We had to give short oral presentations today to practice our public speaking. A three minute speech is tough to do if one wants to put in significant content. Originally I was going to speak about the difficuluty for foreign students to get visas to study in the United States, but then realized I don’t know anything about that except what my friends have told me. I decided instead to speak about something that came up over lunch the other day that I actually have given a lot of thought to in the past: a national sales tax to replace the progressive income tax.

What I said may have gone something like this:

I’d like to explore two reasons of many why a national sales tax would be better than the progressive income tax structure we have now. The two reasons are incentives and transparency.

First of all, a national sales tax would eliminate the disincentives for people to work hard and earn as much money as possible. Workers should pursue higher wages without the fear of being bumped into a higher tax bracket. As it stands now, I believe the tax system counters the traditional work-ethic of the United States. One important economic factor of a national sales tax would be that, depending on the percentage of the tax, certain workers immediately would have more real income. There are important psychological factors as well. Because of the increase in take-home pay, more people may want to work or current workers would work harder. Also, because prices would increase from the consumption tax, consumers would scrutinize their expeditures to a higher degree. This may have an effect on total consumption, but at the same time savings would increase when consumers use their money for goods and services they have the highest value for. The increase in savings would result in more investment which is a stimulant for long-term economic growth. Long-term growth helps every participant in the economy.

Right now, businesses spend over $200 billion a year filing and minimizing their taxes. This would certainly not be the case if the tax code were not 6000 pages long. With a tax code that convoluted, long-term growth will never reach its full potential. If businesses had the opportunity to free up the resources used by complying with tax law they could run more efficiently and be more productive. Government resources would be freed up as well. Without an Internal Revenue Serivce there would be no need to conduct wasteful, invasive audits of individuals and corporations.

This brings us to the second point of transparency. I’ve already mentioned how a national sales tax makes income and expenditures more straighforward for consumers, but it would make government more visible to its citizens as well. Taxpayers would see their taxes being collected right at the point of sale rather than having to decipher how much was really taken from them through withholding on their paychecks. If the government tried to raise taxes, the public would react more strongly because the tax increase would be felt by everyone equally and people would understand that increased taxes will directly affect prices.

The transparency of a national sales tax would also loosen the grip of special interests on the government. Congress would not be able to alter the tax code to benefit their friends in favorite industries. Without a tax code there would be no loop-holes for corporations to take advantage of and most likely less tax evasion. Overall the transparency would keep government more honest.

These among many other reasons demonstrate how a national sales tax would be far better than the progressive income tax.