Please verify

Blaze Media
Watch LIVE

Roth: A federal consumption tax is a terrible idea

LIGorko/Getty Images

In the wake of President Biden getting his wish for $80 billion in IRS funding, with a meaningful amount reportedly earmarked for additional auditors, the calls to abolish the IRS have ramped up. This has led some in the GOP to consider several new, “non-IRS” ways to collect money from us for Congress’ insane spending.

While the income tax system today is no doubt broken, amazingly the GOP has come up with an idea that’s even worse: a federal consumption tax (aka a federal retail sales tax).

As I have talked about with Glenn Beck on his radio show, incentives drive behavior. If you want less of something, you tax it. If you want more of something, you give a tax break or rebate to encourage that behavior.

So, with nearly 70% of the economy driven by consumer spending, why on earth would you ever propose a federal consumption tax?

A federal consumption tax would disincentivize the purchasing that drives the U.S. economy. People would be discouraged from spending, which provides broad opportunities as money flows and passes horizontally, person to person, throughout the country.

It would also encourage black markets in all kinds of products, and eventually services, assuming at some point those would be taxed too, since service purchasing outweighs goods purchasing. Services account for about two-thirds of consumer spending. This means that fewer dollars are being captured into the economy. It also potentially drives safety issues in terms of what you are purchasing, whether it be inferior products or personal safety when making the purchase.

A national retail tax would drive people to try to skirt the laws and spend more in neighboring countries where they wouldn’t be subject to the same taxes. Even if there were more laws that put tariffs on imports, people will go to great lengths to avoid these types of taxes, particularly at the levels being proposed. One proposal backed by more than 30 Republicans is looking for a 30% sales tax to start!

One of the issues with the income tax collection is the paperwork required to file and defend your filings. That burden wouldn’t go away; rather, it would primarily be shifted to small businesses, which make up 99.9% of the business entities in the U.S. Having to collect, file, and pay for state income taxes is already a material burden for the small businesses that have to do that. We shouldn’t be making it harder for small businesses with limited resources to compete.

A national sales tax potentially becomes even more of an issue as Congress plays its crony games. No doubt it would create a system where legislators remove or lower the taxes for some categories of goods or even specific companies. It would enable the choosing of more “winners and losers” by Congress.

While a small percentage of Americans currently pay the lion's share of federal income taxes (the top 1% pay more federal income taxes than the bottom 90% combined do), and there should be more broad participation so that all Americans have real stakes and therefore incentive to hold Congress accountable on spending, a federal consumption tax would be regressive.

This means that those who make the least income and have the least wealth would shoulder an extra burden in terms of their consumption, making it more difficult for them to save, invest, and accumulate wealth.

While no doubt the income tax system is broken, making it worse when you have a chance to enact real reform makes little sense. Something like a flat tax, where the rate is fixed and more people pay in at the same rate, would be one reasonable choice.

Frankly, I prefer getting an itemized bill. If you want me to pay for your services, just like every other service I pay for in my life, let me know what they are, what they cost and, if we are going for full wish lists, give me competitive options.

Whether you think the income tax is bad or the retail tax is bad, we can all also agree that the ultimate worst outcome would be having both. And once we start to allow the federal government additional ways of grabbing money from us, it will go for broke — making us broke, as the federal government is already broke.

Most importantly, while cleaning up the mechanism of taxation is important, it is not nearly as important as fixing government spending. How the government collects money to pay for its spending doesn’t hold a candle to the overspending, running up deficits, and ultimately incurring debts that are wreaking havoc on the country’s financial position and leading to decisions and actions that are eating into the purchasing power and wealth of Americans.

Change is only good if it is an improvement. The GOP and everyone else harboring the consumption tax fantasy need to rethink their priorities.
Most recent
All Articles