Wednesday, August 11, 2004

 

A VAT is not Phat.

Would a national sales tax be a good idea?

The elephant pays a lot in taxes. In fact, I paid more in federal taxes last year than my annual income just 7 years ago. We all want lower taxes, but here's a dirty little secret...if we want a strong national defense, roads, water, health care and such, we will always have to pay some level of taxes. That's why I find myself, yet again, scratching my head over the latest campaign gimmick by my GOP colleagues over the establishment of a Value Added Tax (VAT) or a National Sales Tax.

By some estimates, a national sales tax would have to be in the range of 30% or more to make up for the loss of the income tax. Granted, instead of paying 35% or whatever I pay in federal income tax, I'd take home more money, but do I really want to be paying a 30% plus sales tax every time I buy something? I'm not sure.

What really gets my goat is that Denny Hastert and company claim they could do away with the IRS. Now, I know there are a bunch of states that don't have state income taxes, and to my knowledge, every one of them has a department of revenue. Also, we're talking about collecting trillions of dollars in sales tax, which would probably be delegated to retailers to collect, but you'd still have to have a some agency to enforce collection.

I've got other questions too. What about the mortgage interest deduction? If you eliminate that, it would likely have an negative impact of home prices, which are the largest asset most people own. And speaking of that, what of the tax credits for having children, those would evaporate too.

What scares me most is that our country is running nearly 1/2 a trillion dollar deficits on an annual basis. As such a likely outcome would be a national sales tax and some type of income tax. (Tax increase disguised as tax reform-it's an old trick).

Yes, our system could encourage more savings and we need to eliminate double taxation of income where it exists, but with consumption the largest component of our economy, shifting the tax burden to target purchases versus income will not be without its consequences. This proposal has been floating around Washington since I was watching Land of the Lost and playing with my Star Wars figures, it is not new and probably not that revolutionary anyway. Here's some background information and commentary if you're interested.


GAO Report: States and a Federal Consumption Tax (1990)

http://161.203.16.4/d24t8/140996.pdf

GAO Report: Choosing Among the Consumption Taxes (1986)

http://161.203.16.4/d4t4/131062.pdf

National Review: The Case Against Tax-Reform Leadership
http://www.nationalreview.com/ponnuru/ponnuru200408100843.asp

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