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.