The complicated American tax system is among some of the most complex systems in the world. A sales tax is one of the taxes imposed upon citizens of a country by the government upon the sale of goods. In this case, the tax would be collected at the point of sale and passed onto the government through the hands of the retailer. This kind of a tax would effectively replace income tax. This paper looks at the advantages and disadvantages of a sales tax in light of the huge American debt.
The development of the national sales tax came about in 2010 as a system that would eliminate all forms of income taxes (Einav, Knoepfle, Levin, & Sundaresan, 2014). This means that the complications arising out of complex taxation systems for one’s income would be withdrawn. Furthermore, there would be a more effective taxation system through the sale of goods as everybody is taxed and contributes to the national tax burden. Additionally, this would mean that yearly filing of taxes would be eliminated, as all taxes would be paid at the point of sale. The larger portion of the IRS would also be eliminated, as a compliance department would no longer require to be so large.
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Furthermore, such a tax system would encourage investment and savings as the person’s taxes would be assessed based on spending habits, rather than their possessions as an individual. As a result, conservationist attitudes towards money would be encouraged, while excessive spending is reduced. Furthermore, only new items would be taxed. Therefore, this would encourage the market for used items to avoid excess taxes and waste. Needless to say, debt levels would be lower at this rate. For another advantage, there would be equity in taxation. Traditionally, the rich have been considered not to bear as much of the tax burden as the poor due to uneven taxation systems. Nonetheless, heavy spenders (that is, the rich) will bear more of the tax burden at the point of sale as opposed to the poor, thus giving their fair contribution of the tax burden.
However, disadvantages are present for the application of such a system. First, low-income families would still bear a larger part of the tax burden because of the frequency of buying necessity goods. This would cause a national sales tax to be regressive in nature. Moreover, consumer spending could decrease in light of the taxation system being implemented as a reaction to the new taxation system. Although this would even out after a period of time, it is still expected that the effect would be present for the first few years of the taxation system.
Additionally, consumer debt would increase in the housing and consumer debt sectors. Due to the taxes charged at the point of sale, it would mean loans would have higher interest rates to cater for the point of sale tax, thereby increasing the overall consumer and mortgage debt. Furthermore, the move to a national sales tax would be very expensive, as it requires replacing a tax system that has been present for over 200 years and implementing the necessary labor and resources to implement such a system. Retirees who have been making their tax contribution through income taxes for the period of their employment would again be subjected to taxes through the acquisition of goods (Mulligan, 2014).
In conclusion, the national sales tax comes with its advantages, including a singular, more effective line of taxation that would reach all Americans. Additionally, such a system would inject up to $17 trillion more into the revenue system of the American government, thereby achieving the objective of increasing revenue without cutting spending. Nonetheless, the expense of implementing such a system would be over the roof. Further, one needs to consider reactions including reduced spending and the loss of employment for finance-based professionals in the sector.
References
Einav, L., Knoepfle, D., Levin, J., & Sundaresan, N. (2014). Sales taxes and internet commerce. The American Economic Review, 104(1) , 1-26.
Mulligan, K. (2014). Pros and Cons of a National Sales Tax . Retrieved from EZ Rate Quotes: http://www.ezratequotes.com/tax/pros-cons-national-sales-tax/
