THE AMERICAN RETAIL SALES TAX - CONSIDERATIONS ON THEIR STRUCTURE, OPERATIONS, AND POTENTIAL AS A FOUNDATION FOR A FEDERAL SALES TAX

Americans are familiar with the retail sales tax. Therefore, it is not surprising that Congress would consider such a tax as a way to tax co nsumption expenditure, should it choose to shift from the present fede ral structure that emphasizes income taxation. While the sales taxes a re impressive revenue producers for state and local government, the ta xes are poorly designed as consumption taxes: they tax too few househo ld services, they exempt too many household purchases of goods, and th ey tax too many business inputs, especially capital asset purchases. S tate and local sales fax rates are relatively low, so compliance appea rs not to be a major problem, and economic distortions, while real, ha ve not been a great difficulty. The much higher rates needed to replac e the federal income tax would create many more problems. Most nationa l governments choose the credit-invoice value-added tax if they seek s ubstantial revenue from an indirect consumption tax That is almost cer tainly a better option than the retail sales tax for a national indire ct consumption tax in the United States as well.