NCPA - National Center for Policy Analysis

A National Sales Tax Doesn't Add Up

December 29, 1999

Much of the blame for the demise of fundamental tax reform must go to the Quixotic effort of a few radicals, led by the "church" of Scientology, to abolish the Internal Revenue Service by instituting a national retail sales tax collected by the states. Sales tax supporters divided the forces of reform, ensuring continuation of the status quo.

Every serious analysis, other than those paid for by sales tax advocates, has shown it is utterly unworkable. For example, in the September issue of the National Tax Journal, economist Bill Gale of the Brookings Institution estimated a 50 percent tax rate would be needed to replace all federal taxes, not the 23 percent rate sales tax supporters advertise.

That is because sales tax advocates make the absurd assumption that the federal government would pay the tax as well as consumers. This would be like an individual "taxing" himself on his own purchases and calling it income.

Economist Evan Koenig of the Federal Reserve Bank of Dallas, in the December issue of the National Tax Journal, points out that a sales tax, unlike the flat tax, raises the prices of all goods and services. This will require higher tax rates to maintain the real level of Social Security benefits and other programs. Koenig estimates it would require a 60 percent sales tax rate to replace all current federal taxes.

  • In any case, despite a reported $20 million marketing effort, a recent poll by Fox News/Opinion Dynamics found the flat tax is still preferred over the sales tax by better than a 2-to-1 margin.
  • A Harris poll found 57 percent of the public opposed to a national sales tax.

Finally, the Internet is increasing opportunities to buy goods and services without paying sales taxes, destroying the viability of a national retail sales tax.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 29, 1999.

 

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