Flat Tax Vs. National Sales Tax. This would mean that equality would hit the system of taxation so that no matter what someone’s socioeconomic status happens to be, they are all putting equal skin into the game. Irrespective of income, this tax is imposed only on people who buy a particular product. One of those options is the implementation of a national sales tax. Home » Pros and Cons » 12 National Sales Tax Pros and Cons. A national sales tax would eliminate all of the advantages that come with home ownership under the current system. The argument is that a fat tax would encourage healthier eating and raise revenue to be spent on public health care. The economic pros and cons in the real estate world has revealed the hot new market niche of property or home tax sales that has developed into a Tax Sale usually called a lien or deed sale. United States income taxes are very complex. A national sales tax that does not have some system of refunds, rebates, or subsidies would create a regressive taxation system. The tax on salt is not a burden on a rich person, whereas, it is a huge burden on a person with low income. Claimed advantages for the VAT are that it would: Be based on consumption, and thus provide a stable revenue base; Be “neutral,” since it would be imposed on all types of businesses; Provide stronger incentives for businesses to control costs; Encourage, or at least not discourage, savings; I love writing about the latest in marketing & advertising. Let's stay in touch :), Your email address will not be published. The progressive system of taxation in place puts a greater burden on those who earn more money. National Retail Sales Tax as a Replacement for Income Tax sales tax, provided the state conforms its sales tax base to the federal base. Under the Fair Tax plan, revenue will be generated through the national sales tax that businesses would collect at the point of sale. Here are some of the results. This tax-advantaged account is funded with post-tax dollars. Whether someone is in the country illegally or they are purchasing items to turn into black market products, the point of sale is still going to happen in some way, shape, or form. Well, if my only two options are flat tax or national sales tax, I would go for national sales tax. People could control how much taxation affects them. With a national sales tax in place, the need for income taxes would disappear. In theory, businesses would have more money to spend because their tax rates would be lower with a national sales tax in place. The sales taxes that exist in the states may serve the purposes of the states quite well, but they are very poor models for a federal consumption tax. How do people pay their fair share? Tax Policy. It's been a growing field of sales that has not been exploited for the taxes these sales could generate. A national sales tax would be a consumption tax, meaning that people would pay it every time they make a purchase. The ultimate cold calling guide - Use cold calls to your advantage. Advantages and Disadvantages of Sales tax. The end result could be an economic benefit that has rarely been seen in the US or anywhere else in the world. The tax is imposed on the money as it is paid into a household. It also applies to the sale of services. Posted on March 27, 2017; By (0) Comment; General guidelines 1″ margins Double-spaced 12 pt. Why sales incentives should be used to motivate your sales staff? This would eliminate the need for tax withholdings from employee paychecks, remove many of the functions of the IRS, and simplify the overall tax structure since everything would be controlled at the point of sale. The high tax on certain goods like cigarettes and alcohol make a huge burden on consumers. The FairTax, if implemented would replace most U.S. taxes with a national sales tax at a 23-percent tax inclusive (equivalent to a 30-percent tax exclusive) rate. Report. Sales growth Explained in Detail, Sales Canvassing: Meaning, Strategy, Tips, Advantages, & Disadvantages, Who is a Sales Consultant? Taxing Based on Sugar Content Is Feasible at the National Level 7 ... is excluded, applying the general retail sales tax to purchases. With national debt issues looming in the background, social programs that are chronically underfunded, and a progressive tax structure that has thousands of pages of complication, many Americans are looking for an alternative taxation solution. 2. Economically speaking, sales tax is an excise tax. When a regressive tax is based on consumption such as a sales tax, it can introduce an element of freedom of choice. It would lower business taxes. So the effect on income suggests that the FairTax plan could cause consumption to increase. 1. 4. A national sales tax would be a consumption tax, meaning that people would pay it every time they make a purchase. This means there are future opportunities to avoid taxation because there is no need to file an annual tax form. Sales tax is incurred on each item whether it is bought to use as a day-to-day necessity or for luxury. So a change to a national sales tax plan reduces the disincentives to work, and workers as a whole would likely end up working and earning more. This means that annual filing of income tax forms through the IRS would also be … You can follow me on Facebook. These taxes discourage industries because of the high cost of production and less profit. The sales tax would have the same percentage say 10 to 12% and everyone pays it. Without subsidies or refunds in place, it would become a regressive tax structure. internet sales tax pros and cons. That potential provides a lot of hope for those who are struggling with their incomes right now. What Are the Pros of a Consumption Tax? Importance, Types & Uses. There is a good chance that this could cause home prices to drop dramatically because there would no longer be a market for a home. A sales tax levied on luxury goods is only payable by the consumers who buy them. ... Our analysis of the pros and cons of different tax designs applies almost identically to taxes on added sugar as to taxes on total sugar. A National Sales Tax would require them to pay more out of pocket towards food or services, reducing their monthly income. A small amount of tax on each item does not feel too high to the taxpayer, but these collected small amounts will generate a large amount of revenue for the government which can be used for the well-being of the nation or for the well-being of the nation’s citizens. Your email address will not be published. Here are some pros and cons of internet sales tax: Pros of Internet Sales Tax: States and local areas would potentially be able to collect more money to fund budget items like schools and roads; Small and medium sized brick and mortar businesses won't feel like they are competing with online retailers who aren't required to charge sales tax 3. The Bottom Line. The more tax on the rich comes by what the cost is for their purchase. In America, a federal VAT would be imposed on top of the retail-sales tax charged by 45 states. In effect, this would create a secondary “tax” on household incomes because one either pays more for used goods without taxes or pays more for new goods because of the taxes. Sales tax on goods will also increase the manufacturing cost of products because manufacturing companies have to pay more to buy raw materials. A similar study by the National Bureau of Economic Research in 1999 concluded that applying existing sales taxes to the Internet would slash the number of online buyers by 25 percent and reduce online purchases by 30 percent or more, thereby damaging one of the leading sectors of … The Pros & Cons of Regressive Taxation By Chris Joseph A woman pulls out cash from her wallet to pay for her goods and the sales tax. The sales tax is automatically collected when goods and services are sold. A taxpayer can’t elude this tax if he wants to use a particular good or service. T he United States should introduce a 5 percent national sales tax.. Also known as a value added tax (VAT), this sales tax would apply to goods and services at the point of purchase. The national retail sales tax proposal would repeal the personal and corporate income tax code and replace it with a tax on all final sales of goods and services to consumers. A VAT would also solve the problem of lost online sales taxes since the imposition of a VAT … After that, Newt Gingrich and Bob Dole fo This was raised to 5% in 1997 and to 8% in 2014. Browse more videos. In order to learn more about the pros and cons associated with a junk food tax, read on. It would eliminate a lot of bureaucracy. For example, a resident of California who purchases a mobile phone in New York; he would have to pay the local taxes in New York, as though he had bought it at home. It would be similar in principle to a cigarette or alcohol tax. The Cons of a National Sales Tax. For example, a sheep farmer sells wool obtained from sheep to a company which fabricates yarn. sales taxes can be used politically to destroy an industry or a company. sales tax on these goods is kept high to reduce their consumption. It would eliminate double taxation issues on certain types of business income. Since it is simple, it would reduce the headache of annual tax preparation, but it would raise the tax burden for 90% of taxpayers. With existing mortgages, this could create a lot of underwater homes and high levels of debt that would replicate the same crisis of 2007-2009. However, tens of millions of the working poor currently pay zero income tax (Remember that the standard deduction, personal exemptions, tax credits, etc. National Sales Tax vs Income Tax essaysThe National Sales Tax vs. Some, particularly those in conservative circles, have advocated for a sales tax as an alternative or complement to the national income tax. 4. Retail stores, for example, might add a 30-percent charge to every purchase and then forward what they collect to the federal government. Thirty countries in Europe have VATs, but just three, Canada, Japan, and Switzerland, have rates under 10%. A national sales tax would require a new system of reporting and money collection that doesn’t exist right now. A flat income tax is notably simpler than a progressive tax. However, a seller is responsible to collect sales tax from consumers and pass it to the official authorities. In the scenarios, where the tax on goods produced by one company is higher than the similar goods produced by other similar company. The sales tax causes an increase in the price of a product. For example, a citizen who earns $100,0000 annually will pay significantly high taxes than the citizen who earns $100,000 annually. For example: if a household wanted to grow their own foods, they could purchase seeds and equipment and be charged the national sales tax. Playing next. Elements, Importance and Advantages, What is Sales Channel Development? Revenue generated from sales tax is uncertain, because of the demand for products in the market. Pros and Cons of a New Tax on Banks. That’s because property values are usually less susceptible to short-term economic fluctuations than other major revenue sources, including sales and income taxes. Sales taxes are regressive in nature because it is easy for a rich person to pay price for goods no matter how high it is, at the same time it becomes a burden on the poor person. 6. There is the added benefit that no one would be required to file a national-level tax return with this system too, which simplifies the taxation process. collecting sales tax is not an easy job. Japan first introduced a 3% consumption tax back in April 1989. People don’t like a flat tax because a true flat tax impacts taxpayers disproportionately even though the tax is proportionate. It could cause a mortgage crisis. Pros and cons of a national sales tax. Because more people would be affected by a national sales tax, the end result would be additional funds being raised to meet the needs of the people. It would increase the price of goods and services. The national sales tax would fall between 23% and 30%. For a household earning $100,000, the effective tax rate is around 21%. 10 Biggest Pros and Cons of the Fair Tax Act. Because the national sales tax would be based on consumption of new goods and services, many households would turn to used products to avoid paying the tax. It could create more money even though people are spending less in taxes. to add an Internet sales tax to all goods purchased online. This could be used to create more jobs, invest into research and development, or reduce the prices of goods that are on the market. A White House proposal to tax big banks draws heavy fire. Tax Sales and Tax Liens - Pros and Cons of Investing in a Tax Sale/Lien. Use taxes have quite same rates as sales tax but they are difficult to enforce, hence, they are applied on a large purchase of the product. What is Sales Prospecting & its role in Sales? If the proposed 14.5% flat tax is approved, the wealthier households get an effective tax cut, … A sales tax levied on every product has to be taken care of. You must have come across people who hide their income to save income tax, but sales tax can’t be evaded because it is included in the price of the goods and services. AdvAntAges • The property tax is a more stable and reliable revenue source than any other tax. To do this, the government needs to have a team of administrative people to manage everything effectively. Strict and efficient taxation policies are a must for developing as well as developed countries in the world. Under the fair tax structure, business income would get rid of all payroll taxes. Sales tax increases the burden on the manufacturing industries. For example, let's assume a tax rate of 10%. Since tax lien investing involves a significant amount of due diligence, ... Tax lien sales occur within 36 states, and 31 states allow tax deed sales (some allow both). 1. The more tax on the rich comes by what the cost is for their purchase. Therefore, poor citizens do their bit to contribute to the nation’s income. 1. What is Benefits Administration? National Sales Tax – Pros & Cons 2 A National Sales Taxing System in the United States Within our country’s history, there has been changes made to our forever changing national tax system. http://www.REIClub.com Are Tax Sales a Good Investment For Real Estate Investors? For the past 12 years, there have been threats, attempts, etc. Flat Tax Vs. National Sales Tax. If the proposed 14.5% flat tax is approved, the wealthier households get an effective tax cut, … Just because Income Tax is an amendment doesn't mean we are forced to use it. In business, entrepreneurs experience peaks and valleys but for small business owners who operate seasonal businesses those ups and downs intensify. 5. The sales taxes that exist in the states may serve the purposes of the states quite well, but they are very poor models for a federal consumption tax. Here are some of the results. Only the top 10% of incomes would see a tax cut. That means $100 worth of groceries would suddenly cost $140. The principle behind the VAT tax is that a tax is imposed on the buyer all the way up the supply chain of a product from the initial purchase of raw materials through to the retail consumer of the product. At the end of the process, the garment maker will sell garments to a retailer who will charge the sales tax on the garments sold along with the price of the garment. It could replace the income tax and the 6.2% employee portion of the Social Security tax. However, the National Sales Tax could reverse this problem by enticing individuals and families to consume less This will allow them to not only build savings but also lower the cost of goods and services because there will be less of a demand for them. Featured Story Internet Sales Tax is a "Money Grab" and a "Job Killer" By Diane Alter, Contributing Writer, Money Morning-April 25, 2013. Here is a look at the national sales tax pros and cons. This would create scarcity in the used market, raising the prices for everything used because there is more demand for it. The pros and cons of VAT A last resort. Advantages of sales tax 1) Fairness Citizens of a country are taxed differently depending on their incomes. Different government entities employ various taxes and rates on their citizens. AdvAntAges • The property tax is a more stable and reliable revenue source than any other tax. It benefits all businesses. Shadow Pricing: Meaning, Examples, Advantages, Uses, and Limitations, Sales Broker: Role, Advantages and Disadvantages Explained, What is Sales Compensation? It would prevent many forms of tax evasion. Before such a dramatic change occurs, the positive and negative key points should be properly evaluated to determine if such a proposal could solve the problems the US faces. A national sales tax that does not have some system of refunds, rebates, or subsidies would create a regressive taxation system. Sales taxes are quite simple in this regard. By evaluating these key points, we can determine if a national sales tax is the right way to proceed. Within a few weeks, there was a visual improvement in the number of plastic bags littering the… Abe has postponed the hike to 10% two times over concerns of the economic impact. There would be huge implementation costs. 5. 1. Instead of having progressive taxes on the amount of money that is being earned, a national sales tax would charge the same amount nationally to everyone for the goods and services that qualify. Most of the times, poor citizens are exempted from paying any type of tax and a large part of the government’s revenue is spent on poor citizens. ", 8 Eye Opening Employee Appreciation Stats, Spotify SWOT Analysis for 2021: 26 Strengths and Weaknesses, Uber SWOT Analysis for 2021: 23 Major Strengths and Weaknesses, Netflix SWOT Analysis (2021): 23 Biggest Strengths and Weaknesses, Tesla SWOT Analysis (2021): 33 Biggest Strengths and Weaknesses, 14 Core Values of Amazon: Its Mission and Vision Statement, Is AliExpress Legit and Safe: 15 Tips for Buyers, How Does Zoom Make Money: Business Model Explained, A Look at Southwest Airlines Mission Statement: 10 Key Takeaways, Apple’s Mission Statement and Vision Statement Explained, How Does WhatsApp Make Money: Business Model & Revenue Explained. Instead, the government would generate tax revenue by instituting a national sales tax on most purchased items. Critics argue the tax will be regressive – taking more from low-income groups. What is a Sales Contract? National Sales Tax – Pros & Cons 3 One notable positive about having the United States switch to a sales tax system would be that households could control how much tax they pay by controlling how much the spend or consume. The sales tax does not develop civic consciousness, because taxpayers are not aware of the tax they are paying as it is embedded in the price. According to this article: Value-added tax as I understand it, there ultimately isn't that much difference from the consumer's point of view. A VAT would eliminate (so advocates assert) the labyrinthine U.S. income tax system, since the VAT is so much more efficient and would bring in more revenue. The national sales tax would fall between 23% and 30%. The Income Tax Only days after the last elections for Congress in November of 1994, Congressman Bill Archer declared his strong desire to "tear out the income tax by its roots." Washington is engaged in a spirited debate over the future of the U.S. tax system. A junk food tax has been proposed and as you might have expected, it has caused quite the commotion among observers. For a household earning $100,000, the effective tax rate is around 21%. I submit that a National Sales Tax like most of the states already have should totally replace the Income Tax. That’s ultimately the question that must be answered. Therefore, these taxes are impartial in nature. A flat tax is not fair to low income families. From Disabled and $500k in Debt to a Pro Blogger with 5 Million Monthly Visitors, 18 Biggest Pros and Cons of a Mixed Economy, 20 Open Range Cattle Industry Statistics, Trends & Analysis, "From Disabled and $500k in Debt to a Pro Blogger with 5 Million Monthly Visitors. Families would also be issued 'prebate' cheques as to eliminate the inherent regressivity of a sales tax system. To reduce the burden on the poorest consumers, sales tax laws generally exempts essential goods like food from the tax. 5 years ago | 3 views. Most low-income households that earn $40,000 or less in the U.S. have an effective tax rate around 13%. This article is from the archive of our partner . It may or may not replace the existing national tax system and would be in addition to any state sales taxes. Therefore, it is easy for both tax collector as well as for the taxpayer. Which confuses end payers and they have to maintain detailed records to avoid legal issues. The comparison of flat tax vs. national sales tax given below will help you know things better. Quite similar like transportation and consumption tax, sales tax is also an indirect tax because it is directly embedded into the purchasing price of the goods and services. You should carefully consider the pros and cons of expansion before pursuing business growth. prevent many Americans from paying anything for federal taxes). Trade Discount - Difference Between Trade Discount and Cash Discount? Unlike other types of taxes, the collection of sales taxes embedded in the price of the goods and services. Ireland has introduced an interesting law, which has placed a 15 cent tax on the plastic bag. ... National Tax Lien Association. Phases, Advantages and Disadvantages, What is Sales Growth? Potential Pros for a National Sales Tax include: The elimination of all income taxes. More money coming into the budget with the potential for households to be spending less in taxes every year. The IRS would become obsolete, and your net income would no longer have anything to do with how many exemptions you can claim. Increase In Revenue Simply raising the taxes on junk food is not enough to make people stop their consumption. Because a national sales tax is consumption based, it would allow households to avoid being taxed if they don’t consume items. Without subsidies or refunds in place, it would become a regressive tax structure. Only five states have no general sales tax. The tax-exclusive sales tax rate is the ratio of the tax to the pretax price (that is, the tax payment is excluded from the denominator). I am a serial entrepreneur & I created Marketing91 because i wanted my readers to stay ahead in this hectic business world. Pros of a Fat Tax. In this example, it would be 30 percent (30/100). 2. Several Republican presidential hopefuls have stated their support of the “Flat Tax.” Ted Cruz, Ben Carson, and Rand Paul have all expressed interest in a tax reform plan that moves our current code to a new “Flat Tax.” As a result, there is renewed interest in what a Flat Tax is, what its pros and cons are, and how it could impact different taxpayers. 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