Sales Tax the IRS Out of Existence

There's some serious thought in Washington being given to the idea of eliminating all income, payroll and social security taxes and replacing them with a national sales tax. I'm still a bit on the fence about this issue, but I think there are some merits. It would be nice to bring home all of your paycheck instead of the leftovers the government didn't take, and it would be very nice to skip the annual anal exam which is otherwise known as the 1040 form.

First of all, however, there would have to be a change in the Constitution. The power to tax incomes was granted to the Congress through a Constitutional amendment, and if that amendment were not repealed, we could find ourselves in a situation where we have a national sales tax AND an income tax. That's clearly unacceptable, the amendment must be repealed in order for the public to have confidence that this could work.

Right now 70% of income tax revenue comes from just 10% of the wage earners. Fully 43% of all wage earners pay NO income tax whatsoever. These folks take full advantage of the government services available to them, but do not contribute one dime to the cost. There's an obvious unfairness in a structure like that (Democrats would disagree - let's not forget all the "tax cuts for the rich" rhetoric from the election).

A national sales tax would give every single person a financial stake in the government, and then maybe they'd start paying attention to how those funds are spent. If you're in the 43% that currently pays no Federal taxes, why would you care how the other folks' money is spent...as long as you're getting yours. This could bring some responsibility back to government spending, and would probably bring more people to the polls when it's time to elect the folks who decide what the government is going to spend.

The downside to this proposal is the fact that everything you buy will suddenly cost a lot more - maybe 25% more depending on what rate is considered necessary to maintain funding at current levels (frankly I think the government could get by on a lot less if we could just get the folks in Washington to start paying attention). Since business income taxes will be eliminated, there should be a reduction in the basic costs of products. The questions is whether the tax rate will eat up that reduction and push the prices substantially higher.

A national sales tax will be a problem for two major groups - those who are not currently paying any Federal tax and those who are on fixed incomes and suddenly see the prices of basic needs shooting up. It's going to take some massaging to create a system that's fair, but I hope we don't find ourselves with a program that looks like today's revenue code, full of exemptions and deductions which unfairly burdens one group over another.

I don't expect Democrats will like this proposal much at all since much of their constituency is on the receiving end of the Federal dollar, and not the giving end.