Lately, I’ve seen a lot of chatter about a national sales tax and how it’s the answer to the country’s financial crises. I’m not so sure this is the panacea we’re all looking for but the idea of tax reform in itself is always interesting. Here are a couple of areas that would need to be addressed before a national sales tax becomes reality:
- First, all services would have to be part of the tax base. This would lead to many service providers (particularly luxury services) losing revenue from the middle to upper middle class and putting many of them out of work. Since our economy has been migrating from an industrial base to a service base, I think this will be problematic for our tax base and employment rates. The result would be less spent on US based outputs and less tax revenue from service providers who won’t have income to spend.
- Second, we’d have to figure out a way to control bartering. Estimates suggest that a national sales tax would be anywhere from 23% to 30%. If you knew you could save 30% through bartering, I believe this option would become very attractive and we’d see a significant increase in this area.
- Lastly, I disagree with “selling” the national sales tax as a means to stimulate the economy. On the surface, it appears that each worker would have more money to spend since they are not paying income tax or payroll taxes. However, the net result to the federal government is the same revenue or the same amount of tax. If the same amount of tax is being generated then how does that stimulate the economy? Said differently, how likely are you to go buy a new $30,000 vehicle that will now cost you almost $40,000 because of a 30% national sales tax?
While tax reform is necessary, I’m not convinced the national sales tax is the right way to do it.