[quote]Heuristic wrote:
A simple but radical solution to this would be to scrap income/corporate/social security &c. taxes and only have a consumption (sales) tax. Granted this tax would have to be rather high (perhaps 25%) it would likely be no different, or perhaps even lower, than what you are playing now between all taxes. This would also mean that your savings would not be taxed.[/quote]
That would be a complete catastrophe. Our Sales Tax is bad enough.
In fact, some countries in Europe have seen pretty serious results just by increasing their VAT (which is somewhat similar to our Sales Tax). And they only increased it marginally. Most of them had to quickly decrease it shortly afterward, but, still, it’s pretty high over there (between 16 and 22% depending on the country) and somehow they ignore the devastating effects its having in their economies.
Capitalism sustains itself by the movement of money. Money must change hands, as frequently as possible, INSIDE the country.
By hiking the Sales Tax to compensate for no other taxes (according to the calculations I saw, it would have to be hiked to well over 40% to make up for it), the incentive for everyone would be to avoid, at all cost, buying stuff that gets Sales Tax on it – especially large purchases – inside the US.
Not only it would send the market into disarray – mainly because the psychological effect is tremendous, with people shifting their expenses even further towards housing and food, and avoiding durable goods as much as they can – it would provide a huge incentive for illegal transactions, included, but not limited to, smuggling; so the Government would now have to spend a LOT of money trying to control the illegal transactions, which, in the end, makes things even worse.
Not bad enough? A lot of Credit Companies and Banks would go bankrupt, which, although part of me likes the idea, the more rational one realizes that would be a LOT of lost jobs – which is BAD.
The reason income taxes have been around for so long is because they work. They’re the easiest to collect, the hardest to get away from and the ones that have the least destructive psychological effect (believe it or not).
In fact, all trials and studies have proven that the best for a country’s capitalist economy is to focus on income tax and reduce, or even eliminate, all other forms of taxation, EXCEPT taxation on goods you specifically want to control consumption of (gas and tobacco, for example).
Out-of-the-box thinking is good, yes, but not all solutions that sound good are good.