Federal sales tax solves all federal woes

By Shane Cronin

The number one reason conservatives are opposed to illegal immigration – other than the obvious fact it is against the law – is money. Illegal or undocumented immigrants do not pay taxes other than state sales taxes. This accounts for only a fraction of tax revenue, however, and ranges from being only 5 to 7 percent of the goods.

The jackpot is in the federal income tax. Even those who live at the federal poverty level qualify for an income tax of up to 15  percent, excluding any state level income taxes that may apply. But because illegal residents do not have social security numbers, they cannot work on the books,  and therefore, do not pay this tax.

            There is a possible solution for bringing in the estimated 11.5 million or more unauthorized people onto the U.S. tax rolls: a value added tax (VAT). A VAT is essentially a sales tax on goods and services, however, it would be imposed by the federal government rather than at the individual state level. The VAT, like the state tax now, would most likely apply to all items with few exceptions: necessities such as food and clothing as well as home buying. The VAT would stand somewhere between 20 and 30 percent. For example, if one bought a $100 television, a VAT of 25 percent would increase the cost of the item to $125.

            At first glance this seems outrageous. But consider this: in addition to introducing a VAT, the feds would repeal the federal income tax. For those of you whose parents jointly make  $34,000  to $137,700 a year, the government receives 25 percent of it.

            According to a 2009 Pew Hispanic Center study, 170,000 undocumented immigrants work under the table in Nevada. That is more than 12 percent of the entire state’s workforce and more than double the national average. Imagine the revenue both the state and federal governments could generate by operating with a VAT rather than an income tax.

            Currently 130 countries worldwide employ some form of VAT. It is particularly popular in Europe, where countries like Finland, Iceland, Sweden and Norway use one. The U.S. under the Obama administration has paid mild credence to the idea of a nationwide sales tax. Last year the White House Budget Director hired a consultant to explore the new revenue option. In addition, former chairman of the Federal Reserve, Paul Volcker, has acknowledged the potential in a VAT. And with the nearly trillion dollar healthcare legislation now the law of the land, the U.S. needs a new well from which to draw water.

            Referring to one of my earlier points, it is vital that if a VAT is to be enacted, the federal income tax must be repealed, or at the minimum, most Americans must be exempted from it. Many ultra-liberal democrats would be too happy to impose a VAT and maintain the federal income tax to fund and continue major spending. I would argue that the nation’s highest earners could be subject to an income tax as well as a VAT, but at a considerably lower rate than the present 35 percent.

            It is uncertain how a VAT would play out politically. President Obama repeatedly pledged while campaigning not to increase taxes on any family making less than $200,000 annually. The White House could market that establishing a VAT, while simultaneously abolishing the federal income tax, is simply modifying the method of taxation, not increasing it. Obama could also pander to Republicans that a VAT would help curb the adverse economic impact of illegal immigration. And exempting food and clothing would provide some cushioning to the poor.

            A VAT could prove a fruitful campaign platform for innovative 2010 Senate and Congressional candidates. Perhaps even a 2012 presidential hopeful could adopt the idea.

            Politics aside, America is in a precarious financial situation. The result of healthcare reform is ambiguous at best and catastrophic at worst. Deficit projections are absolutely bleak, forecasting into the trillions. The United States Treasury borrows 46 cents for every dollar it spends, largely from China. This is unequivocally unsustainable fiscal policy.

            No doubt the VAT has its critics and skeptics, but outright dismissing it as the future tax model in the U.S. is premature. Unfortunately, there aren’t enough pro-VAT and anti-income tax enthusiasts in power. One could argue that jacking up the price of goods during a recession is insane. One could also argue that enforcing a healthcare bill on American people who largely don’t want it, and have no way to pay for it, during a recession is insane. But it can be done.

             Shane Cronin is a Collegian columnist. He can be reached at [email protected]