Criticism of My Sales Tax Proposal

David at No Third Solution posted a critical analysis about my sales tax proposal.

I think his main point is that any tax, whether it's an income tax, flat tax, or sales tax, is going to be regressive to somebody, and are morally equivalent, in that any tax is government taking private earnings.

His point of view seems to be that government and free market capitalism cannot ultimately co-exist. Thus, the libertarian ideal would require that there be no government.

Here is the comment I left:

Hi David,

I'm sorry that I misunderstood the intentions of the carnival, and thought that an article about simplifying taxes would fit in.

I'm glad it happened, though, since my post provoked your analysis, and I got a
chance to find your blog, which is very interesting.

I had a few comments:

1. My post advocates replacing the current system with a sales tax because I believe it is simpler and less intrusive than the current system. I didn't mean to imply that, if a sales tax is implemented, everything is great.

I think Rothbard's statement that the consumption tax is no more noble than an income tax is true when you talk about the broader idea of government forcibly taking private money to pay for collective things.

However, if you have to have a tax, and the government collected the same net amount, I think we are better off not taxing capital gains and eliminating IRS monitoring and paper trails. Anonymity from government scrutiny in our daily life and business would be a big achievement.

2. Having a high rate and regressiveness are common criticisms that I have read about the sales tax. I was simply trying to counter these arguments. For example, I meant to imply that a high rate for a sales tax is more transparent than the income tax, where the amount collected can be manipulated through credits, etc. I think it is easier for people to see through a sales tax than the income tax. Sure, a sneaky government (100% of them ;-) ) can still hide stuff in other places, like debt. But,for example, you would still want to light up a dark alley, even though the muggers could find other dark alleys. You deal with them one at a time.

By eliminating regressiveness through a rebate, I did not mean to imply a sales tax is perfectly fair - I meant to address the regressiveness relative to an income tax. A common complaint is that a sales tax is more regressive than an income tax, and I think that the rebate goes towards eliminating that.

I guess the basic philosophical difference between our views is that you believe that government and the market cannot coexist- like you say "no third solution".

So, you take a more revolutionary view, and think government / taxes are 100% too much.

I am a big advocate of simplicity and minimalism in general - not just in government. I want to eliminate complexity, bureaucracy, micromanagement, and unattended consequences.

I haven't given up completely on government, though I think there is a good chance that you may be right.

At this point, I believe government (and taxes) could easily be reduced 90%. I still believe, though, that there is a place for a small, venture-capitalist-like government that uses market principles to promote things in the public interest.