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![handle is hein.taxfoundation/srfhxz0001 and id is 1 raw text is: FOUN DAT ION
March 1996
Number 57
Analysis and Summary of the National Retail
Sales fax Act of 1996
The National Retail Sales Tax Act, introduced
by Reps. Dan Schaefer (R-CO) and Billy Tauzin (R-
LA), proposes to replace the federal income tax
system, the estate and gilt tax, and all non-trust
fund federal excise taxes with a sales tax on all
goods and services. In an effort to offset the tax
burden on low-income taxpayers, the Act propos-
es a refund mechanism (administered through the
payroll tax system) based on officially designated
poverty levels for families of different sizes. The
tax rate is set at 15 percent.
As Figure 1 shows, if the Schaefer-Tauzin
sales tax plan were the law in 1997, it could re-
Figure I
Total Individual Tax Burden under Current lax System and Proposed
National Sales 7ax System
$9,'000Av.Cmlac
$8,000 $12 Avg. Tax Liability
$9,ooo [ v.Cm
$7,000 --
$6,o00
$4,000
$3,000 A
$20ooo
$2,000 ..
$1 ,00
Current
System Sales Tax
ht mIdIs i ndividual ind corporate iincolC taxes, estate and gift tix, and I]oIi-'I ist ftind
excise taxes.
SoIurce: Tax IoCiidhition.
duce the tax-related burden for the average tax-
payer by an estimated 37 percent (from $8,399
to $5,276). The reduction results from both a
lower tax bill and the taxpayer savings that
would result from reducing the high paperwork
cost associated with the income tax. The lower
tax bill results from the fact that government ex-
penditures would be subject to the sales tax un-
der the Schaefer-Tauzin plan.
The Tax Foundation estimates that comply-
ing with the federal income tax system will cost
individuals anI businesses about $157 billion in
1997. This high cost is tantamount to a tax sur-
charge on all taxpayers. A major element of the
tax reform debate in general, and the Schaefer
Tauzin sales tax plan in particular, is the desire
for a more simple, less IRS-intrusive tax system,
and the reduced compliance costs that would ac-
company such a system. The Schaefer-Tauzin
sales tax plan could reduce the $157 billion in-
come tax surcharge by about 95 percent to $8.5
billion, and, as currently written, would reim-
burse businesses for about 56 percent of their es-
timated compliance costs (see Table 1).
The Tax Rate and Tax Base
The National Sales Tax Act states: 'here is
hereby imposed a tax of 15 percent on the gross
payments for the use, consumption or enjoy-
ment in the United States of any taxable property
or service, whether produced or rendered within
or without the United States .... [T]hc term 'tax-
able property or service' means - (A) any prop-
erty (including leaseholds of any term or rents
with respect to such property) other than intan-
gible property, and (B) any service (including
any financial intermediation services) .... For
purposes of the preceding sentence, services
shall not include wages paid by an employer
By Artbur P. Hall, Ph.D.
Senior Econiownist
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