The New York Times reports that the idea of a national sales tax or value added tax is back on the table as a way to offset rising deficits. As the paper points out, a sales tax is unlikely to have the many exemptions that the US income tax does.
There is no question that all taxes can become regressive if they are too aggressively applied. A national sales tax would almost certainly be in addition to the income tax or else it would not raise the money that the government needs to offset the cost of the stimulus package and healthcare reform. Consumers and businesses naturally curb spending when taxes rise beyond the threshold that they can handle and still remain solvent. No one knows where that threshold is so the balance between higher taxes and crippled consumption is always an educated guess.
The idea of raising taxes is also likely to cause a citizen’s revolt. Most polls show that people blame the deficit on the federal government’d inability to control spending, spending that so far has not created jobs or eased the credit crunch. In theory, a national sales tax may work, but getting in through Congress is a long shot.
Douglas A. McIntrye
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