I think most would agree that when it comes to taxes in this country, we need reform. The last tax reform, the national income tax, was passed almost 100 years ago in a far different socioeconomic America.
One of the latest tax reform ideas to catch fire has been the national sales tax. The national sales tax (NST) is a flat tax on all retail goods purchased. Everything from a magazine to a yacht is taxed at the same rate, regardless of the purchaser or state in which the good is bought.
Allow me to demonstrate to you the national sales tax if put into action.
The national sales tax bill is passed by Congress and signed into law by the president. It levies a 25 percent tax on finished goods sold at the retail level for final consumption, such as goods from Walmart or Home Depot.
Let’s say Bob, a farmer who makes the average per capita income of the United States ($37,800), buys a pack of gum that costs $1 and the NST is 25 percent. His pack of gum is now $1.25 with the extra 25 cents going straight to the federal government.
Now, let’s say Jim, who earns as much as the top 1 percent of wage earners in the United States ($300,000 per annum), buys a new Porsche that costs $100,000.
Jim pays $125,000 for the car and $25,000 goes to the federal government. Bob is a lower wage earner so he’ll never buy a Porsche, and the NST won’t affect him.
Jim is a higher wage earner, so he can afford to pay 25 percent on his luxury car. Sounds good, right?
Before you even formulate the questions in your head, I know what you’re thinking. What happens when a middle class family of five making $75,000 per annum decides, after saving up, that they’re going to reward themselves with a family boat so they can go fishing and camping in the summer? Let’s say the boat costs $20,000. Let’s even say it’s a car.
Now they’re paying $5,000 in taxes on that boat/car rather than a moderate $1,500 (at an average of 7.5 percent sales tax). As a direct result of the national sales tax, the middle class pays almost triple the taxes on valuable commodities that are needed such as cars, computers, books, furniture, etc.
Keep in mind that this same middle class family is already paying some of the highest health care premiums (if they even have health insurance). They statistically have a substantial amount of debt and no money saved to pay for their kids to attend college, and neither parent, if they aren’t already divorced, likely has a sizable retirement portfolio.
But wait a minute. That $75,000 a year that middle class family is earning in wages is no longer taxed in the 25 percent income tax bracket. In fact, the NST eliminates individual taxes, alternative minimum taxes, Social Security/Medicare taxes, estate taxes, business taxes, capital gains taxes, gift taxes, self-employment taxes and other unnecessary taxes.
Wage earners are now able to keep 100 percent of the wages they earn, minus their states’ sales tax. Middle class families, when the “taxman” is done ripping up their paycheck, pay 35 – 40 percent to a number of different taxes. A middle class families’ paycheck is now all theirs, and can be spent however they’d like.
The national sales tax is also extremely good for companies and, as a result, would help consumers immensely with the price of goods.
Companies are prone to a “cascade effect” where each stage of making a good is taxed, such as the purchase of plastic to make toys, or parts to make cars.
As a result, to pay for corporate taxes without losing revenue, companies raise the price of goods so that consumers bear the tax burden.
Dr. Dale Jorgenson, a professor of economics at Harvard, found that repealing the income and payroll taxes would reduce producer prices by 20-35 percent, depending on the industry.
With the national sales tax, wage earners are able to keep all the money they earn in their paychecks AND goods are roughly 10 percent cheaper.
The NST lets people take home a full paycheck. That’s at least a 15 percent raise for poor families who are paying income and social security taxes from their paychecks.
The NST also removes hidden taxes and compliance costs from retail items that will make more goods affordable for poor families. Also, the NST is not imposed on already lower-priced used items.
And perhaps the biggest wonder of the NST is the monthly “prebate” which ensures that no one is taxed for basic human needs.
It’s time we start putting our money where our mouth is when it comes to helping the poor and middle class in this country, and seriously consider the national sales tax.
Benjamin Presson is a sophomore in political science and business and would love to share with you the other 3/4s of the column he had to cut. He can be reached for comment at [email protected].
