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 consu

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lies, whose resources are little affected by the highs and lows of their current annual income. Using current income as a reference base can actually lead to policies that reduce rather than enhance the degree of tax equity. A progressive tax on current income will place a low burden on a lifetime rich medical student whose income is temporarily low while he or she is in school. Similarly, executives who are between jobs may have a temporarily low income but tend to be lifetime rich. When such individuals are really permanently worse off, they will show it by consuming less; they will then also pay less consumption tax. Thus, by taxing consumption directly or indirectly (through a VAT) the government effectively taxes the present value of current and future resources, which is a better measure of ability to pay for most Americans than is current income. The argument that a consumption tax is regressive is made with reference to current income, rather than the present value of resources. While it is true that under a consumption tax those with temporarily low current income will exhibit a higher ratio of taxes to income than those whose current income is temporarily high, measured against lifetime income (the present valu
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Some common words found in the essay are:
Horizontal Equity, Concerns Enacting, Alleviate Economic, Equity Static, Vertical Equity, Tax Introduction, Shift Burdens, West Germany, Consumption Taxation, Value-Added Taxation, consumption tax, sales tax, income tax, consumption taxes, retail sales, retail sales tax, ability pay, value-added tax, tax consumption, measure ability pay, tax system, current income, income tax system, national sales tax, rate consumption tax,
Approximate Word count = 4755
Approximate Pages = 19 (250 words per page)

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