Sunday, June 01, 2003

Thoughts on a Consumption Tax-Via Patrick Carver, I found this Deroy Merdock NRO piece plugging possible Zell Miller replacement Herman Cain,a pull-no-punches black conservative businessman. Here, Cain is raising some Cain on the tax system
Take a look at the tax code," he tells me. "There was a law passed years ago that allows the government to take money out of your paycheck before you get your money. What would Thomas Jefferson say about that? You have lost the liberty to receive all of your wages before you pay taxes. You, by law, must contribute to Social Security, and you don't own your contributions. I don't call that liberty. The fact that the life expectancy of an African-American male is now 68 years of age, and the life expectancy of a white male is 75 years of age, says to me that there is not much liberty in African Americans subsidizing the Social Security system." Cain repeatedly says: "Replace the tax code." He would scrap today's federal income, corporate, payroll and death taxes and instead implement a 23-percent consumption tax. Americans could control their tax exposure by adjusting their spending. Monthly Treasury checks that Cain calls "pre-bates" would "untax" the sales levies on basic necessities. He forecasts that Americans would save $250 billion annually in transcended tax-compliance costs.
I don't think a sales tax would be the best way to do this. A high sales tax would wind up shifting the underground economy from wages to sales, as people moved a lot of service industries underground. Also, the prebates would be likely to prone to abuse. My simple proposal on this front, if you want to do a consumption tax, is to take the normal income tax motif and move to this system. How much did you make less year. Subtract your net savings. That's how much you spent, and we then base our taxable income from there. You can track your net savings by looking at any changes in your checking account, your savings account and any investments. The one key trick is to define what an investment is. Is your house? Your bass boat? This would effectively create a no-strings-attached IRA. Any money you put in savings is tax-deferred until you spend it. No dividend tax. No capital gain tax. This would encourage investment. You'd likely want a high personal deduction and exemption in order to get some help to the working poor, but that would be a simpler approach to move towards a consumption tax than the Cain proposal, which has been floated in some form by many conservatives over the years.

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