Monday, July 9, 2007

A case for a National Sales Tax

Congress is sitting on an opportunity that is almost too good to be true.

It is in the form of Bills HR 25 and S 1493 "Fair Tax Act of 2003", and if passed it would be heralded by all Americans as the single greatest act of liberation and support for the citizenry of this country since the Declaration of Independence. (Please don't confuse the writing of the Declaration of Independence with the wording of HR 25 or S 1493 mind you; just the possible outcome.)

A 22% National Sales Tax (NST) would do the following:

1. Spur investment and savings because you could put away savings BEFORE it is taxed. Today the avg. US citizen saves the least amount as a percentage of their income than any of the 20 leading industrialized nations. Savings, and not borrowing, is the #1 growth engine for any economy.

2. Fairness: Make sure everyone pays. Afterall, it's easier to chase down 8 million + business than it is 170 million tax payers.

3. Simplicity: The mechanism to collect the NST already exists. Every public, private and non-profit firm/org. in America already pays taxes to the state in which they reside i.e. 941, FICA, FUTA, etc. Having them now also collect an additional 22% NST would simply be just another item to collect, file and pay. To the contrary, filling out individual tax returns is simply a time consuming hassle at best and an expensive nightmare at worst.

4. Greater Revenue: Today it is estimated that each year hundreds of billions of dollars are lost for non payment/compliance by tax payers. With a NST that number would be reduced substantially because of a) simplicity of collection and b) less reason to hide income.

Is a NST perfect? By no means. Is it better than what we have today? Absolutely! Will our economy suffer by switching from an income to a consumption tax? Absolutely not!! Will some people cry foul? Absolutely! Those who have not been paying their fair share of taxes and those who live off those who do not pay their fair share of taxes.

Let me know what you think. More importantly let your Congress person know what you think and tell your friends if you agree to let their representatives know as well.


Greg_Cruey said...

A big selling point for the "fair tax" (the national sales tax) seems to be that it is “progressive.” I’m not sure what “progressive” is meant to mean in the context of this tax proposal, but the so-called “fair tax” proponents seem to what to say that their tax proposal treats everyone the same while at the same time treating the poor in a manner that is “progressive.”

Define progressive. It sounds like double speak. “We’re concerned about the poor and so to show our concern we’re going to treat them exactly the same way we treat doctors and lawyers…”

We tax money. We tax it when it moves. I agree that the current system is fragmented and obtuse, and that there are loopholes that should be closed. But I haven’t heard a moral argument for taxing money when it moves away from you (when you spend it) instead of when it moves toward you (when you make it). Yet the “fair tax” crowd functions with a tone that presuppose the moral superiority of their position.

The truth is that the “fair tax” reduces the percentage of the federal budget that is collected from the rich and increases the percentage of the federal budget that is collected from the poor. It does so by NOT TAXING money that rich people decide not to spend. Rich people have the luxury of not spending large portions of their income; the poor (along with many in the lower half of the middle class) spend almost every penny they make in order to make ends meet. Under the “fair tax” those people (teachers, nurses, police officers, most military personnel, most industry workers, etc.) will pay taxes on a much larger percentage of their income than what doctors, lawyers, bankers and stock brokers will pay taxes on. How is THAT fair?

The fallacy of the “fair tax” position is that they make it sound like normal Americans don’t have to spend their money if they don’t want to.

As badly as America needs tax reform, the “fair tax” (and most other sales tax proposals) are only fair to the rich…

Bruce Bergwall said...

Greg -

It's a valid point you bring up and here are a few thoughts.

A part of the new Fair-tax program would be the inclusion of a "pre-bate" payment to all taxpayers. For example, a pre-bate program would serve as an off-set to those who earn less (i.e $35,000 or less) by exempting them from the first $7.700 in National and State (where applicable) tax. This in effect would serve to level the "proportion" question you bring up.

The inherent inefficiencies of our current tax system is woeful mess for most every citizen (especially those with W2 earnings) and the proposed Fair Tax though not perfect it is big step in the right direction. It will encourage savings, investment and ultimately create a more sound economic enviornment which is a boast for citizens regardless of your economic standing.

Eric B said...

Interesting thoughts, concerning the collection of taxes.

However, a more important issue is how we (the Gov't)SPENDS the collected taxes and which IDEAL is supported. Do you support Capitalism/Free-Markets? Or do you prefer to focus our revenues on Socialistic ideals? Which of these two "systems" creates the greatest good for the most people?

An insightful example would be -What is Bill Gates greatest accomplishment concerning ALL of Humankind? Think about it. How has Bill helped the MOST people?

Presently, the Gates foundation is GIVING $$BILLIONS$$ away for various causes, right?

When it comes to helping the MOST people the MOST... Has Bill Gates creation of Microsoft (clearly a Capitalistic endeavor) helped the MOST people? OR will the Gate Foundation result in the greater good?

Yes, I understand that the Gates Foundation is charity. But charity is akin to socialism in that the “Help” doesn’t fix the root problem… it, the charity (or socialism), usually helps with the symptom… while at the same time, the lack of fixing the problem simply perpetuates the problem. No?

Kinda like -giving- a fish vs. -teaching- to fish.

But the question remains… how has Bill Gates (or which socio-economic system) has helped the most people? Which is more compassionate…and why?

I’d REALLY like to know your thoughts.

Eric B