Over the weekend I heard a well-off, middle-aged man provide his thoughts on what he'd do if he became president, at least with regard to taxes. The idea he shared was that he'd eliminate federal income taxes and replace them with a national sales tax. While I cringed when first hearing this suggestion, I hadn't done thorough research on the subject yet, so I kept my mouth shut until doing so. Well, now that I have researched the matter, it appears as though my first reaction was indeed the correct one.
It's estimated that the revenue in this country for 2019 will be approximately $3.44 trillion and that 50% of that, or $1.824 trillion, will come from individuals' income taxes. In order for us to make up that lost revenue, we'd need to increase the (exclusive) sales tax rate to 44%. The average state sales tax (including D.C.) is 5.1%. So an item which costs $20 before tax currently averages to cost $21.02 after tax. If a national sales tax were implemented, however, the item would cost $28.80, a difference of $7.78.
Before I go any further, let's break down the 2018-2019 federal tax brackets:
10%: Up to $9,525 Single/Up to $13,600 Head of household/Up to $19,050 Married filing jointly/Up to $9,525 Married filing separately
12%: $9,526 to $38,700 Single/$13,601 to $51,800 Head of household/$19,051 to $77,400 Married filing jointly/$9,525 to $38,700 Married filing separately
22%: $38,701 to $82,500 Single/$51,801 to $82,500 Head of household/$77,401 to $165,000 Married filing jointly/$38,701 to $82,500 Married filing separately
24%: $82,501 to $157,500 Single/$82,501 to $157,500 Head of household/$165,001 to $315,000 Married filing jointly/$82,501 to $157,000 Married filing separately
32%: $157,501 to $200,000 Single/$157,501 to $200,000 Head of household/$315,001 to $400,000 Married filing jointly/$157,001 to $200,000 Married filing separately
35%: $200,001 to $500,000 Single/$200,001 to $500,000 Head of household/$400,001 to $600,000 Married filing jointly/$200,001 to $300,000 Married filing separately
37%: $500,001 or more Single/$500,001 or more Head of household/$600,001 or more Married filing jointly/$300,001 or more Married filing separately
Now here is the 2017 household income distribution in this country:
Under $15,000: 10.7%
$15,000 to $24,999: 9.6%
$25,000 to $34,999: 8.2%
$35,000 to $49,999: 12.3%
$50,000 to $74,999: 16.5%
$75,000 to $99,999: 12.5%
$100,000 to $149,999: 14.5%
$150,000 to $199,999: 7.0%
$200,000 and over: 7.7%
If we divide this into thirds, 28.5% are lower-class; 41.3% are middle-class; and 29.2% are upper-class. Regardless of how we want to class things up, however, 78% of American workers say they're living paycheck to paycheck. In other words, every household bringing in less than $100,000 per year is likely living paycheck to paycheck, and even some who are making more than that.
So let's dive deeper into this idea of a national sales tax and how it would impact people. Looking at all the before-mentioned numbers, those living paycheck to paycheck have federal income tax rates between 10 and 24%. For a single person making up to $9,525 per year, that translates to $952.50. That's less than $1,000 per year. How would such an individual be able to consistently purchase essential goods if the sales tax increased from 5% to 44%? Either he or she would go broke or they'd be forced to skip some meals. The average American spends over $2,000 annually in local and state taxes, which would account for 21.5% of said individual's salary, right in line with the federal tax bracket which includes earners whom make between $29,176 and $72,975 more than him/her.
A national sales tax assumes consumers will continue to consume at similar, if not greater rates than before. Advocates say, "Well, they don't have to worry about the federal income tax anymore, so they should be able to spend more!" The problem with this argument is the fact our federal income tax system is progressive, whereas a national sales tax would be flat. The progressive tax is in place so people can give back based upon what they earn. A flat tax treats everyone equally, whether they're a bum on the street or a multimillionaire. For the time being, this flat tax doesn't present a grand hardship for those making less money, as it is around 5%. That wouldn't be the case if it were increased to 44%, almost 9 times what it is now. Almost 4 in 5 households are living paycheck to paycheck and some think raising the sales tax by nine will aid them in some unforeseen manner? I don't think so. What would inevitably happen is many individuals and families would stop consuming at equal intervals, let alone higher ones. This would start a snowball effect, as revenue would decrease; spending would have to be cut; and the country would start looking like a third-world nation before too terribly long.
Ironically, I only hear rich people supporting this idea, as it'd solely benefit them in the short-term, but down the road, it'd hurt them just like it would the rest of us.
Here's how the 2019 U.S. federal budget spending breaks down:
- 28% on healthcare
- 25% on pensions
- 22% on defense
- 8% on interest
- 8% on welfare
- 3% on education
- 2% on other spending
- 2% on transportation
- 1% on general government
- 1% on protection
So where all would we cut? There isn't much more to cut with regard to education or transportation. Pension? Yeah, that would go over well... Healthcare? We've been trying to do that for how many decades and failed? Defense? With our current level of paranoia, this isn't likely. We're already lagging behind other countries when it comes to healthcare, education, environmental protections, etc. Not only that, the pay gap in the U.S. has reached its highest level since the Great Depression. The rich are are living like kings and queens, while everyone else is hoping they can one day not have to live paycheck to paycheck. That wouldn't happen with a national sales tax. It'd hurt roughly 80% of this country, while benefiting only the top earners, and again, that's just in the short-term. If you thought our roads and bridges were bad now, just wait until consumers stop spending as much money and the federal government has to cut down on construction and infrastructure. If you thought we needed more police and firefighters due to high levels of crime, just wait until consumers stop spending as much money and the federal government has to downsize said workforces. While the federal income tax system is far from perfect, the answer to said imperfections isn't to replace it with a national sales tax. Those advocating for such a move are essentially saying that while they were fortunate enough to live in a country which provided them such grand opportunities, largely due to taxpayers they didn't know, they don't believe the coming generations should be provided those same opportunities. They're saying, "Thank you, the America of yesterday! I love the America of today! Who cares about the America of tomorrow?" Sadly, if they get their selfish wish, their children and grandchildren will one day say, "We did!"
https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762
https://www.taxpolicycenter.org/briefing-book/what-would-tax-rate-be-under-national-retail-sales-tax
https://www.salestaxinstitute.com/resources/rates
https://www.bankrate.com/finance/taxes/tax-brackets.aspx
https://www.statista.com/statistics/203183/percentage-distribution-of-household-income-in-the-us/
https://www.cnbc.com/2019/01/09/shutdown-highlights-that-4-in-5-us-workers-live-paycheck-to-paycheck.html
https://www.fool.com/taxes/2018/04/22/how-much-does-the-average-american-pay-in-taxes.aspx
https://www.usgovernmentspending.com/US_fed_spending_pie_chart
It's estimated that the revenue in this country for 2019 will be approximately $3.44 trillion and that 50% of that, or $1.824 trillion, will come from individuals' income taxes. In order for us to make up that lost revenue, we'd need to increase the (exclusive) sales tax rate to 44%. The average state sales tax (including D.C.) is 5.1%. So an item which costs $20 before tax currently averages to cost $21.02 after tax. If a national sales tax were implemented, however, the item would cost $28.80, a difference of $7.78.
Before I go any further, let's break down the 2018-2019 federal tax brackets:
10%: Up to $9,525 Single/Up to $13,600 Head of household/Up to $19,050 Married filing jointly/Up to $9,525 Married filing separately
12%: $9,526 to $38,700 Single/$13,601 to $51,800 Head of household/$19,051 to $77,400 Married filing jointly/$9,525 to $38,700 Married filing separately
22%: $38,701 to $82,500 Single/$51,801 to $82,500 Head of household/$77,401 to $165,000 Married filing jointly/$38,701 to $82,500 Married filing separately
24%: $82,501 to $157,500 Single/$82,501 to $157,500 Head of household/$165,001 to $315,000 Married filing jointly/$82,501 to $157,000 Married filing separately
32%: $157,501 to $200,000 Single/$157,501 to $200,000 Head of household/$315,001 to $400,000 Married filing jointly/$157,001 to $200,000 Married filing separately
35%: $200,001 to $500,000 Single/$200,001 to $500,000 Head of household/$400,001 to $600,000 Married filing jointly/$200,001 to $300,000 Married filing separately
37%: $500,001 or more Single/$500,001 or more Head of household/$600,001 or more Married filing jointly/$300,001 or more Married filing separately
Now here is the 2017 household income distribution in this country:
Under $15,000: 10.7%
$15,000 to $24,999: 9.6%
$25,000 to $34,999: 8.2%
$35,000 to $49,999: 12.3%
$50,000 to $74,999: 16.5%
$75,000 to $99,999: 12.5%
$100,000 to $149,999: 14.5%
$150,000 to $199,999: 7.0%
$200,000 and over: 7.7%
If we divide this into thirds, 28.5% are lower-class; 41.3% are middle-class; and 29.2% are upper-class. Regardless of how we want to class things up, however, 78% of American workers say they're living paycheck to paycheck. In other words, every household bringing in less than $100,000 per year is likely living paycheck to paycheck, and even some who are making more than that.
So let's dive deeper into this idea of a national sales tax and how it would impact people. Looking at all the before-mentioned numbers, those living paycheck to paycheck have federal income tax rates between 10 and 24%. For a single person making up to $9,525 per year, that translates to $952.50. That's less than $1,000 per year. How would such an individual be able to consistently purchase essential goods if the sales tax increased from 5% to 44%? Either he or she would go broke or they'd be forced to skip some meals. The average American spends over $2,000 annually in local and state taxes, which would account for 21.5% of said individual's salary, right in line with the federal tax bracket which includes earners whom make between $29,176 and $72,975 more than him/her.
A national sales tax assumes consumers will continue to consume at similar, if not greater rates than before. Advocates say, "Well, they don't have to worry about the federal income tax anymore, so they should be able to spend more!" The problem with this argument is the fact our federal income tax system is progressive, whereas a national sales tax would be flat. The progressive tax is in place so people can give back based upon what they earn. A flat tax treats everyone equally, whether they're a bum on the street or a multimillionaire. For the time being, this flat tax doesn't present a grand hardship for those making less money, as it is around 5%. That wouldn't be the case if it were increased to 44%, almost 9 times what it is now. Almost 4 in 5 households are living paycheck to paycheck and some think raising the sales tax by nine will aid them in some unforeseen manner? I don't think so. What would inevitably happen is many individuals and families would stop consuming at equal intervals, let alone higher ones. This would start a snowball effect, as revenue would decrease; spending would have to be cut; and the country would start looking like a third-world nation before too terribly long.
Ironically, I only hear rich people supporting this idea, as it'd solely benefit them in the short-term, but down the road, it'd hurt them just like it would the rest of us.
Here's how the 2019 U.S. federal budget spending breaks down:
- 28% on healthcare
- 25% on pensions
- 22% on defense
- 8% on interest
- 8% on welfare
- 3% on education
- 2% on other spending
- 2% on transportation
- 1% on general government
- 1% on protection
So where all would we cut? There isn't much more to cut with regard to education or transportation. Pension? Yeah, that would go over well... Healthcare? We've been trying to do that for how many decades and failed? Defense? With our current level of paranoia, this isn't likely. We're already lagging behind other countries when it comes to healthcare, education, environmental protections, etc. Not only that, the pay gap in the U.S. has reached its highest level since the Great Depression. The rich are are living like kings and queens, while everyone else is hoping they can one day not have to live paycheck to paycheck. That wouldn't happen with a national sales tax. It'd hurt roughly 80% of this country, while benefiting only the top earners, and again, that's just in the short-term. If you thought our roads and bridges were bad now, just wait until consumers stop spending as much money and the federal government has to cut down on construction and infrastructure. If you thought we needed more police and firefighters due to high levels of crime, just wait until consumers stop spending as much money and the federal government has to downsize said workforces. While the federal income tax system is far from perfect, the answer to said imperfections isn't to replace it with a national sales tax. Those advocating for such a move are essentially saying that while they were fortunate enough to live in a country which provided them such grand opportunities, largely due to taxpayers they didn't know, they don't believe the coming generations should be provided those same opportunities. They're saying, "Thank you, the America of yesterday! I love the America of today! Who cares about the America of tomorrow?" Sadly, if they get their selfish wish, their children and grandchildren will one day say, "We did!"
https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762
https://www.taxpolicycenter.org/briefing-book/what-would-tax-rate-be-under-national-retail-sales-tax
https://www.salestaxinstitute.com/resources/rates
https://www.bankrate.com/finance/taxes/tax-brackets.aspx
https://www.statista.com/statistics/203183/percentage-distribution-of-household-income-in-the-us/
https://www.cnbc.com/2019/01/09/shutdown-highlights-that-4-in-5-us-workers-live-paycheck-to-paycheck.html
https://www.fool.com/taxes/2018/04/22/how-much-does-the-average-american-pay-in-taxes.aspx
https://www.usgovernmentspending.com/US_fed_spending_pie_chart
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