Up | Fairness | Efficient | Behaviorally Neutral

Without question, not only is this a strength of The American Income Tax Simplification Plan but is a shortcoming of the national sales tax plan so serious that it could permanently damage our economy and society. It seems that far too often, those in our society that seem to be convinced that they know what is best for everyone believe they can control simple human behavior. The fact is that we are adaptable and within certain limits are willing to modify our behavior for the good of our society. However there are limits at which point a greater percentage of people deem the limits unfair/unjust and change their behavior accordingly. This limit does vary among people. There are a small percentage of people that feel that their inability to rob people is an inconvenience they can not tolerate. A large enough percentage of society disagrees that these people end up in jail. However, history is full of examples of where society has made demands of its citizens where a majority did in fact change their behavior, normally in violation of the law. Obviously, Prohibition is the classic example but there have been other less historic example. One closer to home with regards to tax law was the Luxury Tax. The idea was that wealth people would pay an additional 10% sales tax on very expensive items. There was a threshold of $500,000 for cars and $100,000 for boats. Proponents claimed that it was a very affordable tax on people who bought such products. They were right but missed the point. These buyers didn’t like being singles-out and simply changed their behavior. According to The Wall Street Journal editorial, the Labor Department estimated that in Florida, the nation's leading boat building state, builders laid off 5,000 out of 18,000 laborers by the end of 1990 and these layoffs were not isolated. Retailers, manufacturers, and services aligned to the boating industry were simultaneously affected. The law was revoked. 

Between the extremes there are countless examples of additional sales taxes adversely affecting behavior. New York has a state sales tax on cigarettes that is higher than surrounding states. The Cato Institute has chronicled the years of black market and associated criminal activity New York has fought for over 50 years. This over just a few cents per pack!

http://www.cato.org/pubs/pas/pa468.pdf  

The national sales tax proponents claim that workers will bring home more money and this will somehow mentally equip us to pay 20% more for things. My belief is that the revolution will begin slowly as companies push more products through side sources such as eBay sites run by employees. Who will enforce tax collection of ‘private’ sales? Black market sales will increase as people feel more comfortable with that behavior. Is the government going to come after me after I save a few bucks buying on-line from a private party? Soon people not participating in the black market are going to feel left out. Again, the national sales tax people are going to get rid of the IRS so who is going to enforce anything? We will see the emergence of organized crime at a level not seen since Prohibition. I really can’t believe anyone supporting a national sales tax at 20% has really thought this through. It would be a disaster of monumental proportions. 

The American Income Tax Simplification Plan:

·         Would provide for the generation of adequate tax collection while having minimal impact on the behavior of the tax payers.

·         I believe that a 5% national sales tax will not create the behavioral changes that would accompany a 20% or higher rate.

·         I do not believe the Corporate rate will negatively impact their behavior either. In fact, given that the incentive to move off-shore has been removed, many may come back and become even better American citizens.  

One last comment on the national sales tax plan. One component is that the Federal government is to collect huge sums of money and rebate some of those funds back to low-income people. Let’s face it; the Federal government has never been good about giving back money!