Taxes - a little to the left
So I was eating lunch with my cousin Maz a few minutes ago, and he mentioned the idea a certain Apprentice contestant had described of eliminating the Federal income tax in favor of a higher sales tax. I've heard this one before, and I love that idea! (Especially after hassling with my extraordinarily complicated Federal taxes this year).
I think it's incredibly silly that over 100 million Americans have to fill out a cryptic form every year to submit their taxes. For the people that get refunds, that means Uncle Sam held on to their $$ for the year, at 0% APR! For the people that have to pay on April 15, that means Uncle Sam didn't have the $$ he needed from them for up to 12 months! That's not to mention the sheer number of people who probably get screwed during the process (like I almost did by using an online tax tool last year)...
Here's how I think the sales tax thing could work:
Effects:
Who will this piss off?
In addition, the entire US economy would cool down for a short period of time as people got used to seeing prices that were 20% higher on everything (even though most people's net incomes would be higher).
A radical change, but hell if it wouldn't make April 15 a MUCH happier day for us taxpayers, as well as for the poor saps who have to work like mad on the night of April 14!
Tell me what you think...
I think it's incredibly silly that over 100 million Americans have to fill out a cryptic form every year to submit their taxes. For the people that get refunds, that means Uncle Sam held on to their $$ for the year, at 0% APR! For the people that have to pay on April 15, that means Uncle Sam didn't have the $$ he needed from them for up to 12 months! That's not to mention the sheer number of people who probably get screwed during the process (like I almost did by using an online tax tool last year)...
Here's how I think the sales tax thing could work:
- National 20% sales tax (in addition to whatever states currently collect).
- Sales tax is built into the advertised price on everything (like VAT in the UK)
- The only people who are exempt from paying it are folks below a certain threshold of annual income (say, $25,000/household).
- Things that are now tax-deductible are simply not taxed (mortgage interest, charitable contributions).
Effects:
- Simplified tax process.
- Immediate and accurate cash flow for the government and taxpayers.
- Lower income folks wind up paying 0% sales tax (so they have more disposable income).
- Middle-class folks pay a little less in taxes (+20% in sales tax, -~30% in income tax).
- The highest income folks (who typically don't pay much, if any, tax) now pay the same tax as everyone else. Their tax dollars offset the cost of lower-income folks (0% tax) and middle-class folks (-~10% tax).
Who will this piss off?
- The entire industry that uses the complexity of the tax code as its sole basis for existence. I figure if you set a date for this change at 10 years out, however, members of this industry will have plenty of time to find other jobs.
- The highest-income folks. There needs to be a way to spin this to them (maybe the amount they will save on tax advisors!)
In addition, the entire US economy would cool down for a short period of time as people got used to seeing prices that were 20% higher on everything (even though most people's net incomes would be higher).
A radical change, but hell if it wouldn't make April 15 a MUCH happier day for us taxpayers, as well as for the poor saps who have to work like mad on the night of April 14!
Tell me what you think...
posted by Sameer | 2:05 PM
4 Comments:
First off, congratulations! This will be an awesome experience, and I wish I lived in your district to vote for you.
Unless, of course, you stick with this proposal. ;-) How do you identify lower-income people? Do they get to carry around an "I'm Poor" card to show to every vendor they buy things from? And how do we determine when people are making more than $25K? I'd push my employer for a $25K salary with the rest of my current salary payable as a "non-guaranteed performance" bonus on 12/31 to stay tax-exempt for 364 days.
There are problems without assuming automatic cheating. It would also punish people who earn $25000-$31250 as, if they spent all their money, incomes in this range would purchase less than an untaxed income of $25000. Income taxes are easier to increment to avoid this penalty.
And 20% would suck for many things, but you would especially tank the real estate market (which is already perilously bubbilicious) short-term, and possibly car sales.
I'm with robfurrball - what about a flat income tax? With no deductions/loopholes, it could be taken more or less flawlessly out of paychecks so there wouldn't be the delay of payments. I wouldn't mind seeing us not pay the taxes to Uncle Sam until they're due, but I don't think a government adding half a trillion dollars in debt annually could handle the transition.
So I'm looking forward to seeing the rest of this conversation. Thanks for starting and letting us join the ride!
You might want to read this guy's blog he has some pretty cool ideas for helping the poor.
http://larryjamesurbandaily.blogspot.com/2005/05/cut-deficit-crush-weak.html#comments
Thank all of you for your posts!
I like spockoli's suggestion of not taxing the essentials--and I do agree that any "loopholes" we leave up to Congress have the potential to be seriously jacked up--including defining what "essentials" are. However, in contrast to determining a level for the blanket of protection and enforcing it, I think it might be less complicated to just exempt certain items from sales tax. That could have 2 effects:
-Not stifling the economy as much during the transition, as normal consumer goods would be perceived as not changing in price. In reality they would be less expensive.
-Watching out for the less wealthy.
The question that begs is, how large a percentage of gross annual sales in the US can be accounted for by "essential" goods--and so how much would that exemption cost? Would it be more than what the $25k blanket of protection would cost? Time to stew on that...
As for a flat income tax, here's what I think: I believe it'd be just as fair and just as easy to administer (easier, even)--but that the math might be tougher to sell. (That of course assumes that my math in the original proposal was right). The proposals I've seen for a flat tax put it at 17% (Armey bill)--at that rate, it'd be a tough sell for the poor. At that rate, it seems everyone's paying less, except for the poor--and that we're counting solely on the extra rich folks paying taxes to make up the HUGE difference. Maybe that could work if you bumped it up to 28% or 30%, but that'd be a hard sell for the 10 and 15-percenters. Not to mention there is still the potential for people hiding income...
In short: My bet is the magic number for a tax (any tax) hovers around 30% (in terms of necessary revenue). I think 30% could be an easier sell in terms of a national sales tax with exemptions for certain goods.
More reading if anyone's interested:
http://www.buec.udel.edu/pollacks/Downloaded%20SDP%20articles,%20etc/campaign%20for%20tax%20reform.%20round%20two.htm
http://solstice.crest.org/sustainable/etp/consumtx.html
Actually, I think the proposals include a floor on the income although I'm not sure where. If 17% of all income would help, though, upping that to 20-22% would probably let us set a floor reasonably above the property line.
Also, both of those articles are from the 1996 campaign; since then, incomes skyrocketed with the dot-bubble - even with the recent stagnation national income is incredibly higher, especially among the top 1% who would pay more in actual taxes but less than the basic tax code says they should currently.
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