The Required Tax Rate in a National Retail Sales Tax

This paper examines the required tax rate in a national retail sales tax (NRST). I show that recent proposals, such as one to replace virtually all federal revenues with a 23 percent taxinclusive NRST, are based on assumptions that real government spending would decline by $480 billion per year and that there would be no tax avoidance, evasion, or political erosion of the tax base in an NRST. Correcting for these assumptions indicates that the required tax-inclusive rate would be over 50 percent and the required tax-exclusive rate would be over 100 percent.