A NATIONAL SALES TAX?

A recent discussion in the Spacebook group for tax professionals that I host touched upon the idea of a national sales tax and the Fair Tax proposal.

While I do not support the proposed Fair Tax Act, my concerns are more with the practical implantation of the plan than with the actual concept of a national sales tax.  The national rate would need to be very high to replace all other forms of taxation, and there is no way to easily or properly provide an equivalent to the “standard deduction”.

Besides, if we are going to replace the federal income tax with a national sales tax I would want to wait until I have retired from preparing 1040s.

Yet there is much to be said for the concept of a national sales tax, as I originally pointed out in an early post at a young THE WANDERING TAX PRO many years ago -

1) A national sales tax would be relatively easy to administer.  Almost all of the 50 states already have a state sales tax, with all the appropriate collection and auditing functions in place. The national sales tax could be incorporated into the collection and compliance process of the various state sales taxes, with the states receiving a ‘commission’ from the federal government.

2) A national sales tax (with exemptions for food and clothing purchases) would eliminate the problem of the “underground economy”, which escapes taxation under the present system. Everyone, regardless of the source of their income, would pay sales tax at the point of purchase.

3) A national sales tax would encourage saving and investing.  As the tax is assessed on retail purchases only, income from investing activities would not be subject to tax.

4) If under the national sales tax system corporate and business income taxes are abolished, along with the need for expense compliance costs, the savings could be passed along to consumers in the form of reduced prices and to stockholders in the form of increased dividends.

5) States like New Jersey have had much more success raising revenue from sales tax audits than from audits of income tax returns.

So, what do you think?

TAFN