Wednesday, November 17, 2010

The "Debt-Reduction Sales Tax"

Fareed Zakaria recently ribbed Darrell Issa over Issa's use of euphemisms, suggesting that politicians' use of euphemisms is cowardly, and that those who use them are either lying or at best trying to hide the truth. For some reason this came to mind when I read about the lastest "budget task force" proposal from Pete Dominici Alice Rivlin, and its "debt-reduction sales tax".
We would dramatically simplify the tax system, establishing individual tax rates of 15 and 27 percent (from the current high of 35), cutting the corporate tax rate to 27 percent (from 35 today), ending most deductions and credits while simplifying the rest, and ensuring that nearly 90 million households no longer have to file returns. To reduce the debt, we would supplement our spending cuts with a 6.5 percent "debt-reduction sales tax."
I tracked down a longer version of the report and, although it found room for four pages of photos and bios of the contributors, it omitted any hard numbers.

Correct me if I'm wrong, but I believe if we kept income taxes 0.5% higher - that is, reducing them to 15.5% and 27.5% (they would eliminate intermediate brackets) the tax revenue raised would be substantially greater than that which would be raised through a new national sales tax. So why not keep things simple and impose a 0.5% or even a 1% "deficit reduction surtax" on income taxes until the deficit disappears? Or, more honestly, just set those tax brackets at the slightly higher rate because it's not as if we're really going to eliminate the national debt, is it....

Seriously, if they want to make a policy case for why we should create a new, regressive national sales tax system, imposing significant costs of tax collection and remittance on the nation's businesses, rather than setting the income tax at a slightly higher level, let them make it. Their use of a euphemism suggests either that they can't make a compelling case for the sales tax, or that they don't want to approach the issue honestly. I personally see no sign of honesty in their choice of euphemism because, contrary to what its name implies, I simply don't see that such a tax will ever go away.

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