A flat sales tax

This is an issue that has come up recently in presidential debates, and it has gotten me thinking quite a bit.

I have to admit, there was a time when I would have been dead set against a flat tax, where all taxes are sales tax.

My main reasoning was that for most folks out there, human necessities are about the same, so for a very rich man, the amount he would be paying on a sales tax would seem minuscule, while the poor man would find it very difficult to pay for that tax. Essentially, it seemed like a tax on the poor, and that seemed wrong to me.

After thinking about it for a while, though, I'm beginning to change my mind. Here is my current thinking on the matter. Let's say that we eliminated income tax and only had sales (and perhaps luxury) tax. In the beginning, things might go out of whack, simply because it's not a way that our system is used to working, but over time, I think things would actually normalize.

Think about it. When you buy something now, your paying a sales tax that you aren't even aware of. Do you think when a company marks the price on its products, it isn't considering the cost of its income taxes? Sure it is, and it's passing those costs down to the consumer. So first of all, we are all paying a high sales tax, it's just way more complicated at the moment.

I think, over time, the prices on goods would meet what the market would bear, keeping sales taxes in mind. So, if something costs 2.00 right now, and sales tax is around 7%, then the total cost on that would then be 2.14. If we enacted a flat tax where sales tax would take up all tax collection, the tax might be, let's say 40%, so the price would be 2.80. Well, maybe at first, but 2.80 might be too much for people, so they will rethink whether they really wanted that item or not. Demand will go down as a result of the inflated price, but, people would not be getting taxed on their earnings, so, for many, they would already have more to spend, so maybe a total price of 2.25 would seem reasonable. Of course the company making the product would not be paying income taxes either, and with that lower overhead, it might determine that it could or should drop the price of that item down to about 1.60 (only a 20% decrease), instead of 2.00 making the total cost after tax 2.24. Essentially, we wouldn't be paying any more than we are already are.

So at this point, I believe it actually wouldn't cost the average consumer more than they are currently paying for goods and services. Some will probably go up, and others may actually go down in price.

So, if things are staying the same, why do a different tax at all. Well, here's where a flat tax might actually make a lot of sense, for most people. Since all tax is coming in through sales tax, then it would be much harder to evade taxation (This would hurt more of the people who are not currently paying taxes, but it would actually benefit many of us who are honest).

Certainly businesses would still be required to report sales and taxes and send taxes to the IRS, or whoever collects those taxes, but the rules seem like they would be pretty simple over all, so the chance of evading taxation seems even lower.

Of course this means that this might not be the best solution for people who are benefiting from all the confusion over taxes, such as tax preparation companies, law firms and perhaps even the IRS, not to mention those shrewd people who have earned their wealth by finding loopholes in the current tax laws. It would even be harder for illegal immigrants to avoid paying taxes. In time, this could actually alleviate the tax burden even further, and actually make certain issues moot. Why worry about illegal aliens, for instance, if they are, in fact, paying taxes.

If we are concerned about overtaxing the poor, I don't really know, but it at least seems like it might be feasible for putting a higher sales tax on the upper 50 percentile costing items or imposing some other sort of luxury tax on items that only wealthy folks would buy anyway. So an economy car that costs 15K would have the traditional tax imposed on it, but a luxury car costing more than 30K might have an additional tax of 5 to 10% imposed on it or something.

It's just a thought. I'm actually not a proponent of high taxes and government waste, but to me, this might be a way of cutting down on some of that waste as well as many costs that are intrinsic in our current tax model. It seems quite likely to me that a flat tax would actually lower the amount of taxes we pay in the end.

This is the way I feel at the moment, anyway. I would be open to comments and suggestions on this matter.