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"The Required Tax Rate in a National Retail Sales Tax".

Gale, William G.

National Tax Journal, September 1999, pp. 443-457

In national debates over reforming the federal income tax system, a commonly suggested remedy is to simply eliminate the federal income tax and replace it with a national sales tax. Such a tax would undoubtedly affect state and local governments, who rely on the sales tax for a large bulk of their revenues. The question for many state and local governments is how "big" would this federal tax be, and how much sticker shock would it give consumers. Some congressional proposals call for a 15 percent national retail sales tax (NRST), levied on a broad consumption base and government spending. Others call for slightly different tax rates, but in none of the proposals does the NRST seem to exceed 23 percent. The article notes that the assumptions behind these expected NRST's are unrealistic in that they are based on a decline in real government spending of $480 billion per year (or similarly-sized annual increases in the deficit), nor could there be any tax avoidance (legal behavior that reduces taxes), evasion (il legal behavior that reduces taxes), or political erosion of the tax base. By correcting for these assumptions by holding the real size of government constant, the author discovers that the required tax inclusive national sales rate would be more than 50 percent and the required tax-exclusive sales rate would be more than 100 percent. Subscriptions to the National Tax Journal are $60 per year; single issues may be ordered for $15. For more information, contact the National Tax Association, 725 15th Street N.W., Suite 600, Washington, D.C. 20005 (202/737-3325).
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Article Details
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Author:Douglas, Jennifer Ritter
Publication:Government Finance Review
Article Type:Brief Article
Geographic Code:1USA
Date:Jun 1, 2000
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