It would increase the price of goods and services. ... 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. There are certain products whose prices have to be kept high to make a profit. Follow. Instead, the government would generate tax revenue by instituting a national sales tax on most purchased items. Many economists argue that when workers earn more, they'll also spend more. For example, let's assume a tax rate of 10%. 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. A flat income tax is notably simpler than a progressive tax. To do this, the government needs to have a team of administrative people to manage everything effectively. Therefore, these taxes are impartial in nature. One of the main benefits of a national sales tax is that the increase in sales tax paid is offset by a decrease in the income tax paid. Flat Tax Vs. National Sales Tax. If the proposed 14.5% flat tax is approved, the wealthier households get an effective tax cut, … AdvAntAges • The property tax is a more stable and reliable revenue source than any other tax. That means $100 worth of groceries would suddenly cost $140. 6:11. Here are some of the results. National Sales Tax vs Income Tax essaysThe National Sales Tax vs. A national sales tax that does not have some system of refunds, rebates, or subsidies would create a regressive taxation system. Home » Pros and Cons » 12 National Sales Tax Pros and Cons. This was raised to 5% in 1997 and to 8% in 2014. Your email address will not be published. Although the same percentage would be paid at the register, low income families would wind up paying a greater percentage of their income to taxes than those in the wealthier brackets. Take an example of salt. 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. Quality and Skills of a Sales Consultant. Now add in the expected 30% that would be required for a national sales tax and every product has a 40% tax upcharge. That would reduce the value of all retirement accounts and potentially encourage households to look at other options. Therefore, poor citizens do their bit to contribute to the nation’s income. It would prevent many forms of tax evasion. http://www.REIClub.com Are Tax Sales a Good Investment For Real Estate Investors? Featured Story Internet Sales Tax is a "Money Grab" and a "Job Killer" By Diane Alter, Contributing Writer, Money Morning-April 25, 2013. The yarn maker should get a resale certificate from the government that proves that he is not the end user to avoid sales tax and the yarn is further sold to a garment maker who should also get a resale certificate from the government. National Retail Sales Tax as a Replacement for Income Tax sales tax, provided the state conforms its sales tax base to the federal base. I am a serial entrepreneur & I created Marketing91 because i wanted my readers to stay ahead in this hectic business world. Different government entities employ various taxes and rates on their citizens. Japan first introduced a 3% consumption tax back in April 1989. 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. The pros and cons of a National Sales Tax. In this example, it would be 30 percent (30/100). It could replace the income tax and the 6.2% employee portion of the Social Security tax. Without subsidies or refunds in place, it would become a regressive tax structure. 2. The more tax on the rich comes by what the cost is for their purchase. It could cause a mortgage crisis. Flat Tax Vs. National Sales Tax. In America, a federal VAT would be imposed on top of the retail-sales tax charged by 45 states. The sales tax does not produce any revenue to the seller. More money coming into the budget with the potential for households to be spending less in taxes every year. Washington is engaged in a spirited debate over the future of the U.S. tax system. Which confuses end payers and they have to maintain detailed records to avoid legal issues. Just because Income Tax is an amendment doesn't mean we are forced to use it. Since it is simple, it would reduce the headache of annual tax preparation, but it would raise the tax burden for 90% of taxpayers. Advantages of growth Possibly the greatest competitive advantage of business growth is the ability to capitalise on the economies of scale . 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. Potential Pros for a National Sales Tax include: The elimination of all income taxes. Advantages of sales tax 1) Fairness Citizens of a country are taxed differently depending on their incomes. It's been a growing field of sales that has not been exploited for the taxes these sales could generate. Importance, Types & Uses. Just as it would with a traditional 10% sales tax, the government receives 10¢ on a $1 sale. - a national sales tax will not be enough money for the government - it will encourage states to get rid of their sales tax, giving them less money - states will either continue income tax or increase sales tax significantly, starving the poor - There is a very severe problem of taxing business inputs under a sales tax. The Fair Tax Plan is a 23% sales tax that would replace the current U.S. income tax. It could create more money even though people are spending less in taxes. 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; Only five states have no general sales tax. ... National Tax Lien Association. Types and benefits. A VAT would also solve the problem of lost online sales taxes since the imposition of a VAT … Retail stores, for example, might add a 30-percent charge to every purchase and then forward what they collect to the federal government. 6. Critics argue the tax will be regressive – taking more from low-income groups. 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. Here are some of the pros and cons to consider for this idea. A national sales tax would be a consumption tax, meaning that people would pay it every time they make a purchase. Different coaching styles, What is Corporate Training? As per the law, a seller can collect some amount of sales tax from the consumers they are selling goods and services to. It creates a truly equal system of taxation. Report. 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. The price of the product increases unduly under the name of sales tax. This tax-advantaged account is funded with post-tax dollars. Just because Income Tax is an amendment doesn't mean we are forced to use it. 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. Flat tax and national sales tax are important concepts in the field of taxation. The pros and cons of VAT A last resort. In the scenarios, where the tax on goods produced by one company is higher than the similar goods produced by other similar company. It may or may not replace the existing national tax system and would be in addition to any state sales taxes. Taxing Based on Sugar Content Is Feasible at the National Level 7 ... is excluded, applying the general retail sales tax to purchases. Sales tax on goods will also increase the manufacturing cost of products because manufacturing companies have to pay more to buy raw materials. Citizens of a country are taxed differently depending on their incomes. 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. The comparison of flat tax vs. national sales tax given below will help you know things better. It penalizes low-income earners Low-income earners, well, earn much less than others. 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. 6. So the effect on income suggests that the FairTax plan could cause consumption to increase. 5. Under the fair tax structure, business income would get rid of all payroll taxes. Families would also be issued 'prebate' cheques as to eliminate the inherent regressivity of a sales tax system. 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. Tax Policy. From my understanding, the concept of a national sales tax is to get rid of federal taxes and replace them with a sales tax of 15% flat. sales tax on these goods is kept high to reduce their consumption. This would create scarcity in the used market, raising the prices for everything used because there is more demand for it. 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. Ireland has introduced an interesting law, which has placed a 15 cent tax on the plastic bag. Sales tax is incurred on each item whether it is bought to use as a day-to-day necessity or for luxury. 4. Unlike other types of taxes, the collection of sales taxes embedded in the price of the goods and services. Rosetta Beltran. Sales taxes are not imposed on everyone. 1. By evaluating these key points, we can determine if a national sales tax is the right way to proceed. Advantages and Disadvantages of Sales tax. Tax policy pros also warn a national sales tax … internet sales tax pros and cons. This move on paper looks like it … 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. 5 years ago | 3 views. Tax policy pros also warn a national sales … Elements, Importance and Advantages, What is Sales Channel Development? Heather Horn. Sales tax is only charged by the end user of goods and services because a product passes through several manufacturing stages which are operated by different entities and it will require a huge amount of documentation to prove who should be responsible for paying sales tax. 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. 1. With a national sales tax in place, the need for income taxes would disappear. Everyone pays their fair share based on the amount of purchasing that they do every month. A national sales tax would be a consumption tax, meaning that people would pay it every time they make a purchase. Tax Sales and Tax Liens - Pros and Cons of Investing in a Tax Sale/Lien. Irrespective of income, this tax is imposed only on people who buy a particular product. Under the Fair Tax plan, revenue will be generated through the national sales tax that businesses would collect at the point of sale. In order to learn more about the pros and cons associated with a junk food tax, read on. What is Primary sales, Secondary sales and Tertiary sales and what factors determine them? Businesses would collect the tax at the point of sale and send the revenue to the federal government. sales taxes can be used politically to destroy an industry or a company. AdvAntAges • The property tax is a more stable and reliable revenue source than any other tax. In America, there is already sales tax, which falls into two categories: selective sales tax and general sales tax. Browse more videos. 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. Strict and efficient taxation policies are a must for developing as well as developed countries in the world. Sales tax removes this type of unfairness and a citizen would have to pay tax according to the number of goods or services they consume. Oct 9, 2015 Oct 7, 2015 by Editor in Chief. Economically speaking, sales tax is an excise tax. That’s because property values are usually less susceptible to short-term economic fluctuations than other major revenue sources, including sales and income taxes. Although switching over to this system would save money potentially in the long-term, there would be huge short-term expenses that would come from the building of the new infrastructure. The more tax on the rich comes by what the cost is for their purchase. A taxpayer can’t elude this tax if he wants to use a particular good or service. United States income taxes are very complex. Because a national sales tax is consumption based, it would allow households to avoid being taxed if they don’t consume items. It would be similar in principle to a cigarette or alcohol tax. The sales tax causes an increase in the price of a product. Definition and Steps, What is coaching? After that, Newt Gingrich and Bob Dole fo 10 Biggest Pros and Cons of the Fair Tax Act. Pros and cons of a national sales tax. 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 … Sales growth Explained in Detail, Sales Canvassing: Meaning, Strategy, Tips, Advantages, & Disadvantages, Who is a Sales Consultant? You should carefully consider the pros and cons of expansion before pursuing business growth. The national sales tax would fall between 23% and 30%. Different sales tax is levied by different jurisdictions, which usually overlap to increase the final price of the goods because of states, countries, and municipalities each levy their own different sales tax. 1. People don’t like a flat tax because a true flat tax impacts taxpayers disproportionately even though the tax is proportionate. List of Cons of Flat Tax. Pros & Cons of Internet Sales Tax. Social cost. Revenue generated from sales tax is uncertain, because of the demand for products in the market. It would create systems of double taxation. Hence, citizens are not required to maintain any detailed records. improve economic growth, and the pros and cons of the various proposed tax systems. Times New Roman font Page header at the top of every page Title page with title, author’s name, and institution The revenue will then be sent to the federal government. If the proposed 14.5% flat tax is approved, the wealthier households get an effective tax cut, … Let’s use the Roth IRA as an example. 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. When a regressive tax is based on consumption such as a sales tax, it can introduce an element of freedom of choice. A flat tax is not fair to low income families. 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 This means there are future opportunities to avoid taxation because there is no need to file an annual tax form. 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