Superiority Of A National Retail Sales Tax

Several newspapers across our nation have reacted to president Bush's proposal for major tax reform with editorials dismissing the national sales tax out of hand as a viable alternative to the current federal income tax code. This, as stated, because of its adverse impact on the poor. All national sales tax legislation proposed since the early 1990’s have been progressive by virtue of a simple provision : a rebate would be applied to all family units ranging from a single individual to a family of any size. The rebate amount would adjust to family size and equal the sales tax liability of family units with income at the official poverty level. Thus this provision would reduce the effective sales tax rate to zero for poverty level families while having an insignificant effect on the highest income family units. For example, one previous proposal with a nominal sales tax rate of 17% would indicate an effective sales tax rate of 16.99% on those highest income family units. Family units between those two extremes would pay an effective sales tax rate in proportion to what the fixed rebate amount is relative to their income.Certainly it is important to maintain progressivity in any federal tax code, however, a federal tax code that offers the maximun opportunity for poverty level families to move up the economic ladder is equally if not more important. Many studies reported in the 90’s showed the economic benefits that derive from a national sales tax: higher incomes, more better paying jobs, higher returns on investments, higher government revenues to mention a brief few . The best, most comprehensive study of the current federal income tax code compared to proposals for a flat federal income or a national sales tax was published by Dale Jorganson. Dean of the economics dept. at Harvard University in 2001. Jorganson concludes that a progressive National Sales Tax, collected on personal expenditures at the retail level would generate economic gains exceeding those from a flat tax by more than 50%! That is 3.32 trillion $ for the sales tax compared to 2.06 trillion $ for a flat income tax.( figures are for 1997 ) The comparisons are based on equal progressivity in both proposed codes and neutral with respect to federal expenditures.One need not contemplate too long before realizing the immense benefits to all deriving from replacing any form of income tax- progressive or flat- with a national retail sales tax.