What we used to have.

Prior to the passage of the 16th Amendment, this country survived and prospered. Today, the income tax pays for only a portion of the Federal budget.

MY PROPOSAL

THRESHOLD-BASED SALES TAX

The More Fair - Fair Tax

I support a national tax on retail sales, specifically a Threshold Based National Sales Tax. This tax structure would establish specific taxing thresholds on the retail price of each commodity; taxes would be paid only on the amount of the retail price above the threshold. The threshold would, therefore, create a fractional amount of the sales price against which no tax would be paid. That is to say, the dollar amount of the sales price below the threshold would be excluded from being taxed.

PERSPECTIVE AS PREFACE

Currently there are many retail items being taxed which generate income for the Federal Government. We are familiar with the excise tax on gasoline, cigarettes and liquor, among others. A general sales tax in essence is an expansion and a modification of excise taxes to most retail items. The taxes will not be dissuasion taxes, although there will be a differentiation of categories, including one for luxuries that may not have any threshold; or particular items within a general commodities categories that will have different thresholds. Examples are given below.

The taxes we are discussing are in place of the Federal income tax and in addition to and apart from existing import taxes, and fees. This tax structure could replace existing excise taxes.

I foresee that taxes on businesses would be eliminated with very few exceptions; and those exceptions being taxes on the purchase of items that are not necessarily reflected in the cost of production and sales. Please accept this statement on the elimination of business taxes as my own personal vision, and it should not be assumed that the Threshold Based National Sales Tax proposal is dependent upon the above conditions.

This proposal may be considered as building upon the central concept of the Fair Tax and other such taxes as the VAT in England.

For several reasons, the Threshold Based National Sales Tax would be preferable to the rebate based national sales tax also being proposed.

Firstly, a Threshold Based National Sales Tax eliminates the rebate concept of the proposed Fair Tax. Having the Federal Government involved in a periodic direct connection with the individual citizen for the purpose of issuing a rebate is contrary to the concept of individual liberty upon which this government is built.

The main point of The Threshold Based Sales Tax, like other proposals, is that it eliminates the income based direct capitation tax. The income tax demands too much intrusion into the individual citizen’s life. Also, it is extremely costly to manage and is prone to fostering severe civil rights abuses.

The primary concern for any legislation is whether or not it is consistent with the basic creed of America - liberty. Regardless, then of any other benefits, liberty is the litmus test for any proposed legislation. Those Americans who do not hold liberty as their prime concern may not find the same excitement as I do in this proposal.

EXAMPLE

Please note that the several threshold examples given below have been established without in-depth market research as to the actual retail price spread of the various commodities. The thresholds have been arrived at as a result of my own personal recollections of pricing as a retailer and shopper. I ask that you accept these values as working arguments subject to future definition and refinement. Please see “considerations” below for additional clarification on the establishment of thresholds.

The Threshold Based National Sales Tax structure would establish a minimum level of the price of an item, below which the sales tax would not be applied.

For the sake of argument, we will set the threshold for casual/dress shoes at $15.00, which means that the first fifteen dollars of any pair of shoes would not be taxed. Hypothetically then, if one were to buy a pair of shoes costing twenty dollars, tax would only be paid on five dollars of the retail sales price - the amount over the established tax threshold for that particular commodity. Alternatively, on a pair of shoes costing $125.00, tax would be paid on $110.00 of the retail sale.

FAIRNESS

The net effect of the threshold exemption from taxation is that everyone is being taxed equally; everyone purchasing a particular commodity receives the same tax exemption. Someone purchasing an expensive item pays tax on their item less the amount below the commodity’s threshold. Someone purchasing a relatively inexpensive item also pays tax on their item less the amount below the commodity’s threshold. When compared to the expensive item, the tax paid on the less expensive item is, of course, less. The tax savings, though, is the same for both items.

As an example: both the purchaser of a pair of shoes costing $120.00 and the person purchasing a pair of shoes costing $20.00 save exactly the same amount of money in tax not being paid. On a hypothetical 20% sales tax, both customers would save $3.00. While $3.00 is a larger percentage of the less expensive item's retail price, and $3.00 is a smaller percentage of the more expensive item's retail price, the tax savings is identical in absolute terms.

RELEVANCE

We all know that in the real world there are rich and poor people. And we also know that there are those among us who would choose to prioritize protecting the wealthy, either in the name of defending individual liberty; or to avert socialism and its theoretical undemocratic leveling of all classes of wealth; or to protect the impetus for investments, especially speculative entrepreneurial investment, that help bring about new technologies or processes or new products, and which oft times is risky and only enticing with the prospect of substantial monetary success. As a substantial investment of capital is necessary to develop new industries, the protection of concentrated wealth is well understood. There is also in the real world the overwhelmingly large number of people who are poor; in many cases extremely poor. Among these are the socially deprived, the infirmed, the crippled, and those who are challenged by the many types of physical afflictions. Also included among the poor are the working poor, and those who have been bankrupted or put under severe financial pressure because of some natural catastrophe or because of some medical treatment. The great argument of our times is whether or not it is the role of government, especially the Federal Government, to reach out to help these people. There are those among us who fully support the protection of the “underclass” and feel it is the responsibility of the federal Government to come to their aid in as great a manner as is possible. It is not the intent of this proposed tax to address the purpose of government, nor to decide upon the ultimate interpretation of the Constitutional phrase, “To promote the general welfare.” It is, though, within the scope of the concept of this tax to accept the fact that there is among us those who are much less affluent than many others; and to find a way to have a tax that is both fair because it does not differentiate on one’s income and also be considered progressive tax so constructed that it takes into account the realties that those with less money, and who are more affected by a sales tax, which if applied equally across the board, while being non-discriminatory, would be regressive, and burdensome on many people.

FAIRNESS

There is a considered position that a progressive sales tax is fairer. There is also criticism that a progressive fair targets wealth, and is therefore unfair. Depending upon your point of view and what values you prioritize, both positions could be true. The Threshold Based Tax is progressive and is also inherently fair in that, regardless of the point at which the threshold is set, everyone shares equally in the tax. Everyone is, at least, offered the same discount. Whether or not a consumer decides to spend as close to the threshold as possible and save is up to the consumer. The tax will depend upon how much they can afford and / or whether or not they feel like buying cheap and paying a relatively smaller amount of sales tax.

Someone needing to budget will be buying close to the threshold – hypothetically set at $7,000.00, because that’s what they can afford. The person who has the disposable income is not going to be dissuaded from buying because of the tax that has to be paid. Remember that the wealthier person will now have more disposable income because the income tax has been removed. A poor person needing a car might be able to buy a car close to the tax threshold for automobiles.

There is a point to be made here. If it turns out that the removal of the income tax does benefit the wealthy as much as the less affluent and the poor, then we can assume that the criticism of the tax breaks were true. I will not take a position on that. I am merely stating that if the current taxing system is fair, then the savings should be fair for everyone.

It will be the balance between the base rate and the threshold on commodities that will determine how progressive and fair the tax is. Obviously someone capable of purchasing an expensive luxury car is not going to buy a car that is priced close to the threshold merely because they can save the tax. If someone is content with a Geo rather than a Bentley merely because of the tax saving, more power to them. But, realistically speaking I don’t believe wealthy people will drive the super economy car rather than their luxury automobile merely to save what would be for them relatively few dollars. The middle and lower income car buyer’s threshold tax saving ameliorates on a percentage basis the total tax that will be paid by how close to the threshold they buy. For example if the tax rate is 20% and the threshold for passenger automobiles $7,000.00, and the car costs $28,000.00, the effective tax exposure is reduced by 25%, and the tax rate on that auto purchase is reduced. If the car costs $14,000.00 then the tax exposure is reduced by 50%, the effective tax rate for that auto purchase is also reduced. In both these examples, and for the purchase of a car costing $125,000.00, the absolute tax savings is $1,750.00 even though the absolute tax rate changes.

The threshold level would be dependent upon whether we as a nation wanted to use the threshold level to reduce taxes on certain commodities or largely or wholly remove the taxes on that commodity.

I believe that the proper threshold level of taxes for any item will be discovered fairly soon after it implementation. No threshold will be written in stone, and, of course, they will be adjustable. And adjusting the threshold level would be a fairly simple and straightforward procedure, as compared to the intricacies of changing the current income tax code.

For example, to compensate for the recent gasoline price rise due to unregulated speculation, were the threshold tax in place, Congress could have quickly lowered the tax threshold on regular gasoline, helping those with the least amount of disposable income and most affected by the rise in the price of gasoline. In spite of the lowered threshold, the government would have collected more in total revenue from the sale of gasoline because of the increased retail price. Again, everyone will have saved the same amount. Percentage wise, people driving larger cars would have saved a larger gross amount because of the greater amount of gasoline they purchased. The person buying for a smaller car would also save more in terms of percentage. The overall tax rate on gasoline would not need to have been adjusted, just the tax threshold.

This type of scenario in making tax adjustments could be repeated under many differing situations.

Ultimately, whether or not an item such as shoes has a threshold of $5.00 or $10.00 or $15.00 or $20.00 would depend upon whether or not the Government felt that the volume of shoes produced below a particular price is such that raising the threshold on it would seriously impact less affluent people, and also if it would seriously impact the amount of taxes collected.

CATERGORIES OF TAXATION

Taxable commodities would be broken up into three main groups – luxury, basics and necessity commodities. I will not propose which items are to be included in each of these categories, but they will have to be defined at a certain point.

Food for example is usually considered a necessity; yet in looking within the food category, specifically at meat, we can see a large price spread. Basic meats might run as low as $2.50 a pound and run as high as $18.00 or more for fillets or exotic cuts from rare animals or fish or fowl. This tax would differentiate among the various meats by setting the price threshold. For arguments sake, meat might have a threshold of $1.50 / $2.50. I can say with confidence that when a household wants a New York Cut, and the price is well above the threshold, that they would not be deterred by the fact that they could buy chop meat or roast at a much lower price and save the tax. Those wanting the more expensive cut of meat, like any other more expensive commodity are not currently deterred by the item's higher price, and will not be deterred in the future if there were a sales tax applied; again,considering that they will have more disposable income available to them once the income tax is removed.

EXAMPLES OF MAUFACTURING AND RETAIL SALES ADVANTAGE

Frequently retailers want to close out remaining stock on an item and reduce the price. Having the option on less expensive items to drop the retail price just above or even below the threshold level, the retailer is able to offer an additional incentive to the customer to buy. While the actual incentive may seem small, many customers are very keen about any savings at all, as evidenced by the continuing practice of supermarkets to publish coupons in the Sunday newspapers.

Retailers are more prone to add to their inventory when their stock shelves are empty, both because they are more comfortable with new inventory not crowding older inventory, and also because clearance sale money pays a good portion towards the purchase of new stock. In several states retailers are taxed on unsold inventory; what I call the double whammy penalty tax. A retailer is being punished for not selling his inventory. Any help in moving items off of stock shelves would help the retailer, which in turn helps the wholesaler and manufacturer. So, while there would seem to be a loss of sales tax revenues in the short term, in the long term there is more ordering for new goods on the wholesale and manufacturing levels.