Should The USA Enact a National Sales Tax?

Great Debates
41

I certainly agree.

Some of them you could quibble about, but again, I agree. The point I’m trying to make is that even the best available indirect commodity tax doesn’t really solve anything.

Is it better than under a Retail Sales Tax? Yes. The beauty of the invoice credit method is that it automatically avoids many of the difficulties in excluding intermediate goods from the base. Indeed, by the early 1980s the old debate about VAT v RST which raged for decades resolved decisively in favour of VAT. There’s a good piece by Cnossen that I have that is pretty much the tombstone of that debate.

But the VAT does not eliminate the consumption/ intermediate good problem. The system does require conspiracy between transacting suppliers for successful evasion - but that’s as far as the anti-avoidance properties of the so called “self-enforcing” audit trail left by invoice credit go. (And you still have to have an army of tax inspectors to actually audit the trail.) When it comes to the final transaction in the chain, it is as vulnerable under VAT as it is under RST: the consumer has no interest in supplier compliance since they cannot claim an invoice credit. That’s the significance of my remark about the share of labour in value added in the services sector.

And of course, if you fail to deny an invoice credit to those businesses not declaring their sales, you’re really stuffed. After initally good signs here, it’s not looking so good.

Now it is true that you don’t get the cascading effect under a VAT - but remember, that embargoed goods is an RST response to the threat to revenue. You could get rid of it at a cost to coverage. The fact that under a VAT businesses are not required to distinguish between different classes of buyer doesn’t mean the underlying problem - under-declaration of taxable supply which after everything washes out is only sales to final consumers - has gone away. Different symptoms, same problem. On paper, insuring that only taxable supplies get invoice credits is easy. In practice, it’s really quite difficult.

OK, you twisted my arm. We do pretty much agree across the board about this.

42

Adding a national sales tax without getting rid of income tax is an exercise in adding unnessecary overhead. You need thousands of people to manage the collection and distribution of this new tax, but you’re not getting rid of anyone in the IRS, or reducing the complexity of our current income tax.

My suggestion would be to streamline the income tax system. Reduce the outrageous variety of deductions. Set up a single tax rate, with a starting point high enough to give poor people the break they need, while keeping overall revenues the same. Sure, thousands of accountants would be out of work, but they can get jobs that create real value in the economy.

43

"Well, that’s an incoherent rant. I hope you feel better."

Yes indeed, thanks for asking.
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>> I live in a European country that has VAT tax.

**“Yep, all EU countries have VAT (not “VAT tax”) and it has been a huge success. No one is talking about getting rid of it.” **
A huge success from whose perspective? I’m sure that the various govenments aren’t talking about getting rid of it, but that’s hardly a surprise, is it?

**
>> It’s a nightmare.

"In what way?"

  1. It’s complicated for those of us who have to administer it.

  2. It creates a heavy, and I feel unfair, burden for the taxpayer.

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>> First, it does not substitute personal income tax.

**“That can be said of every other tax in existence including sales tax. It can even be said about sex: it would be better if it was a substitute for income tax.” **

Oh goodness, that’s certainly a good reason for instituting another tax. Let’s add tax upon tax. It’s almost like sex!

**
-<< The idea of giving the government yet another means ot taxation is frightening, because, once instituted, it will never end and in fact will increase constantly.

**“That’s just silly paranoia. VAT has replaced sales and other taxes in many countries and is working quite well.” **

Silly paranoia, eh? And how’s the weather on your planet? I repeat, VAT does not replace other taxes. Unless you mean that it’s somehow better to pay 20% VAT instead of, say, a 6% sales tax. So, from a revenue gathering point of view, sure VAT is indeed “working quite well”. Pardon me if, as a taxpayer, I’m not enthusiastic about it.
**
"You seem to see VAT as the first step towards communism or something like that."

Well, there’s a leap of logic. Actually, I see VAT another step towards oppressive taxation.

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>> Second, at least where I live, VAT tax is paid on goods AND services.

"Yes, so? is it better to have one single tax for everything or have dozens of different taxes for different goods and services?"

One single tax for everything? I believe I have already mentioned that this is not the way it works.

**

>> That means that, as an attorney, I have to charge my clients my fee, plus more than 20% VAT tax.

"Yes, so?"

So my services get taxed twice. First with VAT, which the client pays to me and which I must render to the state, and then with my individual income tax, which goes above and beyond VAT. Fun, huh?

**

>> I have yet to meet a client that doesn’t hate this.

"Well, what do you know? People dislike paying taxes! Who would have known!"

See, you learn something every day. The point is not taxation in and of itself, the point (my point, anyway) is that VAT, in my experience, lends itself all to well to oppressive taxation.

**

>> When taxes become oppressive, tax evasion becomes a way of life

"We are comparing and discussing different methods of tax collection and their relative advantages and weaknesses. We are not ranting about whether tax rates in your part of the world are too high. You can vote for a government which will lower your tax rates. Or you can always move to another country with no VAT or lower taxes or even NO taxes. Your arguments are hardly the concept of VAT. The fact that some country has an income tax rate of 87% is hardly an argument against income tax and the fact that some country has a VAT rate of 20% is hardly an argument against VAT. But if you have some arguments supporting the notion that Sales Tax is somehow superior to VAT I am sure we would all like to hear them. So far you have made none."

I suppose I could turn that argument around. You like VAT? Move to a VAT country, I’m sure you’ll like it.

I really don’t care about the “concept” of VAT. I’m just trying to show how the thing works in the real world. My experience, and I’m talking about experience and not just some theoretical idea of how something should work, is that VAT lends itself to more, not less taxation.

44

>> Adding a national sales tax without getting rid of income tax is an exercise in adding unnessecary overhead.

Agreed. Obviously. But look at this alternative: The feds in combination with the several states implement a VAT which is uniform in its system. One VAT would replace dozens and dozens of taxes and the mechanics of this VAT would be uniform across the USA. The feds set their rate and the states can add their own rate pretty much like individual income tax is done today. It would be a huge simplification of taxes by getting rid of dozens of taxes and simplifying and making uniform the whole system across the whole country and it still allows states to set their tax rates to whatever they want. Whithout getting rid of the income tax you have already achieved a substantial simplification. The problem is that the USA is (contrary to what many may think) a very immobile country and implementing anything new would meet huge opposition. Europe switched to the Euro currency pretty easily but I cannot imagine something like that not meeting huge opposition in the USA.

>> My suggestion would be to streamline the income tax system.

Many people have said that before.

>> Reduce the outrageous variety of deductions.

Everybody agrees. . . until you mention the deductions they use. People are suckers for this kind of gimmick. Price something at $10 and they’ll say its expensive but price it at $20 and give them a 40% discount and they’ll love it.

>> Set up a single tax rate, with a starting point high enough to give poor people the break they need, while keeping overall revenues the same.

I agree. but it is not going to happen any time soon. Too many demagogues out there would start screaming about the “tax breaks for the rich” etc.

>> Sure, thousands of accountants would be out of work, but they can get jobs that create real value in the economy.

No, it would be demagogues and politicians who would oppose this most.

45

Nathan S]: A huge success from whose perspective? I’m sure that the various govenments aren’t talking about getting rid of it, but that’s hardly a surprise, is it?

Show me opinions of recognised economists saying the VAT has been bad for the economy and the old hodge-podge of sales and other special taxes was a better system. I have not found a single authority who says this. If that is what you are saying then please explain your reasons. Don’t just rant about a tax but explain why it is bad and why other taxes are better.

>> 1) It’s complicated for those of us who have to administer it.

The hodge-podge of sales and special taxes it replaced were 100 times worse. Did you have to deal with them as a business? I bet you didn’t or you would not be saying so. Please find me anyone who dealt with the old system and believe it was better.

>> 2) It creates a heavy, and I feel unfair, burden for the taxpayer.

That is a meaningless, empty, statement. Why is VAt different from any other tax in this respect? You are just ranting about taxes in general.

>> Oh goodness, that’s certainly a good reason for instituting another tax. Let’s add tax upon tax. It’s almost like sex!

Um no. The choice is replacing sales tax with VAT. VAT is better and you get rid of sales tax which is worse. Or please give your reasons why you think Sales tax is better and should be kept in place of VAT.

>> VAT does not replace other taxes.

You are completely WRONG. In the EU it replaced hundreds of other taxes which disappeared. Again, quit ranting and foaming at the mouth. Show me what European country kept its sales tax and put VAT on top of it. You are talking nonsense.

>> Unless you mean that it’s somehow better to pay 20% VAT instead of, say, a 6% sales tax.

We are not discussing rates, we are discussing systems but a 6% sales tax paid along the manufacturing process adds up to more than 20% to the final consumer because, unlike VAT, it adds up. You are showing your total lack of understanding of how these taxes work. Please learn something before you post such nonsense.

>> So, from a revenue gathering point of view, sure VAT is indeed “working quite well”. Pardon me if, as a taxpayer, I’m not enthusiastic about it.

It is working fine from the point of view that for businesses it has simplified tax accounting considerably. Show me any corporate officer who believes the old European system was better. You obviously did not have to deal with that nightmare.

>> Actually, I see VAT another step towards oppressive taxation.

Just shows your ignorance. Please explain why VAT lends itself better to “oppresive taxation” than other taxes. Why does the income tax not lend itself so well to “oppresive taxation”?

>> One single tax for everything? I believe I have already mentioned that this is not the way it works.

You are very ignorant. VAT is VAT and it has supplanted hundreds of old taxes in Europe. You may have different rates (usually 2 or 3 at the most) but it is a single tax with the same process and mecahnics etc. you say it is not so. Please explain HOW it works according to you. You keep ranting but do not explain. please explain.

>> So my services get taxed twice. First with VAT, which the client pays to me and which I must render to the state, and then with my individual income tax, which goes above and beyond VAT. Fun, huh?

Um, this argument can be made, and, indeed, is made, about other taxes. Again, you are talking nonsense. We are not discussing repealing all taxes. We are comparing VAt with the sales and other taxes it replaced. You could make the same argument about them.

>> See, you learn something every day. The point is not taxation in and of itself, the point (my point, anyway) is that VAT, in my experience, lends itself all to well to oppressive taxation.

Why? why any more so than any other tax? (Maybe I am missing something here. Does anybody else in this thread understand his point and can explain it to me? Because I sure feel lost.)

>> I suppose I could turn that argument around. You like VAT? Move to a VAT country, I’m sure you’ll like it.

Um. . . I am in a VAT country. I deal with VAT all the time, both as a consumer and in my business. I know what I am talking about. That is why your generic and vague ramblings make no sense to me. I wish you could be more precise and specific.

>> I really don’t care about the “concept” of VAT.

Well, you could have saved us a lot of time if you would have told us that upfront.

>>I 'm just trying to show how the thing works in the real world.

How can you say that when you don’t have a clue?

>> My experience, and I’m talking about experience and not just some theoretical idea of how something should work, is that VAT lends itself to more, not less taxation.

That is absolutely vague and meaningless. First you would have to prove there is a correlation between a country having VAT and having high taxes. Then you would have to prove VAT was the cause of the high taxes. You have done nothing to reason or prove this. You just incoherently ramble on about your opposition to VAT.

Please give is reasons. Please show us emminent economists and businessmen who agree with you.

46

If people stopped buying expensive things and instead simply hoarded all their money, wouldn’t this be bad for the economy? Foolish spending creates jobs.

47

Well, foolish saving also creates jobs. If instead of buying me a new boat I invest my money in a boat factory I am creating jobs for the workers and those who built the plant and equipment. And instead of just consuming wealth I am creating more wealth. In general terms I would say saving is better than spending.

48

If no one’s buying the boats, that boat factory isn’t going to last very long.

49

I hope you were not being serious when you wrote that because it’s pretty dumb. Money is spent in exchange for goods and services and the seller of those goods and/or services does not care whether the goods and services are for consumption or an investment. For the seller it is all the same. But for the buyer an investment will (hopefully) yield future profits. Boats, like pretty much anything else (up to a point) can be bought for personal consumption or for business investment. if you have money in hand it is always better for you and for the general economy that you save and invest rather than spend it.

Another aspect is that when times are good people will borrow to spend. They are, in fact, spending future earnings. Still, investing is better than spending. I cannot see any reason why it would be any more beneficial for the economy that you consume what you bought rather than have it produce more wealth.

Suppose I buy a car. Why is it better that it sit in my back yard rather than use it for work and produce more wealth?

50

Well, from a tax revenue distribution standpoint, Im not sure it would be any better. Youre saying getting rid of the myriad state/local sales taxes and replacing them with a national VAT would make things easier for business, and cut their costs; in the short term Im sure this is true.

But, because all sales taxes are local, from the state to the county and city/town level, what mechanism would be in place at the national level to redistribute the funds back to their appropriate place? The way it is now, companies bear the cost of figuring out which tax to pay out to where; while this adds overhead, Im not sure it would be any less overhead, or any more efficient, if this task were done by government.

It would also severely reduce a local city/town/county/states ability to pay for and plan projects. I cant see a town voting to have the federal govt increase the amount the town recieves from its VAT so the town can buy more books for the library. Or, as you suggest, if local sales tax revenue were compensated for by increase in state income taxes, I cant see local govts always having to go hat in hand to the state to beg for more cash to put a streetlight in.

In the long run, its probably cheaper and more efficient to have companies being the defacto sales tax administrators as they are now, rather than having the govt be responsible for it.

Centralizing things is a less responsive and less adabtable way of doing things, and so it is often less efficient. What you propose would pratically force things to be centralized at either the state or federal level, and would severely limit local entities ability to be responsive or adaptive to their residents needs.

51

Incoherent rambling? I’m just relating my personal experience. I’m not an economist, but I do have my own business (in the sense that a law practice is a business).

But, hey, let’s by all means favor theory over practice. It’s good for the economy, because otherwise a lot of intellectuals would be out of work!

52

VAT is merely a methodology for implementing sales taxes. It boils down to businesses being allowed to deduct sales taxes they pay out. (For Canadians, that’s how our GST works. Businesses pay full GST for everything they buy, with a few exceptions, and deduct that from the GST they charged on what they sold, and then pay the difference, if there is one.) A national sales tax would almost certainly be VAT-based.

53

Under ralph’s orginal statement, you wouldn’t have bought the car to begin with (the expensive, wasteful one anyway).

As for the rest of you post, I agree. I was reading “saving” as “sock away for a rainy day” and not “invest in a money making venture”.

54

What a hypocrite. A six-year-old can easily see that the only person ranting and foaming at the mouth in this thread is you. You popped into a thread about Sales Tax spouting off at the mouth about VAT without offering the slightest bit of evidence, empirical or otherwise, to support your postition, yet you squeel like a stuck pig any time anyone dares to respond to you. I am not sold on sales tax, do not prefer it in any way, and am quite open to the idea of a VAT. However, you have put forth the most incoherent, angry and ineffective argument on ANY subject if had the pleasure to come across.

55

You had to quote my entire lengthy post to post two lines?

>> Incoherent rambling? I’m just relating my personal experience.

Your posts are meaningless. You rant against VAT. Fine. Now tell us what you propose instead and why it is better. Look, I see you are quite new here but if you look around you will see this forum is for debating with logic, reason, facts. It is not for unjustified rants. We have other forums for that. here you are going to be asked to explain and justify what you say. Please show VAT is bad. Do not tell us about your irrational prejudice. Tell us why it is bad. Show us how it is bad. Show us how the economy of countries which implemented it went to worse. Show us economists who say it is bad. Give us reasons disputing the benefits I have pointed out in previous posts and which other posters here agree with. You are the only one here saying VAT is so bad and you cannot give a single reason. So far you have been totally unable to give a single reason or justification about VAT being bad. Please do so or just go rant in the ranting room.

>> I’m not an economist,

no shit!

>> but I do have my own business (in the sense that a law practice is a business).

Well, that makes you as knowledgeable about VAT as the average payer of income tax knows about income tax. Not much. But by your contributions so far I would say your knowledge about VAT is not even up to that level.

>> But, hey, let’s by all means favor theory over practice. It’s good for the economy, because otherwise a lot of intellectuals would be out of work!

What the hell are you talking about? You are saying “intelectuals” are stupid and you know better. The people are stupid and do not know they are getting screwed. Businesspeople are stupid and favor a tax which is bad for them. Politicians are crooked and somehow fool the people into voting for them. And you are the only one who see the truth? Huh?

Please show us some proof that implementing VAT and getting rid of the previous taxes hurt the economies of the countries of the EU. Please answer all the questions I have posed.

I don’t know why I bother. You just ignore all questions and facts and issues and keep on ranting.

56

Um no. You got it all wrong. including the “squeel like a stuck pig”. Your post is just an attack on me and addresses none of the points i have raised. It seems there is pretty much an agreement here that VAT is superior to sales tax and only Nathan S is ranting against sales tax without giving any specific reasons and without proposing any alternatives. I keep asking him to support and justify his assertions and to propose alternatives but he doesn’t. Other than that I think I am pretty much in agreement with everybody else in this thread. I have not read anybody else saying VAT is worse than the taxes it replaced. Since Nathan S refuses to support his assertions and since you seem to agree with him, maybe you can help him out and address the points I have raised with him? I would appreciate that.

57

Once again, you show yourself to be a hypocrite. You have engaged in more ad hominem attacks in this thread than anyone. In addition, you seem to have a reading comprehension problem, as I never once indicated that I agreed with Nathan in any way. You have made just as many assertions as Nathan, yet you have utterly failed to, as you put it, “justify” them. What everyone else does or does nto agree with is irrelevant. Logically, you have provided us with no argument other than “you can’t prove I’m wrong”. What you fail to comprehend is your own burden of proof.

58

So I take it you have no position on the topic of this thread and you are just attacking me personally? Are you aware that the place for that is the pit? If you wish to exchange name calling please open a thread in the pit and I will gladly tell you what I know about your mother. In this thread let us please stick to discussing the different taxes.

um, no. It is up to those who make extraordinary claims to support them and prove them. I have provided explanations for my claims (for example explaining why salex tax favors integration into big conglomerates while VAT is transparent in that regard). There is a long list of issues I am waiting response for but I do not see any issues I have not addressed. Please point them out to me. Any points I have ignored? Stop calling me names and bring them to my attention and I will address them. If you disagree with something please tell me what and why. I do not see any specific challenges I have not addressed. Nathan has not made any specific challenges to my assertions (other than repeating VAT is bad) while ignoring all my challenges to his assertions. Please be specific in what you want me to explain.

59

I am not attacking you personally, and I challenge you to find one instance where I am calling you a “name”. I called you a hypocrite, which, based on this thread, I can easily support. You say that Nathan is “ranting” and “foaming at the mouth” which, for some reason, you think is entirely different than “squealing like a stuck pig”. The only difference is that you have engaged in this about 20 times more than I have. So, I suggest you quit complaining about personal attacks until you take your own advice.

If you feel that you have provided ample evidence to support your claims, then that is fine with me. The fact still remains that the burden of proof is on you when you claim that VATs are superior to sales taxes (even though someone already pointed out that one is but a form of the other). The fact that someone hasn’t cited a specific challenege does not change this fact. I am simply stating that you have failed to convince me, based on this utterly flimsy argument. I don’t believe that you are wrong; I imagine that you are probably correct based on the agreeable tone of many replies.

60

I notice you continue to ignore my attempts to return the thread to the topic of taxes and you continue with the name calling. You have nothing to say about the topic of the thread do you? Why don’t you stop the hijack and start a thread in the pit?

>> I called you a hypocrite, which, based on this thread, I can easily support.

Websters defines hypocrite as “a person who puts on a false appearance of virtue or religion” so I can only take that as an insult. Please explain why I “put on a false appearance of virtue or religion” or be ready to be called names.