Sunday, April 03, 2005

Linder's Plan

I just read George Will's Thursday column: "The Tax Plan To Kill K Street" touting Rep. John Linder's (R (of course), Georgia) plan for a national sales tax. There were parts of it worth considering. I appreciated him admitting that the payroll tax is regressive--more on that later. And I agree that the tax system is too complex. A "single tax" has a certain appeal--although I think it should be a national ad-valorem tax, rather than a sales tax--but I appreciate Linder and Will for opening the debate.
Here's one big flaw in the sales tax plan: the numbers don't add up. Linder suggests that a 23% sales tax would be enough to pay for the government--which consumes about 23% of GDP. But GDI (Gross National Income) is substantially less than GDP--about $6 trillion vs. $11 trillion, and gross sales receipts are even less. Put it this way, payroll taxes are 5.2% of GDP but require a 10.8% income tax (12.4% of the first $87,000). So to generate 23% of GDP, we would need a 48% flat income tax or a 92% sales tax. 92%. And that's before we allow any deductions such as Linder proposes to relieve the poor and elderly.
Any tax plan looks a lot better if you grossly understate what it will take. Don't like my national ad-valorem tax idea at 6%? Heck, I'll just pretend that it'll only take 1.5%! That looks a lot better, doesn't it? Of course it does! A free lunch always looks good.


Anonymous Anonymous said...

A national sales tax is a bad idea. It would mean an immediate drop in real income for the elderly, the unemployed, the disabled and the poor.

It's about as regressive a tax as you can ask for.

Even state sales taxes are becoming increasingly unfair. In California, the sales tax, over the past forty years, has gone from 4% to as high as 8% in some areas. The burden falls hardest on those who can least afford it.

9:53 PM  

Post a Comment

<< Home