A proposal is floating about for the so-called “Fair Tax” — http://www.fairtax.org — and legislation has been written to implement it.
This law would repeal all federal income taxes including personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes. Only new homes and cars (not sure) would be subject to the tax. The used home market would be enormously enhanced. The FairTax would be a sales tax on all goods and services of 23%. It would be collected by the state, and with their sales taxes added, would be about 30% on each sale. It would bite anyone spending money, and since wealthy people spend more, it would be a very progressive tax. But, the poor would pay some as well. The tax base would be broadened. That’s fair. There’s a quirky “prebate” in the proposed tax, which is a monthly payment to those under the poverty level. It’s designed to ease the tax burden on the very poor.
As a negative, services would have to collect the tax, which might hurt them somewhat. Plumbers are costly enough as it is.
Prices for goods would go down because the corporations would not be paying taxes.
Potentially, with corporations running essentially untaxed, the investments and the economy could run at full speed, with untold benefits to employment and prosperity. (Our present corporate tax rate of 35% is the highest in the world, making it very difficult to compete in world markets.)
States would collect the tax for the Federal Government. The Internal Revenue Service would shrink to a shadow of its former self, or be completely eliminated. All the myriads of loopholes, deductions, and social gerrymandering built into the income tax code would be eliminated overnight. Politicians would have to find other ways to bribe the voters.
There are dangers in this proposal. There’s no precedent for it in other countries, as far as I know. Unintended consequences could have bad effects. It looks great in theory, but we’d have to see it in action to know all the effects.
In general, I’m for the FairTax. The benefits seem to far outweigh the negatives. However, it will only pass over Democrat’s dead bodies. Republicans would have to hold the congress and the presidency, and have enough votes to override a filibuster.