Is a sales tax a better way to fund the government than an income tax?
This is an idea that has been around for many years in the United States but has never gained traction.
In the U.S, every year Americans are asked to pay tax on the income they earned that year. This is a very complicated process that is fraught with delays, frauds, and simple errors. What if it was replaced with a national sales tax that was simply collected every time at the point of sale? Is this a better idea? Let's explore.
1. A sales tax is regressive.
Lower earners will pay a higher percentage of their income in sales tax.
2. It makes everyone a taxpayer.
Depending on estimates and different ways of measuring, somewhere between 40-55% of taxpayers in the United States end paying no income tax. A sales tax is paid by everyone. Hopefully this would make more people more interested in how and where the government is spending their money.
3. It is very simple.
Both to understand and administer.
4. The number is very scary for most shoppers.
To replace the income tax, a sales tax would have to be more than 20 percent to support current spending. This scares people away from the idea.
5. It may reduce economic activity.
Primarily by discouraging consumption.
6. But it does tax high spenders more than those you are frugal.
The more stuff you are buying, the more sales tax you end up paying.
7. It is environmentally friendly.
Less consumption, less bureaucracy, and taxes those with lavish lifestyles more.
8. Much harder to "cheat"
People have developed numerous legal and extra-legal means to circumvent paying the proper amount of income tax. This is partly human nature but also because the U.S. tax code is thousands of pages long. Lots less room for loopholes with a simple consumption tax.
9. It is a gamble.
This idea hinges on the idea of REPLACING an income tax with a sales tax. Many would be leery of voting for ANY new taxes without definitive signs of others being repealed. AND not being able to re-instate them at a later date. This lack of trust is a difficult hurdle to overcome.
10. It indirectly ties the country's GDP to the budget.
When the people are buying more, the government has more revenue to use or re-invest. When consumers are being forced to tighten their belts, the folks in charge of the national budget are as well.