[fabsroman]

Yep, that is true. The more money you have, the more you spend, and the more you want.

A sales tax and a flat tax will not work, at least not for the federal govt it will not. States use sales tax right now, and look at how many are crying because it is not being collected for internet sales. How many of you guys actually submit your sales tax voucher to your state when you buy something out of state through the internet? Why wouldn't people be able to avoid sales tax on things by paying cash and not recording it on the books? I have seen it done to avoid state sales tax, so why wouldn't a cheater do it for a federal sales tax? Just because there are tax cheats on a Form 1040, doesn't mean there wouldn't be any on a sales tax.

The other reason a sales tax will not work is because it is a regressive tax. More of the poor and middle income will have to pay a greater percentage of their earnings in sales tax every year. For arguments sake, lets assume that the sales tax for federal purposes is 20%. If a person makes $20,000, and he has to spend all of it to live, he will pay $4,000 in taxes. Now, if another person makes $100,000, but only spends $20,000 of it to live, he will only pay $4,000 in taxes. The other $80,000 will remain untaxed because it is in savings and it will continue to earn interest tax deferred, much like a 401(K). So, both taxpayers pay the same amount even though one makes a lot more than the other. Now, what if the person never spends that $80,000, but passes it along to his children? Should there still be an estate and gift tax, and what should that amount be? Things are never black and white.

A flat tax has a better chance of working, but it still isn't great. Everybody will pay the same percentage in taxes, but it will be the poor who get hurt the most because they will have to pay a higher rate than they pay right now to make up for the fact that the rich will not be paying as much. The middle class will be left almost in the same place because the flat tax would be somewhere in the middle of the highest and lowest tax rates right now, where most of the middle class already fall.

Of course, how do you give tax breaks to people to encourage certain behavior. Should there be any incentive to have children? Should there be any incentive to start a business? There would still be expense write offs and depreciation I assume, so small business owners would still be able to screw around on their 1040. The flat tax is very doable, but it just will not end up being a flat tax because of all the other stuff in the tax code. We could tax the tax code right now and change the rates to a flat rate across the board, but people would still be able to take advantage of "loopholes". Now, to get rid of all those "loopholes" probably wouldn't be a good thing. Which ones should we get rid of?

Home interest deduction?
Home interest deduction on second home?
Child Tax Credit?
Real Estate Taxes?
Charitable Deductions?
Section 179 expense write offs for small business?
Hybrid vehicle tax credit?
Exemptions for children?
Unreimbursed employee expenses?
Maybe delete all itemized deductions?

I am not arguing this because I will lose business with a flat tax or a sales tax, I am arguing this because this isn't so simple as just saying "Institute a Sales Tax in lieu of the current income tax" or "Institute a Flat Tax in lieu of the current income tax." It is just not that simple.