Replacing the Federal Income Tax with a National Sales Tax
This paper will examine the possibilities of implementing a national sales tax as the principal means of raising revenue in the United States, replacing the current federal income tax. The first part of the paper will provide an introduction to the topic, discussing the economic problems which could be addressed by a national consumption or sales tax and a few of the main attributes of consumption taxes. The second part of the paper will outline some of the political arguments in favor of and against consumption taxes. The third part of the paper will discuss how a national sales tax could alleviate some of the economic problems facing the United States, especially the budget deficit and the national crises in personal savings and investment. The fourth part of the paper will examine in some detail the issue of equity with regard to consumption taxes, paying particular attention to the argument over progressivity. The fifth part of the paper will discuss the economic neutrality of consumption taxes and touch upon the possible administrative concerns of enacting a consumption tax. Throughout the paper, consumption taxes and sales taxes will be referred to interchangeably, except where specifically differentiated. The reason for this is that a sales tax is a form of consumption tax and almost all consumption taxes have the same advantages and disadvantages.
The debate over the viability of consumption taxes in the United States has existed since the origins of the country. Although an income tax was adopted by the federal government as the principal means of raising revenue, a consumption tax has long been considered. The philosophy behind consumption taxation has its roots in the writings of Thomas Hobbes, who thought that individuals should be taxed according to the amount of resources they withdraw from society (since these resources are limited). Consumption...