Bush may propose a sales tax in second term.
President Bush’s recent manuevers may be preparing the way for radical tax overhaul in what would be his second term. Items on the agenda include eliminating all tax on investment (*), and replacing the income tax with a national sales tax, or consumption tax. (†) (‡)
This year’s Economic Report of the President unflinchingly advances these radical proposals. (§ PDF) For political reasons, however, President Bush will not send actual proposals to Congress until his second term.
The gauntlet is thrown down. Now we liberals and left-of-center folks will have to either fight that much harder against President Bush in 2004 or hone our intellectual case for the battle over tax that will likely occur at some point in the future.
April 14th, 2003 at 17:24
I am actually sympathetic to the desire to end the intrusive and stress-inducing system of forcing people to fill out complex tax returns and have the government essentially look over their shoulder. It certainly involves a lot of bureaucracy and wasted productivity.
However, I clearly understand that a straight replacement of income tax with consumption tax would be extremely regressive–a Republican’s wet dream. That’s why I’ve come up with an alternate proposal that I immodestly must say I think is pretty dang clever. I haven’t "crunched the numbers" (I invite anyone well versed in them to do so, or poke holes in my proposal if they see them), so this is a general outline:
First, you determine how much the consumption tax would have to be to be revenue neutral in replacing the income tax. Then you double it. (Hold on, don’t come at me with the pitchforks and torches yet–I’m going to bring back the progressivity, you’ll see.)
Then–here’s the neat part–you take half of your revenue (the half you don’t need to run the government) and divvy it up equally among each American. You’d still file a tax return, but it would be a simple name, address, social security number deal. Audits would involve only making sure people weren’t claiming fake family members or whatever. The state of Alaska could, I’m sure, provide good advice here (they give out oil money grants to each state resident). The "refunds" could be mailed yearly, quarterly, or monthly (there are advantages and disadvantages to each; perhaps individuals could choose, getting the most money if they chose "yearly").
I’m not sure what sort of progressive scale this would work out to be, exactly, but clearly low income people would get more back than they paid (allowing it to replace the EITC or even some welfare programs), while wealthy people would get a pittance compared to what they paid in. Yet it would be extremely simple and remove the intrusive IRS "Big Brother" factor. It would also make it a lot harder to cheat.
Whaddaya think?
April 14th, 2003 at 18:34
That’s interesting. It sounds like a negative income tax, except that it would be more like a negative consumption tax. I’d like to see that explored.
Note that taking double the amount of average consumption tax paid is not absolutely necessary. It could be more or less than double, and the effect would be similar.
Great idea.
April 14th, 2003 at 19:23
Thanks! To my knowledge, no one else has ever proposed something like this–but my knowledge is far from all-encompassing. Still, if someone else has proposed this, it hasn’t been circulated widely. And this is the first time I’ve described the idea online, though I’ve been mulling it for about a year. (So to whomever’s reading, please credit me and my blog if you mention this to others, if you would.)
And you’re right–it doesn’t have to be double. Make it a LOT less than double, though, and it starts getting close to "flat" which in the case of consumption tax is regressive.
You could also get into issues of whether things like groceries or clothing would be exempt…but I’d rather keep it simple if I were in charge.
April 15th, 2003 at 04:01
That’s very interesting, although the last I heard, such a tax would have to be 50% of *every* purchase in order to replace income tax. No exceptions. Doubling that would mean an instantaneous doubling of all consumer prices.
At the onset, the most vulnerable members of society would immediately see their checks inflated away, and many would probably go bankrupt before the first year’s refund reached them. Initially, wages would probably drop in response to decreased sales of many items, and it would set off a serious shock of unemployment. Wages would rise again eventually, but it would take quite a while for demand to resume its former levels.
Just because an idea sounds ‘intellectually pure’ doesn’t mean it would work. The institution of the income tax coincides, not by accident, with the rise of a large middle class in this country. Any fuel on that fire is just an invitation to reverse almost 80 years of largely beneficial social engineering.
April 16th, 2003 at 06:39
very good webste
April 25th, 2003 at 06:49
Do you have some evidence that a sales tax would need to be that high? I had in mind including not just retail sales but sales of homes, interbusiness transactions, etc.