Tuesday, April 19, 2005

No Sale

Tim writes in to talk tax reform:

I don't think I've ever heard what the official opinion amongst the Fraters fraternity is when it comes to tax reform. From your post and link to Deroy Murdock's column, I assume you're a flat-taxer.

I have a certain affinity on the subject of taxes because my wife is self-employed and I have to write that big check every three months. If any of your readers don't think taxes need to be reformed, I would like to issue a challenge: for the next three months stop federal withholding from your paycheck, and write a check to the IRS for that quarter. It hurts. Try doing it four times a year, and then again on April 15th. Federal withholding of taxes is the biggest Ponzi Scheme ever devised by the Federal Government.

Do you know what the tax rate was when Congress passed the 16th Amendment? Are you sitting down? Ready? It was a measly 4%. How many members of Congress would have approved the amendment if they would have known in the future that the middle class of America would see 20-30% of their income withheld?

Did you know that the Congress approved and the IRS spent $28 million to reduce the number of hours Americans spent to do their taxes? $28 million. And despite these efforts, the number of hours the average American spent completing his taxes still went up? Of course, all of the articles I read on this subject conveniently blame the tax cuts put into place by President Bush. Shame on him for thinking Americans should keep more of their own money. Altogether, Americans spent 6.6 billion hours completing their taxes.

Although the hurdles are higher, I prefer the national sales tax, for several reasons. 1) Nothing would make me happier than to see the IRS completely evaporate. Think of the annual savings to the Federal budget. 2) The government cannot make you buy anything you don't wish to buy. 3) The average business spends about $750 to remit $100 to the IRS. I know there are a lot of tax accountants and tax lawyers that will have to find other work if a sales tax is put into place, but there are still accounting jobs and lawyering in other sectors that needs to be done.

Lastly, every year the radio and TV news stations like to go to the post office and get "the man in the streets" reaction to paying taxes. They always show people who are just giddy that they're getting a refund. Wake up you dolts! It was your money to begin with! You're getting back your own money! The gov'n'mint ain't "giving" you anything!

Last Saturday, we had a discussion of tax reform on the Northern Alliance Radio Network. As Tim deduced, I am in favor of a flat income tax rate. While abolishing the income tax and going with a national sales tax does have its appeal, there are a few problems that I see with that approach.

First off, it would no doubt lead to a burgeoning black market. Most of the national sales tax proposals that I've seen talk about a rate of around 23%. If you assume that local state and city taxes would still be in place, some people would be paying 30-35% in tax on every purchase. That would drive people into the black market and result in a proliferation of such unofficial, underground exchanges.

The other problem would be how consumers would react to the tax. Today Americans probably spend too much and save too little. But a national sales tax would likely dramatically change this behavior. With an economy that is increasingly dependent on consumption, the economic consequences (at least in the short term) could be severe.

I had some firsthand evidence this weekend of the power of sales tax on consumer behavior. Or rather the temporary absence of said tax. No, I didn't load up on tax free booze as JB Doubtless so gluttonously did on Saturday (by the way, not everyone is impressed with his taste in beverages).

No, I took advantage of a sales tax free event at IKEA on Sunday. They actually had signs inside the store encouraging you to "stick it to the man" and man were people in a mood to do just that. Despite the fact that it was a gorgeous Spring day, the joint was packed. And people weren't just looking. They were buying. This little flurry of consumer activity was a result of shoppers saving 6.5% on their purchases. It doesn't take much to get people to the stores and I don't think it would take much to keep 'em away either.

Let's see here, at the end of the day, we ended with a new piece of furniture while JB ended up with a cart full of booze. As much as it pains me to say it, in this case it's clear: advantage JB.


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