A national retail sales tax is, with all due respect, a total non-starter. To begin with, in order to replace all of the revenue derived from the current income tax, the NRST tax rate - and here I am stating it in the same form as the current state sales taxes are stated: as a percentage of the sales price
exclusive of the tax itself - would have to be somewhere in the neighborhood of about 50%. That is, if the pre-tax price of a good was $100, the tax on that sale would have to be $50, for a total price, after taxes, of $150.
Certain proponents of the NRST play an amusing little game of "hide the rate" by stating a rate of tax
without stating whether that rate is based on a price that is inclusive of tax or exclusive of tax. For example, the rate I gave above is 50% on a tax-exclusive basis; however, if I want to be able to quote you a less scary rate of tax, then I tell you what the rate is on a tax-inclusive basis (without, of course, explaining to you what the difference is). That would be stating the tax paid - $50 - as a percentage of the total after tax price - $150 - which is $50/$150 = 33.33%
33.33% sounds like a lot, but it sure doesn't sound as scary as 50%, does it?
Also, the one aspect that not a single NRST proponent has ever dealt with on any level, superficial or in-depth, is the problem of non-compliance and theft by the retailers who are the only people required to collect the tax, as well as the massive amount of new organized criminal activity such a tax would engender.
These are substantial problems that already bedevil the penny-ante state sales tax systems we already have, as well as the existing federal excise taxes (such as the excise taxes on fuels) that are already levied and collected from the seller.
For a review of the issues relating to the rate that a NRST would have to be imposed at, along with some discussion of the problems like noncompliance and organized crime, there is a very good paper on the subject by a gent from the Brookings Institution by the name of William G. Gale, titled:
The National Retail Sales Tax: What Would the Rate Have To Be?. The pdf version of that article can be directly d/l'ed
here.
Mr. Gale has also written other articles and whitepapers on the subject, some of which are also available for free from the Brookings Instutition.
On the point about illegal aliens, drug dealers, and other criminals who work in cash only paying taxes - that point is not well taken for the simple reason that none of them, in particular drug dealers, are going to be charging sales tax on the sales they make, and thus the revenue generated by them will net out to about zero. In other words, no really big change.
