Jul. 28, 1997
The flat-taxers claim to have a solution, but their argument that a single rate simplifies things is specious. Only six pages in the 1995 1040a booklet are devoted to figuring out the tax you owe. The bulk of your efforts -- totaling taxable income -- won't change. To really simplify taxes, we have to eliminate the need to verify income, which means we can't base taxes on income.
So what are the choices? $1200 per car at the Yosemite park entrance? $15 a sixpack excise tax? A monthly invoice from the Navy, for defending the country, that you pay along with the cable bill? Sorry. The only way to do this is a national sales tax.
Pick a rate based on the expected consumer market. Don't forget that consumption in some areas will be depressed. We'll assume for now a nice round 20%.
At this state, the tax could be considered regressive, and rightly so: a 20% higher food bill means a lot more to a family of chip assemblers in New Mexico than it would to Andy Grove. How do we give poor people a break without letting income verification stick its nose under the tent? Simply exempt survival goods from the tax. These would be: groceries (not alcohol or tobacco), items of clothing under $50, medicine, and a few other necessities. People would probably argue for cars costing less than $X to be exempt as well, so people in rural areas could get to work. These price- and goods-based exemptions are no problem; many states do this already.
So where would the revenue come from? All the things you see constantly advertised. Beer. Sport-utility trucks. Diamonds. Wintel clones. Chia Pets. Athletic shoes. People are not going to stop buying these.
What about people who don't buy their fair share of goods? Aren't they cheating the country? No; I think we can excuse the occasional tightwad sitting on a $2 million nest egg and eating cat food.
What about wealthier types who find it cost-effective to fly abroad and bring goods in? Set up a revised import duty system. It would add complexity to the tax system, but nowhere near rivaling the mission of the IRS now.
The final benefit of the tax system: Mandate that advertised prices include all taxes. We do this for movie tickets and gasoline; other countries do it for most retail goods. Retailers would fight a law that gave the appearance of an instant 20% price increase (hard to advertise about "the lowest prices ever!") but they'd still be competitive and still find the wherewithal to keep saturating us with ads. Imagine seeing a $49 sweater for sale, and walking out with it for $49. This could, in a small way, simplify your life.
