The problem is the solution isn´t what people want. Right now dividends are double taxed. Profits by a company are taxed, and then individuals pay tax on the dividends they receive. My opinion is the solution is to do nothing, things are working as intended. If you remove the double-tax, the net result will be to force/encourage more companies to pay out dividends rather than using that money to grow their company. People don´t demand APPLE pay out a huge dividend, in part, because they know they will have to pay dividend taxes on that money, instead they prefer Apple to keep the money and expand their business and grow the value of their shares. IMHO, the double-tax on dividends is useful for the economy as a whole because it keeps more money in the hands of the people running the companies which gives them more options for growth.
I'd really like to see the IRS put out of its misery and we move to another system entirely. They're incompetent and corrupt. It would be great if we could simplify the tax code somewhat and reduce the corporate tax rate. Most people who don't work for themselves don't have a choice regarding "pay as you go" on taxes.
I like that you're thinking outside of the box. I believe that Greece has an abnormally high tax rate in order to cut down (or may even eliminate) income tax rates. However, your proposal is unlikely. In order for the economy to stay healthy, money needs to be spent. Lots of money needs to be spent. With such a high sales tax, many people may avoid the more expensive things that we don't think about. For example, a $20 million private jet. With tax, your total will come to $25 million. I understand that someone who may be able to spend $20 million is rather wealthy, but they are most likely not wealthy enough to shell out another $5 million. If they aren't buying private jets, then jet manufacturers will have to lay off employees. If those employees don't have jobs, then they can't spend money as much money at stores, etc. etc. It's difficult to fully understand the repercussions of a change on a tax structure such as this. The truth is, we don't know how the economy will react.
The part you are missing is that a sales tax would be replacing an income tax. So yes, the cost of a plane would go from 20M to 25M, but at the same time, that person would have 32% more money to spend.
You know we're in trouble when our economy is so dependent upon consumer spending and borrowing. As a financial advisor, I am of the thinking that most people spend and borrow too much. Part of my job is to protect my wealthy clients from foolish spending and to save, invest, and accumulate more. Very few people should buy jets, for instance. Those who do should generally do so for business reasons, so that expenses can be written off. And such a purchase should not be excessive. A guy worth $200 mil doesn't need a $100 mil jet - he should buy a much cheaper private plane, or else charter one as needed. This is probably the best way for most to go... "If it flies, floats, or f#$@s, rent it. Otherwise own it!" - Felix Dennis
I agree with this idea completely, and I am pretty sure there are a lot of us out there that are in strong support of this type of modification to our current tax system so please don't give up on your "pipe dream". The idea of taxing our income is totally wrong in terms of our personal freedom and motivation to be successful. Not to mention it greatly inhibits our ability to control our own earnings to the degree that we can use our own money to grow wealthy and gain financial freedom. There have been quite a few presidential candidates out there that advocate going to a system where 100% of the tax revenue comes from a sales tax on purchases. One thing I would modify in your suggestion is taxing all purchases. I would not recommend taxing purchases of staple products, which mostly means food, because it is necessary to survival, and even the poorest segment of the population would need to buy food. The other part of your plan that seems a little excessive to me is the 25% rate. If you are familiar with Rand Paul's plan, he suggest a 14% flat rate for the same type of plan you are suggesting. The other side of the income coin is spending and that is another issue that needs to be addressed when discussing how to balance the government budget on this type of tax system because it has gotten massively out of control. There is so much that is wrong with the spending policy in the government that it is almost mind blowing, but there are a couple of things that I see as a good place to start. First, the entitlement programs in this country have expanded to the point where most of them don't even make sense when you look at the original purpose. For example, when you look at someone on unemployment or disability who is drawing more income than they would be able to earn if they went back to work, it makes sense that the spending for this program continues to increase. The other area of government spending that could make a huge dent in the budget is to cut the salaries of the politicians. If I am not mistaken, I believe that the elected congressmen used to hold full time jobs and occasionally go to Washington to vote, but now they are so busy making laws that being in Washington has become their full time job. Add to that the fact that they don't even read the laws they are voting on and try to justify their enormous salaries and lifetime benefits. I think that these two spending categories would be a great place to start to enable the budget to balance, but, to be honest, with the way we spend money in America, they may not have to reduce spending at all if a flat tax on purchases was implemented. In fact, the revenue may actually go up.
