With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.
Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.
At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.
“There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.”
The late great Jack Kemp once said that if you want less of something, tax it. At the present time the retail sector is the largest employer in the country. And these geniuses want a sales tax??
You mean the vast deficit spending isn’t saving the country as planned? Who da thunk it?
If we turned from an income tax to a retail sales tax, almost everyone would have a stake in how much money government raises and how it spends it.
Right now, there are too many people are not impacted if government raises the tax rates, yet they still draw money from the government.
A national sales tax would be easier to administer than an income tax, so I could support the sales tax only if it replaced (not enhanced) the income tax (and did so by contitutional amendment).
Easier yet, would be to tax the states, not the people directly. Let the federal government never tax individuals or corporations, but rather tax the states – say 10% of the states revenues go to the federal government. I have a much greater say in how and how much money is raised in Texas than I do in Washington DC.
YBIC,
Phil Snyder
Philip,
But I don’t think this is INSTEAD of an income tax. I read it as an ADDITION TO the income tax. For that reason, I will write a letter to my reps and sens opposing it.
Jim Elliott
Florida
(lots of time on my hands while looking for a job!)
They can only tax so much income and death. Now they will tax spending. Library Jim is spot on. When one votes for change you better know what the change is going to be. You may like it much less.
I wrote an op-ed for the St. Louis Post-Dispatch in 1994 on this very subject and got an hour on KMOX, the local AM megastation, as a bonus. I’m all for it.
The idea of a NST is a good one, albeit as a replacement for the income/payroll/corporate/etc. tax, not in addition to them.
The idea that a Democratic Congress would impose a VAT in replacement for the income tax is nonsense. If they do it, it will be in addition to income taxes. Anything rather than cut spending.
I would agree that this is not going to be in place of, but in addition to the income tax. Remember, this administration is of the party calling govt. spending an “investment”, rather than a tax expenditure. Kinda like your daughter comes to you and says, “Dad (Mom), I need for you to INVEST in my Friday night activities!” “Could you please INVEST your car with me for Saturday night? Oh, and it might help if you invested in my gas tank, too.”
When will the American people understand that the power to tax is the power to destroy?
So far, I haven’t heard anyone come up with a better idea. How about it?
Not in addition to, but as a replacement for income taxes.
The better idea is to cut government spending and thereby grow the private sector, producing a larger tax base.
Another better idea – or, at least another good idea better than what Barry is doing – would be a flat tax that would re-engage the 60% of earners that no longer contribute to funding our government, and, therefore, don’t care what it does. It would also lower taxes overall and grow the economy.
Then again, the first thing to do is to stop the tyrannical nonsense of trying to nationalize and re-make the healthcare, automotive, banking, energy and insurance industries.
Cenny– a better idea? How about no new taxes? Obama the candidate promised his tax policies would only affect those over the 250k mark. Sales taxes are the most regressive he could consider– hitting the pockets of those least able to pay. Of course in typical U.S. government fashion, Washington is going to spend the money before they have it (or can justify the borrowing/printing of it) and then tax the stew out of all of us using fear tactics as was attempted in California, e.g. “We’re going to have to cut essential government programs” if this new tax doen’t pass. This is change we do not need.
believe me #6 and 10, this is about an addition not a replacement. We still have Nationalized Heath Care to fund, you know….
Consider the effect of internal taxation in Tsarist Russia (19th and very early 20th centuries). Taxing everyday items such as vodka and kerosene was hardest on the most vulnerable segment of the population, and contributed to some interesting political consequences. Do the liberals really want a revolution on their hands?
[blockquote]Another better idea – or, at least another good idea better than what Barry is doing – would be a flat tax that would re-engage the 60% of earners that no longer contribute to funding our government, and, therefore, don’t care what it does. [/blockquote]
As my accountant says, the “flat” part is easy…what’s tough is determining the basis for applying the flat rate. It’s essentially the system we have now, squished into a single-rate system.
Personally, I wouldn’t oppose a flat tax that did away with all or nearly all exemptions and such, but I seriously doubt that would happen or could stay that simple for long. The NST has the benefits of being simple, transparent and uniform (among many others).
A feature of the so-called “Fair Tax,” which is a proposed flat-rate sales tax that [u][b]replaces all[/b][/u] federal, state and local income taxes, has the interesting feature of treating every resident by the same two rules:
1. [u][b]Every person[/b][/u] (man, woman or child) gets a periodic rebate (monthly is the proposal I remember) which covers the sales tax on necessities of life (food, [i]etc[/i].).
2. [u][b]Every purchase[/b][/u] incurs the tax.
I know of no other mechanism by which we can have a taxation system that treats everyone equally before the law and leaves tax avoidance (which has always been [b]legal[/b] under the U.S. income tax system) in the hands of the individual ‘taxpayers’ meaning that other than necessities the taxpayer determines whether a purchase is worth making considering the tax.
And just think about the amount of productive work (contributing to the GDP) that could be performed by those former IRS employees who wouldn’t be required to audit the retail businesses who would be collecting the taxes.
Instead, I would be willing to make a small wager that our “elected representatives” will find that 40% of GDP (recent level of total government expenditure—[i]i.e.[/i], prior to the recent financial unpleasantness) is just not an adequate amount of revenue on which to run the nation’s governments.
Pax et bonum,
Keith Töpfer
Jeffersonian, those are good points. One thing that always annoys me is that these proposals – even from people I admire – are, indeed, “the system we have now, squished into a single-rate system.” I have no desire to make tax reform “revenue neutral.” We need to pick a rate that’s far lower than those we have now, and, if it costs the government a lot of money, too bad. I also agree with you that a flat tax would truly have to be flat: I’d favor only deductions based on the number of people in the household.
One thing that bothers me about the NST is that I believe it would be too easy to raise – “hey, my proposal will only cost the average family an extra 5 cents on the average purchase!” And, don’t think the lobbyists will just slink away to lick their wounds. Today’s triple-deductions, phasing out and re-phasing in at certain incomes, unless you get a different result on page 6c of the AMT calculation – will just morph into a myriad of sales tax rates for favored and disfavored products and services, and they’ll probably be rebated for those meeting certain income requirements – and, heck, why not just report those incomes on Form 1040NST.
Lets see …
U.S. income tax at 35% +/-
Self Employment tax @ 16% +/-
State Income Tax @ 9% +/-
State Sales Tax at 9%
At some point I’m gong to owe more tax than I make.
It seems to me that at some point soon … I’m going to owe more tax than I make.
Sorry about the poor edit.
The fiscal state of our country is something close to a national disaster right now. Between eight years of G.W. Bush, who ran the most fiscally irresponsible administration in modern American history and Zero who seems determined to challenge Bush for that title, the debt load is so huge that it is destabilizing our economy and debasing our currency. We have the Federal Reserve printing money as fast as they can load the paper and ink into the machines. To the rest of the world we are increasingly looking like one of those banana republics we used to lecture about responsible fiscal and monetary policies.
As much as I loath taxes, I don’t think we have a choice. We can’t cut enough spending to balance the budget without raising them. And we certainly can’t even scratch our debt without raising taxes. The interest on the debt alone is killing us. Balancing the budget (even if it were possible without raising taxes which I do not for a minute believe) is not enough. We absolutely MUST start paying down our debt.
We are going to have to do what Margaret Thatcher did in Britain when she inherited the disastrous state of finances her country was in during the late 70’s. She Slashed spending to the bone and raised taxes on everything and everyone. And just as it did in England, this will cause a brutal short term recession/mini depression here. But we either deal with it now or deal with it later. The accumulated bills of 15 years of high living are now coming due. If we try to ignore them or push them off further it will just be worse down the road.
It’s time to buck up and pay our bills. And yes that means raising taxes (a lot). The ‘taxation is the root of all evil’ crowd will wail and cry. But it has to be done.
I suspect this NST has no chance of passage in a Democrat controlled congress. It would tax those at the bottom end of the income scale who presently pay no taxes and who hve been the chief recipients of federal largesse.
AO, I disagree; we absolutely can cut enough spending. What I would say instead is that we won’t: the special interests are too entrenched, and the politicians are too shameless and venal. I would far prefer to take the pain in the form of decreased “benefits” and services than in the form of reduced income.
[blockquote]One thing that bothers me about the NST is that I believe it would be too easy to raise – “hey, my proposal will only cost the average family an extra 5 cents on the average purchase!†And, don’t think the lobbyists will just slink away to lick their wounds. Today’s triple-deductions, phasing out and re-phasing in at certain incomes, unless you get a different result on page 6c of the AMT calculation – will just morph into a myriad of sales tax rates for favored and disfavored products and services, and they’ll probably be rebated for those meeting certain income requirements – and, heck, why not just report those incomes on Form 1040NST. [/blockquote]
There’s always that, true. I’d say that the one and only virtue of it would be that it’s still more transparent and equitable than being able to take a tax credit on one’s return for being a left-handed lesbian Aleut who bought a Prius for her blind grandmother. What’s more is that it is far more easily complied-with than 300 million people trying to decide if they are eligible for the left-handed lesbian Aleut deduction. Finally, I like the privacy aspect of the NST, too…the IRS knows far too much about me – from medical expenses to what daycare my kids go to – as far as I’m concerned. Take away the income tax return and the massive surveillance regime goes away entirely. I like that.
[blockquote]I suspect this NST has no chance of passage in a Democrat controlled congress. It would tax those at the bottom end of the income scale who presently pay no taxes and who hve been the chief recipients of federal largesse. [/blockquote]
Those at the bottom [i]should[/i] pay it, I think, but even an NST can be made progressive via a once per year rebate mechanism.
Heh heh, yes, (#24), those are pretty convincing points.
Jeffersonian, how long do you suppose it would take before the annual rebate mechanism became as complicated as the current income tax code? Social engineering is complicated stuff, you know. 😉
And if they’re really talking about a real VAT as opposed to merely a national sales tax, [i]transparent[/i] is probably the last adjective that would apply. It could actually [i]increase[/i] the overall cost of compliance.
Personally, I like Phil’s idea to tax the states, in large part because it pits two groups of politicians against each other in a way most likely to produce a favorable outcome for their constituents. But reverting to that degree of federalism is probably the least likely thing to happen in our current political environment.
The rebate is actually very simple: Each person in a household with an SSN would get a check at the beginning of the year for the amount of the exempted purchases multiplied by the tax rate. If the exemption is for the first $10,000 in purchases and the tax rate is 15%, then each person gets a check for $1,500.
You’re right about a VAT…those are hideously complicated and I’d be dead-set against on, particuarly if it was heaped on the already onerous income, payroll and excises we already pay.
Our Government and the current President (as well as the last) have forgotten the first rule of holes,”when in a deep one quite digging” We simply can not afford to revamp health care and all the other social engineering. President Obama’s projections are pure horse hockey. President Obama stated “If we don’t pass the stimulas plan our unemployment rates could reach 8.5%”. Well we passed the stimulus package (with out the use of the politics of fear) and our unemployment is at 8.9%! If President Obama can’t get this right what good are his other economic projection? If we don’t quite spending at the current rate we are toast and may as well give up and become fiefdoms to China and Saudi Arabia! If the congress thinks they can tax the rich and balance the budget on the back of the rich I will remind you of Marc Rich (Reich)! As stated a sales tax unduly burdens the poor who spend all thier money to survive hence have 100% of their income taxed!
I definitely concur with [b]Jeffersonian[/b] on the VAT. Two of the many problems with the current system, and among the more important ones in my view, are the byzantine complexity of the law—leading to excessive compliance costs as well as confusion—and the huge cost of audit and collection. These are substantial additional drags on the economy over and above the cost of the tax itself.
Another positive aspect of the sales tax is that I think it is far more likely to reduce transactions in the “underground economy,” largely barterers and contractors, who take cash payment in lieu of anything traceable so that they need not declare the earnings on their income tax returns. By making it applicable to every purchase it is simpler, more transparent, and more self-enforcing, the latter because (if made universal on all purchases) there is no benefit in buying merchandise to use for barter.
Finally, Congress can always raise taxes as long as they have the power to tax. But by making it a sales tax, and not a VAT, everyone is regularly reminded of just how much that big grab bag of “free government benefits” actually costs them.
Pax et bonum,
Keith Töpfer
DaveB,
Did you actually read the comments discussing the tax rebate/prebate (whether annual, quarterly or monthly), or do you simply fail to understand that [b]every person[/b] would receive a check at the frequency prescribed in the law, which would cover the tax on all basic living expenses?
If someone is spending all of their income on the latter just to survive their tax is being paid for them in advance on those expenditures. And if that can’t be adequately fine-tuned by the government, then a system of supplemental rebates for [u]necessities[/u] can be superimposed. That only leaves those who are including non-necessities in what they believe to be inherent for survival, of which I am sure there will continue to be some—our Lord pretty much assured us of that when he said “the poor you will always have with you,” not to mention those additional poor souls who have seemingly intractable substance abuse issues.
Pax et bonum,
Keith Töpfer
Replacing the income tax with a VAT flat sales tax is unworkable. It has two major flaws. First it would invariably be regressive as it would hit the working class hardest and many of them could not afford to wait a year for a rebate check which in an inflationary environment would likely be worth far less than what they were fairly owed. And secondly it would be hugely difficult to enforce. If people think tax cheating is a problem now try enforcing a national sales tax as your primary means of revenue. You would see a massive underground economy rapidly develop. To even attempt to police it the Treasury would have to hire far more agents than the IRS now has. And frankly even then I don’t think it would be viable.
A national sales tax is probably inevitable. But it will not and should not replace the income tax as the primary source of revenue. All of that said our tax code is a scandal and needs to be overhauled badly.
[b]Ad Orientem[/b],
You wrote: [blockquote]It has two major flaws. First it would invariably be regressive as it would hit the working class hardest and many of them could not afford to wait a year for a rebate check which in an inflationary environment would likely be worth far less than what they were fairly owed. And secondly it would be hugely difficult to enforce. If people think tax cheating is a problem now try enforcing a national sales tax as your primary means of revenue. You would see a massive underground economy rapidly develop.[/blockquote] I must ask in all seriousness, is English your first language?
[b]A.[/b] With regard to your first point:
Jeffersonian wrote [[b]emphasis[/b] added]: [blockquote]Each person in a household with an SSN would get a check [b]at the beginning of the year[/b] for the amount of the exempted purchases multiplied by the tax rate.[/blockquote]
I wrote: [blockquote]comments discussing the tax rebate/[b]prebate[/b][/blockquote] anticipating the payment of the rebate in advance.
So there is no negative impact on the poor from having to wait for a rebate—they have the tax money in hand when they go to the store [b][u]before[/u][/b] they even make the purchase!
[b]B.[/b] With regard to your second objection:
Just how difficult/expensive do you think it will be? It is enforced by the merchant because it is collected on everything sold. The audits need only be done on the retailers to see the total retail value of merchandise sold during the period being audited. That total value times the rate is what they must remit to the goverment. Most of the auditing capability to do that is already in place in the states. The only exceptions are states which do not levy a sales tax. I believe that there are two such states (Alaska and Oregon), but there may be one or two others of which I am unaware. And remember, that this proposal does not in any way require that the federal, state and local sales taxes be administered separately—I even pointed out that the Fair Tax proposal (available on the web) rolls them together and includes a [b][u]pre[/b]bate[/u]. Any additional auditing comes from a small percentage of those people now working for the IRS, the remainder of which can be mostly eliminated! How many merchants are going to fail to collect the sales tax when they know they are going to have to deliver it to the government on a regular periodic basis.
In order to think a “massive underground economy … develop” you would have to believe that it is possible to import vast quantities of merchandise from outside the U.S. via smuggling—a highly suspect idea if I have ever heard one. And one that can be solved by the free market by issuing [i]letters of marque and reprisal[/i], which is also known as authorizing [i]privateers[/i].
If you are thinking about adminstrative costs, the Social Security Administration knows about every living person practically from birth that is legally in the country. And it knows their addresses as well. They can maintain the rolls, because they also are informed when people die. The whole prebate check distribution mechanism can be very efficiently automated because it would apply to every living person here legally.
You either haven’t been reading for comprehension, or else you haven’t thought it through.
Pax et bonum,
Keith Töpfer
A national sales tax will only be fair if you include sales of stocks, bonds, real estate (including principal residences), businesses, other investments, and services and if you tax gifts as sales. But if you do all those things, it might work.
Enforcement is complicated, it is not a simple matter of auditing merchants, unless you propose a grossly unfair sales tax where by only things purchased in stores or on line are taxed. All transactions whereby value changes hands must be taxed for the system to be fair.
Keith Topfer, I like the Fair Tax, I think it would be great. We just can’t spend as much as we are reguardless of the source income. With out some form of compensation for the lower middle and poor the sales tax is horrible as is the other storm I think we are about to hit, inflation!
“In order to think a “massive underground economy … develop†you would have to believe that it is possible to import vast quantities of merchandise from outside the U.S. via smuggling—a highly suspect idea if I have ever heard one. And one that can be solved by the free market by issuing letters of marque and reprisal, which is also known as authorizing privateers.”
But this would not be the basis of the underground economy. As I said for the system to be fair all transactions where value changes hands must be taxed. If you own a bill board company and I own a Mercedes Benz, and I say to you I will trade you my car for a year of advertising on your bill board, we each owe a tax. If I am a lawyer and you are a Doctor, and I say I will prepare your will in exchange for a check up we each owe a tax. If I have $100,000 in cash in my safe deposit box, and I agree to buy $100,000 in gold which you have in your safe deposit box, you are supposed to collect a sales tax.
Enforcement is very complicated.
Mitchell, we do smuggle vast quantities of material into the US, have you heard of drug catels. Many things that are bought and sold under the table include drugs, services, (plumber, electricians etc. ) as well as sex. Much money goes unreported but it all gets spent! The Gold in your above example had to be bought somewhere so a sales tax would have been paid on it. When it is redeemed and resold, again a sales tax. The person that sold the gold would spend the money from the sale and it would be taxed. The boon would be that businesses could get out from under the cost of employee tax, social security tax and all the built in employee taxes he paid for manufactured products reducing his cost of production. Allowing corperations to keep profits with out tax would increase manufacturing jobs as well as increase the number of corperations that would want to have headquarters in the US futher boosting the economy!
The [url=http://new.kendallharmon.net/wp-content/uploads/index.php/t19/article/22911/ ]tax revenues are plummeting[/url] and government spending is heading up, up, up. Obama wants to socialize medicine, etc., but they are realizing that even they can’t continue increasing deficit spending on such a massive scale.
Does anyone think that Obama will act responsibly with this new source of income?
[blockquote]
(if you drive a car, car;) – I’ll tax the street;
(if you try to sit, sit;) – I’ll tax your seat;
(if you get too cold, cold;) – I’ll tax the heat;
(if you take a walk, walk;) – I’ll tax your feet. [/blockquote]
#37 I am not sure of the point you are making. I think I said earlier that if everything was properly taxed a sales tax could work. That said, I think most people who support a sales tax believe their taxes will go down under such a system. But if the tax is structured in a fair way that is very unlikely to happen.
For example, currently If I buy a stock for $50 and never sell it. I pay no tax. Under say a 10% sales tax system (which I think is less than most proponents believe we would need) I would pay $5.00 when I buy the stock. That is more tax than under the current system if I buy at $50 and sell at $75.
If I am sick and go to the doctor, I currently get a tax deduction. Under the sales tax system I would pay a tax. Since my insurance will not pay taxes, the cost of my health care will go up by 10%.
The cost of buying a home would go up by 10%, or in a bad market I may have to eat the sales tax on my sale, which has the impact of reducing the value of my real estate by another 10%.
Those same companies who no longer have to pay employment taxes will pay taxes every time they purchase supplies, and raw materials, and they will pay taxes whether they make a profit or not. In a standard manufacturing operation the cost of raw materials is typically 50% to 60% of the final product cost. That cost will go up by the amount of the sales tax.
Regarding the gold. My point was that enforcement is not as simple as auditing merchants as someone else contended. I did not say it would not work. My point was you will still need the IRS to enforce the sales tax laws, and every person will most likely still need to file an annual return to report casual sales, such as the gold sale from my safe deposit box.
Finally, you say employers would be free from employment tax. But why should the purchase of labor be exempt from the sales tax. If sell you my labor for $20 per hour, why should that be any more exempt from sales tax than if I sell you my car. The employer should pay a sales tax on the labor he has purchased.
In the end the only way a sales tax will work is if it raises sufficient resources to pay for government operations. The idea many of us can enjoy a tax cut by shifting more of the cost of government to the poor, is propaganda.
Mitchell, I am not an expert so please excuse any errors. It is my understanding, that under the fair tax 26% would be revenue neutral. Products would cost about the same. Services would be taxed, employees would not. If you contract, the cost of the job would be taxed, if you hired house keeping for your business there would be a tax on the service, if you hired an employee no tax . Take home pay would increase and the burden of employee tax would be reduced offset by the tax. The profit of the business would not be taxed, material for production would. But as I said, reguardless of how you raise revenue for the government we need to cut federal spending or declare ourselves as fiefdoms to Saudi Arabia and China!
[b]#40 Mitchell[/b],
You are attacking a straw man of your own devising. A sales tax is not necessarily, and in fact, not usually, levied on any transaction but those at retail for new merchandise. You are positing what looks more like a “value added tax” (VAT) by suggesting that the sales tax would be paid at every transaction. That is a very convenient way to argue against any proposal—redefine it so as to add all manner of objectionable characteristics that are not being proposed.
Secondarily, you wrote that you [blockquote]think most people who support a sales tax believe their taxes will go down under such a system.[/blockquote] I don’t believe that anyone on this thread who proposes [b]replacing[/b] the income tax, especially as currently [i]outré[/i] as it is, with a sales tax has expressed such an expectation. The sole possible exception is my suggestion that once people realize the cost of government programs and services (many of them ineffective, if not counterproductive) the lobbying pressure on Congress and the President might, however long a shot that is, result in more stimulus to get government out of many of its current Constitutionally-unauthorized boondoggles. (I am not holding my breath on this hope.) What it will certainly do is make the cost of government and the size of the tax bite more transparent and, in my opinion, provide a more equitable distribution of paying the cost of government. In fact, anyone who thinks that taxes (the cost of government and its programs) can be reduced without reducing the size and scope of government is simply ignoring the long term effects of inflation.
Pax et bonum,
Keith Töpfer
Actually we were discussing a national sales tax. I was not addressing the “Fair Tax” proposed by Huckabee, as I think that proposal is anything but fair. It is a favoriate of Republicans, but basing a sales tax on retail sales on new merchandise is extremely regressive and I believe grossly unfair to the middle class who will pay a significantly higher percentage of their net worth in taxes, while receiving the least in goverment services.
There are however a lot of sound economic reasons to consider replacing income taxes with sales taxes. But the system needs to fully reflect all sales to accurately reflect the relative benefits of residing in the country. You would also need a use tax on items brought into the country.