What Exactly Could We Do With No Inclome Tax?

[PrinceofLowLight]

A common thread in Libertarian forums and essays is the abolition of the income tax and the inclusion of a federal sales tax. Let's say this federal sales tax is 10%. What exactly could our government do with that?

[PrinceofLowLight]

Argh, damn "l" key.. Could a mod fix that?

[Xenophobe3691]

A common thread in Libertarian forums and essays is the abolition of the income tax and the inclusion of a federal sales tax. Let's say this federal sales tax is 10%. What exactly could our government do with that?

Look at how the government was run before 1913 and you'll see. Most likely the federal government'll be curtailed like a bitch, and our taxes'll remain the same to keep state governments afloat.

[Joe]

10% is an arbitrary number and probably wouldn't be the actual tax. I don't know what it would be, actually.

If a national retail sales tax was put into effect in place of the income tax it would have to pretty much completely fund the federal government, so it would have to be high enough to produce about 2.0-2.3 trillion in government revenue. Sales tax rates would most likely vary; necessities such as food would probably not be taxed, while luxury items would likely be taxed progressively.

Baiscally, the only way a retail sales tax would get passed is if it would be enough to fund the government at its current level of spending at least. It won't happen though, too much concern over discouraging consumption and the costs of completely reinventing the tax system are prohibitive.

[Iceberg]

A national sales tax is a terrible idea - consumer spending drives 2/3 of the US economy. As long as that remains true, you will never see a national sales tax.

[Master of Ossus]

A national sales tax is a terrible idea - consumer spending drives 2/3 of the US economy. As long as that remains true, you will never see a national sales tax.

Moreover, sales taxes are one of the most REGRESSIVE forms of taxation. Facing opposition from both the left and right, fortunately a national sales tax (ESPECIALLY one that frickin' high) will never pass.

[PrinceofLowLight]

A national sales tax is a terrible idea - consumer spending drives 2/3 of the US economy. As long as that remains true, you will never see a national sales tax.

But that's the rub. People have a huge chunk of their income taken out by taxes, and while I'm not sure, it seemd they would gain more from the death of income tax than they would spend on the federal sales tax.

And I meant this in more of a way that, how lean could our government get? What exactly would they be able to fund with just, let's say a 15% sales tax on everything, assuming people end up spending more with all the extra money in their pockets.

[Joe]

You're asking tough questions. 15 percent would not be enough, I'm almost certain, it would be enough to fund mandatory spending, but discretionary spending would get hit hard. Most proposals I've heard place the rate at above 20 percent, at least.

[Patrick Degan]

A national sales tax is probably unconstitutional; considering the prohibition against taxing imports from one state to another and is one of the reasons the proposed internet sales tax is in legal trouble and probably will not be passed either.

[Aeolus]

A national sales tax is probably unconstitutional; considering the prohibition against taxing imports from one state to another and is one of the reasons the proposed internet sales tax is in legal trouble and probably will not be passed either.

Agreed before the national income tax was passed the federal goverment was REALLY tiny. And paid for with excise taxes and various tarriffs and dutys. The only way to get rid of income tax would be to dismantle the federal goverment almost completly..of course thats what the libertarians are trying to accomplish

[BlkbrryTheGreat]

Getting rid of the Income Tax is idiotic without first signifgantly lowering the scope of Government spending. I mean, think about it- why would you care what form your taxation took if your still losing the same amount of money to taxation?

[SirNitram]

Getting rid of the Income Tax is idiotic without first signifgantly lowering the scope of Government spending. I mean, think about it- why would you care what form your taxation took if your still losing the same amount of money to taxation?

The more observant people, Blkbrry, realize this is a thread asking what systems could actually still function if we waved away Income Tax, not saying we do so tomorrow and what happens.

[BlkbrryTheGreat]

Getting rid of the Income Tax is idiotic without first signifgantly lowering the scope of Government spending. I mean, think about it- why would you care what form your taxation took if your still losing the same amount of money to taxation?

The more observant people, Blkbrry, realize this is a thread asking what systems could actually still function if we waved away Income Tax, not saying we do so tomorrow and what happens.

Everything would be the same- only the method of finacing it would differ-my guess is a high sales tax and ALOT deficit spending (which is taxation through inflation).

[Xon]

A national sales tax is a terrible idea - consumer spending drives 2/3 of the US economy. As long as that remains true, you will never see a national sales tax.

Moreover, sales taxes are one of the most REGRESSIVE forms of taxation. Facing opposition from both the left and right, fortunately a national sales tax (ESPECIALLY one that frickin' high) will never pass.

Yet in Australia, somehow John Howard was re-elected back into Government based on a nation wide 10% Goods an Services tax(excluding unprocessed foods stuffs + misc other exempt stuff) in addition to the Income tax(which was simplified).

And Australia has a had many years of positive economic growth.

[Mr Bean]

Yet in Australia, somehow John Howard was re-elected back into Government based on a nation wide 10% Goods an Services tax(excluding unprocessed foods stuffs + misc other exempt stuff) in addition to the Income tax(which was simplified).

And Australia has a had many years of positive economic growth.

Yet compare the two countrys on what exactly(And more-over how much) of tax payers money we spend VS Australia
Does Australia have the massive amounts of infrastructor we are currently still expanding opon and upgrading?
Does Australia have the worlds largest fleet, as big or as expensive an Airforce or Army?
Does Australia have the very expensive and tax payer funded space programs we do?

The problem is that comparing the two countrys there is alot of money ALOT more taxplayer money being spent on programs then in Australia

[Alyeska]

If ALL income tax was removed and a national sales tax was impimented that allowed no one to get around it, the government could actualy make more money while hurting the citizens less. You see, all those rich people who get out of large sums of taxes would now be paying more.

Then again these people typicaly earn far more then they live off of so the actual amount they pay might stay the same.

Maybe if we just got rid of all the stupid income tax loopholes we wouldn't have the budget problem.

[Middleclass]

All other things being equal, the legal incidence of a tax has nothing to do with the economic incidence. The difference between a 7% sales tax and a 7% income tax simply isn't there in a simple world.

This, however, is not a simple world. Lower income households are much more likely to spend most to all of thier incomes every month, as opposed to upper income households who spend far less on conumables. Upper class familys will spend a smaller percentage of thier income on sales taxable goods, insetad purchasing investments.

I suppose you could fix this by adjusting the capital gains tax, and by excluding neccessities from taxation, but it would be tricky. Definately worth thinking about.

Insofar as what our govt. could do, I don't see why a reformulated sales tax based system couldn't provide as much money as our current one. As a side bonus, we get to sell rights to private individuals to hammer down the IRS building, Berlin Wall style.

As to a sales tax hurting the economy, if you can fix the income disparity problems mentioned earlier, it is identical. All you are changing in a well designed system is who is collecting the tax.

[kojikun]

In the end, wouldn't it make very little difference tho? If we pay 28% income tax right now, then 6-10% state sales tax on everything we buy, we're easilly putting out 30-35% of our income on taxes alone. Lower income families do, yes, tend to spend their money more, but they also still get taxed, and so whether they spend it all or not, they still loose 28% of their money and then sales tax. Maybe if the sales tax was around 20% it would work out? Less overall money taken away, and only on what is spent, which might be incentive for people not to spend as much if they can't afford it.

[Master of Ossus]

Basically, you're asking about the concept of a Laffer Curve. It's a concept in economics that the government will make no money with one hundred percent income tax, and with zero percent income tax, and that it can maximize revenue at a certain point in the middle. The Laffer Institute, then, studies where exactly the government should tax its citizens so as to maximize revenues, and came to the conclusion that Americans are severely over-taxed. I would only point out that the concept of the curve is fairly reasonable, but that the government should not always be attempting to maximize revenue.

[Master of Ossus]

In the end, wouldn't it make very little difference tho? If we pay 28% income tax right now, then 6-10% state sales tax on everything we buy, we're easilly putting out 30-35% of our income on taxes alone. Lower income families do, yes, tend to spend their money more, but they also still get taxed, and so whether they spend it all or not, they still loose 28% of their money and then sales tax. Maybe if the sales tax was around 20% it would work out? Less overall money taken away, and only on what is spent, which might be incentive for people not to spend as much if they can't afford it.

That's retarded, since there are certain fixed costs associated with living. If we're trying to have anything resembling a progressive national tax plan, we should do away with sales taxes as much as possible.

[Jalinth]

A common thread in Libertarian forums and essays is the abolition of the income tax and the inclusion of a federal sales tax. Let's say this federal sales tax is 10%. What exactly could our government do with that?

If they abolished all taxes (leaving only customs duties and fees that cover costs) and replaced it with a comprehensive sales tax (this tax must pick-up services given the economy - otherwise the poor are really getting bashed), the government wouldn't have that much left. A 10% sales tax (levied on most services/goods) might cover a fraction - likely under a 1/4 of the current expenditures.

Assume that the existing debt vanished (gov't declared bankruptcy and told the world to F-off), the government couldn't cover that much.

The federal court system (although this could be subsidized by filing fees), the patent system, foreign embassies, and a small military. The SEC and Federal Reserve system (although the SEC is already profitable - it throws money off to the general fund well in excess of its budget)

Savings
No Medicare/Social Security
Small IRS
Smaller military (depends on what your priorities are. If you keep nukes (at least some) to avoid invasion, your operating forces must be cut appropriately). Also, Aircraft carriers are very expensive, so the US ability to project power will drop.
Most Departments will be either abolished wholesale (such as Education) or much reduced (Homeland Security)
Much less porkbarreling (due entirely because of the lack of funds - Congress will also be unable to borrow on the world markets if the US debts are repudiated.)
The US government will not be able to intervene as much in US States affairs (for good or bad) simply due to lack of resources.

Overall
The US federal government will become much weaker. The changeover (killing Social Security and Medicare) will also cause lots of trauma to the US people. Some of this might be unavoidable (social security is tenuous in its health) anyways.

Overall, the world itself will be feeling the effects of such a shift for many years to come. You Yanks might even have to learn "Oh Canada" and Scotland the Brave as your new anthems once the secret Canada/Scotland cabal steps into its rightful place as the one World State.


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[Xon]

The problem is that comparing the two countrys there is alot of money ALOT more taxplayer money being spent on programs then in Australia

Thats why if you want to compare them you have todo it via % or per capita.

America spends 3.9%(2001) of their GDP on military, while Australia spends 2.8%(2003) of their GDP. (As far as I'm aware both figures have gone up)

America has over 15 times the population of Australia, we dont have the population base to require or biuld everything America has.

[kojikun]

That's retarded, since there are certain fixed costs associated with living. If we're trying to have anything resembling a progressive national tax plan, we should do away with sales taxes as much as possible.

Ofcourse there are fixed costs for living, but say you're not paying 28% income tax, but instead paying 10-20% sales tax. Overall you have more money, period. There's no way around that. If you spend all your money, you get 20% taken off, whereas if you spend it with an income tax you get 28% taken off, and if you don't spend it you still get 28% taken off. I see no reason why fixed costs would be an impedence.

[Master of Ossus]

Ofcourse there are fixed costs for living, but say you're not paying 28% income tax, but instead paying 10-20% sales tax. Overall you have more money, period. There's no way around that.

That's ridiculously short-sighted, since such a scheme will dramatically decrease the velocity of money while simultaneously leading to inflation. In short, you ASSUMED that salaries and net purchasing power would remain the same under your proposed scheme when there is no justification for either one.

If you spend all your money, you get 20% taken off, whereas if you spend it with an income tax you get 28% taken off, and if you don't spend it you still get 28% taken off.

So basically the plan encourages the very wealthy to save money, and actually REVERSES the re-distributive trend that our graduated income tax is specifically designed to accomplish.

I see no reason why fixed costs would be an impedence.

Let's say that the cost of living for a single person is $15,000/year. Now, if you have someone who makes $18,000, they're BARELY going to be able to stay alive with the tax, since EVERY SINGLE dollar they make is going to the government or to living. Under our current tax plan, such an individual will pay virtually nothing to taxes, giving them small sums of money for luxory goods. Meanwhile, someone with a salary of $100,000, who spends $30,000 on luxory goods every year, will be left with a net savings of $46,000. They're going to make interest on that money for next year which will lead to... MORE SAVING... which will lead to... a lower total money supply... which will lead to lower salaries and rising inflation... which will further raise the difference between the very poor and the very wealthy, while simultaneously MASSIVELY decreasing government revenues (since ALL of these consequences will independently lower government revenues, imagine how this is going to turn out in the end).

[kojikun]

Under our current tax plan, they would not be taxed for the first $5000, I believe it is, then everything after that up to the 35,000th dollar or so, is taxed 28%, so if your cost of living is 15k and you're getting 18k gross, you come away with a measely 140 dollars a year after taxes and cost of living. If there is a national sales tax on all money flow at 10%, the total cost of living after taxes is 16,500. If it's 20%, its exactly 18,000, leaving the person in much the same situation. 20%, ofcourse, is just figure I pulled out of my ass, so don't take that as a suggestion for the tax. Overall, it probably does work out better without a sales tax, I'm just saying that a lower sales tax will, in every circumstance where the rate is below the current income tax rate, mean less money spent on taxes. There is just no way around that fact.