Citizens for an Alternative Tax System
(CATS)

Principles Underlying An NRST

• Only Consumption is Taxed. No income is taxed until it is consumed. Capital gains and interest income are not taxed as long as that income is reinvested. The income is taxed only when it is consumed. The same is true for income derived from labor.

• Deductiona are Irrelevant. Deductions are no longer a relevant concept under a sales tax. Taxpayers, not the government, get first crack at their paychecks. There are no deductions from the paycheck, so there is no need for a tax deduction for state or local taxes or for charitable contributions. All money paid for taxes, or given to charities, is tax free (or equivalent to a 100 percent deduction under the income tax). There is no logner any need for income tax-deferred retirement accounts (IRAs) because there is no income tax; in effect, all savings accounts become like IRAs (except without the early withdrawal penalties).

• Tax Levied at Retail. All goods and services sold at retail are taxed. The NRST also applies to utility bills, legal fees, video rentals any and every final good or service that is consumed.

• Tax Levied on All Goods and Services. The broader the base, the lower the rate, and the rate must be kept as low as possible. If certain goods were exempted from the NRST, the rate would automatically double. (Note: some NRST proposals would exempt certain goods, such as food or medical care, that make up a high proportion of the expenditures of the poor or elderly.)

• No Tax Hidden in Prices. All burdens should be visible in the tax rate. This way we all know what the cost of government is and can make rational decisions about its value relative to other costs we incur. All retailers would be compensated for their paperwork; otherwise, compliance burdens would be hidden in their prices.

• No Tax On Business Purchases. No business consumption (inputs) is taxed. Nothing (including paper clips) used to directly or indirectly produce a good for retail consumption is taxed. Otherwise it would be hidden in the retail price of the final product.

• Businesses Collect, Not Pay, Taxes. Businesses do not pay taxes, they only collect them. Under any tax system including the income tax only consumers pay taxes because businesses have no one else to whom to pass them along. More specifically, businesses can add the tax and its collection costs into the price of its goods, services, lower wages, or the return on capital to investors or owners. In each case the cost is borne by individuals as consumers through higher purchase price, lower wages, or lower return on investment.

• Tax Levied Only Once. The government only collects the tax on the value of a good once. The used property tax credit gives a 100 percent rebate to the seller for any unused portion of used good that is sold. This avoids double-taxation. Just about any criticism that applies to the NRST also applies to the current income tax system and the flat tax. The problem of determining whether a good was purchased for business or personal use is the same no matter what type of tax system. In all cases, prices go down and take-home pay goes up more than offsetting the addition of the NRST.

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