Only days after the last elections for Congress in November of 1994, Congressman Bill Archer declared his strong desire to “tear out the income tax by its roots.” After that, Newt Gingrich and Bob Dole formed a commission to consider new alternatives to the income tax. That lead to more than a half dozen congressional panels holding hearings on that subject. So there is no longer a question of whether the income tax system will be replaced or not, the question now is, what should it be replaced with? Well, a national sales tax is an option that cannot be ignored, even though it may not be the best solution. The case for a national sales tax begins with one greatly appealing line. It will allow us to completely eliminate the income tax, possibly even repealing the 16th Amendment, an amendment that authorized the income tax and made it a part of the government in the first place. However, the change would come at a cost greater than seems fair: we would give up the income tax for a sales tax system that is more bothersome and pervasive.
If the government sets out to collect a new tax at the register when something is bought, it will then have to extend that tax beyond the retailer to every single layer of production as well. The government would absolutely have to do this because a great amount of tax evasion would certainly take place. Soon enough, the national sales tax would become a very complex, multi-rate, value-added tax, or VAT. To generate enough revenue by taxing goods at the retail level only, a sales tax of at least 20 percent would have to be put into place. Suddenly, consumers will be seeing that everything they buy has been increased in price by that 20 percent.
However, the people will not want to pay that high of a tax, so they will find ways to say that the products they buy are tax-exempt goods, they will buy the goods on the black market with cash, or they will evade it in other ways. So in essence, a national sales tax will be undermined by a tax revolt immediately and quietly, which will therefore mean that the government would respond with a value-added tax that no one wants. Whether or not the national sales tax evolved into a value-added tax, the government would become very closely involved in just about every transaction between consenting adults. Even very simple purchases, such as a farmer selling his produce on the side of the road or the corner grocer selling a loaf of bread, would be under the shadow of a government tax collector collecting his cut of the sale. Actually, if this is the case, every person that operates a business or sells anything outright, such as someone selling a car, would become a tax collector for the government. Some people that are lobbying for the national sales tax argue that by having this sales tax, we could eliminate the Internal Revenue Service completely.
This could decrease the cost of running the government because the IRS agents would not have to be paid or given benefits. Instead, the states would collect the new federal sales tax through their own existing sales-tax systems. But again, there is a problem with taking out the IRS. While there are 50 states in the United States, only 45 of them currently have a state sales tax, which leaves five states without. These five states Im sure would not particularly like to enforce something for someone else, the government, which they already oppose enforcing upon themselves. So while people argue that a national sales tax will help to remove the IRS from existance, the truth is that it will not eliminate any government agency, but rather increase the size of the government because politicians will be able to just raise the tax whenever they felt so inclined.
Another argument that the sales-tax backers have, is that if there is not income tax there will be no need to file a federal tax form with the government because they pay their taxes when they make a purchase rather than when they are paid. But thats not really correct. Under any type of sales-tax system, people would still need to file paperwork with the government, only they would have to do it for totally different reasons than they do under the income tax system. With the sales tax in place, many Americans would be facing a great increase in tax. Because the sales tax would be so high, the government would almost have to make a select amount of products exempt from the sales tax, so many of the sales-tax proposals include something about a rebate.
However, the majority of Americans would still be required to file something with the government to get their rebate. If they wouldnt file, then they would be out that money and essentially be left with a large tax increase. Another thing that a sales tax is argued to help, is that tax will be collected from underground economies, such as drug dealing and the black market. While people who “work” in these economies dont file income tax forms because what they do is illegal, they do buy things with the money that they make from their trade.
So if the government cant get their tax money from the income, the can make a great portion of it back by taxing, say, a sports car or a stereo that a drug dealer might buy with his drug money. But while this sounds like a good plan, the government will actually still lose the same amount of money. This is true because if there is an income tax system being enforced, the drug dealer isnt going to report his income, but if there is some sort of a sales-tax system in place, the drug dealer would still not be collecting a sales tax from his customers, so there would be no sales tax from those people going to the government. Since the drug dealer would not be reporting either an income tax or a sales tax, neither system will get the money from the drug trade. That same thing would be true about the underground economy for legal goods, which is a much larger market than drugs. For example, a plumber that makes a house-call may not report the money he makes off of that house-call, so if there was a sales-tax, the person who called the plumber in the first place would not pay the sales tax on that house-call either.
With all of the above said, there are two options besides the implementation of a national sales tax system. Leave the system as it is with the income tax, or use a flat-tax system. A flat-tax will put into place a single tax rate on all income. People will be able to spend their money however they want to do it and will not have to take taxes into account before they spend. Instead of filling out a large amout or paper and wasting a large amount of time on their tax forms, they would only have a small card or form to fill out and send in.
For as much trouble as the paperwork, and time it takes to fill out the paperwork, is the income tax system that is currently in place seems to be the only system that works for this time. With more work and thought, eventually the flat-tax or national sales-tax system could be implemented. However, aside from the hastle, nothing seems to be wrong with the current income tax system. It should be left alone until it absolutely needs to be changed and something that will really work can be created and easily implemented.
