Sales tax, income tax, gas tax, tangible tax, property tax, payroll tax, estate tax, use tax, capital gains tax… our lawmakers have a plethora of brilliant ideas to prime the tax collection pump. The trait is nothing new, people in colonial times threw tea into Boston Harbor in protest over Townshend Acts taxes on everyday items like paper, paint, glass… and tea!
Is there a better means to tax collection?
Most industrialized countries around the world depend on a Value-Added Tax (VAT) to generate funds. VATs are a consumption tax levied at every point where value increases in the supply chain. Proposals to implement a VAT surface from time-to-time in the U.S., as recent as the 2020 presidential election. Sometimes the VAT is pitched as a replacement for sales or income tax, other times as an add on. A notable difference- VATs are a national tax, as opposed to sales and many income taxes being controlled by states and local jurisdictions. Consider 45 states plus the District of Columbia have sales tax, as well as about 12,000 local jurisdictions. Replacing the sales tax with a VAT may create a simpler tax system, but would it be a more progressive tax system? If done in isolation, without other policy or tax adjustments, probably not.
Some argue for per-unit (or specific) taxes, consider the tax built into the price of a gallon of gas, to replace sales tax. Another per-unit tax is that charged per ounce of sugary drinks. Any tax policy conversation should also include ways to target fraud and identify efficiencies, but that can be a topic for a future post!
Here is a Chicago Booth analysis of how per-unit tax changes may lower prices overall. While not necessarily an overall solution, lower prices have a positive impact on all. Have a read- and let me know your thoughts on tax policy!
~ Brian Kasal- The Leadership Matrix
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