Wednesday, December 1, 2010

The Case for a National Sales Tax: Part 4


While I do not particularly like the name, Fairtax does indeed have some elements that improve the "fairness" of the tax system. One of the best benefits is that everybody pays, at least anybody that buys stuff. Illegal immigrants, average working stiffs and the super rich all have to pay the sales tax. It doesn't matter how much money you have to blow on expert accountants, everyone will have the same understanding of the tax code. There won't be constant hunting for tax-advantaged investments or savings accounts, because making and saving money isn't taxed anymore, just spending that money.

Tax-advantages are probably one of the most "unfair" parts of the current tax system. Lobbyists petition congress to create special exemptions or alterations for specific industries or causes. Thus you get situations where some businesses must pay more in taxes because they don't have the lobbying assets that other businesses do. A national sales tax removes some of that influence. Obviously congress will still be influenced to spend money in the interest of special groups, but those bills are harder to pass than simply modifying a few sentences in thousands of pages of tax law. This may actually be one of the biggest hurdles to implementing such a plan, congress is never very willing to give up control of anything, let alone the collection of money that they love to spend.

This would also force more transparency from congress. Any adjustments to the tax rate would affect everyone, not just certain segments of the population. As can be seen in the current tax discussion, there is often a desire to raise taxes on the rich as they are a small minority and not always viewed in the best light. Everyone else is more likely to go along with it because their taxes remain unchanged. With a sales tax, everyone will feel it and everyone will know exactly how much everyone else pays. No more tables or brackets, if taxes go up 1%, everyone knows that they will now pay 1% more. Even those under the poverty threshold will still be cognizant of the situation because even though all of their taxes are refunded, they still have to pay them upfront. Hopefully this would lead to more scrutiny of government spending, as everyone would see a direct benefit if spending was lowered enough to reduce the tax rate that everyone would see at the register. Of course, at this point government spending is entirely divorced from tax revenue, so congress would probably just lower the tax rate and increase the rate of the money printer.

This concludes my posts on a national sales tax. There are obviously some things that would still need to be ironed out, but I hope I have at least made the point that this is something worth seriously looking into.

~ Another Guy

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