Editore"s Note
Tilting at Windmills

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March 31, 2005
By: Kevin Drum

NATIONAL SALES TAX....REVISION 432....Spring is in the air and George Will is in love with Georgia Rep. John Linder and his plan for a national sales tax:

His bill would abolish the Internal Revenue Service and the many billions of tax forms it sends out and receives. He would erase the federal income tax system personal and corporate income taxes, the regressive payroll tax and self-employment tax, capital gains, gift and estate taxes, the alternative minimum tax, and the earned-income tax credit and replace all that with a 23 percent national sales tax on personal consumption. That would not only sensitize consumers to the cost of government with every purchase, it would destroy K Street.

What's not to like about this? Let me count the ways:

  • 23%? Think again. Bill Gale, who actually knows what he's talking about, says it would require a tax rate of about 60%. If you make reasonable assumptions about the level of tax avoidance and evasion, it's more like 100%. Ouch.

  • The tax would apply to home purchases. Here in The OC, for example, the average price of a new home is around $500,000. Linder's tax would mark that up by $300,000 or more. Can you spell "housing crash"?

  • Cars would be taxed too, of course. That SUV you've been lusting after? Better tack on $20,000 to the asking price.

  • The elderly would be royally screwed. All their lives their incomes have been taxed away, but at least what's left over is tax free because they've already paid taxes on it. Under Linder's plan, though, they suddenly have to start paying huge taxes again on rent, medicine, vacations, and cat food. It's the mother of all double taxations. I figure that should be good for about 30 million postcards from AARP members.

  • Is complex taxation a thing of the past? Of course not. You still have to perform all the usual complicated income calculations to pay state taxes, and multinational corporations all have global taxes to pay. Don't fire your accountant yet.

  • No taxes on dividends, capital gains, gifts, estates, or corporations? Sweet! Most corporate CEOs would end up with effective tax rates on their incomes of about, oh, 10% or so. You and I would end up with effective tax rates of 30-50%. Hey, the money has to come from somewhere, right?

A national sales tax is an idee fixe among a certain type of conservative lunatic, sort of like the gold standard and the Trilateral Commission. George Will might be dumb enough to fall for it, but the rest of us shouldn't. It's just a plain stupid idea.

But you know what? I wish Republicans would quit gabbing about it and actually implement it. They'd then be out of power for about a century or so, which might give the rest of us a chance to do some good. So go ahead Rep. Linder: make my day.

Kevin Drum 12:51 PM Permalink | Trackbacks

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