An online snap poll taken by AOL right after Alan Greenspan finished his testimony before the second meeting of the President's Advisory Panel on Federal Tax Reform asked the following question: "Is a national sales tax more fair than an income tax?"
Of the 14,953 votes tallied (before I cast my vote), 64 percent said yes.
Fairness, it seems, is in the eyes of the beholder.
Either the voters didn't understand the implications of the question, or many of the "yes" votes were cast by high-earners who saw the latest Treasury Fact Sheet. According to the Treasury, the top 5 percent of taxpayers pay more than half of all individual income taxes. For them, a national sales tax might indeed seem fairer than the progressive income tax we now have.
Moreover, according to the Treasury, not only did the top 1 percent of taxpayers pay 33.7 percent of all individual income taxes in 2002, since 1990 this group's tax share has grown faster than its income share.
A major objection to any form of consumption tax, including a sales tax, say critics, is that, compared to the income tax, it is patently unfair, hitting the poor and middle class proportionately more heavily than the rich.
Since the poor and middle class spend proportionately more than the rich, they say, they would end up paying proportionately more tax than the rich.
Nonsense, says Steve Entin, of the Institute for Research on the Economics of Taxation, who testified at the panel's first meeting. According to Entin, a consumption tax is fairer because it respects the efforts of people who work and save. Other advocates note that a consumption tax can be made progressive to shelter the poor by exempting items such as food and clothing, and by instituting different rates on non-essentials.
Likewise, Greenspan plugged the merits of a tax based on consumption, but cautioned that moving to a different system would raise a challenging set of transition issues.
One person not scheduled to testify at any of the panel meetings is Walter Anderson, said to owe over $250 million in taxes.
Mr. Anderson, currently incarcerated and awaiting trial on charges of tax evasion, would likely vote "yes" on the AOL poll. After all, wouldn't he have gladly paid his taxes if he were convinced of the system's fairness?
He might be able to offer the panel his own ideas on the best form of taxation for the panel to recommend. As one of the largest alleged tax cheats in the history of the planet, he would know what kind of system to avoid.
