MuD & PHuD

On Wednesday I posted about a news story reporting that President Bush thought a National Sales Tax might be a good idea. The post generated a few comments that have given me pause and caused me to reconsider my stance somewhat.

As pointed out in multiple places (Cato, My Little Corner and a good comparison here) there are a number of advantages to a National Sales Tax, and I'll let you visit the links to see the positives.

There are, it seems, a few potential pitfalls that need to be addressed.

First, sales taxes are inherently regressive. AH had this to say about my concern:

Yes, the poor guy may spend more on gas-- but the rich guy spends MORE, period!

Whether its travel by plane and hotels, or jewellery or any other luxury item, there is one thing you can be sure of-- he'll spend MORE money than the poor guy-- and this pay more taxes.

I think that my point was missed (as commonly happens with this particular topic...I need to get better at this one). The point here is that a 15% sales tax will take a higher percentage of a poor guy's paycheck than it will from a rich guy's paycheck and is, hence, regressive (this concern is addressed by Cato...to some extent).

Second, the Cato analysis suggests that:

There would be a universal rebate for every household that would in effect exempt all consumption up to the poverty level.

This sounds good in theory, but I have a question: How? Would I have to save receipts from every single purchase I make? Credit/debit card records don't cut it because then everyone would just deal in cash (and/or Big Brother potential would be truly scary). I haven't seen this addressed and it seems that it's just assumed that this would be easy...maybe I'm just missing something. [I know, I know, this was pretty stupid. However, if this tax bill were ever passed I just don't believe that all Americans are going to get a check from the government to offset 'subsistance' level purchases. I would expect that the Left would manage to get some means testing or some other crap pinned onto the bill so the 'wealthiest 1%' don't get anything back...but maybe that's just me.]

Third, define Retail. I know this may seem pretty obvious, boarding on the absurd. All the pro-NST links above suggest that only final-product/retail items (and services?) be taxed. So a machine needed by a factory to make a car would not be taxed when bought. Ok. What about buying things in bulk? BJ's and Sam's Club would certainly be happy as they are not considered retail (although I suppose the law could be written to include them). This brings up the possibility that lobbying groups might find loopholes by getting lawmakers to define various and sundry products as not retail, thereby exempting them from being taxed, to some extent diluting the argument that NST would rid us of the avoiding taxes problem.

Finally, with all the excitement generated by the reduction of production costs, it should be pointed out that a NST would increase the cost of actually buying those products. It has been said that the power to consume is the power to produce. In other words, you can't buy something if you don't first obtain $$...and you obtain $$ by producing something that didn't exist previously. So, by making it easier to produce, you also make it easier to consume. However, taxes always act as a disincentive to whatever is being taxed...and so we have to assume that taxing the sale of products (and services?) will, to some extent, inhibit sales. To what extent this is a measurable effect would depend on the numbers involved. Regardless, this is an issue.

I realize that I am a layperson when it comes to economic issues. However, I would sincerely like to see answers/solutions to these concerns. On the topic I have a totally open mind and would love to hear your comments.

More:

The Baby Seal Club has some thoughts on this topic as well.
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