COVID Deficit Calls for Federal Sales Tax

A combination of the $3 trillion (and counting) cost of federal aid as to the COVID-19 pandemic and a related burnout as to writing film and television review after five weeks (and counting) of being in lockdown is inspiring this detour into Blogland. The topic du jour is replacing the federal income tax with a sales tax; fighting a desire to incorporate the word "Trump" in every sentence in a hope that it catches the eye of the guy with a solid track record of acting on impulse is tough.

The TV reference this time is the '60s fantasycom "I Dream of Jeannie." A fifth-season episode revolves around the newly wed titular magical being buying new husband Major Nelson a comical embarrassment of riches on credit. She explains to her agitated spouse that buying things on credit means that you do not have to pay for them; he replies that you do not have to pay today but must pay tomorrow.

The bigger political picture relates to intense personal exasperation as to the once (and future?) widespread support for "Medicaid for all" and for excusing student loans. The "tomorrow" aspect of this is that someone must pay for that largess in the future.

Similarly, although Steve Mnuchin could commit the catastrophically moronic act of "blinking his eyes" and printing $3 trillion (and counting), taxpayers are going to have pay for our stimulus checks, PPP "loans," payments to businesses great and small, etc. "tomorrow." Of course, this must come in the form of federal taxes.

Two aspects of a good tax system are that it is easy to administer and is fair. As shown below, a federal sales tax checks both boxes. One caveat is that medical expenses, non-prepared foods (i.e., most things other than junk food), clothing up to $300, and mortgage and rent payments would be exempt; exempt organizations would not. 

At the outset, there is a HUGE gap in the current income tax system. On a very micro level, I do not pay the guy (who insists on cash) who plows my driveway enough to require reporting those payments to the IRS. The same is true as to the guy (who insists on cash) who mows my lawn.

Yet, the total income that these guys collect from all their customers does trigger a duty to report that income; it is highly unlikely that either of these guys or the millions of other people in America who do the same work, clean houses. babysit full time, etc. pay income taxes either.

A basic aspect of fairness is that those folks are subject to the same tax liability as the one with which those of us whose payments for our services are reported must comply. Completely setting aside the issue of the equality of the pay for folks who do the things that we do not want to do, it is unfair that taxpayers have had to pay higher taxes to help fill the tax gap for a whole century. 

Class differences play a more positive role as to another aspect of fairness regarding a federal sales tax. I am among the relatively (and shrinking) few who is fortunate enough to not be living paycheck-to-paycheck and being able to afford a (shrinking) amount of wants. 

I plan to replace my four-year old laptop with a new one before the end of 2020. I am budgeting $500 for that purpose. Someone with a larger income than mine would be more likely to spend roughly $1,500 for a MacBook. Some living paycheck-to-paycheck likely would spend $200 on a laptop.

The sales tax that each of us would pay on our laptops roughly would reflect our relative income levels and corresponding abilities to pay. The same is true as to other goods, such as televisions and cell phones, and services. 

On a larger level, businesses of all sizes would incur roughly proportionate tax liabilities. A corner dry cleaner would pay a relatively small amount for hangers, cleaning products, and new equipment every few years. A branch office of a Fortune 500 company would pay much for things such as the large quantity of office supplies and business equipment that it requires to operate.

Although all deductions would be eliminated, the broader tax base would be expected to more than compensate for those lost benefits. 

The most obvious aspect of ease-of-administration would be no longer requiring filing tax forms and estimated payments. Purveyors of goods and services already must provide the federal government records of their revenues. 

Further, time-consuming, costly debates on tax policy would be a thing of the past. 

A five-year roll out of the transition to this system would ease the change for tax professionals and laid-of IRS employees. Some IRS jobs could be eliminated through attrition; remaining IRS employees have a leg up as to applying for jobs with other branches of the federal government.

Ease as to federal budgeting is another advantage of a national sales tax. It makes sense as an initial matter to set the allowed range based on a thorough analysis. A hypothetical example is to set the minimum rate at 20-percent and the maximum at 30-percent. Come budget season, the bean counters would come up with a number that would be presented to Congress for a vote.

This, of course, is an cursory discussion of a national sales tax. However, the concept seems inarguably sound.