduct taxes paid to his suppliers. But, what do antique shops do? They should be exempt, as should all second hand sales of vehicles, homes or anything!!

One bill proposes paying tax on homes in installments over 30 years. This is way too complicated. You should pay sales tax only on the part of your house payment that is amortization of the principal. The interest is tax free, as it is now. But, when you bought the house with a mortgage from the bank, the bank paid the builder, and did the builder charge sales tax there and then, and did that add to the loan amount? If it did then you should not have to pay tax on principal amortization, as it's included. But now you are paying interest on the sales tax the bank lent you, as they are certainly not going to lend you it free.

Today, we pay mortgage interest with effectively untaxed money. But now our mortages would have to be 23% bigger, and we would be paying 23% more interest, albeit still with untaxed money. But it would be costing us 23% more. The Government would logically have to exempt from immediate sales tax anything bought with a loan, and charge sales tax only upon amortization of the loan principal - because I see no logic in saying this only applies to houses. I guess eveything would then be bought with loans, (0%, from my wife) and the Government would have to wait for their tax! Doesn't work!

Now I am no dummy - I have a PhD and am strong on the math, yet it is not obvious to me how this will work. And I am also slightly to the right of Mussolini, so it is not for lack of the political will that I judge these bills to be still a long way from implementable - and it won't abolish the IRS - it'll just change what they do.

Maybe better to start slowly:-

1. Eliminate double taxation of company profits the logical way - by allowing dividends paid to be deducted above the line, just like interest paid to banks on loans; why should dividends paid to shareholders, which are often a lower percentage, be treated less favorably? (and the shareholder takes a risk with his capital that the bank does not)
2. Allow married people to file as two single people with full deductions, but allow spouses to transfer deductions between eachother, so that if one is not working for example, his/her mortgage interest or personal allowance may be deducted by the other.
3. Eliminate the higher short term capital gains tax rate. The Government shouldn't be encouraging the discredited "buy and hold" mentality. A goodly portion of the more complicated sections of the tax code dealing with straddles, constructive sales, unqualified covered calls etc would then dissappear, as those sections only deal with the timing of a gain or loss to determine if the long or short term rates should apply.

   Also, allow inflation indexing of the basis of farms and real estate at least.

4. Reduce the "Wash Sale" disallowance period from 30 days to one week - or just require a weekend between the sale and the repurchase. This is for the same reason - the tax code should not be interfering in the timing of a buy or sell decision. Note that some non-zero Wash Sale disallowance period is required, otherwise everybody would just rebase their assets everytime the price fell, at the treasury's expense.
5. There is a weak case that tax should be progressive - that is, the more dollars you earn, the more dollars you pay. But there is no case for tax being doubly progressive, i.e. the more dollars you earn, the higher percentage you pay. If everything was priced like that, it would have the bizarre effect that the more you earned, the less you could buy. So a FLAT TAX is a MUST.
6. Introduce a Federal sales tax at a low percentage first and reduce taxes on income. When we have experience of it, and the problems I have referred to above are solved logically with no adverse consequences to everybody's satisfaction, then there could be a shift from income tax to consumption tax. Note that the really big benefit of consumption tax over a flat income tax would be, not fairness or tax justice, as that would be the same for a flat tax, but rather the elimination of the need for individuals to file a return at all, and therefore a restoration of privacy in one's personal affairs.
7. FICA is a really politically dishonest tax. It is a pretence that half of it is "paid by your employer".

Now here's an idea: The pension part of FICA should definitely transition to individual accounts and ultimately be privatised and ultimately just become a kind of "mandatory minimum level of 401k contributions" (tax deductible of course). The "social insurance" part of FICA and medicare could then be eliminated, and replaced with a National Retail Sales tax without the problems I foresaw above (because mortgage interest is not FICA deductible now, we don't have to refigure out how that would work.)

As for having a monthly rebate that untaxes all expenditures up to the poverty level of income, I can hardly believe what I'm reading. Have we come so far from freedom that Americans are advocating the federal government issue of a monthly stipend via electronic fund transfer to a checking account to each family unit, regulated by the U.S. Health and Human Services Department and distributed by the Social Security Administration--perpetrator of the second largest hoax in the history of the United States? Can you not see the evil in the relinquishment of this control of our lives? Have you lost all sense of freedom and justice? Have you lost the need to determine your own future? You cannot be free while you are dependent on federal agencies to calculate and deliver your income (call it whatever you like--prebate, rebate, welfare check). You would have no control over any of the numbers used by any government agency.

Who will you call when a faceless government agent decides the books you've been reading are unacceptable, and suddenly your transfers are not as you expected? What if they learn that you refuse to turn in your weapons. What if they hear you haven't surrendered your children to their schools and their vaccinations, and the transfers stop? Who will you call? Your congressman? [Insert huge cynical laugh here.] Have you ever tried that? Try it. Call him and tell him you need help with a very serious problem "right away!"

God help us.

As for using consumer reaction to high sales taxes to regulate the tax rate so that tax revenue is maximized, the same economic rule applies to income taxes. Have you ever been taxed just right? Is that what you want--you want to be harvested optimally? You want the federal government's revenue to be maximized by their sensitivity to the market's tolerance for sales taxes?

Can you remember what the function of the federal government is? Think. Think harder. The only legitimate function of government is to protect the rights (not wants) of individuals.

We are witnessing today what happens when government grows out of control. The world hates us, we are under attack around the world, and Americans are learning to hate their own government and the 51 percent who are already receiving some form of government check. The government wants more money, not less. Complete control, not less. They will be the masters, and we will be the servants. And you will help them implement this, smiling. . .briefly.

Soon, however, Americans will take up arms against other Americans, to take back the country we have lost in the last century. The threats are growing in number and volume every day. Groups have been forming to battle our government and those who would enslave us. Terrorism will be foreign and domestic and, it should be obvious by now, there is no defense against terrorism.

This is where we were 10 years ago:
http://www.cato.org/pubs/policy_report/pr-ja-db.html

It's much, much worse today. You can almost smell the gunpowder.

As for the method of enacting voluntary funding of government, it would proceed something like this:

1. Compare the federal budget with the Constitution, department by department, function by function, and line by line. Anything in the budget that is not permitted by the Constitution must be phased out within one year. One year is very generous, considering that we're talking about illegal activity. You and I would be stopped and jailed immediately.

2. The private sector would be invited to bid for any useful functions or hard assets.

3. All savings and proceeds would pass to the US Treasury to fund the remaining legal functions of government.

4. Thereafter, the federal government would depend on freewill donations for funding. At that point, we would have the best government we wanted to pay for, and we would have huge sums of money to pay for it. Our effective incomes would more than double.

Impossible, you say? Remember that this bloated, Mafioso government already gets ALL of its money from us--at the point of a gun--and most Americans are STILL waving their little flags and cheering like red, white, and blue automatons. Anyone who wants to contribute his entire annual income and his entire estate is free to do so, but no gun will be required in the transaction.

Who will manage the collections? We'll assign a little office in the Treasury to take care of it. We'll call it the Donations Unlimited Headquarters--DUH for short. Anyone with adequate security measures could volunteer to accept contributions (grocery store, convenience store, bank, etc.). I imagine a DUH slot would replace the little penny bowl most retailers keep by their registers, and most change would be deposited there voluntarily instead of the customer's pocket.

Of course we could always go back to pointing a loaded gun at a customer's temple if the customer insisted on being subjected to armed robbery. Some habits ARE hard to break.

No, the only funding of government that leaves us in complete control is voluntary funding. Voluntary funding enables us to be the masters once again and government the lowly servant that it was always meant to be.

And lest you think that voluntary funding cannot support our federal government, read the Constitution, and learn what few tasks our servant is allowed to do. Remember that the only legitimate function of government is to protect the rights of individuals. How much money would you volunteer to have government protect your rights? The rest of us would do just about the same, and that sounds just about right.

While a national retail sales tax would be cheaper to apply and enforce than the current tax codes, its flaw is that it would still allow exemptions and/or deductions. These tend to become subject to someone's interpretation. What is needed is a simple and clear taxation plan that is uniformly applied without exception.

I believe the easiest way to accomplish this is to tax every sales transaction regardless of who, where, when or why. There are two very important benefits to this proposal. The first is that it will be fair. People who make less expensive purchases will pay less taxes. People who make more expensive purchases will pay more. While the proposal can ever be considered to be perfect because everyone has a different opinion of perfection, this system would have fewer flaws because it is not subject to interpretation.

The second benefit is there would no longer be a $250 billion dollar burden on wage earners. If there were no deductions or exceptions, what need would there be for $110 billion to support the IRS? More importantly, there would be no need for the $140 billion spent by citizens and businesses to comply with an overly complex system of taxation. In my humble opinion, we could expect a 75% to 90% reduction in this annual expense by implementing a uniform national sales tax.

Just two more things before I leave this excellent website. The first is for the people who claim that income tax is not allowed by the US Constitution. In the United States of America, issues of constitutionality are decided by the federal court system with the ultimate authority being the United States Supreme Court. No one else has this authority. If you believe that income taxes are unconstitutional, you are free to continue believing as long as you pay your taxes.

Every person needs to be assured:
1. they will not pay more and
2. It can be done, and
3. that it will be the same or better than before.
I would even word the petition differently to make those three points (above), for it is needed when people are often conservative and fear changing things. Many people fear it is a ruse to just get more out of them. Sincerely, Teddy J. Jensen
Teddy J. Jensen <saytruth@aol.com>
Columbia, MO USA - Sat Mar 11 22:54:17 2000

In response to Ima Freeman's post:
All of Ima's assumptions about the effects of a national retail sales tax are either untrue or unfounded. One should do the research before rendering an opinion. If Ima had done the research she would see from the sales tax legislation now before the Congress that one bill sets the rate at 15% and the other bill sets the rate at 23%. When passed, changes in the sales tax rate will be determined by a two-thirds super majority of the Congress. Passing the super majority muster on controversial issues is a rarity. This fact alone makes raises in the tax rate unlikely. How easy is it to increase income tax rates currently? Too easy - a simple majority is all that is required.

The home mortgage interest deduction -- this great false benefit of the income tax system continues to lull many people to sleep. Please read The NRST and Real Estate.

Additionally, Ima fails to consider the effect of no more income taxes on prices. With costs of goods reduced, prices will fall. She also failed to read about the Family Consumption Allowance in HR 2525 or the rebate in HR 2001. These mechanisms will insure that NO ONE pays sales taxes on essentials - in other words, the poor will have an effective sales tax rate of ZERO.

I am keeping Ima's comments on this site as a point of illustration. When a person is devoid of a substantive argument they sometimes revert to name-calling amongst other immature behaviors. Ima's post is a perfect example of that.
Webmaster (Dave Emmith)