Sunday, April 29, 2007

National Sales Tax - A Real Possibility/Solution For America?

From time to time politicians have recommended the replacement of the current federal income tax system in favor of a national sales tax. While on the surface this idea sounds like a good one, after a quick look at how the current tax system is setup it isn't hard to understand why millions of voters and politicians would never implement such a plan. A national sales tax would work in the same way as state sales taxes work now around the country. A 2-3% national sales tax would be all that would be required to fund the U.S. federal government and no one would pay taxes unless they purchased goods and/or services in stores around the country.

The reason why such a simple tax would not fly with political leaders in the U.S. is because the current income tax system is set up in a way where millions of Americans not only don't pay income tax at all, but many of them get back 3 to 4 times more money as they pay into the system because of special tax credits for children. I was shock to learn several years ago that some folks with many children living under the same roof were getting tax refunds of $3,000-$4,000 per year even though many of these same people had paid in less than $1,000 in federal income tax through withholding. There isn't a chance in hell that people that are getting paid to not pay taxes are going to support a new tax that would not benefit them.

To say the current US income tax system is unfair would be a big understatement. While it is true that the richest Americans pay most of the federal income taxes, the real truth is that they also benefit more because of other legal perks that are geared toward the rich. For one thing, the United States legal system has always offered greater protection to those that are most able to pay. Add to that benefit a system of government that is totally based around capitalism and it is difficult to feel sorry for the tax burden of people that make over one million dollars per year in income. Set aside the rich v. poor argument that most politicians like to call attention to during election years, I still believe the United States would be better served with some kind of consumption tax instead of a federal income tax.

The biggest reason I would like to see the United States go to a national sales tax program is because of its simplicity. Like millions of other Americans I dread April, 15 every year because IRS tax forms seem to get more complicated each year. With dozens of lines of potential deductions and hundreds of gray areas when it comes to taking those deductions, there are bond to be millions of mistake made by US taxpayers on forms each and every year. A national sales tax would eliminate the need for the IRS when it comes to individual Americans and would put that agencies vast resources to work on making sure that the collection of national sales tax revenue was paid into the government by retailers around the country as that revenue is collected.

Make no mistake about it, a national sales tax is not in the cards in the foreseeable future because of the effect it would have on low income Americans. However, that doesn't mean that a national consumption tax would not be good for most Americans in the long run and good for the U.S. economy as well.

Read more about Tax Policy:

For The Children
Hate Tax Increases
Tobacco Tax Increase
Tax Revolt Coming
Sin Tax Explosion

Hutch Report Archive