In the wake of Buzz’s comments on The Tax Bomb post (TownHall version), I guess I should explain why I am philosophically-opposed to a national sales tax. It’s been a few years since I did this (I thought I put it here, but it must be my old age showing), and I’m still a bit under the weather (literally; it’s a rainy, ugly Thursday here in the land of cheese and beer), so I may jump around a bit.
First, let me be clear that the current tax code is fouled up beyond all repair. Its tentacles reach into every crevice of life, and at nearly 20% of Gross Domestic Product with promises of ever-increasing taxes, it simply takes too much money. My ideal tax code would be an absolute-flat tax where everybody that works pays the exact same amount. Of course, that would require the death of the welfare state and the reduction of the federal government to its absolute minimum core Constitutional principles, two items that even Republicans are loathe to consider.
That brings me to my first objection to the FairTax; it does not do anything to begin the process of actually reducing the amount of money going to government. Indeed, at 23% of the gross sales, or if you prefer to use the traditional sales-tax percentage, 30%, it is expressly designed to not reduce the amount of money going to government.
Next, the fact that it would tend to be paid in drabs and dribbles mostly-hidden from the view of the consumer is odious. Indeed, the fact that, other than the purchase of vehicles and homes, it would go by all-but-unnoticed makes a national sales tax more-likely to be increased in any given year than the individual income tax. That is borne out by the history of the sales tax here in Wisconsin. 25 years ago, it was 4%. Then came a “temporary” percentage-point increase to 5% that somehow became permanent. The counties whined that they needed more revenue streams, so they were given the authority to lump in a 0.5% sales tax, and most counties, including Milwaukee, promptly tapped in. Milwaukee wanted to replace its convention center, so in went a 0.25% sales tax on prepared food, 2% tax on hotel rooms and 3% tax on car rentals in Milwaukee County (to an unelected board). Then Bud Selig came knocking for cash to “help” build a new ballpark, and in went a 0.1% sales tax in the 5-county area surrounding Milwaukee. In short, a restaurant meal that was taxed at 4% when I was young is now taxed at 5.85%, a 46.25% increase that, once inflation is taken into account, is something north of 300%.
I also take umbrage with is the concept of a “prebate”. Ultimately, the supporters are going to have to make the hard decision of keeping the IRS to verify, either through income or amount of purchases, the amount of the “prebate” to give to a particular individual, accept that the “prebate” is yet another welfare program, or jettison the concept and thus lose whatever left-of-center support might otherwise be gained.
As for the dreams of eliminating the IRS and the “underground” economy, I don’t suppose many of the supporters of the FairTax have had to deal with the BATF. Moonshiners have, and the BATF makes the IRS look like altar boys. Speaking of moonshiners, 221 years of taxation and zealous enforcement didn’t exactly stop their underground economy.
One more thought on the underground economy. If you’ve ever underreported the amount you paid for a used car because you didn’t want to pay the entire amout of the state sales tax, raise your hand. Apparently enough of you did so that many states now base their used-car sales tax on the Kelly Blue Book value instead of the actual sales price. Keep in mind that the state sales tax is anywhere between a quarter and a sixth of what the FairTax would be.
My ideal tax code would be an absolute-flat tax where everybody that works pays the exact same amount.
And:
my first objection to the FairTax; it does not do anything to begin the process of actually reducing the amount of money going to government. Indeed, at 23% of the gross sales, or if you prefer to use the traditional sales-tax percentage, 30%, it is expressly designed to not reduce the amount of money going to government
Are we to believe that a Flat tax WILL ‘reduce the amount of money going to Gummint’???
Unless you propose to reduce taxation, advocating “equal-dollar” taxation might mean that every single worker must pay (e.g.) $7,000./year in taxes.
Your position assumes that the overall mechanisms at work in the USA benefit all people equally. That will be difficult to defend, unless you wish to impose limits on such mechanisms (e.g., drop FAA services for Bill Gates’ private jet) to “equalize” the results of Gummint spending.
Yes, the “prebate” will require monitoring. But to imagine that the IRS will disappear under FlatTax is preposterous. Among other things, SOMEONE has to file the damn forms…
The philosophy behind Fair Tax is simple: it discourages spending.
And until Gummint learns not to spend, it makes almost no difference which system is used.
Do I look like Steve Forbes? I do believe I said that everybody that works would pay the same amount, not the same percentage. Yes, that includes Bill Gates paying the same amount as me, even though I neither make nearly as much as he does nor “consume” the same dollar amount of government services. As for the FAA, I tend to defer to Asian Badger on that, since he deals with them on a regular basis, but it would seem that honestly should be covered on a fee basis by those that actually use it.
As for the spending that a sales tax would discourage, all it would do is discourage consumer spending. I don’t eat out nearly as much as I did 15 years ago, before either the stadium or convention center tax. The only thing that discourages government spending is a massive reduction of government revenues, and I don’t know if even that would work on the federal level.
The only way to accomplish that massive reduction is to make the tax bite as visible (and painful) as possible. FDR did us a great disservice by introducing withholding from the paycheck, which makes the tax bite nearly invisible. The same principle that FDR introduced applies to a sales tax. Even though it’s on the receipt, the amount is, in most cases, so miniscule that most times nobody thinks about it.
On the flip side are property taxes, specifically school property taxes. Even though school districts have from time to time conned the populace into accepting a larger-than-inflation increase in taxes, the twin facts of having them very visible and painful (at least for property owners) and requiring the districts to go before the public for said extravagant increases has had some impact on school spending.
You could be mistaken for Steve Forbes if it were really a dark night, you were 500 yards distant, and your driver was nicely turned out.
Trust me, a 23% hit on a typical weekly grocery bill IS noticeable–same as a 23% hit on (now) $100/week for gasoline.
I understand your concern that pay-go taxation is easier to absorb than WHAMMO taxation. And the purpose of reducing consumption is to increase savings, of course–which may just possibly make retirement a bit easier (not to mention put Red China back in its place.)
But you are correct when you doubt that the Feds will ever stop spending at a sickening pace.