Federal Sales Tax

Back in the eighties I tried in my high school social studies classes to explain the difference between people who were living on income from work and people who were enriching themselves by the work of others. One of my activities was to ask the students to create budgets for families with incomes of $35,000 and families with incomes of $135,00. The first was still possible then. In fact it was close to what many of their own families made. The second seemed unimaginably large, to me as well as to them. With that fantasy $135,000 my students were able to splurge on nice homes, fancy cars, restaurants, theater and concert tickets, and elaborate vacations. The $35,000 went for rent, subway tokens, occasional trips to McDonald's and visits to family outside of New York. The realization that everything went to the same set of necessities was the point, because then we imagined a budget for a family making ten million a year. No matter how hard they tried, it was hard to spend more than a small percent of it.

This week the Republicans in Congress once again gutted the budget of the Internal Revenue Service. They have been doing this for decades. As a result, the IRS can't afford to audit the taxes of anybody but the poorest Americans. That is on top of the Reagan-era "reforms" that already lowered taxes on the wealthiest. But this year they also proposed replacing the income tax with a federal sales tax of roughly thirty percent.

We call a tax "progressive" when it increases the bite on those who can most afford it. Taking ten percent, say, from people who earn $50,000 leaves them with only $40,000, which is a significant change in their ability to survive. Taking fifty percent from people whose inheritance yields $10 million a year, on the other hand, still leaves them with a - to me - more-than-adequate $5 million a year.

A flat tax, on the other hand, taxes everybody the same. The Reagan reform called for a flat tax but settled for just dramatically compressing the difference between the highest and lowest tax rates. We call a flat tax "regressive" because it puts an unfair burden on the poor. If we tax everyone 20%, for example, that first family ends up with $30,000, which is unsupportable. But it leaves the rich family with $8 million a year, a gift from the poor of an addition $3 million.

That is what has been going on for the last forty years! Why are we surprised that the gap between the wealthiest Americans and everybody else has grown so much in that time? And they write checks to their representatives in Congress to ask for even more. This is even before we consider the fact that they're not being audited and that the tax code allows them write-offs to avoid paying any taxes at all.

So why did the Republican "Freedom" Caucus also suggest scrapping the income tax completely and replacing it with a 30% federal sales tax? Consider the social and economic arithmetic. The rule of thumb on rents and mortgages used to be that you shouldn't spend more than a quarter of your income on housing. That has been thrown out the window with rising housing costs and the average for working people is now about a third, with many paying even more. Let's pass that by without comment for now. It leaves our first family with $33,000 a year for everything else. If they spend it on necessities (which, of course, they must) it gets taxed, raising the cost to them by another $10,000 a year. However you parse this, it means either cutting their income to $22,000 or raising their expenses to $43,000 that they don't have.

And our second family? Well, again, they're mainly accumulating money; they're not actually spending more that a small percentage of the return on their wealth. consequently, that 30% tax is on a much smaller portion of their income, the part they're using on purchases. Even if we call that an extravagant million, the tax is now $300,000. This is a dramatic reduction (85% less!) even from the $2 million tax bill that we gave them with a very regressive flat tax above. Instead of the poor transferring $3 million a year to this wealthy family, the poor would now be responsible for a gift of almost $5 million.

If a flat income tax puts an unfair burden on those who can least afford it, then a flat sales tax is open robbery by the ultra-rich of everybody else. If a flat income tax is regressive, a federal sales tax is... I don't quite have a word strong enough.

There was never any chance such a sales tax would pass. The twenty Republicans who were holding up Kevin McCarthy's election as Speaker demanded a vote on it as one of the (many) concessions they extracted for their eventual support. He broke that promise immediately. It wouldn't have gained enough votes anyway. It certainly wouldn't have passed the Senate. So why bring it up?

Taking an extreme position and inserting it into the national consciousness is a way of moving the conversation in that direction. Ronald Reagan did not actually get a flat income tax. But by discussing it, our American oligarchs succeeded in changing the tax code to allow them to keep getting richer at our expense. The same strategy is moving us closer to gutting Social Security. Sometimes the tactic is to claim (falsely) that Social Security is bankrupting us. Sometimes it is to point at a bull stock market and con the gullible into thinking they could become rich if only they were investing their money instead of supporting their elders (who similarly supported their own elders throughout their entire working lives.) But whatever the short-term tactic, the long-term strategy is to end Social Security and impoverish the elderly. It may not happen today. It may not even happen totally. But the fact that we are discussing the previously unthinkable makes some part of it, at least, thinkable.

Our American reactionaries have motives of both ideology and greed for wanting to privatize everything, from highways to schools, from health care to policing. Their ideology of selfishness prevents them from seeing that there is any "we" at all. Why should anyone be responsible for anyone else's kids? Why should anyone be responsible for anyone else's medical crisis? But they also see a chance to cash in. House on fire? The privatized fire department pulls out a credit card reader before they connect their hoses and you're on the hook for a bill you simply cannot pay. Isn't that what the hospitals do already?

I write this only for myself, because nobody else will most probably ever see it. But I think about the people who proudly insist that they don't pay attention to politics. The man who encourages you to ignore politics has his hand in your pocket.