HOW MUCH MORE WOULD you be willing to pay in taxes not to have to file a federal income tax return? $100? $1,000? How about a whopping $3,000 more every year?
Proponents of scrapping the federal income tax in favor of a national sales tax apparently think $3,000 or so a year is a small price to get rid of income tax forms. Because that's the tax increase that the typical family would face.According to Congressional Budget Office data, a national sales tax of about 33 percent would be needed to replace revenues from the current federal income tax. In other words, 33 cents on the dollar would be added to the price of most things that you buy. The price of a typical new car, for instance, would jump by $6,000.
When you add up all those sales tax payments, the median income family - with 1994 income of $34,000 - would pay $3,180 more in taxes than it now pays under the income tax.
The next group up, making about $50,000 annually, would cough up $2,150 a year in higher taxes. At $21,000 in earnings, the tax hike would be $3,020. And the poorest families would pay almost a third of their meager incomes in new taxes.
Which is not say that there wouldn't be winners from replacing the income tax with a sales tax. After all, by definition the switch is supposed to break even. But on average only the best-off tenth of Americans would pay lower taxes under a national sales tax. The biggest tax reductions would be at the very top, where the richest 1 percent would get tax cuts averaging $139,000 a year.
This, by the way, is the least regressive sales tax analyzed by the Congressional Budget Office. If items such as groceries, housing and health care were taxed, the sales tax rate could be somewhat lower, but the adverse effects on most families would be even worse.
Under the graduated income tax, the best-off people pay the highest tax rates (even with current loopholes). But a flat-rate sales tax would turn the concept of equity on its head.
Advocates of this Great Middle Class Tax Increase, including House Ways and Means Chairman Bill Archer, R-Texas., apparently think they can sell their plan in the name of "simplicity."
To be sure, income taxes are complicated for some people. But not for the almost half of all tax filers who fill out short forms. They simply copy figures supplied by their employers and banks and look up their taxes in a table. Even itemizers get most of the information they need from employer- and bank-provided forms.
Most tax complexity involves the one in seven tax filers with business income. They have to keep track of their receipts and expenses, and they have to know what's deductible and what isn't. But switching to a national sales tax would offer them no paperwork relief.
On the contrary, business tax returns would become central to the tax collection process. Businesses would still have to keep records of their gross sales - the base for the new 33 percent national sales tax they would charge their customers.
Undoubtedly there would be distinctions as to what's taxable and what isn't, so businesses would have to classify their receipts and expenses into various categories. They would need lawyers and accountants to help figure this all out, just as they do now.
And because the premium for finding loopholes would be quite high, the incentive for businesses to find legal or illegal ways to beat the system would remain.