Friday, February 18, 2022

An Alternative to Federal Income Tax

 Okay, I know that for many Americans, filing their federal income tax is simple and takes very little time.  It must almost be fun.  A side effect of being rich is that along with regular income reported on W-2, there is business income, interest income, dividend income, taxes due on capital gains and the joy of Schedule K-1.  (This is used for partnerships; one of the mutual funds that I bought some years ago is actually categorized as a limited partnership.  Decoding Schedule K-1 and filling in the equivalent information in the tax return is almost enough to forgo the very reliable 10% annual return.  It is some type of Permian Basin oil service company.) 

The federal individual income tax produces 1.609 trillion dollars a year.  Total U.S. retail sales for 2020 were 5.6 trillion dollars.  A 28% national sales tax would produce the same revenue.  Yes, you would notice that, but consider the advantages:

1. Just about every state charges sales tax.  Retailers already have a form for calculating this.  I have done it myself for ScopeRoller.  It is simple.  Once you computed your taxable sales, send the federal sales tax in with the same form.  (Retailers in the five states with no sales tax will find the form not so hard; they are already computing their total sales, I am sure.)

2. If you have low income but but buy stuff that is in the toy category, you can afford that sales tax.  (This is why most states do not tax groceries, but do tax restaurant meals: one is a necessity; one is a luxury.)

3. The incentive to work hard and make money would be encouraged.  This would also be a disincentive to buy stuff; savings would likely increase; mindless consumer spending would likely drop a bit.

4. Much of the IRS would no longer be needed.  Yes, they will still be auditing corporate income tax returns, estate taxes, and excise taxes, but I find it hard to believe that processing sales tax reports from America's retailers would require the armies of people that process individual tax returns now.  Think of the time spent unstapling W-2 from tax returns and feeding them into scanners.  (I think I would like to see this process; it must be positively gargantuan.)


  1. IIRC, estate and inheritance taxes cost the government more to handle than they generate. So, why do they do it?

    Sort of along that subject, CA, back in dotcom days had 18K people with at least a $1m taxable income. after two decades of tax surcharges, they have about 1k of them remaining. Hows that statement about government go? "If you want less of something, tax it".

    They recently chased Elon Musk out of the state, rather deliberately, it seems. Wonder how long it takes him to find or build a plant to build Tesla's, probably in TX, and shut down the Fremont plant (prior Nuumy/GM). Some of it is already built in Reno.

  2. And knowing the avarice of our Government, they'd implement the Sales tax, start collecting it, and say that they need to "Transition" away from the Income tax, and just keep collecting it.

  3. I can't even get the IRS to send me the 1040 instruction book so I can do my taxes. It's like they just want me to send all my money and don't worry about calculating anything.

    Also, I think we should have a constitutional amendment literally requiring every elected federal official to do his/her own tax forms himself, with no assistance, period.