Continuing on part 2…

Imagine no income tax, no more waiting for W2s and trying to figure out how many allowable exemptions to take this year, no more giving the government an interest free loan, and imagine saving tax free…That’s what started this series, but now it’s time for a deeper look.

What would be a reasonable “tax rate”? I’m thinking about 10-20% would be a ballpark figure of what I would expect to pay. I did some digging to try and find out, what if we really switched to a national sales tax? Well, I found some info at www.taxpolicycenter.org that listed Total US Income tax collected in 2003.

Total US Income Tax (2003): $1,683,184,679,000 (reference)

Then I needed to find some data on how much sales is done in the US that would be subject to the national sales tax. So I looked up retail sales information for 2003. On a side note, in my search I noticed everyone talks about percent increases in consumer spending, but no $$$ figure to go with it! But I finally found some data at census.gov.

Total US Retail Sales (2003, not seasonally adjusted, reference): $3,275,407,000,000.

Wait, wait, wait…If you noticed and said, “OMG, I have to pay 50% tax??!?!” Hold on for a sec. Be sure you consider the whole picture…

1. You no longer have federal income tax being witheld from your paychecks! That’s a big boost each pay period.
2. Tax credits would still be given depending on your exemptions.
3. Retail sales data above might not be complete.
4. Government can always get more budget conscious. (ha!)

So if the US Census Retail Sales data is accurate, then $3.3 trillion would be taxed, which would mean a fifty percent tax! Could you imagine?? Is it worth it? I don’t know. It would definitely get me spending less and saving more.

Some odditities I found while searching for total US Retail Sales data…This other site reported annual retail sales in 2003 in the US of $59 trillion! That’s a huge difference compared to the $3.2 trillion reported by the census. Although, $59 trillion sounds a little un-realistic. That would mean a national sales tax rate of 3%. So what’s the real number? Beats me! But it would make a huge difference in whether people would support a drastic change like national sales tax.

Another issue, what would happen to retirement accounts? Tax free would certainly lose its appeal.

When I first started this series on national sales tax, I was all for it. After seeing the possible $$$ figures, I still am. It would get tourists, tax evaders, and immigrants all contributing to the country they are visiting or living in, and that sounds fair to me. I do have some concerns, but when you look at the concept in its fundamental state, it makes sense. This is the reason I believe it would work…Not to mention all the lost productivity due to hours of brain mangling tax work can now be spent freely. How do you put a monetary value on that?

Thanks for all the comments to my original post.

I knew when I wrote the post that there are tons of fine details that need to be taken into consideration, but the bottom line in my opinion is that a national sales tax in replacement of our current income tax would be pretty awesome. Of course fine tuning would be required.

PROs
- Encourage savings.
- Simple, reduce time required, improve producitivity (because people will do other things).
- Reduce government costs, save taxpayer money!
- Tax everyone, including tourism and non-citizens. Non-citizens (aka illegal immigrants) should pay taxes. I believe Tourists should as well, especially since they are using our resources while visiting.

Important Considerations
- Rebate system. There would should be some sort of “rebate” system, which would allow credit for certain income brackets, and other credits.
- What would the “tax rate” be?
- Is everything taxable?
- Is everything taxable at the same rate?
- Industries would virtually be eliminated…Block heads no more…IRS minimized…what type of actions would be done to help evolve these industries? Real lives will be affected.

It seems like the one prevalent belief is that this would not happen anytime soon. It would really be well worth a national discussion on this. Maybe we (pf bloggers and readers) could make it happen? Now THAT would be something to blog.

I hate doing taxes. Imagine if we all didn’t have to “do taxes”! Am I living in a dream world? Of course not paying taxes is definitely dreaming, but is not having to fill out tiny boxes or guessing how much I’m going to owe the government next year a possibility or just a crazy idea? What’s that addage? Something like “There are 2 things guaranteed in life…taxes and death.” So getting rid of taxes completely is not an option, but a national sales tax?

Maybe not so crazy if you look at some “almost radical” ideas being brought up by our politicians. One of them I really like, and it’s the idea of a national sales tax. Instead of being taken out of wages, taxes would be taken out of everything we buy. Read more about it here. The “flat-tax system” is another idea out there, but I’m not so sure I agree with that.

I hope this is an issue that becomes more prominent in the future. I think the US tax system is really a waste of time and energy, and should be made much simpler. It would definitely encourage saving! And of course change is always scary, but in many cases well worth it. What do you think? This is US specific…but there must be some countries with better systems? I have to do some research…