For 18 years, [Thomas] Wright, former executive director of Texas-based fairtax.org, has spearheaded a national grass-roots effort to shift all federal taxes to a broad sales tax on goods and services.
Business purchases of goods and services used in operations would be exempt from the consumption tax, which is a kind of sales tax aimed only at the end user.
A legislative working group has analyzed the theory for several months but has yet to formulate a proposal, said Rep. John Dougall, R-Highland, who co-chairs the committee.
And so far, no state has a broad-based consumption tax, said Bryant Howe, assistant director of the Office of Legislative Research and General Counsel.
Howe presented the pros and cons of taxing consumption rather than property and income. While it would encourage savings and investment among wealthy residents, the less-well-off would struggle.
This is a very bad idea policy-wise, for several reasons. First off, the poor and middle-class spend a greater percentage of their total income on things that would be taxes by this super high sales tax than the rich would. For someone like Gov. Huntsman, most of his money is spent buying stocks/bonds and a rather paltry portion is used to buy things like food and gas (especially since he is governor). Not so for 90-something percent of Utahns. So this would be a de facto tax hike on most of us, while an effective tax cut for the rich, whose property taxes and income taxes make up the bulk of their overall state tax liability.
A lone consumption tax would be more volatile, [Mark] Buchi[, a Salt Lake City tax attorney and former state tax commissioner,] said, netting a windfall when consumer spending is high, but starving the government's ability to provide basic services when people tighten their belts.But hey, we don't have to worry about that right, because the economy is in great shape!...Oh wait, scratch that.
Third, supporters claim it would encourage savings, which in the abstract might sound like a good thing, but it is not necessarily, and there is no guarantee that that would necessarily happen. In Utah, like everywhere else in this country, spending outpaces earnings (in fact, we are near the tops in the nation in bankruptcy filings) and that money, by in large, stimulates the local economy. Think about all of the boat dealers that would go out of business if a high-sales-tax-only policy really caused people to save. Moreover, would the rich be anymore encouraged to save than they were before? As others have pointed out, most of their money is placed into high-yield instruments like stocks and bonds, which offer either no or deferred taxes (and when reckoning day comes, at lower rates than this super sales tax), not a local bank account, which offers practically zero percent interest. The less well off but financially literate, the ones most likely to be encouraged to save other than the rich, would invest their money similarly. Lastly, think about that tax cut simulus you got this spring/summer. Did you use it to spend or to save? Congress and the President thought it would stimulate spending, and the results were pretty minimal (and the rich invested it rather than buying another fur coat or whatever). [The simulus checks were pretty much washed out by the rise in gas prices too, but that's another topic for previous day]
Anyway, our tax code should be going the oposite direction from the way Rep. Dougall is contemplating. We should be eliminating taxes and fees on things that lower- to middle-class folks spend the majority of their money on: food (as apposed to dining out), clothes, fees to use the public pool, buying school supplies/textbooks, etc. And we should be creating progressive tax brackets. Sure maybe it will scare off some of the ultra-wealthy, but we shouldn't get into a race to the bottom.