Retail sales Tax Efficiency and Distributional Implications EXempting goods that are consumed intensively by the poor(such as food)can make the after-tax distribution more equal but achieving equality this way is difficult Many upper-income families still benefit Administrative complexity
11 Retail Sales Tax • Efficiency and Distributional Implications – Exempting goods that are consumed intensively by the poor (such as food) can make the after-tax distribution more equal, but achieving equality this way is difficult. • Many upper-income families still benefit • Administrative complexity
Retail sales Tax Some proposals for replacing income tax with a national retail sales tax Advantages include simplicity and compliance Rates would have to increase from the current 3-7% range to about 35% Benefits from cheating would increase grea atly 12
12 Retail Sales Tax • Some proposals for replacing income tax with a national retail sales tax. • Advantages include simplicity and compliance. • Rates would have to increase from the current 3-7% range to about 35%. Benefits from cheating would increase greatly
Retail sales Tax National sales tax creates transitional issues Those who had accumulated wealth under the existing income tax structure would suffer Accumulated wealth was taxed through the personal income tax Saved for future consumption which is now more expensIve Viewed in this light, such a tax is essentially a one-time tax on wealth 13
13 Retail Sales Tax • National sales tax creates transitional issues – Those who had accumulated wealth under the existing income tax structure would suffer. Accumulated wealth was taxed through the personal income tax. – Saved for future consumption, which is now more expensive. • Viewed in this light, such a tax is essentially a one-time tax on wealth