Sales tax
The GOP is discussing the idea of a national sales tax:
President Bush and House Speaker Dennis Hastert have both said the idea of a national sales tax deserves a serious look. For many, the idea of a world without the Internal Revenue Service is very seductive.
“We spend about $400 billion a year complying with the tax code. We spend $200 billion a year just filling out IRS paperwork,” said Rep. John Linder, R-Ga., who has proposed a bill that would create a national sales tax.
Proponents have spent millions on research and have concluded that a national sales tax can replace the income tax, payroll tax, estate tax and corporate tax. Advocates say the new tax would lower the cost of manufacturing and job creation and attract foreign investments, among other things.
“If we were to get rid of the sales or the income tax and the payroll tax and all compliance costs, we would be so ferociously competitive in a world economy that corporate America would not be competed with unless foreign corporations started building their plants in America,” Linder said.
Other Constitutional issues aside (i.e., is sales tax justifiable), I oppose such a proposal unless it calls for the repeal of the 16th amendment. If the sales tax passed and the sixteenth was not repealed, it would only be a matter of time before we were hit with both. After all, it’s happened in many states exactly like that.
It would eliminate compliance costs and put some accountants out of business. It would also create new forms of tax evasion. Conversely, people (not just the rich ones) could control their tax burden by controlling spending and the immediate effect would be to put money back into the economy as folks wouldn’t be paying employment taxes or having their payroll checks hit.
December 2nd, 2004 at 11:26 am
I wonder if repealing the 16th would be sufficient. I’m thinking it might be better to pass an amendment that repeals the 16th, and then specifically prohibits the fedgov from taxing income.
And since we’re dreaming, I’d also like a pony. 🙂
December 2nd, 2004 at 11:26 am
The national sales tax would be in place of the income tax and part of it would be the repeal of the 16th amendment. It would also be in place of all federal taxes except for excise taxes. Check out http://www.fairtax.org . There’s a radio show on 850 am called The Voice and they talk about it a lot.
December 2nd, 2004 at 11:35 am
You might want to check out http://www.voicesouth.com for a list of the stations in East Tn that carry the show. Check contact info and program notes. The show is on from 7-10 on weekdays.
December 2nd, 2004 at 12:04 pm
I am in the process of compling some information about the history of taxation. Going to a sales tax only is just going back to the way america was orginally taxed.
The 16th should be repealed.
Also i would like to add the stipulation that drugs should not be taxed.
December 2nd, 2004 at 12:57 pm
I agree with Thibodeaux: merely repealing the 16th Amendment may not be enough. The SC decision that invalidated the pre-16th Amendment tax was controversial in its day, and not necessarily indicative of how a court would rule today. Since we have no real way of knowing how the national sales tax would pan out, why not replace the 16th with an amendment that specifically provides that the federal government may either tax income or consumption, but not both?
December 2nd, 2004 at 1:10 pm
Okay… call me a progressive (or a liberal, if you’d like)… but I’m not a fan of a national sales tax. I think it has a chance of being incredibly regressive… hurting those who can’t be hurt by it the most. Oh, and for those who don’t know my writing… I’m generally the exact opposite of a liberal.
December 2nd, 2004 at 1:26 pm
The fair tax people estimate about 24% of the cost of anything you buy is to recoup the federal taxes companies have to pay while producing said product. Once these taxes are eliminated, prices should go enough to cover the costs of the sales tax. (The fair tax people think this might take a year.)
Plus each family will receive a pre-bate on a monthly basis to ensure that no family has to pay any sales tax up to the poverty line.
December 2nd, 2004 at 2:24 pm
I just talked to a friend of mine whose involved in getting this passed. (That’s why I know a lot about it. I’m not sure I’m completely sold on it, but the more I hear, the more I like it.) They will repeal the 16th amendment and they think that will be enough. They are also talking about adding an amendment that would prohibit an income tax coming back.
December 2nd, 2004 at 3:16 pm
Any group that calls themselves the “fair tax” people has zero credibility with me. I’m half tempted to start a mock movement against the national sales tax which calls for the preservation of the “unfair tax.”
December 2nd, 2004 at 5:20 pm
CJ: The present federal tax structure is already pretty regressive. Teresa Heinz-Kerry paid just 12.5% income tax on a multi-million dollar income. Most families from around $50,000 – $200,000 will be paying a far higher rate because they can’t shelter their earned income and can’t afford most of the investment tax shelters she used.
But the bigger problem is all the other federal taxes, which are all regressive. Social Security and Medicare are flat taxes up to a top limit; The Kerry’s probably pay the maximum, but it’s small change to them. To me, it’s over 7% of my paycheck. I figure that also most of the employer’s contribution comes out of the pay rate, since pay scales are in the long run set to what your services are worth to the employer minus all the other expenses of having you work there. With the employer’s contribution added, even minimum wage workers are paying more than Teresa’s 12.5%.
And then there are excise taxes on cigarettes, liquor, gasoline, telephone services, etc. These are definitely reqressive unless the Kerry’s have figured out a way to consume 100 times as much as a minimum-wage worker. In the case of cigarettes, you don’t even have to compare the taxes to income – poor people actually smoke more cigarettes per capita, and pay excise taxes of a few hundred percent! But the Kerry’s multiple mansions don’t pay any federal taxes that I know of. Put it all together, and I suspect the working poor are already paying the feds about as much as the 23% Fair Tax would take – and with the prebate they would be considerably better off.
A national sales tax would greatly rearrange the tax burden among the really rich. Those with a high-cost lifestyle like the Kerry’s would pay a lot more. Frugal billionaires like Ross Perot (who lives pretty much like his upper middle clase neighbors) would pay much less, and I expect they would plow that money back into their businesses. That leads to more and better jobs for the rest of us.
As for the middle class – 23% of what I spend, assessed at the cash register, is better than filling out tax forms and probably paying more, or than trying to sort through all kinds of claimed ways of reducing taxes.
I don’t vouch for their calculations. In particular, although 23% might give the same take as payroll taxes with the present spending and (non)savings patterns, I expect the tax would change those patterns significantly. Not that I would mind if the government finally closed a few departments…
December 2nd, 2004 at 5:44 pm
If the repubs go through with pushing for a national sales tax plan like fairtax, my respect for them (which borders on nill) will increase dramatically.
One thing I would like to see them discuss more openly is the immorality involved with stealing a portion of a person’s paycheck before that person even sees it. If they start drumming on that (the with holding thing) then I think popular support for it will increase.
The thing is, & this is something that should not be underestimated, any proposal to end the income thef..er, tax will meet heavy resistance from H&R Block. The industry that has grown around the income thef..er tax has a lot to lose & will sink a lot of cash into efforts to defeat any such proposal. So it’d be a hard fight, but one definitely worth persuing.
December 2nd, 2004 at 5:48 pm
I think a person should get a check for all their wages then have to write a check to .gov on their own. People would be more pissed about taxes if they saw in those concrete terms how much bling bling they were losing.
December 2nd, 2004 at 5:50 pm
I could get on board with a national sales tax if you were to exclude the necessities from taxation: food, clothing, shelter, and health care. Problem is, that excludes far too big a portion of the economy.
But the biggest problem with a national sales tax is that it ties the country’s revenues even more tightly to the economy. During a recession, when it could be argued that the government needs to do more, there would be less money with which to do it. And what happens if a threat gathers during a recession? Gee, we’d love to add those troops, but people just aren’t spending enough money, so we can’t afford it.
(Then again, since when has not being able to afford it ever stopped either party from spending on anything, ever?)
To my mind, the best tax scheme would be one that lightly taxes lots of stuff, rather than heavily taxing just a few things.
December 2nd, 2004 at 5:51 pm
Another question about switching to a national sales tax: wouldn’t that discourage consumer spending? After all, if you want to be taxed less, spend less! Ecouraging people to spend less has not historically been very kind to the economy. You could wind up with economic disaster.
December 2nd, 2004 at 6:55 pm
Another question about switching to a national sales tax: wouldn’t that discourage consumer spending?
This very question illustrates the cultural shift we have made in the last several years. We’ve gone from worrying about doing things to encourage saving to worrying about doing things that discourage spending.
I’m all for it if we eliminate all taxes on wages, drugs and non-processed food(staples, dairy, produce, etc.)
I don’t think it would be regressive then.
The biggest taxation discrepancy we face right now is between wage income and investment income. They should both be taxed at the same rate or not at all.
December 3rd, 2004 at 12:35 am
lobbygow:
Unfortunately, in a consumer-driven economy, that’s the nature of the beast.
I agree, and I think doing the latter would be one of the simplest ways of solving tax inequities. Our current taxation scheme is too wage-centric.
December 3rd, 2004 at 3:07 am
markm, the reason Teresa Heinz-Kerry pays little tax is because investments are taxed at a way lower rate than income from a job. Since Teresa doesn’t have a job and lives off her investment income, she gets taxed at a lower rate. Edwards, in his campaign for President, specifically touched on the fact that the idle rich got taxed at a lower rate than working people.
December 3rd, 2004 at 8:30 am
I believe that, generally speaking, investment income is taxed at the same rate as wage income unless the investment is in some kind of tax exempt bond or fund. Another exception is the capital gains tax rate.
December 3rd, 2004 at 10:40 am
Uncle,
Well I’m not the first to say it nor will I be the last to repeat it:
April 15th is almost as far away from the election you can get in a calender year. That’s not an accident. How do you think people would vote if instead of having little chunks swiped from their pay they had to sit down & write one big fat check to the feds every year? Now imagine that check was written in the middle of October. But little chunks throughout the year coupled with the balance due 6 months from the election means that people will not be nearly as pissed off as they should be when they vote. They have 6 motnhs to be convinced that they must sacrifice for the greater good, that the needs of the many outwieght the needs of the few, that each must give according to his ability to each according to his needs, etc.
If a politican was serious about getting rid of the income thef..er, tax but didn’t think he had the votes to abolish it outright, the best tactic would be to eliminate withholding & move the due date to October. The situation would remedy itself a few weeks afterwards. Then again that’s why most politicians would fight that almost as hard as a straight repeal of the tax code.