Fellows, this proposal is a Trojan horse. I'll get to why in a minute.
First, as was done back in April when this topic first came up, I'll present some warnings about a national sales tax that Bruce Bartlett presented in the conservative magazine
The American Enterprise in 1995. He was deputy assistant secretary for economic policy in the Treasury Department during Bush I's administration, so he cannot be called a flaming liberal. If you want to read the whole thing, it's part of a larger discussion at
http://www.taemag.com/issues/articleid.16499/article_detail.asp . Here are his points:
1. A sales tax rate of 17-18% comes nowhere near replacing what the current income tax fetches. The rate would be 19% if every bit of economic production could be taxed, but it can't. Businesses buy things for resale and manufacturing, so the goods will eventually be taxed. Exports, business investments, government purchases, etc., must be exempted, so by his number crunching the rate would have to be 32%.
And that would be on everything: food, clothing, medicine, for starters, and on all services including medical and legal. Taxing services is difficult at best, and a stiff tax on doctor and hospital bills would never fly. If services remain exempt because of collection issues, the rate on goods would be 65%--still including food, etc.
Exempt food and all medical care and the rate is up to 82%. Of course, that's on top of existing state sales taxes of up to 9+%. Bartlett suspects that states will go to income taxes to avoid having to collect sales taxes for the feds, because of the potential expense and administrative nightmare in collecting sales taxes on that scale. That would include those few states that don't already have an income tax. Therefore . . .
2. Some government organization will have to remain to collect taxes, since the states cannot be relied upon to collect for the federal government. After all, evasion will still exist, as will the need for auditing. Sounds as if an Internal Revenue Service (IRS) will still be needed, eh?
3. According to numerous studies, sales taxes at levels above 10% encourage evasion. (That's why high-tax states such as California have deliberately avoided breaking the 10% barrier for sales taxes.) Even at, say, 20-25%, this will be an issue with a federal sales tax. If the idea is to tax the end user, then tax-exempt purchases for business use that could double as personal-use items would require auditing businesses, and especially the self-employed, for compliance.
4. Your income would still have to be tracked for Social Security and Medicare withholding. Also, nearly all states impose an income tax, and that wouldn't end just because the feds go to a consumption-based tax. Without being able to piggyback on the feds' work concerning income tracking and tax enforcement, states will have to become a lot more intrusive.
5. Rebating part of the consumption tax to benefit the poor would require registering and tracking every citizen. Everyone would have to get a check, since we aren't tracking income any more, right?
Bartlett presents other objections as well. But wait . . .
-*-*-*-
Now here are my comments:
6. With a stiff retail sales tax even remotely like what Bartlett fears, consumption would plummet. Can you say "depression"? Bet you can. As the old saying goes, you tax heavily what you seek to discourage. So it would go with consumption. Bartlett notes that people would go into debt to buy what they would need in a huge spending spree just before the tax became effective. If you were told that gasoline will go from $2.00/gallon to $6.00/gallon effective 10 August 2004, you and everyone else would fill up on 9 August 2004, wouldn't you? Then you wouldn't get any more gas for as long as you could avoid it, right? The same effect would appear with a national sales tax. And don't forget the potential for supply and commodity shortages and disruptions as a result.
7. Just how would black market money appear and be taxed? If a drug dealer or mobster can evade income taxes, s/he will evade a national sales tax. To claim that the underground economy would magically be taxed is ludicrous.
8. If businesses faced a stiff national sales tax on equipment, you can kiss most new business starts goodbye.
9. Now here's the Trojan horse. Look, the Republicans have been pushing this idea of abolishing income taxes and the IRS to a gullible public since the 1980s. During the 1984 presidential debates, Walter Mondale accused President Ronald Reagan of having a plan to impose a national sales tax or a European-style value-added tax (VAT, which is much the same thing as far as the consumer is concerned) to balance what were then record deficits. Reagan's denial wasn't exactly convincing, but nothing further developed then. This same idea popped up 10 years ago, which was the reason for Bartlett's piece in 1995. Now it has reared its ugly head again. Sounds like trial balloons.
There's an agenda at work here, and it isn't about economic freedom or eliminating taxes. (Reading between the lines, I suspect that Bartlett believed that the real issue was the possibility that the feds would impose a VAT.) If the Republicans who run the show today in Washington could be trusted with your freedoms, then we wouldn't have Attorney General John Ashcroft's well-documented assaults on the Constitution and on privacy.
Instead, the ultimate plan here is to monitor
all of the transactions you and your dependents make--everything you buy or sell. It isn't hard to picture the feds requiring that anything you sell at a yard sale, or any sale of your personal belongings, be subject to this tax. Sell your car to another individual and pay a stiff tax for the privilege. Wonderful.
At first, you will have to be able to produce receipts for everything upon demand during an audit to prove you paid the new sales tax. But eventually, to monitor this activity (including the dreaded underground economy) so that it can be taxed will require going to a cashless society with electronic cards or Internet transactions replacing greenbacks. The feds want to do this anyway; assuring "fairness" with a national sales tax will be the convenient excuse. Then once you buy that controversial book, or that spicy magazine, or that new (gasp)
gun, the feds will know and could send agents to ask you just why you wanted that item.
And you can bet that there would be a phase-in period when income taxes are still in place but the new sales tax is beginning.
Once begun, that phase-in period will never end. The feds will monitor your income
and your buying and selling. Is that what you want?
Be careful what you wish for. You might get it. And get it hard.
[ August 04, 2004, 10:17 AM: Message edited by: ekrampitzjr ]
