The Consumption Tax

The idea of getting rid of the federal income tax and replace it with a consumption tax reeks of more dominant corporate culture favoritism. Somehow, the idea of paying an income tax is supposed to be unfair to the American corporation. Even though American conglomerates are some of the wealthiest entities in the world with divisions all over the globe and executives reaping nine figure windfalls for running their companies into the ground and such. On average the executives of an American corporation will earn well over five hundred times what the average laborer earns.

And if that’s not enough these corporations earn another set of windfalls for their investors. These American companies have to compete in the global market for investment monies just like the corporations in other countries. To say that American companies attract their fair share of investments would be an understatement. Exxon/Mobile announced just the other day that they netted more than a forty billion dollar profit for the year of 2007. For each one of the thirty one million seconds that Exxon/Mobile existed last year the company earned on average over one thousand two hundred eighty dollars. And that’s after all the employees and executives earned their salary and bonuses.

But the way a lot of people tell the story Exxon/Mobile and other American conglomerates don’t earn as much money as they should have. Heaven forbid! The poor American corporations and companies operate at a disadvantage because these companies operate in an environment where the federal government collects revenue through an income tax. It would be a lot better if we stopped the federal income tax and replace it with a consumption tax. That way, companies wouldn’t be penalized for being productive.

The proponents of this theory believe it is unfair for people to be paying more taxes simply because they make more. This punishes people for being successful. What would be fairer is to charge people based on what they consume. Thus, the income tax should be replaced with a national sales tax. This way, no one has to avoid making more money out of fear of going into a higher tax bracket. If people wanted to save on their taxes all they would have to do is spend less and save more. With such a tax plan frugality and productivity is rewarded while consumption is penalized. And with such a simplified taxing structure there would be no need for the Internal Revenue Service.

So with such a tax structure a family of four with an income of about fifty thousand dollars struggling to make ends meet could actually pay more in federal consumption taxes than an individual making a hundred thousand dollars. What if someone was making a million dollars a year but lived simply? Such an individual could pay less in taxes than the struggling family of four. Of course this would appeal to a lot of people who earn a great deal of money and live frugally.

But it should be obvious to anyone with a calculator that this tax plans shifts the burden of tax revenue from people who are able to make larger sums of money to people who have to consume a larger number of products such as a family with children.

By burdening the family companies like Exxon/Mobile can make even more money and look more attractive to investors around the world. This way, the executives can make even more money to increase the disparity between them and the workers. We will continue to make American corporations even more productive while we continue to make American consumers poorer. If I was Exxon/Mobile I’d think this tax plan was a good idea. But I’m not.

The tax structure of the United States can be simplified without the country going to a consumer based tax structure. A flat income tax would have the same result on abolishing the Internal Revenue Service as a flat sales tax. A flat income tax does not shift the burden of taxes to people least able to financially absorb their collection. A flat income tax doesn’t penalize anyone for making more than the next person because everybody pays at the same rate.

This way, when an executive gets a nine figure severance package they will pay their proper share of the tax burden. And I’m sorry if this doesn’t translate to more money for our conglomerates like Exxon/Mobile and other wealthy individuals. However, I’m very sure that that they will have more than enough zeroes in their savings accounts to pay taxes. There’s a big difference between trying to pay taxes with a bank account with a lot of zeroes and a bank account that is a lot closer to zero.