Actually, one drawback of what I just proposed would be that companies would have to increase their working capital. Ie., a company that used to have to maintain 100 cars in inventory at 10k, would now have to keep 100 cars at 12.5 k, so effectively they have to come up with additional funds. Interesting impact.
But if the tax was only on new goods, a "used goods market" would form for people who want to pay as little tax as possible. In addition, this would encourage recycling products until they are no longer useful as the consumption tax only taxes the person who bought the good or service new. Ebay would be even bigger than it now is, but I think that with the proper tweaking, we could find easily enforceable ways to make sure a black market for new goods doesn't form.
I would love something like this (just like I would love the flat tax). But there is problems (some already mentioned): 1. What is exempt (and keep in mind the more exempt things the higher the tax on everything else) 2. I( assume the IRS would collect these sales tax forms (currently it's done by the states) 3. Is there a way to line up wha tis taxable by the federal and states (point being if businesses must report total sales and non-taxable sales it becaomes a bit of a mess) 4. Finally it probably effects the middle to low income classes the most. Keep in mind a family of 4 making $35k may spend $37k a year, meaning if you are in debt it's likley you're buying more goods than what you're bringing in that you'll be paying more out in sales taxes. A wealthy person may spend more in dollars than the family of 4, but it's likely a higher percentage of their money is being saved/invested.
It's defeatist attitudes like that which insure nothing gets done. Have some faith. If a grassroots effort can get Denny Hassert and GWB to even put the issue in circulation, it is a start.
Right. Congress will eliminate the income tax and implement a national sales tax right after they wrap up campaign finance reform. Quit being such a defeatist, Gene!
More than 70% of US GDP is derived directly from consumer spending. Consumer buying, buying, buying is currently the main engine that keeps our economy afloat and out of outright recession. A national sales tax would essentially choke GDP growth and manage to shrink incoming federal tax revenue all in one fell swoop. IMO, it's a pipe dream for now at least.
Not true. In fact, the national sales tax would allow people to invest more (no taxes on dividends and interest) and the price of goods would shrink. Economic activity would increase because of the increase in disposable income, thus ensuring that revenue to the Treasury would stay the same or increase.
Consumers would continue to buy as they would have more dollars in their pockets with every paycheck. For people who want to avoid taxes, there would be the used good markets, but some people will buy new no matter what. Do you really think John and Jane Q. Public are going to stop spending because there is a national sales tax? That is absurd considering that Americans spend on average MORE than they make every year. This measure WOULD give more incentives for savings and investment as opposed to unbridled consumerism, but IMO that is a good thing. We should be taxed on what we consume, not what we earn.
I don't disagree that in terms of fairness it makes more sense to be taxed on what you consume as opposed to what you earn. But taxing consumption will have the inevitable effect of persuading many people to save rather than spend. And if the current Govt/Fed wanted ppl to save they would not have brought short term rates down to 46 year lows where there is absolutely no incentive to save right now. They would not be infusing the large money supply with tens of billions of newly created dollars every month. They want people spending and they want them spending freely and with money they don't even have (w/ credit cards). They want people consuming like there's no tomorrow because that is the only way to avoid or at least delay the post-bubble deflationary spiral. Sure with a national sales tax there will be more disposable income - yes. But even with that extra money in their pockets, it is inevitable that consumers will hesitate and think twice about buying something when the actual cost is jacked up w/ added tax. Some percentage of people will elect to instead save and hence cut back their spending. That kind of situation is a nightmare for the politicians who are right now doing everything and anything in their power to get people to buy buy buy.
And for those hate-the-rich leftists out there, how can such a tax be "regressive" when it will impact the people who spend the most money, who are......ding....ding.....rich! For the average wage earner, he will instantly get a boost in his pay without the govt. robbing him of the results of his hard labor before he even sees his money. Tax withholding out of paychecks is abominable.
The consumptive tax is tricky to me. First of all, what exactly gets taxed? Obviously, you could leave off food and medicine and have tax holidays for school, etc. But, here are a few things I wonder about: Services - which services get taxed? Healthcare, legal fees, plumbing, construction? Not only could it be tricky for consumers, but imagine corporations having to pay millions in sales taxes for new equipment and construction - things that are now tax write-offs. Large Goods - Are there taxes on your home, rent or lease? What if you build a home and hire a contractor? Who collects the tax there and who pays? Does the contractor have to pay tax on the sub-contractor's work because they are often independent businesses and not employees. The other problem with the consumptive tax is the problems it would create for business. Every dollar earned would require collection of taxes. Also, who is responsible if it isn't paid. Imagine all of the small businesses that probably wouldn't collect sales tax. Hell, as a musician, I'm an independent business that gets hired to provide entertainment. Do I have to collect sales tax when a club pays me since I'm not an employee??? I think things like these often seem more simplistic than they really are. I'm not convinced it's a horrible idea. I just think there are a LOT of questions that have to be answered about it and I'm not sure how that is so much different from what we have now.
I would definitely exempt healthcare, and having thought about it, would probably exempt other services as well. However, anything that becomes consumed as a result of the service would be taxed. The plumber's hours would not be taxed, but the pipes, garbage disposal, and other hardware would be taxed. Of course, that is instead of having to pay corporate income taxes and also takes the onus away from the corporation for collecting withholding and payroll taxes. In addition, if the corporation wants to save on the tax bill, they have the same means at their disposal that the consumer does: buy used or recycled goods. Again, I would think that the taxes would be paid on the goods used to manufacture a home. Whoever buys the lumber, drywall, and shingles would pay the tax and that cost would be built into the cost of buying a new home. If one wanted to avoid the tax, they could buy a pre-owned home. I would argue that collecting and keeping track of sales taxes would be far easier than keeping up with the 5800 pages wof tax code we have now. Again, I don't think your gigs should be taxable since you are providing a service. If you sell t-shirts or CDs, those would be taxable, but not the gig itself. You are right that we have plenty of questions to answer, but 5800 pages of tax code is too much. We need to scrap it and come up with a tax that is easier to enforce and harder to exploit for political gain. At this point, the tax code is a tool for lawyers and politicians to give dividends to their constituents for votes. Much as I hate to agree with bamaslammer, the tax code as it exists today is a "vote buying scheme" used by both parties to reward their constituents for putting them into office.
So why does it have to be all or nothing? Why not a combination of a streamlined, simplified income tax...at a much reduced rate, AND a smaller sales tax similar to the levels that state taxes are?
IMO, it should be one or the other. If we keep the income tax and implement a sales tax, we will still have the management issues with the income tax along with the setup issues for the sales tax. The income tax as it exists today is a political tool. If we have ANY kind of income tax, it needs to be absolute, with no deductions, exemptions, or loopholes.
I am all for the national sales tax as well, but I have my doubts about it getting past the lobbiests. I think the majority of americans would be for it as well once it is explained to them.
But don't you think the sales tax will be the same political machine as the current system (granted it would start off simpler but over time it would be as complex as now): A. The american dream is owning a house. Currently that is supplemented by making interest deductible on federal taxes (while itemizing). Do you really think someone will not find a way to exempt something under a sales tax for home owners? B. Do you not love families? Current law gives families additional tax breaks (exemptions for children, EIC credit if applicable) Bottom line is I believe it would be impossible to revamp the tax code and make it straight across the board. There are way too many special interests, and values (family, american dreams) that people will use. I'm all for simplifying the tax code (God knows the more changes to the code that occur the more clients I'll have, so I'd love big changes every year) but if you're going to revamp it you have tofigure out what behaviors may be effected by the current tax code vs. behaviors by the new code. it's not as simple as being easier, but you have to think what are you going o encourage people to do.
