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A national sales tax.

ONE OF THE ITEMS ON FORMER Gov. Mike Huckabee's platform when he ran for the Republican presidential nomination was a national sales tax.

It didn't get anywhere, but he's still championing the idea.

And now, with the federal government deeper in debt than ever before, a national sales tax is getting another look as a possible way to raise money to pay for the trillions of dollars in debt and for national health care coverage.

In the past, any thought of a national sales tax was, well, unthinkable. That has been because it is considered a regressive tax.

To make the idea more palatable, politicians often refer to it as the "fair tax." And in a sense, it is. Everyone pays the same tax, whatever that percentage may be. The downside--and it's a big one--is that it hits the poor far harder.

A sales tax is essentially a tax on consumption. Because low-income families spend almost every penny they earn buying just the essentials needed to live, they would pay a higher proportion of their earnings in taxes than those who are richer. That makes it regressive.

A progressive tax system means that those with higher incomes pay a higher proportion of their income in taxes.

An article in The Washington Post last week said the Obama administration is studying the money-making issue and already the word is out that a sales tax may be just the thing. Simply put, "Obama wants to raise income taxes for high earners and impose new levies on business, but those moves would not generate enough cash to cover the cost of health care, much less balance the budget, and they have not been fully embraced by Congress," the article said.

What the administration is talking about is actually a value-added tax, which has the effect of a national sales tax but is a bit different. A sales tax, such as we have in Arkansas, is added at the point of sale. A value-added tax is imposed on goods and services at each stage of the production process so no one gets off without paying the tax. The end result is the same--higher prices for the goods that we buy.

The VAT is the most popular tax in the world, with most nations, especially in the industrial world, levying it. To keep it from being so regressive, many countries exempt necessities such as food, housing and medical care.

We're not convinced it's such a great idea. One only has to look at Arkansas, which relies heavily on its sales tax to fund much of the operation of the state government.

Because it is based on consumption, when consumers stop spending, as they have during the current recession, revenue collections suffer.

It's quickly becoming obvious that, despite Obama's promises, the tax burden on Americans will be growing, not getting lighter. Heaven forbid that any of the government spending programs be cut.

The fact is that any and all of the tax proposals have their pros and cons. That puts a big burden on Congress to do the best it can to make the tax system fair and not cause an uprising among those who would vote the lawmakers out of office.

Don't look for a national sales tax until after the next elections.
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Title Annotation:Editorial
Publication:Arkansas Business
Date:Jun 1, 2009
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