Nor is a sale of an already existing home from one occupant to another. But the sale of that same newly constructed home to a business that is planning on renting it to others is not a retail sale. For example, the sale of a newly constructed home to a family that will occupy it is a retail sale. Household-to-household sales of goods or services are not included, either, since tax should have already been paid when the good was originally sold to a household from a business. Business-to-business transactions are not retail sales because the purchase is used as an input, not as household consumption.
Retail sales occur when businesses sell goods or services to households. Can it be filled?Įdited by Geoffrey Gertz, Homi Kharas, and Johannes F. All worthy goals, but that’s a very tall order. Sales tax advocates claim their plans would dramatically boost prospects for economic growth, simplify the tax system to the point where states could collect the tax and the IRS could be abolished, reduce costs of compliance by an order of magnitude, and provide Americans with a tax system that is fair, visible and understandable. Ways and Means Chairman Bill Archer (R-Texas) has indicated general support for a sales tax but to date has officially kept his options open.
These plans would tax almost all private consumption and all government expenditures. A group called Americans for Fair Taxation has launched a multimillion dollar campaign to replace income, estate, and payroll taxes with what they claim would be a 23 percent sales tax. Representatives Dan Schaefer (R-Colo.) and Billy Tauzin (R-La.) have proposed a 15 percent sales tax which they claim will replace the personal and corporate income taxes and the estate tax. Although the flat tax has certainly not disappeared, the newest plan to attract significant attention is a national retail sales tax. Now, as 1998 begins, there are once again renewed calls to tear out the income tax and start over. The Taxpayer Relief Act of 1997 showered new deductions and credits on various groups of taxpayers, made taxes more complicated, and raised effective marginal tax rates for many people. In 1997, however, Congress and the President moved in essentially the opposite direction.
These proposals aimed to replace the income tax, drastically simplify taxes, and spur economic growth by flattening tax rates, eliminating tax preferences, and taxing consumption rather than income. The flat tax and the idea of fundamental tax reform dominated policy discussions in 1995 and the early part of 1996. The politics of tax reform are cyclical, and once again, we’re hearing the call for sweeping change. Nonetheless, more plausible consumption and income tax reform plans should not be ignored. But when examined closely, the simplicity breaks down, payments would be close to impossible to collect, and the tax’s fairness would be, at best, questionable. Advocates praise the simplicity, the potential for economic growth, the enforceability, and the fairness of a tax system based on consumption. This go around, it’s the retail sales tax. The tax reform panacea in vogue several years ago was the flat tax.
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