to avoid a sales tax would be a strong incentive for a manufacturer, a form of conservation. Likewise, the energy used to make that automobile by the manufacturer has been consumed, since it is not reversible, and thus they would pay a sales tax on the energy consumed. Again, this is an incentive for the manufacturer to be energy efficient. Thus, the steel material already has had only one tax on it, the consumption tax once the iron ore was removed from the earth, because at that point the earth has lost its value and the process cannot, practically speaking, be easily reversed. It will not be taxed again until it is ultimately consumed. Another example to illustrate how a consumption tax would work is to imagine an artist who purchases pigments for their painting, He is subject to a sales tax on the pigments because their use would be considered irreversible and are intended to be part of larger product, a painting, which when sold would be subject to another sales tax less. A painting normally would be considered consumed by a person; but sometimes, a painting could actually gain value with time. In that case, when sold, there would still be no sales tax since nothing was consumed.
To offset the loss of income from the elimination of traditional taxes (income, property, capital gains, corporate, etc.) the new “consumption” tax and sales tax would probably be substantially higher than current sales tax – perhaps as much as 30% of the cost of the good (raw or completed). Obviously, this would significantly raise the cost of the good; however, people need to realize that they would also have considerably more income at their disposal since they are no longer paying all other forms of taxes. The consumption and sales tax rate would be calculated so that the net result in actual taxes being paid by the average persons is little different than what most people pay currently. Effectively, your purchasing power is the same. The product may cost 30% more, but you may have 35% more disposable income because of the simplification.
With this method of simple taxation there would be many other benefits for society. For example, the consumption tax would be simple to implement since almost all raw goods now sold are currently accounted for by businesses and most final products consumed already have an accounting system through current sales tax through established businesses. Thus, the tax accounting system needed to keep track of this type of taxation is already in place. The benefit then is that there would be little need for most other reporting and accounting systems currently used to determine taxation such as the I.R.S., in-house business accounting, depreciation expense, corporate accounting, tax accountants, just to name a few. There would be no reason to keep business records for tax purposes. A business owner may keep records so that they can see how much money they are making (or losing); but none of it needs to be reported to anyone. It is their private business. In addition, this simplified tax system would put an end to anyone who had the means to avoid paying their fair share of taxes because of their ability to pay for creative accounting; thus, no reason to keep two sets of books!
In short, with a consumption and sales tax only, those who consume the most would have to pay the most taxes. Each tax (consumption and sales) could be adjusted as necessary to help redistribute the wealth and help the poor. For example, a loaf of bread that costs $1.00 now may cost $1.30 (30% in consumption and sales tax) however that $100,000 yacht could now cost $175,000 (75% in consumption and sales taxes). This way the taxes can tax more on those who can afford to pay rather than those who cannot. A side benefit to this simplified taxation system would be conservation. For example, if a new car normally costs $40,000 and let’s say had a 35% (consumption and sales) tax (i.e., a new cost $54,000); then a consumer would be more likely to try and maintain their existing car longer as long as possible to avoid the hefty sales tax on a new vehicle. It would be better for the society since new cars would not be discarded so quickly; however, it is unlikely the car manufacturers would like it much since. Likewise, mining aluminum would be more costly (because of the hefty consumption tax) than it would be to recycle aluminum (which would have no consumption tax associated with it, other than a sales tax on the energy consumption needed for the recycling). Similarly, a person could sell their used car and the buyer would not be required to pay sales tax because nothing new was being consumed. There would be a hefty sales tax on gasoline, because it is a consumable; thus a good reason to purchase a fuel efficient car; and so on. A consumption/sales tax encourages conservation. All the conservation laws and regulations would not be needed; conservation would be obtained through taxation.
Taxing manufactured goods would not include intangible services such labor and professional services. These costs are hard to define and easily fudged. However, any consumables used by those services would be subject to the consumption tax and a consumed manufactured good would be subject to a sales tax. For example, a physician’s exam time would not be taxed; however the medicine prescribed or tools used in the exam, or the electricity to light the exam room would be subject to consumption and sales taxes. The professional service provider still wants to be efficient about his time, since time is money, but he is not penalized for his time.
Another benefit to a simple consumption/sales tax is that those who save money would not be penalized because they would no longer pay a tax on interest income. People who invest money and take risks would not be penalized on their capital gains either, they are not consuming. The federal income tax would disappear completely and so would all corporate taxes. In short, people are not taxed for saving money or making money, but only on consuming. This encourages saving, conservation and investment. Those paying for beneficial services, such as education, counseling, or medical insurance, would also benefit since they would be paying little or no taxes for those services. However, those who consume natural resources, like pleasure motor boating or gas to heat their swimming pool, would obviously pay higher costs because of the consumption. Simply, if it benefits society (education, reserves, sustainability) little or no tax; if it is detrimental to society (consumes, destroys, wastes) then a heavy tax. A consumption tax helps the elderly and the poor, since they are usually the ones who consume the least.
Finally, the consumption tax and sales tax could be used by the government to encourage “good” consumption and discourage “bad” consumption as determined by society. For example: if it was determined that organically grown food was better for the individual than food grown with chemicals and it lowered health costs for all and did less harm to the environment and so forth; then the consumption and sales taxes could be lower on the organic food and higher on food grown using chemicals. No laws need to passed or even enforced, just adjust the tax level. Renewable resources, such as fast growing trees like bamboo, could have a relatively low consumption tax; while non-renewable resources, such as oak, would have a substantial consumption tax. Again, no complicated “credits” or mandated “green” standards (which are nearly impossible to substantiate anyway) are needed. Let the purse strings implement government’s goals and objectives.
In short, the government would not need to legislate complex rules of fuel efficiency in automobiles or penalties for environmental pollution or mandate goals for “green” buildings – as currently being done in our complex system; but instead just let the power of taxes accomplish society’s desired goals. If you assign heavy costs to wasteful or harmful activities the manufacturers and the consumers of those wasteful and harmful activities will quickly figure out what the ways to improve their bottom line. They will help the environment not because of the enforcement of some law or because of good intent, they will respond because the want to save money. Think of the savings of not having to enforce those virtually unenforceable laws. There would be no need for federal enforcement agencies, inspectors or even fines. It is amazing what people will do to avoid a tax.
Obviously, those most opposed to this type of taxation system are those who consume the most and conserve the least; the rich. This type of consumption tax is also opposed by those who can affo
rd to pay others to find ways to avoid paying their fair share of taxes, and of course by those who profit from a complicated tax systems, such as tax accountants, lawyers, and employees of various federal agencies like the IRS. Adopt a simple consumption/sales tax on consumed goods, eliminate all other forms of taxation, and you will have a very simple solution to a very complex problem.
Federal Rights versus State Rights
Our Founding Fathers had wisdom in recognizing the importance of the preservation of individual States; otherwise, when the Constitution was written why did not the Founding Fathers simply just not join all thirteen colonies into a single colony? They recognized that individual States provide opportunities for uniqueness, individuality, experimentation and even competition. For example, some States may adopt the position of capital punishment as a means to deter crime while others may not. Or some States may offer tax incentives to spur economic growth while others may not. There are no right or wrong answers