National Sales Tax vs. Federal Income Tax
From time to time, politicians, lobbyists and others float the idea of replacing the federal income tax with a national sales tax. The idea has both pros and cons.
Other People Are Reading
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No More Tax Forms
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Since a national sales tax would be assessed and paid instantly every time you made a purchase--and only when you made a purchase--there would be no need to keep tax records and file federal tax forms.
No More Deductions
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Eliminating the federal income tax means eliminating popular deductions and credits that many people use to substantially reduce their taxable income. But it also means eliminating many of the tax dodges that some people use to avoid paying their fair share.
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Progressive vs. Regressive
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The federal income tax is progressive, meaning your rate increases with your income. A sales tax is regressive, meaning the effective rate decreases as income rises.
Example of Regression
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Say that groceries are subject to a 15 percent national sales tax, and that a typical family spends $500 a month on groceries, meaning the tax is $75. For a family with a monthly income of $2,000, that tax amounts to about 3.8 percent of their income; but for a family with a monthly income of $4,000, the rate is only 1.9 percent.
Proposed Solutions
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Proponents of a national sales tax say the effects of regression can be minimized by reducing the tax rate on necessities such as food and shelter, or exempting those items entirely. Another option is to issue a standard rebate to every taxpayer.
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References
- Photo Credit Image by Fotolia.com, courtesy of Melking
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Comments
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split the sales tax with the company that your buying from.
