How To Defund The IRS? Top 10 Reasons For A National Sales Tax

[corbe]

How To Defund The IRS? Top 10 Reasons For A National Sales Tax

Bob Maistros
June 1, 2023

Let’s pick up where our IRS-defunding I&I editorial board brethren lately left off: “There is … a better way to fund federal operations. Move to a single-rate income tax paid monthly with no deductions and no withholding, or implement a national sales tax.”

This commentator chooses National Sales Tax for several trillion dollars, Alex. While he has engaged in many exercises to explain why that levy solves a whole range of problems, here are some highlights in Lettermanesque fashion – the Top 10 Reasons for a National Sales Tax:

10. Keep it simple, stupid! Flat tax or no, the biggest problem with an income tax: it’s on income. The complexity and intrusion relates to determining what is and isn’t, and tracking, income.

Uncle Sam gets to snoop on hundreds of millions of taxpayers to make sure you’re not hiding income. Admittedly, for most taxpayers calculations get simpler without deductions, exemptions and the like. But eliminating withholding would only increase demands for government to stick its nose into your business to ensure you’re not getting money under the table. Especially for the self-employed.

<..snip..>

https://issuesinsights.com/2023/06/01/how-to-defund-the-irs-top-10-reasons-for-a-national-sales-tax/

[Kamaji]

Conventional wisdom has it that evasion is nearly nonexistent with respect to consumption taxes, perhaps partially explaining why evasion research in the United States has focused almost entirely on income tax evasion. More recent research on both consumption and income tax enforcement indicates that the conventional wisdom suffers from a number of poor assumptions that, upon closer inspection, have no grounding in evidence. If a national sales tax were instituted to replace the income and payroll tax systems currently in place, the acceptance of these assumptions in designing the enforcement mechanisms for the national system would result in a dramatic increase in the tax gap, substantially reduced revenues, and ultimately a requirement to increase rates to account for revenue losses from evasion. Ultimately, it would require a large expansion of Internal Revenue Service (IRS) compliance enforcement efforts rather than contraction or, as has been proposed in some cases, outright elimination of the IRS.

Source:  Why Evasion Under a National Sales Tax Would Explode the Tax Gap:  Lessons Learned from the States, P. Cary Christian, Georgia Southern University

[DefiantMassRINO]

1.) The Federal Government shouldn't be given more taxation powers.

2.) Sales-Tax-Free New Hampshire has made a business of taking away retail sales from Massachusetts border towns.

3.) Once sales taxes reach an excessive threshold, criminal sales-tax-evasion activities will increase, black markets will appear, and underground economies will develop.

4.) To stem sales-tax-evasion, Government will move towards digitial currencies and digital transactions only; cash will be banned; underground non-electronic systems of exchange will develop to avoid sales-taxes.

Those whose incomes primarily come from capital-gains still enjoy a lower tax rate than wage earners.

[Kamaji]

1.) The Federal Government shouldn't be given more taxation powers.

2.) Sales-Tax-Free New Hampshire has made a business of taking away retail sales from Massachusetts border towns.

3.) Once sales taxes reach an excessive threshold, criminal sales-tax-evasion activities will increase, black markets will appear, and underground economies will develop.

4.) To stem sales-tax-evasion, Government will move towards digitial currencies and digital transactions only; cash will be banned; underground non-electronic systems of exchange will develop to avoid sales-taxes.

Those whose incomes primarily come from capital-gains still enjoy a lower tax rate than wage earners.

More or less. 

[Bigun]

"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed - that is, an extension of the revenue. 
When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four." If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

 Excerpted from Federalist #21 by Hamilton

In case anyone here is unaware, I'm fully on the side of the OP author for all ten of his reasons and hundreds more!  Have been for many years and that is very unlikely to change.

[Kamaji]

Once the rate of a national retail sales tax gets above 10%, the evasion and cheating will overwhelm the system.  The only recourse then will be to move to a VAT system, where everything is taxed, and everyone is taxed.  VAT rates are notorious for going sky-high.  And even then, the evasion and cheating will still remain a significant problem.

[Bigun]

Once the rate of a national retail sales tax gets above 10%, the evasion and cheating will overwhelm the system.  The only recourse then will be to move to a VAT system, where everything is taxed, and everyone is taxed.  VAT rates are notorious for going sky-high.  And even then, the evasion and cheating will still remain a significant problem.

Bovine fecal matter! 100%

I'll take a point of retail sale only sales tax (see HR25) over the Marxist mess we currently endure any day!

[Weird Tolkienish Figure]

I wouldn't mind this idea but my thinking is that they'll pass a national sales tax and just add it to income taxes.

[libertybele]

I wouldn't mind this idea but my thinking is that they'll pass a national sales tax and just add it to income taxes.

Well, that is always a possibility.

[Bigun]

I wouldn't mind this idea but my thinking is that they'll pass a national sales tax and just add it to income taxes.

Not if it's HR25 they pass because THAT bill pulls the Marxist income tax out by its roots and throws it onto the ash heap of history. Where it properly belongs if you ask me.

[Kamaji]

Bovine fecal matter! 100%

I'll take a point of retail sale only sales tax (see HR25) over the Marxist mess we currently endure any day!

Bovine fecal matter right back at you.

What you want is massive tax evasion, which simply results in even higher tax rates for those of us who do it the correct way and don't buy under the table from illegal vendors.

VAT fraud is endemic, and can exceed 10% of the revenues.  Source:  https://www.imf.org/external/pubs/ft/wp/2007/wp0731.pdf

And VAT at least has the benefit of a cross-checking system.  A retail sales tax lacks that aspect and is therefore more vulnerable to fraud and evasion.

[Kamaji]

Not if it's HR25 they pass because THAT bill pulls the Marxist income tax out by its roots and throws it onto the ash heap of history. Where it properly belongs if you ask me.

Yeah, and then two Congresses later, an income tax will be added.  At first it'll just be on the "rich" - just to even up the tax burden, since a sales tax is extremely regressive - and then the definition of "rich" will be slowly defined down until it means something like "has an income of $50,000 or more per year."

[DefiantMassRINO]

That Federalist argues for a consumption tax as an instrument of moraility to discourage excess.

There is nothing moral about taxation - it's confiscation of private property by the Government.  It's amoral so long as the Government only takes the bare minimum necessary, with the consent of the People's elected representatives, to provide services that are of value to all citizens.  It's immoral when government confiscates more than the bare minimum to provide services that are of value to a select few citizens.

Taxation of alcohol and tobacco has not had the moral effect of inhibiting abuse.  Those taxes' only effective purpose is to provide revenue to the Government.

[Kamaji]

That Federalist argues for a consumption tax as an instrument of moraility to discourage excess.

There is nothing moral about taxation - it's confiscation of private property by the Government.  It's amoral so long as the Government only takes the bare minimum necessary, with the consent of the People's elected representatives, to provide services that are of value to all citizens.  It's immoral when government confiscates more than the bare minimum to provide services that are of value to a select few citizens.

Taxation of alcohol and tobacco has not had the moral effect of inhibiting abuse.  Those taxes' only effective purpose is to provide revenue to the Government.

The higher the tax on something, the less of it is bought or sold because the tax imposes a wedge between the price the buyer pays and the price the seller receives.  That being said, the problem with sin taxes is that the good in question is usually somewhat addictive, and therefore the purchasers tend to have a rather inelastic demand curve.

[Bigun]

Bovine fecal matter right back at you.

What you want is massive tax evasion, which simply results in even higher tax rates for those of us who do it the correct way and don't buy under the table from illegal vendors.

VAT fraud is endemic, and can exceed 10% of the revenues.  Source:  https://www.imf.org/external/pubs/ft/wp/2007/wp0731.pdf

And VAT at least has the benefit of a cross-checking system.  A retail sales tax lacks that aspect and is therefore more vulnerable to fraud and evasion.

What I want is a fair and honest form of taxation that will fit inside OUR form of government.  The Marxist income tax fails in every regard!

[Kamaji]

What I want is a fair and honest form of taxation that will fit inside OUR form of government.  The Marxist income tax fails in every regard!

Well, given the 16th Amendment, not only does it fit our form of government, it is expressly sanctioned by our fundamental organizing document.

Beyond that, why would a sales tax be fair or honest?  It's a highly regressive method of taxation, and in practice ends up being subject to so many politically-motivated exceptions, exclusions, and reductions, that it can be a nightmare to deal with.

[Bigun]

Well, given the 16th Amendment, not only does it fit our form of government, it is expressly sanctioned by our fundamental organizing document.

Beyond that, why would a sales tax be fair or honest?  It's a highly regressive method of taxation, and in practice ends up being subject to so many politically-motivated exceptions, exclusions, and reductions, that it can be a nightmare to deal with.

The bill I support does not have ANY  exceptions, exclusions, and reductions, Politically motivated or otherwise.

https://www.congress.gov/bill/118th-congress/house-bill/25/text

[Kamaji]

The bill I support does not have ANY  exceptions, exclusions, and reductions, Politically motivated or otherwise.

https://www.congress.gov/bill/118th-congress/house-bill/25/text

That is no guarantee that within one or two sessions of Congress there won't be a whole raft of exceptions engrafted onto it.  WADR, believing otherwise is the heighth of naivete.

[Weird Tolkienish Figure]

Well, given the 16th Amendment, not only does it fit our form of government, it is expressly sanctioned by our fundamental organizing document.

Beyond that, why would a sales tax be fair or honest?  It's a highly regressive method of taxation, and in practice ends up being subject to so many politically-motivated exceptions, exclusions, and reductions, that it can be a nightmare to deal with.

A few things I like about it, it's a tax on consumption that everyone pays (illegals, etc.), it's sort of an end around import tariff, collection costs are relatively low. Plus it encourages saving, in theory.

[jmyrlefuller]

Sorry to say it, but replacing one tax with another is not going to "defund the IRS." There will still need to be an IRS to collect it.

Herman Cain's 9-9-9 proposal was the closest I've seen to something feasible, a Universal Transaction Tax that treats all money transfers as equal.

[Smokin Joe]

Bovine fecal matter right back at you.

What you want is massive tax evasion, which simply results in even higher tax rates for those of us who do it the correct way and don't buy under the table from illegal vendors.

VAT fraud is endemic, and can exceed 10% of the revenues.  Source:  https://www.imf.org/external/pubs/ft/wp/2007/wp0731.pdf

And VAT at least has the benefit of a cross-checking system.  A retail sales tax lacks that aspect and is therefore more vulnerable to fraud and evasion.

Last time I ran into a VAT was in Canada. I bought a sweatshirt, finding the price reasonable. By the time the provincial sales tax and the Canada-wide VAT had been tacked on, the price had doubled.

The problem with those taxes boils down to their nature.

While state, county and city sales taxes in one town here are about 8%, in the next county they may only add up to 6% (mostly State Sales Tax), and over in Montana (about 20 miles to the line), there is no sales tax at all.

Vehicles, obviously, get taxed anyway, but If I want to buy furniture or other major appliances that aren't taxed, I check the weather forecast, take the pickup west, and tarp my load coming back.


But, running with the concept, exclude food, exclude medical services, devices, and prescriptions, exclude primary housing, and exclude energy for personal use.

Tax the rest.

And amend the Constitution that no tax be placed on income.

[Kamaji]

A few things I like about it, it's a tax on consumption that everyone pays (illegals, etc.), it's sort of an end around import tariff, collection costs are relatively low. Plus it encourages saving, in theory.

Why would everyone necessarily pay it?  One of the big problems with sales taxes is that there is evasion with under-the-table sales.  Every business has waste in its inventory, some more than others, and since a sales tax audit would only come in way after the fact, for a business that sells small fungible items (e.g., pens and pencils), it would be very difficult for the auditor to gainsay a claim that there was significant waste in the businesses' inventory.  The problem would be further exacerbated with illegals because they are already participating in grey markets to begin with, so they are even less likely to be paying sales tax than regular people.

Collection costs are not low, not when the entire lifecycle of the tax period is taken into account.  Unless one is willing to operate on blind faith, there will still be significant costs for auditing, and there will still be significant costs for collections to go after vendors who, for one reason or another (typically because they're having a cash crunch) do not remit the collected sales tax.

Pyramiding sales tax liabilities can also destroy a business in a way that unpaid corporate income tax cannot, generally because sales taxes are classified as so-called "trust fund taxes" which can (a) be assessed outside of a corporate entity against the responsible persons (which can include the company accountant or return preparer), and (b) generally cannot be discharged in bankruptcy.

Finally, it would skew purchases to favor low-taxed items over high-taxed items, and the only real beneficiaries of the savings would be those in the higher income brackets, because those of us at the lower end would still be spending the bulk of our income on the necessities of life.

[Kamaji]

Sorry to say it, but replacing one tax with another is not going to "defund the IRS." There will still need to be an IRS to collect it.

Herman Cain's 9-9-9 proposal was the closest I've seen to something feasible, a Universal Transaction Tax that treats all money transfers as equal.

[berdie]

I have always been, and still am, a big proponent of either a consumption or flat tax.

I lean toward consumption. Everybody has some skin in the game. (I am cutting my own throat, lol).

Of course tax accountants would definitely take a hit, lol.

[roamer_1]

What you want is massive tax evasion, which simply results in even higher tax rates for those of us who do it the correct way and don't buy under the table from illegal vendors.

Hold on now... That's right, but it ain't right...
There is massive tax evasion under the income tax too... When I talk about The Street, I ain't talking about Main Street. There is a massive under-the-table culture right here right now, and switching the emphasis to goods instead of labor might indeed swell the Street, but not anywhere near to the tune of the losses that jippo labor does right now.

Hell I have done it myself... A guy has a job and he wants it off the books... And he pays in lunchboxes full of cash, well, that's good for everyone involved. It's the same thing involved between union jobs versus non-union jobs... As a contractor I was involved in government jobs, which insisted on union scale - And for those jobs I would calculate my regular take off and multiply it by three - It was THAT much more cost.

I recognize your point, and you're right - VAT taxes are susceptible to black market forces - But so is labor.

and in favor of @Bigun 's position, at least a flat tax would not suppress labor like income tax does, would take the weight off of employers, and make employers more willing to put up with labor. My last go at the brass ring was specifically designed to keep me out of employing, not so much because of the employees (which is enough trouble), but also because I wanted nothing to do with the regulatory and fiduciary pitfalls that currently come along with it. GET THAT: I stayed small on purpose, because it ain't worth the weight that employees bring.