Monday, August 02, 2004

Thoughts about a national sales tax

The Drudge Report is reporting that Dennis Hastert's new book reveals that some form of national sales tax, value added tax, or flat tax will be a centerpiece of President Bush's second term of office. The idea behind the national sales tax or national value added tax seems to be to tax consumption instead of wealth, while the flat tax (presumably with a cost-of-living deduction only) is simply one income tax rate for one and all.

Personally, I could never understand why some conservatives seem to be obsessed with a sales tax or a value added tax. The National Retail Sales Tax Alliance has a big list of positives that would incur by replacing the national income tax with a national sales tax, but in my mind a national sales tax would have some severe drawbacks:

  • First of all, as a good capitalist who believes that free markets are the best way to assign prices to goods and services, why would I want the federal government to exercise any power to manipulate price levels? As a good conservative, why should I believe that the government will restrict it's sales tax power to a single uniform tax rate on all goods and services? A Congress that can write all sorts of tax penalties and exemptions into the income tax code can just as easily do the same thing with a sales tax code.

  • I bet lots of foreign countries that compete economically with the United States would love for our government to make American products slighty more expensive for consumers.

  • The sixteenth amendment authorizes an income tax, not a sales tax or value added tax. If you argue that any act of selling a good or service or adding value has interstate commerce implications and thus falls under purview of the Commerce Clause, then you must explain why any act of earning income doesn't have similar interstate commerce implications (if it did, the sixteenth amendment obviously would not have been necessary).

  • Inflation is defined as a general rise in the level of prices over time. A sales tax or value added tax would make all goods and services more expensive, thus causing inflation. Giving the federal government a mechanism for producing a stealth policy of sustained inflation should be anathema to all conservatives.

  • We all know that the inability of the federal government to effectively tax wealth instead of income has been a key obstacle to the plans of the redistributionists. Conservatives, who on general principles are supposed to be against the forced redistribution of wealth, shouldn't be in support of proposals that make wealth a tax liability.

It seems to me that, of the viable alternatives to the current tax system, the flat tax holds the most promise. A flat tax would avoid all of the problems mentioned above, boost the economy by not penalizing success with progressive tax rates, and be resistant to increases since any increase affects everyone, not just the rich.


Blogger William said...

A national sales tax or a flat tax might seem like a viable alternative, but it is NOT progressive. You're basically putting an economic strain on the lower half of society. You're punishing people because they are poor!

Now I know, that you'll say that a progressive tax punishes the wealthy (versus the punishing of the poor with a regressive tax) but you know, for some strange reason, I think the wealthy can afford to lose more money than the poor at a higher percentage rate. If you have 1 Billion dollars and are forced to pay an extra 5 Million a year in taxes, who cares? If you have $50,000 and are forced to pay an extra $2,000 a year, don't you think that it would affect you.

This really shocks me that you're for this, especially considering the fact that you're in the lower half right now.

7:42 PM  
Blogger Joseph said...

Don't be so shocked. As far as I know, all of the national flat taxes that have been proposed have an exemption so that people below a certain income pay no taxes (amend statements in the main post appropriately). Also, the reason a flat tax hasn't gained much traction yet is that it closes a lot of the tax loopholes that the rich can exploit.

Also, I think I just identify a flat tax as the most viable alternative. I never did cast that vote for Steve Forbes, after all.

8:07 PM  
Blogger Bob D said...

Interesting post on the new tax proposals. When I heard about this I got pumped up. I really hope that Bush is going to follow through on some type of meaningful tax reform if he gets re-elected. For practical political reasons I favor a flat tax. It's simple and it has proven to be a success where implemented (most notably Russia). It would be a lot easier to sail this through Congress than a national sales tax.

I know very little about the national sales tax proposals, but the ideas are intriguing. I think one of the consequences of a national sales tax would be to encourage the amount of money people save. After all, if you didn't want to pay as much in taxes you could just decide to save more money. Income from interest and investments would presumably be tax-free, as well. All of this could be really helpful in averting the looming social security and medicare crises.

There would definitely be some problems with a national sales tax, but everything has trade-offs. I'm not yet sold on the idea of a national sales tax in place of the income tax but it is interesting.

4:17 PM  
Anonymous Anonymous said...

The only thing wrong with a National Sales Tax (or a flat tax or anything else) is that no matter how sensible an idea is at the beginning, Congress will mutilate it and bend it out of shape with exceptions and loopholes and additional provisions until it doesn't even resemble that good idea that they started out with.


5:31 AM  
Anonymous Anonymous said...

I was thinking about the national sales tax, but don't like the idea for (2) reasons.

First, I am concerned about what the effect this tax would have on tourism in this country. Would foreignors want to visit the U.S. if the cost of goods, services, etc. was higher than other countries?

Second, I was thinking about what consumers would face when purchasing a car. Normally, when you purchase a car, you have to pay "tax and title". The rest can usually be financed. If we now tack on a 18-23% sales tax on top of the vehicle price, it may either make the price of the down payment cost prohibitive, or alternatively, people would be forced to finance their "national tax".

Any ideas in response would be appreciated.

1:33 PM  
Anonymous Anonymous said...

We live in a "buy it now" society whether they have the money or not. My belief and probably your Grandparents and their parents believed in not having debt. BUy the car out-right with savings and you can pay the 18-26%. THen you can pay 60,000 (50,000 +10,000 in taxes) for a 50,000 dollar car, Or instead you can finance 71,000 for a financed car and have to pay the taxes.

Any one who can pass 9th grade math should be able to figure that a flat tax is better than what we have now. Tax breaks are rampant for corporations as well as the rich, but al least they are paying something. You got people that can't get far enough away from their plasma tv's to get in the cadillac and get a job but they pay nothing for the food in the fridge the clothes on their childrens backs. It all comes out of mine and millions of others paychecks. This is the perfect solution for getting people off their butts and out into the real world where most of us live. The rest of the country needs to realize that if you cannot pay for it the government isn't going to buy it for you and you shouldn't finance it.

Get real people we are in a time where national debt, corporate debt, and personal debt is rising so fast we are going to get bought out cheap when the bottom falls out of the economy. And when the s**t hits the fan remember it doesn't spread evenly. Those who have lived responsibly, saved and not bought on credit are going to come out smelling like a rose.

5:49 PM  
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4:01 AM  

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