Substitute Simple, Non-Regressive Sales Tax for Outrageous Income Tax System
April 15th is approaching.
Sounds like the title of a horror film, doesn't it? "Psycho." "Friday the 13th." "April 15th is Approaching." Which strikes more fear and loathing in your heart?
But it doesn't have to be like this. A government should never be allowed to intrude in our personal lives the way ours does in relation to income taxation.
We are required to keep detailed records, sometimes on a daily basis. We have to wade through unintelligible forms and instructions, never coming close to understanding the underlying laws. Many of us have to hire lawyers, accountants or other tax-return-preparers, spending large sums of money and many hours in the process of filling out forms and schedules. (Americans spend an estimated $300 billion on taxation compliance – an amount equal to a full year's economic growth.) And our privacy is breached in many ways that are rendered no less offensive because we are repeatedly subjected to these unnecessary abuses.
Our tax laws, comprised of thousands of pages of an incomprehensible tax code and regulations, are largely a grab-bag of favors for those who, through their campaign contributions, have purchased exemptions, credits, deductions and other assorted loopholes. A supposed fair, progressive tax system has deteriorated into an abusive, inequitable system that causes us to perceive our government more as a diabolical Big Brother than as an amiable Uncle Sam.
Everyone seems to agree that our system of taxation is outrageously intrusive, arcane and oppressive. And it discourages savings and investment, at a tremendous cost to our economy.
A solution to most of what is wrong with our current income tax system would be to tax consumption only – and in the process abolish the Internal Revenue Service. A national sales tax would certainly simplify most of our lives. And it would provide a means of collecting a fair share of taxes from those who currently do not report income.
A transition from an income tax to a sales tax would strengthen our economy and offer important freedoms most of us have never known during our adult lives. The present tax bias against working, saving and investing would be obliterated, providing significant new capital for business growth – and significantly lower interest rates for everyone. And we would all be spared the annoyance and inconvenience of having to maintain detailed records and suffer through the annual torture of tax preparation.
While extolling the virtues of a national sales tax, however, we must be careful to attend to the details – and to the equities. Regressiveness in any tax system should never be permitted, yet that is exactly what would result from many of the sales tax proposals currently being bandied about.
Assume a 23% sales tax applied to all retail items, including food. And assume two people, Jane, who earns $45,000 a year, and Margaret, who earns $250,000 annually. They each have three children at home and each spends $10,000 a year on food. Each would pay $2,300 in sales tax on the food, but the tax would equal 5.1% of Jane's income, while it would only be .92% of Margaret's earnings. In terms of their percentages of income, Jane would be paying about 5 ½ times more than Margaret.
That is a regressive tax. And it is unfair – at least at certain levels of income.
Such regressiveness can be ameliorated in several ways. We could exempt sales tax from food, medicine and rent. Or we could, through more complex means, rebate to lower-income families the taxes they are likely to pay for life's necessities.
While we are at it, we should abolish the astoundingly regressive Social Security payroll tax, and more fairly – and honestly – include Social Security obligations to our senior citizens in our nation's general budget.
If we want an end to the I.R.S., if we want an end to income taxes, and if we want the most equitable system of taxation, a non-regressive sales tax is the answer. Under such a system, each of us can decide what and when we will be taxed, according to our consumption decisions. If we want to save or invest, we won't be taxed on the money saved or invested. When we decide to spend, we will be taxed. It will be that easy – and that liberating.
And just imagine. When you hear the words, "April 15th is approaching," you will be thinking only of such things as flowers, romance, and spring skiing.