Don’t Have Both Income And Sales Taxes
One of the old lessons of economics is that there will tend to be less of some things if government taxes them.
By contrast, there will tend to be more of some things if government doesn’t tax them.
Well, we want people to work, save, and invest, right? Yet by taxing proceeds from work, saving, and investment, an income tax can discourage all three.
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The Wall Street Journal reported on Jan. 20 that some in the new majority in the U.S. House of Representatives want to vote on whether to replace the current federal income, payroll, and death taxes with a federal sales tax.
As with state and local sales taxes, a federal sales tax would apply at the point of sale – that’s why it’s a “sales” tax – on whatever goods and services would be subject to the tax.
On the one hand, the more goods and services that are subject to such a sales tax, the lower the sales-tax rate can tend to be. In theory, once government starts exempting particular items from such a sales tax, the rate tends to need to be higher to raise the same amount of revenue. There may well be all sorts of caveats to that point. Whatever they may be, they’re beyond the scope of today’s column.
On the other hand, a flat-rate sales tax can bite lower-income people harder than higher-income people in this sense: A lower-income household is going to feel a flat-rate tax on $100 of, say, groceries more than a higher-income household will feel the same tax. Then again, when higher-income people spend money on other items that lower-income people don’t buy, the higher-income people will pay taxes that the lower-income people won’t pay.
It’s all a fascinating conversation that may well be worth having if those engaging in the conversation can act like grownups and not like demagogues.
But this is politics, so there’s a slight chance – insert laugh track here – that demagogues will shout more loudly than those trying to act like grownups.
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Whatever the merits of replacing the federal income, payroll, and death taxes with a federal sales tax, there’s one principle that we ought to follow.
We don’t want a federal sales tax in addition to a federal income tax. Regardless of which political party is in charge in Washington at the time, suppose that the federal government gets its hands into both the federal-sales-tax cookie jar and the federal-income-tax cookie jar simultaneously. Do you really believe the federal government will take its hand out of one of the cookie jars?
If you believe that, there’s a nice obelisk monument in the center of Washington. From that monument, you can see the Capitol, the White House, the Jefferson Memorial, and the Lincoln Memorial. And guess what? You can have that obelisk monument today for a great price.
So if – if – we ever institute a federal sales tax, we must stipulate that it take effect only upon the repeal of the Sixteenth Amendment to the U.S. Constitution.
Before the Sixteenth Amendment, the federal government had no power to institute an income tax.
Without the Sixteenth Amendment, the federal government has no power to keep an income tax.
So the only way to prevent the federal government from getting its hands into both cookie jars is to repeal the Sixteenth Amendment.
None of this means that we definitely should institute a federal sales tax.
The point here is that if – if – we do, we should first prevent the federal government from continuing to have an income tax too.
The only way to do that for certain is to make having a federal sales tax dependent on the repeal of the Sixteenth Amendment.
Randy Elf doesn’t want both a federal income tax and a federal sales tax.
COPYRIGHT ç 2023 BY RANDY ELF