Sales Tax is Antiquated and Stifles Economic Growth

I’m sure some liberal is going to say that I’m an tax-cut loving Republican without even reading this blog in its entirety or weighing my argument against his/her already set way of thinking about taxes…

Without getting to abstract… I really have been asking myself: What is the purpose of taxation on consumption?

To answer that, I first need to examine some existing taxes:

Taxes on the sale of gasoline make sense. We have public roads. The tax (in theory) should help cover the development and maintenance of those public roads. This seems like a logical. Short of making all the roads toll roads (which is riddled with all sorts of other problems that I’m not going to dive into on this blog), taxation on the consumption of gasoline for the purposes of paying for public roads makes sense.

Property taxes make sense as well. You own property and reap the many rewards of utilities, police, etc. You might be saying, “Wait! I also pay for my utilities.” That may be true, but those utilities are utilizing government property (e.g. land) to transport those utilities. The real issue at hand here is that as a property owner you are using government property that it could otherwise utilize. Hence, property taxes. This tax makes sense.

Sales Taxes… In the two examples above, you are utilizing government property to your benefit. However, in the case of sales tax on a car, tv, laptop, or any other product that a company produces with its own resources, sales tax doesn’t make sense. One can argue that the companies produce products using government property, but that argument is abundantly weak at best. The reality is that sales tax has no purpose other than that the governments found them to be a simple way to tax (and easily increase taxes).

I’m not going to argue that sales tax revenue isn’t used for government services that may be useful. What I’m arguing is that sales taxes have no solid foundation and, more importantly, greatly stifle economic development. In many counties in California, the sales tax is at or above 10% This means that all taxable sales are 10% higher than they really need to be. This means that we as consumers must pay an additional 10% over what the product actual costs us.

We aren’t talking about pennies here! Purchase a $20,000 automobile and it very quickly becomes $22,000. That’s an additional 10% that you have to pay for what? What are you getting for that 10%??? More importantly, what would you do if you didn’t have to pay that additional 10%? Certainly, not everything that we purchase has sales tax on it, but try holding onto your receipts for a year. Add up all the sales tax… That’s a lot of money! What could you have done with that money?

What if you took that extra 10% and put it into a savings account? What if you used the 10% to payoff your mortgage faster? What if you could put that 10% into a college tuition fund for your children? What if you could put that 10% into a fund for your health care later on in life? What if you could put that 10% into a retirement fund? That 10% is going to add up to be quite a bit of money very quickly.

Every sales tax you pay prevents you from spending or saving that much more money. The banks have less money in their reserves (theoretically leading to lower lending abilities) because the government is taxing you 10% Companies have less revenue because the government is taxing you 10% The only entity with more from the 10% taxation is the government.

To be fair, governments do provide jobs to people. However, governments are largely inefficient, and it’s hardly a good idea to count on the government to create jobs with that 10% when there are plenty of private companies that will do much better with creating jobs, innovative new products, and technological breakthroughs with that 10% Governments would be far better off not taking the 10% from their constituents and visitors and coming up with another method to gain tax revenue. I’ll save that topic for another blog.

In short, a sales tax is nothing more than punishing consumers and businesses for doing business.


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