Nationwide Federal Sales Tax Structure - Research Paper Example

?The current issue of great concern for stakeholders throughout the American society is with respect to updating and ultimately improving the currenttax code. Many suggestions have come to light over the past several decades for the ways in which this could take place. However, one of these suggestions that simply refuses to go away and has a great many positive and negative aspects is with regards to replacing the current income tax with a federal sales tax. Many nations around the world currently employ a federally mandated sales tax in lieu of deriving government revenue via other methods; namely import taxes, export tariffs, and/or other alternative methods. As might be expected, one of the reasons for why a value added tax/sales tax/”fair tax” has not caught on within the United States is due to the fact that a preponderance of negative trade-offs exist with regards to implementing this. As a function of seeking to understand this issue to a more full and complete degree, the following analysis will present the reader with an understanding of the way in which a federal sales tax represents both positive and negative externalities and could ultimately harm many at risk individuals within the current society. Through such a level of argumentation, this particular researcher will seek to expound upon the complexities of a federal sales tax and the manner through which the trade-offs for this particular approach compare to the current income tax structure that currently exists. Although the analysis will most certainly go into a greater level of death concerning each of the pros and cons of a potential federal sales tax, figure 1.0 below helps to sustain sleep illustrate some of the key points that will be under discussion within this brief analysis. Figure 1.0 Trade-offs of a nation-wide federal sales tax structure     Pros levels the playing field between all tax payers   aids investments     benefits businesses     stimulates saving     eliminates IRS and the headache of "filing taxes"     Cons     disproportionate impact upon the elderly   disproportionate impact upon the poor     lack of deductions for expenses     depends too much on spending     increases potential for tax evasion   As can be seen, the main benefits that a federally mandated sales tax could incur would most certainly be with regards to leveling the playing field between all taxpayers within the system. The current system is one that places an undue level of stress upon certain individuals within society while others do not have any tax burden whatsoever (Jones 6). As such, a federally mandated sales tax would be a system that would invariably change this dynamic and ensure that each individual who participate in the economy would be a same rate. Another added benefit is with regards to the fact that a nationally mandated sales tax would in fact serve to increase investment. Due to the fact that investments themselves and savings would not be taxed, individuals would come to the realization that a heavy national sales tax burden would encourage them to save their money rather than spend it. By much the same token, a direct level of benefit would be with regards to businesses as they would no longer have the headache of engaging with the Internal Revenue Service and providing certain levels of withholdings (Ling & Petrova 371). Furthermore, it can also be understood that eliminating a federal income tax would also have the added benefit of doing away with an incredibly costly and inefficient Internal Revenue Service; a branch of the government that is recently come under a great deal of scrutiny recently for its unjust, unethical, and illogical political torment of those that have alternative views to the current administration. However, it must not be understood that simply eliminating the income tax is going to be a solution that invariably benefits each and every participant within the economy. For instance, the first and most salient concern is with regards to the fact that a trade-off of a nationwide federal sales tax structure is with respect to the fact that it has a disproportionate impact upon the poorest individuals within society (Jones 1). The underlying causation for this has to do with the fact that an individual makes a relatively small salary and finds it necessary to support their family upon the salary will invariably spend a larger percentage of their money upon subsistence and/or consumption. By much the same token, an individual who is relatively wealthy and earns a large salary does not spend such a high percentage of their income each and every month and/or year upon the process of survival. Instead, a relatively lower percentage is spent by an individual who is wealthier. As can directly be seen, this disproportionate level of impact upon individuals within society that would shoulder the lion’s share of this particular tax burden within this structure is one of the negative trade-offs that has thus far proved detrimental to engagement and adaptation of this model of taxation. By much the same level of comparison, the reader can and should also consider the fact that a “fair tax” necessarily disproportionately harms elderly individuals within society. What is meant by this is with regards to the fact that elderly individuals, or those nearing or experiencing retirement already, would be unduly penalized due to the fact that they would in fact be taxed twice (Bressler 7). Ultimately, these individuals would not only have had withholding taxes taken from their income throughout the many decades that they had worked, they would also be taxed a disproportionately higher rate with regards to the purchases that they would make once they entered retirement. This difficulty is profound due to the fact that individuals that have been preparing for retirement had done so under the expectation that the money they saved was theirs; not something which could further be taxed and therefore fundamentally alter the retirement plans that they had thus far engaged. Another unique economic drawback of this particular model is with regards to the fact that compared to the current structure it does not allow for any level of production. As such, small businesses in firms that would seek to lessen their tax burden by deducting key expenses would ultimately be facing the tax structure that was not friendly to small business or interested in promoting its development. They further economic drawback has to do with the fact that this particular tax structure relies too heavily upon spending (Cheney 29). The broad reaching impacts of the economic slowdown of 2007/2008 helps to reveal to the reader the fact that sudden and dramatic drops in consumer spending can take place within a relatively short period of time. Whereas it is true that unemployment increased precipitously during the period in question, unemployment came nowhere close to increasing by the same percentage points that consumer spending dropped. As such, a governmental system that is predicated upon raising revenue by suspending necessarily finds itself within a very dangerous engagement; one that fundamentally relies upon the strength and purchasing power parity of the United States consumer as a means of funding its continued existence. Further, another cogent points that should be engaged with is the fact that reliance upon such a tax structure necessarily increases the risk of tax evasion. Although it is estimated by the Internal Revenue Service and other financial entities within the United States that untold billions of dollars are already going on tax and being evaded, the structure in question would ultimately create a system in which the development of a black market, one that was not responsible for reporting any of its sales for remitting any of the money from them to the government with drive. Whereas it is true that this black market already exist within the United States and elsewhere throughout the world for that matter, the level and extent to which it would grow in a situation in which national sales tax would necessarily exceed 20% would be astronomical (Hughes & Sprinchorn 25). From the information that is thus far been presented, it can definitively be noted that although a fair tax, national sales tax, or value added tax as a means of replacing an income tax is attractive at first, it engenders a great many weaknesses that could fundamentally shift the ability that the United States government has to continue to fund its activities. Although it is true that are running list of trade-offs could just as easily be represented with regards to the current income tax structure within the United States, it is the firm belief of this author that a national sales tax would represent a situation in which further harm to the economy would be done than benefit could be gained. Ultimately, although it is attractive at its very basic level of introduction, a federally mandated sales tax would most likely cause a decrease in overall spending, a contraction of the economy, a weakening of the dollar, and a situation in which a thriving black market would take root that would challenge federal law enforcement agencies to control and prosecute. Works Cited Bressler, Martin S., Linda Bressler, and Darlene Serrato. "Tax Reform And Small Business: The Potential Impact Of Flat Tax Legislation." Research In Business & Economics Journal 5.(2012): 1-15. Business Source Complete. Web. 5 Dec. 2013. Cheney, Glenn Alan. "What Is A 'Fair' Tax System?." Financial Executive (2012): 28-31. Business Source Complete. Web. 5 Dec. 2013. Hughes, David, and Carolyn Sprinchorn. "Use Taxes And Fair Apportionment: An Argument For Reviving The External Consistency Requirement." Journal Of State Taxation 29.3 (2011): 21-30. Business Source Complete. Web. 5 Dec. 2013. Jones, Jeffrey M. "Fewer Americans Now View Their Income Taxes As Fair." Gallup Poll Briefing (2013): 1. Business Source Complete. Web. 5 Dec. 2013. Jones, Rita C., John F. Thomas, and Teresa K. Lang. "Income Tax Reform And The Flat Tax." International Journal Of Business, Accounting, & Finance 6.2 (2012): 1-12. Business Source Complete. Web. 5 Dec. 2013. Ling, David, and Milena Petrova. "Avoiding Taxes At Any Cost: The Economics Of Tax-Deferred Real Estate Exchanges." Journal Of Real Estate Finance & Economics 36.4 (2008): 367-404. Business Source Complete. Web. 5 Dec. 2013. Read More