Fed Chief Calls for National Sales Tax

Discussion
Mar 04, 2005
George Anderson

By George Anderson


Federal Reserve Chairman Alan Greenspan believes that moving from an income tax to a national consumption or sales tax could spur economic growth.


Speaking to the President’s Advisory Panel on Federal Tax Reform, Mr. Greenspan acknowledged that moving to a consumption tax from an income tax would draw opposition from groups that believe they or their constituents would be adversely affected by a switch from the current income formula.


He suggested that perhaps some combination of income and consumption taxes would be best as a compromise and/or interim step.


Regardless of the final decision concerning any change in the current tax system, Mr. Greenspan said, “A simpler tax code would reduce the considerable resources devoted to complying with current tax laws, and the freed up resources could be used for more productive purposes.”


Moderator’s Comment: Should the retail industry drop its historical opposition to a national sales tax if there is a reduction or elimination of the
income tax?


Retailers, with reason, have always been suspicious of talk about a national sales tax, even if there was the promise that the income tax model would be
changed. It’s a lot harder to undo a bad government program than it is to create it. Still, a national sales tax with some exemptions is worth considering if it helps to reduce
complexity (and the costs to individuals and businesses) in the tax code elsewhere.

George Anderson – Moderator

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12 Comments on "Fed Chief Calls for National Sales Tax"


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Herb Sorensen
Guest
15 years 8 months ago
There are two problems to consider: how much money should the government get to do what, and where should that money come from? The answer to the first question varies all over the board, but for me the answer is LESS!!! The majority of the country would no doubt agree, and one of the reasons that we can’t rationally deal with the second question is because no reasonable person would trust the government to not take ANY change as an opportunity to increase their take. That’s pretty well how we’ve gotten to where we are – every change is vetted by those whose fortunes will be affected, with advantageous exceptions multiplying like the frogs of Egypt. IF, and that’s a big IF, the government could be trusted, we should have three taxes, based on assets (real estate, stocks, etc.); based on income (net of business expenses – VAT); consumption (possibly excluding “necessaries” like food; and housing – which is covered under assets.) This balanced approach would make it difficult for anyone to avoid paying a… Read more »
David Livingston
Guest
15 years 8 months ago

Only if it lowers my taxes.

David Locke
Guest
David Locke
15 years 8 months ago
Our income tax system only fails because it is the result of political processes. Look at WIC cards. WIC cards provide different nutritional food products to women and children to ensure their health. But, in operation, the items provided must be this brand or that brand. So how do you get your brand on the program? Paying a poly. Then, there are personal tax laws. If you know a senator well enough, you can write your own tax law. The senators owe each other, so these bills pass without blinking an eye. Then, you have the ordinary purposes of tax law, incentivizing some behaviors and punishing others. So we end up with a tax code that heavily favors corporations and the wealthy. The middle class is punished. The AMT is just a ruse. Sure, the wealthy have to pay it. But, so do an ever increasing portion of the middle class. Those that pay it get an AMT tax credit so, in subsequent years, they only pay AMT on their new wealth. Back to the… Read more »
Charles Magowan
Guest
Charles Magowan
15 years 8 months ago
I think Greenspan is trying to reduce the complexity of the federal tax system and promote saving. He’s also trying to promote growth because it’s popularly thought that a consumption tax system maximizes growth. However, I’d challenge the idea that such a scheme promotes the highest quality growth or the equity of the citizens. Speaking with an eye to the interests of a retail community that depends upon consumers, it’s clear that the savings dilemma is the problem of a large number of Have Nots on the low to lower middle end of the income scale, many of whom are in debt. In which case, a consumption tax isn’t the answer. Rather, the government would do well to lower/eliminate all forms of income taxes on low earners, including *ahem* social security. This would also have the effect of bringing more low earners into the formal economy instead of encouraging them to be cash-under-the-table earners whose employers are subsequently busted and deprived of the opportunity to serve the public. Secondly, the government adds complexity by increasingly… Read more »
James Tenser
Guest
15 years 8 months ago

I’m no expert on this topic, but I do pay my share of taxes.

There’s ample precedent for value-added tax in the UK and elsewhere. Under such a system, folks who can afford to buy pricey stuff like huge SUVs and the fuel to run them would pay a little more tax than those who do not. Seems like a fair arrangement in principle, especially if income tax rates can be simultaneously lowered and that system simplified.

The very poor should be protected, of course, perhaps with an exemption for basic needs like food and heating oil or with an offsetting income tax credit. The very wealthy should be required to contribute back to the system that enriched them (i.e. fewer loopholes), while estate taxes should be minimized or eliminated.

I imagine the RW crowd would debate many of these positions. Bring it on. A fair society is worth arguing over.

Al McClain
Guest
Al McClain
15 years 8 months ago

While it might be better to have just a sales tax, or a flat income tax, I seriously doubt that the accountants, tax attorneys, and other lobbying groups will let that happen. How long have we been talking about reforming health care, and look at what a mess we have after all these years? The worst scenario, and I fear the most likely, is we’ll get a national sales tax ON TOP of our current taxes. Somehow, we need to get our government focused on reducing spending and becoming more efficient. Maybe Wal-Mart could tutor them.

Art Williams
Guest
Art Williams
15 years 8 months ago

Any version of a tax system can be molded to deliver the results that are desired and be reasonably fair to most taxpayers, but creating and implementing it in our bureaucratic system would be nothing short of a miracle! I have long thought that a true flat tax with no loopholes would be the easiest way to implement and reduce the nightmare of paperwork that is our current system. It seems fairer than a national sales tax, as that would be more likely to penalize the poor and people on a fixed income, such as retirees.

Franklin Benson
Guest
Franklin Benson
15 years 8 months ago
According to page 74 of the instruction booklet of the 1040 tax form, federal income last year was $1.8 trillion. Outlays were $2.2 trillion, leaving a $400 Billion deficit, but that is another story. $1.8 trillion is a scary big number. The US economy was approximately $10 trillion last year. If the government were to drop all forms of taxation and go solely with a sales tax, that tax would need to be 18% to make as much money as it gets now, and 22% to not have a deficit. I think I would be more comfortable with a Constitutional Amendment that does three things: 1. Amends the Constitution to make a National Property Tax legal, and also explicitly states the right of the Federal Government to impose a Sales Tax. 2. Caps the proportion of income the government can receive through income taxes to one-third, the proportion of income through sales taxes to one-third, and the proportion of property taxes to one-third. 3. Explicitly makes Value-Added Taxes illegal. I dislike the VAT because it… Read more »
Bernice Hurst
Guest
15 years 8 months ago
Loads of questions spring to mind. First, if income tax were to be reduced or eliminated and replaced by sales tax, might some people not figure out that they would save an awful lot of money by not buying things? Or, at least, buying fewer and less expensive things? Would there be a sliding scale of tax so people buying the most expensive goods and services paid the most? Or will the richest, yet again, end up contributing less for what they consume? If there were a sliding scale, would it be based on what the items are or purely on price? Would there be taxes added to things that are not currently subject to it? In the UK there is no VAT (Value Added Tax) on food, for example. Or children’s clothes and a few other basics that are essential purchases for rich and poor alike. But some of the definitions for food, for example, are so complicated that they are laughable. A cookie is a cookie is food and not taxed unless it… Read more »
Ron Margulis
Guest
15 years 8 months ago

Looking to Alan Greenspan’s past actions for guidance on what he is really trying to accomplish with his recent statements on a consumption tax, it is clear to me he is trying to raise public awareness of the precarious financial condition of the federal government. By launching a public debate on a national sales tax, he forces attention to the budget deficit, which he knows to be an anchor holding back real economic prosperity. Also, he sees that policies enacted by the Bush administration during the past five years to be accelerating the income divide between the haves and have nots, and a consumption tax would bring that relationship back into line. At the very least, it would call into question some of the tax laws enacted under the current administration. Once again, Greenspan is trying to play the politicians like a fiddle (or, in his case, clarinet).

David Livingston
Guest
15 years 8 months ago
I might be a little off base (who me?), but in 1996 when new Welfare Reform laws were enacted, millions of people began to enter the workforce for the first time in their lives. We used to pay them to sit and watch TV. Now companies like Wal-Mart were paying them to work in their stores. Although their lifestyle did not improve, it made us taxpayers feel better knowing they were working. Many of them, for the first time, became taxpayers and got a W2. They even got big Earn Income Credit Bonuses. How nice it might have felt to get a big tax refund check. But as we all know, there are big bucks to be made off the poor. Tax Return businesses, tax refund loans, etc began popping up to take advantage of an unsophisticated group of new taxpayers. Many operating right inside of stores like Wal-Mart. Even though the IRS had simplified tax returns for the poor so it was nothing more than a few lines, most did not have the wherewithal… Read more »
Ed Dennis
Guest
Ed Dennis
15 years 8 months ago
The National Sales Tax is a proposal that has some momentum and has endured some criticism and revision already. The organization at FairTax.org has put forward a plan that would impose a sales tax on every dollar SPENT. You keep every dollar you earn. If you are a $100,000 a year man you bring home $100,000. You just pay tax on what you buy AND the sales tax would include the payroll tax you currently pay for FICA and Medicare. Not one dime would be deducted from your paycheck by the Federal Government for anything. Additionally, everyone would get a check from the government monthly as an allowance/exemption from sales tax up to the poverty line. If you are below the poverty line you pay NO sales tax period. The sales tax would be set at 23% of everything you spend and would apply to everyone. Check this out at FairTax.org, it is a simple plan that would simplify all of our lives and capture all of the tax that is now unpaid by our… Read more »
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