A national sales tax? Don't laugh.

I see that the new Speaker of the U.S. House of Representatives has completely flip-flopped on his recent vow to hold a floor vote on a 30 percent national sales tax that he said would replace the federal individual income tax and payroll taxes. It was always an obvious non-starter, of course, but he had to float it to placate the shrill Trumpies to whom he is beholden if he wants to keep his gavel. "Abolish the IRS," and all that. Sure.

I have no use for any of those people, and I don't know about payroll taxes (sounds like a back-door attack on Social Security), but I do know that the individual income tax, in its current state, deserves to be laid to rest. It's a complicated mess, vulnerable to collapsing of its own weight at any minute, and the average guy or gal shouldn't have to go through the annual ordeal and expense of figuring it out. I've made a living explaining it to people, but my job probably shouldn't exist.

The average person should just pay a sales tax. And there should be an additional income tax imposed on the top 5 to 10 percent of income-earners.

Now, I'll admit, sales taxes are ugly. Unlike an income tax, everybody pays the same sales tax rate, rich or poor. But before getting on their high horse about the regressivity of a consumption tax, Oregonians, who don't have a general sales tax, should look in the mirror. Under the Oregon income tax, people's tax rate jumps from 4.75 percent to 8.75 percent at a mere $9450 a year of income. $9450 a year! That's less than $800 a month, which will get you a nice cardboard box for under the freeway. Oregon is living proof that income taxes aren't always so progressive.

The big selling point of the income tax is that it's based on ability to pay, not how much you consume. And so in theory, you have taxable income whether you spend it or save it. But that's largely a myth. I haven't been able to save too much in my lifetime, but what I have piled up is in a retirement plan. None of the money in there has ever been taxed, and it never will be taxed until it's withdrawn. I can wait until I'm 73 to start doing that. Some of the money, I made when I was 31.

A national sales tax is feasible. I remember years ago, visiting Victoria, B.C., how stunned I was to pay a double-digit sales tax when I bought a sweater at the Gap up there. The tax was at least 15 percent at the time, maybe more. When I got back to the States, I mailed a form in to Ottawa and got most of it back. But the locals had no such refund opportunity. And nobody seemed to bat an eye.

In most places around the world, the consumption taxes are "value-added" taxes, imposed on everyone who adds value to a product on its way to the consumer. The farmer, the miller, the baker, the shopkeeper, all pay a flat-rate tax on the value that they add to what goes into a loaf of bread. All of the parties in the supply chain then add the tax they have paid to the price of their products as they sell them. The consumer winds up paying the whole thing in the end. In many places, the VAT is not separately stated. It's built into the price of the goods. The consumer never even sees how much it is. Shrewd politics.

A sales tax can be made somewhat more progressive if you exempt the essentials of life, however you might define them. Most places with sales taxes exempt groceries, and I think some of them exempt clothing. But a cell phone or a TV set, are those essentials? Not to the tax man.

Anyway, the idea of replacing the individual income tax is lost on boomers like Kevin McCarthy and Ron Wyden. But actuarially speaking, they won't be running things forever. You youngsters out there ought to give some serious thought to replacing the current system. You deserve better. Keep an income tax for only the very highest rollers. Bite the bullet and settle for a sales tax. Do what you can to exempt the right things.


  1. In a round about way, we already have a version of the system you suggest……. states in our neighborhood like Washington, Nevada and Wyoming do not charge any state tax on income production but do levy a sales tax on certain types of consumption. This approach provides much higher take home pay at every income level, particularly helping folks at the lower income levels. The fact that “progressive” Oregon charges the highest tax rate in the country on low income earners should be a scandal but apparently people are just unaware? Bang this drum Professor Jack👍

  2. Thank you for pointing out how ridiculously regressive "progressive" Oregon's income tax is.

  3. Probably a fairer tax structure, but the real issue is the size of the government. It now employs or supports over 50% of all workers.

  4. The great wisdom is that we should "Tax Bads, Not Goods." Working and saving is good. Polluting and wasting is bad. So combine those things:
    1) eliminate taxes on earned income by natural persons. Natural people only pay taxes on capital gains, dividends, interest, and all other unearned income.

    2) Tax income earned by companies/corps and other legal fictions at a rate that restores at least the share of national tax revenue that they paid in the 1950s. If you don't want to pay the income tax, give up the liability shield of the corporate form. If you want the shield, pay for the government that shields you.

    3) Tax emissions of wastes and creation of hazardous pollutions in proportion to amount (i.e., flat rate for all)

    4) Shift all property taxes withing urban growth boundaries to two-rate and then eventually to entirely land-value taxation, where you are taxed only on the value of the land, not the value of improvements. That way, landowners have every incentive to fully develop and use their land in the UGBs, and speculators who keep land off the market to drive up the price pay the full freight every year as a carrying charge. People who build improvements aren't rewarded with higher taxes. This would GREATLY accelerate the actual provision of more housing at prices people could afford.


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