According to the Tax Policy Center, roughly 50 percent of federal revenues have come from personal income taxes each year between 1950 and 2008 while revenue from payroll taxes grew from about 10 percent to more than 30 percent. On the other hand, corporate income tax revenues have dropped from roughly 30 percent to less than 17 percent during the same time period.
One can speculate that the drop in corporate revenues is caused by globalization as much as by tax breaks (although the increase in payroll taxes might tend to belie such speculation). No one, however, can argue that the bulk of the burden for supporting the fiscal appetite of our government continues to be borne by the individual taxpayer.
The morass of tax legislation is yet another problem. In her written statement to Congress given during testimony on January 20, National Taxpayer Advocate Nina Olson called the current tax code "a mess... rife with complexity" and recommended a zero-based budgeting approach to address the problem. In essence, this approach would start with no reductions to tax or income, and each tax preference item or program would be subjected to cost-benefit analysis before being added back into the mix. Her belief flows in part from her assessment that, while tax code complexity and some special breaks benefit wealthier taxpayers, most tax breaks actually inure to the benefit of large sections of the taxpaying public. This means that, in her opinion, all taxpayers will have to give up something to straighten out Washington's fiscal mess. However, she also believes that lower income tax rates could offset the sacrificed tax breaks.
While I agree that tax deductions and spending must be addressed, I do not believe we can simply ignore the issue of tax revenues. All the cuts in the world won't matter if we still can't pay the bills when they come due. We simply can't continue to print more money or increase the national debt in order to feed our national appetite.
As a proud citizen of the state of Texas, I would like to propose an alternative to our current federal tax system. To be sure, the Texas tax system is not perfect, but the limited sales and use tax approach has certain advantages over the current federal tax system.
For one thing, the sales and use tax is remitted on a regular basis during the year by merchants who account for the taxes collected. This approach creates a smoother pattern of cash inflows for the government and helps to address the tax gap issue (this term describes those who pay late, underpay, or don't pay altogether).
Under the current model, Texas exempts certain necessities from the sales and use tax. This helps to reduce any regressive effects caused by the sales and use tax model. For all non-exempt purchases, you pay the tax when you pay for the taxable purchase.
Texas has used the limited sales and use tax model on a broad scale since 1961. This means there is a wealth of evidence available to shorten Washington's learning curve.
In 2010, Texas realized revenues of almost $20 billion from sales and use tax alone and the state portion of the tax rate is only 6.25%. This would seem to support the idea that, on a larger scale, a federal sales and use tax would provide an ample revenue stream and at the same time could reduce the taxpayer's overall tax rate.
Like the idea? Let Washington know.