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National sales tax is good substitute for federal income tax
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The three characteristics that any tax should have are: easy administration, reflect ability to pay, and fairness. For these reasons, and because of the huge current gap between the taxable income that is earned in the United States and the amount on which federal income taxes are paid, replacing the federal income tax with a national sales tax at the consumer level makes a great deal of sense. Such a system would be administered in the same way as state sales tax systems that require that businesses report sales and submit the taxes that they collected on those sales.
In reading my thoughts regarding this very complex issue, please remember that it is a brief overview of a topic about which many people have written long books. Additionally, using a 25-percent national sales tax is completely random and was chosen because it it easy to calculate. I intend only to introduce a proposal that I have advocated for years.
A national sales tax would be easy to administer because monitoring the relatively few number of businesses, compared to the much larger number of individual taxpayers, in the United States would be relatively easy. Additionally, businesses are already required legally to keep records of their expenses and revenues.
At a basic level, companies would only have to withhold social security taxes and medical insurance co-payments from paychecks of employees. Further, many individuals would not need to submit income tax returns each year and self-employed people like me would not have to submit estimated income tax statement and payments four times a year in addition to the annual return.
I acknowledge that income-tax preparation provides IRS employees and many other people employment. However, tax preparation software has greatly reduced the demand for tax preparers and a five-year delay in transitioning to a national sales tax would provide people time to find alternative careers.
Additionally, many IRS employees could seek other federal government jobs; auditing federal contractors and preparing and enforcing budgets for federal programs are areas that seem to require improvement.
I believe as well that a national sales tax would reflect an ability to pay. I would exempt non-preprepared food, rents, mortgages, and the purchase of housing completely. I would also exempt refrigerators and other basic appliances, clothing, and furniture up to what is considered a reasonable amount . I would also consider an exemption for an automobile every five years that would require proof of registration.
I recognize that some gray areas exist and admit that no tax system is perfect.
A purpose of a national sales tax would be to allow people to buy the necessities of life tax-free and, factoring in a national sales tax, limit other purchases to things that they can actually afford. For example, someone who lives in a state that does not have a state sales tax who can spend $1000 for a new television would buy a $750 television if there is a 25-percent national sales tax.
The discussion regarding ability to pay also reflects the fairness of a national sales tax. Many people criticize tax systems that are perceived to allow wealthier individuals to pay a disproportionately low amount of tax compared to lower-income taxpayers. As a rule, wealthier people buy a larger quantity of "stuff" and buy more expensive items than people with lower incomes.
The known relationship between the amount of income that someone has and his or her spending habits show a relationship between that income and the amount of a national sales tax that he or she would pay.
Returning to my example of a television, a moderately wealthy person would be more apt to have $2,000 to spend on a television. In such a case, he or she would spend $1,500 on the television and pay $500 in national sales tax. This is twice as much as the person who bought the $1,000 television even though the income of the moderately wealthy person may not be twice as high as that of the person with less income. Additionally, a moderately wealthy person is more likely to have more televisions in his or her home than someone with a tighter budget.
I am eager to read your comments as additions to this post or as e-mail to nelsonexaminer@gmail.com.
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