There's an interesting piece in today's Wall Street Journal that examines some of the problems that would be created by a national sales tax. In addition to encouraging noncompliance, here's a few others:
Then there's the complexity argument. You don't think the lobbyists and lawyers will get involved in this, looking for exemptions on houses, medical services and education? You're going to put a 30% tax on my home purchase, and my doctor visits and my kids' tuition? Yeah, great idea.
And what about business transactions? If you tax business-to-business transactions, then you'll set off a wave of corporate consolidation. Instead of buying from a supplier at a 30% markup, I'll just buy my supplier and be tax free. And what about financial firms like Goldman Sachs, which spend most of their money on payroll and investments, and very little on goods and services? Goldman will pay taxes on what? Paper clips?
If, on the other hand, we institute the most widely supported version of the national sales tax, then business transactions are to be exempted. In addition to the colossal job of selling America on a zero tax rate for business, a rigorous definition of the term "business transaction" would have to be provided. What is a business transaction, exactly? I write articles for publication. I consider it a hobby. Sometimes I get paid. Should I pay sales taxes on money I earn for writing this article?
What about the Internet connection I used to send it? Should readers pay taxes on the connection they use to read my article? What if a reader uses it for his job? If he is a financial adviser, then no, but otherwise it's yes? Will I pay taxes on gas I used to drive to the studio to talk about this article? What if I stop to buy my son Jack a birthday present on the way home?
I'm a recovering tax accountant (and not a good one at that) and I've got 50 ways to avoid this tax swimming around in my head. What about the really smart guys?
It seems that the national sales tax could create as many problems as it solves.
15 Comments
Dave Wade | January 8, 2008, 2:30pm | #
I agree that a federal sales tax has problems but I believe they are less than those associated with the current income tax. And yes, it will be difficult working out the details and, yes, as always, there will be winners and losers. However, all of this is a distraction. The real reason to support a federal sales tax and the reason all those other problems must be overcome is due to the privacy issues associated with the current income tax. Why do I have to tell my government where I work, how much I get paid, how I invest my money, who I contribute money to, when and where I gambled, how much I paid for my house, etc. And, to add insult to injury, *I* have to fill out a stack of complex forms to give this information to the government and if I make a mistake I get penalized!
That is what make the Fair Tax 'fair'.
Beverly Chapman | January 9, 2008, 8:25pm | #
From my reading of the Fair Tax proposal, it seems to put all revenue in the hands of the federal government. This will only give the federal government too much power. I can just imagine revenue trickling down from the federal government to the states as in revenue sharing.
I believe the Fair Tax will only become a misnomer...not really so fair.
Ernie | January 9, 2008, 10:19pm | #
This primary season may create more discussion on the important issues that face our country, such as taxation. Our current system of taxation is broken. A fair tax proposal must be looked at and debated. It should not be summarily dismissed because "it won't work". We should challenge every Presidential candidate to discuss our current tax system and what they would do to fix it. Let's hold their feet to the fire!!
Todd McLaren | January 10, 2008, 1:42pm | #
Please keep the perceived problems coming--it's the only way they can be addressed. We want to get as many of them dealt with as possible to make sure that the implementation of The Fair Tax goes as smoothly as possible for us all.
Those of us who support The Fair Tax do so because of its simplicity, fairness to all consumers, and freedom to control much of what we're taxed. In addition, it drastically expands the tax base so that our nation's burden is shouldered by anyone who buys anything--and all without burdening the poor.
Of course there will be rough spots--but I believe you'll find after further investigation that the benefits will FAR outweigh any drawbacks.
Todd McLaren | January 10, 2008, 1:53pm | #
AND ANOTHER THING...
It's clear to me (and many others) that Mr. Bowyer either hasn't read The Fair Tax book, hasn't read the bill, has an agenda against changing the current system, or is simply a "We've never done that before, so it'll never work" naysayer.
Most of his fears have been addressed already: www.thefairtax.org
There are millions of us out here who believe in this, including several prominent national pundits, many members of congress, and at least two Presidential Candidates. We can't all be pie-in-the-sky morons... =)
Do yourself a favor, and at least do a little more research before dismissing The Fair Tax out of hand.
Nancy Crayton | January 10, 2008, 4:43pm | #
It seems to me that the majority of critics of the Fair Tax have it confused with the Value Added Tax and/or the Flat Tax. Take a look at fairtax.org. The Fair Tax offers the better alternative to the current, broken tax system. We all complain during tax season. Some really smart people have come up with an answer. The Fair Tax is aptly named.
Betty | January 11, 2008, 9:06am | #
The Fair Tax has been thoroughly researched and is economically sound. The benefits of the Fair Tax are so numerous it is difficult to limit myself to just three, but I will. The top three, as I see it:
1. The Fair Tax is border-adjustable, whereas the income tax (flat, progressive or regressive) is NOT eligible for border-adjustment per the WTO. This distinction alone makes the Fair Tax SUPERIOR to any other proposal. For more information on border-adjustability, please see: http://www.fairtax.org/PDF/USInternationalTaxReform-Mastromarco-8-7-06.pdf
2. The Fair Tax will restore financial privacy. The Founders of this great nation never intended for the citizens to report the intimate details of their financial lives to the Federal Government and never intended the citizens to live in fear of their government. They enshrined the notion that we were to be secure in our houses, persons, papers and effects against unreasonable searches in the Fourth Amendment. The income tax makes a absolute mockery out of this enumerated right.
3. The Fair Tax will allow the American people to save untolled BILLIONS in annual compliance costs, the proper measure of which includes not only the out of pocket expense for tax preparation fees, but the value of time and energy spent during record-keeping activities AND the opportunity costs associated therewith.
The flat-tax is not border-adjustable, does not restore financial privacy, and will involve significant compliance costs. Only the Fair Tax will correct these problems, and more.
Diane | January 11, 2008, 9:22am | #
It is obvious that the author of this article has not researched the FairTax at all! You only have to read this one line:
"I write articles for publication. I consider it a hobby. Sometimes I get paid. Should I pay sales taxes on money I earn for writing this article?"
How do you pay sales tax on income? You don't. You pay the tax when you BUY something.
Passing the FairTax would be wonderful, if fo no other reason than it gets the government out of my personal life! I will no longer have to tell them how much I made, how I made it, and whether I spent it on one of their "approved" (i.e. deductible) purposes! It has many other pluses, but that has to be the major one!
Diane | January 11, 2008, 9:26am | #
Also, this author completely ignores the concept of imbeded tax!
Diane | January 11, 2008, 12:30pm | #
Sorry, that should have read "embeded tax".
Bill | January 12, 2008, 9:29am | #
The Liberty aspect of the Fair Tax is the biggest thing for me. It will mean that the government will no longer be able to socialy engineer the country. Individuals will decide when they pay taxes. The K street lobbists will have to find productive work. Also, if we pass the Fair Tax, it will put enormuss pressure on socialized countries around the world to free up their economies, because the USA will become a giant capital magnet by untaxing capital formation and productivity and savings. The reason that there are so many squealing about the FairTax is that it empowers the individual at the expense of government.
Bill | January 12, 2008, 9:50am | #
Sorry, (enormous pressure), but while I'm at it, I have to say that Jerry Bowyer's latest rant is incoherent at best, I guess that some people attacked him ad honinum and thats a shame since we have the facts. But, he brought it on him self with the prejoritive title "Fair Tax Crowd", at least he didn't say "Mob"or "Cult".
Chuck | January 13, 2008, 9:57pm | #
Diane of the above comments hit the nail on the head. The author has never read the book, does not understand the concept and doesn't know what she is talking about; neither do her editors. Shame on people who do not check facts yet publish sloppy inaccurate work as gospel.
Gibby | January 14, 2008, 2:16pm | #
Let's not make the perfect the enemy of the good. I really doubt that the Fair Tax creates more problems than it solves. The Fair Tax is going to be our best bet for bringing true tax and spending transparency.
Lisa | January 15, 2008, 11:47am | #
I think the Fair Tax will work. Government is eliminated from knowing your income. But, most important it will give someone the chance to save more.