You Decide

…that making the transition to another tax system — like a flat tax or a national sales tax — would be dangerously disruptive to the economy?

Dropping our income tax system in favor of a flat tax or a national sales tax would, in the words of one expert, be like “hitting the brakes when the kids don’t have their seat belts on.”

Here’s how one skeptic of tax reform envisions a transition to a national sales tax going down: "Before the new tax goes into effect, Americans would be motivated to buy as much as they could, far beyond the exchanges that would occur in the natural market. This would cause shortages, price increases and the perfect atmosphere to blame economic problems on the “laissez-faire” tax reformers. Once the tax [were] implemented, buyers and sellers would be penalized a hefty 20 percent or more on each exchange. This would discourage trading on the market, and instead incite people to become more economically self-sufficient. The division of labor on which civilization relies would suffer a major blow, as economic activity became far more atomized than optimal in a free market. Furthermore, older folks who saved for their retirement and paid taxes on their income their entire lives would suffer a whole new assault on their livelihoods.”

Another argument against shifting to a national sales tax centers on the rate. What if the rate were set too low? Then we'd be in a pickle, without enough money to pay for Medicaid, the military, highways.

Ultimately, the biggest risk with transitioning to another tax system is that there is no way to anticipate the myriad, tricky ways in which it could wreak havoc on the economy. Some critics of tax reform point to how the 1986 tax reforms — which didn't even completely overhaul the tax system, but rather tweaked it — caused enormous problems in the automobile industry. When the tax law changed regarding deductions on cars used for business, automobile sales plummeted, costing more than 200,000 jobs. A complete overhaul of the tax code could trigger the collapse of particular industries, halt economic growth and even trigger a recession.

The bottom line is that we don't know and can’t anticipate what lies on the other side of tax reform. It's simply too risky.

…that federal income taxes punish savers and individual fiscal responsibility? It encourages people to spend rather than save.

Take, for example, a family earning $40,000: This family is taxed once on their wages and salaries before they even see their paycheck. Then imagine that this family manages to save $150 per month and invest it. What happens? They’re taxed on the interest and dividends that they earn on their savings, making those savings less rewarding.

But if instead they spend that $150 — on Gameboys, Twinkies or a trip to Red Lobster — that $150 isn't touched by the federal tax system.

As one source put it, “Double taxation penalizes saving and investment, thereby making it harder for families to save for their children's education and for their own retirement.”

As the saying might go, “a penny saved is half a penny lost…” Why save when you're punished for it by the federal income tax system? And given the crisis this country is facing in terms of insufficient retirement plans and faltering Social Security, the last thing we need is a system that discourages saving.