Beyond the political consequences of taxing the poor and middle class at a de facto higher rate, the task of administering the tax would be daunting. “It’s a stupid idea,” says Bartlett of the National Center for Policy Analysis. “It simply will not work administratively. It would also require a minimum tax rate of 30 percent [to be revenue neutral] on all retail sales, with state and local sales on top. New home sales, local government services—except education—and medical care would all be taxed.” Bartlett says that some economists believe that a rate almost twice as high would be necessary to sustain a national sales tax. Those who have traveled and done business in Europe are familiar with the VAT, a twist on the national sales tax. Like the NST, the VAT would eliminate personal and corporate income taxes. Unlike the NST, the VAT would collect revenues at each stage of the consumption chain in a “value-added” sequence, in small-percentage increments from manufacturer to wholesaler, wholesaler to retailer and retailer to consumer. “If the retailer fails to collect the tax, all [the government loses] is that part of the rate,” explains Bartlett. “With a retail sales tax, all the revenue would be lost.” Because of this safeguard, he notes, “Every country that has seriously considered a national retail sales tax has concluded that a VAT makes more sense.”
Because a VAT is a modified form of a national sales tax, investment advisors think it would have much the same impact on a high-net-worth portfolio as an NST. Tax-free investments would move the mix away from municipal to higher-yielding corporate bonds, and lessen the appeal of tax shelters and offshore investments. Private Consulting Group’s Ramos also thinks both a VAT and NST would slow down the sales of annuities, because many owners buy them for their tax-deferred properties rather than simply for the death benefits.
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