Should the U.S. Introduce a National Sales Tax (or the "Fair Tax") to Replace the current Income Tax?
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M$2 Answers
The so-called flat-tax championed by e.g. Steve Forbes in his 1996 presidential bid would make it possible to have a far simpler tax code, while still allowing relief for low-income families through a generous family exemption. However, as discussed in great detail at http://www.taxpolicycenter.org/publications/url.cfm?ID=1000530 while such a system might be more efficient if one was setting it up from scratch, in the real world, shifting from the existing tax code (with possible reforms), to a flat tax system, would potentially decrease efficiency.
The bottom line is that a national sales tax or a flat tax system would tend to reduce the tax burden on the wealthy and shift much of it to the poorest (sales tax) or to the middle class (flat tax) without any high likelihood of economic improvement for society as a whole.
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M$There are several good reasons why a national sales tax would be far more effective than the system we have now.
1. Since the a national sales tax is based on consumption, we would not have to worry about drug dealers, mafia, etc., -- criminals-- being able to hide their assets and not pay tax at all (which many of them do not). If they buy something, they would automatically pay tax on it.
2. There is a common argument that a national sales tax would unfairly burden the poor and middle class more than the wealthy. This argument is inherently flawed because it assumes that the wealthy buy the same items as the poor and middle class. Not so. The wealthy buy luxury and more expensive items than those in lower socioeconomic classes -- so they would pay more in taxes. The wealthy also typically invest in the economy -- by starting companies, etc., that all lead to increasing tax revenues.
3. Federal income tax law is confusing, complex and very costly to enforce and often results in the IRS only being able to get less than 5% of the people who "cheat" on their taxes. Personally, I'd rather make our tax system simpler and more effective (by having a federal consumption tax) and take the dollars we spend on the IRS and have them do something useful -- like catch bad guys or audit companies or organizations which try to cheat the government out of sales tax revenues (much easier to do).
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M$
Not sure I agree with your statement that a poor family would spend "all their income." Look at countries like Japan -- where they have a consumption tax. If anything it encourages saving (across all income brackets). Also, in the United States, there are a number of programs that help to subsidize poor families -- from food stamps to subsidized tuition, etc.
I'm by no means wealthy but I don't think prosperity is created by taxing to death those who are in a position to invest in our economies . Currently the top 25% of wage earners in this country pay nearly 90% of the taxes, while earning 68% of the income generated. That means that the remaining 10% of taxes generated is paid by people who earn 32% of the income left. So it doesn't seem to me that our current income tax system works very well in terms of being "fair."
Check out the facts on federal income taxes at www.taxfoundation.org.
I was expecting someone with more of: here are the pros and here are the cons, while staying neutral.
Obviously even with a sales tax the wealthy will pay more in absolute dollars than the poor will. The problem is in the fraction of their income or wealth that they will pay. Currently, a poor family spends all of their income, and possibly then some. A wealthy family pays a fraction of their income for purchases. Thus, the poor family under a national sales tax program would be taxed on essentially all their income, while the wealthy would pay tax on a minute fraction of their much higher income. This is what is known as a regressive tax system. It is no wonder it is championed by (many of) the wealthy.
