Consumption Tax Makes Strange Bedfellows
By George Anderson
It would be factually wrong to say that all retail executives are politically conservative and Republican (Jim Sinegal of Costco coming to mind as an obvious exception).
It’s probably not too far a field, however, to suggest that most would fall to right of center on the political spectrum.
That said, the executives running retail businesses in the U.S. and liberal Democrats find themselves in a virtual lockstep in their opposition to a proposal by a member of the House, Virginia Republican John Linder, which would impose a national Value Added or consumption tax on sales.
The National Retail Federation (NRF) filed its opposition to such a tax with the President’s Advisory Panel on Federal Tax Reform.
Mirroring liberal groups’ objections to a consumption tax, a release from the NRF said this form of taxation is “inherently regressive because low-income families spend virtually their entire incomes while wealthier families have larger percentages of unspent income that would go untaxed.”
The NRF cited research it did back in 2000, concluding “a national sales tax would bring a three-year decline in the economy, a four-year decline in employment and an eight-year decline in consumer spending.”
The group expressed its deepest concern that Congress would pass a consumption tax while maintaining much of the current system.
Moderator’s Comment: Would replacing the current national income tax with a value added or consumption tax system have a beneficial or negative impact
on retailing and the U.S. economy? –
George Anderson – Moderator
Even if you had a wild imagination, you couldn’t dream up the complexity of today’s tax system. There are millions, if not billions spent each year by the bureaucracy and financial services industry, which fail to either understand it or consistently interpret it.
A consumption tax, flat tax, or otherwise couldn’t possibly be as complicated or be equally as noncompliant. I am not sure of the right choice, but simplification is in order. However, as with Social Security, the tact here with tax reform is to block President Bush at any and all costs. This is so true to the extent that even legitimate debate and discussion will be blocked. I look for a downward spiral going forward which is exactly what the political opponents and international opponents are hoping for – the sooner the better.
A consumption tax is interesting to me, because if you structured it properly – say, excluding staples and setting limits on dollar values that are taxed (for example, only taxing clothing that costs more than $50) – it could influence “healthy” financial behavior, saving instead of spending, while eliminating the more regressive aspects of it. However, when I saw what the proposed rate was – something like 25-30%, depending on who’s counting – I nearly choked. I’d rather have it out up front before I ever see it, and I am firmly behind a flat, or at least extremely simplistic, income tax. KISS has been proven to work in airline seat pricing – let’s apply it whole-heartedly to our taxation system too.
There are simply too many initiatives attempting to part the poorest people from their hard-earned dollars and ensure that the wealthiest become wealthier. Retailers will suffer mightily if this is enacted, as will the poorest Americans.
Personally, I am an advocate of a simple flat income tax.
I find myself siding with NRF in this matter. What good is a value-added or consumption tax when it ends up hurting the very people you are trying to help?
Having an unfair system and replacing it with an equally, or even more unfair system, doesn’t really help anyone at all. There is no way that a consumption tax can be structured to be fair to lower and middle income families; there is no way that a consumption tax would be more noticeable than a stray fly buzzing around the heads of high income families.
As limited as my understanding of the current system is, one thing I do know is that there are an awful lot of taxes for different reasons going into different pots with little or no overview possible for individual families. This in itself makes it easy for those with money and know how to limit their liabilities. Nearly every tax system ever devised has got flexibility for those who can afford to seek the limits and push them. I have no idea what the solution is but I am 110% certain that consumption tax isn’t it.
The main issue here is that the current income tax system is not fair, especially to the middle and lower income brackets that can’t afford tax expertise to get them out of their taxes. It also makes the government (IRS) an enemy in the eyes of most people. When it comes to retailers, many yelled that the Tax Bill of 1986 would hurt retailing. Yes, it put us into a mild recession until everything balanced out, but in the long-run… it was a boom to retailers.
I disagree with Karen Kingsley’s remark that there are “initiatives to part the poorest people from their hard-earned dollars and ensure that the wealthiest become wealthier.” There’s simply no proof of that — either in intent or effect — unless you’re a conspiracy theorist who believes what they want to believe (which I’m sure Karen is not).
However, I am totally lined up behind Karen’s support of a flat income tax. That’s when the conspiracy theorists again jump into the fray, though, claiming that the wealthy should pay a higher percentage of their income in taxes because they receive a higher percentage of our nation’s wealth.
We desperately need tax reform, which should begin with simplifying the current tax code as the Administration has asserted. Kernels of wisdom and learning will fall out of that process and practice, enabling additional clear-sighted steps to be taken. And so on, following the time-honored scientific process of test, observe, record, repeat.