Quote:
Originally posted by sgtclub
Incidentally, I've heard recently that Russia's flat tax has been fairly successful, in that it has increased revenue collection. Granted, part of that is that they've had such a terrible time collecting taxes to date, but I find the concept interesting.
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In that case, you'd probably be thrilled to hear about the new
NY Times Best-seller from our very own fiction novelist Dennis Hastert, who among other things advocates the institution of a consumption tax and the abolition of both the income tax and the IRS.
Which would be nifty, except that it wouldn't work.
-- BLOG ALERT! BLOG ALERT! --
Not Me, Hank, women, children, and those with weak constitutions should avert their eyes and scroll, because what follows is an excerpt from a
blog. I mention it here because this
Kevin Drum guy has compiled the responses to the ide (internal links in original).
- Forget the idea of a national sales tax. It's common knowledge among tax experts that sales tax levels much above 10% don't work because the incentives to cheat are simply too great. Many states already have sales taxes close to this level, and tacking on an extra 20% in federal sales tax is a complete nonstarter.
So how about a value added tax instead? Instead of one big tax tacked on to the final consumer sale, a VAT breaks things up into smaller pieces by taxing the amount of value added to goods and services at each stage of production — and while it may sound more complicated than a sales tax, it turns out that it's actually easier to monitor and control. Tax experts tend to like VATs for a variety of reasons.
But here's the problem: VATs don't raise nearly as much money as breathless newspaper op-eds would have you believe. Take Great Britain as an example: it has a basic VAT rate of 17.5% (excluding food and a few other items), and last year this raised (roughly) $100 billion. This is approximately 6% of Great Britain's GDP.
In America, personal and corporate income taxes account for about 10% of GDP. This means that if we adopted a VAT similar to Great Britain's, and we wanted to use to it to abolish the IRS completely, our basic VAT rate would have to be around 30%. Ouch.
Because of this, Great Britain, like other countries, does not rely solely on VAT. In fact, the Brits have all the same taxes we do: an income tax (22% is the basic rate), social security, capital gains, stamp duties, excise taxes, inheritance tax, corporation taxes, etc.
Sales taxes and VATs are examples of consumption taxes, which are designed to tax what you consume, not what you earn. So another way to implement a consumption tax is to keep our tax system the way it is but exclude taxes on all investment income: capital gains, dividends, savings, etc. By definition, everything that's left over is money that's spent on consumption. The economic effect ends up being pretty similar to a VAT.
Unfortunately, this wouldn't abolish the IRS, it would just eliminate taxes on investment income. Now, there are some economists who think this is a good idea, and there are lots of wealthy Republican contributors who think this is a great idea, but you'd better check your wallet before you decide you like it too. Investment income is still mostly an artifact of wealth, and if we allow wealthy taxpayers off the hook for paying taxes on their investments we have to make up this revenue somewhere else. That means — surprise! — higher rates on everyone else.
Gattigap
