[Previous entry: "A doctor's op-ed on mad cow disease"] [Main Index] [Next entry: "Hunter, a great friend of liberty, has been arrested"]

01/02/2004 Archived Entry: "ANOTHER reason why a national sales tax is such a horrible idea"

IT'S AMAZING THAT SO MANY FREEDOM LOVERS ADVOCATE A NATIONAL SALES TAX. And it's weird to hear some Libertarian candidates endorsing one. Have we forgotten that theft is theft? Do we hate the IRS so much that we blind ourselves to the fact that a national sales tax bureaucracy could be just as intrusive? We definitely blind ourselves if we believe a national sales tax would actually replace the income tax, instead of horrifically being imposed on top of it.

But Jason Auvenshine, state chairman of the Arizona libertarian party, has come up with something new: an analysis that shows why political powers increasingly want a national sales tax and why such a tax has a good chance of being imposed. Here's the crux of his argument:

If the sales tax passes, Uncle Sam switches from taxing income to taxing consumption just as the largest demographic in American history switches from earning lots of income to consuming their life savings in retirement. This allows a significant percentage of baby boomer savings to be taxed twice: Once when it was earned as income under the old system, and again when it is spent for consumption under the new system. Pretty slick, but what did you expect from politicians? The public "demand" for a sales tax like FairTax is being engineered as much by those who know the gravy train's going to get pretty dry under the current system as it is by freedom lovers who rightly despise the IRS.

To read his complete statment, just click ...

FAIRTHEFT - HOW THE "FAIRTAX" TAXES EXISTING SAVINGS TWICE

As a matter of history, I got involved with the FairTax group way back in the late '90s when they ran some radio ads here in Tucson about doing away with the IRS. I was an advocate of FairTax for a number of years. I'd personally be much less unhappy with the FairTax than I am with the IRS and the current income tax system. But I no longer advocate it or endorse it. At the most basic level, theft is theft, taxation is theft, and "FairTheft" just isn't something I can advocate.

But there's something significant I think most people are missing. For sake of argument, let's consider the ideal "FairTax" world, i.e. the bill passes just as it is and a sales tax REPLACES the income tax entirely instead of being added on. I know it's a stretch, but just imagine...

The FairTax has a far greater chance of passing than even most of its advocates realize. I wouldn't call it 100% certain, but highly likely. And not just yet...but pretty soon. It isn't because anyone in Washington has or will suddenly become enlightened on the evils of the IRS and the income tax, or because "The People" are rising up and demanding that a sales tax replace the income tax. It's a simple matter of government revenue and demographics.

Middle and upper middle class Americans go through distinct phases in their financial lives. Throughout our working lives we earn wage income, which as we all know is highly taxed under the current system. We use the remaining after tax wage income for immediate consumption but also to purchase assets - stocks, bonds, bank accounts, gold, real estate, whatever. The peak of wage income and net worth typically occur at or very near retirement age, after which wage income stops or is reduced dramatically. Also after retirement, what income is earned is typically in the form of capital gains or interest, almost all of which is tax favored to a greater or lesser degree. Furthermore, assets are typically sold off during retirement to finance consumption in excess of current income.

We have a huge population bubble (the baby boomers) who are about to go from earning lots of highly taxed wage income to earning very little or none of it. This is extremely bad news for the income tax. Income tax revenues are going to plummet unless drastic changes are made to the system, and that's not even considering any of the income tax protest/avoidance/etc. movement that's been going on.

Consider the impact on government revenues from someone retiring with a $500,000 net worth in a combination of real estate, stocks, etc. This sounds like a lot of money but is actually pretty modest for someone getting ready to retire. With the exception of money in IRA type accounts (relatively recent in the lives of baby boomers) none of this net worth is taxable under the current system. Under a sales tax system almost all of it would get taxed. For example, under the current system you can sell your $300,000 four bedroom house, buy a $100,000 condo and spend the $200,000 difference relatively tax free. Lots of retirees do just that. Under a sales tax, everything you spend gets taxed. The federal government gets a piece of that $200,000 that they wouldn't get under the current system. This effect is magnified the greater your net worth is.

If the sales tax passes, Uncle Sam switches from taxing income to taxing consumption just as the largest demographic in American history switches from earning lots of income to consuming their life savings in retirement. This allows a significant percentage of baby boomer savings to be taxed twice: Once when it was earned as income under the old system, and again when it is spent for consumption under the new system. Pretty slick, but what did you expect from politicians? The public "demand" for a sales tax like FairTax is being engineered as much by those who know the gravy train's going to get pretty dry under the current system as it is by freedom lovers who rightly despise the IRS.

As I said, I would *personally* be better off under a sales tax than I am with the income tax. I am not a member of the baby boom generation. I have yet to reach my peak income earning years, and much of my savings are in tax sheltered IRA accounts that people my age have had available to us since we first started working. As a result, comparatively little of my lifetime earnings would get taxed twice, and I'd be rid of the IRS for the remainder of my working life. So I'd be happier, but I have no illusions about the fact that all of the baby boomers out there will be getting royally screwed.

Which is why I think some form of sales tax is highly likely to pass. It's just too good of an opportunity for the thieves in Washington to pass up.

--Jason Auvenshine

Posted by Claire @ 08:32 AM CST
Link