First off, anyone making about $8 000 or less pays no income tax at all. A single income earner with a spouse or child can make almost $14 000 and pay no income tax. This doesn't include any other deductions other than the basic personal and elegible dependant. Add in other tax credits and the like as they apply, and you can earn quite a bit more and still pay no tax.
A person earning $10 000 only pays income tax on about $2 000, of which it is taxed at 16% (the lowest fed. tax bracket, up to about $34 000). That means he owes $320. If he was under 10% sales tax, he would likely have to buy about, say, $7 000 in taxable consumption, so he's paying $700. This more than doubles his tax payable. A single individual likely has to be at about $15 000 income before he's indifferent between a 10% sales tax and income tax. If the sales tax rate were 15%, he'd likely be indifferent at around $18 000. If he has a child or a spouse and is the only earner, it'd be much higher level of income before he's better off with a sales tax.
The reason I describe this as ripping apart their purchasing power is because a sales tax is added on to the price of a product, and in the case of the poor, whose purchases are almost entirely inelastic necessities, they will shoulder the entire burden of the tax, the suppliers won't hesitate to pass the price of the tax onto the consumer. In short, for the poor, their basket of goods will rise in price almost exactly the percentage of the sales tax, with no real gain in income tax recovered, since they usually don't pay income taxes at all. But as I said, Delvo, I based this on my knowledge of Canadian tax system, if the US system is fundamentally different, perhaps the same result would not apply.
While I was at Univ, I used to earn about $12 000 a year, more than enough for my basic personal and tuition credits to zero out my tax owing, so I simply requested to my employer that they not deduct any income tax from me. I left the CPP and EI, of course, but I didn't have a penny of income tax deducted from my paycheques. Are you saying that you do not have this option, Delvo?
There would still be some need for accountants, for businesses, and can always move on to other related fields. Even sales taxes need to be administered, there would still be an IRS, though not as big.
The greatest danger is running broke within a few years under a sales tax plan with no income tax. Income tax alone, both together, that can do the job of financing a country, but a sales tax under 8% probably wouldn't even pay the defence budget for one year.
Edited by Aric, 02 August 2004 - 09:57 PM.