OK Professors Advocate National Retail Sales Tax
An interesting editorial by Ron Shaw (chairman of the Department of Economics and Finance at Oklahoma City University) and Vince Orza (dean of the Meinders School of Business at OCU) appearing in the October 9 edition of the Daily Oklahoman:
Every 20 years or so the income tax system gets an overhaul, actually a tune-up. President Bush’s advisory panel on federal tax reform will soon present the latest recommendations. Will real reform happen? Maybe, but probably not. Should real reform happen? Absolutely.
Nationwide, there exists strong and growing consensus to simplify the federal income tax, make it less costly and intrusive in our personal lives and businesses. Entirely too much time and productive capacity is wasted on a needlessly complicated tax system. Established in 1913, the written statute has burgeoned from 16 pages to more than 17,000. The IRS employs more than 100,000 people. Estimates of taxpayer compliance cost, including tax record keeping, tax filing and paid tax advice, run about $300 billion annually, or more than $1,000 per person for every man, woman and child in the United States. From the taxpayer’s perspective, tax compliance cost is simply another tax.
However, real tax reform always proves difficult as it meets resistance from those who benefit from maintaining an overly complicated, complex, obfuscated taxing system. Politicians deserve most of the blame for designing the tax system we have now, which is complex by design. It offers more opportunity for politicians to reward special interest groups and lobbyists, which is why there are more Washington lobbyists for taxes than for any other issue.
Alternatively, a national sales tax would be based on consumption, not income. Those who spend more would pay more. We wouldn’t need an accountant or lawyer nor have to maintain tax records. With a sales tax, the IRS is eliminated. The objection is that low-income households spend a higher portion of their earnings on necessities, so they would pay a higher percentage of their income.
The solution here is simple — a periodic standardized refund. For example, suppose the federal sales tax rate is 20 percent and a $20,000 wage earner spends all of it, paying $4,000 in federal sales tax. Another taxpayer earns $90,000 and spends $80,000, paying $16,000 in federal sales tax. With a standardized refund of $3,000, the $20,000 wage earner paid a net of $1,000 ($4,000 minus $3,000) in federal sales tax, or a 5 percent tax. The $90,000 per year wage earner paid a net of $13,000 ($16,000 minus $3,000) or 14.4 percent of income.
A national sales tax is easy. We still pay our taxes but without the hassle or expense of keeping records, recording mileage, or hiring accountants or attorneys. Salaries and take-home pay would be the same. We would have our money longer, save more, and the income earned off savings and investments would be tax free until we spent it. No April 15 deadlines, no explaining or justifying our incomes or expenditures to the IRS. No IRS!
The full editorial is available at the DailyOklahoman.com (annoying registration required).
My own representative in the U.S. House, David Price, is someone I would certainly consider both a smart fellow and a good representative. However, he has been against FairTax or NST for quite some time. He’s been on the House Budget Committee and as current co-chair of the Democratic Budget Group, he “remains actively involved in efforts to pass economic proposals that are fair, effective, and fiscally sound.”
His testimony against FairTax seems to disregard both the social dividend (a.k.a. entitlement payments, etc) and the hidden cost of tax arguments.
I wrote him another letter today (I’ve written him a couple of times over the past couple of years on the subject), asking for more follow up on the issue, and more pointed rebuttal of the entire proposal and not just bits and pieces of it.
However we’re not just facing opposition from the “American liberal” side of the fence, there is a mountain “classical liberal” attack on FairTax.
-Sam
I recently received my MBA and returned to talk about FairTax with a few of my professors. My accounting professor has a CPA but clearly stated that a tax on consumption is better than tax on production. I suggested that he read The FairTax Book and he committed to buy and read the book. I told him that he can save a trip back to the book store and buy two copies now—but he said he was too cheap to do that. I did give a book to his former GA who stays in touch with him—so I expect them to have some discussion on the issue.
Of two economic professors I talked to, both recognized the benefits of consumption taxation, but one preferred a flat tax with no IRA cap. He stated that that would be as effective as a consumption tax with much lower transition costs.
There are always experts that can be found on both sides of the issues; however, many will allow agency issues and personal beliefs to overrule their expert knowledge. My three professors, who all hold doctorates, provided their opinions without any compensation from lobbyists from either side to obscure their professional knowledge.
The challenges to passing H.R. 25 are not technical issues, but the opposition from special interests groups. Are we ready for the battle? Keep asking yourself what more you can do to promote FairTax.
To me the compelling part of the “classical liberal” argument I linked to was the Jefferson quote: “[I]t may be the pleasure and pride of an American to ask, what farmer, what mechanic, what laborer, ever sees a tax-gatherer of the United States?” Naturally it is an appeal to authority (Jefferson) and a bit jingoistic and simplistic, but it certainly resonates more than “my economics professors really like the idea of consumption taxes”. People like quotes.
Keep asking yourself what more you can do to promote FairTax.
I fight it on several fronts, from arguing for the complete reading of the bill (it is more than a national sales tax) and invoking the origins of the idea of the social dividend in America (Dr. Martin Luther King) on the left to attempting to defend against the cries of “black market, black market, black market” elsewhere. What I’d like in to see is a repeated mantra like “FairTax: national sales tax plus social dividend plus income tax repeal, meaning elimination of hidden cost in goods, a revenue neutral and still strongly progressive tax, makes the United States a prime location for investment, etc.”
“Read the book and get back to me with questions” doesn’t work when I’m talking with co-workers, family, and friends, let alone people who really need influencing such as representatives. Even people I consider intelligent get to the “repeal income tax and institute flat national sales tax on all goods” and storm off muttering “regressive tax! regressive tax!”. Maybe we can lead the debate with the social dividend standpoint — although that risks alienation from the right who bristle at the word “entitlement”.
If sales tax is so regressive why are so many states using it ? Look at
sales tax filing for a list of states that are collecting sales tax now. Some even on drugs and food.