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Sales Tax vs. Income Tax |
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by: Will
Spencer |
The United States is
currently suffering under an unimaginably complex tax system. The
maintenance of this beauracratic behemoth costs the taxpayers
billions of dollars every year. The direct costs borne by the
taxpayers are small in comparison to the costs borne by corporations
and individual taxpayers in attempting to comply with all of these
Federal government regulations.
The people of the United
States and their elected representatives are now looking at two
options to replace the current tax system: The Flat Income Tax and
the National Sales Tax.
The Flat Income Tax represents a
modification of the current tax system, where the National Sales Tax
represents a complete re-architecture of the entire tax system.
A National Sales Tax Would Improve the Trade Deficit
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This is a bold claim, so I will explain
it in simple terms using a small model of the global economic
system. In our model, we will have only two companies and two
consumers.
Our two companies are Alpha Company and Charlie
Company. Alpha Company manufactures widgets in their plant in Plano,
TX. Charlie Company manufactures similar widgets in their factory in
Shanghai, China.
Our two consumers are John and Chon. John
lives in Los Angeles, Califoria. Chon lives in Beijing, China.
For the purposes of our example, let us state that it costs
Alpha Company $100 to manufacture a widget. To this $100, we must
then add the burden of income taxes. Again, solely for the purposes
of our model, let us state that this burden raises the cost of the
Alpha Company Widget by $20.
Alpha Company must pass these
additional costs on to the consumer. Therefore, if either John or
Chon decide to purchase Alpha Company brand widgets, they must pay
more for them.
In effect, the Income Tax makes Alpha Company
widgets more expensive (and therefore less desirable) than Charlie
Company widgets.
Now let's look at the effects of a National
Sales Tax on international trade.
Once again, we will state
that a widget costs Alpha Company $100 to produce. However, this
time we will not burden Alpha Company with income tax.
In
this model, there are no extra costs for Alpha Company to pass on to
the consumers, John and Chon. When John decides to buy a widget, he
is taxed the same National Sales Tax -- no matter which widget he
buys. This allows Alpha Company to compete on an even level with
Charlie Company.
Moreover, when Chon decides to buy a
widget, he does not pay our National Sales Tax for the widget. This
makes Alpha Company brand widgets price competitive in the China as
well as in the United States.
Let me restate this succintly:
The Income Tax destroys our national competitiveness and increases
our trade deficit; The National Sales Tax restores our national
competitiveness and enables us to compete on an even playing field
with the rest of the world.
The Income Tax Discourages
Working; The National Sales Tax Encourages Saving
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Any good animal trainer knows that animanls do what you
reward them for doing and avoid doing what they are punished for
doing.
The Income Tax effectively punishes people for
working. For every extra dollar you make, you are forced to pay more
Income Tax.
If you work for $10/hr, the income tax takes
approximately $3.50 of that. You are now working for $6.50/hr. Isn't
that significantly less motivating than $10.00/hr?
By
reducing our motivation to work, succeed, and produce, the Income
Tax robs our national economy of much of it's vigor. It hinders our
ability to compete with other world economies.
The National
Sales Tax, on the other hand, punishes Americans when they spend
money. That $2 beer now costs $2.50. The $100 Walkman is now a $125
Walkman.
This acts to discourage spending. Discouraging
spending automatically encourages savings. Savings become
investment. Investment becomes wealth.
What does American
business require to build and grow? Investment capital.
Where does American business currently get that investment
capital? From overseas.
Why does American business get its
investment capital from overseas? Because Americans don't save and
invest.
Who profits from American business? The investors.
Who ends up owning American businesses? Foreigners.
We must be careful here not to blame the foreigners who now
own a large number of American businesses. They took the risks and
invested money when we didn't, and the markets rewarded them for
this. What we must do, however, is build a tax system which enables
and encourages Americans to save and invest in America.
Building wealth for foreigners is a good thing; Building
wealth for Americans is a better thing.
Objections to
the National Sales Tax
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Objection:
The National Sales Tax is regressive. It taxes poor people
more heavily than rich people.
Resolution:
In many
states which currently collect sales tax, basic items are exempted
from sales tax. These items include food, clothing, and housing.
Exempting these basics of living from the National Sales Tax
has the effect of moving the National Sales Tax from a regressive to
a progressive tax.
Objection:
The National Sales Tax
will be difficult and expensive to collect.
Resolution:
Forty-five states are now collecting state sales taxes. The
Federal government will be able to outsource the collection of the
National Sales Tax to the existing organizations within the states.
Organizations to collect the National Sales Tax will have to
be built in only five states.
Objection:
Switching
to a National Sales Tax would require a repealing of the 16th
Amendment.
Resolution:
The 16th Amendment allows the
Federal government to levy an income tax, but does not
[i]require[/i] it to do so.
We could switch to a National
Sales Tax and repeal the 16th Amendment at some point far in the
future.
Summary
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Our nation is
at a critical crossroads where we must choose to stay with our
current broken system of taxation, attempt to repair it, or replace
it entirely with something new.
The principles of economics
show us clearly that the National Sales Tax is the right path to
take to ensure the economic prosperity of America for our children
and for their children.
Now is the time to build a tax
system which encourages American values, supports American business,
and builds prosperity for our futures and our childrens futures.
[ Submitted with ArticleSubmitter Pro -
http://www.articlesubmitterpro.com]
About the
author:
Will Spencer is the webmaster of Fort Liberty
(http://www.fortliberty.org). Fort Liberty is a refuge in cyberspace
for those men and women who see the enlightened individual as the
greatest achievement of civilization, and who see government as a
necessary evil.
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