National Sales Tax – Fair or Foul
By George Anderson
The Americans for Fair Taxation (www.fairtax.org) want to get rid of the Internal Revenue Service (IRS).
No, this isn’t another Boston Tea Party, but the group advocates what it calls the FairTax plan. According to the Americans for Fair Taxation, its plan would eliminate the need for the IRS by replacing the current federal payroll system with a much simpler and transparent national sales tax (a 23 percent tax on all goods sold).
The group’s Web site contends the current system is simply outdated. “Cars replaced the horse and buggy, the telephone replaced the telegraph, and the FairTax replaces the income tax. The income tax is holding us back and making it more difficult than it needs to be to improve our families’ standard of living. It makes it needlessly difficult for our businesses to compete in international markets. It wastes vast resources on complying with needless paperwork.”
While a simpler and fairer system is an ideal endorsed by most, the idea of a national sales tax has brought together a group of strange bedfellows in opposition to FairTax proposal.
Progressive politicians have argued that it places an unfair burden on the poor since more of their income is spent paying for life’s basics than wealthier members of society.
Retailers have panned the idea of a national sales tax. In March, the National Retail Federation’s (NRF) senior vice president for government relations, Steve Pfister, said, “A national retail sales tax or VAT would devastate the nation’s economy for years before economic gains – if any – would be seen.”
“Our research shows that during the transition period from the current system to a consumption tax, the economy, employment and consumer spending would all decline significantly,” he said. “The price is too great to pay for any modest growth that might come in the long-term. Many retailers and the companies behind the products they sell – especially the small businesses of America already struggling to succeed – would be out of business before they could benefit from that growth.”
Advocates of the FairTax program do not believe it will burden retailers or consumers. The group maintains its plan is revenue neutral and “the vast majority of retail businesses operating in states with a sales tax (45 states currently use a sales tax) are already sales tax collectors. Under the FairTax, retailers are paid a fee equal to one-quarter of one percent of federal sales tax they collect and remit. In addition, of course, retailers no longer bear the cost of complying with the income tax, including the uniform capitalization requirements, the various depreciation schemes, and the various employee benefit and pension rules. Finally, because of the economic growth resulting from the aggregate, beneficial effects of dramatically lower income tax compliance costs and no payroll or income taxes, customers will have substantially more money – the greatest influence on retail sales – and a reasonable fee for collecting the FairTax, all ensure that retailers will do quite well.”
Moderator’s Comment: Should the retail industry support or oppose a national sales tax? If a national sales tax would have a positive impact over the
long haul, would it make sense for the industry to propose a phased-in program to Congress? –
George Anderson – Moderator