There is a right-wing (I think) organization, Fair Tax, which wants to replace income tax with a national sales tax.
In order to protect the poor, Fair Tax has a plan, called a prebate, which would send to every taxpayer, rich, poor or in-between, a check for the amount of money equivalent to the sales tax on purchases up to the poverty level, as determined by the Health and Human Services Administration. For example, if the poverty level for a family of four were $23,050, as it is this year, and the sales tax were 20%, every family of four would receive $4,610 at the start of the tax year. Fair Tax feels this would ensure that no family would have to pay taxes on basic necessities.
But this is a complex and costly plan. Complex because the HHS guidelines vary according to the size of a family, so there would be a lot of bureaucratic busy work involved in determining the size of everyone’s check. Costly, not only because of the basic administrative costs, but also because the plan would be tempting to game – by inflating family size, for example – and would require constant policing. Also, of course, many people would be getting money who did not need it at all.
There is a much simpler way to have a national sales tax – a discretionary sales tax, one which could be avoided by anyone, rich or poor.
First of all, there would be no sales tax on necessities: food and medicines, and household supplies, such as toilet paper, trash bags, detergents, razor blades, diapers, etc. – that is, most things, if not all, that are available in a supermarket. Gasoline and public transportation costs would not be subject to the national sales tax.
Utility bills for one residence would be tax free. If the taxpayer owned more than one residence, he could choose the one to receive tax-free utilities.
Here in New York our sales tax on clothing does not kick in until an article of clothing is priced at $110 or more. The same kind of plan could extend to all kinds of things.
(From here on, not being a heavy shopper or a savvy consumer, I may be off with some of these dollar figures, but you will get the idea.)
I think we can say that basic telephone and television service come under the heading of necessities. So, let’s say telephone bills and cable or satellite TV bills up to $100 would not be taxed. Any amount over $100 would be subject to sales tax.
Restaurants. No restaurant bill amounting to $25 per person or less would be taxed.
Cars. There would be no sales tax for a car purchased for $20,000 or less.
Computers. No sales tax for a computer that cost $1,000 or less.
For other electronic equipment, such as computer printers, scanners, DVD players, the limit could be set at $250. Television sets? Maybe more. $500? $1,000?
Furniture and appliances. No sales tax for furniture or electrical appliances that cost $750 or less.
And then the same kind of exemption that New York allows on clothing would be extended to everything else one might purchase through the year: clothing, toys, sheets and towels, lamps, hair-dryers, pots and pans, garden hoses, vases, toasters, lawn chairs, barbeque grills, baby strollers, cell phones, e-readers, anything, you name it. If it cost $100 or less – no tax.
This too may sound complex, but it isn’t. Basically, every cash register these days is a computer, and the taxing points could be programmed into the cash registers, and changed whenever the taxing points were tweaked. The cash registers in clothing stores in New York are already dealing with this kind of tax system.
With a sales tax system like this, every family, no matter what its income, could go through an entire year, living comfortably, going out to eat, buying whatever it needed, without paying a cent towards national sales tax. Of course, depending on their incomes, many families would shell out for a national sales tax if it meant getting things they wanted, as opposed to things they simply needed. I know a lady who would not give up buying her 600 thread-count sheets to avoid sales tax, even though perfectly good tax-free sheets would be available. On the other hand, if she were choosing between a $90 food processor and a $120 one, she might see the bells and whistles on the more expensive one offset by the tax-free status of the simpler machine. Another consumer might have just the opposite attitude when it comes to sheets and food processors.
As one climbed the economic ladder, one would be more and more willing to pay the sales tax, until, as one neared the top, one wouldn’t even give it a thought.
Inflation of some sort is always inevitable, of course. So the taxing point would change from time to time. In fact, an added benefit of this plan is that it would, in a small way, help to curb inflation, as retailers strove to keep their prices under the taxing point.
Basically, this would be a discretionary national sales tax. The consumer would be the one who would decide whether or not to spring for paying the sales tax on whatever he wanted to purchase. You could have television service tax-free; if you wanted HBO, then you would have to pay tax. You could go out to Applebee’s tax free; if you wanted to dine at Le Puits sans Fond, then you would pay tax. Need a new car? You could buy a basic Honda tax-free; if you wanted a BMW, then you would pay tax. Everything you needed for a normal, comfortable life, could be had free of the national sales tax. Those extras that are more expensive? Then you would pay the sales tax. This is a fair, equitable plan. Not only the taxing points but the tax rate could be adjusted from year to year in order to bring in the required amount of revenue without burdening anyone.