Tuesday, November 16, 2010

The Case for a National Sales Tax: Part 2

The Benefits of a Simplified System

As a commenter pointed out on the last post, it doesn't matter how short a piece of legislation is, the average American (and probably more than a few members of congress) will never read it. That is just fine, we operate in a society filled with laws without ever reading much in the way of detailed legislation. However, according to a survey by the National Retail Foundation, almost 75% of US taxpayers intended to file last year's taxes using an accountant, tax preparation service or software. This would seem to indicate that the process of filing a tax return is either so complicated or cumbersome that a huge number of Americans are willing to pay someone else to make it easier. Don't get me wrong, I understand that many American's are lazy and some would probably pay someone else to go to the bathroom for them if they could. But, the fact that the current tax code is so complicated that a taxpayer preparing his own taxes might easily be missing out on deserved credits and deductions is absurd.

A national sales tax would remove the need to hunt for deductions or credits that change from year to year. In fact, individual taxpayers wouldn't even need to file a return each year. All you would have to do is let the government know that you exist so that you can be mailed your monthly "prebate". Removing the burden of tax returns from citizens also has another benefit: it is hard to dodge taxes. Even an illegal alien working "off the books" would need to purchase things and would so contribute taxes. Obviously there will always be tax cheats no matter what the system and many states deal with businesses circumventing sales taxes, but many simple mistakes that lead to incorrect returns each year can be avoided entirely.

Perhaps the greatest benefit of simplicity is something that seems to be a hot topic at the moment, smaller government. The IRS could be vastly shrunk as the number of tax filings would decrease dramatically. Furthermore, if the federal government paid the existing state agencies that collect local taxes to handle the federal sales tax, even further efficiencies could be achieved. A streamlined system would help to remove at least a thin layer of bureaucracy from an already bloated government. Spending less money on overhead means that less of the tax money collected goes into collecting taxes.

Next up: potential economic benefits

2 comments:

  1. How would the FairTax work with exports? How would American goods compete on the global market?

    If you tax exports, what foreigner in there right mind would buy our products? If you don't tax exports, then not being an American earns you a hefty discount on goods.

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  2. I will discuss one of the potential effects on international trade in my next post, but this would not really affect import/export tariffs. The FairTax would only affect the end retail sale. So in the case of exports, the product would not be taxed by the U.S. at all.

    Any existing export tariffs would remain unchanged as would the tax policies of the importing nation as we obviously have no control over what they do. It is actually a benefit to have foreign countries purchase your goods for the lowest possible price because it means you export more. Free trade agreements and a move away from protectionist policies have generally led to a reduction in tariffs.

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