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Could a National Sales Tax Solve America's Debt Problem?

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Tax Activists Hold Tea Party Rally

Tax Activists Hold Tea Party Rally

Linda Lovelock/Getty Images
Updated December 02, 2010

Could a national sales tax help solve America's debt problem?

A group of economists, budget experts and former government officials exploring ways to sharply reduce the United States national debt thinks so.

See more: The Difference Between National Debt and Deficit

The Bipartisan Policy Center's Debt Reduction Task Force proposed in November 2010 to levy a 6.5 percent national sales tax, to be phased in over two years beginning in 2012.

The national sales tax, or "Debt Reduction Sales Tax," would generate an estimated $17.3 trillion in new revenue through 2040.

The national debt at the time was $13.7 trillion and growing.

Why a National Sales Tax

The Debt Reduction Task Force believes a national sales tax has several advantages over increases in the income tax or other taxes.

See more: Obama and the Transaction Tax

"It does not tax the return to saving and investment, so it will not provide a disincentive for long-run wealth accumulation or for the capital accumulation needed to generate economic growth," the task force wrote in its report.

"Unlike an increase in the corporate income tax rate, the sales tax does not provide an incentive to shift investment overseas," the task force continued.

"Because a sales tax is based on domestic consumption instead of production, preferences for some goods and services, unlike income tax preferences, will not affect the relative costs of producing different goods and services in the United States, and therefore does not place some industries at a competitive disadvantage."

The task force noted that there are national sales taxes in effect in more than 150 countries around the world, including all of the United States' major trading partners.

National Sales Tax on Top of State Sales Taxes

The Debt Reduction Task Force said its proposed national sales tax of 6.5 percent on goods and services would be levied on top of state sales taxes.

Consumers in 45 states and the District of Columbia already pay sales taxes of between 2.9 percent and 8.25 percent.

See more: Sales Taxes By State

The task force said its plan would offsets the burden of the national sales tax on lower-income families through enhanced tax benefits in the form of refundable credits for children and for the first $20,300 of each worker's earnings.

It is unclear whether the sales tax would apply to online purchases.

About the Debt Reduction Task Force

The Debt Reduction Task Force is chaired by former U.S. Sen. Pete Domenici, a Republican from New Mexico, and Alice Rivlin, a Democrat who was a founding director of the Congressional Budget Office.

The Debt Reduction Task Force is not affiliated with President Barack Obama's National Commission on Fiscal Responsibility and Reform. The Obama commission did not propose a national sales tax, saying such an idea would never pass Congress.

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