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On our Facebook page, Kevin from Pennsylvania asked about proposals he's heard in recent years in favor of a national sales tax. Given that such proposals generally try to exempt families of certain income levels, would these policies still be considered regressive?
It's a great question, Kevin. Proposals for a national sales tax often appeal to people who support the worthy goal of simplifying our tax system. In fact, a national sales tax wouldn't simplify our tax system, and it would bring with it considerable downsides. While many proposals include provisions to exempt low-income families, it's easy to imagine ways in which targeted refunds or credits would fail to reach all intended recipients. What's more, this kind of policy would be regressive even if it successfully offered credits to low-income people, because it would necessarily bring a tax cut for the wealthiest Americans, who spend the smallest share of their income on consumer goods.
So, to answer your question, Kevin, although most national sales tax proposals do include some means of refunding taxes to low-income families, those proposals would still make our tax code more regressive.
On top of all that, it's worth noting that we don't need to replace our income-tax system with something entirely different in order to simplify our (horribly complicated) tax code. What makes the U.S. tax code so complex is not the half dozen income-tax brackets, but rather thousands of pages of credits, deductions, and loopholes. Now, cleaning up those loopholes – there's a promising idea for tax reform.