The Sales Tax - Arguments, Hurdles, Supplements

Most arguments against a sales tax is that the tax rate would have to be set high to replace the income tax, and that the tax would be regressive (affect lower income people more).

You can read the first part of this essay here.

I would say that:

1. Having to set a high rate is not really a bad thing. The rate would show, transparently and in real-time, the true cost of government. It would provide an incentive to cut down government and make it more efficient, in order to lower the rate.

2. The regressiveness is removed by the rebate. Using my rebate example numbers, all adults would get a tax rebate on the first $10,000 they spent. For someone making $15,000 a year, this means they would not be taxed for the bulk of their purchases. Bill Gates would also get his rebate but, assuming he spent millions of dollars, he would have to pay sales tax on the bulk of his spending.

The interesting thing would be that people who spent less than the amount to be rebated would make money.


Hurdles
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There are some hurdles to overcome. The main hurdle would be that the 16th amendment authorizes an income tax. So, a constitutional amendment would have to be passed to replace the income tax with a sales tax.

The other issue is that money also has to be collected for social security and medicare. This may be a lot to collect out of sales taxes.


Supplements
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Two ideas to supplement the sales tax, while still being simpler and less intrusive, with respect to the current federal income tax:

1. Tax pollution and/or hydrocarbons (link to global warming). Environmental policy will be covered in other posts.

2. Keep the capital gains tax but make it flat (one rate for long and short term gains), and give it a high exemption (i.e. $500,000). This way, the average family will be taxed on spending and not on saving.

You can read the conclusion of this essay here.