would a national sales tax of 20-33% work if we had no income tax?

Answer 1

No, it would not.

First off, a sales tax is a regressive tax. It makes no differentiation of the taxpayer's ability to pay the tax. The working poor would be decimated by such a tax. Consider this:

A single working mother with 2 kids. Deadbeat dad pays no child support and quits any job as soon as the wage garnishments start. She pulls in $16k a year as a bank teller or a head cashier at the local Wal-Mart. She doesn't pay any income tax due to her income and 2 kids. The paycheck isn't enough to cover all the bills and by tax time she's 2 mortgage payments behind and the mortgage company is threatening foreclosure. The $4k EITC she gets on her tax return brings the mortgage current, fixes the kids teeth, and puts a set of tires on her 12 year old car which thankfully has held up fairly well but is looking more tired by the day. They survive, but only just.

OK, now with a 25% national sales tax, let's look at the picture. Of her total $20k annual cash flow, about $12k goes for taxable goods and services. She now has to shell out $4k in sales tax. She has also lost the EITC so her cash flow is now down to $12k from $20k with the sales tax bite. Sometime in July or August of the first year of the "new and improved tax" she loses her home to foreclosure and she and her kids are now on the street. Her home wasn't much but it was hers. Unfortunately rents are higher than her mortgage payment was so instead of a modest 3 bedroom home they now have to cram into a 1 bedroom apartment in a crappy area.

I have 2 friends in exactly this situation. Our current system does need repair, but an insanely high sales tax is NOT the answer.

To the 10% flat tax advocate: What gives you the idea that a flat 10% income tax will generate enough revenue to replace the current system? Truth be told, it would need to be closer to 27%. The rich would make out like bandits but the working poor would be destroyed and the middle class would buckle at the knees.

There's a good reason that wealthy people like Steve Forbes tout a flat tax as they'd save a bundle. His marginal rate would drop from 35% to 27%. He'd be a FOOL to not want a flat tax but working stiffs like myself would be IDIOTS to want it. My tax bill for 2006 was just over $20k (I sold off a rental house) but with a 27% flat tax it would have been nearly $34k. No thank you!

Answer 2

A national sales tax would be difficult to impose, because states still have to collect their money. Many states utilize sales tax instead of income tax, but on a national level at the rate in question is outrageous. Most Americans (middle Class) end up paying between 10% and 15% income tax to the IRS. A flat income tax of 10% would be more fair and generate more revenue.

Answer 3

Well, not exactly a national sales tax, but something very similar. Find out about The FairTax bill that some members of Congress are trying to get passed. See if your representatives are on the list. If not, contact them. Get the word out about this important bill for American taxpayers.

The FairTax bill is a lot more fair than the current tax code. It would eliminate many tax loopholes for the rich and for corporations. It will bring back jobs from overseas or at the very least prevent any more job losses. You would get your entire paycheck each week. Social security tax, income tax, and many other taxes would be eliminated. The hassle and headaches that occur every year around April would be a thing of the past.

For more information on the Fairtax bill in general and getting rid of the IRS specifically, try out this site: http://www.squidoo.com/abolishirs/

Find out about Tax Freedom Day here, which is the date that you actually get to keep your paycheck instead of stuffing the government's pockets. It will probably make you sick at your stomach, but it may spur you on to push the passage of the FairTax bill-
http://www.helium.com/tm/204965

Answer 4

Bostonianinmo, thank you for putting so eloquently what I have tried, and failed, to say in the past. Very good example.

What it really boils down to is Adam Smith's Canons of Taxation:

1. "The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State." Sales Tax - Fail. income Tax - Pass.

2. "The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to ever[y] other person." Sadly both the sales tax and income tax fail this one, under the current IT system.

3. "Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it." Wage withholdings are very convenient for both the taxpayer and the government. If you have to make a large purchase income and expenses for that month (say) do not always match.

4. "Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State." Wouldn't we have to factor in other methods of raising taxes when (not if) consumption drops?

Incidentally, the UK has 17.5% VAT (broadly akin to sales tax but imposed incrementally through the production and selling process) as well as tax rates starting at 22% (the small 10% band disappears next year) going up to 40%. The FICA-equivalent taxes are about double what we pay here. There is no need to attach a Schedule A to your return because the only relief is a limited one for charitable contributions. Sure, the UK has the National Health Service but getting really good service is a lottery and it is steadily crumbling now that it has to focus on breaking even.

Answer 5

No the prices would be to high on everything. I don't think we need income or sale tax either one! It's unconstitutional!