I think the time is well past for serious discourse about a complete dismantling of the Federal Income Tax. The tax code is a ridiculous tome of something approaching 25,000 pages I believe, that is virtually impossible to navigate. It is full exceptions, loopholes and obscure deductions and backdoor ways to dodge paying full taxes on income.
I would think that the left who are constantly crowing about the rich not paying enough in taxes would be ecstatic over a national sales tax which is as progressive system as there can be.
- Basically what it is this: The federal income tax is eliminated. No more witholding for the federal tax from your weekly check.
- A national sales tax rate is arrived at most feel 4.5-7%, most likely 5%, as it is easier to work with and should return more than enough.
- That amount, in this case, 5% is added to every purchase made everywhere, for everything except food and most clothing, which are sales tax free.
A tax like this, also known as a VAT (value added tax) is the most progressive tax possible. It doesn't tax what you earn. It taxes what you spend discretionary income on. Naturally people who make more money have more money to spend. They pay more taxes. Those with little extra money get to keep a little bit more of it.
The IRS uses somewhere in the vicinity of 10 billion $ a year. That's money spent soley on collecting taxes and auditing returns. A sales tax like this not only assures that those who have more pay more, it also would allow the govenment to reclaim some of the money being lost to undocumented employees illegal aliens, and other people who are currently able, one way or another to avoid paying.
I have a very difficult time conceiving of a downside to this other than it takes of the table a political issue that democrats enjoy twisting to bludgeon republicans with; namely tax breaks for the rich yada yada. It would seem to me if that is a sincere belief on thei part they should be rushing to get legislation like this passed into law. Overall tax revenue would increase, while individual tax burden would decrease for most. On top of that, it is a tax that encourages saving rather than spending, which is a boost for the economy long term.
The only other downside to this that I can envision is the laying off of some 10's of thousands of IRS employees. Even if they had to be paid off it still would be a huge savings.
OK. Let me have it, tell me how stupid I am. How this is dumb. But you better be ready to back it up. I am.
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Comments: 16
A dollar amount is established. For the sake of discussion let's say it's 15,000. Each year we are required to fill out a simple form and send it in. Upon receipt, a tax rebate for 5% (or whatever the rate is) is sent the filer, thereby making the first $15,000 exempt. This addresses the issue you raise. In addition it would the government to incentivize certain types products (ie: alternative fuel cars, new energy efficient technologies, solar heating systems, etc. ) by making these products tax exempt.
Julie, higer costs just lead to more selective spending habits. For people who have a high amount of discretionary income this will have little effect, true, but that is good because they are paying taxes on eveything they buy. It would also be possible to add a luxury surtax of an additional 1% or so on items like boats, SUV, and high end items that only the wealthy can afford. This additional tax is not likely to discourage the buyers of those goods and doesn't effect those who spend less.
Not to mention the 10's of billions it would save in just administrative costs. That alone would increase the overall tax revenue.
While I know it is not as simple as I have laid out here, I am convinced that is far more efficient, than the current system. It would be possible to determine what the rate would need to be to keep revenue constant. The revenue would increase as inflation raises the prices.
Does any of that change your opinions?
As someone who has an income below poverty level, the idea of having an additional sales tax, even if I get to take home 10% more of my income, is still daunting. Right now I actually get more money back than I pay in (earned income credit). So the tax program you talk about still takes about $2000/year away from my already meager income....
Corporations pay relatively little tax now as it is. Taxing business just drives them to other places where it is cheaper to operate. Eliminating it would make it impossible for people to incorporate to shield money from taxation, not the oposite. The tax is on spent money not earned money.
Once the mortgage interest deduction is re-instated, then the dominos begin to fall. Remember when Reagan tried to do this in the 80s?
It still is a good idea, if done with Medicaid and Soc Sec reform; i.e. private medical and retirement accounts, with some fair regulations. These two are "third rails," however, so no real fix is coming any time soon. Great post, Chris!
Yes, I would think that used book stores should also have to collect the sales tax, as would antique stores.
Maybe private sale automobiles could be exempt, but if a financial institution gets involved, then the tax would need to be levied.