I was watching Newt Gingrich and George Will on "This Week with George Stephanopoulos". They were discussing the implications of an Obama presidency and his ideas to raise taxes on the wealthy.
As expected, these staunch Republicans hate the idea of the wealthy paying any more than they already do. I forget the exact figures, but some claim was made that the wealthiest one or two percent already pay 38% of collected taxes. Your reaction to that is supposed to be sympathy and gratitude.. my reaction is more like "So why not 76%?"
However, they were also quick to point out that any wealth slanted tax increases would probably quickly be countered by armies of tax accountants devising complicated schemes so that the tax burden would be lessened or eliminated. Although they never said this, the undercurrent is that legislatures would immediately pass more loophole legislation to make the job of those weary accountants even easier. In other words, don't bother trying to tax the rich because it ain't gonna happen and if somehow it did happen, those affected would just move somewhere more friendly.
I'm sure they are right. I also think a VAT (value added tax) and a national sales tax can fix that problem.
Yes, there are problems with VAT and sales taxes. The biggest problem is that the tax would be very visible: we'd all know what percentage we are paying and it wouldn't be small. That would make it very difficult to get in place to start with. The public wouldn't like it because they wouldn't trust that the rate would be set fairly. Never mind that income taxes are confusing and obviously riddled with unfairness; change is always suspect.
There's a problem with spending money outside of the country to avoid taxes. Canada and Mexico would see a big increase in U.S. tourists and U.S. tourist dollars. This could actually weaken the U.S. dollar even more.
There's a potential inequity for the very poor. These people escape income taxes by having little income, but they'd still need to buy goods and services. The only reasonable way to deal with that is to return a base amount to all citizens - an automatic monthly "dole" that would be sized to cover the taxes paid on basic necessities of life. Note that would be to cover taxes, not to cover those necessities.. we aren't talking about a socialist state here. If the bare poverty line is X, then the kickback would be only the tax added to X, nothing more. The poor would still starve and suffer as usual - you wouldn't want to go messing with that. We'd just make sure they weren't made worse off by this tax. Otherwise, we can put them out of our minds as we always do.
We could also exempt medical expenses and non-restaurant food. Luxury items could be taxed higher. However, balancing the tax rate, the "dole", the luxury add-ons and the exemptions to arrive at a "fair" taxation that everyone could accept wouldn't be easy and would probably need constant adjustment. There is a big advantage there though: any adjustments would have immediate effect. Tightening or loosening the economy, moving money to sociably desirable areas - these are all things that our horribly complex tax code tries to do now; it would be no different with VAT and sales taxes. It would just be easier and perhaps more transparent. We could even make geographic adjustments when necessary - that's much harder to do with precision now.
I don't think this will ever happen. Arguments against sales taxes will confuse and frighten people. It's obvious that a sales tax system COULD be made fair, but I don't think people would trust that it actually WOULD be made so.
However, as long as we are taking a walk in fantasy land, let's imagine how it could be done. The "This Week" panel, both conservative and liberal, all seemed to agree that some form of economic stimulus will be necessary soon. So let's take that opportunity to kill the Federal income tax. There's a giant stimulus. Of course we'd replace it with a sales tax, but we could wait a month or so for that. While waiting, everyone finds that their paychecks just got fatter and most will also be expecting a big refund come April 15th. Joy and jubilation.
Of course everyone has been told that the big sales tax is just around the corner and that prices will be going up due to the VAT. So don't go hoarding that extra money: spend it now before costs go up! Big economic boost, except from those who think they'll be paying more effective taxes later. Those folks will be saving.
Then the new taxes go into effect and we figure out what they really mean. Did the middle class get whacked too hard? Make adjustments. Do we need to discourage gasoline usage? Raise the tax. Ooops, that hurts the middle class too much? Cut it back..
Too complicated? I don't think it is when compared to income taxes. It has benefits: if you had extreme medical expenses that caused you to forget that new SUV purchase, you wouldn't have to wait till April 15th to get back your tax dollars: you never would have spent them. Need to pay for a stupid war we never should have gotten involved in? Raise 'em up till the war is over (might hasten things a bit).
But it's never going to happen. Change is just too hard.
Got something to add? Send me email.
More Articles by Anthony Lawrence © 2012-07-12 Anthony Lawrence