What if a sales tax were the only tax?
Most everyone would agree that income and payroll taxes are a pain in the neck, but what would happen if that system of taxation were gone? What if the only taxes were sales taxes?It may sound like a good idea initially, but, how would our government function without the revenue that other taxes bring in?
John Linder, a Republican representative of Georgia, thinks that it would be a good idea to use sales tax as the government's only form of taxation. Unfortunately, the government collected about $ 1.7 trillion in individual payroll and income taxes. So, we the tax payers are going to have to pay that money in some other way. If the government taxed everything, we would pay a 12% tax to make up for the $1.7 trillion lost. No big deal. But clothes and food probably shouldn't be taxed because it would discriminate against the poor. So, they say we should raise sales tax to 18% excluding clothes and food. After you look at all the sales tax exemptions, is it really worth it? Would simply using sales tax make life easier?
We should also look at how such a high sales tax would affect Americans spending habits. If sales tax is going to be 20% or more, most people will change their spending habits and cut back on things that are not absolutely necessary for survival. The tax is going to be an economical burden on both the sellers and the buyers, so sellers will be equally unhappy because they will be collecting less "producer surplus."
If we switched to a sales tax only system, it would ultimately hurt our economy. Now you're probably thinking that this could never happen. However, Bush said that it is "the kind of interesting idea that we ought to explore seriously." Maybe this system of taxation is possible.
1 comment:
Economists who favor replacing the income tax system with a sales (consumption) tax generally do so because they believe such a change would stimulate long run economic growth. Income taxes, it is argued, tend to discourage work effort since the reward from work is partly siphoned off by government. By eliminating the income tax, people might be encouraged to work more (and increase their entrepreneurial activity) if they are able to keep more of their earnings. Sales taxes tend to discourage consumption spending and, consequently, encourage saving. Pro-growth economists believe that saving is an important element of long run growth (saving is what feeds investment in the capital stock and more capital makes workers more productive).
One drawback to the use of sales taxes is that they tend to be highly regressive: that is, low income families feel the brunt of the tax more heavily than high income families. Part of this burden can be lifted by exempting some spending from taxation (as was suggested in the article in terms of food and clothing purchases).
For a more detailed look at the sales tax versus income tax debate, take a look at this link: http://www.cato.org/pubs/pas/pa-272.html
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