THE SALES TAX

The inadequacy of the excess profits tax as means of raising revenue has led to the widespread advocation of the sales tax as a substitute. Its exponents point out that it is the only form of indirect taxation available for further extension; that it would easily afford a large income at a low rate: and that because of its wide distribution it would fall upon no single group. They point out further that the plan has worked well in other countries, notably in Canada and the Philippines. Their discussion of the subject is not a little complicated by the fact that there are two main forms of sales taxes proposed.

Of these, the "turnover" tax would assess every sale from the raw material to the final product at delivery. Since some articles pass through many more hands than do others, certain branches of industry must inevitably labor under a serious disadvantage. The "turnover" tax, moreover, would encourage the formation of combinations, to the exclusion of the small manufacturer and the middleman; it would tax concerns regardless of how profitable they are it is, therefore, not adapted to American business conditions. The retail sales tax, on the other hand, eliminates this difficulty by proposing to collect revenue upon the product at the final sale only. But from its very nature it is open to extreme evasion without a large corps of collectors.

The principal objection, however, to the theory of a sales tax is that it is regressive. Taxation of expenditure is advisable if not carried to an extreme; but in order to pay its bills the government would be forced to apply a rate that would shift too much of the weight of taxation to the consumer. In 1910, according to an article by Dr. Henry A. E. Chandler in a recent issue of the "Economic World", over seventy percent of the total consumption expenditures of the United States was made up of the expenditures of families with incomes of less than eighteen hundred dollars a year. A large revenue realized through a tax mainly on necessities and a few luxuries would impose too great a burden upon the man of moderate means.

The formulation of a tax adequate to the needs of the government and at the same time adapted to American society and industry is no easy task. It might be found possible to increase the normal tax rate and arrange some sort of adjustment between the assessments made on the corporation and on the privately-owned enterprise respectively. In any case, Congress will do well to utilize to the utmost the experience of taxation experts.