Please let's do this
A consumption tax -- otherwise known as a national sales tax -- sounds scary, but it shouldn't be.
It's not going to hurt poor people. Poor people are already getting stuck with high taxes taken straight from their paychecks. I'm in a low tax bracket, and I get 17% taken out for federal income tax, Medicare, and Social Security. If I can afford to have 17% taken out of my paycheck without me ever seeing that money, I can afford to spend that same 17% at the cash register, and consciously see what the government is taking from me. Heck, I might even be persuaded to save more of that money, or invest it.
And check this out: the math actually works out so that if we replace withholding with a sales tax at the same percentage rate, you actually end up with slightly more money. Say I make $100 a week for simplicity. The government takes 17% (or $17) of that. That leaves me with $83 to buy stuff.
Now let's get rid of withholding and replace it with a 17% consumption tax. I now have a full $100, and I use it to buy the same $83 worth of stuff. What's the tax on $83? Not $17. $14.11. So I've now spent $97.11 on the same $83 worth of stuff. That leaves me almost three extra bucks for every $100 I make. That's more stuff I can buy, or more I can save.
We're still concerned about the poor though, so let's make it even easier. Some variations of the consumption tax propose a rebate to the poor. Some variations propose not taxing the essentials in the first place, like groceries. I can get behind that. I can even get behind it not being applied to things like rent and basic clothing. Who wouldn't? The poor are not going to get shafted by a consumption tax.
You know who will get shafted? The rich. But not unfairly. The super-rich can move their money around so that they pay the least amount of taxes possible and still not do anything illegal. Heck, ask Teresa Heinz-Kerry -- last year, she paid an effective tax rate of something like 12% on hundreds of thousands in income. Institute a consumption tax, and any time the super-rich want to spend money, they'll pay what they've been avoiding.
As for the rest of us, we'll keep paying almost exactly what we have been all this time. Only we'll see it at the cash register. Heck, we might even pay less, if the legislators set it up right. People will probably get pissed about the extra money they're spending -- but that's good. Let them see just what withholding has been taking from them without their conscious acknowledgement all this time. Give them some choice over how much they want to pay in taxes. It might even make people more willing to press their congressmen for more fiscal restraint. Once people realize that they're personally footing the bill for all this spending, it'll make 'em think twice about voting for the feel-good altruism that bloats our national budget and sends us further into debt every year.
Now would be the time. I hope the guys in D.C. follow through with this.
Posted by Matt at March 7, 2005 10:23 AM
