Okie, Thanks for your well reasoned response.
Here's the fundamental point on which we disagree:
whether or not a gross income tax taxes productivity or production."
ican, I understand your arguments. I think what this boils down to is, where in the economic stream is the best point at which to extract tax revenue? I think there are arguments for both points of taxation, at the consumption point and at the income point, but regardless of which point we extract the tax, taxes always dampen or burden the economic stream or cycle of economic activity. I think you are correct that taxing consumption will in effect dampen or punish productivity, but as I pointed out, I think taxing productivity will obviously affect or dampen productivity, which also affects consumption. So, I believe taxes will affect all economic activity, including productivity and consumption, regardless of where the tax is extracted.
I think my primary reasons for favoring a retail sales tax or consumption tax is because of the infrastructure and enforcement aspects of the process. I think the tax can be collected at the retail level in a far more efficient manner, with less cost and bureaucracy, and the system potentially could nearly eliminate non-compliance, which is now a huge problem, which I think is in the hundreds of billions, which is extremely significant on the scale of what our deficits had been running. Of course now Obama has run the deficit way over the trillion mark, close to a couple of trillion.
In regard to efficiency of collection and compliance, consider these facts, ican. Instead of dealing with tens of or hundreds of millions of individual tax returns, we would only deal with perhaps millions of businesses collecting sales tax, and a small number of those perhaps would collect a vast majority of the tax. For example, add up all the Walmarts and a few dozen of the biggest retailers, and you would have a huge chunk of money involved. Assign teams of tax experts to oversee all of this instead of thousands of people that currently work for the IRS trying to understand and apply the current convoluted tax code. Consider also that most states and local entities already have the infrastructure in place to collect sales tax, and they do a decent job of it I think. They could oversee the collection of a federal sales tax quite easily.
Consider the fact that we live in a bar code world, almost everything is bar coded, and everything that sells becomes a permanent record of the dollar amount, with tax and all the rest of it, it works very very well. In Colorado for example, food is exempted, so that food products automatically avoid state sales tax when it is scanned at the register, while a can of motor oil for example purchased in the same store rings up the tax when it is scanned. We could do the same thing with exempting food for the national sales tax.
Another beautiful thing about sales tax, drug dealers, illegals, or anyone that is currently flying under the radar in regard to tax compliance would pay tax when they buy something. This is a huge number of people, in the tens of millions or more. Also, the computer in the store computes the sales tax correctly almost without fail, but can we now say people file their tax returns accurately? I doubt that very very seriously. Also look at all the time wasted filing returns.
One of the arguments against a national sales tax is the possible creation of a black market in the form of bartering or selling without a tax license. I think these things could be detected and controlled far easier and with more success than the current rampant noncompliance. Local or sporadic under the table commerce would not amount to a hill of beans in the grand scheme of things, and any significant retailer would not wish to risk their company by deliberately trying to create fraud.
To wrap up my arguments here, I only favor a national sales tax only if the income tax is totally eliminated. That is the only way I would support it. Two tax systems would be disaster for further tax policy abuse of the citizenry. A national sales tax to replace the income tax would have to be in the order of 20% or so, but consider the fact that companies could produce and sell products much cheaper before tax is added, plus consumers would have alot more money in their pockets to purchase.
And I almost forgot one of the biggest arguments for the sales tax to replace income tax, it would place foreign made products sold here on exactly the same footing with domestic products sold here. It would no longer be the case that corporations go offshore to avoid high income taxes and high payroll taxes and all of that crap. Think of the potential revival of domestic business interests and all of the potential favorable spinoff, more jobs, it could be tremendous.