How much would a national sales tax have to be to replace the income tax?

I let GPT-4o take a stab at this; forgot to include it in last post

100 dollar bill

This is just a first-order approximation. See the previous post below for analysis.

Via GPT-4o:

To replace income tax revenues with a national sales tax, we would need to calculate the tax rate that would cover the amount currently collected through federal income taxes. Here's a step-by-step breakdown of the main factors to estimate this:

1. Federal Income Tax Revenue: For 2023, the federal government collected approximately $2.8 trillion from individual income taxes. This number varies by year, depending on economic growth, employment levels, and tax rates.

2. Total Consumption Expenditures: In 2023, U.S. personal consumption expenditures (PCE) were about $18.8 trillion.

3. Calculating the Sales Tax Rate:

   • To replace the $2.8 trillion collected from income taxes, we’d divide that amount by the total consumption expenditures, then convert to a percentage.

   • Calculation: (2.8 trillion/18.8 trillion)×100%≈14.9%(2.8 \text{ trillion} / 18.8 \text{ trillion}) \times 100\% \approx 14.9\%(2.8 trillion/18.8 trillion)×100%≈14.9%

So, a national sales tax rate of around 15% on all goods and services would be required to replace federal income tax revenues if applied across all personal consumption expenditures.

Important Considerations:

• Broadened Base vs. Exemptions: If certain essentials like food, healthcare, or housing were exempted, the rate would need to be higher, possibly 20% or more, depending on the exemptions.

• Behavioral Changes: Such a high sales tax might reduce consumption, requiring adjustments in the rate to compensate for lowered spending.

This scenario is purely theoretical, as the actual rate would depend on policy details, exemptions, and economic responses to a national sales tax system.

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Pray for peace!