---

---

Tax
April 1997
Sales Tax Would Require High Rate	Three new analyses by leading academic economists confirm that instituting a national retail sales tax (NRST) to replace federal income taxes won't work, says economist Bruce Bartlett. Congressmen Dan Schaefer (R-CO) and Billy Tauzin (R-LA) are expected to reintroduce their proposal for a NRST just before the income tax deadline on April 15. Schaefer and Tauzin have claimed that a 15 percent sales tax rate would replace all federal taxes other than the Social Security payroll tax; however, they assume that the federal government will pay sales taxes on its own purchases without increasing its spending. Furthermore, A new study by Daniel Feenberg, Andrew Mitrusi and James Poterba of the National Bureau of Economic Research, making realistic assumptions about the tax base, puts the tax rate at 27.3 percent. They found that including payroll taxes as well would require a 45.4 percent rate. Matthew Murray of the University of Tennessee in the March 1997 National Tax Journal points out that state sales taxes appear to have high compliance rates because their tax rates are much lower than this. Also, state compliance rates are not at all comparable to a NRST, because states tax a much narrower range of goods and services. He suggests that individuals could evade the tax in various ways, such as disguising personal consumption as business inputs, which would be free of tax. In the same journal, John Mikesell of Indiana University finds that "a remarkably high rate" would be needed to equal current federal revenues. If the median ratio of state sales taxes to personal income was achieved by the NRST, Mikesell estimates that a 25.5 percent tax rate would be necessary. But this rate could go as high as 44 percent if the NRST only matched the coverage of the narrower state tax bases. Mikesell also points out that no two states have the same tax bases for their sales taxes, and none comes close to being comprehensive. Thus it is impossible for the federal government simply to piggyback its tax collections on state taxes without massive complexity. He concludes that "attempting to levy a national sales tax as a supplement to state sales taxes would be folly." Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 2, 1997.