The current political debate on ways to tax is gaining more publicity these days, since people, mainly Republicans, are trotting out their favorite tax proposals. Democrats don’t care how it is collected, they just always want more money to fund their favorite spending proposals.
Consumption tax – is that a panacea? a solution to our current complex U.S. tax collection system? This is what current proponents of the Fair Tax. Wow, a national sales tax. How simple could that be? No more Income Tax. No more IRS. WooHoo!
But: businesses would be taxed with (pardon the pun) yet another regulation to follow, as if there aren’t enough already. Sure, many now are able to collect state sales taxes, but don’t believe for a minute, a second, a mini-second, that the national sales tax will be quite different from any state tax.
“Yeah, but all you need to do is…” Don’t believe it. Just to start the argument, consider that new, buggy computer software will have to be written, corrected, written again. Remember ObamaCare?
Costs to implement the program will be higher than projected, collections will be lower than projected, the tax will have to be raised to be “revenue-neutral” as the unfelicitous phrase goes, meaning, “We’ll collect just as much money as before.” Well, what makes it better then?
The next popular proposal is the Flat Tax. That’s paying a certain percentage on wages only. Period. Well, not “period” exactly, but that’s the basic plan. It, too, is “revenue neutral.” Dr. Ben Carson likes this one, because, he says, it is like tithing. Well, maybe.
How high will it have to be to be “revenue-neutral?”
Progressive tax – that’s the current system. Percentage taken from you goes up as your income goes up. This creates an incentive to become as poor as possible, given your personal economic pain level.
Fortune Magazine just published a nice breakdown of the three different systems by “taxgirl” Kelly Phillips Erb.
Then, think about this: IFO always says, “Forget thinking up new, better ways to collect taxes! Think of ways to cut spending!”
See tomorrow’s post for our suggestion for how to improve out tax system.