Consumption tax?
George Will takes us on a tour of Rep. John Linder's (R-GA) new proposal for scrapping the current tax code and replacing it with a national consumption tax.
His bill would abolish the IRS and the many billions of tax forms it sends out and receives. He would erase the federal income-tax system -- personal and corporate income taxes, the regressive payroll tax and self-employment tax, capital-gains, gift and estate taxes, the alternative minimum tax and the earned income tax credit -- and replace all that with a 23 percent national sales tax on personal consumption.
If you're like me, you might've just experienced a fifteen-minute, toe-curling orgasm after reading that paragraph, so I'll give you a moment to regroup. Care for a cigarette? Okay, let's move on.
Linder plans to add an element of progressivity by instituting a universal rebate program to ease the tax burden on low-income earners. Moreover, he argues that such a tax structure would have salubrious effects on the economy.
Furthermore, by ending payroll and corporate taxes, America would become the only nation selling goods with no tax component -- such as Europe's value added tax -- in their prices. With no taxes on capital and labor, multinationals would, Linder thinks, stampede to locate here, which would be an incentive for other nations to emulate America. "This," Linder says, "would unleash freedom around the globe."
So where's the downside? I can think of two things.
First, any bill remotely resembling Linder's will encounter fierce opposition by some very powerful and well-connected foes: not only tax lawyers and accountants, but the politicians themselves, who have come to rely on our current tax code as their primary tool for bestowing government largesse on their favored constituents. Don't expect the recipients of said largesse to go quietly either.
Secondly, there is a huge political obstacle as well. No matter how generous the rebate system, the sad reality is that many people today place a higher premium on punishing the wealthy than on being fair to the poor. Anything that looks, on paper, like a further tax cut on the wealthy is going to be a tough sell. Nevermind that the current top marginal rate of 27% is completely theoretical, given the amount of loopholes and deductions that a good tax lawyer can find for a wealthy client. A move to replace it with a 23% sales tax will be easy for the bill's opponents to demagogue.
Still, one can dream, I suppose. And we can always hope that Linder's bill can at least provide a starting point for a national dialog on reforming our present, chaotic tax structure.
Comments
This is what Greenspan was referring to a few weeks ago, right? How much would such a tax be? On its face, it sounds nice and simple. Without knowing enough about it, I always feel that such a tax would be much more burdensome on the poor. But I suppose it would depend on the rate.
Posted by: K | April 4, 2005 12:32 PM
I've liked this idea for quite some time now. I like the fact that you can control your taxes to a great extent by being more of a saver than a consumer. The rebate should work well to make the tax progressive instead of regressive. I'd be curious to find out at what level of income they plan on giving rebates. My guess is that certain people would still want preferential treatment (e.g. large medical bills, lots of kids, investors, etc.). That's why I think this will be a tough sell. And of course, as you mentioned, the special interests (mortgagors, charities, etc.).
For the record, though, I don't think that there are too many people who want to "punish" the rich by making them pay more taxes than the not-so-rich. They just want the rich to bear a greater burden of the taxes, since they can more easily afford it and still have a nice lifestyle.
I would like to see a consumption tax in place of all the others - except the estate tax, which I see as a tool to prevent excessive wealth buildup within families.
Posted by: Tracy Miller | April 4, 2005 12:46 PM
It's just an alernative to the universal flat tax which, like this, will never see the light of day.
Barry, you listed several opposing groups. To that, you can add charitable organizations (including churches).
Tracy, more people want the rich to pay 'their fair share' (as Gore, et. al. beat us over the head with during 2000), because it means that they will pay less.
It's the American Way: Let the other guy do it.
Posted by: mal | April 4, 2005 10:04 PM
Okay, say for instance that it's a flat 20% sales tax. And A earns $20,000/year, and needs $100 in groceries/sundries monthly for self, spouse and child (which is really reasonable, I think it's likely to be more, but for simplicity's sake...). Let's say B earns $50,000/year and needs same for same. Then there's C who earns $500,000/year and needs same for same. Isn't that much more of a burden on A and B than for C? Yes, there are other consumable goods that B will buy that A cannot. And exponentially so for C. That's a given. But on daily necessities like food/hygiene/clothing, all three need to purchase the same things.
While B & C will buy more in terms of quantity and quality, but even just for basic necessities, that means that A will be paying $240 per year in tax. That includes nothing else. Not clothing. Not rent. Not entertainment of any kind. Just necessities. And if A has a rent of $700/month, which is more than reasonable for New York City, that leaves a little over $10,000 for everything else. Clothing. Utilities. School supplies. Doctors. Transportation.
In that scenario, where I'm not talking about anyone "needing" cable television or designer clothing or tennis lessons or anything other than basic necessities, doesn't it seem that a sales tax would be more burdensome to those on the lower income scale?
Posted by: K | April 4, 2005 10:51 PM
K, yes, that's why Linder proposed the rebate system to address this regressivity specifically.
Posted by: Barry N. Johnson | April 5, 2005 07:13 AM
It's not added yet, right? So even theoretically, it's still up in the air? And wouldn't that bring cries of foul?
Posted by: K | April 5, 2005 08:34 AM
No, the Linder bill already incorporates a progressive rebate system. And granted, some people will bitch about anything, but I don't know who would cry foul over the rebate scheme. It certainly seems reasonable to me, kind of like an advance refundable tax credit.
Posted by: Barry N. Johnson | April 5, 2005 09:01 AM
Radio talk-show host Neal Boortz has been a major proponent of this "fair tax" idea for many years and is wrapping up a book devoted to it. Please have a look at the details of the plan at
www.fairtax.org.
There are so many good questions and misunderstandings about it that it would behoove most of us to at least familiarize ourselves with the details and get Neal's book when it comes out.
Posted by: orthooo | April 6, 2005 04:57 PM