By: Dave Whitney

Dave Whitney — Tue, 22 Nov 2005 07:22:26 +0000

So I just picked up a book in the store and briefly thumbed through it. It was about abolishing the national income tax and replacing it with a point-of-consumer-sale-only sales tax. This tax would be on *everything* the consumer might pay for — food, clothes, doctor, etc. “But what about the poor people?” you ask. Their solution was to guess how much sales tax a person would be expected to pay for basic services during the year, and preemptively send them a check for that amount. So, at the cash register, they pay as much as everyone else, but they have the money to pay the taxes. Of course, this presumes the recipient is smart enough to save that money and use it to pay the taxes, instead of going out and buying a new TV. It also presumes the government’s guess is correct (or at least “fair”).
They also argued that since operational costs for businesses would go down (no more business income tax, no more inventory sales tax), they could also lower prices by approximately the same amount they’d go up because of the new sales tax. The end result is product would remain mostly the same price at the register, while everyone’s paychecks would all go up (no more income withholding). The end result is at the end of the year, you still have the same amount of money (since it wasn’t withheld, but you paid this outrageous sales tax instead) AND you don’t have to go insane filling out your 1040.
I think the idea is generally very flawed — it assumes the high-income people will spend spend spend, making up for all the income tax they’re no longer paying. Doesn’t seem likely. However, it appeals a great deal to folks who make a whole lot more than they spend, which account for a whole lot of people in this country, so it stands a fair chance of being implemented.

Comments on: RANT: Consumption tax

By: Dave Whitney