Sunday, May 06, 2012
Why not a national sales tax?
3,000,000. That’s roughly the
number of words in the IRS tax code. And that doesn’t even include the 6,000,000
plus number of words of IRS regulations. How many people are out there saying, “Yeah,
that’s about what it should be”? Yet, nothing is done to change the system
because, I suppose, it’s just too scary to do something different. Businesses
and individuals spend over 6 billion (yes, billion) hours each year preparing and
filing their taxes. The current system encourages not only tax avoidance, but
tax evasion. And the IRS has a budget of over $10 billion a year in order to
collect what the government is owed.
Why not a national sales tax?
How verbose would the tax code have to be for that? How much time would people
have to spend to prepare and file their taxes? To what extent could individuals
and businesses avoid or evade their taxes? How much smaller would the IRS and its budget be under this system?
In addition to being simpler,
cheaper, and less susceptible to scofflaws, it promotes both productivity and saving.
People don’t make decisions on work versus leisure based on their gross wages,
but rather on their take-home pay. Taxing consumption rather than income
induces individuals to work more because they know they will get to keep what
they earn. And now that the money is in the workers’ pockets, they decide for
themselves whether to make a purchase, and thus pay taxes, or to save. The
decision shifts from “work or leisure” to “consume or save”. Because of this shift, people will have more
incentive to save and this will mean that they will tend to carry less debt and
be better able to fund their retirement.
One main argument against a
national sales tax is the thought of it being a regressive tax. The less income
one earns, the greater the proportion of that income that must be spent on
necessities. Those who earn greater incomes are in a better position to forgo
consumption and instead save. However, this easily can be overcome. Certain
goods could be exempted from the tax. For instance, food, medicine, gasoline,
used cars, and electricity could be completely exempt. A house or new car could
be taxed only on the price above the median. Clothing, too, under a certain
purchase price, could be exempted. In addition, rebates and credits, just like
the Earned Income Tax Credit does now, could be granted to offer protection to
the poor.
So, why not a national sales
tax? Sometimes more complexity adds depth. Not many people would suggest that
Steinbeck should have cut the length of The Grapes of Wrath in half. But
sometimes more complexity is simply unnecessary. Our tax system is unnecessarily
complex. It doesn’t have to be. The median amount paid by individuals for tax
preparation is about $250. Wouldn’t that money be better utilized some place
else?
