Time for a national sales tax

Also known as a value added tax (VAT), this sales tax would apply to goods and services at the point of purchase.

It’s introduction would offer significant economic benefits.

First off, the sales tax would raise a lot of money. The nonpartisan Committee for a Responsible Budget estimates that, accounting for partial rebates to the poor, a 5 percent federal sales tax would raise $116 billion a year. Over $1.1 trillion between now and 2027.

The question is, what would we use that money for?

Other tax cuts.

I’m not suggesting that we use the $116 billion each year to fund new programs. Instead, a sales tax should form one part of the broader tax reform effort to simplify income and corporate tax codes.

It’s a timely need.

At present, the tax reform proposals under discussion in Congress seem less than inspiring. The details offered by Republican leaders have been few and far between. More concerning, bold ideas such as eliminating the mortgage interest deduction, local sales tax deductions, and capping charity deductions may not make it to a final bill. That bill might simply include a lowering of tax rates.

And that would be a disaster.

First off, it would blow up the federal deficit. The Director of the White House Office of Management and Budget, Mick Mulvaney, recently lent credence to this possibility when he told the Washington Examiner that tax reform didn’t necessarily need to be revenue neutral. But increasing the deficit would be a betrayal of younger Americans. We’re the ones who will have to pay the bill in the future.

Second, unless the deductions are removed, the tax code will remain afflicted by its greatest flaw. Namely, its preferencing of accountant interests over the economy. By forcing taxpayers into a maze of loopholes, deductions, and sometimes incomprehensible forms, the current code wastes a huge amount of capital on inefficiency.

A federal sales tax would offer an alternative.

More specifically, it would give politicians a support base to ensure that serious tax reform is possible. By guaranteeing a simple means of raising revenue, it would address the concerns of fiscal hawks and centrist Democrats. As important, it would produce the foundation on which to lower income and corporate tax rates more significantly. That’s the preferable economic approach to taxation. When we tax income from individuals or corporations, we’re taxing the means of production and investment. But when we tax goods and services, we tax the user. This encourages more efficient economic allocations.

In essence, by introducing a sales tax, we give ourselves the chance to go big and bold with other tax reforms.

Ultimately, I recognize that many readers will view this article with a good degree of skepticism. After all, I’m a conservative calling for a new tax! But you must remember that my point is broader than one tax. It’s about the pursuit of a tax system that encourages better allocation of finite resources. And the pursuit of a tax code that is simpler and more efficient.

If a sales tax helps get us to that destination, we should embrace it.