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In September 2004 I heard a discussion of taxation in the United States where it was stated that, on the average, 22% of the listed retail price in any store was due to taxes applied to an item from stage to stage as it travelled down the manufacturing and distribution pipeline. Many years ago I heard that when it comes to automobiles that figure was close to 60%.
If you account for the taxes that must be included in the selling price of an item produced by a farmer and rancher and baker then by the time all the lettuce, tomatoes, pickles, hamburger, buns, etc, get to a McDonald's there has been 600 different taxes applied to a Big Mac.
The point of telling you about that is that when it comes to the ability of the United States to compete economically in the international marketplace it is the method by which we collect taxes in this country that harms our competiveness. It isn't so much the amount we collect as it is the collection method we use.
That figure of 60% taxation on automobiles is a figure I ran across maybe 35 years ago. I have no idea if it accurate but it serve well to illustrate a point I want to make.
If the retail price of an automobile on the dealer's floor was $30,000, and the total taxes collected all along the manufacturing pipeline amounted to 60% of the sticker price then $18,000 of that $30,000 would be due to taxation and only $12,000 would be due to materials and labor.
Okay, now let's change our tax system to a system that only collects one type of tax..... a sales tax..... or a consumption tax. Under a system like this there are at least a couple of things that would happen that would be a tremendous boost to the US economy.
First, the government would receive no revenue until a sale had been made at the retail level. If our legislators wanted more tax revenue to fund their favorite programs this would place them in a position of having to see that business conditions improved, that more sales were made at the retail level, so that tax revenue went up. The additional benefit of this approach is that if business conditions improved wages and total employment would rise too.
Congressmen would then have to be much, much more careful before proposing a tax increase because any tax increase would have a detremental effect on jobs and the economy and would be very, very visible to the electorate. Because there are so very many ways to hide a tax increase that is something that just doesn't happen under our current system.
If a nation wishes to be competitive in the international marketplace it is in their best interest to heavily tax their exports so that foreign citizens will help pay our tax burden. Right?
WRONG! WRONG! WRONG! That's what we do here in the US but we are one of the few nations in the world who taxes their own exports. Even other nations who tax their products at various stages along the manufacturing pipeline usually remove them when their products are sitting on their docks waiting for export to the United States. Products made in the USA for export have the taxes that were applied all along the manufacturing pipeline included in their export price. INSANITY!
Now let's change our system to one where the only tax collected anywhere in the nation is a consumprion tax collected whenever a sale is made at the retail level.
To initiate this system we are going to apply a tax rate that would result in the government receiving exactly the same amount as it receives under our present "income tax" system.
Remember our $30,000 car I mentioned above. Under a consumption tax system you and I wouldn't notice much difference in the price of that car, or of anything else we buy. However, if no taxes had been applied to the price of that car at the various stages of the manufacturing pipeline, it could be sitting on a dock in the USA awaiting export carrying a price reflecting only the cost of materials and labor, i.e. $12,000. Think about it. Under a system like that we could be selling Cadillacs to the Japanese cheaper than they could buy their own Toyotas. Not only that but just think what a system like that would mean to the employment picture in this country. The only provision needed to make this export picture work is that we tell all other nations that whatever restrictions and fees they might place on our exports to their country will be matched exactly by restrictions and fees on their exports to this country. No fees and restrictictions on our products, no fees and restrictions on their products.
As things are now all a politician has to do to get more money for his/her favorite porkbarrel projects is to propose an increase in taxes, often hiding the proposal in bills that have not a thing to do with the projects they want to fund. Thus do our taxes rise without our knowing why.
Our legislators are very well paid and receive one heck of a lot of perks and retirement benefits. Isn't it time we at least required them to put some real work and effort into their jobs without them taking the easy way out and just saying over and over again, "more taxes, more taxes?"