The National Retail Sales Tax: What Would the Rate Have To Be?

In "The National Retail Sales Tax: What Would the Rate Have To Be?", William G. Gale argues the tax rate would need to be 44%:

This report addresses a technical issue regarding the national retail sales tax: What would the required tax rate have to be? According to the report, the four principal results are:

First, as long as real federal revenues and real federal spending are maintained during the transition to a sales tax, the required sales tax rate would not depend on whether federal purchases are subject to tax or whether consumer prices rise after the sales tax is imposed.

Second, H.R. 25, a recent legislative proposal, would replace the existing income, corporate, payroll, and estate and gift taxes with a 23 percent tax-inclusive (30 percent tax-exclusive) sales tax on almost all private consumption, a significant portion 23 percent (tax-inclusive), the revenue loss would exceed $7 trillion over the next decade relative to current law.

Third, with plausible allowances for avoidance, evasion, and tax exemptions for some private consumption and some state and local purchases, both the required tax rates and the revenue loss from imposing a sales tax at a 23 percent tax-inclusive rate climb significantly higher.

Fourth, the commonly cited 23 percent tax-inclusive rate in H.R. 25 was derived using a set of assumptions about changes in the price level that are not consistent with each other and that lead to an estimated tax rate that is systematically and substantially too low.

Proposals for Tax Reform - Value-added Tax and National Sales Tax (Fair Tax)

President's Advisory Panel on Federal Tax Reform. Final Report. Washington: GPO, 2005.

The Fair Tax - What Advocates Say

According to the FairTax.org website:

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.

The FairTax Act (HR 25, S 296) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.

The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.

The FairTax:
Enables workers to keep their entire paychecks
Enables retirees to keep their entire pensions
Refunds in advance the tax on purchases of basic necessities
Allows American products to compete fairly
Brings transparency and accountability to tax policy
Ensures Social Security and Medicare funding
Closes all loopholes and brings fairness to taxation
Abolishes the IRS

The fairtax.org website does not explicitly say who will pay more in taxes under the Fair Tax proposal and who will pay less. A 2007 analysis by FactCheck.org provides the answer:

The Fair Tax “will collect more money from those earning between $15,000 and $200,000 per year and less from those earning more than $200,000 per year.”