Thursday, March 23, 2006

Let's Get Rid Of "Income Tax"! National Sales Tax Just A Dream?

I hate doing taxes. Imagine if we all didn't have to "do taxes"! Am I living in a dream world? Of course not paying taxes is definitely dreaming, but is not having to fill out tiny boxes or guessing how much I'm going to owe the government next year a possibility or just a crazy idea? What's that addage? Something like "There are 2 things guaranteed in life...taxes and death." So getting rid of taxes completely is not an option, but a national sales tax? Maybe not so crazy if you look at some "almost radical" ideas being brought up by our politicians. One of them I really like, and it's the idea of a national sales tax. Instead of being taken out of wages, taxes would be taken out of everything we buy. Read more about it here. The "flat-tax system" is another idea out there, but I'm not so sure I agree with that. I hope this is an issue that becomes more prominent in the future. I think the US tax system is really a waste of time and energy, and should be made much simpler. It would definitely encourage saving! And of course change is always scary, but in many cases well worth it. What do you think? This is US specific...but there must be some countries with better systems? I have to do some research...


Miserly Bastard said...

A few points about a national sales tax.

1. I favor a sales tax principally because it encourages savings rather than consumption. Savings in turn lowers interest rates, which encourages capital investment and economic growth.

2. I would support a national sales tax, however, only if passed in conjunction with a repeal of the income tax. If you left any part of the income tax apparatus intact, what would likely happen over time is that you would get both an income tax and a consumption tax.

3. The biggest criticism of the national sales tax idea is that it is highly regressive, meaning it proportionately effects the poor much more than the middle class and wealthy. To counter the "regressivity" argument, the national sales tax would need to exempt certain items (e.g., groceries, home heating costs, etc), and/or it would need to be combined with a tax credit for low-income Americans to reimburse them for sales taxes they paid over the course of the year. (This credit of course, would be a potential source of fraud.)

Net net: not in my lifetime.

Apollo said...

Very good points by the miserly bastard. I agree with points 1, 2, & 3. Very well put. I supose there is some regressivity to the flat tax but the idea of exempting groceries and utilities seem like a viable option.

I agree there should be a complete repeal of federal income tax in the event of a national sales tax. However I think the life insurance industry would be againt the repeal of income tax as it virtually eliminates the need for estate planning.

Apex said...

Agree with all the comments of both the comments above.

Sales tax system without income tax and accounting for exemptions for lower income is a far better tax system in many ways and one way not mentioned is that it taxes the underground economy which doesn't happen with the income tax (people don't report illegal income but they would pay tax when they bought stuff with it). It also eliminates all the people and small businesses who skim or categorize personal items as business deductions, etc. They would still pay taxes when they spend the money.

However this change would be the single most collosal change in any policy of this government since the abolition in 1865. So once again I agree with the first comment, I can't see anyway it happens in our lifetimes, if ever. It seems that it would require some kind of catastrophic upheaval of the government to ever get enough people on board to make such a change.

freedumb said...

Miserly, I agree with points 1 & 2, but I'm not so sure about 3. The mainly because rich also tend to buy more, thus they would pay more...but I definitely agree that there has to be something put into place to help compensate the lower income brackets.

Yeah, a change like this would have a huge effect on our country...the entire tax industry would instantly minimized...the IRS would probably shrink to 10% of what it is today...It's just amazing to think about what would happen. But imagine, all those hours doing taxes would be used doing something else productive...

Yeah, our country would need some big brass !@#!s to make a change like this, but really it might make sense. I dunno...I really hope it happens.

Penny Nickel said...

For #3 about regressivity, while it's true that richer people would buy more and thus pay more, I think the point is that poorer people would pay a greater percentage of their income.

For example (with totally random numbers!), if A earns $150,000, spends $75,000, and is taxed 20% on spending, A pays $15,000 in taxes, which is 10% of income. If B earns $40,000, spends $30,000, and is taxed 20% on spending, B pays $6,000 in taxes, which is 15% of income. So A pays a higher dollar amount on taxes, but it's a bigger burden on B.