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Huckabee's National Sales Tax
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Slate has an article on how great it would be. I'm unconvinced. The basic idea is to do away with income tax and just raise sales taxes so that the tax revenue would be about the same as an income tax. So the money coming in will be the same:


Except for one thing: With an income tax, you pay up front. Earn a dollar in 2008, and you'll pay 20 cents tax in 2008. (Actually, you'll pay more, of course; I'm assuming a 20 percent tax rate for the sake of illustration.) With a sales tax, that 20 cents sits in your bank account earning interest until the day you spend your earnings. Let me say that again: Your pretax earnings sit around collecting interest until the day you withdraw and spend them. Where have we heard that before? It's exactly what happens when you invest in a traditional IRA!


Uh, this assumes that most Americans are actually putting their money in interest-bearing accounts or otherwise investing it. From what I've read, Americans don't save a whole hell of a lot, and actually tend to outspend what they earn, leading to a negative savings rate. So this argument seems like bunk.


Any conceivable tax system discourages work, which is unfortunate but unavoidable. But the current system also discourages saving, which is avoidable.


I don't necessarily see how income tax discourages either work or saving. Can someone explain that to me?

On the other hand, what I see as the number one disadvantage to a national sales tax is one the author completely ignores: Higher sales tax discourages consumer spending. If consumer goods, especially non-essential ones, cost 20% more, does anyone honestly think people would buy as much, even if they had 20% more money in their pocket?

This is basic psychology, the ol' bird in the hand being worth two in the bush. Look at the way people are manipulated by retail outlets in the form of sales and markdowns. I'd like to see psychological studies where they give one group $1000 and give them a shopping spree in a mall where there is only regular sales tax, and another group $1200 and put them in a mall where all the prices are raised 20%. My intuition is that spending patterns would be very different.

I don't know much about economic modeling, but I could see how giving people 20% more money and raising the cost of goods 20% would depress consumer spending, which would hurt businesses, and could lead to a downward spiral. I could be wrong, but this seems like a likely scenario.

Capitalism thrives on consumer spending. Its the engine of our economy, and thus our society. I don't see how hugely raising the taxes on consumer goods will do anything but depress consumer spending, and that just seems crazy.

And then the author goes into how to make national sales taxes graduated. Yeesh. I think we need to leave sales taxes alone. The way to go is a flat tax. Graduated taxes of any kind are idiotic, and they're necessarily going to be riddled with loopholes anyway. A flat tax would be simple, reliable, and fair, and rich people would probably end up actually paying more taxes than they currently do. Sadly, I don't think any of the current candidates are pushing for a flat tax. Ah well.


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