The Tax Problem
A Centrist blog yesterday addressed the recent discussion about the possible switch from a national income tax to a national sales tax. This is quite interesting for a couple of reasons. Gilbert E. Metcalf of CATO provides a detailed and seemingly accurate breakdown of how the tax burdens would change for Americans if we went to a national sales tax.
All in all, a national sales tax is an unwise and dangerous idea. There are a myriad of reasons why it's simply unfair. Most importantly, it benefits the wealthiest in several ways--besides the inherent regressive nature of sales taxes. Even despite the contention that a "rebate-system" would remove the inherent regressive nature of the sales tax, the CATO study/report refutes such claims. A household in the lowest 10% of American incomes would see their tax burdens INCREASE--by over 60% of what they are paying now. The richest 10% would see their tax burdens decrease by 7% (which works out to be approximately an average a $15,000/year). Even including the rebate system, the problem does not go away. The rebate system may mitigate some of the natural regressive characteristics of the national sales tax, it still taxes the poor at a higher rate than the wealthiest. For the poor, that makes a large difference.
Besides the inherent regressivity of the sales tax, there are even more benefits for the wealty. They have the resources to purchase goods and services from across borders, in Mexico, Europe, or Canada. A promoter of the sales tax disagrees with that statement, but I'm unsure as to how goods and services would not be less expensive in foreign countries. Moreover, the idea that a national sales tax would make American good more productive by lowering corporate taxes is also misleading. That assumes many US corporations PAY a high level taxes-- as Ralph Nader would say, corporations already get a series of tax breaks. Furthermore, corporate taxes are not even that significant, making up around 2% of our national GDP. Many of these same companies in which we are buying goods from are also not producing goods in the US, nor based in the US (i.e. such as many of the electronics companies), thus losing the no corporate-tax benefit for Americans.
Another dangerous byproduct of a national sales tax is the idea of charitable giving--especially by companies and other corporations. Many companies give to great causes because it provides a great tax write-off. Many of the smaller companies who donate to corporations do not get the same publicity that a larger corporation may get for a large donation, thus one of the tangible benefits to a corporate donation to a charity is the tax break. Without this tax break, it becomes somewhat unwise to donate, and donations simply become an extra source of expenditures without any new benefit. Granted, that seems like a dark way to view things, and there are probably a few companies who would donate regardless, but I suspect that a majority of companies would simply stop the giving.
In other words, a national sales tax, while simplifying the US tax code significantly, would spell disaster for the working classes of America. The solution is not a simple national sales tax or a simply flat tax (which really is not a flat tax at all--rather it's flat tax for the wealthiest). Charities could lose a large source of their revenues, thus hurting the poor even more. All in all, this is simply a bad idea. The solution is to SIMPLIFY the current US tax code. Make a simple progressive chart, with basic deductions and writeoffs (such as for education, children, and charity), and rid ourselves of tax shelters and loopholes. However, with the constant partisan bickering we have in Congress, that seems but merely a pipe dream.
All in all, a national sales tax is an unwise and dangerous idea. There are a myriad of reasons why it's simply unfair. Most importantly, it benefits the wealthiest in several ways--besides the inherent regressive nature of sales taxes. Even despite the contention that a "rebate-system" would remove the inherent regressive nature of the sales tax, the CATO study/report refutes such claims. A household in the lowest 10% of American incomes would see their tax burdens INCREASE--by over 60% of what they are paying now. The richest 10% would see their tax burdens decrease by 7% (which works out to be approximately an average a $15,000/year). Even including the rebate system, the problem does not go away. The rebate system may mitigate some of the natural regressive characteristics of the national sales tax, it still taxes the poor at a higher rate than the wealthiest. For the poor, that makes a large difference.
Besides the inherent regressivity of the sales tax, there are even more benefits for the wealty. They have the resources to purchase goods and services from across borders, in Mexico, Europe, or Canada. A promoter of the sales tax disagrees with that statement, but I'm unsure as to how goods and services would not be less expensive in foreign countries. Moreover, the idea that a national sales tax would make American good more productive by lowering corporate taxes is also misleading. That assumes many US corporations PAY a high level taxes-- as Ralph Nader would say, corporations already get a series of tax breaks. Furthermore, corporate taxes are not even that significant, making up around 2% of our national GDP. Many of these same companies in which we are buying goods from are also not producing goods in the US, nor based in the US (i.e. such as many of the electronics companies), thus losing the no corporate-tax benefit for Americans.
Another dangerous byproduct of a national sales tax is the idea of charitable giving--especially by companies and other corporations. Many companies give to great causes because it provides a great tax write-off. Many of the smaller companies who donate to corporations do not get the same publicity that a larger corporation may get for a large donation, thus one of the tangible benefits to a corporate donation to a charity is the tax break. Without this tax break, it becomes somewhat unwise to donate, and donations simply become an extra source of expenditures without any new benefit. Granted, that seems like a dark way to view things, and there are probably a few companies who would donate regardless, but I suspect that a majority of companies would simply stop the giving.
In other words, a national sales tax, while simplifying the US tax code significantly, would spell disaster for the working classes of America. The solution is not a simple national sales tax or a simply flat tax (which really is not a flat tax at all--rather it's flat tax for the wealthiest). Charities could lose a large source of their revenues, thus hurting the poor even more. All in all, this is simply a bad idea. The solution is to SIMPLIFY the current US tax code. Make a simple progressive chart, with basic deductions and writeoffs (such as for education, children, and charity), and rid ourselves of tax shelters and loopholes. However, with the constant partisan bickering we have in Congress, that seems but merely a pipe dream.
posted by Kenn at 7:28 AM
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