Why not replace the income tax with a Federal Sales Tax? I see several advantages to this. It would eliminate the expense of the Internal Revenue Service. It would eliminate all the tax services, e.g., H&R Block. It would encourage people to save money, because they would not be taxed until they spend. It would seem to me that by eliminating the IRS, our tax rate would be somewhat less. What do you think? Am I missing something here? Comments from outside the U.S. are welcome.
Opinion: Federal Sales Tax
SO you want businesses to be responsible for filing all the tax returns? Federal and state? What a mess!
Plus the fact that they probably wouldn't get anywhere near what they get through income tax, any decrease in taxation is like pulling teeth. It aint gonna happen. Plus then you have all the people screaming about how the rich aren't being taxed enough and the poor are being overtaxed.
Its a can of worms, then again so is the slightest tinkering with the taxation system, this type of change might take revolutionary war II to get through.
Random, You raise a point I hadn't thought of, yes, it would add a cost to all businesses collecting the sales tax. So, I am not sure how that should be handled. I does seem to me that the costs to businesses would be less than the total cost of having the IRS and all the tax services, but that is just a guess on my part. Now, on the point of the Feds not getting as much, I don't know if that would be true or not. People have to buy stuff, and it seems to me they would buy a lot of stuff under the "new system." I think that if some spend less and saved money, that would be good for the economy. On the last point regarding the rich and poor, it seems to me that the rich buy lots of stuff, therefore the tax would be equitable. Also, some items could be exempt from tax, e.g. food from the grocery store could be tax exempt, and some items could have a luxury tax that puts a heavier burden on the rich..... Well, those are my thoughts for now.
A federal sales tax in lieu of the current tax system is never going to happen because it would be bad for both businesses and consumers. The way the tax system works now is it provides incentives for certain behaviors that are supposed to help the nation as a whole. For example on an individual level people that go to college can deduct their tuition and books from their taxes. The theory here is that because the individual is educated he is a more productive member of the economy and will add more to the GNP over the course of his life. So the government subsidizes his education through tax incentives; in essence rewarding behavior that will lead to a stronger society. The same is true for businesses. Depreciation for new equipment can be deducted from your taxes this, in theory, should lead businesses to continually upgrade their capitol leading to a stronger more robust economy.
I realize that what I wrote above is how the tax code should work and that in practice it does leave a great deal to be desired. I would like to see the tax code simplified and some of the loop holes removed to create a more equitable system. But overall I think we need a way to create incentives (individual and organizational) for behavior that is beneficial for society as a whole.
As a 40 yr resident of Oregon, one of the few states that have never had a sales tax (initiatives have been voted down every time), I can say only this:
Oregon has experienced one of the very best continuous 8 yrs of economic prosperity from 1982-90, mainly due to a significant hi-tech industry expansion in the Portland area. During that time, user fees, property development fees, excise taxes, utility customer charges, public purpose charges, contractor's licensing fees, motor vehicle's registration and titling fees, library levy's, public parks fees, county fees, vector control fees, community college levys, public school levys, metropolitan transportation fees, etc etc etc have cumulatively all gone up faster than the Cost of Living, so that Oregon now has essentially one of the highest per capita governmental costs of any state.
Nevertheless, Oregon is now facing a $1B budget shortfall, and there have already been 4 special State Congressional sessions to balance that budget. Just yesterday, Governor Kitzhaber announced his veto of the latest legislative budget, threatening yet another special session and the prospect of a November ballot measure asking for increased income taxes and/or a sales tax (virtually certain to be defeated).
The "Reagan years" of monetary redistribution did result in some reduction of the Federal income tax rate, but the consequential state burden increased more than the off-setting Federal allocation.
Bottom line: it doesn't matter where the money comes from. Democratic government will always spend more than it receives, and Republican government will always spend more than it saves.
So much for the rantings of a disillusioned and skeptical Oregonian taxpayer!
PS: I'm sure you expect YouKnow to respond to this thread, eh?
I think that if some spend less and saved money, that would be good for the economy.
I disagree. The overall economy is spurred by people spending, not saving. Only assets that are in circulation keep the economy moving. That's not to say that it wouldn't be good for some of us personally to sock a few more bucks away than we do; most of us in America tend to consume excessively. But increasing savings will slow the economy. not stimulate it. That's Economics 101.
There is an advantage to the sales tax you propose, though. It would be impossible under such a system to hide illegal income from taxation, except as savings. Drug lords, for example, couldn't live their luxurious lifestyles without paying their fair share. Tax fraud wouldn't exist, because it wouldn't matter how you earned the money - the minute you spent it, for anything, it would be taxed. I think that would increase revenues overall, not decrease them. Basically, I think your proposal would be a good thing.
The way the tax system works now is it provides incentives for certain behaviors that are supposed to help the nation as a whole.
Yes, and that's unfortunate. Taxation is supposed to be a way to finance the government in its mandate to "form a more perfect Union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity". It is not supposed to be a means of social engineering. Unfortunately, that's how it has been used in America, particularly since the time of FDR. It really shouldn't be the place of government to determine how we should live and to put incentives (positive or negative) in place to "encourage" certain behaviors. (Of course, I'm not talking about criminal behavior here, that certainly is within the realm of government control). I think the fact that the current tax system is used so extensively to control human behavior is another good argument for going to a different system.
Edited by - NeonMadman on 9 August 2002 8:56:15
Hi Larc: Originally, the Feds were not to directly tax the people, but this changed with the Income Tax Ammendment. I am against any kind of direct federal taxation, but favor user fees.
The way to support the Feds is that each State collects its own taxes and shares a portion (percentage) with the Feds. This eliminates 80 million income tax returns. It eliminates a million businesses collecting taxes for the Feds. It allows a single person at the Treasury Dept to collect from just 50 States,
The IRS Costs many billions to operate, and either your idea or mine would eliminate the need for their "services" ... and the needless prosecution of people who cannot afford to pay.
Opps ... one of these little double postings again.
Edited by - Amazing on 9 August 2002 9:18:36
There are many alternative suggestions to the current income tax system. It's likely not going to happen for a number of reasons, among which are:
The Left want to be able to impose it's envy taxes on the hated rich. Of course they could still do this by having high taxes on things like Bentleys, Rolls-Royces, diamonds over a certain size, houses over a certain cost, and ditto a thousand other things. But Leftists want to be able to crow loudly about soaking the rich so as to get votes from the "poor."
The current tax system is so full of loopholes and such that the people have, by and large, learned how to cheat it. Why change to something you can't manipulate?
Jimmy Carter didn't get many things right. But when he said that our current tax system is a "disgrace to the human race," he was right on the money.
We're not likely to see a change. And I don't trust the congress anyway. Those bastards could come up with some VAT or federal excise tax or other while at the same time keeping the income tax. Now wouldn't that be a bucket of snakes?
In 1977, the US Treasury did something to me from which I will never recover in this lifetime. I cannot think about the thing that happened, and what I lost because of it, without weeping to this very day. No one could want a change in the system more than me. But I don't trust the politicians not to find yet another way to screw us while they're at it.