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November 18, 2004
Is a National Sales Tax Realistic?
A Stitch in Haste took me to task on my post on flat taxes from a few days ago. In his post, KipEsquire questions the logic behind the quotation I lifted from a Bloomberg article saying that the poor would be exempted from both a flat income tax and flat sales tax:
I found this statement utterly bewildering. How exactly do you give the poor, or anyone else, an exemption from a sales tax?
You exempt products from a sales tax, not people. Is the point that “basic necessities” (i.e., what poor people spend their money on) will be exempt? If so, then you can’t simultaneously argue fairness for the poor and simplicity, since a sales tax peppered with exemptions meant to ease the tax burden on the poor will not be simple, it will be very complicated.
Look at any state that has less than a ubiquitous, prophylactic sales tax, and you find a complex web of lists, exemptions, schedules, etc., often the result of politics and lobbying more than common sense... Not a road I’d like to see the federal government go down, given its track record with the Internal Revenue Code (currently at 2.8 million words and growing).
While I agree the wording sounds off, I just assumed that exempting the poor meant exempting products deemed as necessities (i.e. food, medical, housing). As for this leading to a complex list of exemptions, the sales tax out here in California seems to work fairly well without too much confusion. Why not use it as a blueprint.
Yesterday though, Caroline Baum wrote a follow up to her original article that I quoted. She reviews a sales tax proposal called the FairTax currently sitting in Congress and addresses several of the topics discussed above:
A bill to do just that -- and abolish the Internal Revenue Service to boot -- has been introduced in the House of Representatives (H.R. 25) by Congressman John Linder, Republican from Georgia, with an identical bill in the Senate (S. 1493).
Under the FairTax, workers would take home their entire paycheck; nothing is withheld.
Instead of paying taxes on income, Americans would pay a 30 percent mark-up at the cash register on new goods or services. (The sales tax would be 23 percent if expressed as an income-tax equivalent.) Used goods aren't taxed. Neither are business purchases.
That sounds like a big loophole. (``The Porsche is not a recreational vehicle. It transports key documents to and from the office every day.'')
And perhaps it is. Unfortunately, there is no tax system that's immune from non-compliance. It's only a matter of degree.
and:
No one pays tax on consumption up to the poverty level under the FairTax. Every U.S. resident with a valid Social Security card gets a monthly rebate to cover the tax on purchases of essential goods and services.
Read the entire article if you get a chance.
What ultimately attracts me about the idea of a national sales tax is that A) it seems fair and B) investments would not be taxed, which would be great for economic growth. I agree with KipEsquire that there are undesirable issues with the tax (i.e. 30% seems high to me) but I'm not willing to write this plan off yet. To the contrary, the more I read, the more appealing it sounds.
Posted by Peter Mork at November 18, 2004 6:26 AM
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